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Thursday, April 22, 2021

Texas Brew: State changes could benefit distillers, brewers

Todd Gregory doesn’t mince words when it comes to challenges of operating a craft spirits distillery.

“It takes a long time and a lot of money to get a distillery to the point that it is self-sustaining,” said Gregory, co-owner of BlackEyed Distilling Co., which produces award-winning BLK EYE Vodka and a whiskey in a converted historic firehouse in Fort Worth’s Near Southside.

But time and money are only a part of the uphill battle that Gregory and others in the Texas craft spirits industry face. Then there is heavy regulation that the state imposes on alcoholic beverages that critics see as antiquated and harmful to growth of the burgeoning craft distilling industry.

So distillers like Gregory have joined craft brewers in the battle to change laws and lift detrimental restrictions during this session of the Texas Legislature.

More than 100 alcoholic-beverage bills have been filed this session, according to one industry trade group. How far some advance remains to be seen.

The Texas Craft Brewers Guild, with more than 250 members, could prevail in removing obstacles to selling beer to-go from breweries. The guild has reached an agreement with Beer Alliance of Texas, a lobby group representing beer distributors, which could allow brewers to sell up to two cases per person per day in some places.

The Wholesale Beer Distributors of Texas, a powerful lobby group also representing beer distributors, has not signed onto the proposed agreement.

Craft brewers are miffed that wineries and distilleries have more rights to sell products to-go than they do. Texas is the only state that denies craft brewers the ability to see directly to customers from their breweries, they say.

Texas law allows distillers to sell two bottles per person per month, up to 3,500 annual gallons per year, from their distilleries.

The Texas Distilled Spirits Association, a trade group of craft distillers, want to raise to raise that limit so distillers can sell two bottles of each product they manufacture within a month.

Legislation known as the “Bottle Bill” has been introduced in the House and Senate. This bill tops four key bills distillers are lobbying for this year

“We’re not encouraging raising the 3,500-gallon cap,” said Mike Cameron, president of the distilled spirits association. “We’re a young industry and most of us manufacture only one or two products.

“We just want to be able to sell more to get closer to the 3,500-gallon limit,” he said.

For a fairly new industry, Texas has one of the larger craft distilling operations in the country, ranking behind California and Florida, according to the distilled spirits group. About 140 distillers are operating in Texas, Cameron said.

The distilled spirits group is conducting an economic impact study to determine its value and impact as a Texas industry. The latest data from 2015 showed that the industry created 46,733 jobs and paid $472 million in state and federal excise taxes that year.

The industry has grown substantially since the mid-1990s when Tito Beveridge discovered a loophole in state alcohol laws and opened a micro-distillery in Austin. Tito’s Handmade Vodka is the oldest and largest craft distiller in Texas and now has a worldwide reach along with market cache.

Despite growth and success, Texas Craft brewers and distillers share the similar complaint: the state’s regulatory system based on a three-tier system that separates the functions of manufacturers, distributors and retailers unfairly favors distributors (or wholesalers) and retailers.

The agreement between the craft brewers guild and Beer Alliance of Texas is an indication that change might be occurring.

Cameron said bringing the various parties in the regulatory system together would benefit everyone.

“We want to be able to reach an agreement with distributors,” said Cameron, co-founder of Rebecca Creek Distillery in San Antonio and owner of Devils River Whiskey that is produced from water drawn from the Devils River in Southwest Texas. “We’re asking to be able to sell more expressions but not a larger amount.

“If a distillery reaches its limit of 3,500 gallons in July, that’s it for the year,” he said. I think it is a promising year for us.”

One bill that shows potential for success is the known as “sampling of product,” co-sponsored by GOP Sen. Kelly Hancock of North Richland Hills and in the House by GOP Rep. Charlie Geren of Fort Worth.

This legislation would allow a distiller to directly offer product samples to a retailer, restaurant or hotel without the presence of a wholesaler.

Gregory said this legislation is critical for helping smaller distilleries like BlackEyed to build its brand.

“How are customers who don’t know about us, going to have the knowledge to choose us?” Gregory said. “There are a lot of brands out there so it’s important for local distilleries to be able to introduce their products to local bars, restaurants and liquor stores.”

Ricky Knox, executive officer of Wine and Spirits Wholesalers of Texas, acknowledged that the lobby organization has had ongoing discussions with Gregory and the distillers group over legislation, particularly the product sample bill.

“There were over 100 alcohol-related bills introduced this session,” Knox said. “We’re just now reviewing them so we are not ready to take a stand yet.”

But negotiations between the two sides have touched on logistical changes to state liquor laws, such as transporting of product samples, that would need to be made to move the legislation forward, said Knox, whose group represents the lobby interests of national heavyweights such Southern Glazer’s Wine & Spirits and Republic National Distributing Co., both based in Texas.

“We are going to do everything we can to support that bill,” Knox said.

Texas Package Store Association, a lobby group representing alcoholic beverage retailers, does not support changes to state law.

“Texas Package Store Association opposes any legislation that would dilute the three-tier system in Texas, the organization said in a statement. “The three-tier system provides important safety protections against tainted alcohol, including the tracking of the manufacturing source for alcohol and ensures competition that keep prices down and offer consumers access to products that would otherwise not be available.”

Article includes content from the Texas Tribune.

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