While Texas is often held up as a paragon of economic freedom and opportunity, we still have our fair share of cumbersome regulations and laws restricting free enterprise. A good example of this can be found in the laws regulating the production and distribution of alcohol. Most recently craft beer brewers have been assaulted by a new law which seeks to suppress the growth of this growing market.
Pursuant to the Texas Alcoholic Beverage Code, within each particular territory, like a county or a city, brewers must select only a single distributor for their product. Prior to the passage of Senate Bill 639, now codified as Texas Alcoholic Beverage Code §102.75(a)(7), brewers were allowed to sell these territorial rights to a distributor and negotiate their value in an open market. However, under the new law brewers who enter into a contract with a distributor are forced to surrender those rights without any compensation.
Cutting off this source of revenue prevents breweries from hiring more workers, increasing production, and otherwise growing their business. Stifling the operation of this market runs contrary to the culture of freedom in Texas that has led to our recent prosperity.
Even worse, the distributor can turn around and sell the territorial rights they acquired to other distributors for profit, and brewers who want to reacquire their territorial right have to purchase them from the distributor, assuming the distributor allows this. Brewers who violate this law run the risk of losing their license to produce alcohol, essentially forcing them out of business.
Over the last several years craft beer has been carving out a bigger and bigger piece of the beer market, with many consumers switching from mass produced beers like Budweiser and Coors to more local and artisanal brews. Sometimes called the craft beer renaissance, this change in the market holds great potential for brewers to expand their business, but threatens the power of beer distributors who rely on mass produced beers to make up a large portion of their profits.
Instead of trying to adapt to a changing market, distributors petitioned legislators to enact a law to curb the growth of the rising craft beer industry. This law represents government interference in the marketplace at its worst, blatantly favoring one group at the expense of another.
Fortunately several craft breweries are fighting back and, in December of 2014, three Texas craft breweries filed a lawsuit against the Texas Alcoholic Beverage Committee in order to repeal this law. Hopefully they will succeed and the courts will recognize that it is not the role of government to pick winners and losers in the marketplace.
Samuel Barr is an intern in the Center for Economic Freedom at the Texas Public Policy Foundation.