Craft Brewer Raises Beer to|Constitutional Level in Texas

AUSTIN, Texas (CN) - Texas lets wineries and distilleries sell their bottled drinks to take home - everyone can do it but beer brewers, a craft brewer claims in a constitutional complaint in Federal Court.

Deep Ellum Brewing Company sued the Texas Alcoholic Beverage Commission on Monday, for its right to equal protection and due process.

Deep Ellum, an east side neighborhood in downtown Dallas, was one of the city's first commercial districts for African-Americans and European immigrants. Today it is known as an eclectic arts and entertainment district.

Deep Ellum Brewing, founded in 2011 by John Reardon, sells eight kinds of beer year-round, including India Pale Ale and stout, and seasonal brews such as coffee ale.

In its "beerfesto," Deep Ellum pledges to "let our beer do the talking" and "to never serve a single glass of bad beer."

It has launched a crowdfunding Internet campaign seeking $50,000 to help it sue Texas to change the law that discriminates against craft brewers.

Craft breweries, or microbreweries, generally sell beer with more flavor and more alcohol than what they characterize as watery, American-style beer.

The U.S. industry has grown tremendously in recent years, from virtually nothing a generation ago to 18 percent by volume and 22 percent by dollars in 2014, according to industry publications. U.S. microbreweries have grown by 10 percent a year for 10 years, forcing even giant brewers to try to compete with them.

Craft brewers employ more than 420,000 people today, and are estimated to contribute more than $2.3 billion a year to the Texas economy alone.

"But its growth has been hampered by Texas' illogical patchwork of liquor laws, including laws improperly treating beer brewers like Deep Ellum Brewing differently than other alcoholic beverage producers," the complaint states.

Here's where it gets complicated.

Texas has a three-tier system for alcoholic drinks: manufacturers (e.g., brewers, wineries, distillers); wholesalers or distributors; and retailers (e.g., bars, restaurants, liquor stores).

State laws prohibit overlapping of tiers, so a distributor ordinarily cannot also be a retailer, and vice-versa.

Texas law divides beer producers into two types, those with Manufacturer's Licenses and Brewer's Permits, versus those with Brewpub Licenses.

The state defines a "manufacturer" as one that produces malt beverages, i.e. beer, with no more than 4 percent alcohol by weight, while a "brewer" produces ale or malt liquor, which has greater than 4 percent alcohol by weight. A producer may have both licenses.

(Until the growth of craft beers forced giant brewers to change, virtually all the giant brewers' beer contained less than 4 percent alcohol. So-called 3-2 beer, with less than 3.2 percent alcohol, was a misnomer, as even "regular" beer generally had no more than 3.2 percent alcohol, and 3-2 beer far less than that. Craft beers today often have 6 percent, 7 percent and more alcohol.)

In Texas, producers with Manufacturer's Licenses and Brewer's Permits are not allowed to sell beer, ale or malt liquor on-site for off-premises consumption. But a producer with a Brewpub License alone is allowed to.

A beer producer can obtain a Brewpub License only if it produces no more than 10,000 barrels of malt liquor, ale and beer annually for each licensed brewpub. And a brewpub cannot be a manufacturer or brewer.

Holders of Winery Permits or a Distiller's and Rectifier's Permits can sell their products on-site for off-premises consumption.

According to the most recent TABC statistics, there are 41 holders of active Manufacturers Permits, 94 with Brewers' Permits, 113 Brewpub Licenses, 373 Winery Permits, and 78 with Distiller & Rectifier Permits.

Deep Ellum Brewing, which sold 12,500 barrels of beer in 2014, cannot sell a six-pack or keg of beer to a customer at its brewery to take home to drink. But the customer would be able to visit a brewpub, winery or distillery and buy products to take home.

"Deep Ellum Brewing has lost and continues to lose business (and resulting profits) because it cannot sell its product on-site for off-premises consumption," it says in the complaint.

"Texas law's prohibition on Deep Ellum Brewing's selling its product on-site for off-premises consumption hinders Deep Ellum Brewing's ability to grow and expand its business, and creates an economic hardship to Deep Ellum Brewing."

Because it brews more than 10,000 barrels of beer annually, Deep Ellum cannot obtain the Brewpub License allowing it to sell beer to take home.

"Deep Ellum Brewing should not be forced to severely curtail the amount of beer it sells - and its profits - to become a Brewpub in order to avoid the current ban on on-site sales for off-premises consumption," the complaint states.

"There is no rational basis for this differential treatment of alcoholic beverage producers. These distinctions are neither rationally related to any legitimate or valid government interest, nor do they further one."

Brewery founder John Reardon told Courthouse News, "We would have to cut our production by more than half" to qualify as a brewer.

Deep Ellum launched "Operation Six-Pack to Go" crowdfunding on Indiegogo to pay for the lawsuit and to "stand up for the rights of consumers and microbreweries."

"We have taken legal action against our otherwise great state and we are asking craft beer lovers, both near and far, to support this cause," Reardon said.

The TABC told Courthouse News it cannot comment on pending litigation.

Deep Ellum seeks declaratory judgment that the portions of the Texas alcoholic beverage code that prevent it from selling its products on-site for off-premises consumption are unconstitutional, and an injunction stopping the state from enforcing these laws and imposing fines or other penalties.

It is represented by Kelly Stewart and Jeffrey Levinger in Dallas.

Deep Ellum says it's already got expert witnesses lined up for trial, one of them a former general counsel for the TABC.

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