Government Affairs

Jester King Brewery Wins the F.X. Matt Defense of the Small Brewing Industry Award at the 2014 Craft Brewers Conference
Ron Extract of Jester King accepted the award on behalf of the brewery.  His acceptance speech is provided below:

“Thank you very much to everyone at the Brewers Association. The award came as a complete surprise, and we’re extremely humbled and honored to accept it. We’d like to thank our attorneys who represented us in our lawsuit against the Texas Alcoholic Beverage Commission — Jim Houchins of The Law Office of James O. Houchins and Pete Kennedy of Graves, Dougherty, Hearon & Moody, P.C., as well as our co-plaintiffs Authentic Beverages Co. and Zax Restaurant and Bar. It was Jim Houchin’s idea to challenge some of the unjust, antiquated laws under which we were being forced to operate. He and Pete Kennedy not only helped to change these laws, they also paved the way for further legislative change that would follow, as a result of the continued efforts of the Texas Craft Brewers Guild and its leaders, to whom we owe a tremendous debt of gratitude.

As hard as many of us are working to modernize our legal and regulatory structures, there are also those, often with a good deal more resources at their disposal, who are working equally hard to hold us back. Last year, Texas breweries gained the right to sell beer directly to consumers and Texas brewpubs gained the right to distribute off site. But, thanks to the efforts of a powerful distributors lobby, we also lost the legal right to receive compensation for one of our most valuable business assets, our territorial distribution rights — an asset that distributors routinely and legally sell to one another for millions of dollars. Distributors often speak about investing in our brands, yet the distributors who were behind this effort seem to feel that the investments that brewers make in their own brands are literally worthless. What’s perhaps even more astounding, though, is that even as these distributors lobby against our interests, other craft brewers continue to sign on with them.

For those of you who have distributors that you like, and whom you feel genuinely support your interests — and there are definitely some very good ones out there — please encourage them to work together with us to bring about the change we need, and to speak out against those that would hold us back. If you have distributors who do not support our collective interests, or even actively lobby against them, call them out, and hold them accountable. Remind them that the money from selling your brand is helping to pay their bills. And when seeking new distribution, please consider where your prospective distributors stand, what sort of lobbying efforts the money from your brand would support, and what recourse you would have, should that relationship ever go awry.”

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On April 3, 2014, Texas Craft Brewers Guild board member and owner of Freetail Brewing Company, Scott Metzger, addressed the Texas House of Representatives Economic Development Committee.  Below, please find the transcript of Scott’s testimony.  You can view the archival footage of the testimony here.

 

Texas Craft Brewers Guild Testimony – Scott Metzger
House Economic Development Committee April 3, 2014

Mr. Chairman, members of the committee, my name is Scott Metzger and I’m here today on behalf of the Texas Craft Brewers Guild. I want to thank you for the opportunity to talk with you about some of the impediments to attracting venture capital to our growing industry.

First, let me say that there’s never been a more exciting time for Texas craft beer. Craft beer is one of the great growth stories in the Texas and world economies right now and the growth you see today is only the tip of the iceberg. Despite this mostly organic success, we have only seen a few instances of venture capital investment in breweries around our state. For the most part, start-up breweries in Texas still must find access to capital from traditional sources—friends, family, banks—not venture capital or investment angles. And attracting a new stream of investors to our industry would add to the economic boom we’re helping create in Texas.

Ten years ago, there were less than 10 small production breweries operating in the state. Today, there are 75, in addition to 62 brewpubs¹. The Brewers Association estimates an economic impact of the craft brewing industry in Texas at $2.3 billion annually, and some projections see that potentially climbing to $10 billion over the next decade. And thanks to the laws enacted by the 83rd Legislature, the trajectory for the industry in Texas has never looked better. Because of those reforms, our existing brewers are expanding and new breweries are locating in Texas. But this explosive growth is placing a strain on capital formation within the industry.

I’ll make a bold prediction before you here today: Over the next ten years, you will not find a more dynamic growth sector of the Texas economy than ours.

There are only two limiting factors where that potential is concerned: First, start-up breweries ability to find access to capital and second, the ability to fairly compete with like businesses in other states. Those two things go hand-in-glove together.

Opening a brewery is an incredibly expensive proposition. It requires a huge amount of industrial space, plenty of labor, and lots of specialized, heavy, expensive equipment—Mash and lauter tuns, kettles, fermentation tanks, depalletizers, bottling lines, canning lines, case erectors, case fillers, etc. There are no hard averages, but anecdotally I can tell you that I’m opening a new facility in San Antonio and the cost associated with that is $2.5 million.

After pulling together business plans, talent and financing, we still have to make, market and sell our product. This is where the highest hurdles lie in wait. Despite the quality of the product we produce—and let me assure you that Texas brewers are making some of the best beers in the world—we are still encumbered by restrictive franchise statutes, a regulatory scheme that restricts our ability to sell and market our products and in one particularly egregious instance, to realize any of the actual value of the brands that we have created.

These facts limit Texas brewers’ available revenue streams, limit our ability to compete with breweries outside of our state and diminish our fundamental enterprise values. Let me make this point precisely clear: A Texas business would have greater value if it were regulated, for instance, by California’s laws. Take a minute to digest that.

To name a few others, states like New York, Washington, and Colorado are all running laps around Texas when it comes to the subject of creating 21st Century marketplaces where breweries have much greater latitude to grow their businesses and make profits. And ultimately, where investors are concerned, profitability is where their decision-making process begins and ends.

This simple fact dramatically impairs Texas craft brewers’ ability to attract venture capital. As investors evaluate investment opportunities, let’s not kid ourselves, they’re looking at one thing: a deal’s potential relative to the next. The restrictions the State of Texas places on our businesses dictate that it often makes better economic sense to deploy capital in a different state.

Thankfully, Texas brewers or would-be brewers have a big thing going for them: They’re in Texas. Smart money wants to be here. And in general, Texas is an easy place to make a dollar. Low taxes, a booming economy and a stable, sensible regulatory environment outside of the alcoholic beverage code make this a good place to do business and invest capital.

Also let me add that the Texas Craft Brewers guild is thankful for the reforms enacted by the 83rd Legislature. Those represented the most sweeping overhaul of the Texas Alcoholic Beverage Code in the past 20 years. But I’ve often joked that in so doing, they dragged Texas alcoholic beverage regulation kicking and screaming from the 1930’s to the 1970’s.

As you spend this interim looking at your charge as to how you might improve Texas’ ability to attract venture capital investment, it’s our hope that the Legislature will consider how Texas might continue its progress toward building an alcoholic beverage regulatory structure that is equitable, functional, relevant to the modern marketplace and allows Texas brewers to compete on a level playing field with those in other states.

Mr. Chairman, thank you for the opportunity to speak to you today. May I answer any questions?

¹As a point of reference, there are 202 unique distribution companies in Texas who hold at least one license that gives them the authority to distribute malt beverages. 

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