85th Texas Legislative Session Liquor Law Update

Dear Friends:

We're willing to bet that, by now, you've heard that we've had a season of heavy legislative weather here in Austin, and we bet you've been wondering just what happened to liquor law during the storm. As usual, the answer is somewhere between not much and a whole lot. Let us tell you all about the highlights.

What Passed

Session after session, the most legislative attention and activity is directed to the question of what licensees/permittees ought to be allowed to do and what they shouldn't be allowed to do. In this area, most of the yelling - and press coverage - has been about House Bill 3287, otherwise known as the Beer Distributors' Revenge.In 2013, manufacturers of beer and ale enjoyed a positive revision of their rights to sell to retailers and consumers. While breweries had the right to self-distribute their products reduced from 75,000 to 40,000 barrels annually, they were authorized to sell up to 5,000 barrels for on-premises consumption in their taprooms. This right to sell for on-premises consumption was denied to large-scale producers at locations where they produced 225,000 barrels or more annually. That limitation has now been potentially expanded by including production of the manufacturer at all breweries it owns, as well as the production from any brewery owned by an affiliate or subsidiary of the manufacturer. We think only production in Texas at premises owned (not leased) by the permittee or its affiliate can be counted towards the 225,000 barrel restriction. If TABC interprets the language more expansively, this bill will greatly reduce the value of craft breweries in a sale to a large-scale producer and will limit their growth potential.Exceptions to the on-premises sale of beer and ale limitation are provided for permit holders that owned a manufacturing facility with on-premises sales on February 1, 2017 or that meet other convoluted criteria, but these manufacturers are required to enter into a territorial agreement with a distributor and purchase the product manufactured and sold for on-premises consumption at their brewery from that distributor (even though it never leaves the brewery!).As noted above, brewers who currently produce less than 125,000 barrels of beer and ale at a single licensed premises are allowed to self-distribute up to 40,000 barrels of that production. HB 3287 greatly limits that right by requiring the inclusion of production from all breweries that the brewer owns, as well as those owned by any affiliate or subsidiary, in the calculation of the 125,000 barrels.Another exception removes qualified breweries from the broadly defined 225,000 barrel cap for current on-premise sales, but goes on to limit their ability to establish additional taprooms to two, both of which will be subject to the requirement to purchase products sold in those taprooms from a distributor.House Bill 3287 became law without the Governor's signature despite a campaign to procure a veto.In something of a surprise, House Bill 2097 loosens the regulatory grip on brewpubs. At least a little. We think so anyway. In current law, Sec. 74.08 of the Code prohibits a brewpub that wants to self-distribute from selling wine and having guest taps. House Bill 2097 changes this to clarify that a brewpub can sell wine and also self-distribute so long as the brewpub does not have guest taps. We're sure that's an improvement.Speaking of improvements, House Bill 2299 has changed the standard of pre-market testing of malt beverages. This amendment mandates that prior to introduction into the Texas market, malt beverages must be tested for alcoholic content by an "independent" (replacing "reputable") lab, a TTB-certified lab, or TABC. Before approval, the TABC may require proof that the testing lab is no foolin' cross our hearts "independent."House Bill 3003 started life as an amendment giving upper tier members of the malt beverage industry the right to treat consumers to an "experiential dinner." It ended up expanding the right to award prizes to consumers by sweepstakes. Sweepstakes prizes may be food, beverages, entertainment, recreation, gifts or attendance at a private event. Sweepstakes may be conducted, and prizes awarded, on retail premises. Curiously, the holders of Nonresident Brewer's Permits are not among the manufacturers and brewers that may conduct promotional sweepstakes. Additionally, while attendance at a private event on a permitted or licensed premises may be awarded as a prize, the name or location of the premises of the private event may not be mentioned in any advertising related to the sweepstakes, making it difficult to promote the sweepstakes. If such a private event is utilized as a prize, the sponsoring upper tier member must pay market value for use of the retail premises and the retailer must remain in control of sales and service of alcoholic beverages.Senate Bill 371, filed by Austin's own Kirk Watson, has removed failure to have restrooms and running water as grounds for TABC to deny an application for wine and beer retailer permits and licenses, leaving this regulatory matter up to the local authorities.House Bill 2101 changes the requirement for Food and Beverage Certificates somewhat. These changes apply uniformly to all retail permits and licenses authorizing on-premises consumption. To qualify for a Food and Beverage Certificate, the holder must demonstrate, and maintain, that 60% or less of the establishment's receipts are derived from the sale of alcoholic beverages. The establishment must have "permanent" food preparation facilities for the preparation of multiple entrees for on-premises consumption. Concessionaires at public entertainment facilities are exempt from this requirement. Certificates can be denied or cancelled at any time on a finding of intentional violations of these standards. A denied applicant must wait a year before re-application.You might be thinking that we have enough licenses and permits in the Alcoholic Beverage Code, but you'd be wrong about that, because the Legislature added two new ones. The first one is a Water Park permit, created by a new Chapter 56 of the Code (Senate Bill 1176). If you want one you have to hold between two and five Wine and Beer Retailer's Permits located in a water park, or within one mile of a water park, located on the banks of the Comal River. If you qualify, and if you hold the Water Park permit, you can transfer alcoholic beverages from one permitted premises to another. At last, the long Schlitterbahn nightmare is over.The Legislature also created a Passenger Bus Beverage Permit in new Chapter 48A of the Code (House Bill 3101). The permit can be issued to a commercial bus service operating a bus designed and used for intercity travel that meets a number of qualifications including having an elevated passenger deck over a baggage compartment and seating capacity of 16 to 36. The holder has all the rights of an Airline Beverage Permit holder. At last, the long Vonlane nightmare is over.House Bill 1555 amends Sec. 466.155 of the Government Code to modify the current ban on sales of lottery tickets at locations selling alcoholic beverages for on-premises consumption. Under this amendment, lottery sales can take place on the premises of a Wine and Beer Retailer's Permit that derives less than 30% of its gross receipts from the sale of alcoholic beverages.House Bill 4042 has exorcised the word "charitable" from the title and text of the Temporary Charitable Auction permit of Chapter 53 of the Code. Now, the holder may auction off alcoholic beverages for the holder's "stated purpose." In addition to charitable organizations, the permit may be issued to "persons or organizations subject to record keeping requirements under Chapter 254 of the Elections Code. ("Ah, so! The point emerges." - Uma Thurman). No one has to contend with that once a year limitation any more.Ordinarily, a permittee or licensee can choose to pay a civil fine or serve a suspension in response to a violation. In select cases, the commission can deny the permittee or licensee the right to pay a civil penalty. House Bill 1612 adds offenses related to "controlled substances or drugs" to that list of violations. House Bill 2059 allows minors who are eligible to expunge alcohol related offense records to have all "prosecutorial and law enforcement records" expunged as well as conviction-related records.We have to admit that we've never given a lot of thought to the problems caused by "synthetic cannaboids." Senate Bill 341 changed that. The bill amends Sec. 481.031 of the Health and Safety Code to define them as within Penalty Group 2-A of the narcotics schedules. Section 69.06 of the Alcoholic Beverage Code is amended to require a county judge to deny an original application for a Retail Dealer's On-Premise license (which means a Wine and Beer Retailer's Permit, as well) on a finding that the applicant or the applicant's spouse was convicted of an offense related to a "synthetic cannaboid" within the previous five years. Section 104.01 of the Code was amended to mandate that no one who sells beer at retail may engage in or permit conduct on the premises relating to synthetic cannaboids. Perhaps more importantly, Senate Bill 341 amends Sec. 481.131 of the Health and Safety Code to create a cause of action allowing one who has suffered injury to person or property proximately caused by intoxication from synthetic cannaboids to recover damages from anyone who provided, sold, served or delivered the synthetic cannaboids involved.

What Didn't Pass

The defeat of Senate Bill 750/House Bill 1872 and House Bill 4233 means that the five-package-store limitation, along with its convenient "just us kinfolks" exception and related provisions keeping the unwelcome from the fertile pastures of the package store industry will remain the law in Texas. These bills made it out of the Senate but died an ignominious death in the toxic zone that is the House Licensing and Administrative Procedures Committee. We are watching the progress of the suit Walmart has filed challenging these provisions with renewed interest.Texans - or at least Texans with a financial interest in the question - will continue to be protected from those irresponsible souls who want to pick up a six pack of beer on the way to the lake on Sunday morning because of the defeat of House Bills 327 and 1231.Distillers will not be permitted to sell slightly greater quantities of their product to consumers, nor will they be able to market their product by conducting tastings on the premises of various retailers. Perhaps most painfully, they will not be able to grow their business and their industry through sales via a Festival Permit, as has been done so successfully and harmlessly in the Texas wine industry. These proposals died with the defeat of Senate Bill 734/House Bill 1074, Senate Bill 1760/House Bill 3067 and House Bill 408.Oh, the poor wineries. They must continue to be the only wineries in America whose off-premise sales to consumers must fall under a 35,000 gallon per year cap. On the other hand, they may continue putting the sacred word "Texas" on labels even when the wine behind those labels started its trip toward the bottle as - horror! - bulk juice from somewhere else. Grape growers will not get their own unique permit and so will not be able to store fermented juice to tide them over through bad crop years without taking the trouble to get a winery permit. These ideas were found in House Bills 1715 and 3748, House Bill 1514 and Senate Bill 951/House Bill 2844.Even after all these years, House Bill 2291 caused our hearts to flutter. That bill stood for the proposition that just about anyone selling alcoholic beverages to consumers from Texas or anywhere else ought to be able to do so on the Interwebz. The bill never got a hearing. Of course.

The Upshot

During the 2013 session the Legislature seemed open, at least tentatively, to the proposition that someone other than the usual crowd ought to be given a real shot at making a living making and selling alcoholic beverages, and they ought to be able to do business in at least some conformance to modern business practices and consumer expectations. This idea found disfavor in the package store industry and within the wholesale tier. And so, the Legislature is no longer open to these radical ideas. The list of what passed and what didn't this session amply demonstrates this point.If you are opposed to change in alcoholic beverage regulations, if you are in support of what advances the interests of package stores and the wholesale tier and opposed to things that are contrary to those interests, then be of good cheer because so is the Legislature and it looks like they will continue to be in the foreseeable future. If, however, you long for a closer connection between regulatory restrictions and the policy objectives they claim to serve, we suggest you lift your eyes to the federal courts from whence may come some occasional hope.As always, call us at (512)473-0300 to discuss these and other liquor law matters that concern you.