Federal District Court Rejects Craft Brewers' Equal Protection And Due Process Challenge Of Texas' Ban On Brewer Off-Premises Retailing

Author:Mr Marc Sorini and Bethany K. Hatef
Profession:McDermott Will & Emery

On March 20, 2018, a federal district court in Texas issued an opinion in Deep Ellum Brewing, LLC, et al. v. Texas Alcoholic Beverage Commission. The court delivered a blow to Texas craft brewers, upholding Texas' prohibition on sales of beer by brewers to consumers for off-premises consumption.

Texas authorizes the manufacture and sale of beer by persons holding a: (1) brewer's permit (allowing the production of beer of more than 4% alcohol by weight (ABW)); (2) manufacturer's license (allowing the production of beer of 4% ABW or less); or (3) brewpub license. Like many states, Texas' alcohol beverage laws mandate separation among the three tiers of the alcohol industry: manufacturing, wholesaling and retailing. The three-tier laws generally require alcohol beverages to be sold from manufacturers to wholesalers, from wholesalers to retailers, and finally from retailers to consumers.

Texas treats both brewer's permittees and manufacturer's licensees as manufacturers, but treats brewpubs as retailers. Under Texas' three-tier laws, then, an entity may become licensed as both a brewer and a manufacturer (and many Texas breweries hold both a brewer's permit and a manufacturer's license), but not as a brewer or manufacturer and a brewpub. Texas limits brewpubs to producing no more than 10,000 barrels of beer annually, making this license an impractical option for craft brewers seeking to package and expand.

As in most states, the Texas legislature has enacted various exceptions to the laws requiring three-tier separation. Under these exceptions, wineries, distilleries and brewpubs in Texas each may sell the respective alcohol beverages authorized under their licenses directly to consumers for off-premises consumption. Brewer's permittees and manufacturer's licensees, however, have not been granted such an exception in order to sell beer for off-premises consumption. Conversely, all of these licensees may sell alcohol beverages for on-site consumption.

Two Texas craft brewers—Deep Ellum Brewing and Grapevine Craft Brewery (collectively, the Brewers)—brought suit against the Texas Alcoholic Beverage Commission (TABC), arguing that the statutes treating brewer's permittees and manufacturer's licensees differently than wineries, distilleries and brewpubs with respect to off-premises retail sales violated their (I) equal protection and (II) substantive due process rights under the US Constitution.

Because the challenge involved economic legislation not tainted...

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