Texas breweries suing the state

Texas craft brewers are challenging a law they feel shows favoritism toward distributors.

Since 2013, brewers have not been able to accept compensation for distribution rights. They say it's cost them millions of dollars that would've lead to the growth of their businesses.

In 2015 the Live Oak Brewing Company opened its new facility in Del Valle. Some of the tanks inside were purchased with funds gained from the sale of distribution rights when the company expanded to Houston.

While in negotiations with other distributors for further expansion, a law was passed prohibiting Texas breweries from accepting compensation for the sale of distribution rights.

On Monday, Live Oak Brewing Company Owner Chip McElroy and the owners of two other breweries challenged that law in a Travis County courtroom.

"For me it's mostly about the fact that the state took my property and awarded it to someone else,” McElroy said. “It's not how much it is or what I'm going to use it for. It was my property and they gave it to the beer distributors."

The law, passed in 2013, falls under the Texas Alcoholic Beverage Commission code for prohibited conduct. It says no manufacturer shall accept payment in exchange for an agreement setting forth territorial rights.

While McElroy can't profit, he says distributors still can.

"As soon as a distributor has the distribution rights for my product, say, they could turn right around the next day and sell the rights to another distributor for millions of dollars,” said McElroy.

Attorney Matt Miller is representing the breweries.

"It's unconstitutional. The legislature can pass laws to protect people and to address problems, but it can't pass a law to benefit one private party at the expense of another private party,” said Miller.

The TABC will not comment due to ongoing litigation. McElroy is still doing what he can to get his beer to retailers across the state.

Prior to 2013, he sold distribution rights for $250 thousand dollars. He says giving them away for free now is not fair.

"That's money that we could use to grow our business or God forbid send my kids to college,” said McElroy.

The breweries are not seeking monetary damages. They just want the law overturned. Judge Karin Crump says she will having a ruling within two weeks.

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