Build It and They Will Come: Craft Products Get New Privileges in CA and TX

Big news for craft producers in California and Texas, two of the biggest consumer markets in the United States: Texas craft brewers and distillers now have expanded retail sale and on-sale consumption privileges and California craft distillers have expanded tasting privileges as a result of newly enacted legislation.  But why does this matter?  Why is it important to give craft producers more control over the experience consumers enjoy on their premises? While now such an essential part of California culture, it is almost hard to remember that the big business of California wine country tourism is a relatively new phenomenon.  It was less than forty years ago in 1976 that the Judging of Paris famously put California wine on the global map and helped shape what is now the fourth largest wine-producing region in the world.  The demand for California wine in the 1970’s fueled rapid growth and the number of wineries in the state ballooned from 227 in 1966 to more than 3,400 in 2010, according to the Wine Institute.  Strength in numbers and burgeoning state revenue created a powerful lobbying force, and California wineries pushed for legislation to give wineries broad privileges to allow consumers to experience California wine country by tasting and buying wine directly from the beautiful winery properties for both on-premises and off-premises consumption (and later, the privileges of shipping directly to consumers, but that’s another bedtime story).  Other states soon followed suit, and wine countries popped up across the country, to give the new American wine consumer access to small producers who didn’t have mass distribution in America’s retail establishments.

But under an alcohol regulatory system in which everything is prohibited unless expressly permitted, these tasting and retail privileges did not always extend to local brewers and distillers, whose sectors were dominated by the mass-produced national and international brands, most of whom did very well through the traditional three-tier system and had little interest in bringing consumers to experience their production facilities.

As craft breweries grew in popularity in the 1980’s, California granted the same privileges to local breweries, brewpubs and microbreweries to conduct on-premise tastings and sell to consumers for off-premises consumption.  See Cal. Bus. & Prof. Code § 23357.  We’ve since seen a massive explosion of craft beer that just keeps growing at exponential rates across the country.  The Brewers Association estimates the number of craft brewers to have grown from 8 in 1980 to 537 in 1994 to over 2300 in 2012, with more than 1500 in development around the country.

As a sign of this ever-expanding growth, earlier this year Texas expanded the privileges of brewpubs and microbreweries to permit consumers to tour and taste at the licensed premises and to permit expanded routes to market for small brewers:

  • Brewpubs can manufacture up to 10,000 barrels annually instead of 5,000 and can sell to distributors and up to 1,000 barrels to retailers, in addition to consumers who visit their premises (SB 515).
  • Brewers and manufacturers who sell less than 125,000 barrels can self-distribute up to 40,000 barrels directly to retailers (SB 516 and SB 517).
  • Brewers and manufacturers who produce less than 225,000 barrels annually can sell up to 5,000 barrels of malt beverages produced on the premises for on-sale consumption to consumers (SB 518).

See TABC Press Release, “New craft beer laws signed by Governor Perry, go into immediate effect,” available at https://www.tabc.state.tx.us/home/press_releases/2013/20130615.asp

Craft spirits are growing too, especially with Millennials, who can be seen across the country in bars ordering exclusive specialty cocktails prepared by mixologists, key influencers for growing small batch brands.

As a result of this growth in craft spirits, this year Texas also opened up its laws to include local distillers and rectifiers, who are now able to sell or give away samples of their products to consumers for on-sale consumption up to 3,000 gallons annually, and sell up to two 750ml bottles of their products every thirty days to a consumer who visits the premises, up to 3,500 gallons annually. (SB 905).

This year in California, Governor Brown signed AB 933, which will permit distilled spirits manufacturers to charge each consumer for up to six ¼ ounce tastes of the distillery’s own products on its licensed premises.  The bill will become law in January, meaning distillers will be able to begin charging for tastings, without the necessity of using a work-around protocol like charging for glassware but not the tasting.

It is worth noting that AB 933 does NOT permit distillers to charge for or provide mixed drinks as part of the tastings, specifically stating that these tastings “shall not be given in the form of a cocktail or a mixed drink.”  This is an unfortunate restriction because it deprives consumers of the ability to taste the distilled spirits in the form they are most likely to consume it—in a cocktail.  Moreover, in our current cocktail culture, many distilled spirits manufacturers have very specific drink recipes and mixer recommendations intended for their products that they will not be able to share with consumers on site as part of these tastings.

Additionally, while neither current California law nor AB 933 will permit California distilled spirits manufacturers to sell bottles of their products directly to consumers from tasting rooms—all products will be required to be sold from a retail-licensed premises through the three-tier system—we hope this privilege will not be far behind, despite strong opposition from the distribution tier.

Will craft beer and spirits follow the example set by the American wine industry?  If you build it, will they come?  We hope that the expanded experiential marketing and retail sale privileges that helped the American wine industry tell its story to consumers will now extend to the craft beer and spirits industries, giving consumers the opportunity to fall in love with more small, local and creative brands than ever before.

For more information about craft beverages, please check out the Craft Beverage Expo in May 2014 in San Jose, California.  Hinman & Carmichael’s Rebecca Stamey-White serves on the Advisory Board.

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