Party On: Cobb & Counsel secures win for craft breweries against TABC

by | Jan 26, 2021 | Government Investigations and Enforcement Actions

Fifth Circuit ruling affirms Deep Ellum and Oskar Blues breweries can sell beer to-go in Texas.

Good news for Texas craft beer lovers—you can now buy beer-to-go at Deep Ellum Brewing Company in Dallas and Oskar Blues Brewery in Austin.

In June 2022, the Fifth Circuit rejected the Texas Alcoholic Beverage Commission’s interpretation of Texas’ beer-to-go law, confirming that Deep Ellum and Oskar Blues can join other craft brewers in selling beer-to-go at their Texas locations.  

Deep Ellum and Oskar Blues are affiliated with CANarchy Craft Brewery Collective, a disruptive collective of like-minded brewers dedicated to bringing high quality, innovative flavors to drinkers in the name of independent craft beer. The portfolio of craft breweries includes Deep Ellum Brewing Company, Oskar Blues Brewery, Cigar City Brewing, Squatters Craft Beers, Wasatch Brewery, and Perrin Brewing Company.

Texas law was amended in 2019 to allow certain breweries to sell beer to-go.

In 2019, the Legislature amended the Texas Alcoholic Beverage Code to allow manufacturing breweries in Texas to sell beer to-go. Texas was the last state in the U.S. to allow beer-to-go sales at breweries.

“Beer to go was kind of the perfect example of the little guys being overrun by the process,” Sen. Dawn Buckingham (R-Lakeway) told the Texas Tribune. “It seemed a little crazy that Texas would be the only state where you can’t go to a brewery and bring home a little bit of beer.”

Specifically, the law provides that a brewer may sell beer to-go if its annual production of beer is less than 225,000 barrels “at all premises wholly or partly owned, directly or indirectly, by the permit holder or an affiliate or subsidiary of the permit holder.” Tex. Alco. Bev. Code § 62.122(a).

In other words, a brewer that produces less than 225,000 barrels annually at its owned premises is allowed to sell beer to-go, while brewers that exceed the 225,000-barrel production threshold cannot.

TABC prohibited Deep Ellum and Oskar Blues from selling beer to-go because it determined that CANarchy breweries collectively produce more than 225,000 barrels of beer annually.

Shortly after the beer-to-go law took effect, TABC ordered Deep Ellum and Oskar Blues to stop selling beer to-go in Texas, based on its determination that CANarchy-affiliated brewers produce more than 225,000 barrels annually.

The problem was, TABC counted production at every location where CANarchy-affiliated brewers manufacture beer—even out-of-state premises—rather than counting production at the premises CANarchy owns in Texas.

The Fifth Circuit rejected TABC’s interpretation of the beer-to-go law, affirming that Deep Ellum and Oskar Blues can sell beer to-go in Texas.

CANarchy, represented by Cobb & Counsel, sued TABC. CANarchy sought a judgment declaring that:

(1) counting barrels produced outside of Texas toward the 225,000-barrel production threshold is unconstitutional because it discriminates against larger, out-of-state brewers (the “discrimination claim”); and

(2) counting barrels produced at premises leased conflicts with the unambiguous text of the statute, which states that barrels should be counted at premises owned by the brewer (the “statutory construction claim”).

In January 2021, a federal district court agreed with CANarchy’s statutory construction claim. The court held that the text of the beer-to-go law is unambiguous—TABC cannot count barrels produced at premises leased by a brewer toward the 225,000-barrel production threshold. CANarchy leases the premises where most of its beer is produced, and CANarchy produces less than 225,000 barrels annually on premises that it owns. Thus, CANarchy-affiliated brewers are authorized to sell beer to-go in Texas.

TABC appealed the ruling. In June 2022, the Fifth Circuit Court of Appeals affirmed the district court’s ruling in a beer-pun filled opinion.

“This is a case about beer,” the Fifth Circuit begins its opinion. “It turns on the meaning of the word ‘owned.’ A pint-sized word with stout implications for craft brewers in Texas.”

The Fifth Circuit, like the court below it, was unpersuaded by TABC’s argument that the phrase “premises . . . owned” includes premises that are leased. Thus, in determining who falls under the 225,000-barrel threshold and is allowed to sell beer to-go in Texas, TABC can count production at owned premises only—as the plain language of the statute demands. That’s good news for CANarchy brewers in Texas, and Texas drinkers, too.

As the Fifth Circuit says, “Party on.”

Subscribe to the Texas Government Law Blog

* indicates required