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Untapped Potential: Microbreweries Use Legal Scrutiny to Erode the Three-Tier System

In July 2016, we wrote about how the booming microbrewery scene in Maine is shaking up the three-tier system of alcohol distribution, which dates back to the 1930s.

A month later, three Texas microbreweries — Live Oak Brewing Company, Peticolas Brewing, and Revolver Brewing — argued against the three-tier system in district court, seeking to circumvent parts of the system and allow craft breweries in Texas to sell their distribution and territorial rights. The State countered that assertion, and claimed that the three-tier system was necessary because it allowed the Texas Alcoholic Beverage Commission to easily monitor the distribution of products, and have a greater sense of the inventory of retailers, restaurants, and bars.

A few weeks following the initial court appearance, the presiding judge ruled in favor of the three Texas microbreweries, granting them the right to distribute their own product — and, as a result, allowing these and other Texas microbreweries to maximize their profits. This ruling opined that the three-tier system unfairly benefits distributors at the expense of microbreweries.

One could argue that microbreweries wouldn’t exist in such force today if not for the three-tier system, which allows for competition and the creation of new producers. On the other hand, the three-tier system imposes burdens on microbreweries, as the Texas suit demonstrates. Yes, the number of microbreweries is growing—but because microbreweries are forced to sell directly to a shrinking number of distributors, the former tend to suffer slow revenue growth, while the latter tend to enjoy steady or increased sales.

The co-existence of microbreweries and the three-tier system in the United States merits observation. It will be equally fascinating to see if the methods for producing and distributing alcohol will drastically change. Is it time for a modified regulatory model that will better accommodate the growing craft beer landscape? Or do the tried-and-true policies dating back to before World War II still serve their original intent? It’s too soon to know, but we’ll see what ferments in the months to come.

Editor's note: this article was co-written by Brad Hanscom and Amanda Findlay. 

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