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Proposed legislation poses challenges for small breweries

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Big changes could be on the way for how beer is sold in Texas.

Lawmakers are currently working to restructure the entire system and small breweries are worried they could be on the losing end of the deal.

Chip McElroy has been brewing beer for more than 15 years.

He owns Live Oak Brewing Company in east Austin. The small brewery makes more than 6,000 barrels of beer annually and McElroy is looking to expand.

"This year we're growing at a rate of 43percent. Last year it was 31 percent," said McElroy.

But if Live Oak gets too big, McElroy will have to change the structure of how his business operates.

"We're busting at the seams here. We need to grow our business," McElroy said.

Currently, Live Oak beer is delivered to local bars by the company but if the company expands and produces more beer, by law, Live Oak can no longer self-distribute.

Add to that Senate Bill 639, if it becomes law McElroy says he will have to allow a distributor to deliver his beer and he says he won't be able to charge for what is called brand rights.

"It's every bit as ridiculous as it sounds," he said.

Currently, beer manufacturers and distributors negotiate a price for brand rights. The distributor pays to do business with local breweries. SB 639 would prohibit that. Without the revenue from brand rights brewers like McElroy would miss out on added profit from selling to bars. Most of that profit would go to the distributor.

"Small brewers will be less viable," McElroy said. "It could cause many of us to go out of business."

McElroy says SB 639 could mean less selection for consumers and higher costs to enjoy the taste of small breweries.

"Our business value has been taken from us by the state."

The bill passed the Senate last week. The House has yet to take action.

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