Texas: Texas to See Sweeping Changes Under New TABC Management
Source: Wine & Spirits Daily
March 14th
The Texas Alcoholic Beverage Commission (TABC) is starting to look like a whole new animal these days and that could have big implications for the future of the Lone Star state’s alcohol market.
Recall, the TABC’s trouble began after a series of exposes from the Texas Tribune last year showed a gross misuse of funds, and an organization that had built a reputation largely on fear and loathing [see WSD 04-24-2017]. Once the scandal was out, seven of the agency’s top brass left their roles, including executive director Sherry Cook.
AN ARMY STRONG AGENCY. In order to clean things up, Gov. Abbott appointed Houston businessman and former Army Captain Kevin Lilly to run the agency. Kevin then appointed retired Army general Bentley Nettles to handle day-to-day operations.
“In a lengthy interview, both Lilly and Nettles said the first thing they noticed was that the agency, as Lilly put it, had developed an ‘acerbic relationship’ with regulated entities and didn’t have a ‘pro-business’ approach,” writes the Tribune in a lengthy follow up piece.
Shortly thereafter, the agency began a series of regular industry round tables, and installed a new warning policy that instructed enforcers to focus more on “serial violators and true public safety threats while coaxing compliance from well-intentioned people who sometimes get tripped up on complex laws,” reports the Tribune.
“I think they sincerely want to turn this thing into a proper agency and not doing it through emotion and innuendo and jealousies and get to a point of fairness, openness,” says Spec’s president John Rydman.
DISPUTE RESOLUTION. You may recall, before the turnover the TABC was in the middle of a number of high profile disputes with industry players including Wal-mart, McLane Co., OXXO, and Spec’s.
Both the Spec’s and OXXO cases have been resolved. The mountain of violations and penalties against Spec’s have been dropped, and the Texas Supreme Court has denied Mexican c-store operator OXXO the ability to enter the US based on tied house rules [see WSD 05-02-2017].
Meanwhile the Wal-mart and McLane disputes are ongoing.
McLane Company has been fighting to obtain an alcohol distributor license in Texas for years. It was denied a license because its parent company, Berkshire Hathaway, also owns share in the retail tier (Wal-mart), violating the One Share Rule [see WSD 05-24-2016].
McLane responded by burying the TABC in document requests and lawsuits opposing the so-called One Share Rule and how it’s applied, and when that didn’t work they switched gears to making sure that no one else with direct or indirect ownership in more than one tier gets one either.
In November 2016, McLane formally protested the renewal of Core-Mark Midcontinent’s liquor license because Core-Mark, one of the largest distributors of consumer goods in North America, is owned by large investors such as Vanguard and T. Rowe Price [see WSD 09-26-2017]
In a surprising move, Administrative Law Judge Robert Jones recommended to the TABC that Core-Mark’s license not be renewed based on the One Share argument. The final decision is up to the agency which has still not decided whether to grant the license renewal or not.
Based on comments to the Tribune, it seems McLane is expecting to come out on top in this situation.
“McLane expects a decision soon and is optimistic that the TABC will reach an unbiased decision that considers market realities and the Alcoholic Beverage Code,” McLane lawyer Brett Charhon says. “Unlike the previous leaders of the agency, the current administration seems to be working to create a fair playing field for all participants.”
Then there is Wal-mart’s case against the TABC to consider. Wal-mart sued the agency in 2015 for denying it a package store permit. The reason for the denial was because Wal-mart is a publicly owned company, but the retailer has argued in court that the state makes an arbitrary exception for publicly traded hotels [see WSD 01-22-2016]. That case is still ongoing as well, but has not had any developments in months.
We’ll be keeping a close eye on the latter two stories, as the implementation of the One Share Rule in Texas, a $40 billion alcohol market, will have a big ripple effect regardless of which side TABC comes down on it. Meanwhile, the Texas legislature won’t be able to make any changes to the law until it’s back in session in 2019.