Craft distillers booming in Texas, but seek to change state laws

A boom in the state’s craft distilling industry this century has allowed spirits to flow freely in Texas — despite Prohibition-era state laws that have curbed corporate sales in startup.

Texans can now take a spin on a nearly 30-stop whiskey trail that cuts through the Texas Triangle and extends to Lubbock, an example of the industry’s rapid growth since Tito’s Handmade Vodka opened the first legal state distillery in Austin in 1995. Tito’s is now the top-selling liquor brand in the United States

But he is no longer alone.

A report released Thursday by the University of Texas at San Antonio showed there were 190 operating distilleries in Texas in 2020, up from just eight in 2008. They generated nearly $2 billion in revenue.

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“In the 1990s, you could count the number of distillers in Texas on the one hand,” said Thomas Tunstall, study author and senior research director at the UTSA Institute for Economic Development. “Now there are nearly 200 in Texas and that number continues to grow.”

This growth is part of the broader “farm to fork” movement in which consumers have sought to cut out the middleman and obtain products directly from local producers.

“And in this case, the distillery on the doorstep,” said Kristi Brown, senior director of state government relations at the Distilled Spirits Council of the United States. “People are looking for products made in their own community that are unique and special, and Texas Spirits is a perfect example of that.

UTSA conducted the economic impact study for the council, known as DISCUS.

He revealed that the industry in Texas employs approximately 1,350 people directly and indirectly supports another 3,500 jobs. These indirect jobs include transport or farm workers who provide inputs such as grain for distillation or fruit for flavoring. Texas grain farmers supplied about 30% — or nearly $1.7 million — of grain used in spirits in 2020, the study found.

Distillery tasting rooms in rural areas are also a nice tourist attraction.

“A lot of agricultural inputs are grown (in Texas), which gives the agriculture industry a boost,” Tunstall said. “One of the ways rural communities create more sustainability is by hosting businesses such as craft distillers.”

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Despite the expansion, the industry says Texas liquor laws are hampering its growth.

Distilleries are regulated like liquor stores in Texas, so they can’t sell liquor bottles on Sundays “even though Sunday is one of their busiest days of the week,” Brown said. Texas is one of seven US states that still bans the sale of alcohol on Sundays.

“It’s really limiting” for distillers, Brown said.

Another impact studied is that of tax revenues. Texas distillers generated nearly $52 million in excise and beverage taxes paid to the state in 2020, he found. The Distilled Spirits Council estimates that allowing seven-day sales would generate between $9.5 million and $19 million in new tax revenue for the state. And that would increase vendor revenue by $60 million to $120 million.

On days when distilleries can sell bottles of liquor, Texas law also prohibits them from selling more than two bottles to a customer per month.

“The industry continues to grow vigorously,” Tunstall said. However, “limitations on the number of bottles per month that can be purchased by a consumer, these will have more and more impact”.

The distillery’s trade group said it plans to lobby state lawmakers in next year’s legislative session to change the state’s liquor laws.

“There are going to be a lot of new people in the state legislature next year, and it will be a great opportunity to talk about our issues,” Brown said. “People who come will approach this with fresh eyes and new ears.”