What is the Texas three-tier system, and what does the Tied House law forbid between retailers, distributors, and manufacturers?
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Texas splits the alcohol industry into three levels: manufacturers make alcoholic beverages, wholesalers and distributors buy from them and sell to businesses, and retailers sell to consumers. The Tied House law keeps those levels apart. It forbids overlapping ownership and other prohibited relationships between a manufacturer and a wholesaler or retailer, or between a wholesaler and a retailer, no matter what the permits involved are called.
The three levels
| Level | Who is on it | Examples of licenses and permits |
|---|---|---|
| Manufacturing | makers of beer, wine, and spirits | Brewer's License (BW), Winery Permit (G), Distiller's and Rectifier's Permit (D) |
| Wholesale and distribution | businesses that buy from makers and sell to retailers | Wholesaler's Permit (W), General Distributor's License (BB) |
| Retail | businesses that sell to consumers | Mixed Beverage Permit (MB), Package Store Permit (P), Retail Dealer's On-Premise License (BE) |
The default path for a bottle or a keg runs from the maker to a wholesaler or distributor, then to a retailer, then to the consumer.
The core rule in Section 102.01
Chapter 102 of the Alcoholic Beverage Code, titled “Intra-Industry Relationships,” opens with the tied house prohibition. Section 102.01(a) defines a tied house as “any overlapping ownership or other prohibited relationship” between those engaged in the industry at different levels, using “wholesaler,” “retailer,” and “manufacturer” as those words are ordinarily understood, “regardless of the specific names given permits.” The statute then declares the prohibited activities to be unfair competition and unlawful trade practices, and directs TABC to enforce “strict adherence to a general policy of prohibiting the tied house.”
Two prohibitions go to who owns and who runs a business:
- Ownership across levels. A person with an interest in a permit may not hold, directly or indirectly, an ownership interest in the business or corporate stock of a permittee at a different level that has licensed premises in Texas. Stock options, convertible debentures, and similar interests count (Section 102.01(c)).
- Roles across levels. No person may act or serve as an officer, director, or employee of the businesses of permittees at different levels (Section 102.01(d)).
The same section goes on to reach premises, equipment, credit, loans, and control or profit-sharing agreements, prohibited in the same terms as ownership.
The beer side has its own provisions
Beer licenses carry parallel rules elsewhere in Chapter 102:
- A brewer or distributor may not own any interest in the business or premises of a retail dealer of malt beverages, or hold an interest in a license to sell beer for on-premises consumption, except to the extent a brewer’s license itself allows on-premises consumption (Section 102.11). The ban applies whether the interest is held directly or through a subsidiary, affiliate, agent, employee, officer, director, or firm member.
- A brewer, its officers, directors, agents, employees, and affiliates may not have any interest in the license, business, assets, or corporate stock of a general or branch distributor (Section 102.18).
Where a maker may sell to the public
Some sales from a manufacturer directly to consumers are lawful because the Legislature wrote them into the manufacturing license itself. A brewery’s taproom sales run under Section 62.122, and a distillery’s samples, drinks, and bottle sales run under Sections 14.04 and 14.05. Each of these is a statutory exception with its own volume caps and conditions, not a general right for a manufacturer to act as a retailer. A sale outside those conditions is outside the exception.
A brewpub works the other way around. Under Section 74.01(d), a brewpub license holder is treated as a retailer for purposes of Section 102.01, and it may not hold an interest in any license or permit at the manufacturing or wholesaling levels.
Who the rule does not reach
Section 102.01(k) keeps two historical exceptions: renewal applications by businesses legally operating in Texas under a charter or permit before August 24, 1935, and nonresident seller’s or wholesaler’s permits held continuously since January 1, 1941. Outside those, the rule applies to every permittee, and a violation of the ownership, role, or financial prohibitions puts the permit itself at risk of suspension or cancellation.
This article is general information about Texas alcoholic beverage law, not legal advice, and reading it does not create an attorney-client relationship. Statutes and TABC rules change; confirm current requirements with the Texas Alcoholic Beverage Commission, the relevant city or county, or a licensed Texas attorney before acting.