AB 1295 (Dodd) Page 1 of 5

SENATE COMMITTEE ONGOVERNMENTAL ORGANIZATION

SenatorIsadore Hall,III

Chair

2015 - 2016 Regular

Bill No: AB1295Hearing Date: 7/14/2015

Author: / Dodd
Version: / 7/13/2015 Amended
Urgency: / No / Fiscal: / Yes
Consultant: / Arthur Terzakis

SUBJECT:Alcoholic beverages: craft distillers

DIGEST: This bill creates a new “craft distiller’s license” in the Alcoholic Beverage Control (ABC) Act with specified privileges and limited to persons who manufacture less than 100,000 gallons of distilled spirits annually, exclusive of brandy production. This bill also modifies an existing provision of law that currently allows distillers to offer six, one-quarter ounce tastings, per individual/per day, to instead permit distillers to combine the current limitation into one single 1½ ounce tastingthat may also include a non-alcoholic mixer.

ANALYSIS:

Existing law:

1)Establishes the Department of ABC and grants it exclusive authority to administer the provisions of the Alcoholic Beverage Control Act in accordance with laws enacted by the Legislature. This involves licensing individuals and businesses associated with the manufacture, importation and sale of alcoholic beverages in this state.

2)Separates the alcoholic beverage industry into three component parts, or tiers, (referred to as the “tied-house” law or “three-tier” system), of manufacturer (including breweries, wineries and distilleries), wholesaler, and retailer (both on-sale and off-sale). The original policy rationale for this body of law was to: (a) promote the state’s interest in an orderly market; (b) prohibit the vertical integration and dominance by a single producer in the marketplace; (c) prohibit commercial bribery and protect the public from predatory marketing practices; and, (d) discourage and/or prevent the intemperate use of alcoholic beverages. Generally, other than exceptions granted by the Legislature, the holder of one type of license is not permitted to do business as another type of licensee within the “three-tier” system.

3)Permits a licensed distilled spirits manufacturer to conduct tastings of distilled spirits produced or bottled by, or produced or bottled for, the licensee, on or off the licensee’s premises. Tastings conducted by the licensee off the licensee’s premises must be for an event sponsored by a nonprofit organization, as defined, and only if persons attending the event are affiliated with the sponsor. Tastings on the licensee’s premises are limited to six, one-quarter ounce tastings, per individual per day and the law authorizes the distiller to charge for tastings. The law also provides that distilled spirits tastings shall not be given in the form of a cocktail or a mixed drink. Additionally, existing law makes it explicit that no distilled spirits shall be sold or solicited for sale in that portion of the premises where the distilled tasting is being conducted. (Business and Professions Code Section 23363.1)

4)Permits an onsale retail licensee of wine or distilled spirits to conduct “instructional” consumer tastings on the licensed retail premises provided the following conditions are met: (a) no more than ¼ ounce of distilled spirits is offered in one tasting; (b) no more than one ounce of wine is offered in one tasting; and, (c) no more than three tastings are offered to an individual in one day. An instruction may include the history, nature, values and characteristics of the product being offered, and the methods of presenting and serving the product.

5)Authorizes beer manufacturers and wholesalers to offer beer samples (not to exceed 8 ounces per person, per day) to individuals of legal drinking age at on-sale retail licensed premises under specified conditions.

6)Permits a licensed winegrower, manufacturer, importer, or wholesaler to provide samples of the alcoholic beverages which are authorized to be sold by the licensee in accordance with rules prescribed by the ABC. A retail licensee, however, is not authorized to provide any free samples of alcoholic beverages. Moreover, ABC regulations provide that samples of alcoholic beverages may only be given away to licensees or employees of licensees who are in a position to purchase the product or who are in need of additional information about the product, as specified.

7)Permits a licensed winegrower or brandy manufacturer to be issued an off-sale general license. Existing law also permits wineries to sell their products to consumers on their licensed premises and directly to licensed, on-sale and off-sale retailers (e.g., restaurants and liquor stores). Additionally, existing law provides for a brewpub-restaurant license, issued to a bona fide public eating place, which authorizes the sale of beer, wine, and distilled spirits for consumption on the premises and the sale of beer produced by the brewpub-restaurant licensee for consumption on the premises. The license also authorizes the sale of beer produced by the licensed brewpub-restaurant licensee to a licensed beer and wine wholesaler. The brewpub-restaurant licensee must purchase all beer, wine, or distilled spirits for sale on the licensed premises from a licensed wholesaler or winegrower, except for the beer produced by the brewpub-restaurant licensee on the licensed premises. Furthermore, the law also requires the brewpub-restaurant licensee to offer for sale on the licensed premises other commercially available beers available from licensed wholesalers.

8)Existing law defines an “on-sale” license as authorizing the sale of all types of alcoholic beverages: namely, beer, wine and distilled spirits, for consumption on the premises (such as at a restaurant or bar). An “off-sale” license authorizes the sale of all types of alcoholic beverages for consumption off the premises in original, sealed containers.

This bill:

1)Enacts the Craft Distillers Act of 2015 (Act) which authorizes the Department of ABC to issue a craft distiller’s license to a person that has facilities and equipment for the purposes of, and is engaged in, the commercial manufacture of distilled spirits. The craft distiller’s license authorizes the licensee to do all of the following:

a)Manufacture or produce (or have manufactured for them) up to 100,000 gallons of distilled spirits, exclusive of brandy production.

b)Package, rectify, mix, flavor, color, label, and export distilled spirits whether manufactured or produced by the licensee or any other person.

c)Only sell distilled spirits that are packaged by or for the licensee solely to a wholesaler, manufacturer, winegrower, manufacturer’s agent, or rectifier that holds a license authorizing the sale of distilled spirits or to persons that take delivery of those distilled spirits within this state for delivery or use outside the state.

d)Deal in warehouse receipts.

2)Provides that the original fee for a craft distiller’s license shall be $600 dollars, the annual fee shall be $300, and the fees must be deposited in the ABC Control Fund.

3)Prohibits the issuance of a craft distiller’s license to any person, any officer, director, employee, or agent of such person, or any person who is affiliated with, directly or indirectly, a person that manufactures or has manufactured for them more than 100,000 gallons of distilled spirits per year within or outside the state, excluding brandy it manufactures or has manufactured for them pursuant to a brandy manufacturer license.

4)Allows a licensed craft distiller to sell up to three 750-ml bottles per day directly to a consumer who participates in a distilled spirits tasting on the distiller’s licensed premises.

5)Authorizes a licensed craft distiller to hold an ownership interest in up to three on-sale licenses (restaurants) provided that one of the restaurants is located at the distilling premises and that the other on-sale premises would be required to sell other distilled spirits products and be subject to other limits similar to current law allowing wineries to have an interest in on-sale licenses. Also, provides that a licensed craft distiller that has an interest in one or more on-sale retail licenses pursuant to this Act may continue to hold that interest in the event the licensee no longer qualifies as a craft distiller, provided that the interest was first obtained at a time when the licensee did hold a craft distiller’s license pursuant to this Act.

6)Authorizes a licensed craft distiller to sell all beers, wines, brandies, or distilled spirits to consumers for consumption on the premises in a bona fide eating place located on the licensed premises or on premises owned by the licensee that are contiguous licensed premises operated by and for the licensee, provided that any alcoholic beverage products not manufactured by the licensee are purchased from a licensed wholesaler.

7)Authorizes a licensed craft distiller to have upon its licensed premises all beer, wines, and distilled spirits, regardless of source, for sale or service to guests during private events not open to the general public, provided that any alcoholic beverages sold at the event that are not manufactured or produced and bottled by, or manufactured or produced and packaged for, the licensed craft distiller are purchased only from a licensed wholesaler.

8)Modifies an existing provision of law that currently allows distillers to offer six, one-quarter ounce tastings, per individual/per day, to instead permit distillers to combine the current limitation into one single 1½ ounce tastingthat may also include a non-alcoholic mixer. Also, deletes the provision in existing law that prohibits tastings of distilled spirits from being given in the form of a cocktail or a mixed drink.

9)Makes other conforming and technical changes and contains legislative findings relative to the fact that small craft distillers have increased economic activity and job growth in the state. Also, declares legislative intent, in enacting this Act, to further encourage development of the craft distilling industry by enacting various limited exemptions to the general provisions of the three-tier system, while also continuing to uphold and support the three-tier system as the appropriate mechanism for regulating and licensing the sale of distilled spirits in California.

Background

Comments. The enactment of the 21st Amendment to the U.S. Constitution in 1933 repealed the 18th Amendment and ended the era of Prohibition. Accordingly, states were granted the authority to establish alcoholic beverage laws and administrative structures to regulate the sale and distribution of alcoholic beverages.

As noted above, existing “tied-house” law separates the alcoholic beverage industry into three component parts of manufacturer, wholesaler, and retailer. Tied house refers to a practice in this country prior to Prohibition and still occurring in England today where a bar or public house, from whence comes the “house” of tied house, is tied to the products of a particular manufacturer, either because the manufacturer owns the house, or the house is contractually obligated to carry only a particular manufacturer’s products.

As the cocktail culture continues to resonate with consumers looking for specialty or small batch concoctions, entrepreneurs in other states have found tremendous success with a concept that allows craft distillers to offer on-premises food (in other words – brewpubs with a mixology twist).

Currently, beer producers and wineries in California can operate restaurants andbrewpubs on their licensed premises – many of California’s craft distillershave expressed interest in the restaurant business and would like the same privileges. This bill will allow California’s licensed craft distillers to open restaurants on their licensed premises, as specified. Currently,distillers in California are authorized to conduct tastings (in limited quantities) on their licensed premises however they’re precluded from selling the products to consumers – this billwill allow craft distillers to sell their products directly to consumers. Specifically, this bill enacts the Craft Distillers Act of 2015 and creates a new “craft distiller’s license” applicable to individuals who produce less than 100,000 gallons of distilled spirits annually, exclusive of brandy, with the following privileges:

  • Craft distillers may sell up to three 750ml bottles of distilled spirits per person/per day directly to consumers who participate in a distilled spirits tasting at the distillers premises;
  • Craft distillers may host private events at their premises, provided that any alcoholic beverages served at the event that are not manufactured by the craft distiller are purchased from a licensed wholesaler.
  • Craft distillers may own an interest in up to three on-sale licenses provided that one of the restaurants is located on the licensed distilling premises and that the other on-sale licensed retail premises offer competing brands of alcoholic beverages in addition to the products the craft distiller manufactures.

In addition, this bill modifies an existing provision of law that currently allows distillers to offer six, one-quarter ounce tastings, per individual/per day, to instead permit distillers to combine the current limitation into one single 1½ ounce tasting that may also include a non-alcoholic mixer.

Purpose of AB 1295.According to the author’s office, this bill is intended to provide greater licensing equity between small craft distilled spirits manufacturers and beer and wine producers. The author’s office states that AB 1295 will remove an onerous restriction in law that prevents distillers from selling their products directly to consumers. Wineries and breweries were also not allowed to do so under original prohibition tied-house laws but over time, the Legislature carved-out various exceptions for the beer and wine industry which have helped small wineries and craft brewers prosper in California. The author’s office believes this bill is a logical continuation of those efforts and changes in law. The author’s office states, “The goal of this bill is to allow modest, limited sales to the nearly 50 small craft distillers throughout the state in order to help them further establish artisanal brands – by allowing an initial sale at the tasting room, the public can take a product with them and share California brands.”

The author’s office claims that forty states currently allow distillers to sell their products to consumers and cites the following recent legislative action outside of California: (a) In 2014, the State of Arizona established a craft-liquor distillery license which allows distillers to sell directly to consumers; (b) In 2013, the State of Indiana allowed craft distillers to sell a range of products directly to consumers by the drink or bottle; (c) In 2013, the State of Florida allowed distilleries to sell two bottles a year directly to customers; (d) In 2008, the State of Oregon allowed craft distillers to offer samples of their products at their distillery or at a separate tasting room. Additionally, Oregon allowed distilleries to apply for a license as a retail outlet agent to sell bottled products manufactured at the distillery directly to consumers; and, (e) In 2008, the State of Washington allowed craft distilleries to conduct on-site tasting and sales and also sell product of its own production for consumption off the premises, up to 2 liters per customer per day.

Prior/Related Legislation

AB 1233 (Levine, 2015) allows a licensed distilled spirits manufacturer to sell upto three bottles of product authorized to be produced or bottled by or for the licensee to each person at a tasting on the licensee’s premises. (Referred to interim study by Assembly policy committee)

AB 933 (Skinner, Chapter 366, Statutes of 2013) granted licensed distilled spirits manufacturers and licensed brandy manufacturers the privilege to conduct consumer tastings on their licensed premises and to charge for those tastings.

AB 949 (Quirk, 2013) would have authorized licensed distilled spirits manufacturers to charge consumers for tastings and would have imposed additional conditions on the provision of tastings by the licensee, including limiting the size and number of tastes. Also, would have provided that a distilled spirits manufacturer’s license authorizes the licensee to serve and sell food, general merchandise, and nonalcoholic beverages for consumption on or off the licensed premises. (Held in Assembly Rules Committee)

AB 686 (Quirk, 2013) would have authorized distilled spirits manufacturers to sell general merchandise, food, nonalcoholic beverages, and distilled spirits to consumers for consumption on the licensed premises where sold. (Held in this committee at author’s request)

SB 1068 (Hancock, 2010) would have added a new provision to the ABC Act authorizing a licensed distiller that distills fewer than 50,000 gallons of spirits annually to self-distribute to consumers and licensed retailers (e.g., restaurants, liquor stores). (Held in this Committee at author’s request)

SB 1022 (Strickland, Chapter 281, Statutes of 2010) expanded an existing tied-house exception within the ABC Act to enable licensed distilled spirits “rectifiers” to donate or sell their products to specified nonprofit entities for the purpose of assisting in fund-raising efforts.

AB 605 (Portantino, Chapter 230, Statutes of 2010), among other things, authorized ABC to issue to the holder of an “off-sale” retail license an “instructional tasting license” for the purpose of furnishing tastings of alcoholic beverages to consumers, subject to certain limitations.

SB 639 (Calderon, 2009) would have created a new on-sale tasting license to allow off-sale retail licensees to furnish tastes of alcoholic beverages to consumers, as specified. (Died on Senate Appropriations Suspense File)

SB 1560 (Yee, Chapter 412, Statutes of 2008) modified an existing tied-house provision that currently permits the issuance or transfer of an “on-sale” retail license to a restaurant, even though a wholesaler licensed to sell alcoholic beverages outside California has an interest in the premises or the license.

AB 2293 (De Leon, Chapter 638, Statutes of 2008) added a new provision to the ABC Act authorizing distilled spirits manufacturers and winegrowers to provide their product offerings directly to consumers (free of charge) during invitation-only events on premises for which a caterer’s permit authorization has been issued.

AB 2426 (Cook, Chapter 461, Statutes of 2008) authorized a person that operates an out-of-state winery and produces a limited amount of distilled spirits in another state to hold an interest in no more than 12 brewpub-restaurant licenses, provided specified conditions are met.

SB 995 (Maldonado, 2007) would have permitted certain alcoholic beverage suppliers to instruct consumers on the premises of an off-sale licensee regarding wine and distilled spirits, respectively, as specified. Also, would have allowed the instruction to include the furnishing of tastings under specified conditions. (Held in this Committee at author’s request)