BILL ANALYSIS AB 605 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 605 (Portantino) As Amended August 2, 2010 Majority vote ---------------------------------------------------------------------- |ASSEMBLY: | |(May 21, 2010) |SENATE: |27-6 |(August 18, 2010) | ---------------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |18-0 |(August 26, 2010) |RECOMMENDATION: |concur | | | | | | | ------------------------------------------------------------------------ Original Committee Reference: G.O. SUMMARY : Creates a new type of license (instructional tasting license) that allows the tasting of beer, wine, and distilled spirits at off-sale licensed premises. Specifically this bill : 1)Authorizes the Department of Alcoholic Beverage Control (ABC) to issue an instructional tasting license to the holder of an off-sale retail license at the premises of the off-sale retail license. 2)Requires, at all times during an instructional tasting event, the instructional tasting event area to be separated from the remainder of the off-sale licensed premises by wall, rope, cable, cord, chain, fence, or other permanent or temporary barrier. 3)Prohibits minors from entering the instructional tasting area. 4)Requires the license holder to prominently display signage prohibiting minors from entering the instructional tasting event area. 5)Prohibits a license holder from allowing any consumer to leave the instructional tasting area with an open container of alcohol. 6)Prohibits instructional tasting events from taking place before 10:00 a.m. or after 9:00 p.m. AB 605 Page 2 7)Establishes the fees for the instructional tasting license at $300 initial and $261 annual renewal. It makes the annual renewal fee subject to Consumer Price Index adjustments, and requires that the fees be deposited into the ABC Fund. 8)Makes the following off-sale licensees ineligible for an instructional tasting license: retail locations that sell gasoline unless the licensee operates a fully enclosed off-sale retail area of at least 10,000 square feet and retail locations with a total of under 5,000 square feet of interior space unless the gross sales at the licensed location comprise on a calendar quarterly basis at least 75% of the total gross sales of all products sold at the licensed premises. 9)Exempts the instructional tasting license from existing laws that limit the number of licensed premises and requires local governing bodies to determine public convenience or necessity when there is undue concentration. However, it expressly authorizes ABC to deny the issuance of an instructional tasting license in an area of undue concentration. 10) Specifies that existing laws that require the posting of notices and authorizes protests and hearings shall apply. Although not specifically stated, existing laws that give local governments the ability to prevent issuance of the license through zoning or ordinances would also apply. And, the premises designation would be the same as that of the off-sale licensed premises. 11) Provides that the instructional tasting license authorizes the holder to allow alcoholic beverage manufacturers, wholesalers, or their designated representatives to conduct instructional tasting events for consumers on the subject of wine, beer, or distilled spirits limited to not more than three tastings per person per day. A single tasting of distilled spirits shall not exceed one-fourth of one ounce and a single tasting of wine shall not exceed one ounce. A single tasting of beer shall not exceed eight ounces. This mirrors existing law for tastings at on-sale premises. 12) Limits an instructional tasting event to a single type of alcoholic beverage (distilled spirits, wine or beer). AB 605 Page 3 13) Prohibits an alcoholic beverage manufacturer, wholesaler or designated representative from conducting more than one instructional event per day per licensed premises and prohibits a retailer who also holds an on-sale license from allowing a manufacturer, wholesaler, or designated representative from conducting a tasting under the privileges of the on-sale license on the same day and at the same location. 14) Prohibits a retailer from conducting an instructional tasting event unless the authorized licensee (or its designated representative) is unable to conduct an event previously advertised and scheduled. In this instance, the retailer must supply the product being tasted and provide or pay for a person to staff the event who is over 21 years of age. 15) Provides that, except for situations described in the previous bullet, instructional tasting events are to be conducted by alcoholic beverage manufacturers, wholesalers, or their designated representatives, either with product that they bring to the event or purchase from the off-sale licensee at the retailer original invoice price. Any unused alcoholic beverage remaining from the tasting must be removed from the off-sale licensed premises by the authorized licensee or its designated representative. 16) Authorizes a beer and wine wholesaler to conduct an instructional tasting event, but prohibit the beer and wine wholesaler from serving tastes of beer unless the beer and wine wholesaler also held a beer manufacturer's license, an out-of-state beer manufacturer's certificate or more than six distilled spirits wholesaler's licenses. 17) Prohibits charging for the tastings. 18) Allows alcoholic beverage manufacturers, wholesalers, or designated representatives to advertise the instructional tasting events with same limitations in existing law for "Meet the Winemaker" dinners at on-sale retail premises (BPC Section 25503.4). 19) Allows the license holder to advertise an instructional tasting event at the license holder's own expense using flyers, newspaper ads, Internet communications, and interior signage. AB 605 Page 4 20) Prohibits the manufacturer, wholesaler, or designated representative from providing any free goods, gifts, premiums or other things of value in connection with the instructional tastings, except equipment, material, and utensils as may be required for use in connection with the instructional tasting event. 21) Prohibits a manufacturer, wholesaler, or designated representative from entering into a collusive scheme with a license holder to exclude competitors. Doing so would result in suspension of the retailer's license and suspension of the privilege of the manufacturer, wholesaler, or designated representative to conducting tastings for six months to one year. EXISTING LAW : 1)Establishes ABC and grants it exclusive authority to administer the provisions of the ABC 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 and the collection of license fees or occupation taxes for this purpose. 2)The ABC Act permits an on-sale retail licensee of wine or distilled spirits to conduct "instructional" consumer tastings on the licensed retail premise provided the following conditions are met: a) no more than one-fourth 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. 3)Authorizes beer manufacturers and wholesalers to offer beer samples (not to exceed eight ounces per person, per day) to individuals of legal drinking age at on-sale retail licensed premises under specified conditions. 4)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. AB 605 Page 5 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. 5)Authorizes distilled spirits manufacturers to conduct tastings and provide distilled sprits without charge for events sponsored by nonprofit organizations. Only persons affiliated with the nonprofit organization, including up to three guests, may attend. No distilled spirits may be sold or solicited for sale at the tasting, and the organization must obtain a permit from ABC prior to the event. 6)Authorizes licensed winegrowers to conduct winetastings featuring their products either on or off the winegrower's premises, as provided for in rules and regulations adopted by ABC. With regard to winetastings held off the premises of the wine manufacturer, ABC Rule 53 provides that a winegrower may conduct winetastings at unlicensed premises with specified restrictions, including that such events may not be open to the public. Winetastings may additionally be sponsored by nonprofit or private organizations with attendance restricted to guests of the organization. For nonprofit events held at premises licensed by ABC, the tastings must be held in an area separate from the portion of the premises where alcohol sales are being conducted, and no consumption of alcoholic beverages other than what is being tasted is permitted. Finally, no winetasting may be given for the benefit of any retail licensee, and no retail licensee may participate in a winetasting directly or indirectly, except as provided for by ABC rule or regulation. 7)Existing law, known as the "tied-house" law, separates the alcoholic beverage industry into three component parts of manufacturer, wholesaler, and retailer. The original policy rationale for this body of law was to prohibit the vertical integration of the alcohol industry and to protect the public from predatory marketing practices. Generally, other than exemptions 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. 8)Defines an "on-sale" license as authorizing the sale of all types of alcoholic beverages: namely, beer, wine and distilled spirits, AB 605 Page 6 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 FISCAL EFFECT : According to the Senate Appropriations Committee, potentially $300,000 in special enforcement to be offset by fee revenue into the ABC Fund. COMMENTS : Purpose of the bill : According to the author, tastings are a traditional means of allowing responsible adult consumers to sample and learn about the wide variety of alcoholic beverage products available in the marketplace. The author's office points out that a majority of states permit tastings at "off-sale" retail premises for wine, spirits and beer products as part of consumer education programs. Specifically, 37 states permit such tastings for wine products, 31 states permit it for spirits products, and more than half the states in the country allow off-sale tastings for beer. The author notes that beer, wine and distilled spirits tastings are authorized in California under the ABC Act at "on-sale" licensed premises, such as bars and restaurants. The author also acknowledges that existing law recognizes the basic merits of the "off-sale" retail instructional tasting opportunity for wine, spirits and beer but contends that current law is simply unworkable for the vast majority of off-sale licensed retailers because it only permits tastings by way of a cumbersome, expensive and rigid licensing process. The author points out that currently, off-sale retailers who wish to have tastings of beer and wine offered in-store must obtain a Type 42 on-sale beer and wine license. In addition, off-sale retailers who wish to have tastings of spirits must obtain a Type 48 on-sale general license. (Type 48 licenses are subject to quota restrictions, thus an on-sale general license would very likely not be available.) Thus, the author believes that the law needs to be changed so as to be practical and usable. This proposal (AB 605) is intended to allow a licensed off-sale retailer to apply to the ABC for an annual instructional tasting license to permit suppliers and wholesalers to conduct instructional events, including tastes of beer, wine, or distilled spirits, in conjunction with the retailer, at the retailer's off-sale licensed premises. AB 605 Page 7 The author notes that under the provisions of AB 605, samples of wine, beer, or distilled spirits may be part of the instructional event, but must be limited to not more than three tastings to any individual of legal drinking age in one day. In terms of quantity, a single tasting of distilled spirits shall not exceed one-fourth of one ounce and a single tasting of wine shall not exceed one ounce. A beer tasting shall be limited to not more than the tasting of eight ounces of beer per person per day. No product can be sold as part of the tasting to any consumer for immediate consumption on the off-sale retail premises. Only one instructional event may be conducted by one supplier or wholesaler per day at any individual premises of an off-sale retail licensee. Only a single type of alcoholic beverage may be tasted at an instructional event and only products that are authorized to be sold by the off-sale retailer may be tasted. The author emphasizes that AB 605 creates an alternative way of conducting tastings which includes not only wine and beer but, also, distilled spirits. It provides a regulated approach to authorizing the giving away of alcoholic beverage samples or tastes that requires an off-sales licensee to acquire a separate license to serve alcohol beverage samples in the premises. The new tasting license requires that a portion of the off-sales premises be cordoned-off as a tasting area. Within the boundaries of that designated area, a licensee may serve samples. Proponents state that AB 605 has been carefully crafted to ensure that regulatory safeguards have been built into the process for obtaining an instructional tasting license. Additionally, the rationale for excluding the applicability of some of the licensing provisions was to make the licensing process for an instructional tasting license less costly and burdensome for the retail community, and to exclude provisions of law that are not relevant to off-premise tastings and would only be unduly burdensome. For example, the premises have already been approved for alcohol-related business pursuant to the original off-sale license for purposes of zoning laws. Adding occasional instructional events would not substantially change the mode or character of the retail operation. Proponents also note that the full provisions relating to notices and protests are specifically included to give local governmental bodies the power to decide whether the issuance of the AB 605 Page 8 instructional tasting license is proper. Proponents claim that the notice and protest mechanism allows local residents and local governments to object to the issuance of the license and request that ABC conduct a public hearing on the issues raised by the protesting parties. Background : According to the Department of ABC analysis, currently, on-sale beer and wine public premises licenses (Type 42) are regularly applied for and issued to locations adjacent to and operating in conjunction with off-sale licensed premises (Type 20 or Type 21). Nearly all of these existing dual-licensed operations are for the purpose of beer and/or wine tasting as a small portion of the larger off-sale business. The number of Type 42 licenses allowed to be issued by ABC is not limited by statute, making the license relatively inexpensive to obtain ($300 application and $261 annual renewal fee). Type 20/42 and 21/42 combination licenses have, for the most part, met the needs of suppliers and retailers in terms of on-site consumer tasting of beer and wine products. The above-described license combination, however, requires two separate licensed premises and does not allow for the service or tasting of distilled spirits products. If an off-sale general retail licensee (Type 21) wishes to conduct or allow tastings of distilled spirits, he or she must obtain an on-sale general public premises license (Type 48). However, current law generally prohibits the original issuance of such licenses. In some counties, on-sale general licenses are sold between parties for as much as $250,000. Throughout the state, there are approximately 221 on-sale beer and wine public premises (Type 42) licenses issued at locations adjacent to and in conjunction with off-sale general (Type 21) licensed premises. And, there are approximately 202 on-sale beer and wine public premises (Type 42) licenses issued at locations adjacent to and in conjunction with off-sale beer and wine (Type 20) public premises. Nearly all of these 423 dual-licensed businesses exist for the purpose of beer and wine tasting as a portion of the larger off-sale operations. Although applications for such businesses are occasionally protested by local citizens or law enforcement officials, the protests generally center on issues related to the off-sale operation. ABC states they rarely receive complaints related to the on-sale aspect of dual-licensed operations. Over the past two fiscal years (08-09 and 09-10) ABC AB 605 Page 9 has only filed 22 accusations on dual-licensed operations, and of those only two accusations were for violations associated with the on- sale licenses. Arguments in Opposition : Opponents argue that AB 605 is simply an irresponsible means of giving away alcoholic beverages to as many potential customers as possible, in the hopes they will desire more than just the free drink. Potentially, it could initiate a whole new marketing strategy among alcoholic beverage competitors, staging hundreds of these "free sample" events throughout the state on any given day. Writing in opposition, the Marin Institute states, "AB 605 is just over-the-top, over-reaching, alcohol industry pandering that is way too dangerous for the health and safety of California residents." Also writing in opposition, the California Council on Alcohol Policy states, "the cost of enforcement is prohibitive to the ABC and to local government. Local law enforcement agencies are facing severe cutbacks in personnel due to revenue shortfalls, and therefore will not be able to monitor these 'tasting' activities. ABC is already working through reductions and does not have the personnel to enforce this new program." The California Council on Alcohol Problems views AB 605 as a radical and extremely provocative bill that would legalize the consumption of alcohol at every grocery market, liquor store and even corner gas station/convenience stores in California, under the guise of "tasting events." Prior legislation: SB 639 Calderon 2009-10 Session. Would have added a new provision to the Alcoholic Beverage Control (ABC) Act authorizing ABC to issue an "on-sale tasting license" to the holder of any off-sale retail license for the purpose of furnishing tastings of alcoholic beverages to consumers subject to certain limitations. (Died on Senate Appropriations Suspense File) AB 2613 (Plescia) 2007-08 Session. Would have authorized winegrowers, distilled spirits manufacturers, as well as rectifiers, importers and shippers of these beverages to offer tastings of wine or distilled spirits at off-sale retail licensed premises (grocery stores and liquor stores) in a segregated area. Also, would have required verification of age at entrance to the segregated area and placed limits on tastings (one-quarter ounce of AB 605 Page 10 spirits and one ounce of wine) and limited tastings to three per person each day. (Held in Assembly Appropriations Committee) AB 2293 (De Leon) Chapter 638, Statutes of 2008. Added a new provision to the ABC Act that permits 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. SB 1548 (Murray) Chapter 670, Statutes of 2006. Authorized 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. AB 2285 (V. Brown) Chapter 248, Statutes of 1998. Allowed on-sale retail licensees to offer limited tastings of wine or distilled spirits at the licensed establishment. SB 993 (Burton) Chapter 544, Statutes of 1997. Among other things, authorized a licensed distilled spirits manufacturer to conduct tastings of distilled spirits on the licensed premises under specified conditions. Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531 FN: 0006783