BILL ANALYSIS                                                                                                                                                                                                    



                                                                            
         AB 605
                                                                Page  1

        CONCURRENCE IN SENATE AMENDMENTS
        AB 605 (Portantino)
        As Amended  August 2, 2010
        Majority vote
         
        
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        |ASSEMBLY: |     |(May 21, 2010)  |SENATE: |27-6 |(August 18, 2010)    |
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                             (vote not relevant)  
         

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        |COMMITTEE VOTE:  |18-0 |(August 26, 2010)   |RECOMMENDATION: |concur    |
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        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
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        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
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        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
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        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
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          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
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          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
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        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
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        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
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        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
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        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