BILL ANALYSIS AB 1798 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1798 (Evans) As Amended August 18, 2010 Majority vote ---------------------------------------------------------------------- |ASSEMBLY: | |(May 13, 2010) |SENATE: |33-0 |(August 5, 2010) | ---------------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |18-0 |(August 26, 2010) |RECOMMENDATION: |concur | | | | | | | ------------------------------------------------------------------------ Original Committee Reference: G.O. SUMMARY : Establishes a "conjunctive labeling" provision in the Alcoholic Beverage Control Act (Act) for all wines made from grapes grown within recognized winegrowing areas, or American Viticultural Areas, in Sonoma County. This provision mirrors existing conjunctive labeling provisions for Napa, Lodi and Paso Robles. Specifically, this bill : 1)Requires, beginning on or after January 1, 2014, that any wine labeled with an AVA located entirely within a County of the 19th class (Sonoma County) must display the designation "Sonoma County" on the label, as specified. 2)Makes it explicit that this provision shall not apply to any wine labeled with a viticultural area appellation of origin when the name of the appellation includes the term "Sonoma County." The Senate amendments : 1)Deletes provision which would have retained the requirement that the winegrower, or the officer, director, or agent of the winegrower meet the specified conditions regarding the sale or furnishing of wine under the circumstances described above, but would eliminate the requirement that statements describing these conditions be made pursuant to an undertaking approved by ABC. AB 1798 Page 2 2)Deletes a provision which would have increased from 60 to 75 days, the length of time that the Alcoholic Beverage Control Appeals Board has to enter an order after an appeal is filed. 3)Requires, beginning on or after January 1, 2014, that any wine labeled with an AVA located entirely within a County of the 19th class (Sonoma County) must display the designation "Sonoma County" on the label, as specified. 4)Makes it explicit that this provision shall not apply to any wine labeled with a viticultural area appellation of origin when the name of the appellation includes the term "Sonoma County." 5)Provides that the ABC may suspend or revoke the license of any person who violates this requirement. EXISTING LAW : 1)Existing provisions of the Act, known as "tied-house" restrictions, generally prohibit a winegrower from having an ownership interest in an on-sale alcoholic beverage license, with limited exceptions. Among other exemptions, existing law exempts from the tied-house restrictions any licensed winegrower who meets specified conditions, including that the winegrower, or his or her officer, director, or agent, enters into an undertaking, approved by the Department of Alcoholic Beverage Control, that makes specified statements regarding the sale or furnishing of wine by the winegrower, or any officer, director, or agent of the winegrower. 2)Requires that, when the word "Napa" (or any federally recognized viticultural region within Napa County) appears on a brand label, at least 75 percent of the grapes used to make that wine must be from Napa County. 3)Requires wines produced within the "Napa Valley" to be labeled as being derived from that valley, if the wine label indicates that they are produced within a separate viticultural area within the Napa Valley, in order to preserve consumer identification and understanding. 4)Prohibits the sale of wine produced, bottled, or labeled after December 31, 2008, in this state that identifies, in a brand name or otherwise, on any label, packaging material, or advertising, AB 1798 Page 3 the name "Sonoma," unless at least 75 percent of the grapes used to make the wine are from Sonoma County, as specified. 5)Requires all wines produced or bottled within the current Paso Robles appellation to be labeled with the designation "Paso Robles." 6)Requires all wines produced or bottled within the current Lodi appellation to be labeled with the designation "Lodi." 7)Stipulates that every person who, with intent to defraud, either falsely makes, alters, forges, or counterfeits the label for any wine or uses the label or bottle of any wine belonging to another, without his or her consent, is guilty of a misdemeanor. FISCAL EFFECT : Unknown. COMMENTS : Purpose of this bill: This bill establishes a "conjunctive labeling" provision in the Alcoholic Beverage Control Act for all wines made from grapes grown within recognized winegrowing areas, or American Viticultural Areas, in Sonoma County. This provision mirrors existing conjunctive labeling provisions for Napa, Lodi and Paso Robles. According to the author's office, the Sonoma County Vintners along with the Sonoma County Winegrape Commission (representing over 170 wineries and 1,800 growers combined) recently reached consensus on a framework to standardize regional wine product labeling (the wine industry term is conjunctive labeling) for all wines made from grapes grown within recognized AVAs in Sonoma County. There are 13 AVAs located in Sonoma County (e.g., Dry Creek Valley, Russian River Valley, and Sonoma Valley). The purpose of conjunctive labeling is to build an association of quality in an increasingly competitive global wine market for the delivery of Sonoma County wines. The proposed language provides a three-year phase-in period to enable wineries to redesign their labels and get regulatory approval to use the new labels. Background : The Federal Alcohol Administration Act establishes broad federal regulatory authority over the interstate trade in alcohol beverage products. The Secretary of the Treasury, through AB 1798 Page 4 the Alcohol and Tobacco Tax and Trade Bureau (TTB), administers an extensive code of regulations governing, among other things, the contents of wine labels, including brand names, the name and address of the bottling winery, and indications of the wine's origin, as well as the use of such information in advertising. Under federal regulations, an "appellation of origin" is a geographic designation referring to the place where the grapes used to make a specified percentage of the wine were grown. For American wines, an appellation of origin includes the names of states (e.g., "California") and counties identified with the word "county" (e.g., "Napa County," "Monterey County," "Sonoma County," "Eldorado County," etc.) as well as all designated American "viticultural areas." An American Viticultural Area (AVA) is a grape growing region distinguishable by geographical area features, as recognized by the TTB pursuant to specified criteria and procedures. These criteria and procedures, and a complete list of AVAs, are set forth in Part 9 of Title 27 of the Code of Federal Regulations. In brief, TTB may recognize an AVA area if it is locally or nationally known for grape-growing, has particular and definable boundaries, and has geographic features distinguishing it as a grape-growing area. As of 2007, there were 190 recognized AVAs nationwide - 107 of which are located in California. The 107 California viticultural areas recognized by the TTB include, among others, Alexander Valley, Anderson Valley, Chalk Hill, Clarksburg, Fair Play, Howell Mountain, Lodi, Los Carneros, Napa Valley, Paso Robles, Rockpile, Russian River Valley, Santa Lucia Highlands, Sonoma Valley, Spring Mountain, Stags Leap, and Wild Horse Valley. The regulations specify the conditions for use of each type of appellation of origin. A wine qualifies for a state or county appellation of origin if at least 75 percent of the volume derives from grapes grown in the area indicated by the appellation of origin. Thus, under TTB regulations the appellation of origin "California" signifies that at least 75 percent of the wine in the bottle was made from grapes grown anywhere in the state of California. Similarly, the appellation of origin "Napa County" or "Sonoma County" or "Mendocino County" signifies that at least 75 percent of the wine in the bottle was made from grapes grown anywhere in that particular County. To qualify for an appellation of origin consisting of an AVA, at least 85 percent of the wine must derive from grapes grown in the indicated area. Thus, the AB 1798 Page 5 appellation of origin "Napa Valley" signifies that at least 85 percent of the wine in the bottle was made from grapes grown anywhere in Napa Valley. The regulations do not require disclosure of the place of origin of the remaining portion of the wine. Federal regulations require the wine label to bear a "brand name." The regulations provide that, in general, "a brand name of viticultural significance may not be used unless the wine meets the appellation of origin requirements for the geographic area named." This prohibition is subject to an exception. If a brand name was in use before July 7, 1986, it is considered grandfathered. Grandfathered brand names of viticultural significance may be used for wines that do not meet the appellation of origin requirements for the geographic area named, provided the wine is labeled with a true appellation of origin consisting of a county or viticultural area (if the brand name refers to a geographic area smaller than a state) or a state or lesser appellation (if the brand name refers to a state). Federal regulations require that the name and address of the "bottling winery" appear on the wine label, accompanied, in certain circumstances, by a phrase such as "bottled by." There is no requirement that the bottling winery is located in the geographic area where the wine was made or the grapes were grown. Federal law also provides that wine may not be sold or shipped in interstate commerce unless it bears a label that TTB has previously approved. A certificate of label approval ("COLA") is obtained by submitting an application to the TTB. The application must include an exact replica of the label as well as other information regarding the wine covered by the label. Prior legislation : AB 87 (Blakeslee), Chapter 674, Statutes of 2007, requires all wines produced or bottled from any sub-appellation located within the current Paso Robles appellation to carry the designation Paso Robles" on the label. SB 1380 (Chesbro) Chapter 879, Statutes of 2006, prohibits the sale of wine, produced, bottled, or labeled after December 31, 2008, that identifies, in a brand name or otherwise, on any label, packaging material, or advertising, the name "Sonoma", unless at least 75% of the grapes used to make the wine are from Sonoma County, as specified. AB 1798 Page 6 SB 1293 (Chesbro), Chapter 831, Statutes of 2000, prohibits the use of the word "Napa" on a brand label unless at least 75% of the grapes used to make that wine came from Napa County. One of the stated purposes of this law was to minimize consumer confusion because consumers assume brand names of wines suggest the origin of the grapes. The law essentially prohibited Bronco from marketing the three labels referenced above using non-Napa grapes. Bronco challenged the law in court arguing that state law could not preempt federal law, which also provides a 75% requirement, but exempts brands established before July 7, 1986. Bronco also argued that its labels were not deceptive since the origin of the grapes was spelled out, although in smaller print. Bronco also challenged the law on other claims including free speech rights, but the California Court of Appeals rejected those arguments. Analysis Prepared by: Eric Johnson / G. O. / (916) 319-2531 FN: 0006784