BILL ANALYSIS                                                                                                                                                                                                    






                                                       Bill No:  SB  
          1022
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2009-2010 Regular Session
                                 Staff Analysis

          SB 1022  Author:  Strickland
          As Amended:  March 15, 2010
          Hearing Date:  April 13, 2010
          Consultant:  Art Terzakis


                                     SUBJECT  
                        Donation of Alcoholic Beverages

                                   DESCRIPTION
           
          SB 1022 expands an existing tied-house exception within the  
          Alcoholic Beverage Control (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.

                                   EXISTING LAW

           Existing law establishes the Department of Alcoholic  
          Beverage Control (ABC) and grants it exclusive authority to  
          administer the provisions of the ABC Act in accordance with  
          laws enacted by the Legislature.  

          Existing law, known as the "tied-house" law, separates the  
          alcoholic beverage industry into three component parts, or  
          tiers, of manufacturer (including breweries, wineries and  
          distilleries), wholesaler, and retailer (both on-sale and  
          off-sale).  

          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.   





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          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.  

          Tied-house law generally prohibits any alcoholic beverage  
          manufacturer, winegrower, agent, importer or wholesaler  
          from holding any interest in the business of a retailer of  
          alcoholic beverages or to give any thing of value to a  
          licensed retailer of alcoholic beverages.  Licensees are  
          also prohibited from giving away any gift, premium or free  
          goods in connection with the sale or distribution of  
          alcoholic beverages.

          The ABC Act provides that nothing in that body of law  
          prohibits a wine grower or a beer and wine wholesaler from  
          giving or selling wine, a beer manufacturer from giving or  
          selling beer, a distilled spirits manufacturer or its agent  
          from giving or selling distilled spirits, or a licensed  
          importer from giving or selling beer, wine, or spirits to  
          certain nonprofit organizations, as specified, at prices  
          other than those contained in schedules filed with the  
          Department of ABC.  

          The ABC Act defines "rectifier" to mean every person who  
          colors, flavors, or otherwise processes distilled spirits  
          by distillation, blending, percolating, or other processes.

                                    BACKGROUND
           
          As an exception to the general tied-house rule, existing  
          law (Business and Professions Code Section 25503.9) allows  
          wineries, breweries, distilled spirits manufacturers, and  
          importers to donate their product(s) to certain nonprofit  
          organizations (e.g., fraternal orders, social  
          organizations, civic leagues, veterans' organizations,  
          religious groups, horticultural organizations) for the  
          purpose of assisting in fund-raising efforts.  This measure  
          would grant licensed "rectifiers" the same privilege.  





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           Purpose of SB 1022:   The author's office notes that current  
          law does not allow holders of a "rectifiers" license to  
          give or sell rectified distilled spirits to nonprofit  
          organizations to assist them in fund-raising efforts.   
          However, current law permits licensed "importers" to  
          perform this function.  

          As an example, the author's office points to a local  
          rectifier, Ventura Limoncello Company, which cannot donate  
          a gift basket containing a bottle of Ventura Limoncello,  
          produced in the County of Ventura, to a local charity for  
          its silent auction. Yet, the importer of Il Convento  
          Limoncello, produced in Italy, can be donated (by the  
          importer) to any charitable event.

          According to the author's office, this measure is simply  
          intended to allow licensed rectifiers to support charities  
          in the same manner as the State's wineries, breweries, and  
          distilled spirits manufacturers and importers.   

           Staff Comments:   "Limoncello," the national drink of Italy,  
          is a blended - or rectified - liquor.  Grain alcohol is  
          combined with lemon zest and sugar.  It rests for 30 to 45  
          days over which time the grain alcohol absorbs the essence  
          of the lemon creating a sweet, lemony liquor.  It is  
          traditionally served chilled as an after dinner digestivo.


          Recification is any process or procedure whereby distilled  
          spirits are cut, blended, mixed or infused with any  
          ingredient which reacts with the constituents of the  
          distilled spirits and changes the character and nature or  
          standards of identity of the distilled spirits.


          In late February 2010, the Department of ABC announced that  
          it would be cracking down on bars and restaurants that make  
          their own "infused" drinks, such as limoncellos. The  
          Department of ABC initially had issued a warning in May  
          2008 that was designed to prevent bartenders from modifying  
          drinks to increase the alcohol content of distilled  
          spirits.  

                                         
                           PRIOR/RELATED LEGISLATION
           




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           SB 1273 (Wiggins) 2009-10 Session.   Would make various  
          substantive changes to existing provisions of the ABC Act  
          that allow winegrowers to sell bottled wine at certain  
          events held by qualified nonprofit organizations, if  
          approved by the Department of ABC.    (Pending in this  
          Committee)  
          
          SB 157 (Wiggins) Chapter 337, Statutes of 2008.   Enacted  
          the "Nonprofit Organization Equal Participation Act" for  
          the purpose of providing continuity and equal participation  
          for non-profit organizations in sanctioned wine related  
          events and to provide orderly direction for wine producers
           
          SB 108 (Wiggins) Chapter 246, Statutes of 2007.   Modified  
          an existing provision of law that allows wine orders to be  
          taken at wine tasting events held by specified non-profit  
          organizations to include three additional types of  
          non-profit organizations - civic leagues, social  
          organizations and voluntary employees' beneficiary  
          associations.
           
          AB 323 (Evans) Chapter 131, Statutes of 2007.   Made  
          modifications to the ABC Act to enable custom crush wine  
          producers (boutique wineries) to donate and pour their wine  
          at winetasting events conducted by nonprofit organizations.  
            

          SB 1362 (Chesbro) 2005-06 Session.   Identical to SB 108  
          (Wiggins) of 2007. (Passed out of Senate G.O. Committee on  
          a vote of 9-0 - the measure was subsequently gutted on the  
          Assembly floor late in the Session)   
           
          SB 88 (Chesbro) Chapter 588, Statutes of 2003.   Created a  
          new ABC wine sales event permit to allow a winegrowers to  
          sell bottled wine at charity events.

           AB 1505 (Wiggins) Chapter 270, Statutes of 2003.   Provided  
          that wine may not be sold or orders solicited, when a wine  
          tasting is held off the winegrower's premises at an event  
          sponsored by a private nonprofit organization, as defined,  
          except that the winegrower would be permitted to accept  
          orders for the sale of wine when the sales transaction is  
          completed at the winegrower's premises. 

           AB 2520 (Thomson) Chapter 384, Statutes of 2000.    
          Authorized the ABC to issue a certified farmers market  




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          permit to allow winegrowers to sell wine produced and  
          bottled by the winegrower entirely from grapes grown by the  
          winegrower at such venues.  

           SUPPORT:   As of April 9, 2010:

          Boys & Girls Club of Ventura
          Ventura Limoncello Company, LLC
          Napa Valley Limoncella Company

           OPPOSE:   None on file as of April 9, 2010.
           FISCAL COMMITTEE:   Senate Appropriations Committee