BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1323
                                                                  Page  1

          Date of Hearing:   August 4, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                   SB 1323 (Walters) - As Amended:  April 27, 2010 

          Policy Committee:                              Governmental  
          Organization Vote:                            21 - 0 

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No

           SUMMARY  

          This bill expands a current tied-house exception in current law  
          which authorizes certain Alcoholic Beverage Control Act  
          licensees to provide free alcohol to consumers during  
          invitation-only promotional events. Specifically, this bill  
          provides this exception to:

          1)Distilled spirits manufacturers' agents
          2)Holders of a distilled spirits importer's general license
          3)Holders of a distilled spirits rectifier's general license
          4)Holders of an out-of-state distilled spirit's shipper's  
            certificate

           FISCAL EFFECT  

          This bill would give 500 additional licensees the authority to  
          host promotional events.  If half of the licensees hold one  
          event per year as a result of this expansion and 5% result in a  
          Department of Alcoholic Beverage Control (ABC) investigation and  
          administrative hearing, annual costs could exceed $180,000 per  
          year (ABC fund), based on actual costs provided from a prior  
          investigation of a manufacturer who illegally hosted a  
          promotional event, and the average cost of an ABC investigation  
          and administrative hearing. Those costs would be partially  
          offset by revenue generated by the $200 event permit fee. 

           COMMENTS  

           1)Rationale . The intent of this legislation is to expand an  
            existing tied-house exception which allows alcohol beverage  
            manufacturers to hold private promotional events where they  








                                                                  SB 1323
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            provide food, entertainment and free alcohol to the guests.

           2)Continuing Policy Concerns  .  As with the original implementing  
            legislation, AB 2293 (De Leon; Chapter 638, Statutes of 2008),  
            committee staff has concerns about allowing individuals who  
            have liquor licenses to provide unlimited amounts of free  
            alcohol in order to promote their products. This policy  
            represents a significant departure from existing tied-house  
            exceptions.  In fact, this is the only exception in the  
            Alcoholic Beverage Control Act that allows an unlimited amount  
            of alcohol to be given away free to consumers.  Wine and  
            distilled spirits tastings limit the amount of alcohol that  
            can be provided for free to consumers. Under all other  
            circumstances, no more than one-quarter ounce of distilled  
            spirits may be offered at one tasting, no more than one ounce  
            of wine may be offered, and no more than three tastings may be  
            offered to an individual in one day. The committee may wish to  
            consider whether or not it is good public policy to further  
            expand this existing tied-house exception. 

           3)Tied-house law  . The tied-house laws, developed after  
            prohibition, sought to break up and separate the liquor  
            industry by categorizing and regulating each aspect of the  
            business. It is essentially divided into manufacturing,  
            wholesaling, and retailing. Each category is independent of  
            the other with specific laws ensuring that the relationship  
            between manufacturers, distributors and retailers remains  
            distinct. 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. 

            The current Tied House laws are specific about who can sell  
            alcoholic beverage products to whom. Generally, manufacturers  
            must sell their products through wholesalers so that there is  
            no direct contact between the manufacturer and the retailer or  
            the consumer.

           4)Related Legislation  . AB 2293 (De Leon; Chapter 638, Statutes  
            of 2008), authorized a manufacturer, winegrower, rectifier, or  
            distiller or any authorized agent of that person to provide,  
            free of charge, entertainment, food, and distilled spirits,  








                                                                  SB 1323
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            wine, or nonalcoholic beverages to consumers at an  
            invitation-only event in connection with the sale or  
            distribution of wine or distilled spirits.  Several conditions  
            were placed on these events including the limitation of 400  
            attendees per event, a prohibition of persons under age 21,  
            and a maximum duration of four hours.  The authorization will  
            sunset on January 1, 2014.

            In 2008, AB 2613 (Plescia), authorized winegrowers, distilled  
            spirits manufacturers, as well as distillers, importers and  
            shippers of these beverages to offer tastings of wine or  
            distilled spirits at off-sale retail licensed premises retail  
            (grocery store, large warehouse stores, and liquor stores) in  
            a segregated area. It limited tastings to one-quarter ounce of  
            distilled spirits and one ounce of wine, and limited tastings  
            to three per person each day. That bill passed the Assembly  
            Governmental Organization Committee, but the author decided  
            not to pursue the legislation.  

           Analysis Prepared by  :    Julie Salley-Gray / APPR. / (916)  
          319-2081