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 Page 2 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 Page 3 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