BILL ANALYSIS Ó Bill No: AB 573 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2011-2012 Regular Session Staff Analysis AB 573 Author: Chesbro As Amended: June 15, 2012 Hearing Date: June 26, 2012 Consultant: Art Terzakis SUBJECT Alcoholic Beverages: tied house restrictions DESCRIPTION AB 573 corrects inconsistencies in existing provisions of the Alcoholic Beverage Control (ABC) Act in order to allow all licensed manufacturers and wholesalers the same opportunity to inspect, clean and replace their tapping equipment. EXISTING LAW Existing law establishes the Department of 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. 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 AB 573 (Chesbro) continued Page 2 manufacturer, either because the manufacturer owns the house, or the house is contractually obligated to carry only a particular manufacturer's products. 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. Existing law also provides that no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as authorized by the Department of ABC. Existing law exempts from specified tied-house restrictions the occasional inspection and cleaning by beer manufacturers and wholesalers of beer taps and tapping equipment, as provided. Existing law also permits a beer manufacturer or beer wholesaler to furnish, give, rent, lend, or sell, any equipment, fixtures, or supplies, other than alcoholic beverages, to a retailer whose equipment, fixtures, or supplies were lost or damaged as a result of a natural disaster, as provided. BACKGROUND Purpose of AB 573: The author's office notes that this measure would not expand any existing privileges within the ABC Act but rather it is "code cleanup." Specifically, existing law, Business & Professions Code Section 25510, permits a manufacturer to furnish to a licensed wholesaler, and a licensed wholesaler or manufacturer to furnish to an on-sale licensee specified maintenance on any licensed beverage tapping equipment. However, language in Business & Professions Code Sections 25504.5 and 25511 limits access to this cleaning service to "beer" manufacturers and their AB 573 (Chesbro) continued Page 3 wholesalers. The author's office states that AB 573 would simply strike the reference to "beer" in Sections 25504.5 and 25511 so that those provisions are consistent with Section 25510. Arguments in Support: Writing in support, the Wine Institute points out that when it consulted with ABC staff regarding the inconsistencies in these statutes, the ABC suggested that the changes incorporated in AB 573 would provide uniformity and clarity. Also writing in support, the Family Winemakers of California indicates that wine casks have recently emerged as a most cost effective way to supply licensed on-sale premises that sell wine by glass and that AB 573 would allow wineries to supply and service such equipment. PRIOR/RELATED LEGISLATION AB 2878 (Aghazarian) Chapter 604, Statutes of 2004. Added "filters" to the list of alcoholic beverage tapping equipment that can be furnished by a licensed wholesaler or manufacturer to an on-sale licensee. SUPPORT: As of June 22, 2012: Family Winemakers of California Wine Institute OPPOSE: None on file as of June 22, 2012. FISCAL COMMITTEE: Senate Appropriations Committee