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 




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          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 




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          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