BILL ANALYSIS Ó SB 32 Page 1 Date of Hearing: July 6, 2011 ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION Isadore Hall, Chair SB 32 (Leno) - As Amended: May 26, 2011 SENATE VOTE : 39-0 SUBJECT : Alcoholic beverages: definitions: rectifiers. SUMMARY : Adds clarity to the definition of rectifier within the Alcoholic Beverage Control Act (Act) by expressly excluding from the definition any on-sale licensee that colors, flavors, or blends distilled spirits or wine products on the licensed premises for consumption on those premises. Specifically, this bill : 1) Excludes from the definition of "rectifier" any on-sale licensee that colors, flavors, or blends distilled spirits or wine products on the licensed premises for consumption on those premises. 2) Contains an urgency clause. EXISTING LAW : 1) Establishes the Department of Alcoholic Beverage Control (ABC) and grants it exclusive authority to administer the provisions of the Act in accordance with laws enacted by the Legislature. 2) Defines "rectifier" to mean every person who colors, flavors, or otherwise processes distilled spirits by distillation, blending, percolating, or other processes. 3) Defines "distilled spirits" to mean an alcoholic beverage obtained by the distillation of fermented agricultural products, and includes alcohol for beverage use, spirits of wine, whiskey, rum, brandy, and gin, including all dilutions and mixtures thereof. 4) Relating to a "distilled spirits rectifier's general license," authorizes the licensee to cut, blend, rectify, mix, flavor, and color distilled spirits, and whether so cut, blended, mixed, flavored, or colored by him or any other SB 32 Page 2 person to package, label, export, and sell the distilled spirits to distilled spirits manufacturers, distilled spirits manufacturer's agents, distilled spirits wholesalers, distilled spirits general importers, rectifiers, and distilled spirits general rectifiers. 5) Defines an "on-sale" license as authorizing the sale of all types of alcoholic beverages: namely, beer, wine and distilled spirits, for consumption on the premises (such as at a restaurant or bar). An "off-sale" license authorizes the sale of all types of alcoholic beverages for consumption off the premises in original, sealed containers. FISCAL EFFECT : Unknown. COMMENTS : In late February 2010, ABC announced that it would be cracking down on bars and restaurants that were breaking the law (e.g., altering alcohol) by making their own "infused" drinks. ABC initially had issued an industry advisory, or warning, in May 2008 relating to rectification of distilled spirits in on-sale premises (bars and restaurants) that was designed to prevent bartenders from modifying drinks to increase the alcohol content of distilled spirits in violation of existing license privileges. "Rectification" is defined as any process or procedure whereby distilled spirits (vodka, gin, tequila) are cut, blended, mixed or infused with any ingredient (spices, herbs, fruit, vegetables, etc.) which reacts with the constituents of the distilled spirits and changes the character and nature or standards of identity of the distilled spirits. One example of rectification is, but not necessarily limited to, creating products such as 'lemoncello" or "limoncello" in which sugar and citrus products are combined with vodka and stored, initiating a maturation process which consequently changes the character and nature of the vodka, and possibly its alcohol content. The simple mixing of alcoholic beverages with other ingredients for immediate consumption (e.g., mint leaves in mojitos) is not considered rectification. The author's office notes that the original intent of ABC law referenced above was to protect the public from watered down or adulterated - and potentially dangerous - alcoholic beverages. The author's office contends that such concerns no longer apply to the current practice of treating spirits as an element of SB 32 Page 3 culinary creativity. The author's office estimates that approximately 50% of San Francisco area bars created and served infusions prior to the department taking action to issue warnings to licensees. Many of these establishments stopped serving infusions with a resulting drop in business. SB 32 would modify the definition of rectifier within the Act so as not to require that an on-sale licensee obtain a separate rectifier license for this business activity (infusion). Specifically, this measure is intended to permit on-sale licensees to engage in the artisanal practice of making small amounts of spirits flavored with fruit, vegetables and spices on the licensed premises for consumption solely on the licensee's premises. The author's office emphasizes that SB 32 would simply update existing law to recognize this innovation and validate the existing practice. In support : Proponents argue that the act or art of mixing drinks from distilled spirits or wine for consumption on licensed premises should not be considered a production process requiring a separate license. Proponents believe that this bill is a straightforward solution that relieves a potential enforcement situation for tens of thousands of license holders throughout the state. Tied-House Law : Under tied-house law, alcoholic beverages are required to be distributed through a "three-tier" system of licensed manufacturers, wholesalers, and retailers. The rationale for these laws is to prevent corrupt sales practices, the formation of vertical monopolies, and dominance by a single producer in the market place. Tied-house restrictions avoid undue influence, unfair trade practices, and cross-ownership within the three-tier system. The tied-house system has been credited with eliminating commercial bribery and predatory marketing practices. Prior legislation : SB 1022 (Strickland), Chapter 281, Statutes of 2010, expanded an existing tied-house exception within the 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. REGISTERED SUPPORT / OPPOSITION : Support SB 32 Page 4 California Music and Culture Association California Restaurant Association Family Winemakers of California Future Bars, Inc. Golden Gate Restaurant Association San Francisco Small Business Commission Small Business California Opposition None on file Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531