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 








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          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 








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          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
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          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