BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1531
                                                                  Page  1

          Date of Hearing:   June 28, 2012

                   ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
                                 Isadore Hall, Chair
                     SB 1531 (Wolk) - As Amended:  June 20, 2012

           SENATE VOTE  :   39-0
           
          SUBJECT  :   Alcoholic beverages: tied-house restrictions: opera 
          houses.

           SUMMARY  :    Would allow donations of wine by winegrowers within 
          the County of Napa to an opera house in Napa County, under 
          specified conditions.  Specifically,  this bill  :   

          1)  Provides that a holder of a winegrower's license whose 
          licensed premises of production are located within the County of 
          Napa may donate wine to an opera house, if all the following 
          conditions are met:

               a)  The opera house is a nonprofit charitable corporation 
          or association exempt from payment of income taxes under the 
          provisions of the Internal Revenue Code of the United States, as 
          defined. 

               b)  The opera house has been incorporated in the City and 
          County of Napa and produces not less than 150 events open to the 
          general public per year.

               c)  The opera house holds a retail on-sale license.

               d)  The donation shall not be conditioned directly or 
          indirectly, in any way, on the purchase, sale, or distribution 
          of any alcoholic beverage manufactured or distributed by the 
          holder of a winegrower's license by the opera house.

               e)  The on-sale retail licensee may sell the donated wine 
          and shall sell or serve other brands of wine in addition to 
          brands produced or marketed by the donating winegrower.

               f)  The opera house may acknowledge and thank a donating 
          winegrower in the opera                                     
          house's event programs, on the opera house's Internet Web site, 
          and on stage during an                                      
          event.








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          2)  Contains language (legislative findings and declarations) 
          relative to the necessity of requiring a separation between 
          manufacturing interests, wholesale interests and retail 
          interests.

           EXISTING LAW  :

          1)  Establishes the Department of Alcoholic Beverage Control 
          (ABC) and grants it exclusive authority to administer the 
          provisions of the Alcoholic Beverage Control Act (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.

          2)  States that the "Tied-house" Law or "three-tier" system 
          separates the alcoholic beverage industry into three component 
          parts of manufacture (first tier), wholesaler (second tier), and 
          retailer (third tier).  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.

          3)  Prohibits, in general, an alcohol manufacturer, wholesaler, 
          or any officer, director, or agent of any such person from 
          owning, directly, or indirectly, any interest in any on-sale 
          license, or from providing anything of value to retailers, be it 
          free goods, services, or advertising.

          4)  Allows wineries, breweries, distilled spirits manufacturers, 
          and importers to donate their product(s) to certain nonprofit 
          organizations (e.g., fraternal orders, social organizations, 
          civic leagues, veterans' organizations, religious groups, 
          horticultural organizations) for the purpose of assisting in 
          fund-raising efforts.

          5)  Provides a tied-house exemption for an alcohol licensee to 
          make monetary and alcoholic beverage contributions to a symphony 
          association (San Francisco Symphony) that is a nonprofit 
          charitable corporation or association, under specified 
          conditions.  The symphony association shall hold a retail 
          on-sale license in a portion of its premises and no such gift 
          shall be used in or for the benefit of the symphony 








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          association's retail on-sale license, as specified.
           
          FISCAL EFFECT  :   Unknown.

           COMMENTS  :  

           Purpose of the bill  :  According to the author, this bill 
          provides a narrow Tied-house exception by allowing the Napa 
          Valley Opera House (NVOH) to accept wine donated by local 
          wineries located within the County of Napa, under specified 
          conditions.  While the NVOH maintains a license to sell 
          alcoholic beverages, it is prohibited from selling donated wine 
          under the ABC Act.  Like many other non-profit organizations, 
          NVOH has experienced an economic downturn in recent years and is 
          pursuing an avenue to raise funds and support the long-term 
          viability of arts in the Napa community.

           Background  :  Under existing provisions of the ABC Act, alcoholic 
          beverage manufacturers are prohibited, in general, from owning, 
          directly, or indirectly, any interest in any on-sale license, or 
          from providing anything of value to retailers, be it free goods, 
          services, or advertising (Tied-House Law).  This prohibition 
          exists as part of California's long standing three-tier policy 
          of alcoholic beverage laws that will not allow a particular 
          entity (manufacturer) to give something of value to a member of 
          another tier (retailer).

          Various exceptions to this restriction have been enacted through 
          the years in specific instances where the Legislature determined 
          that the public's interests were protected.  However, the 
          Legislature traditionally does not grant exemptions that favors 
          the products of the entity seeking the exemption, or exemptions 
          that unfairly compromise the role of the distributors.

           In support  :  Writing in support, the Napa Valley Opera House 
          states, "the NVOH is in the heart of the Wine country and it's a 
          natural fit for wineries to want to support our programming.  
          Often the wineries are not in the position to offer financial 
          support, and they choose to donate wine to the NVOH.  This bill 
          would allow the NVOH to sell the donated wine it receives from 
          our local wineries."  Tied-house laws restrict the NVOH from 
          selling the donated wine.  The NVOH presents a wide variety of 
          performing arts programming, as well as supporting schools and 
          the local non-profit community by making their theater available 
          for fundraising events and activities.








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           In opposition  :  Writing in opposition of this measure, the 
          California Beer & Beverage Distributors state this exception is 
          contrary to California's Tied-house laws.  SB 1531 would 
          establish an exception unlike any other in the ABC Act, and 
          would lead to questionable retailer purchasing decisions.   

           Policy consideration  :  In order to stay consistent with past 
          Tied-house exemptions relating to donating alcohol products to 
          non-profit organizations, as defined and SB 131 (Wiggins) of 
          2009, the author should consider amending the bill to do the 
          following: 1) no donation of wine shall be used on the premises 
          or for the benefit of the opera house association's retail 
          on-sale license i.e., strike the provision which allows the 
          on-sale retail licensee to sell the donated wine at the 
          location; 2) the donated wine may be used or sold in connection 
          with fundraising events conducted by the non-profit opera house 
          licensee off the licensed premises; and 3) add a five-year 
          sunset date.

           Prior legislation  :  SB 131 (Wiggins), Chapter 638, Statutes of 
          2009.  Granted a Tied-house exemption for an alcohol licensee to 
          make monetary and alcoholic beverage contributions to a symphony 
          association (San Francisco Symphony) that is a nonprofit 
          charitable corporation or association, as defined, and under 
          specified conditions.

          SB 1022 (Strickland), Chapter 281, Statutes of 2010.  The bill 
          enabled licensed distilled spirits "rectifiers" to donate or 
          sell their products to specified nonprofit entities for the 
          purpose of assisting in fund-raising efforts.

          SB 1273 (Wiggins) 2009-10 Session.   Would have allowed 
          winegrowers to sell bottled wine at certain events held by 
          qualified nonprofit organizations, if approved by ABC.  (Died - 
          Not heard by the Senate Governmental Organization Committee)  
                              
          AB 323 (Evans) Chapter 131, Statutes of 2007.  Made 
          modifications to the ABC Act to enable custom crush wine 
          producers (boutique wineries) to donate and pour their wine at 
          winetasting events conducted by nonprofit organizations.  
                                
          SB 88 (Chesbro) Chapter 588, Statutes of 2003.  Permits ABC to 
          issue a wine sales event permit        authorizing a winegrower 
          to sell bottled wine that is produced by the winegrower at an 








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          event held by a specific tax-exempt organization for not more 
          than five consecutive days at an approved event.
           
          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Napa Valley Opera House
           
            Opposition 
           
          California Beer & Beverage Distributors

           
          Analysis Prepared by  :    Eric Johnson / G. O. / (916) 319-2531