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. SB 1531 Page 2 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 SB 1531 Page 3 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. SB 1531 Page 4 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 SB 1531 Page 5 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