BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                       Bill No:  AB  
          520
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                           Senator Lou Correa, Chair
                           2013-2014 Regular Session
                                 Staff Analysis



          AB 520  Author:  Chesbro
          As Amended:  February 11, 2014
          Hearing Date:  June 24, 2014
          Consultant:  Art Terzakis


                                     SUBJECT  
                  Alcoholic Beverages: instructional tastings

                                   DESCRIPTION
           
          AB 520 deletes an existing provision of the Alcoholic  
          Beverage Control (ABC) Act that grants a winery or  
          distilled spirits manufacturer the privilege of conducting  
          instructional consumer tastings at an on-sale retail  
          licensed premises  and  recasts that provision to create a  
          new Section of law that accounts for updates in the ABC Act  
          and for code conformity purposes.  Specifically, this  
          measure:

          1)Expands the types of "authorized licensees" that may  
            provide instructional tastings events at on-sale retail  
            licensed premises to also include, in addition to a  
            winery or distilled spirits manufacturer, the following  
            licensees: California winegrower's agent, beer and wine  
            importer general, beer and wine wholesaler, wine  
            rectifier, distilled spirits manufacturer's agent,  
            distilled spirits importer general, distilled spirits  
            rectifier, distilled spirits general rectifier,  
            rectifier, out-of-state distilled spirits shipper's  
            certificate holder, distilled spirits wholesaler, brandy  
            manufacturer, brandy importer, or California brandy  
            wholesaler.

          2)Stipulates that an authorized licensee shall  not  include  
            any person that solely holds a combination of a beer and  




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            wine wholesaler license and an off-sale beer and wine  
            retail license or holds those licenses solely in  
            combination with any license not listed in item #1 above  
            or in combination with a beer and wine importer general  
            license, or holds a limited off-sale retail wine license.

          3)Makes it explicit that no premium, gift, free goods, or  
            other things of value shall be given away by an  
            authorized licensee or its designated representative in  
            connection with an instructional tasting.

          4)Permits the authorized licensee, with permission of the  
            retail on-sale licensee upon whose premises the  
            instructional tasting event will be held, to advertise  
            the event, subject to certain restrictions. 

          5)Also, permits the on-sale retail licensee to advertise an  
            instructional tasting event to the general public and  
            requires the costs of this advertising to be borne solely  
            by the on-sale retail licensee.

          6)Stipulates that no more than one authorized licensee or  
            its designated representative shall conduct an  
            instructional tasting pursuant to this section at the  
            on-sale retail licensed premises of an on-sale retail  
            licensee at any time, and a person shall not act as the  
            designated representative for more than one authorized  
            licensee at that instructional tasting.

                                   EXISTING LAW

           Existing law establishes the Department of Alcoholic  
          Beverage Control (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.  

          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  




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          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  
          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.  

          As a limited exception to the general tied-house rule,  
          existing law (Business and Professions Code Section  
          25503.4) permits winegrowers and their agents, including  
          wine importers, to conduct and participate in instructional  
          events known as "meet the winemaker" dinners held at a  
          retailer's premises featuring the winemaker's wine,  
          provided certain conditions are met.  Although no wine can  
          be given away at the events, minimal amounts of wine, taken  
          from barrels or tanks, may be sample tasted.  In addition,  
          no more than three one-ounce tastes of wine per consumer  
          may be offered at the instructional event from bottles of  
          wine provided by the authorized person.  Furthermore, the  
          law provides that minimal amounts of the samples or tastes  
          provided at the instructional event do not constitute a  
          thing of value.   

          As a limited exception to the general tied-house rule,  
          existing law (Business and Professions Code Section  
          25503.5) permits a winegrower, beer manufacturer, beer or  
          wine wholesaler, distilled spirits manufacturer, distilled  
          spirits general rectifier, or distilled spirits general  
          importer to conduct "instructional" tastings for licensees  
          and their employees on the subject of  wine, beer, or  
          distilled spirits.  This section of law also permits a  
          winegrower or distilled spirits manufacturer to instruct  
          "consumers" at an on-sale licensed retail premise  provided  
          the following conditions are met: (1) no more than  ounce  
          of distilled spirits is offered in one tasting; (2) no more  




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          than one ounce of wine is offered in one tasting; and, (3)  
          no more than three tastings are offered to an individual in  
          one day.  An instruction may include the history, nature,  
          values and characteristics of the product being offered,  
          and the methods of presenting and serving the product.  

          As a limited exception to the general tied-house rule,  
          existing law (Business and Professions Code Section  
          25503.55) authorizes beer manufacturers, beer wholesalers,  
          and beer importers to conduct instructional beer tastings  
          (not to exceed 8 ounces per person, per day) to consumers  
          of legal drinking age at on-sale retail licensed premises  
          under specified conditions.

          Existing law prohibits any licensee from giving any  
          premium, gift, or free goods in connection with the sale or  
          distribution of any alcoholic beverage, except as  
          specifically authorized. The ABC Act provides that a  
          violation of any of its provisions for which another  
          penalty or punishment is not specifically provided is a  
          misdemeanor.

          Existing law 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.  

                                    BACKGROUND
           
           Purpose of AB 520:   According to the author's office, this  
          measure would simply update an existing 15 year-old statute  
          that permits a winery or distilled spirits manufacturer to  
          conduct a consumer tasting at an on-sale retailer's  
          licensed premises.  The updates are twofold:  (1) the  
          supplier and the on-sale retailer are separately authorized  
          to provide advertising for the event and (2) a wine and  
          spirits wholesaler is authorized to conduct the tasting for  
          their supplier.  For simplicity's sake, the existing  
          privilege in Business and Professions Code Section 25503.5  
          is transferred into a new Section 25503.57.  The language  
          is not verbatim to the off-sale tastings law due to the  
          fact that Legislative Counsel made some cleanup, but  
          non-substantive, changes.




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          The author's office points out that other tastings laws  
          found in the ABC Act (e.g., the winemaker dinner and  
          off-sale tastings statutes) already permit the supplier and  
          retailer to provide their own advertising, such as on their  
          Facebook pages.  The wine industry has asked that this  
          issue be addressed through the code conformity change.  In  
          addition, the author's office states that the ABC has  
          opined that a wholesaler is required to obtain a  
          letter-of-approval from its supplier before conducting a  
          tasting at a restaurant - this is a paperwork hassle - and  
          AB 520 addresses this administrative burden, as well.

           Arguments in Opposition:   Writing in opposition, Alcohol  
          Justice "objects to AB 520 because it expands the types of  
          licensees that may provide instructional tastings events  
          regarding wine or distilled spirits at on-sale retail  
          licensed premises. Evidence shows that increased  
          availability of alcoholic beverages is correlated with an  
          increase in alcohol related harm."
                                         
                           PRIOR/RELATED LEGISLATION
           
           AB 2488 (Levine), 2013-14 Session.  Would expand an  
          existing provision of the ABC Act which currently allows a  
          licensed winegrower, under specified conditions, to sell  
          estate grown wine at certified farmers' markets to also  
          grant the licensed winegrower the privilege of conducting  
          limited wine tastings for consumers at farmers' markets  
          under certain circumstances.  (Pending in Senate  
          Appropriations Committee)  

          AB 1424 (Committee on Governmental Organization), 2013-14  
          Session.   Would permit winegrowers and beer manufacturers  
          to describe the "composition" of their products, in  
          addition to other characteristics already permitted, when  
          engaging in tastings or instructional events for their  
          licensees or employees.  (Senate Inactive File)
           
          AB 949 (Quirk), 2013-14 Session.   Would have authorized  
          licensed distilled spirits manufacturers to charge  
          consumers for tastings and would have imposed additional  
          conditions on the provision of tastings by the licensee,  
          including limiting the size and number of tastes.  Also,  
          would have provided that a distilled spirits manufacturer's  
          license authorizes the licensee to serve and sell food,  




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          general merchandise, and nonalcoholic beverages for  
          consumption on or off the premises. (Held in Assembly Rules  
          Committee)
          
           AB 933 (Skinner), Chapter 366, Statutes of 2013.   Granted  
          licensed distilled spirits manufacturers and licensed  
          brandy manufacturers the privilege to conduct consumer  
          tastings on their licensed premises and to charge for those  
          tastings.
           
          AB 636 (Hall), Chapter 329, Statutes of 2013.   Authorized,  
          under specified conditions and until January 1, 2016, the  
          appearance of a person for the purpose of providing        
          autographs at an instructional event for consumers that a  
          winegrower, California winegrower's agent, importer, or  
          other specified parties conduct, or participate in, that is  
          held at a retailer's premises featuring wines produced by  
          or for the winegrower or, imported by the wine importer.
           
          SB 1101 (Wiggins), Chapter 177, Statutes of 2010.    
          Clarified that winemakers who participate in instructional  
          events or "meet the winemaker dinners," held at a  
          retailer's licensed premises for consumers, may offer  
          minimal samples of wine from bottles.  Also, specified how  
          those wine bottles are removed and the amount allowed to be  
          provided as samples.  

          AB 605 (Portantino), Chapter 230, Statutes of 2010.   Added  
          new provisions to the ABC Act authorizing the department to  
          issue to the holder of an "off-sale" retail license an  
          "instructional tasting license" for the purpose of  
          furnishing tastings of alcoholic beverages to consumers,  
          subject to certain limitations.

           AB 2134 (Chesbro), Chapter 149, Statutes of 2010.   Created  
          a new tied-house exception in the ABC Act that allows  
          licensed brewers to conduct and participate in events  
          called "Beer Maker Dinners" for consumers held at an  
          on-sale retail licensed premise.   

          AB 2293 (De Leon), Chapter 638, Statutes of 2008.   Added a  
          new provision to the ABC Act that permits distilled spirits  
          manufacturers and winegrowers to provide their product  
          offerings directly to consumers (free of charge) during  
          invitation-only events on premises for which a caterer's  
          permit authorization has been issued.




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           AB 1245 (Torrico), Chapter 629, Statutes of 2008.   Provided  
          that no rule of the department of ABC may impose a dollar  
          limit for consumer advertising specialties furnished by a  
          beer manufacturer to the general public of other than $3  
          per unit original cost to the beer manufacturer who  
          purchased it.
           
          SB 1548 (Murray), Chapter 670, Statutes of 2006.    
          Authorized beer manufacturers and wholesalers to offer beer  
          samples (not to exceed 8 ounces per person, per day) to  
          individuals of legal drinking age at on-sale retail  
          licensed premises under specified conditions.  
           
          AB 2285 (V. Brown), Chapter 248, Statutes of 1998.   Allowed  
          on-sale retail licensees to offer limited tastings of wine  
          or distilled spirits at the licensed establishment.
           
          SB 993 (Burton), Chapter 544, Statutes of 1997.   Among  
          other things, provided that no rule of the Department of  
          ABC may impose a dollar limit for consumer advertising  
          specialties furnished by a distilled spirits supplier to a  
          retailer or to the general public of less than $5 per unit  
          original cost to the supplier who purchased it.  Also,  
          authorized a licensed distilled spirits manufacturer to  
          conduct tastings of distilled spirits on the licensed  
          premises under specified conditions.  

           SUPPORT:   As of June 20, 2014:

          The Wine Institute

           OPPOSE:   As of June 20, 2014:

          Alcohol Justice (formerly Marin Institute)

           FISCAL COMMITTEE:   Senate Appropriations Committee

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