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 AB 520 (Chesbro) continued Page 2 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 AB 520 (Chesbro) continued Page 3 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 AB 520 (Chesbro) continued Page 4 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. AB 520 (Chesbro) continued Page 5 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, AB 520 (Chesbro) continued Page 6 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. AB 520 (Chesbro) continued Page 7 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 ********** AB 520 (Chesbro) continued Page 8