BILL ANALYSIS Ó
Bill No: AB
779
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2013-2014 Regular Session
Staff Analysis
AB 779 Author: Bocanegra
As Amended: June 11, 2013
Hearing Date: June 25, 2013
Consultant: Art Terzakis
SUBJECT
Alcoholic Beverages
DESCRIPTION
AB 779 adds a new provision to the Alcoholic Beverage
Control (ABC) Act that grants beer manufacturers producing
more than 60,000 barrels of beer per year the privilege of
also manufacturing "cider or perry" at their licensed
premises and to sell the product to any licensee authorized
to sell wine. Specifically, this measure:
1)Authorizes a licensed beer manufacturer that produces
more than 60,000 barrels of beer a year to manufacture
cider or perry, as defined, at the licensed premises of
production and to sell cider or perry to any licensee
authorized to sell wine.
2)Specifies that "cider" and "perry" have the meanings
provided in Section 4.21(e)(5) of Title 27 of the Code of
Federal Regulations. [Cider and Perry are fruit wines
derived wholly (except for sugar, water, or added
alcohol) from apples or pears.]
3)Also, makes minor technical and code maintenance changes
to existing provisions of law.
EXISTING LAW
Existing law establishes the Department of ABC and grants
it exclusive authority to administer the provisions of the
ABC Act in accordance with laws enacted by the Legislature.
AB 779 (Bocanegra) continued
Page 2
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.
Existing law authorizes a licensed beer manufacturer, at
the licensed premises of production, to sell to consumers
for consumption off the premises beer that is produced and
bottled by, or produced and packaged for, that
manufacturer.
Existing law also grants licensed beer manufacturers the
following privileges: (1) selling beer to any person
holding a license authorizing the sale of beer; (2) selling
beer to consumers for consumption on the manufacturer's
licensed premises or on premises owned by the manufacturer
which are contiguous to the licensed premises and which are
operated by and for the manufacturer; and, (3) selling beer
and wine, regardless of source, to consumers for
consumption at a bona fide public eating place on the
manufacturer's licensed premises or at a bona fide public
eating place on premises owned by the manufacturer which
are contiguous to the licensed premises and which are
operated by and for the manufacturer.
Additionally, existing law provides that licensed beer
manufacturers and holders of out-of-state beer
manufacturer's certificates may be issued and may hold
retail package off-sale beer and wine licenses. The law
also stipulates that alcoholic beverages produced or sold
at or from the off-sale premises which are not produced and
bottled by, or produced and packaged for, the beer
manufacturer must be purchased by the beer manufacturer
only from a licensed wholesaler.
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
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
AB 779 (Bocanegra) continued
Page 3
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.
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 779 : According to the author's office, cider
is the nation's fastest-growing beverage category yet it
makes up only a very small portion (less than 1%) of total
U.S. alcoholic beverage sales and thus has the potential
for greater growth.
The author's office references the fact that existing ABC
law establishes a number of licensure categories for
alcoholic beverage manufacturers. For example, breweries
must possess a Type 01(Beer Manufacturer) license for the
production of beer while wine producers must possess a Type
02 license. In some cases, a beer manufacturer may have
the capacity, technology and workforce to produce more than
one type of alcoholic beverage (e.g., beer and cider) yet
the law limits that licensed manufacturer to only one type
of alcoholic beverage per licensed manufacturing site.
The author's office states that this measure is intended to
simplify the licensure process for alcoholic beverage
manufacturers who can produce more than one beverage type
by allowing the holder of a Type 01 license to produce not
only beer but also cider and perry. The author's office
AB 779 (Bocanegra) continued
Page 4
believes that the growth of the cider market in California
will occur at bars and restaurants in light of the fact
that they have more open taps for various craft beers and
also because they've shown a willingness to expand their
alcoholic beverage offerings.
What is Cider? Cider is a fermented alcoholic beverage
made from fruit juice, most commonly and traditionally
apple juice. Cider varies in alcohol content from 2% ABV
to 8.5% or more in traditional English ciders. In some
regions, such as Germany and the United States, cider may
be called "apple wine." Cider is often stronger than beer,
and is frequently over 6% alcohol by volume - common
eating apples are generally unsuitable for cider making,
being low in tannins; specific apple cultivars bred
especially for cider making are preferred.
In California, hard ciders are considered wine because
they're fermented from fruit and thus can only be
manufactured by a holder of a Type 02 ABC license
(Winegrower). Existing law explicitly limits an alcoholic
beverage manufacturer to only one licensed type of beverage
per manufacturing site.
Industry studies show that volume sales of cider in the
U.S. grew by 20% in 2011. This growth was largely
attributed to the popularity of craft beer in the U.S. and
consumers' desire to try new flavors and tastes.
Familiarity with the wide variety and tastes of craft beers
has allowed consumers to venture into giving other
alcoholic beverages a go. Some craft breweries have also
begun to add a cider offering to complement their craft
beer portfolio. Cider volume sales are projected to grow
well over 10% during the next 3-4 years. More sales have
also resulted in greater product offerings by
manufacturers. For example, in 2011, the Boston Beer
Company, maker of Samuel Adams, entered the cider market
with its Angry Orchard brand. In February 2012,
MillerCoors' Tenth and Blake craft-imported unit purchased
Crispin Cider Company of Minneapolis and the brand volume
more than doubled. In May 2012, Anheuser-Busch InBev (A-B)
also made a play with Michelob Ultra Light Cider, a
low-calorie entrant, which accounted for 350,000 cases.
This year, A-B expanded its presence with the launch of
Stella Artois Cidre. Constellation has also entered the
market through its Crown Imports division, which began
AB 779 (Bocanegra) continued
Page 5
importing Carlsberg-owned Somersby Apple Cider into the
U.S. last year. Mike's Hard Lemonade Co, in April launched
Smashed Apple Cider. The U.S. market's top cider brand by
sales, Woodchuck, produced by the Vermont Hard Cider Co.,
grew 25% last year.
What is Perry ? Perry or pear cider is an alcoholic drink,
made from pressed pears, especially grown for this purpose.
Traditional perry making is broadly similar to traditional
cider making, in that the fruit is picked, crushed, and
pressed to extract the juice, which is then fermented using
the wild yeasts found on the fruit's skin. The principal
differences between perry and cider are that pears must be
left for a critical period to mature after picking, and the
pomace must be left to stand after initial crushing to lose
tannins, a process analogous to wine maceration. After
initial fermentation, the drink undergoes a secondary
malolactic fermentation while maturing.
Perry pears often have higher levels of sugar than cider
apples, including unfermentable sugars such as sorbitol,
which can give the finished drink a residual sweetness.
They also have different tannin content to cider apples,
with a predominance of astringent over bitter flavors.
SUPPORT: As of June 21, 2013:
Anheuser-Busch In Bev
California Chamber of Commerce
California Manufacturers & Technology Association
OPPOSE: None on file as of June 21, 2013.
FISCAL COMMITTEE: Senate Appropriations Committee
**********
AB 779 (Bocanegra) continued
Page 6