BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 779| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 779 Author: Bocanegra (D), et al. Amended: 6/11/13 in Senate Vote: 21 SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 10-0, 6/25/13 AYES: Wright, Nielsen, Berryhill, Calderon, Cannella, De León, Galgiani, Hernandez, Lieu, Padilla NO VOTE RECORDED: Correa SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 72-0, 5/24/13 - See last page for vote SUBJECT : Alcoholic beverages SOURCE : Author DIGEST : This bill adds a new provision to the Alcoholic Beverage Control Act (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. ANALYSIS : Existing law: 1.Establishes the Department of Alcoholic Beverage Control (ABC) CONTINUED AB 779 Page 2 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 or occupation taxes for this purpose. 2.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. 3.Grants licensed beer manufacturers the privilege of (a) selling beer to any person holding a license authorizing the sale of beer; (b) 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, (c) 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. 4.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. 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. 5.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). This is known as the "tied-house" law. 6.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 CONTINUED AB 779 Page 3 premises in original, sealed containers. This bill adds a new provision to the 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 bill: 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.Makes minor technical and code maintenance changes to existing provisions of law. Background 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 (alcohol by volume) 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 CONTINUED AB 779 Page 4 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 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. 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes CONTINUED AB 779 Page 5 SUPPORT : (Verified 8/9/13) Anheuser-Busch InBev California Chamber of Commerce California Manufacturers & Technology Association ARGUMENTS IN SUPPORT : 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 bill 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 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. ASSEMBLY FLOOR : 72-0, 5/24/13 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Blumenfield, Bocanegra, Bonilla, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Stone, Ting, Wagner, CONTINUED AB 779 Page 6 Weber, Wieckowski, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Bonta, Grove, Holden, Skinner, Waldron, Wilk, Vacancy, Vacancy MW:nl 8/12/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED