BILL ANALYSIS Ó Bill No: AB 933 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2013-2014 Regular Session Staff Analysis AB 933 Author: Skinner As Amended: June 19, 2013 Hearing Date: June 25, 2013 Consultant: Art Terzakis SUBJECT Alcoholic Beverages: Distilled Spirits Manufacturers: tastings DESCRIPTION AB 933 grants licensed distilled spirits manufacturers and licensed brandy manufacturers the privilege to conduct consumer tastings on their licensed premises and to charge for those tastings. Specifically, this measure: 1)Finds and declares that a tasting of distilled spirits or brandy is a presentation of samples of alcoholic beverages representing one or more manufacturers to a group of consumers for the purpose of acquainting the tasters with the characteristics of the distilled spirits or brandy tasted. 2)Stipulates that tastings of "distilled spirits" on the licensee's premises shall be subject to the following conditions: a) Tastings must not exceed of an ounce and must be limited to no more than four tastes per individual per day. b) Tastings must include the products that are authorized to be produced or bottled by or for the licensee. AB 933 (Skinner) continued Page 2 c) Prohibits individuals under 21 years of age from serving tastings. d) Prohibits single tastings in the form of a cocktail or mixed drink. e) Permits the distilled spirits licensee to charge for such tastings. 3)Adds a new Section of law to the ABC Act authorizing a licensed "brandy" manufacturer to conduct tastings of brandy produced or bottled by, or produced or bottled for, the licensee, on or off the licensee's premises for events sponsored by a nonprofit organization, as defined, and only if persons attending the event are affiliated with the sponsor. (This provision mirrors existing ABC law relative to authorization granted to distilled spirits manufacturers.) 4)Also, makes it explicit that no brandy shall be sold or solicited for sale at the event and mandates that the sponsoring organization obtain a permit for such an event from the ABC. Additionally, grants brandy manufacturers the privilege of conducting tastings on their licensed premises and charging for those tastings subject to the same conditions afforded distilled spirits manufacturers as referenced in item # 2 (a-e) above. 5)Includes "boiler plate" findings and declarations relative to the necessity of requiring a separation between the three-tiers of the alcoholic beverage industry in order to prevent suppliers from dominating local markets through vertical integration and to prevent excessive sales of alcoholic beverages produced by overly aggressive marketing techniques. 6)Makes minor technical and code maintenance changes to existing provisions of the ABC Act (Section 23363.1 of the Business & Professions Code). EXISTING LAW The enactment of the 21st Amendment to the U.S. Constitution in 1933 repealed the 18th Amendment and ended the era of Prohibition. Accordingly, states were granted the authority to establish alcoholic beverage laws and AB 933 (Skinner) continued Page 3 administrative structures to regulate the sale and distribution of alcoholic beverages. 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 or occupation taxes for this purpose. 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 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 (Business and Professions Code Section 23363.1) permits a licensed distilled spirits manufacturer to conduct tastings of distilled spirits produced or bottled by, or produced or bottled for, the licensee, on or off the licensee's premises. Tastings conducted by the licensee off the licensee's premises must be for an event sponsored by a nonprofit organization, as defined, and only if persons attending the event are affiliated with the sponsor. Existing law also makes it explicit that no AB 933 (Skinner) continued Page 4 distilled spirits shall be sold or solicited for sale in that portion of the premises where the distilled tasting is being conducted. Existing law also permits an on-sale retail licensee of wine or distilled spirits to conduct "instructional" consumer tastings on the 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 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. Additionally, existing law authorizes 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. Furthermore, existing law permits a licensed winegrower, manufacturer, importer, or wholesaler to provide samples of the alcoholic beverages which are authorized to be sold by the licensee in accordance with rules prescribed by the ABC. A retail licensee, however, is not authorized to provide any free samples of alcoholic beverages. Moreover, ABC regulations provide that samples of alcoholic beverages may only be given away to licensees or employees of licensees who are in a position to purchase the product or who are in need of additional information about the product, as specified. Existing law permits a licensed winegrower or brandy manufacturer to be issued an off-sale general license. Existing law also permits wineries to sell their products to consumers on their licensed premises and directly to licensed, on-sale and off-sale retailers (e.g., restaurants and liquor stores). Additionally, existing law provides for a brewpub-restaurant license, issued to a bona fide public eating place, which authorizes the sale of beer, wine, and distilled spirits for consumption on the premises and the sale of beer produced by the brewpub-restaurant licensee for consumption on the premises. The license also authorizes the sale of beer produced by the licensed brewpub-restaurant licensee to a licensed beer and wine AB 933 (Skinner) continued Page 5 wholesaler. The brewpub-restaurant licensee must purchase all beer, wine, or distilled spirits for sale on the licensed premises from a licensed wholesaler or winegrower, except for the beer produced by the brewpub-restaurant licensee on the licensed premises. Additionally, the law also requires the brewpub-restaurant licensee to offer for sale on the licensed premises other commercially available beers available from licensed wholesalers. 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 933: The author's office points out that existing law permits distilleries to provide their customers with complementary tastings of the products they manufacture however the law precludes them from charging for those tastings. According to the author's office, this measure is intended to give adult consumers who enjoy distilled spirits the opportunity to sample new products, in modest quantities, and in a responsible environment (at the distillery). The author's office maintains that the ability to charge for tastings is also aligned with existing privileges afforded the wine and beer industry. Additionally, the author's office emphasizes that this measure is carefully crafted to give distilled spirits and brandy manufacturers a marketing tool to educate current and future consumers while taking into consideration California's three-tier system. The sponsor of this measure, the California Artisanal Distillers Guild, states that California currently has approximately 32 small business distilleries producing common brands such as Hangar One Vodka and St. James Spirits. These distilleries manufacture a variety of products including but not limited to gin, vodka, rum and bourbon. California distillers make award-winning products using raw ingredients which are primarily purchased, sourced or grown by California farmers or suppliers. Arguments in Opposition: Opponents have expressed concern AB 933 (Skinner) continued Page 6 about the expansion of the tastings exemption in tied-house law and the unprecedented authorization for the sale and consumption of distilled spirits and brandy outside of a properly licensed, on-sale establishment even if this measure limits such consumption to a manufacturer's licensed business location. PRIOR/RELATED LEGISLATION 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. (Pending on Senate floor) AB 949 (Quirk), 2013-14 Session. Would authorize licensed distilled spirits manufacturers to charge consumers for tastings and would impose additional conditions on the provision of tastings by the licensee, including limiting the size and number of tastes. Also, would provide that a distilled spirits manufacturer's license authorizes the licensee to serve and sell food, general merchandise, and nonalcoholic beverages for consumption on or off the premises. (Held in Assembly Rules Committee) SB 1068 (Hancock), 2009-10 Session. Would have added a new provision to the ABC Act authorizing a licensed distiller that distills fewer than 50,000 gallons of spirits annually to self-distribute to consumers and licensed retailers (restaurants, liquor stores). (Held in this Committee at author's request) AB 605 (Portantino), Chapter 230, Statutes of 2010. Among other things, authorized ABC 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. SB 639 (Calderon), 2009-10 Session. Would have created a new on-sale tasting license to allow off-sale retail licensees to furnish tastes of alcoholic beverages to consumers, as specified. (Died on Senate Appropriations Suspense File) AB 2293 (De Leon), Chapter 638, Statutes of 2008. Added a AB 933 (Skinner) continued Page 7 new provision to the ABC Act authorizing 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. SB 995 (Maldonado), 2007-08 Session. Would have permitted winegrowers, distilled spirits manufacturers, distilled spirits rectifiers general, or distilled spirits importers general, out-of-state distilled spirits shippers, and authorized agents of any of the above to instruct consumers on the premises of an off-sale licensee regarding wine and distilled spirits, respectively, as provided. Also, would have allowed the instruction to include the furnishing of tastings under specified conditions. (Held in this Committee at author's request.) AB 2613 (Plescia), 2007-08 Session. Would have authorized winegrowers, distilled spirits manufacturers, as well as rectifiers, importers and shippers of these beverages to offer tastings of wine or distilled spirits at off-sale retail licensed premises (grocery stores and liquor stores) in a segregated area. Also, would have required verification of age at entrance to the segregated area and placed limits on tastings (one-quarter ounce of spirits and one ounce of wine) and limited tastings to three per person each day. (Held in Assembly Appropriations Committee) 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. SB 993 (Burton), Chapter 544, Statutes of 1997. Among other things, authorized a licensed distilled spirits manufacturer to conduct tastings of distilled spirits on the licensed premises under specified conditions. SUPPORT: As of June 21, 2013: California Artisanal Distillers Guild California Farm Bureau Federation OPPOSE: As of June 21, 2013: AB 933 (Skinner) continued Page 8 California Council on Alcohol Problems FISCAL COMMITTEE: Senate Appropriations Committee **********