BILL ANALYSIS Ó AB 1928 Page 1 ASSEMBLY THIRD READING AB 1928 (Bocanegra) As Amended April 21, 2014 Majority vote GOVERNMENTAL ORGANIZATION 19-0 APPROPRIATIONS 16-0 ----------------------------------------------------------------- |Ayes:|Hall, Nestande, |Ayes:|Gatto, Bigelow, | | |Achadjian, Bigelow, | |Bocanegra, Bradford, Ian | | |Campos, Chesbro, Cooley, | |Calderon, Campos, Eggman, | | |Dababneh, Gray, Roger | |Gomez, Holden, Jones, | | |Hernández, Jones, | |Linder, Pan, Quirk, | | |Jones-Sawyer, Levine, | |Ridley-Thomas, Wagner, | | |Medina, Perea, V. Manuel | |Weber | | |Pérez, Salas, Waldron, | | | | |Wilk | | | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- SUMMARY : Prohibits a beer manufacturer or a beer and wine wholesaler from offering, funding, producing, sponsoring, promoting, furnishing, or redeeming any type of coupon. The bill also prohibits a licensee authorized to sell alcoholic beverages at retail from accepting, redeeming, possessing, or utilizing any type of coupon that is funded, produced, sponsored, promoted, or furnished by a beer manufacturer or beer and wine wholesaler. Specifically, this bill : 1)Provides that a beer manufacturer or a beer and wine wholesaler shall not offer, fund, produce, sponsor, promote, furnish, or redeem any type of coupon, as specified. 2)Provides that a licensee authorized to sell alcoholic beverages at retail shall not accept, redeem, possess, or utilize any type of coupon that is funded, produced, sponsored, promoted, or furnished by a beer manufacturer or beer and wine wholesaler. 3)Defines "beer manufacturer" as a holder of a beer manufacturer's license, a holder of an out-of-state beer manufacturer's certificate, a holder of a beer and wine importer's general license when selling beer, malt beverages, AB 1928 Page 2 cider, or perry, or a winegrower that is a wholly owned subsidiary of a beer manufacturer 4)Defines "Cider" and "Perry" as set forth in the Code of Federal Regulations. 5)Defines "Coupon" as any method by which a consumer receives an instant discount at the time of a purchase that is funded, produced, sponsored, promoted, or furnished, either directly or indirectly, by a beer manufacturer or beer and wine wholesaler, including, but not limited to, a paper coupon, a digital coupon, an instant redeemable coupon (IRC), or an electronic coupon commonly referred to as a scan or scanback. A "Coupon" does not include: a) A mail-in rebate by which the consumer purchases an item and submits required information in order to receive a rebate or discount from the beer manufacturer. b) A coupon that is offered and funded by a distilled spirits manufacturer, distilled spirits importer general, distilled spirits importer, or distilled spirits wholesaler that offers a discount on the purchase of a distilled spirits product such as beer, malt beverages, cider, or perry are not advertised in connection with the coupon. c) A coupon offered and funded by a winegrower, a wine rectifier, a wine blender, a beer and wine importer, a beer and wine importer general, or a wine broker that offers a discount on the purchase of a wine product if beer, malt beverages, cider, or perry are not advertised in connection with the coupon. d) A discount that is offered and funded by a beer manufacturer on the purchase of beer, malt beverages, cider, or perry at the licensed premises of production or other licensed premises owned and operated by the beer manufacturer. EXISTING LAW : 1)The enactment of the 21st Amendment to the United States (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 1928 Page 3 administrative structures to regulate the sale and distribution of alcoholic beverages. 2)Establishes the Department of Alcohol Beverage Control (ABC) and grants it exclusive authority to administer the provisions of the Alcoholic Beverage Control Act (Act). 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 for this purpose. 3)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. With respect to beer, a beer manufacturer may give consumer advertising specialties to the general public that do not exceed $3 per unit original cost to the beer manufacturer who purchased it. 4)Prohibits the ABC from imposing a dollar limit of less than $5 for consumer advertising specialties furnished by a distilled spirits supplier to a retailer or the general public. Existing law also provides that consumer advertising specialties furnished by a wine supplier to a retailer or to the general public shall not exceed $1 per unit original cost to the supplier who purchased it. 5)Authorizes wine, beer and spirits producers to conduct consumer "contests" or "sweepstakes," as specified. 6)States that the "Tied-House" Law, separates the alcoholic beverage industry into three component parts of manufacturer, wholesaler, and retailer. The original policy rationale for this body of law was to prohibit the vertical integration of the alcohol industry and to protect the public from predatory marketing practices. Generally, other than exemptions 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. FISCAL EFFECT : According to the Assembly Appropriations Committee, minor and absorbable enforcement costs to ABC. AB 1928 Page 4 COMMENTS : Purpose of the bill: According to the author, there is a lack of transparency in the beer market as it relates to beer manufacturer coupons. Additionally, there is a high level of inequity between the major beer conglomerates and the craft breweries in the marketplace. Instant redeemable coupons (IRCs) offered by beer manufacturers are one type of discount that offers an instant reduction in the price of a product when purchased at a retail licensee. However, these beer manufacturer coupons could easily lend themselves to fraudulent practices, such as counterfeiting. The author states, brewers and retailers are losing revenues and are being exposed to unnecessary liability due to fake coupons, which are often hard to distinguish from coupons that are produced by the manufacturer. The author further states that the elimination of coupons will level the playing field between the major brewing conglomerates and the craft breweries that are quickly becoming a sizeable part of our state economy. Unlike the major conglomerates, most craft breweries, which are much smaller operations, cannot afford to offer their own beer coupons. The author points out that a number of states, including New York, Massachusetts, and Texas, already ban manufacturer beer coupons. In support: MillerCoors, in support, states this bill will prohibit instant redeemable coupons (IRCs) offered by beer manufacturers. IRCs are a type of discount that offers an instant reduction in the price of a product when purchased at a retail facility. However, IRCs easily lend themselves to fraudulent practices like counterfeiting with little checks or balances. They have thus grown to become a costly liability and there is widespread support within the beer industry to remove them from the marketplace. Furthermore, this bill would only prohibit instant coupons that AB 1928 Page 5 are sponsored by beer manufacturers and beer distributors but would still allow distilled spirits and wine companies to offer coupons on spirits and wine. According to Anheuser-Busch, "unfortunately, IRCs which represent a redeemable cash value, provide an easy way to evade alcohol beverage laws that restrict the giving away of things of value to licensed retailers. Therefore, the use of instant redeemable coupons should be prohibited by the state, thus ensuring the protection of Tied-house principles. Under AB 1928, coupons offered and funded by retailers and mail-in-rebates offered and funded by beer manufactures would still be permitted." Prior legislation: AB 2184 (Hall), Chapter 480, Statutes of 2012, authorized, until January 1, 2016, wine, beer and spirits producers to participate in promotional events held at an off-sale retail licensed location for the purpose of providing autographs on bottles or other items to consumers. AB 778 (Padilla), Chapter 489, Statutes of 2012, added a new section of law to the Act that authorizes wine, beer and spirits producers to conduct consumer "contests" or "sweepstakes." AB 1245 (Torrico), Chapter 629, Statutes of 2008, allowed beer manufacturers to give adult consumers promotional advertising items valued at $3 per unit original cost to the beer manufacturer who purchased it. AB 2293 (De León), Chapter 638, Statutes of 2008, added a new provision to the Act that permits a manufacturer of distilled spirits, winegrower, rectifier, or distiller, or its authorized agent to provide their product, as well as entertainment and food to consumers over 21 years of age during invitation-only events (free of charge), as specified. The events must occur on premises for which a caterer's permit authorization has been issued. SB 1548 (Murray), Chapter 670, Statutes of 2006, authorized beer manufacturers and wholesalers to offer beer samples (not to exceed eight ounces per person, per day) to individuals of legal drinking age at on-sale retail licensed premises, as specified. AB 1928 Page 6 AB 2285 (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: 1) provided that no rule 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; and, 2) authorized a licensed distilled spirits manufacturer to conduct tastings of distilled spirits on the licensed premises under specified conditions. Analysis Prepared by : Eric Johnson / G.O. / (916) 319-2531 FN: 0003285