BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                       Bill No:  AB  
          1928
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                           Senator Lou Correa, Chair
                           2013-2014 Regular Session
                                 Staff Analysis

          AB 1928  Author:  Bocanegra
          As Amended:  June 4, 2014
          Hearing Date:  June 10, 2014
          Consultant:  Art Terzakis

                                     SUBJECT  
                       Alcoholic Beverages: coupons: beer

                                   DESCRIPTION
           
          AB 1928 prohibits a beer manufacturer or a beer and wine  
          wholesaler from offering, promoting, or redeeming coupons,  
          as defined, and also prohibits an alcoholic beverage retail  
          licensee from accepting or redeeming any type of coupon  
          that is funded, produced or promoted by a beer manufacturer  
          or beer and wine wholesaler.   Specifically, this measure:

          1)Stipulates that a beer manufacturer or a beer and wine  
            wholesaler shall not offer, fund, produce, sponsor,  
            promote, furnish, or redeem any type of coupon.

          2)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.

          3)Defines "beer manufacturer" to mean 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, 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" to mean any method by which a consumer  




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            receives an instant discount at the time of 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.

          6)Provides that the above prohibition will not apply to:

             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  
               winegrower, a wine rectifier, a wine blender, a beer  
               and wine wholesaler, 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.

             c)   A coupon that is offered and funded by a distilled  
               spirits producer, importer, or   wholesaler that  
               offers a discount on the purchase of a distilled  
               spirits 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

           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.  
           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.





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          Existing law, known as 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.

          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.

          With respect to beer, existing law provides that premiums,  
          gifts, or free goods, including advertising specialties  
          that have no significant utilitarian value other than  
          advertising, shall be deemed to have greater than  
          inconsequential value if they cost more than $0.25 per  
          unit, or cost more than $15 in the aggregate for all those  
          items given by a single supplier to a single retail  
          premises per calendar year.  Additionally, existing law  
          prohibits the ABC from imposing a dollar limit of less than  
          $3 per unit original cost to the beer manufacturer who  
          purchased it.

          With respect to distilled spirits and wines, a licensee may  
          furnish, give, rent, loan, or sell advertising specialties  
          to a retailer, provided those items bear conspicuous  
          advertising required of a sign and the total value of all  
          retailer advertising specialties furnished by a supplier,  
          directly or indirectly, to a retailer do not exceed $50  
          dollars per brand in any one calendar year per retail  
          premises.

          Existing law 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  




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          exceed $1 per unit original cost to the supplier who  
          purchased it.

          ABC Rule 106 prohibits the giving of any premium, gifts or  
          goods of any sort, whether by way of sweepstakes, drawings,  
          prizes, cross merchandizing promotions with a non-alcoholic  
          beverage or product, or any other method if the value of  
          the premium, gift or good exceeds $0.25 with respect to  
          beer, $1 with respect to wine, or $5 with respect to  
          distilled spirits.  Rule 106 authorizes alcohol suppliers  
          to sponsor contests and other similar activities subject to  
          these monetary limits and other specified conditions.

          The ABC Act 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.  

          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.  
           
          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 authorizes distilled spirits manufacturers to  
          conduct tastings and provide distilled spirits without  
          charge for events sponsored by nonprofit organizations.   
          Only persons affiliated with the nonprofit organization,  
          including up to three guests, may attend.  No distilled  
          spirits may be sold or solicited for sale at the tasting,  
          and the organization must obtain a permit from ABC prior to  
          the event.




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                                    BACKGROUND
           
           Purpose of AB 1928:   The author's office notes that the  
          beer market, as it relates to beer manufacturer coupons,  
          lacks transparency.  Additionally, an inequity exists  
          between the major beer conglomerates and the craft  
          breweries in the marketplace.  The author's office points  
          out that a problem has arisen within the industry because  
          instant redeemable coupons (IRCs), which are provided by  
          beer manufacturers and offer an instant reduction in the  
          price of a beer product purchased at a retail facility,  
          easily lend themselves to fraudulent practices such as  
          counterfeiting.  As things stand, these beer manufacturers  
          are not only losing resources but they are also being  
          exposed to unnecessary liability due to fake coupons, which  
          are often hard to distinguish from those coupons that they  
          actually do produce.  

          The author's office emphasizes that there is a strong  
          desire for greater transparency within the beer market and  
          widespread support for the elimination of fraudulent  
          coupons.  The author's office states that AB 1928  
          accomplishes both goals by increasing transparency and  
          stemming the flow of fake coupons.  Furthermore, the  
          elimination of beer manufacturer coupons will serve to  
          level the playing field between the major brewing  
          conglomerates and the craft breweries that are quickly  
          becoming a sizable part of California's economy.  Unlike  
          the major conglomerates, most craft breweries, which are  
          much smaller operations, cannot afford to offer their own  
          beer coupons.  Thus, elimination of beer manufacturer  
          coupons would ensure greater fairness among all producers  
          in the beer market and provide greater equity among all  
          beer producers.  

           Arguments in Support:  Writing in support, beer producers  
          emphasize that AB 1928 does not prohibit all consumer  
          discount offers.  Mail-in rebates and retailer-sponsored  
          coupons are still permitted, as they are coupon types that  
          either have a system for checks and balances or are not  
          otherwise problematic.  Proponents claim that AB 1928 is  
          narrowly tailored to only prohibit instant coupons that are  
          sponsored by beer manufacturers and distributors, but still  
          allows distilled spirits and wine companies to offer  
          coupons for spirits and wine.




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           Arguments in Opposition:   The California Retailers  
          Association and the California Grocers Association have  
          expressed concern with AB 1928 and are opposed unless the  
          measure is amended to enable retailers to maintain the  
          ability to offer an instant electronic discount to the  
          consumer at the time of purchase that is funded in whole or  
          in part by the beer manufacturer as part of a retail  
          loyalty or card club program or scanback. 

                            PRIOR/RELATED LEGISLATION
           
           SB 778 (Padilla), Chapter 489, Statutes of 2012.    
          Authorized wine, beer and spirits producers to conduct  
          contests and sweepstakes and award prizes to consumers  
          subject to various restrictions. Furthermore, exempted  
          prize awards from provisions limiting premium awards in  
          connection with the sale or distribution of alcoholic  
          beverages.

           AB 2184 (Hall), Chapter 480, Statutes of 2012.   Created a  
          new tied-house exception in the ABC Act that authorized  
          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 1245 (Torrico), Chapter 629, Statutes of 2008.   Modified  
          an existing provision of the ABC Act to allow beer  
          manufacturers to give adult consumers promotional  
          advertising items valued at $3 per unit original cost to  
          the beer manufacturer who purchased it.    

           AB 2518 (Bill Campbell), 2001-02 Session.   Would have  
          allowed alcoholic beverage suppliers to conduct sweepstakes  
          or contests that offer adults the opportunity to win prizes  
          or things of value.  (Failed passage in Assembly G.O.  
          Committee)
           AB 642 (Strickland), 2001-02 Session.   Would have provided  
          that no rule of the Department of ABC may permit a licensee  
          to offer any premium, gift, or free goods to a consumer in  
          such a way that would encourage the purchase or consumption  
          of alcoholic beverages by minors, and that is conditioned  
          on the purchase of an alcoholic beverage.  (Held in  
          Assembly G.O. Committee)





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           AB 953 (Brown), 1997-98 Session.   Would have allowed a  
          distilled spirits or beer supplier to sponsor a consumer  
          sweepstakes or contest, as defined, offering the chance to  
          win prizes or other things of value, if specified  
          conditions are met.  (Withdrawn from Senate Third Reading  
          and re-referred to Senate Committee on Rules)

           SB 1069 (Thompson), 1997-98 Session.   Would have allowed a  
          winegrower or brandy manufacturer to sponsor a sweepstakes  
          or contest, as defined, offering the chance to win prizes  
          or other things of value, if specified conditions are met,  
          and to provide rebates or discounts on nonalcoholic  
          beverages or services in connection with the sale or  
          distribution of wine and brandy under certain conditions.   
          (Placed on Assembly Inactive File)
          
           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 6, 2014:

          Alcohol Justice (formerly Marin Institute)
          Anheuser-Busch
          California Beer & Beverage Distributors
          California Chamber of Commerce
          California Craft Brewers Association
          MillerCoors

           OPPOSE:   As of June 6, 2014:

          California Grocers Association
          California Retailers Association

           FISCAL COMMITTEE:   Senate Appropriations Committee

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