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 AB 1928 (Bocanegra) continued Page 2 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. AB 1928 (Bocanegra) continued Page 3 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 AB 1928 (Bocanegra) continued Page 4 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. AB 1928 (Bocanegra) continued Page 5 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. AB 1928 (Bocanegra) continued Page 6 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) AB 1928 (Bocanegra) continued Page 7 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 ********** AB 1928 (Bocanegra) continued Page 8