BILL ANALYSIS Ó Bill No: AB 2004 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Lou Correa, Chair 2013-2014 Regular Session Staff Analysis AB 2004 Author: Chesbro As Amended: June 15, 2014 Hearing Date: June 24, 2014 Consultant: Art Terzakis SUBJECT Alcoholic Beverages DESCRIPTION AB 2004 authorizes a licensed beer manufacturer to apply to the Department of Alcoholic Beverage Control (ABC) for a "certified farmers' market beer sales permit" which allows the licensee to sell packaged beer at a farmers' market, including any area outside the footprint of the farmers' market, under specified conditions. AB 2004 also expands a licensed beer manufacturer's privileges under the ABC Act by authorizing a beer manufacturer to sell or serve all beer, wines, and brandy, regardless of source, to guests during private events held on the licensed beer manufacturer's premises. Specifically, this measure: 1)Authorizes a beer manufacturer to have upon the licensed premises, or on premises owned by the manufacturer that are contiguous to the licensed premises and are operated by and for the manufacturer all beer, wines, and brandies, regardless of source, for sale or service only to guests during private events not open to the general public. In addition, imposes the following requirements on the beer manufacturer: a) The alcoholic beverages sold at the premises that 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. AB 2004 (Chesbro) continued Page 2 b) All alcoholic beverages sold or served must be produced by a licensee authorized to manufacture the product. 2)Authorizes a licensed beer manufacturer to apply to ABC for a certified farmers' market beer sales permit that grants the beer manufacturer the privilege of selling beer, that has been produced by the beer manufacturer, at a certified farmers' market, including any permitted community event area adjacent to, and operated in conjunction with, a certified farmers' market, as specified. Also, imposes the following conditions on the beer manufacturer: a) The farmers' market sales permit is subject to the respective discretion and managerial control of a certified farmers' market or community event operator and existing regulations governed by law under the California Department of Food and Agriculture. b) The farmers' market sales permit may be issued for up to 12 months but shall not be valid for more than one day a week at any single specified farmers' market or community event location. And, allows a beer manufacturer to hold more than one permit. c) Prohibits the licensed beer manufacturer from selling more than 5,000 gallons of beer annually pursuant to all certified farmers' markets permits held by any single beer manufacturer. d) Requires the licensed beer manufacturer to maintain records of annual beer sales made pursuant to all farmers' market beer sales permits issued. 3)Requires ABC to notify the local entity and applicable law enforcement agency where the certified farmers' market or community event is to be held of the issuance of the permit. 4)Establishes a $50 permit which is subject to adjustment pursuant to the ABC Act. EXISTING LAW AB 2004 (Chesbro) continued Page 3 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 or occupation taxes for this purpose. Existing law 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. Existing law also grants licensed beer manufacturers the following privileges: (1) selling beer to any person holding a license authorizing the sale of beer; (2) 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, (3) 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. Additionally, existing law 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. The law also 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. Existing law authorizes the Department of ABC to issue special temporary licenses and permits to various entities for limited purposes including a "certified farmers' market sales permit" that authorizes a licensee under a winegrower's license, a member of the licensee's family, or an employee of the licensee to sell wine produced and bottled by the winegrower at certified farmers' market locations. The farmers' market sales permit may be issued AB 2004 (Chesbro) continued Page 4 for up to 12 months but shall not be valid for more than one day a week at any single specified farmers' market location. The law also allows a winegrower to hold more than one certified farmers' market sales permit and requires ABC to notify local agencies and enforcement entities of the permits. Additionally, the law prohibits the licensed winegrower from selling more than 5,000 gallons of wine annually pursuant to all certified farmers' markets sales permits held by any single winegrower. Existing law provides for certified farmers' markets which are operated in accordance with regulations established in the California Administrative Code pertaining to direct marketing and are governed by law under the California Department of Food and Agriculture (CDFA). These rules are enforced by County Agriculture Commissioners in the counties in which the market operates. The markets also fall under the jurisdiction of the health departments in each county in which a market operates. 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. BACKGROUND Purpose of AB 2004 : According to the author's office, this measure is intended to allow craft brewers to: (1) provide and sell other alcoholic beverages, such as wine and champagne, at private events held on their brewery premises and (2) sell beer at certified farmers' markets events. The author's office states that brewery customers are increasingly requesting the use of brewery facilities and premises for private events such as weddings and birthdays and under current law the only alcoholic beverage a beer manufacturer can provide to the guests of the private event is beer produced by the brewery. The beer manufacturer is prohibited from providing these guests with wine, champagne AB 2004 (Chesbro) continued Page 5 or beer from other producers. This measure would allow guests at such private events to have access to other beers and alcoholic beverages should they desire to have that choice provided the beer manufacturer purchases the alcoholic beverages from a licensed wholesaler. The author's office also points out that as the popularity of craft beer and certified farmers' markets grows and expands concurrently it makes sense to combine the two and allow for consumers to purchase locally manufactured craft beer at farmers' market events. This measure would enable a licensed beer manufacturer to apply for a permit, from the Department of ABC, to sell beer for off premise consumption at, or in conjunction with, certified farmers' markets. The author emphasizes that the organizer of the farmers' market retains full control over whether or not a craft brewery may participate in their event Arguments in Support: Writing in support of AB 2004, the California Craft Brewers Association (CCBA) states that certified farmers' markets require products sold within their event boundaries to be 100% grown and produced on the property owned by the farmer or manufacturer. Products that cannot meet this criterion must be sold in an area adjacent to the farmers' market called a 'community event' area. While most craft brewers cannot meet the certified farmers' market criteria there may be the rare instance where one does in fact grow all the ingredients (i.e., grain and hops) on their own property. As such, this bill reflects the necessary authority under both circumstances." Staff Comments: In most cases the certified farmers' market operator is also the designated operator of the community event area. However, in some cases each event may have separate operators. Thus, an amendment may be necessary to ensure full control over approval of brewery participation by the organizer of the farmers' market, or the operator of the community event area, whichever the circumstances may dictate respectively. California's Craft Breweries: According to industry sources, California currently has more craft breweries (approximately 440) than any other state in the country. In fact, California has more than twice as many craft breweries as Colorado - the state with the next highest number. An average of one in every five craft beers AB 2004 (Chesbro) continued Page 6 produced in the U.S. comes from California. In 2012, the California craft brewery industry had an annual impact of $4.7 billion on the state's economy and supported well over 45,000 jobs. Additionally, the state's craft brewery industry generated over $850 million in federal, state, and local revenues in 2012. PRIOR/RELATED LEGISLATION ACR 116 (Chesbro), Resolution Chapter 43, Statutes of 2014. Proclaimed the month of April 2014 as California Craft Brewery Month. AB 779 (Bocanegra), Chapter 379, Statutes of 2013. Added 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. AB 2488 (Levine), 2013-14 Session. Would expand an existing provision of the ABC Act which currently allows a licensed winegrower, under specified conditions, to sell estate grown wine at certified farmers' markets to also grant the licensed winegrower the privilege of conducting limited wine tastings for consumers at farmers' markets under certain circumstances. (Pending in Senate Appropriations Committee) AB 933 (Skinner), Chapter 366, Statutes of 2013. Granted licensed distilled spirits manufacturers and licensed brandy manufacturers the privilege to conduct consumer tastings on their licensed premises and to charge for those tastings. AB 2134 (Chesbro), Chapter 149, Statutes of 2010. Created a new tied-house exception in the ABC Act that allows licensed brewers to conduct and participate in events called "Beer Maker Dinners" for consumers held at an on-sale retail licensed premise. AB 2293 (De Leon), Chapter 638, Statutes of 2008. Added a 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 AB 2004 (Chesbro) continued Page 7 permit authorization has been issued AB 2004 (Evans), Chapter 127, Statutes of 2008. Authorized a licensed winegrower to sell wine for consumption to consumers on the winery's premises. 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. AB 2520 (Thomson), Chapter 384, Statutes of 2000. Authorized licensed winegrowers to obtain certified farmers' market sales permits authorizing the sale of wine at farmers' markets, as specified. SUPPORT: As of June 20, 2014: California Craft Brewers Association OPPOSE: None on file as of June 20, 2014. FISCAL COMMITTEE: Senate Appropriations Committee **********