BILL ANALYSIS Ó
Bill No: AB
2010
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Lou Correa, Chair
2013-2014 Regular Session
Staff Analysis
AB 2010 Author: Gray
As Amended: June 12, 2014
Hearing Date: June 24, 2014
Consultant: Art Terzakis
SUBJECT
Alcoholic Beverages: beer returns: duplicate licenses
DESCRIPTION
AB 2010 adds beer that a brewer considers to have "product
quality" issues to the list of conditions under which beer
may be returned to a wholesaler or manufacturer. In
addition, AB 2010 repeals an existing Section of the
Alcoholic Beverage Control (ABC) Act relating to duplicate
licenses and the sale and delivery of beer from branch
offices and recasts those provisions, as specified.
Specifically, this measure:
1)Permits the return of beer by a retailer to a seller and
by a seller to a manufacturer or importer, if the beer
has product quality issues.
2)Provides that a seller of beer may exchange with the
manufacturer or importer the returned beer that was
recalled or considered to present product quality issues.
Also, provides that the returned beer may be exchanged
for identical product, if safe inventory or
quality-controlled product inventory is available or the
seller of beer may elect to receive either a refund or be
issued a credit memorandum by the manufacturer or
importer.
3)Stipulates that returns for manufacturer or importer
quality issues are subject to ABC approval and shall not
include the return of beer due to aging.
AB 2010 (Gray) continued
Page 2
4)Deletes an existing Section of law within the ABC Act
that requires the Department of ABC to issue a duplicate
license to a beer manufacturer if the beer manufacturer
applies for a duplicate license that permits the beer
manufacturer to sell and deliver beer at or from branch
offices and instead, authorizes the department to issue
to a beer manufacturer a duplicate of its original
license where specified privileges are to be exercised at
the branch office.
5)Prohibits the sale or tasting of alcoholic beverages to
consumers at more than 6 branch office locations and
allows 2 of the branch office locations to be bona fide
eating places owned and operated by and for the beer
manufacturer, as specified. Also, provides that beer
manufacturers who are conducting these activities under
an existing duplicate license issued prior to January 1,
2015 will not be affected by the limitations imposed by
this measure.
6)Prohibits a branch office location where consumer
tastings or sales for on or off premises consumption are
authorized from selling or serving alcoholic beverages
other than beer that is produced and bottled by, or
produced and packaged for, the beer manufacturer.
7)Also, specifies that a branch office location where the
sale of beer and wine to consumers for consumption on the
premises of a bona fide public eating place is authorized
shall not sell or serve alcoholic beverages other than:
(a) beer and wine that is produced and bottled by, or
produced and packaged for, the beer manufacturer and (b)
beer and wine that is purchased by the beer manufacturer
from a licensed wholesaler that is not owned, either
alone or under common ownership, by the beer
manufacturer.
8)In order to obtain a duplicate license, with or without
certain privileges as specified, a beer manufacturer must
submit any application forms as ABC may require and, upon
request, shall be issued a temporary permit for use at a
branch office location during the period the application
for a duplicate license is pending.
9)Provides that any duplicate license issued shall be
contingent on the beer manufacturer consenting to make no
AB 2010 (Gray) continued
Page 3
changes in the character or mode of operation of the
branch office premises that would directly or indirectly
expand the privileges under the duplicate license and
specifies that any such changes shall require
reapplication and reissuance of the duplicate license.
10)Provides that, in the event any protest is received by
ABC concerning the issuance of the duplicate license, the
protest shall be considered as an accusation against the
licensee and a hearing had thereon as if an accusation
had been filed.
11)Permits a beer manufacturer to continue to exercise
privileges at all of its licensed branch offices that
were in existence and authorized by ABC prior to the
effective date of this bill's provisions, including any
privileges resulting from any renewal or transfer of the
duplicate licenses for the branch locations, that it was
authorized to exercise prior to that date.
12)Eliminates the existing 30-day prohibition on retail
sales of beer for a branch office with a duplicate
license.
EXISTING LAW
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.
Existing law permits the return of beer for errors in
delivery, health and safety recalls and the identical
exchange of out-of-code products.
Existing law also authorizes a wholesaler or manufacturer
of beer to accept the return of quantities of discontinued
or seasonal brands of beer from a retail licensee, provided
that the returned beer is exchanged for a quantity of beer
of a brand produced or sold by the same manufacturer with a
value not greater than the original sales price to the
retail licensee of the returned beer.
Existing law permits a wholesaler or manufacturer to accept
AB 2010 (Gray) continued
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the return of beer from a retailer only if the beer is
returned in exchange for the identical quantity and brand
of beer. Existing law provides for exceptions to that
provision, including permitting the return of beer from a
seasonal or temporary licensee or an annual licensee
operating on a temporary basis, permitting the return of
unsold and unopened beer from an organization that obtained
a specified temporary license, and permitting the return of
beer that is recalled or presents a health and safety issue
as provided.
Existing law permits a licensed beer manufacturer to sell
and deliver beer to consumers from branch offices located
away from the licensee's place of manufacture and exercise
all privileges, other than manufacture, at or from the
branch offices. Existing law requires ABC to issue a
duplicate license to a beer manufacturer if the beer
manufacturer applies for a duplicate license. Under
existing law, for 30 days from the date of the issuance of
a duplicate license, retail sales of beer are prohibited at
a branch office for which the duplicate license was issued.
The act provides that a violation of its provisions is a
misdemeanor, unless otherwise specified.
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 (Business & Professions Code Section 25503.28)
provides a narrow tied-house exception that permits the
holder of no more than six on-sale licenses to also own a
licensed beer manufacturer holding a license, as specified.
This particular tied-house exception provides that the
on-sale licensee shall purchase no alcoholic beverages for
sale in this state other than from a wholesale or
winegrower licensee, except for any alcoholic beverages
manufactured by the licensed beer manufacturer at a single
location contiguous or adjacent to the premises of the
on-sale licensee.
AB 2010 (Gray) continued
Page 5
BACKGROUND
Purpose of AB 2010: According to the author's office, this
measure limits the existing expedited duplicate licensing
process to the licensure of a beer manufacturer's storage
facility and its operations that are conducted for this
purpose alone. Also, AB 2010 requires a beer manufacturer's
duplicate license for a taproom or bona fide public eating
place to undergo the same local review and approval process
that every bar, tavern and restaurant owner must comply
with in order to be licensed. In addition, AB 2010 limits
the number of duplicate licenses to a maximum of 6
taprooms, and of these, up to 2 may be for bona fide eating
places. The author's office states that a beer manufacturer
who is now conducting these on-premises activities under
any existing duplicate license issued prior to January 1,
2015 will not be affected by AB 2010. Furthermore, the
author's office emphasizes that this measure is simply
intended to update the beer manufacturer's duplicate
license by leveling the playing field between duplicate
licenses and all other retail licensees.
The author's office points out that the second component of
AB 2010 is intended to address at least two recent
instances in which beer manufacturers have identified
"product quality issues" in beer that had been delivered to
retailers. Although the beer at issue did not present
health and safety concerns when consumed, the yeast in the
beer had soured its flavor, and as a result, the beer did
not achieve the quality the brewers desired and consumers
expected to enjoy. The producers asked their distributors
to remove this beer from retail accounts but existing law
did not permit that action. In response, ABC granted a
one-time waiver to each brewer to accept the return of the
beer from retailers. The author's office contends that AB
2010 would remedy this situation and permit beer removal
for product quality concerns, subject to ABC approval.
PRIOR/RELATED LEGISLATION
AB 782 (Bocanegra), Chapter 242, Statutes of 2013. Added a
new provision to the ABC Act that authorizes a licensed
caterer who has obtained a caterer's event permit to return
unsold beer to the beer distributor or manufacturer for
credit, thereby eliminating the need for a beer distributor
AB 2010 (Gray) continued
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or manufacturer to continuously exchange out-of-code beer
involving catered events.
SB 1393 (Negrete McLeod), Chapter 163, Statutes of 2012.
Allowed an alcoholic beverage licensee to accept the return
of unsold and unopened beer from organizations that obtain
a particular license, as specified, and allowed the return
of beer that is recalled or that is considered to present a
health and safety issue by the manufacturer, importer, or
governmental entity if distributed, offered for sale, or
sold in the state. Also, allowed for the exchange of beer
or a credit memorandum.
AB 517 (Hall), Chapter 12, Statutes of 2012. As
introduced, would have allowed a wholesaler or manufacturer
to accept the return of unsold and unopened beer from an
organization that obtained a specified temporary license,
as provided. This measure was eventually gutted and
amended in the Senate to contain a tribal gaming compact
for the Federated Indians of Graton Rancheria.
SB 487 (Negrete McLeod), 2011-12 Session. Would have added
a new provision to the ABC Act authorizing the return of
unsold and unopened beer from an organization that obtained
a temporary license. (Held in Assembly G.O. Committee at
author's request)
AB 3071 (Governmental Organization), Chapter 508, Statutes
of 2008. Among other things, authorized beer that is
recalled for health or safety issues to be accepted for
return at any time from a retailer and be picked up by the
seller of beer. Also, permitted the seller of beer to
exchange the returned beer for identical product, issue a
deferred exchange memorandum showing the beer was picked-up
and is to be replaced when inventory is available, or issue
a credit to the retailer for the returned beer.
SB 1035 (Perata), Chapter 657, Statutes of 2001. Allowed a
person in possession of a stock of lawfully acquired
alcoholic beverages following the revocation or voluntary
surrender of, or failure to renew, an alcoholic beverage
license to sell that stock to licensees, as authorized by
the Department of ABC.
SB 452 (Maddy), Chapter 273, Statutes of 1998. Among other
things, authorized a wholesaler or manufacturer of beer to
AB 2010 (Gray) continued
Page 7
accept the return of discontinued or seasonal brands of
beer from a retail licensee, provided that the returned
beer is exchanged for a quantity of beer of a brand
produced or sold by the same manufacturer with a value not
greater than the original sales price to the retail
licensee of the returned beer.
SUPPORT: As of June 20, 2014:
Anheuser-Busch In-Bev
California Beer and Beverage Distributors (sponsor)
California Craft Brewers Association
MillerCoors
OPPOSE: None on file as of June 20, 2014
FISCAL COMMITTEE: Senate Appropriations Committee
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