BILL ANALYSIS Ó AB 780 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION Adam Gray, Chair AB 780 Williams - As Amended April 8, 2015 SUBJECT: Alcoholic beverages: tied-house restrictions: on-sale retailers advertising SUMMARY: Broadens the exception in the Alcoholic Beverage Control Act (Act) by removing the requirement that the listing be in response to a direct inquiry , as specified. The bill would also permit the listing of contact information for off-sale retailers and would make conforming changes to reflect this inclusion. Specifically, this bill: 1) Provides the listing of the names, addresses, telephone numbers, email addresses, or Internet web site addresses, or other electronic media, of two or more unaffiliated on-sale or off-sale retailers selling beer, wine, or distilled spirits produced, distributed, or imported by a non-retail industry member does not constitute a thing of value or prohibited inducement to the listed on-sale or off-sale retailer, provided all of the following conditions are met: a) The listing is the only reference to the on-sale or off-sale retailers in the direct communication. AB 780 Page 2 b) The listing does not refer only to one on-sale or off-sale retailer or only to on-sale or off-sale retail establishments controlled directly or indirectly by the same retailer. EXISTING LAW: 1)Establishes the Department of Alcoholic Beverage Control (ABC) and grants it exclusive authority to administer the provisions of the 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. 2)Existing law, known as the "Tied-house" law, separates the alcoholic beverage industry into three component parts, or tiers: manufacturer (including breweries, wineries and distilleries), wholesaler, and retailer (both on-sale and off-sale). 3)Prohibits a manufacturer, winegrower, manufacturer's agent, California winegrower's agent, rectifier, distiller, bottler, importer, or wholesaler from furnishing or lending money or other thing of value to a person engaged in operating, owning, or maintaining an on-sale licensed premise. 4)Provides that the listing of the names, addresses, telephone numbers, email addresses, Internet Web site addresses, or other electronic media, of 2 or more unaffiliated on-sale retailers selling beer, wine, or distilled spirits, as specified, in response to a direct inquiry from a consumer, as specified, does not constitute a thing of value or prohibited inducement, if specified conditions are met. The Act includes among those conditions the requirement that the listing not refer to only one on-sale retailer or only to on-sale retail establishments controlled by the same retailer. AB 780 Page 3 FISCAL EFFECT: Unknown COMMENTS: Purpose of the bill : The author's office notes that current ABC law prohibits a supplier (manufacturer and distributor) from giving or lending money or anything of value to anyone who operates, owns or maintains any off-sale licensed premise. However, these licensed entities may list or publish, in response to a direct inquiry from a consumer, the name, address, telephone numbers, e-mail, or web address of two or more retailers who sell their products so long as the retailer operates and is licensed as a bona fide public eating-place (restaurant). The author's office states, this bill "will provide small distillers, brewers and wineries with an additional tool to promote their start-up businesses. Social media has forever changed basic communication, and by not allowing small businesses to participate in this integral form of free communication, the Tied-House laws have disadvantaged them from connecting with customers and distributors. The author's office states, "Social media is a free form of advertisement to the public; therefore, it should not be defined as a gift of advertisement. For many millennials, social media is the equivalent of personal speech and is ingrained in today's society. Current law needs to provide flexibility for the small manufacturers, who do not always have the start-up money to spend on advertising. With the societal shift towards craft AB 780 Page 4 breweries, and small wineries, manufacturers should be allowed to use social media as a communication tool." AB 780 will provide greater flexibility and protect the ability of specified alcohol interests to engage in social media communications with consumers, while preserving the original intent of the Tied-house law of prohibiting gifts of advertisement from alcoholic beverage producers, distributors or importers. Background : Existing law, known as the "Tied-house" law, separates the alcoholic beverage industry into three component parts, or tiers, of manufacturer (including breweries, wineries and distilleries), wholesaler, and retailer (both on-sale and off-sale). Tied-house refers to a practice in this country prior to Prohibition and still occurring in England today where a bar or public house, from whence comes the "house" of tied house, is tied to the products of a particular manufacturer, either because the manufacturer owns the house, or the house is contractually obligated to carry only a particular manufacturer's products. The original policy rationale for this body of law was to: (a) promote the state's interest in an orderly market; (b) prohibit the vertical integration and dominance by a single producer in the marketplace; (c) prohibit commercial bribery and protect the public from predatory marketing practices; and, (d) discourage AB 780 Page 5 and/or prevent the intemperate use of alcoholic beverages. Generally, other than exceptions 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 provides that no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as authorized by ABC. In Support : Writing in support, the California Craft Brewers Association states, "Craft beer enthusiasts are extremely interested in learning about new beer releases and product availability in their cities. The use of social media communications between beer manufacturers and their customers has become a primary means of communication in recent years to provide this information. However, a substantial amount of confusion exists within the industry about form and content of social media communications when it comes to compliance with California's alcohol beverage laws and regulations. AB 780 seeks to reduce this confusion and increase industry compliance by making minor modifications to state law." Related legislation : AB 973 (Gray) of the 2015-16 Legislative AB 780 Page 6 Session. Merges two similar tied-house exceptions (one pertaining to "on-sale" retailers the other to "off-sale" retailers) within the Alcoholic Beverage Control (ABC) Act, which authorizes the dissemination of information regarding the retail availability of products by alcoholic beverage producers, distributors or importers in response to direct requests from consumers. (Pending in Assembly Appropriations Committee) Prior legislation : AB 2349 (Nestande), Chapter 374, Statutes of 2012. Revised the direct inquiry provisions in the Act to remove the requirement that manufacturers and distributors can only provide consumer information on where they can find a specific product at an on-sale establishment if that on-sale retailer operates and is licensed as a restaurant. By removing that requirement, manufacturers and distributors can add bars to the list they provide consumers of on-sale establishments that serve their specific products. SB 1423 (Chesbro) Chapter 205, Statutes of 2000. Authorized wineries and brandy manufacturers to advertise the name and location of restaurants that sell their products. SB 1233 (Chesbro) Chapter 666, Statutes of 1999. Allowed for the limited dissemination of information regarding the off-sale availability of alcoholic beverages. AB 2777 (Granlund), Chapter 980, Statutes of 2000. Among other things, broadened an existing tied-house exception relating to the purchase of alcoholic beverage advertisements at specified AB 780 Page 7 venues to include distilled spirits manufacturers. Also, authorized a non-retail alcohol industry member to list specified information relating to the availability of alcoholic beverages at no more than two restaurants in response to a direct inquiry from a consumer received by telephone, mail, or the Internet. REGISTERED SUPPORT / OPPOSITION: Support California Craft Brewers Association Family Winemakers of California Opposition None on file Analysis Prepared by:Eric Johnson / G.O. / (916) 319-2531 AB 780 Page 8