BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                              Senator Isadore Hall, III
                                        Chair
                                2015 - 2016  Regular 

          Bill No:           AB 1295          Hearing Date:    7/14/2015
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          |Author:    |Dodd                                                 |
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          |Version:   |7/13/2015    Amended                                 |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Arthur Terzakis                                      |
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          SUBJECT: Alcoholic beverages: craft distillers



          DIGEST:   This bill creates a new "craft distiller's license" in  
          the Alcoholic Beverage Control (ABC) Act with specified  
          privileges and limited to persons who manufacture less than  
          100,000 gallons of distilled spirits annually, exclusive of  
          brandy production.  This bill also modifies an existing  
          provision of law that currently allows distillers to offer six,  
          one-quarter ounce tastings, per individual/per day, to instead  
          permit distillers to combine the current limitation into one  
          single 1 ounce tasting that may also include a non-alcoholic  
          mixer.



          ANALYSIS:
          
          Existing law:

          1)Establishes the Department of ABC and grants it exclusive  
            authority to administer the provisions of the Alcoholic  
            Beverage Control 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. 

          2)Separates the alcoholic beverage industry into three component  







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            parts, or tiers, (referred to as the "tied-house" law or  
            "three-tier" system), of manufacturer (including breweries,  
            wineries and distilleries), wholesaler, and retailer (both  
            on-sale and off-sale).  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 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.  

          3)Permits a licensed distilled spirits manufacturer to conduct  
            tastings of distilled spirits produced or bottled by, or  
            produced or bottled for, the licensee, on or off the  
            licensee's premises.  Tastings conducted by the licensee off  
            the licensee's premises must be for an event sponsored by a  
            nonprofit organization, as defined, and only if persons  
            attending the event are affiliated with the sponsor.  Tastings  
            on the licensee's premises are limited to six, one-quarter  
            ounce tastings, per individual per day and the law authorizes  
            the distiller to charge for tastings.  The law also provides  
            that distilled spirits tastings shall not be given in the form  
            of a cocktail or a mixed drink.  Additionally, existing law  
            makes it explicit that no distilled spirits shall be sold or  
            solicited for sale in that portion of the premises where the  
            distilled tasting is being conducted.  (Business and  
            Professions Code Section 23363.1)  
           
          4)Permits an on sale retail licensee of wine or distilled  
            spirits to conduct "instructional" consumer tastings on the  
            licensed retail premises provided the following conditions are  
            met: (a) no more than  ounce of distilled spirits is offered  
            in one tasting; (b) no more than one ounce of wine is offered  
            in one tasting; and, (c) no more than three tastings are  
            offered to an individual in one day.  An instruction may  
            include the history, nature, values and characteristics of the  
            product being offered, and the methods of presenting and  
            serving the product.  

          5)Authorizes beer manufacturers and wholesalers to offer beer  
            samples (not to exceed 8 ounces per person, per day) to  








          AB 1295 (Dodd)                                      Page 3 of ?
          
          
            individuals of legal drinking age at on-sale retail licensed  
            premises under specified conditions.

          6)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.

          7)Permits a licensed winegrower or brandy manufacturer to be  
            issued an off-sale general license.  Existing law also permits  
            wineries to sell their products to consumers on their licensed  
            premises and directly to licensed, on-sale and off-sale  
            retailers (e.g., restaurants and liquor stores).   
            Additionally, existing law provides for a brewpub-restaurant  
            license, issued to a bona fide public eating place, which  
            authorizes the sale of beer, wine, and distilled spirits for  
            consumption on the premises and the sale of beer produced by  
            the brewpub-restaurant licensee for consumption on the  
            premises.  The license also authorizes the sale of beer  
            produced by the licensed brewpub-restaurant licensee to a  
            licensed beer and wine wholesaler.  The brewpub-restaurant  
            licensee must purchase all beer, wine, or distilled spirits  
            for sale on the licensed premises from a licensed wholesaler  
            or winegrower, except for the beer produced by the  
            brewpub-restaurant licensee on the licensed premises.   
            Furthermore, the law also requires the brewpub-restaurant  
            licensee to offer for sale on the licensed premises other  
            commercially available beers available from licensed  
            wholesalers.  

          8)Existing law defines an "on-sale" license as authorizing the  
            sale of all types of alcoholic beverages: namely, beer, wine  
            and distilled spirits, for consumption on the premises (such  
            as at a restaurant or bar).  An "off-sale" license authorizes  
            the sale of all types of alcoholic beverages for consumption  
            off the premises in original, sealed containers.  
          
          This bill:









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          1)Enacts the Craft Distillers Act of 2015 (Act) which authorizes  
            the Department of ABC to issue a craft distiller's license to  
            a person that has facilities and equipment for the purposes  
            of, and is engaged in, the commercial manufacture of distilled  
            spirits.  The craft distiller's license authorizes the  
            licensee to do all of the following:

             a)   Manufacture or produce (or have manufactured for them)  
               up to 100,000 gallons of distilled spirits, exclusive of  
               brandy production.

             b)   Package, rectify, mix, flavor, color, label, and export  
               distilled spirits whether manufactured or produced by the  
               licensee or any other person.

             c)   Only sell distilled spirits that are packaged by or for  
               the licensee solely to a wholesaler, manufacturer,  
               winegrower, manufacturer's agent, or rectifier that holds a  
               license authorizing the sale of distilled spirits or to  
               persons that take delivery of those distilled spirits  
               within this state for delivery or use outside the state.

             d)   Deal in warehouse receipts.

          2)Provides that the original fee for a craft distiller's license  
            shall be $600 dollars, the annual fee shall be $300, and the  
            fees must be deposited in the ABC Control Fund.  

          3)Prohibits the issuance of a craft distiller's license to any  
            person, any officer, director, employee, or agent of such  
            person, or any person who is affiliated with, directly or  
            indirectly, a person that manufactures or has manufactured for  
            them more than 100,000 gallons of distilled spirits per year  
            within or outside the state, excluding brandy it manufactures  
            or has manufactured for them pursuant to a brandy manufacturer  
            license.

          4)Allows a licensed craft distiller to sell up to three 750-ml  
            bottles per day directly to a consumer who participates in a  
            distilled spirits tasting on the distiller's licensed  
            premises.

          5)Authorizes a licensed craft distiller to hold an ownership  
            interest in up to three on-sale licenses (restaurants)  
            provided that one of the restaurants is located at the  








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            distilling premises and that the other on-sale premises would  
            be required to sell other distilled spirits products and be  
            subject to other limits similar to current law allowing  
            wineries to have an interest in on-sale licenses.  Also,  
            provides that a licensed craft distiller that has an interest  
            in one or more on-sale retail licenses pursuant to this Act  
            may continue to hold that interest in the event the licensee  
            no longer qualifies as a craft distiller, provided that the  
            interest was first obtained at a time when the licensee did  
            hold a craft distiller's license pursuant to this Act. 

          6)Authorizes a licensed craft distiller to sell all beers,  
            wines, brandies, or distilled spirits to consumers for  
            consumption on the premises in a bona fide eating place  
            located on the licensed premises or on premises owned by the  
            licensee that are contiguous licensed premises operated by and  
            for the licensee, provided that any alcoholic beverage  
            products not manufactured by the licensee are purchased from a  
            licensed wholesaler.    

          7)Authorizes a licensed craft distiller to have upon its  
            licensed premises all beer, wines, and distilled spirits,  
            regardless of source, for sale or service to guests during  
            private events not open to the general public, provided that  
            any alcoholic beverages sold at the event that are not  
            manufactured or produced and bottled by, or manufactured or  
            produced and packaged for, the licensed craft distiller are  
            purchased only from a licensed wholesaler.    

          8)Modifies an existing provision of law that currently allows  
            distillers to offer six, one-quarter ounce tastings, per  
            individual/per day, to instead permit distillers to combine  
            the current limitation into one single 1 ounce tasting that  
            may also include a non-alcoholic mixer.  Also, deletes the  
            provision in existing law that prohibits tastings of distilled  
            spirits from being given in the form of a cocktail or a mixed  
            drink.

          9)Makes other conforming and technical changes and contains  
            legislative findings relative to the fact that small craft  
            distillers have increased economic activity and job growth in  
            the state.  Also, declares legislative intent, in enacting  
            this Act, to further encourage development of the craft  
            distilling industry by enacting various limited exemptions to  
            the general provisions of the three-tier system, while also  








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            continuing to uphold and support the three-tier system as the  
            appropriate mechanism for regulating and licensing the sale of  
            distilled spirits in California. 

          Background

          Comments.  The enactment of the 21st Amendment to the U.S.  
          Constitution in 1933 repealed the 18th Amendment and ended the  
          era of Prohibition.  Accordingly, states were granted the  
          authority to establish alcoholic beverage laws and  
          administrative structures to regulate the sale and distribution  
          of alcoholic beverages. 

          As noted above, existing "tied-house" law separates the  
          alcoholic beverage industry into three component parts of  
          manufacturer, wholesaler, and retailer.  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. 

          As the cocktail culture continues to resonate with consumers  
          looking for specialty or small batch concoctions, entrepreneurs  
          in other states have found tremendous success with a concept  
          that allows craft distillers to offer on-premises food (in other  
          words - brewpubs with a mixology twist). 

          Currently, beer producers and wineries in California can operate  
          restaurants and brewpubs on their licensed premises - many of  
          California's craft distillers have expressed interest in the  
          restaurant business and would like the same privileges.  This  
          bill will allow California's licensed craft distillers to open  
          restaurants on their licensed premises, as specified.   
          Currently, distillers in California are authorized to conduct  
          tastings (in limited quantities) on their licensed premises  
          however they're precluded from selling the products to consumers  
          - this bill will allow craft distillers to sell their products  
          directly to consumers.  Specifically, this bill enacts the Craft  
          Distillers Act of 2015 and creates a new "craft distiller's  
          license" applicable to individuals who produce less than 100,000  
          gallons of distilled spirits annually, exclusive of brandy, with  
          the following privileges:









          AB 1295 (Dodd)                                      Page 7 of ?
          
          
                   Craft distillers may sell up to three 750ml bottles of  
                distilled spirits per person/per day directly to consumers  
                who participate in a distilled spirits tasting at the  
                distillers premises;

                   Craft distillers may host private events at their  
                premises, provided that any alcoholic beverages served at  
                the event that are not manufactured by the craft distiller  
                are purchased from a licensed wholesaler.  

                   Craft distillers may own an interest in up to three  
                on-sale licenses provided that one of the restaurants is  
                located on the licensed distilling premises and that the  
                other on-sale licensed retail premises offer competing  
                brands of alcoholic beverages in addition to the products  
                the craft distiller manufactures.  

          In addition, this bill modifies an existing provision of law  
          that currently allows distillers to offer six, one-quarter ounce  
          tastings, per individual/per day, to instead permit distillers  
          to combine the current limitation into one single 1 ounce  
          tasting that may also include a non-alcoholic mixer.

          Purpose of AB 1295.  According to the author's office, this bill  
          is intended to provide greater licensing equity between small  
          craft distilled spirits manufacturers and beer and wine  
          producers.  The author's office states that AB 1295 will remove  
          an onerous restriction in law that prevents distillers from  
          selling their products directly to consumers.  Wineries and  
          breweries were also not allowed to do so under original  
          prohibition tied-house laws but over time, the Legislature  
          carved-out various exceptions for the beer and wine industry  
          which have helped small wineries and craft brewers prosper in  
          California.   The author's office believes this bill is a  
          logical continuation of those efforts and changes in law.  The  
          author's office states, "The goal of this bill is to allow  
          modest, limited sales to the nearly 50 small craft distillers  
          throughout the state in order to help them further establish  
          artisanal brands - by allowing an initial sale at the tasting  
          room, the public can take a product with them and share  
          California brands."  

          The author's office claims that forty states currently allow  
          distillers to sell their products to consumers and cites the  
          following recent legislative action outside of California:  (a)  








          AB 1295 (Dodd)                                      Page 8 of ?
          
          
          In 2014, the State of Arizona established a craft-liquor  
          distillery license which allows distillers to sell directly to  
          consumers; (b) In 2013, the State of Indiana allowed craft  
          distillers to sell a range of products directly to consumers by  
          the drink or bottle; (c) In 2013, the State of Florida allowed  
          distilleries to sell two bottles a year directly to customers;  
          (d) In 2008, the State of Oregon allowed craft distillers to  
          offer samples of their products at their distillery or at a  
          separate tasting room.  Additionally, Oregon allowed  
          distilleries to apply for a license as a retail outlet agent to  
          sell bottled products manufactured at the distillery directly to  
          consumers; and, (e) In 2008, the State of Washington allowed  
          craft distilleries to conduct on-site tasting and sales and also  
          sell product of its own production for consumption off the  
          premises, up to 2 liters per customer per day.

          Prior/Related Legislation
          
          AB 1233 (Levine, 2015) allows a licensed distilled spirits  
          manufacturer to sell up to three bottles of product authorized  
          to be produced or bottled by or for the licensee to each person  
          at a tasting on the licensee's premises.  (Referred to interim  
          study by Assembly policy 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 949 (Quirk, 2013) would have authorized licensed distilled  
          spirits manufacturers to charge consumers for tastings and would  
          have imposed additional conditions on the provision of tastings  
          by the licensee, including limiting the size and number of  
          tastes.  Also, would have provided that a distilled spirits  
          manufacturer's license authorizes the licensee to serve and sell  
          food, general merchandise, and nonalcoholic beverages for  
          consumption on or off the licensed premises.  (Held in Assembly  
          Rules Committee)
           
           AB 686 (Quirk, 2013) would have authorized distilled spirits  
          manufacturers to sell general merchandise, food, nonalcoholic  
          beverages, and distilled spirits to consumers for consumption on  
          the licensed premises where sold.  (Held in this committee at  
          author's request)
           








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           SB 1068 (Hancock, 2010) would have added a new provision to the  
          ABC Act authorizing a licensed distiller that distills fewer  
          than 50,000 gallons of spirits annually to self-distribute to  
          consumers and licensed retailers (e.g., restaurants, liquor  
          stores).  (Held in this Committee at author's request) 

          SB 1022 (Strickland, Chapter 281, Statutes of 2010) expanded an  
          existing tied-house exception within the ABC Act to enable  
          licensed distilled spirits "rectifiers" to donate or sell their  
          products to specified nonprofit entities for the purpose of  
          assisting in fund-raising efforts.

          AB 605 (Portantino, Chapter 230, Statutes of 2010), among other  
          things, authorized ABC to issue to the holder of an "off-sale"  
          retail license an "instructional tasting license" for the  
          purpose of furnishing tastings of alcoholic beverages to  
          consumers, subject to certain limitations.
           
           SB 639 (Calderon, 2009) would have created a new on-sale tasting  
          license to allow off-sale retail licensees to furnish tastes of  
          alcoholic beverages to consumers, as specified.  (Died on Senate  
          Appropriations Suspense File)  
          
           SB 1560 (Yee, Chapter 412, Statutes of 2008) modified an  
          existing tied-house provision that currently permits the  
          issuance or transfer of an "on-sale" retail license to a  
          restaurant, even though a wholesaler licensed to sell alcoholic  
          beverages outside California has an interest in the premises or  
          the license.  

          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 permit authorization  
          has been issued. 

           AB 2426 (Cook, Chapter 461, Statutes of 2008) authorized a  
          person that operates an out-of-state winery and produces a  
          limited amount of distilled spirits in another state to hold an  
          interest in no more than 12 brewpub-restaurant licenses,  
          provided specified conditions are met.  

          SB 995 (Maldonado, 2007) would have permitted certain alcoholic  
          beverage suppliers to instruct consumers on the premises of an  








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          off-sale licensee regarding wine and distilled spirits,  
          respectively, as specified.  Also, would have allowed the  
          instruction to include the furnishing of tastings under  
          specified conditions.  (Held in this Committee at author's  
          request)
           
           AB 2613 (Plescia, 2008) would have authorized specified  
          alcoholic beverage suppliers to offer tastings of wine or  
          distilled spirits at off-sale retail licensed premises (grocery  
          stores and liquor stores) in a restricted area.  Also, would  
          have required verification of age at entrance to the restricted  
          area and placed limits on tastings (one-quarter ounce of spirits  
          and one ounce of wine) and limited tastings to three per person  
          each day.  (Held in Assembly Appropriations Committee)
           
           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 2285 (V. Brown, Chapter 248, Statutes of 1998) allowed  
                                                                                     on-sale retail licensees to offer limited tastings of wine or  
          distilled spirits at the licensed establishment.

          SB 993 (Burton, Chapter 544, Statutes of 1997), among other  
          things, authorized a licensed distilled spirits manufacturer to  
          conduct tastings of distilled spirits on the licensed premises  
          under specified conditions.  

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          No


            SUPPORT:  

          None received

          OPPOSITION:

          None received

          

          








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