BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1295|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 1295
Author: Levine (D), et al.
Amended: 9/4/15 in Senate
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE: 10-1, 7/14/15
AYES: Hall, Block, Gaines, Galgiani, Glazer, Hernandez, Hill,
Hueso, Lara, McGuire
NOES: Vidak
NO VOTE RECORDED: Berryhill, Runner
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/17/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
ASSEMBLY VOTES: Not relevant
SUBJECT: Craft distillers: licenses
SOURCE: Author
DIGEST: This bill creates a new craft distillers 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.
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Senate Floor Amendments of 9/4/15 make clarifying and technical
changes with respect to reporting requirements, the amount of
spirits that can be sold to a consumer per day and
implementation matters relative to the Department of ABC.
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
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.
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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
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.
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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)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:
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 up to 100,000 gallons of distilled spirits
per fiscal year (July 1 through June 30), exclusive of
brandy production.
b) Package, rectify, mix, flavor, color, label, and export
only those distilled spirits manufactured by the licensee.
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c) Only sell distilled spirits that are manufactured and
packaged by 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)Specifies that both "original" and "annual" craft distiller's
license fees shall be consistent with the existing distilled
spirits manufacturer's license fee. Also, provides that all
such fees must be deposited in the ABC Control Fund.
3)Provides for annual reporting requirements as to the amount of
distilled spirits manufactured by a licensed craft distiller
and stipulates that if the report to the Department of ABC
establishes that the licensee no longer qualifies to hold a
craft distiller's license, the Department of ABC must renew
the license as a distilled spirits manufacturer's license.
4)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 or to any person that is affiliated with, directly or
indirectly, a wholesaler.
5)Allows a licensed craft distiller to sell to a consumer
participating in a distilled spirits tasting, on the
distiller's licensed premises, up to the equivalent of 2.25
liters of distilled spirits in any combination of prepackaged
containers per day.
6)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
distilling premises and that the other on-sale premises would
be required to sell other distilled spirits products and be
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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.
7)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.
8)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.
9)Specifies that in the event the licensee no longer qualifies
as a craft distiller due to the amount of distilled spirits
reported to the Department of ABC, the licensee may continue
to hold the privileges granted by this act.
10) 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.
11) 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
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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 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. 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 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
(in limited quantities). 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:
1)Craft distillers may sell to consumers participating in a
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distilled spirits tasting, on the distiller's licensed
premises, up to the equivalent of 2.25 liters of distilled
spirits in any combination of prepackaged containers per
day/per consumer;
2)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.
3)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
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following recent legislative action outside of California: (a)
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 the 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 the
Assembly Rules Committee)
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
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According to the Senate Appropriations Committee, this bill has
unknown and potentially significant costs to the Department of
ABC which will be offset by fee revenue. (Special fund)
SUPPORT: (Verified 9/4/15)
California Artisanal Distillers Guild (source)
Wine and Spirits Wholesalers Association of California, Inc.
OPPOSITION: (Verified 9/4/15)
None received
Prepared by:Arthur Terzakis / G.O. / (916) 651-1530
9/8/15 16:26:56
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