BILL ANALYSIS Ó AB 1295 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1295 (Levine, et al.) As Amended September 4, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |79-0 |(May 14, 2015) |SENATE: |40-0 |(September 9, | | | | | | |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: G.O. SUMMARY: Creates a new "craft distiller's license" in the Alcoholic Beverage Control Act (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 1.5 ounce tasting that may also include a non-alcoholic mixer. The Senate amendments delete the Assembly version of this bill, and instead: 1)Enacts the Craft Distillers Act of 2015 (Act) which allows the Department of Alcoholic Beverage Control (ABC) to issue a AB 1295 Page 2 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. 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 ABC establishes that the licensee no longer qualifies to hold a craft distiller's license, ABC must renew the license as a distilled spirits manufacturer's license. AB 1295 Page 3 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 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. AB 1295 Page 4 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 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 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. EXISTING LAW: AB 1295 Page 5 1)Establishes 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. 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. 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. 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 AB 1295 Page 6 met: a) no more than 1/4 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 eight 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 that 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 AB 1295 Page 7 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. AS PASSED BY THE ASSEMBLY, this bill provided that the limitation of 50 imported races per day does not apply to races imported into the combined central and southern zones when there is live thoroughbred or fair racing being conducted in those zones but no live thoroughbred or fair racing is being conducted in the northern zone. FISCAL EFFECT: According to the Senate Appropriations Committee, unknown, potentially significant costs to ABC offset by fee revenue. (Special Fund) COMMENTS: This bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. Background: 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. AB 1295 Page 8 According to the Distilled Spirits Council of the United States, the distilled spirits industry had steady growth in the United States (U.S.) in 2014. The Council reported that supplier sales were up 4% in 2014 and total U.S. volume growth increased 2.2% to 210 million cases. Consumer interest in industry innovations and premium products from distilled spirits producers of all sizes contributed to another year of steady growth in 2014. There are at least 350 craft distilleries in the United States today - a figure projected to pass 500 in 2015. The craft spirits industry holds economic development opportunities in tourism, manufacturing, revitalization, exporting and more. Craft spirits is a $10.2 billion market and growing fast. 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 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. AB 1295 Page 9 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 1.5 ounce tasting that may also include a non-alcoholic mixer. Purpose of the bill: 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 this bill 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: 1) In 2014, the State of Arizona established a craft-liquor distillery license which allows distillers to sell directly to consumers; 2) In 2013, the State of Indiana allowed craft AB 1295 Page 10 distillers to sell a range of products directly to consumers by the drink or bottle; 3) In 2013, the State of Florida allowed distilleries to sell two bottles a year directly to customers; 4) 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, 5) 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 two liters per customer per day. According to ABC, there are currently 104 distilled spirits manufacturer's licenses that would be eligible to apply for the new on-sale distilled tasting license. Licensees will be required to pay an application fee of $600 and an annual renewal fee of $300 for the craft distiller's license. Prior/Related Legislation: AB 1233 (Levine) of the current legislative session 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) of the 2013-14 Regular Session. 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 AB 1295 Page 11 merchandise, and nonalcoholic beverages for consumption on or off the licensed premises. (Held in the Assembly Rules Committee) Analysis Prepared by: Eric Johnson / G.O. / (916) 319-2531 FN: 0002316