BILL ANALYSIS Ó
AB 1295
Page 1
(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB
1295 (Levine, et al.)
As Amended September 4, 2015
Majority vote
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|ASSEMBLY: |79-0 |(May 14, 2015) |SENATE: |40-0 |(September 9, |
| | | | | |2015) |
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|COMMITTEE |19-0|(September 11, |RECOMMENDATION: |concur |
|VOTE: | |2015) | | |
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(G.O.)
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
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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)Enact the Craft Distillers Act of 2015 (Act) which allows the
Department of Alcoholic Beverage Control (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.
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)Specify 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)Provide for annual reporting requirements as to the amount of
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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.
4)Prohibit 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)Allow 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)Authorize 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)Authorize a licensed craft distiller to sell all beers, wines,
brandies, or distilled spirits to consumers for consumption on
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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)Authorize 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)Specify 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) Modify 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. 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) Make 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, declare 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.
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EXISTING LAW:
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.
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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 one-quarter 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
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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.
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"
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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.
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;
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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 1.5 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 40 states currently allow
distillers to sell their products to consumers and cites the
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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
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
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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)
Analysis Prepared by:
Eric Johnson / G.O. / (916) 319-2531 FN:
0002422