BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 1295


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          (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,    |
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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