BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2913|
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THIRD READING
Bill No: AB 2913
Author: Committee on Governmental Organization
Amended: 8/19/16 in Senate
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE: 13-0, 6/28/16
AYES: Hall, Berryhill, Bates, Block, Gaines, Galgiani, Glazer,
Hernandez, Hill, Hueso, Lara, McGuire, Vidak
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for
vote
SUBJECT: Alcoholic beverages: licensees: craft distillers:
tied-house restrictions
SOURCE: Author
DIGEST: This bill makes substantive, clarifying and technical
changes to certain provisions of the Alcoholic Beverage Control
(ABC) Act.
Senate Floor Amendments of 8/19/16 make various clarifying and
technical changes to the Craft Distillers Act of 2015.
ANALYSIS:
Existing law:
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1)Establishes Department of 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 and the collection of license fees for this
purpose.
2)Authorizes licensees, as specified, to sponsor or otherwise
participate in an event conducted by, and for the benefit of,
a nonprofit organization in which retail and nonretail
licensees are involved as sponsors or participants, subject to
specified conditions.
3)Authorizes a nonretail licensee to advertise or communicate
sponsorship or participation in the event and provides that
advertising or communication may include, but is not limited
to, initiating, sharing, reposting, or otherwise forwarding a
social media post by a permanent retail licensee or a
nonretail licensee, as specified. The law also prohibits a
retail licensee from receiving any advertising, sale, or
promotional benefit from any permanent retail licensee in
connection with the sponsorship or participation.
4)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 market place; c)
prohibit commercial bribery and to 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"
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system.
5)Prohibits, in general, an alcohol manufacturer, wholesaler, or
any officer, director, or agent of any such person from
owning, directly, or indirectly, any interest in any on-sale
license, or from providing anything of value to retailers, be
it free goods, services, or advertising.
6)Prohibits paid advertising by winegrowers, beer manufacturers
and distilled spirits producers in cases where a retail
licensee also owns a sports or entertainment venue. Over the
years, numerous exceptions to this prohibition have been added
to the ABC Act [e.g., Sleep Train Arena in Sacramento, Oakland
Coliseum in Oakland, Arrowhead Pond Arena in Anaheim, Kern
County Arena in Bakersfield, the National Orange Show Event
Center in San Bernardino, California Speedway in Fontana,
Grizzly Stadium in downtown Fresno, Raley Field in West
Sacramento, HP Pavilion in San Jose, the Home Depot Center in
the City of Carson, the Forum in the City of Inglewood, Levi's
Stadium in the City of Santa Clara, and other venues].
7)Authorizes the Department of ABC to issue a craft distiller's
license to manufacture distilled spirits, subject to specified
conditions, including that the licensee manufacture no more
than 100,000 gallons of distilled spirits per fiscal year,
excluding brandy the craft distiller manufactures or has
manufactured for them.
This bill:
1)Modifies certain provisions that allow a retail or nonretail
licensee to sponsor or participate in an event conducted by,
and for the benefit of, a nonprofit corporation as follows:
a) Clarifies that a nonretail licensee, instead of a retail
licensee, may not receive any advertising, sale, or
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promotional benefit from any permanent retail licensee in
connection with the event.
b) Clarifies how a nonretail licensee can advertise or
communicate sponsorship or participation in the event.
2)Replaces the term "distilled spirits rectifier" with
"rectifier" in several provisions of the ABC Act to correctly
reflect there is no statutory definition for a "distilled
spirits rectifier."
3)Makes the following changes to the Craft Distillers Act of
2015:
a) Defines "manufacture" to mean the actual distillation of
distilled spirits from naturally fermented materials or the
redistillation of distilled spirits obtained from another
manufacturer of distilled spirits.
b) Provides that the term "produce" means to mix, color,
flavor, or blend distilled spirits, whether manufactured by
the licensee or by another manufacturer of distilled
spirits.
c) Provides that at least 65% of the total volume of
distilled spirits manufactured or produced shall be
actually manufactured by the licensee and that the volume
of distilled spirits shall be calculated by adding the
volume of distilled spirits, less waste, drawn off the
still with the volume of distilled spirits obtained by the
licensee from any other source that is not redistilled by
the licensee. Also, provides that the term "volume" means
the liquid volume and shall not be based on proof gallons
or packaged goods.
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d) Modifies a craft distiller's annual reporting
requirements to the ABC to account for the above-referenced
change [#3(c)] and provides that if the report establishes
that the licensee no longer qualifies to hold a craft
distiller's license because the licensee has either
exceeded the total amount manufactured or produced or
actually manufactured less than 65% of the total volume
manufactured or produced, the Department of ABC must renew
the license as a distilled spirits manufacturer's license.
e) Clarifies that a licensee that has an interest in one or
more on-sale retail licenses may continue to hold that
interest in the event the licensee no longer qualifies as a
craft distiller, provided that the interest was held, or an
application was pending, at a time when the licensee did
hold a craft distiller's license.
f) Clarifies that a licensed craft distiller is not
precluded from holding a distilled spirits license
authorizing the importing of distilled spirits, provided,
however, that any distilled spirits imported by the
licensee shall only be used by the licensee to manufacture
or produce distilled spirits pursuant to a craft
distiller's license.
g) Makes other minor conforming and technical changes, as
specified.
Background
Purpose of AB 2913. This bill is the annual Assembly
Governmental Organization Committee (Committee) "clean-up" bill
that makes clarifying, technical, and non-controversial changes
to existing statutes.
According to the Committee, this bill corrects a drafting error
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in AB 776 (Cooper, Chapter 519, Statutes of 2015).
Specifically, AB 776 authorized licensed alcoholic beverage
manufacturers and retailers to participate together in
sponsoring and promoting events conducted by, and for the
benefit of, nonprofit organizations, subject to certain
conditions. As enacted, AB 776 inadvertently prohibited a
"retail" licensee from receiving, directly or indirectly, any
advertising, sale or promotional benefit from any permanent
retail licensee in connection with the sponsorship or
participation. This bill corrects the oversight and instead
would prohibit a "nonretail" licensee from receiving, directly
or indirectly, any advertising, sale, or promotional benefit
from any permanent retail licensee in connection with the
sponsorship or participation. In addition, this bill makes a
clarifying change with respect to the manner upon which a
nonretail licensee may advertise or communicate sponsorship or
participation in the event by deleting the word "initiating"
from that provision.
Additionally, this bill addresses the use of the term "distilled
spirits rectifier" in statute. Existing law provides for: a
rectifier (Type 07), wine rectifier (Type 08), and a distilled
spirits rectifier's general license (Type 24). The old ABC
handbook indicates that a Type 07 is often incorrectly referred
to as a distilled spirits rectifier however there is no
statutory definition for a "distilled spirits rectifier."
Furthermore, according to the Committee, this bill makes various
clarifying changes to AB 1295 (Levine, Chapter 640, Statutes of
2015) which created a "craft distiller's license" in the ABC Act
with specified privileges including authorizing the new Type 74
licensee to manufacture up to 100,000 gallons of distilled
spirits annually, exclusive of brandy production and sell a
minimum amount of their products directly to consumers.
AB 1295 authorized the licensee to package, rectify, mix,
flavor, color, label, and export only those distilled spirits
manufactured by the licensee. This means that if a distiller
packages, rectifies, mixes, flavors, colors, labels, or exports
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distilled spirits manufactured by any other person (distilled
spirits manufacturer, craft distiller, or rectifier) they may
not hold a craft distiller's license. In consulting with the
sponsors of AB 1295, the Department of ABC has determined that
this provision is not intended to preclude the use of grain
neutral spirits manufactured by another distiller in the
manufacture of distilled spirits by a craft distiller licensee -
this requires the actual redistillation of grain neutral
spirits.
This bill addresses the problem by defining "manufacture" to
mean the actual distillation of sprits either from raw materials
or redistilling so-called base spirits. This bill also defines
the term "produce" to mean production of spirits by mixing,
coloring, flavoring or blending distilled spirits from any
source. Additionally, the bright line between "running it
through the still" or just using bulk neutral spirits for some
sort of production is defined as a 65-35 split, where at least
65% of the total volume of distilled spirits manufactured or
produced shall actually meet the definition of manufacturing.
This bill does not change the 100,000 gallon threshold that
defines a craft distillery but it does change the existing law's
annual reporting requirements as to the amount of distilled
spirits manufactured or produced by a licensed craft distiller.
According to the Committee, there are currently 40 Type 74
licenses granted under last year's legislation and 33 pending
applications, many of which are from existing craft distillers
that produce, as defined, some of their product. Unknown others
may take advantage of this clarification of the definitions and
create business models to distill and craft artisanal distilled
spirits within these limitations of the Type 74 license. This
bill also makes other conforming, clarifying and technical
changes, as specified, to AB 1295.
Related Legislation
AB 1295 (Levine, Chapter 640, Statutes of 2015), among other
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things, created a craft distiller's license in the ABC Act with
specified privileges including authorizing the new Type 74
licensee to manufacture up to 100,000 gallons of distilled
spirits annually, exclusive of brandy production and sell a
minimum amount of their products directly to consumers.
AB 776 (Cooper, Chapter 519, Statutes of 2015), among other
things, authorized licensees to sponsor or otherwise participate
in an event conducted by, and for the benefit of, a nonprofit
organization subject to specified conditions, including that a
nonretail or retail licensee may choose to participate in any
level of sponsorship.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified8/22/16)
California Artisanal Distillers Guild
OPPOSITION: (Verified8/22/16)
None received
ASSEMBLY FLOOR: 78-0, 5/12/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon,
Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper,
Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines,
Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,
Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger
Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
AB 2913
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Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Burke, Jones-Sawyer
Prepared by:Arthur Terzakis / G.O. / (916) 651-1530
8/22/16 23:10:22
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