BILL ANALYSIS Ó AB 2913 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2913 (Committee on Governmental Organization) As Amended August 19, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | 78-0 |(May 12, 2016) |SENATE: |39-0 |(August 24, | | | | | | |2016) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: G.O. SUMMARY: Makes substantive, clarifying and technical changes to certain provisions of the Alcoholic Beverage Control Act (Act). Permits a licensee to sponsor or otherwise participate in an event conducted by, and for the benefit of, a nonprofit corporation in which retail and nonretail licensees are involved as sponsors or participants. Revises the definition of a licensed "distilled spirits rectifier", as defined. Furthermore, this bill makes conforming and technical modifications to AB 1295 (Levine), Chapter 640, Statutes of 2015, which created a "craft distiller's license" in the Act. The Senate amendments: 1)Replace the term "distilled spirits rectifier" with AB 2913 Page 2 "rectifier" in several provisions of the ABC Act to correctly reflect there is no statutory definition for a "distilled spirits rectifier." 2)Make the following changes to the Craft Distillers Act of 2015: a) Define "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) Provide 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) Provide 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, provide that the term "volume" means the liquid volume and shall not be based on proof gallons or packaged goods. d) Modify a craft distiller's annual reporting requirements to the ABC to account for the above-referenced change 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, ABC must renew the license as a distilled spirits manufacturer's license. AB 2913 Page 3 e) Clarify 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) Clarify 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. 3)Make other minor conforming and technical changes, as specified. FISCAL EFFECT: Unknown AS PASSED BY THE ASSEMBLY, this bill modified provisions in the Act that allow a retail or nonretail licensee to sponsor or participate in an event conducted by, and for the benefit of, a nonprofit corporation. COMMENTS: Purpose of the bill: 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 in AB 776 (Cooper), Chapter 519, Statutes of 2015. AB 2913 Page 4 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) 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 distilled spirits manufactured by any other person (distilled AB 2913 Page 5 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 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 AB 2913 Page 6 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. Analysis Prepared by: Eric Johnson / G.O. / (916) 319-2531 FN: 0004853