BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2913


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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          2913 (Committee on Governmental Organization)


          As Amended  August 19, 2016


          Majority vote


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          |ASSEMBLY:  | 78-0 |(May 12, 2016) |SENATE: |39-0  |(August 24,      |
          |           |      |               |        |      |2016)            |
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          |           |      |               |        |      |                 |
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          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  








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            "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.








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             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.   








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          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  








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          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  








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          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