BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 796|
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UNFINISHED BUSINESS
Bill No: SB 796
Author: Committee on Governmental Organization
Amended: 7/9/15
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE: 10-0, 4/14/15
AYES: Hall, Berryhill, Block, Gaines, Galgiani, Hernandez,
Hill, Lara, McGuire, Vidak
NO VOTE RECORDED: Hueso
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SENATE FLOOR: 34-0, 4/30/15 (Consent)
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Hall, Hancock,
Hertzberg, Hill, Huff, Jackson, Lara, Leno, Leyva, Liu,
McGuire, Mendoza, Mitchell, Monning, Moorlach, Nguyen,
Nielsen, Pan, Pavley, Roth, Stone, Wieckowski, Wolk
NO VOTE RECORDED: Hernandez, Hueso, Morrell, Runner, Vidak
ASSEMBLY FLOOR: 78-0, 8/27/15 Consent) - See last page for
vote
SUBJECT: Alcoholic beverages: licenses: advertising: contests
and sweepstakes
SOURCE: Author
DIGEST: This bill creates an exception to the current
requirement in the Alcoholic Beverage Control (ABC) Act that the
Department of ABC must identify and potentially qualify any
person or entity who is an investor in a private equity fund, as
defined, that holds any interest in an alcoholic beverage
license, subject to certain conditions. Additionally, this bill
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makes other substantive and clarifying changes to various
provisions of the ABC Act.
Assembly Amendments delete a sunset date in existing law that
authorizes alcoholic beverage producers to participate in
promotional events, as specified, for the purposes of providing
autographs on bottles or other items; modify existing provisions
of law relating to consumer contests and sweepstakes to permit
the inclusion of alcoholic beverages as an incidental part of a
prize package; and, modify an existing provision of law relative
to on-sale retail privileges for beer manufacturers.
ANALYSIS:
Existing law:
1)Establishes the 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)Requires the Department of ABC, upon receipt of an application
for a license or for a transfer of a license and the
applicable fee, to make a thorough investigation to determine
whether the applicant and the premises for which a license is
applied qualify for a license and whether the provisions of
the ABC Act have been complied with. (B & P Code Section
23958)
3)Requires any corporation, limited partnership, or limited
liability company holding a license to manufacture, distill,
rectify, or sell alcoholic beverages to report any change in
the ownership, management, or control of the entity to the
Department of ABC. (B & P Code Sections 23405, 23405.1, and
23405.2)
4)Extends the reporting requirements referenced in item #3 above
to any corporation, limited partnership, or limited liability
company that holds, directly or indirectly, 10% or more of the
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ownership of a license to manufacture, distill, rectify, or
sell alcoholic beverages. (B & P Code Section 23405.3)
5)Authorizes wine, beer and spirits producers to participate in
promotional events held at off-sale retail licensed locations
for the purpose of providing autographs on bottles or other
items to consumers, subject to certain conditions. (B & P
Code Section 25502.2)
6)Authorizes licensees to conduct consumer contests and conduct
or sponsor consumer sweepstakes offering the chance to win
prizes, subject to specified conditions. "Contests" are
authorized under B & P Code Section 25600.1 and "sweepstakes"
are authorized under B & P Code Section 25600.2. These two
statutes use similar language in their numerous provisions and
restrictions.
7)Authorizes a beer manufacturer to sell, at the licensed
premises of production, specified beer and wine to consumers
under described conditions, and limits the beer manufacturer
to six branch locations that may be used for the sale of
alcoholic beverages to consumers for consumption off the
licensed premises.
This bill:
1)Specifies that the Department of ABC is not required to
qualify for a license a person who is an investor in a private
equity fund, as defined, that holds an interest in an
alcoholic beverage license, provided all of the following
conditions are satisfied:
a) The private equity fund's interest in the license is
limited to a passive investment, so that neither the
private equity fund nor any manager, employee, or agent of
the private equity fund has any involvement in, or control
over, the management of the licensed business or of the
license.
b) The private equity fund advisors are registered under
the federal Investment Advisors Act of 1940, and are
subject to, and comply with, specified federal investment
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advisor code of ethics regulations.
c) An investor shall not, directly or indirectly, hold more
than 10% interest in the private equity fund.
d) An investor in the private equity fund shall not have
any control, directly or indirectly, over the investment
decisions of the private equity fund.
2)Defines "private equity fund" as an investment company that
makes investments in equity or debt securities of another
company that does not provide investors with redemption rights
in the ordinary course. Also, makes it explicit that a
private equity fund does not include a hedge fund, liquidity
fund, real estate fund, securitized asset fund, or venture
capital fund.
3)Authorizes the Department of ABC to require the manager of the
private equity fund to execute an affidavit confirming
compliance with the requirements of this new body of law.
4)Specifies that the provisions of this bill are not intended to
allow a person, by reason of his/her investment in a private
equity fund, to hold an interest in a license issued by the
department if that interest is not otherwise permitted under
the provisions of this bill.
5)Deletes an existing January 1, 2016 sunset date that
authorizes alcoholic beverage producers to participate in
promotional events held at off-sale retail licensed locations
for the purpose of providing autographs on bottles or other
items to consumers, subject to certain conditions.
6)Prohibits a beer manufacturer, regardless of the number of
beer manufacturer licenses that are held by the beer
manufacturer alone, under common ownership with any other
licensed beer manufacturer, or under common ownership with any
officer, director, employee, or agent of that beer
manufacturer that is operating as an on-sale retailer, from
exercising, alone or in common, any combination of specified
described retail privileges that would result in that beer
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manufacturer exercising retail privileges at more than six
locations.
7)Authorizes the inclusion of alcoholic beverages as part of a
prize in a consumer contest or sweepstakes where the inclusion
of the alcoholic beverage is an incidental part of a prize
package.
Background
The enactment of the 21st Amendment to the U.S. Constitution in
1933 repealed the 18th Amendment and ended the era of
Prohibition. Accordingly, states were granted the authority to
establish alcoholic beverage laws and administrative structures
to regulate the sale and distribution of alcoholic beverages.
Currently, the Department of ABC is required to make a thorough
investigation of all applicants for a license, which includes
among many things, identifying all individuals who have an
interest regardless of percentage interest. The department is
also required to qualify and obtain fingerprints for all
individuals who hold more than 10% or more interest in the
license. The only exception to that qualification requirement
is for publicly traded companies [B & P Code Section 23405 (c)].
This bill allows an exception to the current requirement in the
ABC Act that the department must identify and potentially
qualify any person or entity who is an investor in a private
equity fund that holds any interest in an alcohol license.
Private equity funds tend to be passive investments and often
times the individual investors are not aware of specific
investments made by the fund. Investors in private equity funds
do not have day to day involvement or influence over the
decisions and operations of the ABC licensed business. In turn,
identifying and qualifying these investors has become a
cumbersome and burdensome process for the department with no
advancement of the original intent of the law. The department
has heard anecdotal information that this onerous requirement
discourages investors and unnecessarily prolongs the ABC
licensing process.
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In addition, this bill deletes the January 1, 2016 sunset date
of an existing provision of the Act that authorizes wine, beer
and spirits producers to participate in promotional events held
at off-sale retail licensed locations for the purpose of
providing autographs on bottles or other items to consumers,
subject to certain conditions.
For several years, ABC had taken the position that supplier
promotional appearances are "things of value" and that
autographing alcoholic beverage bottles and other items
constituted a "premium, gift or free goods" in violation of the
ABC Act. In 2012, AB 2184 (Hall, Chapter 480) was enacted which
authorized alcoholic beverage suppliers to participate in
promotional events held at off-sale licensed premises involving
autographs. AB 2184 also established conditions under which a
celebrity brand owner or a winemaker or a brewer may go about
autographing bottles and other products for consumers at such
promotional events. Additionally, AB 2184 included a January 1,
2016 sunset clause. AB 2184 of 2012 provided a service that
many consumers enjoy - namely, collectibles. In addition, AB
2184 granted licensed suppliers the authority to engage in brand
awareness events involving autographs at licensed off-sale
retail establishments.
In light of the fact that ABC has not reported any problems with
AB 2184 of 2012, it makes sense to remove the sunset, thereby
extending the bottle signing privilege indefinitely.
Furthermore, this bill incorporates a change in the ABC Act due
to a compromise between the California Craft Brewer Association
(CCBA) and the California Beer and Beverage Distributors (CBBD),
the purpose of which is to maintain on-sale retail privileges
for beer manufacturers, as they grow larger to avoid the forced
divestiture of an existing licensed business. Currently, if a
Type 23 licensed beer manufacturer grows their production beyond
a 60,000 barrel threshold, and thus becomes a Type 01 licensed
beer manufacturer, they concurrently lose their existing
privilege to hold six (6) on-sale retail licenses under B&P Code
Section 25503.28. In this instance, the beer manufacturer is
forced to divest themselves of their existing on-sale retail
stores. This loss of privilege creates unnecessary hardships on
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businesses as they are forced to make a determination of whether
to either grow their volume production beyond the 60,000 barrel
per year threshold or maintain their on-sale retail privileges
afforded to them as a Type 23 under B&P Code Section 25503.28.
These retail privileges are in addition to the six (6) on-sale
and off-sale licenses provided to both Type 01s and Type 23s
under B&P Code Section 23389 related to duplicate branch office
licenses. Type 23s essentially get six (6) on-sale licenses in
addition to six (6) on-sale/off-sale licenses for a total of 12
retail related licenses. Type 01s are limited to only the six
(6) on-sale/off-sale licenses under BPC 23389 and are denied the
six (6) on-sale/off-sale licenses under 25503.28.
Lastly, SB 778 (Padilla, Chapter 778 of 2012) allowed authorized
licensees to conduct consumer contests and conduct or sponsor
consumer sweepstakes offering the chance to win prizes.
"Contests" are authorized under B & P Section 25600.1 and
"sweepstakes" are authorized under B & P Section 25600.2. These
two statutes use similar language in their numerous provisions
and restrictions, except where otherwise noted. An authorized
licensee may conduct consumer contests or sweepstakes, subject
to specified conditions. Currently, one of those conditions
reads as follows: "Alcoholic beverages or anything redeemable
for alcoholic beverages shall not be awarded as a contest or
sweepstakes prize. This paragraph shall not prohibit a contest
or sweepstakes in which the prize is cash or cash equivalent or
the awarding of cash or cash equivalent."
This bill would modify the contest and sweepstakes provisions to
permit "the inclusion of alcoholic beverages as an incidental
part of a prize package." For example, a bottle of wine as part
of a gift basket that includes an assortment of fruit and other
such items.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Assembly Appropriations Committee, this bill
will potentially result in a fiscal impact of $95,000 annually
(Special Fund) to maintain staff position at ABC to continue
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monitoring autograph events at off-sale retail license
locations. Additionally, there will be minor and absorbable
costs to ABC for the remaining provisions of this bill.
SUPPORT: (Verified8/28/15)
Family Winemakers of California
Wine Institute
OPPOSITION: (Verified8/28/15)
None received
ASSEMBLY FLOOR: 78-0, 8/27/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Beth Gaines, Gallagher, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,
Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Wood, Atkins
NO VOTE RECORDED: Frazier, Williams
Prepared by:Arthur Terzakis / G.O. / (916) 651-1530
8/28/15 14:39:08
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