BILL ANALYSIS                                                                                                                                                                                                    Ó




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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


                                   ****  END  ****









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