BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 796| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 796 Page 2 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 SB 796 Page 3 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 SB 796 Page 4 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 SB 796 Page 5 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. SB 796 Page 6 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 SB 796 Page 7 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 SB 796 Page 8 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 **** SB 796 Page 9