BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1032


                                                                    Page  1





          Date of Hearing:  June 30, 2016


                   ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION


                                  Adam Gray, Chair


          SB  
          1032 (Galgiani) - As Amended May 19, 2016


          SENATE VOTE:  38-0


          SUBJECT:  Alcoholic beverages: coupons


          SUMMARY:  Expands a provision of the Alcoholic Beverage Control  
          (ABC) Act that currently prohibits beer manufacturers and beer  
          wholesalers from offering consumer coupons, as defined, that can  
          be redeemed at the point of sale by licensed retailers and also  
          prohibits licensed retailers from accepting or redeeming such  
          coupons from beer manufacturers and beer wholesalers, to include  
          a broader range of nonretail licensees, as defined.   
          Specifically, this bill:  


          1)Modifies an existing provision of law that prohibits beer  
          manufacturers and wholesalers from offering, funding, producing,  
          sponsoring, promoting, furnishing, or redeeming certain consumer  
          coupons by expanding the type of "nonretail licensees" that will  
          be prohibited from offering consumer coupons that can be  
          redeemed at the point of sale by licensed retailers.












                                                                    SB 1032


                                                                    Page  2






          2)Makes an identical change to the companion provision in law  
          that prohibits a licensee authorized to sell alcoholic beverages  
          at retail from accepting, redeeming, possessing, or utilizing  
          any type of coupon that is funded, produced, sponsored,  
          promoted, or furnished by beer manufacturers and wholesalers by  
          substituting the term "nonretail licensee" for beer  
          manufacturers and wholesalers. 





          3)Defines "nonretail licensee" to mean any person who owns or  
          holds any interest, directly or indirectly, in any license,  
          authorization, or permit issued pursuant to this division that  
          authorizes the manufacture, production, rectification,  
          importation, or wholesaling of alcoholic beverages, except for a  
          brewpub restaurant license issued pursuant to the ABC Act.





          4)Revises the definition of coupon, as specified, and clarifies  
          that wineries are not precluded from offering discounts directly  
          to their consumers through wine clubs or purchases made over the  
          Internet.





          5)Permits a nonretail licensee, until and including March 31,  
          2017, to reimburse a licensee authorized to sell alcoholic  
          beverages at retail for any coupon providing a consumer with an  
          instant discount at the time of purchase of wine, if beer, malt  
          beverages, cider or perry are not advertised in connection with  
          such coupon, that is otherwise prohibited by this section of  








                                                                    SB 1032


                                                                    Page  3





          law, that was received, accepted, or possessed by such licensee  
          authorized to sell alcoholic beverages at retail on or before  
          December 31, 2016.





          6)Makes it explicit that these provisions are not intended to  
          preclude or prevent or restrict an on-sale or off-sale retail  
          licensee that is not also a nonretail licensee from offering,  
          funding, producing, sponsoring, promoting, furnishing, or  
          redeeming a discount to consumers on the purchase of alcoholic  
          beverages that is not otherwise prohibited by this section of  
          law or any other provision of law. 





          7)Makes other conforming, clarifying and technical changes. 





          EXISTING LAW:   


          1)  The enactment of the 21st Amendment to the United States  
          (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.  

          2)  Establishes the Department of Alcohol Beverage Control (ABC)  
          and grants it exclusive authority to administer the provisions  
          of the Alcoholic Beverage Control Act (Act).  This involves  








                                                                    SB 1032


                                                                    Page  4





          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.

          3)  States that the "Tied-House" Law, separates the alcoholic  
          beverage industry into three component parts of manufacturer,  
          wholesaler, and retailer.  The original policy rationale for  
          this body of law was to prohibit the vertical integration of the  
          alcohol industry and to protect the public from predatory  
          marketing practices.  Generally, other than exemptions granted  
          by the Legislature, the holder of one type of license is not  
          permitted to do business as another type of licensee within the  
          "three-tier" system.  Separates the alcoholic beverage industry  
          into three component parts of manufacturer, wholesaler, and  
          retailer.  

          4)  Prohibits a beer manufacturer or a beer wholesaler from  
          offering, funding, producing, sponsoring, promoting, furnishing,  
          or redeeming any type of coupon, as specified.  Also, prohibits  
          licensed retailers from accepting, redeeming, possessing, or  
          utilizing any type of coupon that is funded, produced,  
          sponsored, promoted, or furnished by a beer manufacturer or beer  
          wholesaler. Provides that a coupon does not include: (a) a  
          mail-in rebate by which the consumer purchases an item and  
          submits required information in order to receive a rebate or  
          discount from the beer manufacturer; (b) a coupon offered and  
          funded by a winegrower, a wine rectifier, a wine blender, a beer  
          and wine wholesaler, a beer and wine importer, a wine importer  
          general, or a wine broker that offers a discount on the purchase  
          of a wine product if beer, malt beverages, cider, or perry are  
          not advertised in connection with the coupon; (c) a coupon that  
          is offered and funded by a distilled spirits manufacturer,  
          distilled spirits importer general, distilled spirits importer,  
          or distilled spirits wholesaler that offers a discount on the  
          purchase of a distilled spirits product if beer, malt beverages,  
          cider, or perry are not advertised in connection with the  
          coupon; and, (d) a discount that is offered and funded by a beer  
          manufacturer on the purchase of beer, malt beverages, cider, or  
          perry at the licensed premises of production or other licensed  








                                                                    SB 1032


                                                                    Page  5





          premises owned and operated by the beer manufacturer.

          5)  Prohibits any licensee from giving any premium, gift, or  
          free goods in connection with the sale or distribution of any  
          alcoholic beverage, except as specifically authorized.

          6)  Defines an "on-sale" license as authorizing the sale of all  
          types of alcoholic beverages: namely, beer, wine and distilled  
          spirits, for consumption on the premises (such as at a  
          restaurant or bar).  An "off-sale" license authorizes the sale  
          of all types of alcoholic beverages for consumption off the  
          premises in original, sealed containers.  



          FISCAL EFFECT:  Unknown


          COMMENTS:  


           Purpose of the bill  :  According to the author, there is a lack  
          of transparency in the beer market as it relates to beer  
          manufacturer coupons.  Additionally, there is a high level of  
          inequity between the major beer conglomerates and the craft  
          breweries in the marketplace.





          Instant redeemable coupons (IRCs) offered by beer manufacturers  
          are one type of discount that offers an instant reduction in the  
          price of a product when purchased at a retail licensee.   
          However, these beer manufacturer coupons could easily lend  
          themselves to fraudulent practices, such as counterfeiting.











                                                                    SB 1032


                                                                    Page  6







          The author states, brewers and retailers are losing revenues and  
          are being exposed to unnecessary liability due to fake coupons,  
          which are often hard to distinguish from coupons that are  
          produced by the manufacturer.  





          The author further states that the elimination of coupons will  
          level the playing field between the major brewing conglomerates  
          and the craft breweries that are quickly becoming a sizeable  
          part of our state economy.  Unlike the major conglomerates, most  
          craft breweries, which are much smaller operations, cannot  
          afford to offer their own beer coupons. The author points out  
          that a number of states, including New York, Massachusetts, and  
          Texas, already ban manufacturer beer coupons.





           Background  :  This bill expands the above-referenced coupon ban  
          applicable to beer manufacturers and wholesalers to include  
          winemakers, winegrowers, wine blenders, amongst others, and also  
          prohibits alcoholic beverage retail licensees from redeeming  
          such coupons.  This bill will prohibit winery-funded IRCs on  
          direct wine purchases, as well as cross-merchandizing coupons  
          where a consumer purchases bottle(s) of wine and receives a  
          discount off of food and non-food items.  This bill, however,  
          does not ban winery funded, mail-in coupons and does not  
          preclude any coupons or discounts offered and funded by licensed  
          retailers.  Additionally, this bill allows wineries to offer  
          discounts directly to their consumers through wine clubs or  
          purchases made over the Internet.










                                                                    SB 1032


                                                                    Page  7





           


          In support  :  Proponents of this bill believe that "the evolution  
          of instant redeemable coupons has led to a number of adverse  
          impacts.  Specifically, current coupon practices can create  
          competitive imbalances between large and small wineries as well  
          as large grocery chains and smaller independent retailers.  The  
          deep discounting nature of IRC's reduces brand equity of  
          California wine brands, which the state's wineries strive to  
          maintain.  In addition to not being as effective as other  
          promotional activities, some couponing programs potentially  
          damage the wine industry's social responsibility ethic as a  
          beverage of moderation to be enjoyed with family and friends.   
          For example, some coupon programs observed in the marketplace  
          would require consumers to purchase six bottles of wine in order  
          to receive $25-$30 off groceries."





          Proponents state that such programs raise social responsibility  
          issues, do little to help build California wine brands, and are  
          cost prohibitive for smaller and mid-sized wineries.  Proponents  
          emphasize that "eliminating winery-funded instant redeemable  
          coupons will further provide regulatory certainty and if signed  
          into law, California would follow similar laws prohibiting IRCs  
          already in place in nearly half of the nation's states."        


           In opposition  :  Writing in opposition, the California Grocers  
          Association states, "While we appreciate the efforts to increase  
          transparency, reduce fraudulent activity, and reduce waste by  
          eliminating paper coupons, we utilize electronic discount  
          programs to help drive innovation and bring new products to  
          consumers.  These programs are important to many retailers and  
          to our consumers.  They are viable options to paper coupons and  
          by their very nature help prevent fraud and eliminate waste."








                                                                    SB 1032


                                                                    Page  8










          Additionally, opponents argue that "this bill is unnecessary and  
          that product manufacturers to whom SB 1032 would apply are not  
          required by law to offer or fund discounts on their products.  A  
          statute is not required to eliminate manufacturer coupons -  
          manufacturers can simply stop offering them.  In the retail food  
          industry, for example, some grocery companies have decided to  
          stop honoring double coupons to help address fraud.  They did  
          not need a statute to do that.  And in fact, some very  
          successful manufacturers do not include coupons in their  
          business model at all." 





          Opponents believe that this bill is overly broad, creates a  
          dangerous precedent, and in reality is not needed to accomplish  
          the goal articulated by supporters.  


           Prior legislation  : AB 1928 (Bocanegra), Chapter 145, Statutes of  
          2014.  Prohibited beer manufacturers and beer wholesalers, from  
          offering, funding, producing, sponsoring, promoting, furnishing,  
          or redeeming any type of coupon, as defined.  Also, prohibited  
          alcoholic beverage retail licensees from accepting, redeeming,  
          possessing, or utilizing any type of coupon that is funded,  
          produced, sponsored, promoted, or furnished by a beer  
          manufacturer or beer wholesaler.  In addition, this bill  
          exempted from the definition of coupon certain rebates, coupons,  
          and discounts.












                                                                    SB 1032


                                                                    Page  9






          AB 2184 (Hall), Chapter 480, Statutes of 2012.  Authorized,  
          until January 1, 2016, wine, beer and spirits producers to  
          participate in promotional events held at an off-sale retail  
          licensed location for the purpose of providing autographs on  
          bottles or other items to consumers.


          AB 778 (Padilla), Chapter 489, Statutes of 2012.  Added a new  
          section of law to the Act that authorizes wine, beer and spirits  
          producers to conduct consumer "contests" or "sweepstakes."  


          AB 1245 (Torrico), Chapter 629, Statutes of 2008.  Allowed beer  
          manufacturers to give adult consumers promotional advertising  
          items valued at $3 per unit original cost to the beer  
          manufacturer who purchased it.


          AB 2293 (De León), Chapter 638, Statutes of 2008.  Added a new  
          provision to the Act that permits a manufacturer of distilled  
          spirits, winegrower, rectifier, or distiller, or its authorized  
          agent to provide their product, as well as entertainment and  
          food to consumers over 21 years of age during invitation-only  
          events (free of charge), as specified.  The events must occur on  
          premises for which a caterer's permit authorization has been  
          issued.  


          SB 993 (Burton), Chapter 544, Statutes of 1997.  Among other  
          things: 1) provided that no rule of ABC may impose a dollar  
          limit for consumer advertising specialties furnished by a  
          distilled spirits supplier to a retailer or to the general  
          public of less than $5 per unit original cost to the supplier  
          who purchased it; and, 2) authorized a licensed distilled  
          spirits manufacturer to conduct tastings of distilled spirits on  
          the licensed premises under specified conditions.  










                                                                    SB 1032


                                                                    Page  10





          REGISTERED SUPPORT / OPPOSITION:




          Support


          Family Winemakers of California




          Opposition


          California Grocers Association


          California Retailers Association




          Analysis Prepared by:Eric Johnson / G.O. / (916)  
          319-2531