BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1032


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          SENATE THIRD READING


          SB  
          1032 (Galgiani)


          As Amended  May 19, 2016


          Majority vote


          SENATE VOTE:  38-0


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          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Governmental    |20-0 |Gray, Bigelow, Alejo, |                    |
          |Organization    |     |Bonta, Campos,        |                    |
          |                |     |Cooley, Cooper, Daly, |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Eduardo Garcia,       |                    |
          |                |     |Gipson,               |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Roger Hernández,      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Jones-Sawyer, Levine, |                    |
          |                |     |Linder, Maienschein,  |                    |
          |                |     |Salas, Steinorth,     |                    |
          |                |     |Waldron, Wilk         |                    |








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          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |20-0 |Gonzalez, Bigelow,    |                    |
          |                |     |Bloom, Bonilla,       |                    |
          |                |     |Bonta, Calderon,      |                    |
          |                |     |Chang, Daly, Eggman,  |                    |
          |                |     |Gallagher, Eduardo    |                    |
          |                |     |Garcia, Holden,       |                    |
          |                |     |Jones, Obernolte,     |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Wagner, Weber, Wood,  |                    |
          |                |     |Chau                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
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          SUMMARY:  Expands the prohibition on beer manufacturers and beer  
          wholesalers from offering consumer coupons, as defined, to  
          include those involved in the production of wine, such as  
          winemakers, winegrowers, and wine blenders.  This bill also  
          prohibits licensed retailers from accepting or redeeming such  
          coupons from these nonretail licensees.  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.


          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,  








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            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 Alcoholic  
            Beverage Control Act (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 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. 









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          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 Act.  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.


          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,  








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            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 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:  According to the Assembly Appropriations  
          Committee, minor enforcement costs to ABC.








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          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.


          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  








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          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.


          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  








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          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."


          Additionally, opponents argue, "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." 


          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.


          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.


          SB 778 (Padilla), Chapter 489, Statutes of 2012.  Added a new  








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          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.  




          Analysis Prepared by:                                             
                          Eric Johnson / G.O. / (916) 319-2531  FN:  
          0003799










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