Amended in Senate May 31, 2016

Senate BillNo. 1426


Introduced by Senator Hall

(Coauthor: Senator De León)

February 19, 2016


An act to add and repeal Section 25513 of the Business and Professions Code, relating to alcoholic beverages.

LEGISLATIVE COUNSEL’S DIGEST

SB 1426, as amended, Hall. Alcoholic beverage control: tied-house restrictions: compensation.

Existing law generally restricts certain alcoholic beverage licensees from paying, crediting, or compensating a retailer for advertising in connection with the advertising and sale of alcoholic beverages and expressly authorizes exceptions to this prohibition.

This bill would authorize, until January 1, 2022, a person, as defined, who has an ownership interest inbegin delete aend deletebegin insert an on-saleend insert retail begin deletelicense,end deletebegin insert license, subjectend insertbegin insert to a numerical limitation,end insert to be compensated by an authorized licensee, as defined, for promotional or marketing services of the authorized licensee’s products subject tobegin delete theend delete specified conditions, including that the compensation be based solely on the promotional and marketing activities. The bill wouldbegin delete also makeend deletebegin insert create several new crimes, including thatend insert an authorized licensee who, through coercion or other illegal means, induces the holder of a wholesaler’s license to provide compensation pursuant to these provisions guilty of a misdemeanor. The bill would additionally make an authorized licensee or a person who violates these provisions guilty of a misdemeanor.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 25513 is added to the Business and
2Professions Code
, to read:

3

25513.  

(a) For purposes of this section:

4(1) “Authorized licensee” means a manufacturer, winegrower,
5manufacturer’s agent, rectifier, California winegrower’s agent,
6beer manufacturer, holder of an out-of-state beer manufacturer’s
7certificate, distilled spirits manufacturer,begin insert holder of aend insert distilled spirits
8begin delete rectifier,end deletebegin insert rectifier’s general license,end insert distilled spirits manufacturer’s
9agent,begin insert brandy manufacturer, brandy importer, holder of an
10out-of-state distilled spirits shipper’s certificate, holder of a
11distilled spirits importer’s general license, distilled spirits importer,end insert

12 or craft distiller.

13(2) “Person” means a natural person 21 years of age orbegin delete older.end delete
14
begin insert older who does not hold an ownership interest in more than five
15California onend insert
begin insert-sale retail licenses.end insert

16(b) Notwithstanding any other provision of this division, an
17authorized licensee may compensate a person with ownership
18interest inbegin delete aend deletebegin insert an on-saleend insert retail license for promotional or marketing
19services of the authorized licensee’s products, subject to the
20following conditions:

21(1) Any compensation agreement with the person shall be in
22the form of a written contract and include the conditions outlined
23in this section.

begin insert

24
(2) The authorized licensee may have written contracts
25regarding compensation authorized pursuant to this section with
26no more than five persons at any given time.

end insert
begin delete

18 27(2)

end delete

28begin insert(3)end insert The person shall not bebegin delete directly or indirectly involved in the
29retailer’s purchasingend delete
begin insert exclusively responsible for the on-sale retail
P3    1licensee’send insert
decisions of the brands of alcoholic beverages owned
2by the authorized licensee compensating the person.

begin delete

21 3(3)

end delete

4begin insert(4)end insert The authorized licensee compensating the person shall not
5utilize the person tobegin delete conduct promotional and marketing activities
6to promote or market alcoholic beverages on the premises of the
7retailerend delete
begin insert engage in any endorsement or promotional or marketing
8activity for alcoholic beverages on the premises of the on-sale
9retail licenseeend insert
in which the person has an ownership interest.

begin delete

25 10(4)

end delete

11begin insert(5)end insert All compensation the authorized licensee pays to the person
12shall be based solely on the person’s promotional and marketing
13activities and shall not be related directly or indirectly to the sale
14of alcoholic beverages by thebegin delete retailerend deletebegin insert on-sale retail licenseeend insert in
15which the person has an ownership interest.

begin insert

16
(6) The person shall not personally serve any alcoholic
17beverages while on the premises of an on-sale retail licensee. This
18paragraph shall not apply to an event held at an unlicensed venue
19under a caterer’s permit.

end insert
begin insert

20
(7) The on-sale retail licensee in which a person holds an
21ownership interest shall offer for sale, and serve, alcoholic
22beverages that compete with the brands of the authorized licensee
23compensating the person for promotional or marketing services.

end insert
begin delete

30 24(5)

end delete

25begin insert(8)end insert The name, image, and brand of the begin deleteretailerend deletebegin insert on-sale retail
26licenseeend insert
in which the person has an ownership interest shall not
27begin insert in any wayend insert be featured or referencedbegin delete in any wayend delete in any advertising
28of brands sold by the authorized licensee compensating thebegin delete person.end delete
29
begin insert person, except the name and address of an on-sale retail licensee
30in which the person has an ownership interest may be advertised
31when promoting specific events at which the compensated person
32does not provide services.end insert

begin delete

34 33(6)

end delete

34begin insert(9)end insert The person shall not be involved in the decisions by the
35authorizedbegin delete licenseend deletebegin insert licenseeend insert regarding the selection ofbegin delete retailersend delete
36begin insert on-sale retail licenseesend insert that will offer for sale the brands the person
37is compensated to promote and market.

begin insert

38
(c) An on-sale retail licensee in which the compensated person
39has an ownership interest that solicits or receives any
40compensation from an authorized licensee for any unlawful activity
P4    1relating to promotional or marketing services shall be guilty of a
2misdemeanor and shall be punished by imprisonment in the county
3jail not exceeding six months, or by a fine in an amount of ten
4thousand dollars ($10,000), or by both imprisonment and fine.

end insert
begin delete

3 5(c)

end delete

6begin insert(d)end insert A licensee that is not an authorizedbegin delete license shall notend deletebegin insert licenseeend insert
7 shall not compensate a person under this section and shall not
8directly or indirectly underwrite, share in, or contribute to the costs
9of compensation authorized by this section.

begin delete

7 10(d)

end delete

11begin insert(e)end insert Any officer, director, or agent of an authorized licensee that
12is compensated by that authorized licensee for promotional or
13marketing services of the authorized licensee’s products shall not
14be subject to the conditions of subdivision (b), notwithstanding
15the fact that the authorized licensee, or any officer, director, or
16agent of that authorized licensee, holds an ownership interest inbegin delete aend delete
17begin insert an on-saleend insert retail license.

begin delete

14 18(e)

end delete

19begin insert(f)end insert (1) An authorized licensee who, through coercion or other
20illegal means, induces, directly or indirectly, a holder of a
21wholesaler’s license to provide compensation to a person pursuant
22to this section shall be guilty of a misdemeanor and shall be
23punished by imprisonment in the county jail not exceeding six
24months, or by a fine in an amount of ten thousand dollars
25($10,000), or by both imprisonment and fine.

begin insert

26
(2) An on-sale retail licensee who, through coercion or other
27illegal means, induces or conditions, directly or indirectly, the
28purchase or sale of alcoholic beverages upon an authorized
29licensee’s decision about the promotional or marketing services
30of a person compensated by the authorized licensee shall be guilty
31of a misdemeanor and shall be punished by imprisonment in the
32county jail not exceeding six months, or by a fine in an amount of
33ten thousand dollars ($10,000), or by both imprisonment and fine.

end insert
begin delete

21 34(2)

end delete

35begin insert(3)end insert An authorized licensee or person who violates any provision
36of this section shall be guilty of a misdemeanor and shall be
37punished by imprisonment in the county jail not exceeding six
38months, or by a fine in the amount of ten thousand dollars
39($10,000), or by both imprisonment and fine.

begin delete

26 40(f)

end delete

P5    1begin insert(g)end insert Nothing in this section shall limit the activities authorized
2under Section 25503.1.

begin delete

28 3(g)

end delete

4begin insert(h)end insert The Legislature finds and declares both of the following:

5(1) That it is necessary and proper to require a separation
6between manufacturing interests, wholesale interests, and retail
7interests in the production and distribution of alcoholic beverages
8in order to prevent suppliers from dominating local markets through
9vertical integration and to prevent excessive sales of alcoholic
10beverages produced by overly aggressive marketing techniques.

11(2) Any exception established by the Legislature to the general
12prohibition against tied interests must be limited to the express
13terms of the exception so as to not undermine the general
14prohibitions.

begin delete

39 15(h)

end delete

16begin insert(i)end insert This section will remain in effect only until January 1, 2022,
17and as of that date is repealed.

18

SEC. 2.  

No reimbursement is required by this act pursuant to
19Section 6 of Article XIII B of the California Constitution because
20the only costs that may be incurred by a local agency or school
21district will be incurred because this act creates a new crime or
22infraction, eliminates a crime or infraction, or changes the penalty
23for a crime or infraction, within the meaning of Section 17556 of
24the Government Code, or changes the definition of a crime within
25the meaning of Section 6 of Article XIII B of the California
26Constitution.



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