BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1426 (Hall) - Alcoholic beverage control: tied-house
restrictions: compensation
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|Version: February 19, 2016 |Policy Vote: G.O. 8 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: May 2, 2016 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1426 would create a new tied-house exemption in the
Alcoholic Beverage Control (ABC) Act until January 1, 2022 that
authorizes an alcoholic beverage supplier to provide
compensation for promotional or marketing services to a person
who has an interest in a retail license, as specified.
Fiscal
Impact: Unknown, potentially significant enforcement costs to
the Department of Alcoholic Beverage Control (Alcoholic Beverage
Control Fund). See staff comments.
Background: Existing law, known as the "tied-house" law, separates the
alcoholic beverage industry into three component parts, or
tiers, of manufacturer (including breweries, wineries, and
distilleries), wholesaler, and retailer (both on-sale and
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off-sale). Generally the holder of one type of license is not
permitted to do business as another type of licensee within the
tiers, unless a specific exemption is specified.
Existing law also provides that no licensee shall, directly or
indirectly, give any premium, gift, free goods, or other thing
of value in connection with the sale, distribution, or sale and
distribution of alcoholic beverages, and no retailer shall,
directly or indirectly, receive any premium, gift, free goods or
other thing of value from a supplier of alcoholic beverages,
except as authorized by the Department of Alcoholic Beverage
Control.
Existing law restricts certain alcoholic beverage licensees from
paying, crediting, or compensating a retailer for advertising in
connection with the advertising and the sale of alcoholic
beverages, with specified express exceptions.
Proposed Law:
SB 1426 would do the following:
1)Permit, until January 1, 2022, an "authorized licensee," as
defined, to compensate a "person" with ownership interest in a
retail license for promotional or marketing services of the
authorized licensees products, subject to the following
conditions:
a) Any compensation agreement must be in the form of a
written contract that includes these conditions.
b) The person must not be directly or indirectly involved
in the retailer's purchasing decisions of the brands of
alcoholic beverages owned by the authorized licensee.
c) The licensee must not use the person for promotional or
marketing activities on the premises of the retailer in
which the person has an ownership interest.
d) All compensation the licensee pays to the person must be
based solely on the person's promotional and marketing
activities, and not directly or indirectly related to the
sale of alcoholic beverages by the retailer in which the
person has an ownership interest.
e) The name, image, and brand of the retailer in which the
person has an ownership interest must not be featured or
referenced in any advertising of the brands sold by the
licensee.
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f) The person must not be involved in the decisions by the
licensee regarding the selection of retailers that will
offer for sale the brands the person is compensated to
promote and market.
2)Stipulates that a licensee other than an "authorized licensee"
is prohibited from compensating a person under this bill, and
must not directly or indirectly underwrite, share in, or
contribute to the costs of compensation authorized by this
bill.
3)Provides that any officer, director, or agent of an authorized
licensee that is compensated by that licensee for promotional
or marketing services of the licensee's products is not
subject to the conditions specified above.
4)Makes it a misdemeanor, punishable by a fine of $10,000 or six
months in county jail, or both, for an authorized licensee to,
through coercion or other illegal means, induce, directly or
indirectly, a holder of a wholesaler's license to provide
compensation to a person pursuant to this bill.
5)Makes it a misdemeanor, punishable by a fine of $10,000 or six
months in county jail, or both, for an authorized licensee or
person to violate any provision of this bill.
6)Defines "authorized licensee" to mean a manufacturer,
winegrower, manufacturer's agent, rectifier, California
winegrower's agent, beer manufacturer, holder of an
out-of-state beer manufacturer's certificate, distilled
spirits manufacturer, distilled spirits rectifier, distilled
spirits manufacturer's agent, or craft distiller.
7)Defines a "person" as a natural person 21 years of age or
older.
Staff
Comments: The Department of Alcoholic Beverage Control reports
that there are currently over 40,000 wholesaler and manufacturer
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licensees, and over 74,000 retail licensees. This bill would
allow any "person" with an ownership interest in a retail
license to enter into a contract with an "authorized licensee"
who supplies alcoholic beverages for marketing and promotional
services for compensation, as specified. While the bill allows
a supplier to retain the services of a spokesperson with some
celebrity status who also has an ownership interest in an
off-sale or on-sale retail license, it is broadly drafted to
allow paid relationships between any supplier and any person
with an interest in a retailer license, subject to the specified
conditions. Previous tied-house exemptions authorized by the
Legislature have typically been targeted to allowing certain
activities under very limited circumstances (for instance at
certain venues, for a specified number of events, or for a
limited purpose). Rather than providing an exception to the
tied-house rules, this bill could be interpreted as a broader
authorization to have members of different tiers enter into paid
relationships.
Exact administrative and enforcement costs to the Department of
Alcoholic Beverage Control (ABC) are unknown and will in part be
dependent on the number of contractual relationships entered
into as a result of the bill. ABC currently has 140 authorized
enforcement personnel, and enforcement is primarily
complaint-driven. The Trade Enforcement Unit (TEU) conducts
approximately 3,500 enforcement investigations annually that are
tied-house related. Staff estimates that at least two
additional PY of TEU staff could be necessary to investigate any
increased complaints and conduct enforcement actions as a result
of the bill. For illustrative purposes, the TEU gained two
staff agents following the passage of a tied-house exception
that allowed certain alcoholic beverage producers to hold
private, free-of-charge, invitational-only promotional events at
specified locations.
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