BILL ANALYSIS
Bill No: SB
1022
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 1022 Author: Strickland
As Amended: March 15, 2010
Hearing Date: April 13, 2010
Consultant: Art Terzakis
SUBJECT
Donation of Alcoholic Beverages
DESCRIPTION
SB 1022 expands an existing tied-house exception within the
Alcoholic Beverage Control (ABC) Act to enable licensed
distilled spirits "rectifiers" to donate or sell their
products to specified nonprofit entities for the purpose of
assisting in fund-raising efforts.
EXISTING LAW
Existing law establishes the Department of Alcoholic
Beverage Control (ABC) and grants it exclusive authority to
administer the provisions of the ABC Act in accordance with
laws enacted by the Legislature.
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
off-sale).
Tied house refers to a practice in this country prior to
Prohibition and still occurring in England today where a
bar or public house, from whence comes the "house" of tied
house, is tied to the products of a particular
manufacturer, either because the manufacturer owns the
house, or the house is contractually obligated to carry
only a particular manufacturer's products.
SB 1022 (Strickland) continued
Page 2
The original policy rationale for this body of law was to:
(a) promote the state's interest in an orderly market; (b)
prohibit the vertical integration and dominance by a single
producer in the marketplace; (c) prohibit commercial
bribery and protect the public from predatory marketing
practices; and, (d) discourage and/or prevent the
intemperate use of alcoholic beverages. Generally, other
than exceptions 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.
Tied-house law generally prohibits any alcoholic beverage
manufacturer, winegrower, agent, importer or wholesaler
from holding any interest in the business of a retailer of
alcoholic beverages or to give any thing of value to a
licensed retailer of alcoholic beverages. Licensees are
also prohibited from giving away any gift, premium or free
goods in connection with the sale or distribution of
alcoholic beverages.
The ABC Act provides that nothing in that body of law
prohibits a wine grower or a beer and wine wholesaler from
giving or selling wine, a beer manufacturer from giving or
selling beer, a distilled spirits manufacturer or its agent
from giving or selling distilled spirits, or a licensed
importer from giving or selling beer, wine, or spirits to
certain nonprofit organizations, as specified, at prices
other than those contained in schedules filed with the
Department of ABC.
The ABC Act defines "rectifier" to mean every person who
colors, flavors, or otherwise processes distilled spirits
by distillation, blending, percolating, or other processes.
BACKGROUND
As an exception to the general tied-house rule, existing
law (Business and Professions Code Section 25503.9) allows
wineries, breweries, distilled spirits manufacturers, and
importers to donate their product(s) to certain nonprofit
organizations (e.g., fraternal orders, social
organizations, civic leagues, veterans' organizations,
religious groups, horticultural organizations) for the
purpose of assisting in fund-raising efforts. This measure
would grant licensed "rectifiers" the same privilege.
SB 1022 (Strickland) continued
Page 3
Purpose of SB 1022: The author's office notes that current
law does not allow holders of a "rectifiers" license to
give or sell rectified distilled spirits to nonprofit
organizations to assist them in fund-raising efforts.
However, current law permits licensed "importers" to
perform this function.
As an example, the author's office points to a local
rectifier, Ventura Limoncello Company, which cannot donate
a gift basket containing a bottle of Ventura Limoncello,
produced in the County of Ventura, to a local charity for
its silent auction. Yet, the importer of Il Convento
Limoncello, produced in Italy, can be donated (by the
importer) to any charitable event.
According to the author's office, this measure is simply
intended to allow licensed rectifiers to support charities
in the same manner as the State's wineries, breweries, and
distilled spirits manufacturers and importers.
Staff Comments: "Limoncello," the national drink of Italy,
is a blended - or rectified - liquor. Grain alcohol is
combined with lemon zest and sugar. It rests for 30 to 45
days over which time the grain alcohol absorbs the essence
of the lemon creating a sweet, lemony liquor. It is
traditionally served chilled as an after dinner digestivo.
Recification is any process or procedure whereby distilled
spirits are cut, blended, mixed or infused with any
ingredient which reacts with the constituents of the
distilled spirits and changes the character and nature or
standards of identity of the distilled spirits.
In late February 2010, the Department of ABC announced that
it would be cracking down on bars and restaurants that make
their own "infused" drinks, such as limoncellos. The
Department of ABC initially had issued a warning in May
2008 that was designed to prevent bartenders from modifying
drinks to increase the alcohol content of distilled
spirits.
PRIOR/RELATED LEGISLATION
SB 1022 (Strickland) continued
Page 4
SB 1273 (Wiggins) 2009-10 Session. Would make various
substantive changes to existing provisions of the ABC Act
that allow winegrowers to sell bottled wine at certain
events held by qualified nonprofit organizations, if
approved by the Department of ABC. (Pending in this
Committee)
SB 157 (Wiggins) Chapter 337, Statutes of 2008. Enacted
the "Nonprofit Organization Equal Participation Act" for
the purpose of providing continuity and equal participation
for non-profit organizations in sanctioned wine related
events and to provide orderly direction for wine producers
SB 108 (Wiggins) Chapter 246, Statutes of 2007. Modified
an existing provision of law that allows wine orders to be
taken at wine tasting events held by specified non-profit
organizations to include three additional types of
non-profit organizations - civic leagues, social
organizations and voluntary employees' beneficiary
associations.
AB 323 (Evans) Chapter 131, Statutes of 2007. Made
modifications to the ABC Act to enable custom crush wine
producers (boutique wineries) to donate and pour their wine
at winetasting events conducted by nonprofit organizations.
SB 1362 (Chesbro) 2005-06 Session. Identical to SB 108
(Wiggins) of 2007. (Passed out of Senate G.O. Committee on
a vote of 9-0 - the measure was subsequently gutted on the
Assembly floor late in the Session)
SB 88 (Chesbro) Chapter 588, Statutes of 2003. Created a
new ABC wine sales event permit to allow a winegrowers to
sell bottled wine at charity events.
AB 1505 (Wiggins) Chapter 270, Statutes of 2003. Provided
that wine may not be sold or orders solicited, when a wine
tasting is held off the winegrower's premises at an event
sponsored by a private nonprofit organization, as defined,
except that the winegrower would be permitted to accept
orders for the sale of wine when the sales transaction is
completed at the winegrower's premises.
AB 2520 (Thomson) Chapter 384, Statutes of 2000.
Authorized the ABC to issue a certified farmers market
SB 1022 (Strickland) continued
Page 5
permit to allow winegrowers to sell wine produced and
bottled by the winegrower entirely from grapes grown by the
winegrower at such venues.
SUPPORT: As of April 9, 2010:
Boys & Girls Club of Ventura
Ventura Limoncello Company, LLC
Napa Valley Limoncella Company
OPPOSE: None on file as of April 9, 2010.
FISCAL COMMITTEE: Senate Appropriations Committee