Source: http://www.alcohol.law/digest/tag/alcohol+beverage+law
Timestamp: 2019-04-21 09:01:30+00:00

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We last covered winery and retailer direct to consumer (“DTC”) wine shipments on this blog one year ago. (For those prior posts, see the following links: winery DTC shipping, retailer DTC shipping.) This blog post summarizes the changes that occurred in 2018 with respect to winery and retailer DTC wine shipping. Winery DTC Wine Shipping – Beginning on October 1, 2018, Oklahoma’s new law allowing wineries to ship wine directly to Oklahoma consumers became effective. Retailer DTC Wine Shipping – There were no final changes in 2018 with respect to retailer DTC wine shipping; however, there are potentially some changes on the horizon. In August, the Florida Division of Alcoholic Beverages and Tobacco issued a Declaratory Ruling holding that it was enjoined by a prior court order from enforcing the laws prohibiting out-of-state retailers from selling wine into Florida. However, this ruling has been appealed, and thus may be reversed. Further, in September, a federal district court held that Michigan’s prohibition against out-of-state retailer wine shipping was unconstitutional. However, the Michigan litigation is stayed pending the outcome of a case in front of the U.S. Supreme Court, which is set for hearing on January 16, 2019. There is also similar litigation pending relating to Illinois’ and Missouri’s prohibitions against out-of-state retailer wine shipments, and accordingly there is the potential for future changes in these states as well. If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.
Several new provisions of the California ABC Act were signed into law recently; below is an overview of the ones we find most relevant to our clients’ businesses. All statutory references are to the California Business & Professions Code. All of the laws described below take effect January 1, 2019. Changes Affecting Craft Distillers (License Type 74) Production Cap Increase – Craft distillers currently can produce no more than 100,000 gallons of distilled spirits per year (excluding brandy), and no owner, officer, director, etc., of a craft distiller can be affiliated with a producer of more than 100,000 gallons per year. Section 23502. Those limits will be increased to 150,000 gallons. (SB 1164) Sales at the Distillery – Section 23504 is amended to eliminate the requirement that a person must attend a tasting before being able to purchase prepackaged containers of the craft distiller’s spirits at the licensed premises. The 2.25 liters per day restriction remains in place. (AB 1164) Consumer Tastings – Current California law allows for tastings of spirits at on- and off-sale licensed premises, subject to various restrictions. Sections 25503.56, 25503.57. Those tastings can only be conducted by “authorized licensees,” which did not include craft distiller licensees. The definition of that term was expanded in the two cited statutes to include craft distiller licensees. (AB 1891) Trade Tastings – Existing Section 25503.5(b) allows distilled spirits manufacturers, rectifiers, importers, and distilled spirits manufacturer’s agent licensees to conduct instructional tastings for licensees and their employees; it has now been amended to include craft distillers. (SB 1164) In addition, Section 25503.51 was added, which essentially does the same thing as the revision to 25503.5(b), except that the new section adds distilled spirits wholesalers, which can now also provide the instructional tastings. (AB 3264) Changes Affecting Advertising by Suppliers Advertising Consumer Tastings - Existing Section 25503.4 allows wineries and wine importers to conduct consumer tasting events at on-sale retailers’ premises. Existing Section 25503.56 allows consumer tastings of beer, wine or spirits at off-sale licensed premises, and 25503.57 allows consumer tastings of wine and spirits at on-sale licensed premises. All three statutes allow the supplier licensee conducting the tasting to advertise the event in advance, but restrict them from providing any information about the retailer beyond its name and address. Revisions to the three laws will allow the ads to also include still photos (no video) of the retailer’s “premises, personnel and customers,” and expanded contact info for the retailer, including its email and website addresses, and social media accounts. Suppliers also can re-post social media posts about the events, including posts by the retailer, as long as they comply with the content restrictions in the statutes. The references to the retailer still must be “relatively inconspicuous” in relation to the ad as a whole, and the supplier still cannot make laudatory references to the retailer. Note that the expanded ad content relates only to advertisements for the events allowed under the three statutes referenced above – it does not apply to supplier advertising in other contexts. (AB 2452, SB 1164) Venue Advertising – The ABC Act prohibits supplier licensees from paying retailers for advertising rights at retail licensed premises. There are a number of exceptions to the prohibition, carving out allowances for supplier advertising at specific stadiums, parks, arenas, and other on-sale licensed venues. Section 25503.6 was revised to add three San Jose venues (San Jose Giants stadium, San Jose Earthquakes stadium, SAP Center) and the San Diego Padres stadium (Petco Park). (AB 2000, AB 2146) Wine Institute and others have been working to pass an “Entertainment Venue Sponsorship” exception that would more broadly allow venue advertising, but it remains in legislative limbo. Cannabis & Alcohol: You Gotta Keep ‘Em Separated New Sections 25621.5 and 26070.2 prohibit licensees from selling cannabis at their licensed premises, including alcoholic beverages that contain cannabis. The laws further clarify that no alcoholic beverage can be produced or sold that contains cannabis, tetrahydrocannabinol (THC), or cannabinoids (CBD). (AB 2914) Miscellaneous Free Rides – Existing law allows beer manufacturers to provide free or discounted rides to consumers “for the purpose of furthering public safety.” Section 25600(d). The law was amended to also allow certain distilled spirits supplier licensees, including craft distillers, to provide free or discounted rides. (AB 3264, SB 973) Cemetery Cocktails – For-profit cemeteries in Los Angeles that are at least 100 years old and on the National Register of Historic Places can now get on-sale general licenses. Good news for visitors to the Hollywood Forever Cemetery, which seems to be the sole beneficiary of the new Section 24045.76. (AB 1217) Notable Unsuccessful Bills Free Glassware – AB 2573 would have allowed beer manufacturers to provide up to five cases of free, branded glassware annually to on-sale retailer licensees, had Governor Brown not vetoed the bill. Consistent with this anti-free-glassware sentiment, Bus & Prof code § 25600 was amended to clarify that glassware is not an allowable retailer advertising specialty item that could be given to retailers by wine and spirits suppliers. (AB 3264) 4 a.m. Last Call – SB 905 would have extended the hours of sale for alcohol from 2 a.m. to 4 a.m. in several California cities, including Los Angeles, San Francisco, Sacramento, and Coachella. Governor Brown vetoed the bill, noting that he believes “we have enough mischief from midnight to 2 without adding two more hours of mayhem.” We expect to see this bill resurrected in future legislative sessions. (SB 905) Duplicate Winery Tasting Rooms – Existing law allows wineries to sell wine to consumers and to conduct tastings at their licensed premises and at one additional premises under a duplicate license. The proposed amendment to 23390.5 would allow consumer sales and tastings at two additional premises licensed with duplicate licenses. The bill did not make it to the governor’s desk but we don’t expect this to be the end of it.
The brewpub licensee must have a minimum commercial brewing system located permanently onsite that is capable of producing at least seven barrels of beer per brewing cycle. The law already requires minimum seven-barrel capacity, but the revision clarifies that the system must be capable of producing at least seven barrels per brewing cycle, and requires the system be permanently installed on site.
Minimum required production on the premises will increase from 100 barrels to 200 barrels per year. Maximum allowable production remains at 5,000 barrels per year.
Existing law allows the brewpub licensee to sell beer to, and buy beer from licensed wholesalers but prohibits them from selling, furnishing or exchanging alcoholic beverages with any other brewpub licensee or retailer in California. The revisions clarify that the brewpub licensee also may not buy beer from, or sell beer to, any holder of a beer manufacturer license, nor may a brewpub produce and sell beer under a trademark used on beers made by any other beer manufacturer.
Licensees must keep records on a monthly or quarterly basis that are sufficient to establish compliance with the production and sale requirements. These records must be kept for at least three years. ABC recently investigated brewpub licensees in the state and determined that many were not producing beer under the license, so licensees should anticipate that ABC will be monitoring them for compliance with the brewpub production and sale requirements going forward.
Brewpub licensees may now sell beer made on the premises directly to consumers for off-sale consumption, and they can refill “any container” with beer made on site, i.e., growler fills are allowed.
Licensees can donate beer made at the premises to non-profit organizations pursuant to the requirements of Section 25503.9, but that beer does not count toward the 200 gallon minimum production requirement.
Note that brewpub licensees are still required to sell canned, bottled and draft beer made by others and bought from a licensed wholesaler, but cannot sell those products to consumers for off-premises consumption. Similarly, the brewpub can (but is not required to) sell wine and spirits bought from winegrowers or wholesalers for on-sale consumption only. The license fee for a brewpub license is the same as for an on-sale general license, but the brewpub license is not currently subject to the license quota that limits the number of on-sale general licenses (ABC can only issue one such license in a county per every 2,000 inhabitants of that county). As a result, brewpub licenses have been significantly less expensive than on-sale general licenses, which must be purchased from an existing licensee in the event the county license limit has already been met. However, beginning with license applications submitted on or after December 31, 2019, the quota restrictions will apply to brewpub licenses. SB 1283 brings significant operational and licensing changes for California brewpubs. If you have any questions about brewpub licensing or operations, contact Strike & Techel.
There have been some recent developments at the Alcohol Tobacco Tax & Trade Bureau (“TTB”) regarding filing corporate updates that may affect your federal licensing as an importer, producer or wholesaler of alcoholic beverages. When you receive an approval letter for a TTB permit, you’ll receive information regarding the ongoing requirement to report changes in name, address, ownership, management or control after the original qualification of your business. Perhaps someone on your board of directors is new, or there’s a new 10% or greater shareholder in your company, or an officer leaves, or new officers are appointed; all of these changes must be reviewed by the right folks in your organization to determine if it triggers corporate updates with both the TTB and state authorities where you hold licenses. We’ve blogged about the importance of staying up to date on your license applications with the TTB in the past, but we’ve just been reminded why keeping up with these compliance requirements is so important. Recently, the TTB announced enforcement against an Illinois wholesaler for not updating its TTB permits to report changes in ownership and control within the required timeline (in this instance, 30 days). See the TTB press release here. The Illinois wholesaler in question had not updated its ownership information with the TTB in a significant period of time, and the TTB ruled that the wholesaler was therefore operating without a valid permit, which is a criminal offense under 27 U.S.C. § 207. Although the Illinois wholesaler was engaged in other, more problematic behavior (paying slotting fees to a retailer), the citation of the unreported permit changes does indicate a potential shift in TTB enforcement priorities. Accordingly, we recommend that all businesses keep their TTB permits up-to-date within the required deadlines, and, where required, file applications or amendments in advance of such changes. A change in proprietorship typically requires TTB preapproval of the new entity before closing a transaction, while a change in control typically triggers a post-closing notification to TTB. Other changes that may require updates with the TTB include changes to trade names, changes to business names, extensions or curtailments of the premises, changes to any alternation of premises or proprietor, or adding or removing non-contiguous storage locations. The TTB website also features more specific guidance on required updates for wineries, breweries, distilled spirits plants, and wholesalers/importers. If you have any questions about report updates or licensing, please contact one of the attorneys at Strike & Techel.
Governor Brown approved a bill on September 19, 2018, that will impose a range of significant new restrictions on California-licensed beer wholesalers. The bill number is AB-2469. The new section §23378.05 of the Business & Professions Code (B&PC) will require a beer wholesaler to: - Own or lease at least one warehouse sufficient to store stocks of beer equal to 10% of the wholesaler’s annual wholesale beer volume (similar to existing warehouse requirements for spirits in 4 CCR §28). - Actually maintain in at least one warehouse stock equal to no less than 5% of the wholesaler’s annual beer volume. - Receive all beer at the wholesaler’s warehouse, “unload and maintain” it on the premises, record it into inventory records and for purposes of compliance with California recycling laws, prior to any sale or reloading. - Only sell beer that the wholesaler owns and has in the wholesaler’s physical possession, that is not acquired, held or offered for sale on consignment. - Only sell beer from the wholesaler’s licensed premises or per B&PC §23388 (allowing the sale of beer from wagons or trucks operated by the wholesaler). - Make deliveries to retailers only with equipment that the wholesaler owns, leases, or rents. - Sell generally to retailers, and not to a single retailer or retailers that have a direct or indirect interest in the wholesaler or in each other, and to retailers that are owned in whole or in part or managed or controlled directly or indirectly by the retailer or retailers. It also includes reminders on two other, previously existing parts of the ABC Act, which require a wholesaler to: (1) have and file with the state territorial agreements with each of the wholesaler’s beer suppliers; and (2) price post. The bill was sponsored by the California Beer and Beverage Distributors, and its stated purpose is to “bring parity to California law by setting forth qualifications for a beer wholesaler consistent with qualifications for brandy and distilled spirits wholesalers.” The new law will go into effect on January 1, 2019. It contains no grandfathering provisions for existing licensees, or deferred effectivity provisions, so California beer wholesalers should review the new law and ensure they are in compliance by January 1, 2019.
Last month, the TTB released TTB Procedure Number 2018-1 addressing the transfer of beer between breweries not of the same ownership. Unlike wineries, prior to the Tax Cuts & Jobs Act of 2017 (the “Act”), breweries could not transfer beer under bond unless the transferring and receiving brewer were under common control. However, the Act now allows the transfer of beer under bond (i.e., without the payment of excise tax) between breweries not of the same ownership, subject to certain conditions, and only through December 31, 2019. In these transfers, the receiving brewery must accept responsibility for the payment of excise taxes on the beer, when the beer is ultimately removed from the receiving brewery for sale. TTB Procedure Number 2018-1 sets out the record keeping and documentation requirements for these transfers, and also provides instructions for completing TTB operational reports to reflect transfers of beer under bond. Note that a brewery may only claim the reduced excise tax rates on beer that the brewery has produced. Beer is considered to be “produced” if it is brewed or produced at a brewery premises, including beer that has been brewed by fermentation or to which water or other liquids have been added during any stage of production. However, blending or combining two beers does not count as “production” for reduced tax purposes. Thus, for beer transferred in bond, the receiving brewery may not be eligible to claim the reduced excise tax rates on the beer received under bond. However, transfers beer produced at the brewery to another brewery for bottling, and which receives the same beer back under bond, would be eligible to remove such beer at reduced tax rates. The TTB is still working on guidance regarding the Act’s changes to alcohol excise taxes. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here, here, and here. The TTB has not yet issued guidance on the controlled group and single taxpayer rules, but such guidance could impact how your business is able to claim the Act’s reduced excise tax rates. We will continue to post updates on the TTB’s guidance as it is released. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.
Compliance with California Prop 65 – The August 30, 2018 Deadline is Approaching!
Effective August 30, 2018, new Prop 65 signage requirements will be in effect in California for alcohol retailers and suppliers with ten or more employees. In a nutshell, there are two new requirements: (1) The existing Prop 65 general alcohol warning language has been slightly revised to include the word WARNING and a link to the state government’s Prop 65 website; (2) A new warning is required to warn consumers about Bisphenol A (BPA), which is a chemical present in certain packaging materials, such as some synthetic wine corks and aluminum cans, and in certain processing equipment, such as some hoses. (We previously wrote about BPA here.) Suppliers and retailers of alcoholic beverages must comply to the letter with the new requirements to remain safe from possible lawsuits for violating the Prop 65 consumer warning requirements. Below is a summary of the specific signage requirements and instructions about where these required warnings will need to be posted. (1) The Prop 65 General Alcohol Warning Sign (a) Who must provide the general alcohol warning? All retailers of alcoholic beverages in California with 10 or more employees must post the new general alcohol warning sign pictured below. The posting requirements also extend to California producers with tasting rooms, ecommerce websites, catalog sales, and to retailers outside of California shipping wine to California consumers. (b) What does the general alcohol warning say? The warning must use the exact language shown below, including the word WARNING in uppercase, bold type. When it is posted at the retail point-of-sale, it must be presented within a rectangular border, as shown below.
(c) Where must the general alcohol warning sign be posted?
1) on an 8.5” x 11” sign with 22-point type at the point-of-display, that is at eye level, and is “readable and conspicuous” i.e., on the wall of the tasting room or retail store near where the alcohol is displayed; or 2) on a 5” x 5” sign with 20-point type presented within a square border, just as pictured above, placed at each point-of-sale (i.e., near each cash register) or each point-of-display.
Bars and restaurants may use one of the options above, or may provide the warning on a menu or drink list.
Websites and product catalogs displaying alcohol for purchase also must display the general alcohol warning. In cases where the size of the sign and text is not specified, such as on menus, websites and catalogs, the warning must be prominently displayed with such conspicuousness as compared to other words and designs on the labels or related signage as to make the warning likely to be seen, read and understood by an ordinary individual.
Deliveries of alcohol direct-to-consumer must include the general alcohol warning “on or in the shipping container or delivery package in a type size no smaller than the largest type used for other consumer information on the product,” and in no case smaller than 8-point type. The warning must be readable and conspicuous, so place it where it will be seen before consumption.
WARNING: This product can expose you to chemicals including bisphenol A (BPA), which are known to the State of California to cause birth defects or other reproductive harm. For more information go to www.P65Warnings.ca.gov. For a list of products go to: www.prop65bpa.org.
(c) Where must the BPA warning sign be posted?
1) on a posted sign, shelf tag or shelf sign at the point-of-display; or 2) with an automatic warning provided to the consumer prior to or during the purchase, that does not require the consumer to seek out the warning.
Shipments of alcohol delivered direct-to-consumer must include the BPA warning prominently on or in the packaging if the products may expose the consumer to BPA.
If the alcohol products being displayed or sold contain advertising or consumer information in a foreign language, the general alcohol warning and the BPA warning must also appear in that language, as well as English. More information on the BPA requirements, including sign templates, can be found at the Wine Institute’s website here. Note that you can order free signs that are compliant, provided by Prop 65 Sign Management, as we noted in our earlier article. This summary is provided for general information purposes only and should not be construed as legal advice. Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.
Last year, we covered the South Carolina Supreme Court case that ruled the state’s prohibition against an entity holding more than three off-premises retail liquor licenses was unconstitutional. The court held that the South Carolina law was enacted to protect small retailers, and that economic protectionism was not a sufficient justification for the law. Read our previous blog on that March 2017 decision in Total Wine v. South Carolina DOR here. The South Carolina legislature recently passed a law that reenacts limits on the number of off-premises retail liquor licenses that an entity may hold. Act 147 was signed by the South Carolina Governor in April, and it went into effect immediately. In an attempt to distinguish the Act from the law previously ruled unconstitutional by the South Carolina Supreme Court, the legislature listed a variety of health and safety policy arguments in favor of the legislation, in addition to the economic goals of spurring competition and reducing monopolization of the alcohol market. The legislature asserted that harms related to excessive alcohol consumption are tied to liquor retailer density, and cited statistics involving alcohol-related deaths, traffic fatalities, as well as binge drinking rates. The new law, S.C. Code § 61- 6-141, provides that an entity may only obtain three off-premises retail liquor licenses in the state. However, an entity may obtain three additional off-premises retail liquor licenses, if the new retail liquor licenses are obtained in counties with more than 250,000 residents. Furthermore, an entity seeking any of the three additional off-premises retail liquor licenses may not operate more than two stores in a county with more than 250,000 residents. However, if the entity already operated three off-premises retail liquor licenses in a county with more than 250,000 residents as of March 21, 2018, then the entity may obtain two additional off-premises retail liquor licenses to operate in that county. Currently, only seven counties have a population larger than 250,000 residents. The issuance of the three additional off-premises retail liquor licenses is staggered under the new law. Entities may obtain only one additional license between now and May 31, 2020, a second additional license between June 1, 2020 and May 31, 2022, and the third additional license will not be available until June 1, 2022. If you have any questions about retail liquor licensing or chain limitations, contact one of the attorneys at Strike & Techel.
The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has issued a revised industry circular regarding the alternate procedure for wineries to claim the excise tax credit on wines that are stored at a bonded wine cellar or bonded winery. Per Industry Circular 2018-1A, that alternate procedure is now available through December 31, 2019, rather than expiring on June 30th as originally determined. Thus, the alternate procedure is available for the entire term of the federal excise tax revisions, which are set to expire on December 31, 2019, although industry groups are working to get the excise tax revisions extended. Furthermore, the alternate procedure is available for wines stored untaxpaid at a bonded winery as well as at a bonded wine cellar. The prior industry circular had only specified bonded wine cellars. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here and here. Those following our blog will be aware that the tax changes that took effect in January apply to beverage alcohol products produced outside of the United States, as well as domestic production. Having said that, it is still not possible to claim the tax credit for wine, or the reduced beer and distilled spirits tax rates, for products coming into the US from overseas. The TTB issued preliminary guidance through its FAQ page back in February that it was working with Customs and Border Protection to establish procedures and issue guidance for importers. Based on recent public statements from TTB, we expect those procedures and guidance to issue in June. Until then, imported products continue to be subject to tax payment at the full excise tax rates for each product category. Once the new procedures take effect, importers will be eligible to claim retroactive credits and lower tax rates for products brought in since January 1st of this year. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.
Earlier this month, Florida House Bill 667 was passed and signed into law (effective July 1, 2018), which clarifies and expands delivery and third party provider rules for Florida retailers (known as “vendors” under Florida law). The bill amends Florida Statute § 561.57 to clarify that vendors can take orders online, and delivery can be made by a vendor in its own vehicle “or in a third-party vehicle pursuant to a contract with a third party with whom the vendor has contracted to make deliveries, including, but not limited to, common carriers.”. This amendment clarifies prior ambiguity over whether third party providers can deliver alcoholic beverages on behalf of vendors. The new law thus should provide comfort to both vendors and third party providers that third party providers can deliver in their own vehicles if they have an agreement with the vendor that makes the sale. Delivery vehicles are subject to search by law enforcement or employees of the Division of Alcoholic Beverages and Tobacco without a warrant to ensure compliance with the law. The new law makes a couple of additional changes relating to delivery. It expressly prohibits brewpubs (i.e., a Florida manufacturer with a vendor license under Florida Statute § 561.221(2)) from delivering alcoholic beverages. And, a new section was added to § 561.57 which requires that proof of identification must be produced by the customer and checked by the delivery person upon delivery. If you have any questions about delivery or third party providers, contact one of the attorneys at Strike & Techel for guidance.
California’s Prop 65 (officially the Safe Drinking Water and Toxic Enforcement Act of 1986) requires businesses in the state to inform Californians about exposure to chemicals identified by the state as causing cancer or reproductive toxicity. Inconveniently, though the obligation is on the producer of the product to ensure that the consumer is warned, it is the retailer that must display a notice sign at the point of sale to comply with the law. The Act provides for reimbursement of attorney fees to claimants who bring suit based on missing notice signs, leading to watchdog lawsuits calling out different consumer goods producers. To address the responsibilities of alcoholic beverage suppliers, whose products often include a number of chemicals from the list, three key trade bodies, the Beer Institute, the Wine Institute, and the Distilled Spirits Council, set up the Prop 65 Sign Management Company in 2014. This group distributes signs to retail licensees free of charge, on behalf of all members of the alcohol industry. These signs generally indicate that the consumption of alcoholic beverages may expose drinkers to Prop 65 chemicals, but do not name specific chemicals. This means that when new chemicals are added to the list, such as the impending August 2018 addition of a common ingredient in caramel color, the signs do not need to change. One of the main aspects of Prop 65 is that chemicals are added to the list if the State of California identifies them as potentially harmful. This means that the California list does not always correlate with guidance from other regulators. As an example, in 2015, the state added Bisphenol A (BPA) to the Prop 65 list of chemicals, for warning to be provided where it is “intentionally added” (which can include where it is present in materials that consumer goods are exposed to – BPA is a common ingredient in linings of lids and beverage cans, and is often used in equipment such as hoses at production facilities). Although the regular Prop 65 warning doesn’t have specific language, in the case of BPA, California created emergency regulations in 2016 with a special safe harbor warning notice. That regulation ran out in January, meaning that sign is no longer mandatory until the regular regulations take effect in August, but it is recommended by trade bodies to keep distributing it in the interim. Prop 65 Sign Management Company distributes a safe harbor warning, but only on behalf of identified suppliers (who are encouraged to add their affected products directly at the site). The Food & Drug Administration (FDA) allows the use of BPA, and opposed California’s addition of BPA to the list in 2015, indicating the FDA’s research did not indicate it caused reproductive toxicity. A draft report released by the National Toxicology Program (NTP) this month also found only minimal effects on persons exposed to BPA. On the other hand, a new Regulation passed by the European Commission (EU 2018/213) in February introduces stricter measures for BPA use in food contact materials in Europe from September this year, and the European Food Safety Authority (EFSA) is re-evaluating its impact after it originally cleared its use in 2015, in the face of many health bodies calling for a complete ban on its use. Despite the differences of opinion among regulatory agencies, both in the US and abroad, BPA remains on the Prop 65 list and suppliers whose products or packaging are exposed to BPA are subject to the California signage requirements. Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.
The TTB’s recent guidance also states that activities listed in 24 C.F.R. § 24.278(e) will constitute “production” for the purposes of claiming the new tax credit, but only fermentation and the four activities listed above are specifically listed in the TTB guidance. It is unclear whether the production of sparkling wine constitutes “production” for the purposes of claiming the new tax credit, as that activity is listed in 24 C.F.R. § 24.278(e), but is not listed in the TTB’s recent guidance on this topic. The activities above must be undertaken “in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The entire volume of wine that has undergone one of these production activities would be considered “produced” for purposes of applying the new tax credit. Blending that does not involve one of the operations listed above is not considered production. It is common practice for wineries to store untaxpaid wine under bond at a bonded wine cellar (“BWC”). Under the “small producer tax credit” in effect prior to 2018, a winery was able to “transfer” its tax credit with the wine to a BWC, and the tax credit could be claimed when the wine was removed from bond at the BWC. Under the excise tax changes in effect for 2018 and 2019, because a BWC has not “produced” the wines by one of the methods above, the BWC may not claim the excise tax credit on wines removed from its bond. The TTB recognizes that wineries may need time to change operations in order to take advantage of the 2018-2019 wine tax credits. Accordingly, Industry Circular 2018-1 sets out an alternate procedure for wineries to claim the excise tax credit on wines stored at a BWC through June 30, 2018. This alternate procedure enables a winery to “receive” its untaxpaid wine back in bond from the BWC, and then “remove” it taxpaid by invoicing it back to the BWC. The process is completed entirely on paper, and does not require a winery to physically receive the wine and re-transport it back to the BWC. This alternate procedure is only available for a limited time, and thus wine producers should review their off-site untaxpaid wine storage and plan to coordinate the documentation to take advantage of the new tax credits while they can. Beer: There is also a production requirement for beer in order to be eligible for the new reduced tax rates. The recent TTB guidance provides that, in addition to fermentation, the act of “addi[ng] water or other liquids during any stage of production” constitutes “production” for purposes of claiming the reduced tax rates, if the activity is “undertaken in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The TTB confirmed that simply bottling or blending beer does not constitute “production.” Further, the TTB confirmed that, like wine, the reduced excise tax for beer cannot be “transferred” with beer transferred in bond. However, unlike wine, there is no alternate procedure for obtaining the reduced tax credit via documentation on beer that has already been transferred to another brewery under bond. There are still some outstanding questions regarding the excise tax changes on which the TTB has not yet issued guidance, including how the excise tax reform applies to imported products, as well as when two or more producers will be considered to be a controlled group or a single taxpayer. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.
If you have any questions about direct winery shipping or third party providers, contact one of the attorneys at Strike & Techel for guidance.
As well as reducing excise taxes, the new law also removes the requirement to capitalize interest costs incurred and allocable to stock during the ageing period for alcoholic beverages in income tax assessments. Bond transfers also change, with transfer of beer to be allowed between bonded facilities held by different licensees, including by pipeline, and transfer of packaged distilled spirits in bond between bonded facilities will be allowed, which is currently limited to bulk distilled spirits. The Act also has provisions limiting reduced tax rates among controlled groups, including foreign producers, and has extensive provisions regarding the assignment by a foreign producer of the right to reduced tax to importers. Both of these items, and likely others, will require implementing regulations, which should follow soon in the new year. With passage of the Act last week, industry members should assess operations and the current payment of excise taxes—especially if not all excise taxes are paid directly—to be able to maximize the benefits available over the two year span of these excise tax changes. If you have any questions about how the Act might affect your business, contact one of the attorneys at Strike & Techel.
In the latest in a string of cases alleging misleading advertising of alcoholic beverages, a federal court in California recently refused to dismiss a case against Craft Brew Alliance, Inc. (“CBA”), makers of Kona Brewing Company beer. Broomfield v. Craft Brew Alliance, Inc., No. 17-cv-01027-BLF (Sept. 1, 2017). You’ve probably seen the products – they are all Hawaiian-themed, with names like Longboard Island Lager, Big Wave Golden Ale, Hanalei Island IPA, etc. Kona Brewing Company does have a brewery in Hawaii, but the only beer produced there is draft beer to be sold in Hawaii. All of the bottled and canned product, and draft sold outside of Hawaii, is brewed at CBA’s breweries in OR, WA, NH and TN. The plaintiffs alleged that they were misled by the product packaging and believed the products were produced in Hawaii. Had they known that the products were brewed on the US mainland, they claim they would not have bought them or would not have been willing to pay as much for them. They brought claims based on violations of California’s unfair competition and false advertising statutes, as well as breach of warranty, fraud, intentional misrepresentation, etc., and are attempting to get the case certified as a class action. The CBA filed a motion to dismiss, relying in part on previous cases involving Red Stripe and Sapporo where plaintiffs had claimed the product packaging misrepresented the origin of the beers. Those cases were dismissed because the allegedly misleading statements on the labels were “vague and meaningless” and not likely to deceive a reasonable consumer into believing the beers were made in Jamaica or Japan, respectively. Moreover, the packaging clearly indicated where the beers were made. CBA argued in this case that the references to Hawaii were either true, or were “mere puffery,” and not likely to deceive a reasonable consumer. The court said it would have dismissed the complaint against CBA if the only allegedly misleading references to Hawaii were pictures of surfboards and Hawaiian imagery, and vague language like “Liquid Aloha.” But the packaging on these products went further, and included a map of Hawaii that showed the location of the Kona brewery, with the statement “visit our brewery and pubs when you are in Hawaii.” Further, the references to the other US breweries where the beers are made only appears on the can/bottle labels, not on the outer packaging, so it would not have been visible to a consumer purchasing a 12-pack, for example. And the only visible address on the outer packaging was an address in Kona, Hawaii. The court held that those were “specific and measurable representations of fact” that could be sufficient to deceive a reasonable consumer. Exactly what can and cannot be said on product packaging without being misleading is not a black-and-white test – courts apply a reasonableness standard, which necessarily involves some subjectivity. In the Kona Brewing case, the court noted that references to Hawaii and its culture generally, and language that evokes the “spirit” of Hawaii or that claim the beer is “Hawaiian-style” wouldn’t have been actionable. The court’s decision was only at the motion to dismiss stage, and does not mean that the CBA’s Kona Brewing company packaging will ultimately be found misleading. But this decision illustrates that not all packaging statements will be allowed as mere “puffery,” so suppliers would be wise to consider carefully references to locations and cultures different than the location where the products are produced. Strike & Techel will follow this case, and will post future updates on this blog. If you have any questions about alcohol labeling, packaging, or advertising, contact one of the attorneys at Strike & Techel.
Summary: After a January 2016 Ninth Circuit decision, there was a big question mark in California over whether the state could justify its laws creating and protecting the three tier system. The decision raised a real issue over whether the First Amendment right to free speech might triumph over three tier laws preventing supplier-paid advertisements in retail stores. In January 2016, no position was taken by the court on whether the law was justified, but the language of the opinion strongly suggested that the court had doubts that it could be. A June 2017 decision lays that question to rest, and affirms California’s right to legislate to prohibit suppliers from paying retailers for advertising, based on its powers under the Twenty-First Amendment, and thus issuing a strong reinforcement of the validity of the three tier system and the laws that maintain it. Detail: On June 14, the Ninth Circuit handed down a ten-to-one en banc decision, rejecting a First Amendment challenge to California’s law preventing suppliers from paying for advertising on licensed retail premises (Retail Digital Network v. Prieto, No. 13-56069). The plaintiff/appellant, Retail Digital Network, LLC (“RDN”), operates a business supplying digital screen displays to retailers across California, most of which are licensed to sell alcoholic beverages. The screens show short advertisements for various different consumer products, and the income received by RDN from those advertisers is shared with the host retail store. Frustrated at their difficulty in selling advertising slots to alcoholic beverage suppliers, RDN brought an action against the California Department of Alcoholic Beverage Control (ABC), in the U.S. District Court for California, asking the Court to find the law stopping suppliers from paying for ads on their screens unconstitutional. In order to succeed in the case, RDN had to overcome a thirty year old decision by the Ninth Circuit in a very similar case, where the company in question sold ads on shopping carts used in retail stores (Actmedia, Inc. v. Stroh, 830 F. 2d. 957 (9th Cir. 1986)) (“Stroh”). The same statute at issue in the RDN case, which prevents anything of value from being provided by a supplier or wholesaler to a retailer in return for advertising, had been challenged in that case, based on the same argument that it infringed the advertiser’s First Amendment right to free speech (the statute in question is California Business & Professions Code §25503(f)-(h)). Back in 1986, the Ninth Circuit concluded that the state’s right to regulate the commercialization of liquor pursuant to the Twenty-First Amendment, and, in particular, to legislate to achieve goals like the promotion of temperance and protection of the three tier system, provided sufficient justifications to uphold the constitutionality of the law. The court used the recognized, four-part, intermediate scrutiny test for analyzing content-based restrictions on non-misleading commercial speech, known as the “Central Hudson” test (based on the Supreme Court’s decision in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980)). In order to get around the Stroh precedent, RDN argued in its claim that an intervening 2011 Supreme Court decision had changed the Central Hudson test for a First Amendment commercial speech review, creating a more demanding level of Court scrutiny over legislative restrictions on such speech, referred to as “heightened” scrutiny (Sorrell v. IMS Health Inc., 564 U.S. 552 (2011)) (“Sorrell”). After receipt of RDN’s claim, the ABC filed for, and was granted, summary judgment on the basis that the Stroh precedent was not irreconcilable with Sorrell. RDN appealed to the Ninth Circuit, where three judges agreed that Sorrell had changed the level of scrutiny to be applied to limits on speech, and remanded the case to the District Court to hear more evidence on the reasons asserted by the state to justify the law. The District Court was directed by the Ninth Circuit to apply heightened rather than intermediate review to those reasons, on the basis of the decision in Sorrell. In addition to reversing the decision, the Ninth Circuit also took time to point out some concerns for the District Court to consider on remand, in its assessment of whether the ABC could legitimately raise any justification for the law, in part because of the large number of special interest exceptions created by the Legislature over the years. When the initial Ninth Circuit decision was handed down in January 2016, it generated a huge industry response, with many concerns raised over its implied challenge to the integrity of the three tier foundational protections. In a highly unusual circumstance, the Ninth Circuit agreed to a rehearing of the case with eleven judges en banc, which hearing took place in January this year. In the decision issued in June, the Ninth Circuit reversed its own January 2016 ruling, with ten judges confirming the original District Court summary judgment ruling, and one judge dissenting. Of the three judges who originally heard the case in the Ninth Circuit, only Chief Judge Thomas was part of the bench for rehearing, and he was the lone dissent. The court reviewed and essentially reaffirmed its decision in Stroh, and the applicability of the Central Hudson intermediate scrutiny test. The Ninth Circuit majority confirmed that the law in question was as narrowly drawn as possible to serve the state’s important goal of protecting the three tier system, by preventing possible illegal payoffs from suppliers to retailers, disguised as advertising payments, and by preventing suppliers and wholesalers from exerting undue influence over retailers. They diverged from Stroh only to state that they did not endorse the state’s other listed goal of promoting temperance by limiting point of purchase advertising, as being a legitimate justification for the law. The argument raised by RDN, and referred to in the initial Ninth Circuit decision, that the special interest exceptions undermine the purpose of the tied house law, was rejected by the court on the basis that they only affect a small minority of licensed retailers, and have a minimal effect on the entire regulatory scheme. The majority’s decision leaves little question remaining as to the validity of the three tier system, and its legislative and regulatory protections in California. If you have any questions about your alcohol business’ advertising practices or its relationships with retailers, contact one of the attorneys at Strike & Techel.
Contains at least one-half of 1 percent and less than 8.5 percent alcohol by volume.
In addition to reiterating the current definition of hard cider, the TTB Industry Circular addresses guidance for hard cider producers on several other topics, including: Fruit Flavorings: The Industry Circular reminds hard cider producers that if hard cider contains fruit flavorings other than apple or pear, the product is not eligible for the hard cider tax rate. Fruit flavorings include natural fruit flavor, an artificial fruit flavor, or a natural flavor that artificially imparts the flavor of a fruit not contained in that flavor. Note that fruit flavorings do not include flavorings that impart a flavor other than a fruit flavor, such as spices, honey, or hops, so products that include those ingredients may still qualify for the hard cider tax rate. Labeling Requirements: Wines that contain 7% alcohol by volume or higher must conform to the labeling requirements found in 27 C.F.R. Part 4, and must obtain label approval from the TTB. The Industry Circular reminds hard cider producers that although the definition of hard cider that is eligible for the hard cider tax rate now includes hard ciders with up to 8.5% ABV, those cider products that contain 7% ABV or higher are still required to comply with the labeling requirements of 27 C.F.R. Part 4. TTB recognizes that the industry uses the term “hard cider” to include products that may not qualify for the hard cider tax rate. Moreover, TTB does not require that products qualifying for the hard cider tax rate be labeled with the words “hard cider.” In order to preserve this labeling flexibility without creating ambiguity regarding the appropriate tax class, TTB is imposing a new tax class statement on hard cider eligible for the hard cider tax rate: for hard cider removed from wine premises on or after January 1, 2018, the label must include the statement “Tax class 5041(b)(6).” This tax class statement may appear anywhere on any label, or may be on a sticker on the container. The addition of the tax class statement to an approved label does not require a new COLA. Formula Requirements: The Industry Circular also provides guidance on which cider products require formula approval. Generally, hard cider produced in a traditional method from apples or pears does not require formula approval. However, hard ciders that contain other ingredients, such as spices, honey, or hops, will require formula approval. Carbonation: Finally, the TTB’s guidance addresses several issues relating to a hard cider’s carbonation level. If a product contains more than 0.64 grams of carbon dioxide per 100 milliliters, that product is classified and taxed at the higher tax rates applicable to “sparkling wine” or “artificially carbonated wine.” The acceptable tolerance for error with respect to carbonation levels is 0.009 grams of carbon dioxide per 100 milliliters of hard cider. Producers of hard cider must test and keep records of carbonation levels. For more information regarding hard cider licensing and regulatory requirements, contact one of the attorneys at Strike & Techel.
With news last week that the NFL will now be allowing distilled spirits suppliers to advertise during televised football games, it is a good time for a reminder about some of the special issues that come up when advertising alcohol. Under federal law, there are several rules that regulate the advertising of alcohol by suppliers. The main one is that advertisements must include mandatory information about the responsible advertiser and about the product. If a supplier is advertising all of its brands, the only information needed is the advertiser’s name and address, as approved on its federal permit. If a single brand is being advertised, its class and type must appear, and a distilled spirits ad must also show the alcohol content of the product, and the percent and type of any neutral spirits it contains. The federal laws, and many state laws, also have general restrictions around legibility, comparative advertising, and around certain prohibited statements, including, for example, health claims or obscene or indecent statements. Advertising laws prevent the use of a supplier advertisement to provide something of value to a retail licensee, e.g., by giving information about retailers other than a basic mention of where to find the supplier’s products, including at least two, unaffiliated retailers. Suppliers and retailers cannot cooperate or share in the costs of advertising. At the state and local level, other concerns include things like the direct mailing or televising of alcohol advertisements, and advertising of pricing or discounting on products. A number of states require alcohol ads to be preapproved by the regulators there before they can be published. Many states will not allow any listing or mention of retailers in advertisements unless all known retailers of the product are mentioned. It is important to be aware of what exactly constitutes an advertisement. Don’t forget that social media posts by a brand are also subject to advertising rules. Third party posts by influencers and others are also ads, and are subject to Federal Trade Commission guidelines on making sure that readers know that the placement of the brand’s name was paid for. The same goes for sweepstakes and other competitions run by brands, where it must be clear in the post that a consumer has been incentivized to post content on their own social media pages in return for a chance to win a prize. The FTC recently sent letters to dozens of brands and influencers, warning that “material connections” between influencers and brands must be disclosed in social media posts promoting the brands. This suggests that the FTC is focused on the issue and could take enforcement action against companies that fail to comply. Each of the major supplier industry trade groups (Beer Institute, Wine Institute, and the Distilled Spirits Council) maintain voluntary compliance guidelines for advertising in the alcohol industry. These guides contain recommendations related to making sure that target audiences are over 21, that actors appear to be well over 21, and which recommend limiting certain content, for example, ads that encourage overconsumption or suggest that drinking leads to sporting or other success. The guides are extremely useful reading for all industry members, even if they are not members of the association in question. If you are looking for specific guidance on alcohol advertising, contact one of the attorneys at Strike & Techel.
Off-Premise Retail Caps - Are They Constitutional?
A South Carolina law preventing an entity from holding an interest in more than three off-premise retail liquor licenses was deemed unconstitutional earlier this year. The South Carolina Supreme Court accepted an argument by Total Wines & More that the state’s cap on liquor stores had no legitimate basis. Numerous bills had been filed with the state legislature over recent years to have the cap overturned, but without success. The Supreme Court majority, however, found that the state had not offered a persuasive argument on why the restriction was a proper use of its general police power. The only justification provided by the state in the case was that the law was designed to support small businesses, and preserve the right of small, independent liquor dealers to do business, which the court identified as simple economic protectionism. A number of other states have caps on ownership of retail off-premise liquor licenses, particularly across the Northeast. Similar laws have survived constitutional challenges in states like New Jersey, New Hampshire, and Massachusetts. In these states, justifications for these laws have included reasons such as intensifying the dangers of liquor sales stimulation through retail concentration, preventing monopolies, avoiding indiscriminate price-cutting and excessive advertising, and discouraging absentee ownership. The success of the suit in South Carolina is likely to encourage a new wave of challenges to these laws, as the chain stores focus more efforts on expansion of their model in the region. The ongoing legislative and judicial dispute between Total Wine & More and the State of Connecticut, for example, on the statutory minimum pricing restrictions there, follows a similar path of seeking to open up a market more friendly to chain store liquor retail. Since the decision was handed down on March 29, the South Carolina Senate has already approved a move to legislate around it, by passing an amendment to the state budget. The change would delay the implementation of the court’s decision for a year, and would require an applicant for a fourth store to pay the equivalent of a year’s gross sales from one of its current stores before it could get the new license. The amendment now passes to the General Assembly for consideration. In the interim, the state has publicly said that they are accepting liquor store applications in light of the new ruling. It goes without saying that the elimination of the retail cap in South Carolina is likely to significantly alter the retail liquor landscape there, and that other similar decisions in other states would affect the retail market nationwide. If you want more information on retail liquor licensing, please contact one of the attorneys at Strike & Techel.
Recently, we posted about Michigan Senate Bill 1088 here (“SB 1088”), which expands the delivery privileges of in-state retailers, and which authorizes third party providers and common carriers to assist with shipping and delivery on behalf of in-state retailers, subject to certain limitations. SB 1088 also amends Michigan’s winery direct-to-consumer shipping law, Mich. Comp. Laws § 436.1203(4). The revisions relax the labeling and packaging requirements for direct winery shipments, which will be welcome news to direct winery shippers as the Michigan Liquor Control Commission (“MLCC”) has actively enforced these labeling and packaging requirements in recent years. As of March 29, 2017, wineries no longer need to include their direct shipper license number or the order number on the outside label of each package shipped into Michigan. Direct shippers will still be required to label the top panel of the shipping package with the name and address of the individual placing the order and the name of the designated recipient, if different from the person placing the order. The outside label must also state “Contains Alcohol. Must be delivered to a person 21 years of age or older.” Inside each package to be shipped, the invoice or packing slip is no longer required to list the Michigan wine label registration number of approval for each wine shipped, although wineries will still be required to register their wine labels with the MLCC. SB 1088 also establishes new rules for common carriers. Common carriers acting on behalf of winery direct shipper licensees are subject to new recordkeeping and reporting requirements, as detailed in our prior post regarding SB 1088. If your winery is in need of assistance regarding direct shipping laws, contact one of the attorneys at Strike & Techel.
Third Party Providers As explained above, SB 1088 allows in-state SDM and SDD retailers to use third-party providers to facilitate sales and delivery to Michigan consumers. The law allows a “third party facilitator service” (or, TPP) to facilitate sales and delivery to consumers by means of the internet or a mobile application. SB 1088 requires a TPP to obtain a “third party facilitator service license” from the Michigan Liquor Control Commission (“MLCC”), and imposes recordkeeping and reporting requirements. Once licensed, a TPP may make deliveries of beer and wine on behalf of a SDM retailer, or spirits on behalf of a SDD retailer. Interestingly, SB 1088 provides that a violation by a licensed TPP will not be considered a violation of the retailer (whereas in most states the violation will be imputed to the retailer). It appears that the new TPP license will be considered a relative to a retail license, as SB 1088 contains tied house restrictions prohibiting manufacturers, suppliers, and wholesalers from directly or indirectly having any interest in a TPP licensee and from aiding or assisting a TPP licensee with anything of value. TPPs must also offer their services to all brands of each retailer without discrimination. Common Carriers SB 1088 also permits common carriers to deliver wine on behalf of SDM retailers. There is no license requirement, but SB 1088 requires common carriers to keep records of deliveries and file quarterly reports with the MLCC. The reports, records, and supporting documents must be kept for three years, and must include: (1) the name and address of the person shipping the product; (2) the name and address of the person receiving the product; (3) the weight of the alcoholic beverages delivered; and (4) the date of delivery. For more information about the recent changes to Michigan law, contact one of the attorneys at Strike & Techel.
Strike & Techel Welcomes Tom Kerr as a Partner.
The partners at Strike & Techel are pleased to announce the elevation of Tom Kerr from Senior Associate to Partner in the firm! Tom spent his first few years after law school practicing commercial litigation, but once he joined Strike & Techel in 2011, he quickly realized alcohol law was much more fun. Tom’s diverse practice includes advising supplier and retailer clients on trade practice issues, distribution, promotions, advertising, marketing, and tied-house issues. Tom has particular expertise in ecommerce and he advises many third party providers and others on emerging industry practices. If you have questions in these areas, or regarding foreign travel, the Denver Broncos, or Star Wars, Tom’s probably got the answers. To learn more about Tom and Strike & Techel, visit us at www.alcohol.law.
On November 4, 2016, New York Governor Andrew Cuomo vetoed Assembly Bill 10248 (AB 10248). This is the second time in two years that Governor Cuomo has vetoed a bill seeking to amend the state’s alcohol laws to clarify the basis upon which the New York State Liquor Authority (SLA) can revoke, suspend or cancel a license or permit. AB 10248 would have prevented the SLA from taking disciplinary action against licensees for violations of other states’ alcoholic beverage laws unless the alleged violation independently violated a provision of NY law, or the other state had determined that a violation had occurred after providing the accused with full due process of law; the SLA could not take action based on a mere allegation of a violation in another state. AB 10248 would have specifically permitted the SLA to take action against licensees for knowingly making alcohol sales to minors or failing to pay taxes in other states, but presumably the other state still would have had to prove liability before the SLA could act. AB 10248 stems from the SLA’s ongoing battle with Empire Wine. In 2014, the SLA alleged that Empire Wine was violating other states’ laws by direct shipping wine to consumers in a number of states that prohibit direct shipping by out-of-state retailers. In Governor Cuomo’s veto memo, he reasoned that the veto ensured that licensees would abide by New York’s alcohol laws and prevent a “regulatory gap” in which retailers could violate other states’ laws without repercussions in New York.
World’s Best Alcohol Law Blog Gets New Name!
Our regular readers will notice that our blog has a new name: Alcohol.law Digest. We’ve been posting topical information about the legalities of the alcoholic beverage industry on our Imbibe-Blog (aka Imbiblog) webpage for six years and we felt like it was time for a change. Going forward, we’ll continue posting about the topics we think will be interesting and important to our readers, but we’ll do it under a name everyone can pronounce! Farewell Imbiblog (or is it Im-BEE-blog?) and welcome Alcohol.law Digest!
On Wednesday, September 28, 2016, Governor Brown signed three alcohol-related bills into law, creating new on-sale restaurant licenses for San Francisco, legalizing the glass of bubbly you have with your haircut and criminalizing powdered alcohol. All three laws become effective on January 1, 2017. SB 1285 - 5 New Restricted Restaurant Licenses for San Francisco Senate Bill 1285 (“SB 1285”) adds Section 23826.13 to the California Business and Professions Code, which authorizes the California Department of Alcoholic Beverage Control (“ABC”) to allocate 5 new “neighborhood-restricted special on-sale general” licenses in San Francisco. The 5 new licenses are subject to most of the same privileges and restrictions – and the same original fee of $13,800 – as an on-sale general license for a bona-fide eating place (Type 47). However, these 5 licenses differ from regular Type 47 licenses in that they are neighborhood-specific, are nontransferable, and when surrendered, revert back to the ABC for issuance to a new applicant. This means that licenses will only be available, and must remain in, the eligible neighborhoods – Bayview’s Third Street, outer Mission Street in the Excelsior, San Bruno Avenue, Ocean Avenue, Noriega Street, Taraval Street and Visitacion Valley. Licenses in the most popular restaurant hubs remain available only by purchasing an existing license, market values of which often run several hundred thousand dollars. The new licenses also do not permit the exercise of off-sale privileges, like a Type 47 does. In order to be eligible to apply for a license, SB 1285 requires a pre-application meeting, which must be conducted and verified by a local government body. This requirement includes notifying nearby residents, conducting a community meeting, outreach to certain neighborhood associations and to the San Francisco Chief of Police. The ABC will establish a priority application period in accordance with Cal. Bus. & Prof. Code § 23961, and if more than 5 applications are received, they will hold a lottery for eligible applicants. AB 1322 - Beauty Salons and Barber Shops Assembly Bill 1322 (“AB 1322”) permits beauty salons and barber shops to serve wine and beer without a license provided there is no extra charge for the service. The service can only be offered during business hours and no later than 10:00 p.m., and the amount of beer and wine cannot exceed 12 ounces and 6 ounces per customer, respectively. Further, the salon or barber shop providing the service must be in good standing with the State Board of Barbering and Cosmetology. Prior to AB 1322, the exception allowing unlicensed service of alcohol by a business to its customers only existed for limousines and hot air balloon ride services. (Cal. Bus. & Prof. Code § 23399.5) AB 1554 - Ban on Powdered Alcohol Assembly Bill 1554 makes it a crime to purchase or possess powered alcohol. The bill defines powdered alcohol as “an alcohol prepared or sold in a powder or crystalline form that is used for human consumption in that form or reconstituted as an alcoholic beverage when mixed with water or any other liquid.” The definition makes clear that vaporized alcohol (which is already illegal in California) is not powdered alcohol. The bill also prohibits the manufacture, distribution and sale of powered alcohol. An individual caught making, selling or using powered alcohol is guilty of an infraction and must pay a $125 fine. (Cal. Bus. & Prof. Code §§ 23794 and 25623) For more information about the recent changes to California’s alcohol laws, contact an attorney at Strike & Techel.
Last week, California Governor Jerry Brown signed Senate Bill 1032 (“SB 1032”) into law. SB 1032 amends Section 25600.3 of the California Business and Professions Code, and extends the recent prohibition on supplier-funded beer, cider and perry coupons to wine. You can read more about the prohibition of supplier-funded beer coupons in our prior blog post here. What is permitted post-SB 1032? The law still permits discounts on alcoholic beverages in other forms, including mail-in rebates by wine and beer suppliers, all retailer-funded coupons, and instant coupons funded by distilled spirits suppliers for distilled spirits (provided the coupon does not also discount beer or wine). Furthermore, beer manufacturers and winegrowers can still offer instant rebates at their premises, and can offer rebates direct to consumer on internet sales. When are the changes effective? The new law takes effect on January 1, 2017. Supplier-funded wine coupons can continue to be accepted at retail until December 31, 2016, and suppliers will be able to continue redeeming coupons accepted by a retailer until March 31, 2017. Who can do what?
On Friday, August 26, 2016, Illinois Governor Bruce Rauner signed Senate Bill 2989 (“SB 2989”) into law. SB 2989 amends various sections of the Illinois Liquor Control Act that affect direct wine shipping into Illinois as well as use of third party providers (“TPPs”). This post summarizes the changes made by SB 2989, which take effect on January 1, 2017. The higher license fees, described below, take effect immediately. Harsher Penalties for Direct Wine Shipping Violations SB 2989 imposes tougher penalties on direct wine shipping violations. Any person, including wineries, importers, and retailers, who distributes or sells 108 liters or more of wine (144 bottles of wine), 45 liters or more of spirits (5 12/750 cases), or 118 liters or more of beer (more than 28 12-packs of beer) without a license is guilty of a Class 4 felony for each offense, which has a minimum sentence of 1 year. Prior to SB 2989, the first offense was a business offense with a fine of not more than $1,000, and any subsequent offense was a Class 4 felony. For illegal shipments of less than 108 liters of wine, less than 45 liters of spirits, or less than 118 liters of beer, the penalty for the first offense is still classified as a business offense with a fine of not more than $1,000, and the penalty for subsequent offenses remains a Class 4 felony. Furthermore, any person who has already been issued a cease and desist notice from the State Commission could face the same felony charges. New Disclosure Requirements for Winery Shipper’s Licensees and Reporting Requirements for TPPs For new and renewing applicants of an Illinois winery shipper’s license, SB 2989 requires disclosure of all third parties authorized to ship the licensee’s wine, excluding common carriers, to the Illinois Liquor Control Commission (“ILCC”). Licensees must submit each third party’s name and address and file a copy of the written appointment of the TPP with the ILCC. SB 2989 provides that a TPP, other than a common carrier, shipping wine on behalf of a winery shipper’s licensee is the agent of the licensee, and that the licensee is responsible for the acts and omissions of the TPP. In turn, SB 2989 requires that each TPP consent to the jurisdiction of Illinois and the ILCC. Furthermore, SB 2989 imposes a new audit requirement on any appointed TPP, which will be required to file with the ILCC, by February 1 of each calendar year, a statement detailing each shipment made to an Illinois resident. The ILCC also has the power to deny any third party appointment if the TPP previously violated the Liquor Control Act. Higher License Fees Across the board, SB 2989 increases license fees for manufacturers, wholesalers, and retailers. The fees for a winery shipper’s license for a winery producing under 250,000 gallons annually have been increased from $150 to $350 for the initial application and $200 for an online renewal. The fees for a winery shipper’s license for a winery producing over 250,000 gallons, but under 500,000 gallons annually have been increased from $500 to $1,000 for the initial application and $750 for an online renewal. The fees for a winery shipper’s license for a winery producing 500,000 gallons or more annually have been increased from $1,000 to $1,500 for the initial application and $1,200 for an online renewal. For more information about the changes to the Illinois direct shipping laws, contact an attorney at Strike & Techel.
It’s that time of year when the ABC announces priority applications, and this year’s numbers are sure to make a lot of retail business owners very happy! Every year the California ABC announces which counties are eligible for new on-sale and off-sale general licenses based on population growth versus existing license ratios within each county. The 2016 figures have been released, and the numbers this year are higher than usual. What is a Priority application? General retail licenses authorize the sale of beer, wine, and distilled spirits. They are restricted by county population and must typically be purchased on the open market from an existing licensee, often for a very high premium. Licenses are usually confined to the county in which originally issued, so prices vary drastically across the state. Every year, the ABC announces a ‘priority application period’ when they will accept new license applications. In addition, they announce a number of inter-county transfer allowances – where a business owner in a priority county can purchase a general license from a licensee in any other county and transfer it into the priority county. If you’re in the market for an Off-Sale General Package Store License (Type 21), an On-Sale General Eating Place License (Type 47), or a Special On-Sale General Club License (Type 57) within a county where licenses are available, you should apply. Licenses Available by County The maximum number of priority applications the ABC typically authorizes for each category (new on-sale, new off-sale, inter-county on-sale, inter-county off-sale) is twenty-five. The ABC has authorized the maximum number of priority applications in several counties, including Alameda, Contra Costa, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, and San Diego. For a complete list of license available by county, click here. 2016 Filing Period ABC District offices will accept priority applications by mail or in person from September 12-23, 2016. If by mail, it must be postmarked on or before September 23rd. If the ABC receives more applications than licenses available, a public drawing will be held at the District office. Successful applicants will have 90 days to complete a formal application for the specific premises. Fees Priority application fees are $13,800 for new general licenses and $6,000 for inter-county transfers. A certified check, cashier’s check, or money order must be submitted along with the priority application. Unsuccessful applicants will be refunded the application fee, minus $100 service charge. Residency Requirements Every applicant must have been a resident of California for at least 90 days prior to the scheduled drawing. Exact drawing dates vary by District office, but all are in mid-late October. For corporations, limited partnerships, and limited liability companies, the 90-day residency requirement starts ticking upon registration with the California Secretary of State. Individual and general partnership applicants must submit proof of California residency. If you’re interested in applying for a new or inter-county on- or off-sale general priority license, contact an attorney at Strike & Techel.
Most of what consumers know about the alcoholic beverage products they buy comes from their interaction with the label, so it is important to get it right. The Alcohol and Tobacco Tax and Trade Bureau (TTB), which regulates the labeling of most beverage alcohol products, recently released their annual alcohol beverage sampling program results, highlighting the most common compliance issues with drinks labels in the marketplace. Every year, the TTB conducts a random survey of alcoholic beverage products available for sale to the public. They select a range of brands across the distilled spirits, wine and malt beverage categories, and crosscheck the information on the label against the beverage in the bottle (or can, or alternative packaging). In 2015, well over a third of the distilled spirits and malt beverages surveyed were non-compliant (at 62 out of 154, and 61 out of 158 respectively), and just under a quarter of the wines were non-compliant (at 34 out of 138). Many of the products in the market were found to have labels that were different from the certificates of label approval (COLAs) that the TTB had issued for those products. The TTB has worked hard in the last few years to balance its limited resources against ever increasing numbers of COLA submissions, and has published a long list of allowable changes that can be made to approved COLAs. However, some changes still require a new COLA. Some of the information on the label can be changed or removed, the shape and color can be altered, and statements and graphics can be moved, but it is difficult to add anything new without getting a new COLA. Leaving aside COLA compliance, however, far and away the biggest issue identified by the TTB was related to the alcoholic content claims of the products surveyed. Each category of alcoholic beverages has some room to maneuver with the stated alcohol content. In particular, wine and malt beverages have greater tolerances, because the regulations recognize that they are products which can and often do continue to evolve in the bottle. However, even with these permitted tolerances, over 20% of the samples had a stated alcoholic content that was non-compliant. A table wine between 7% and 14% alcohol by volume (ABV), is allowed to be up to 1.5% either above or below the stated alcoholic content on the label (provided the wine remains in the same tax class, below 14%). Wine with over 14% alcohol can still be up to 1% over or under the stated amount. Malt beverages can be up to 0.3% different from the labeled ABV, either higher or lower. In contrast to the permitted variations for wine and beer, distilled spirits are not allowed to contain any alcohol over the stated ABV. The regulations reflect TTB’s view that there is no reason why distilled spirits should not be able to be accurately proofed upon completion of production. Spirits are allowed a small 0.15% tolerance below the labeled amount, which reduction is only to recognize possible losses during bottling. The proofing and gauging of distilled spirits is key to the TTB’s principal aim of protecting the revenue, and is directly linked to how much tax is paid by the producer. The TTB offers a range of resources to help producers and bottlers with that process, and it is important to ensure that care is taken when your product is labeled. For any questions related to labeling of beverage alcohol, contact one of the attorneys at Strike & Techel.
Effective January 1, 2016, the California ABC Act contains a new section that loosens the restrictions suppliers face when mentioning a retailer in a social media post. Newly added Business and Professions Code § 23355.3 is aimed at clarifying how suppliers and retailers can co-sponsor nonprofit events. It was drafted, in part, as a response to the backlash that occurred after the ABC filed accusations against several wineries for advertising sponsorship of the “Save Mart Grape Escape” charity fundraising event in 2014. In that instance, several wineries posted or tweeted their support and sponsorship of the event on social media. The ABC reasoned that the suppliers were impermissibly advertising for Save Mart, a retailer, even though the event was held under a nonprofit permit issued to a bona fide nonprofit organization. The ABC alleged that by posting or tweeting about the event, the suppliers were giving a thing of value to the retailer, a practice that has long been considered a violation of California’s tied house restrictions. California law has long permitted supplier licensees to sponsor nonprofit events if the nonprofit gets an event license, and the new law does not fundamentally change that. However, the new section clarifies that a supplier may advertise sponsorship or participation in such events even if a retailer is also a named sponsor of the event. Payments or other consideration to the retailer are still considered a thing of value, and are not allowed, but social media postings no longer fall under that broad category. There are restrictions on what the supplier is permitted to post about the retailer; posts cannot contain the retail price of alcoholic beverages and cannot promote or advertise for the retail licensee beyond mentioning sponsorship or participation in the event. The supplier can share a retailer’s advertisement for the event on social media, but the supplier is not permitted to pay or reimburse the retailer for any advertisement and cannot demand exclusivity of its products at the event. In short, the new section will allow exactly the type of supplier social media support that occurred in the Save Mart Grape Escape situation.

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