New Laws Expand Winery Off-Site Tasting Room Privileges and Manufacturer Charitable Donation Advertising
This week, Governor Gavin Newsom signed three bills that expand certain winery off-site tasting room privileges and grant alcohol beverage manufacturers the right to advertise and promote charitable donations in connection with the sale of alcohol. The laws will become effective on January 1, 2022. We have summarized the new bills and how they amend current law below.
Number of Winery Off-Site Tasting Rooms (SB 19)
Under current California law, Type 02 wineries are permitted to operate tasting rooms only at their licensed Type 02 premises (i.e., the same premises where the winery’s wine is crushed and fermented), and at an off-site Duplicate Type 02 premises (where crushing and fermentation of wine is not permitted). Current law permits a winery to operate only one off-site Duplicate Type 02 tasting room.
SB 19 amends Section 23390.5 of the California Alcoholic Beverage Control Act (“ABC Act”) to increase the number of Duplicate Type 02 locations that a winery can operate to two locations.
Duplicate Type 02 tasting rooms can be quite helpful for wineries to reach consumers, as they allow wineries to operate a tasting room in another location in California and sell wine to consumers there without having to maintain a production facility on the same premises.
Sale and Delivery of Consumer-Provided Containers at Duplicate Type 02 Tasting Rooms (AB 239)
Under current law, a winery may exercise all the same privileges at its Duplicate Type 02 tasting room as at its Type 02 winery premises (such as the sale and delivery of wine), with certain important exceptions. One of those exceptions is that a winery may not, at its Duplicate Type 02 premises, sell or deliver wine to consumers in containers that have been supplied, furnished, or sold by the consumer.
AB 239 amends Section 23390 of the ABC Act to delete that exception. Starting on January 1, 2022, consumers may provide their own bottles and containers to be filled at a Duplicate Type 02 tasting room premise. AB 239 provides an additional means by which wineries can provide wine to consumers that can be cost-effective for both the winery and the consumer.
Advertisements of Charitable Donations in Connection with the Sale of Alcohol (AB 1267)
Generally, California law prohibits an alcohol beverage licensee from giving a gift or “thing of value” in connection with the sale and distribution of alcoholic beverages, unless there is a statutory exception. The ABC Act permits licensees to donate to specified charities and nonprofit organizations (typically 501(c)(3)s). However, where such donations are tied to sales of alcohol beverage products and/or advertised as such – for example, when a licensee advertises that it will donate a portion or percentage of the proceeds from the sale of a product to a charity – the California Department of Alcohol Beverage Control (“ABC”) views these types of donations as “gifts” or “things of value” to consumers that “incentivize” or “entice” consumers to purchase and consume alcohol in violation of California law. During COVID-19, the CA ABC temporarily created an exception for the enforcement of this prohibition; however, this relief is limited to COVID-19 related charities only.
AB 1267 expands and codifies the CA ABC’s relief with respect to charitable donation advertising by amending Section 25600 of the ABC Act. Starting on January 1, 2022, specified manufacturers – winegrowers, beer manufacturers, distilled spirits manufacturers, craft distillers, brandy manufacturers, rectifiers, and wine rectifiers – may donate a portion of the purchase price of alcohol beverages to nonprofit charitable organizations (not limited to just COVID-19 related charities), subject to all of the following limitations:
- The donation is only in connection with the sale or distribution of alcoholic beverages in manufacturer-sealed containers.
- The promotion does not directly encourage or reference the consumption of alcoholic beverages.
- The donation does not benefit a retail licensee or a charity established for the specific purpose of benefiting the employees of retail licensees, and the advertisement for any donations does not promote or reference any retail licensee. (Note that a manufacturer may identify – but not otherwise promote – the name, address, and website of two or more unaffiliated retailers who sell the manufacturers’ product being offered in the charitable campaign, subject to the restrictions in Sec. 25500.1 of the ABC Act).
Note that this new statutory exception will sunset on January 1, 2025, so unless the exception is made permanent or extended, licensees may not advertise any donations related to the sale of alcoholic beverages at all after the date.
The bills’ text can be found on the California Legislative Information website at the following links: SB 19 (Winegrowers: tasting rooms); AB 239 (Winegrowers and brandy manufacturers: exercise of privileges: locations); and AB 1267 (Alcoholic beverages: advertising or promoting donation to a nonprofit charitable organization).
California Tied House Law Upheld by Federal Appeals Court
An en banc panel of the U.S. Court of Appeal for the Ninth Circuit (the federal appeals court with jurisdiction for the nine western states) has rejected a First Amendment challenge to California’s tied house laws. In so doing, the court overturned an earlier decision by a three-judge panel that had applied a more rigorous standard for regulations that restrict commercial speech and, thereby, raised questions about the state’s ability to enforce certain laws that restrict supplier-sponsored advertisements at alcohol beverage retail premises. The case is Retail Digital Network v. Prieto, Case No. 13-56069 (9th Cir. June 14, 2017).
The case involved a company, Retail Digital Network (“RDN”), that installed and operated digital displays in wine and spirit retail stores. RDN sold advertising space on those displays to companies, and RDN shared a portion of its advertising revenue with retail stores. Alcohol beverage manufacturers were wary of buying advertising on the RDN displays in light of California ABC Act Section 25503 which prohibits alcohol beverage manufacturers, importers, and wholesalers from “paying money” or providing “anything of value for the privilege of placing or painting a sign or advertisement…on or in any” alcohol beverage retail premises. RDN filed suit, claiming that Section 25503 impermissibly restricted commercial speech in violation of the First Amendment.
The Ninth Circuit concluded that Section 25503 did not violate the First Amendment, holding in pertinent part that the regulation directly advances the government’s interest in preventing the undue influence of manufacturers and wholesalers over alcohol beverage retailers, and that the regulation was not more extensive than necessary to serve that interest.
If you have any questions regarding tied house laws, please contact John Trinidad at [email protected].
New Alcohol Beverage Regulations Give Licensees Expanded Rights and Privileges in the New Year
Beginning on January 1, 2016, new provisions of the California ABC Act will go into effect that will, among other things, provide industry members with additional rights and privileges related to marketing, events and promotions, and will also create a new Craft Distiller License. A summary of a few of these important new statutory provisions is included below.
Retailer and Non-Retailer Sponsorships of Non-Profit Events (Section 23355.3):
- This new statutory section was largely drafted in response to accusations filed by the ABC against certain wineries related to their participation in a nonprofit event, the “Save Mart Grape Escape”. As the name suggests, although this was a nonprofit event, Save Mart, a licensed retailer, was also a sponsor of the nonprofit event. The ABC had alleged in its accusations that participating supplier-side licensees that referenced the event by name on their websites or social media feeds were giving a thing of value to Save Mart in violation of California’s tied house rules. Section 23355.3 resolves this issue by providing an exception to the tied house rules that not only allows both retail and nonretail licensees to sponsor non-profit events but allows participating nonretail licensees to reference retail licensees, subject to the restrictions contained in the statute.
- Section 23355.3 permits sponsorships of nonprofit organizations (not other organizations) that are conducting and receiving benefit from the subject event. Note that nonprofits are still required to obtain any required temporary licenses from ABC to conduct their event.
- A nonretail/supplier side licensee may advertise or communicate its sponsorship of or participation in the nonprofit event in social media and elsewhere, which advertising can include identification of both retail and nonretail licensees that are sponsoring or participating in the event and can include posting, re-posting, forwarding or sharing social media and/or other advertisements or communications made by other nonretail or retail licensees (subject to the restrictions below) . For purposes of this provision “social media” is specifically defined as “a service, platform, application, or site where users communicate and share media, such as pictures, videos, music, and blogs, with other users.” Note that Section 23355.3 does not usurp other applicable industry or legal standards that govern when and where the advertisement of alcohol is acceptable and typical precautions to ensure responsible advertising practices should be taken.
- Any advertisement or communication by a nonretail licensee that includes identifying a retail licensee (including reposting, forwarding, sharing social media posts by others) cannot include the retail price of any alcoholic beverage or otherwise promote the retail licensee beyond its sponsorship or participation in the event.
- It should be noted that donations of alcoholic beverages to nonprofits by supplier side licensees are only permitted to the extent they are otherwise allowed under Section 25503.9, which only permits certain supplier side licensees to make certain types of donations to nonprofits. And except as otherwise may be permitted in specific circumstances under the ABC Act, retailers are not permitted to give or sell alcoholic beverages to the nonprofit.
- Nonretail/supplier-side licensees should be careful not to provide other things of value to retail licensees, except as permitted above. Specifically, nonretail licensees should not pay or reimburse any retail licensee, directly or indirectly, for any advertising services (whether by social media or otherwise) or cover any costs of a retail licensee sponsoring or participating in the event.
- Retail licensees are also subject to rules and restriction under the new statute and should not accept any payment or reimbursement, directly or indirectly, for any advertising services offered by a nonretail licensee and should not offer or provide nonretail licensees any advertising, sale, or promotional benefit in connection with the sponsorship or participation.
Sponsorships of Certain Live Entertainment Marketing Companies in Napa (Section 25503.40)
- Section 25503.40 creates a new exception to the tied-house rules that allows certain alcohol beverage licensees to purchase sponsorships and advertising time and space from certain live entertainment marketing companies related to live artistic, musical, sports, food, beverage, culinary, lifestyle, or other cultural entertainment events promoted by a live entertainment company in Napa County, such as Bottlerock. The events are to be held at entertainment facilities, parks, fairgrounds, auditoriums, arenas, or other areas or venues that are designed for, or set up to be, and lawfully permitted to be used for live artistic, musical, sports, food, beverage, culinary, lifestyle, or other cultural entertainment events. The conditions and restrictions related to such sponsorships are set forth below.
- Only the following types of licensees are permitted to sponsor events under 25503.40: Beer Manufacturer (Type 01 or Type 23), Out-of-State Beer Manufacturer’s Certificate (Type 26), Winegrower (Type 02), Winegrower’s Agent (Type 27) , Distilled Spirits Manufacturer (Type 04 and likely new Type 74 craft distilled spirits manufacturer), Distilled Spirits Manufacturer’s Agent (Type 05), Rectifier (Type 07, 08 or 24) or Importer that does not hold a wholesale or retail license (Type 09 (but only if hold one of the other licenses listed), 10, 11, 12 (but only if hold one of other licenses listed) or 13).
- The above licensees may sponsor events promoted by a live entertainment company and may purchase advertising space and time from or on behalf of a live entertainment marketing company. For purposes of Section 25503.40, a live entertainment marketing company must be a entertainment marketing company that is a) a wholly owned subsidiary of a live entertainment company b) not publicly traded, c) has its principal place of business in the County of Napa, and d) which may own interests, directly or indirectly, in retail licenses or winegrower licenses.
- Sponsorships must be pursuant to a written contract and may only be purchased by permitted licensees in connection with live artistic, musical, sports, food, beverage, culinary, lifestyle, or other cultural entertainment events that take place at entertainment facilities, parks, fairgrounds, auditoriums, arenas, or other areas or venues that are designed for, or set up to be, and lawfully permitted to be used for live artistic, musical, sports, food, beverage, culinary, lifestyle, or other cultural entertainment events located within the County of Napa. Expected attendance of the event must be at least 5,000 people per day and the live entertainment company promoting the event is required to represent to the retail licensee that will hold the license for the event, such as the concessionaire, that the live entertainment company promoting the event, including the subject event, has not exceeded the permissible limit of three events in the County of Napa for the year in which the event is being held.
- An on-sale licensee (such as a concessionaire) selling alcoholic beverages at the event must serve at least one other brand of beer, distilled spirits, and wine (one per category) distributed by a competing wholesaler in addition to any brand manufactured or distributed by the sponsoring or advertising licensees.
- Participating licensees are not permitted to give, or lend anything of value to an on-sale retail licensee, except as expressly authorized by 25503.40 or any other provision of the ABC Act.
- Note that while Section 25503.40 does not itself provide licensees the right to be present at the events (either pouring their products and/or educating the consumers in their tents), because the premises will be licensed as an on-sale retail premises, Sections 25503.4, 25503.55 and 25503.57 of the ABC Act would allow limited education and tastings by certain wine, beer and spirits licensees at the event, subject to the terms and conditions of those sections and approval by the event organizers.
Listing of Retailers in Supplier Advertising and Marketing (Section 25500.1)
- The recent revisions to Section 25500.1 of the ABC Act have revised the tied-house exception in that section to provide supplier side licensees with new ways to refer to retailers in their advertising and marketing. These changes were driven by new marketing and advertising practices on the internet and social media but apply to all marketing and advertising practices. Previously, listings of retailers were only permitted in response to consumer inquiries and were further limited by statute.
- Supplier-side industry members (such as manufacturers or wholesalers) may list the following information in their advertising or marketing (include social media posts), so long as the remaining requirements listed below are also satisfied: Names, addresses, telephone numbers, email addresses, or Internet Web site addresses, or other electronic media, of two or more unaffiliated on-sale or off-sale retailers selling the beer, wine, or distilled spirits produced, distributed, or imported by the supplier-side industry member. The listing must include information about two or more unaffiliated retailers and must be the only reference to the on-sale or off-sale retailers in the direct communication with the consumer.
- The listing cannot contain the retail price of the product.
- The listing is made, or produced, or paid for, exclusively by supplier-side industry member.
- For more information about the changes to Section 25500.1, refer to our prior blog post on this issue.
New Craft Distiller License & Expanded Tasting Privileges for Distilled Spirits Manufacturers
- Various provisions of the ABC Act have been amended to create the new Type 74 craft distiller license for distillers that manufacture up to 100,000 gallons of distilled spirits per fiscal year (July 1 through June 30). The new legislation has also provided Type 04 distilled spirits manufacturers, and craft distillers, expanded rights and privileges with respect to consumer tastings.
- The new Type 74 craft distiller license may be issued to a person who has facilities and equipment for, and is engaged in, the commercial manufacture of distilled spirits. The fees for the craft distiller shall be the same as those of a Type 04 distilled spirits manufacturer. It should be noted that the craft distiller will be required to report its production to the ABC on an annual basis, and if the production amounts go above the maximum requirements described below such that the craft distiller no longer qualifies to hold a craft distiller’s license, the ABC will automatically renew the license as a Type 04 distilled spirits manufacturer’s license (Type-04).
- The production, sale, distribution and tasting privileges of the new Type 74 Craft Distiller’s license include the right to:
- Manufacture up to 100,000 gallons of distilled spirits per fiscal year (July 1 through June 30) (excluding brandy that the craft distiller manufactures or has manufactured for them). In its advisory, ABC noted that “gallon” is defined in Section 23031 as “that liquid measure containing 231 cubic inches” and that the amount to be reported is the actual liquid volume manufactured not proof gallons. ABC also clarified that measurement of gallons for this purposes is the volume of distilled spirits (excluding waste product) drawn off the still.
- Package, rectify, mix, flavor, color, label, and export only those distilled spirits manufactured by the licensee. This means that the holder of a craft distiller license is not permitted to package, rectify, mix, label, flavor, color or export any spirits manufactured by any other licensees. However, ABC has confirmed that this provision does not prohibit the use of grain neutral spirits manufactured by another distiller in the manufacture of distilled spirits by a craft distiller licensee, since that requires actual re-distillation of grain neutral spirits. ABC has also noted that this prohibition against rectification of other products also means that the holder of a rectifier’s license (Type 07 or Type 24) cannot also hold a craft distiller’s license.
- Only sell distilled spirits that are manufactured and packaged by the craft distiller solely to a wholesaler, manufacturer, winegrowers, manufacturer’s agent, or rectifier that holds a license authorizing the sale of distilled spirits or to persons that take delivery of those distilled spirits within this state for delivery or use without the state.
- Sell up to 2.25 liters (in any combination of prepackaged containers) per day per consumer of distilled spirits manufactured by the craft distiller at its premises to a consumer attending an instructional tasting on the licensed premises pursuant to Section 23363.1.
- Sell all beers, wines, brandies, or distilled spirits to consumers for consumption on the premises in a bona fide eating place as defined in Section 23038, which is located on the licensed premises or on premises owned by the licensee that are contiguous to the licensed premises and which is operated by and for the licensee, provided that any alcoholic beverages not manufactured or produced by the licensee must be purchased from a licensed wholesaler.
- During private events only, sell or serve beer, wines, and distilled spirits, regardless of source, to guests during private events or private functions not open to the general public. All alcoholic beverages sold at the premises that are not manufactured or produced and bottled by or for the licensed craft distiller must be purchased only from a licensed wholesaler. ABC has noted that “private events” and “private functions” do not include events, activities, or functions that are open to the public, whether by purchase of a ticket or otherwise. As an example, the ABC has stated that it would not consider a cocktail-making class that anyone could attend to be a “private event or private function”.
- Craft distillers (unlike type 04 distilled spirits manufacturers) have also been provided with a tied house exception that allows a craft distiller to hold ownership interests in up to two (2) on-sale licenses (such as restaurants, hotels or bars). Other than the products made by or for the craft distiller, all other alcoholic beverages at such on-sale retailers must be purchased from a California wholesaler. Further, the interested craft distiller’s products cannot exceed more than 15% of the total distilled spirits by brand offered for sale by the on-sale licensee. This exception shall continue to apply, even if the distiller no longer qualifies as a craft distiller, so long as the distiller qualified as a craft distiller at the time it first obtained the interest in the on-sale retailers.
- As noted above, the recently enacted legislation amending Section 23363.1 provided both craft distillers and distilled spirits manufacturers expanded privileges with regard to direct to consumer tastings from their licenses premises. Type 04 and Type 74 licensees may now provide one and one-half ounces tastings of distilled spirits per individual per day from their premises with or without charge and can also serve these tastes in the form of a cocktail or mixed drink.
Beer Tastings at Farmers Markets
- Previously, under Section 23399.45, beer manufacturers were permitted to sell limited amounts of bottled beer at certified farmers markets so long as they held a Type 84 certified farmers market beer sales permit. An amendment to Section 23399.45 will now the holder of a type 84 certified farmers’ market beer sales permit to conduct instructional tasting events for consumers at certified farmers markets as well. These privileges are automatically extended to Type 84 permit holders as of January 1, 2016 so no additional permit is required for existing permit holders.
- The holder of a certified farmers market beer sales permit is authorized to conduct an instructional tasting event for consumers at locations specified in Section 23399.45 at a certified farmers market.
- The tasting is limited to 8 ounces per person per day and may be provided as provided as one 8 ounce tasting or various smaller tastings.
- The instructional tasting event area must be separated from the remainder of the market by a wall, rope, cable, cord, chain, fence, or other permanent or temporary barrier.
- Only one Type 84 license holder may conduct an instructional tasting event during the a farmers market.
- The licensee shall not permit any consumer to leave the instructional tasting area with an open container of beer.
Please note that the information provided above is just an overview of the requirements of the new legislation. Careful review of each statute in its entirety should be undertaken before any actions are taken in reliance on these new provisions.
We will be posting details on other new legislation in the coming days and weeks, but for questions on any of the new legislation discussed above and how it may affect your business, please contact Bahaneh Hobel.