New Third Party Provider Shipping Reports Due In Illinois

January 29, 2018

In 2016, we blogged about a new Illinois law that created a requirement for licensed winery shippers to disclose to the Illinois Liquor Control Commission (“ILCC”) all third party providers (“TPPs”) authorized to ship the licensee’s wine into Illinois, excluding common carriers. That law also imposes a new annual reporting requirement for all TPPs appointed to ship wine into Illinois on behalf of winery shipper licensees. The first report for TPPs shipping wine into Illinois is due on February 1, 2018. The report must provide details regarding each shipment made in 2017 to an Illinois resident on behalf of a winery shipper licensee. The ILCC has not drafted a form for this report, but the Wine Institute explains that the following specifics must be included in the TPP report to the ILCC:

  • Name and address of the licensed winery shipper;
  • License number of the winery shipper;
  • Name and address of the wine recipient;
  • The shipment tracking identification number from the common carrier;
  • Date of shipment; and
  • Number of bottles.

If you have any questions about direct winery shipping or third party providers, contact one of the attorneys at Strike & Techel for guidance.


ABC Issues Guidance on Use of Cannabis on ABC Licensed Premises

January 18, 2018

On January 1, 2018, adult use cannabis became legal in California, raising questions for many alcoholic beverage licensees about their ability to hold cannabis licenses and to sell or serve cannabis products on their alcohol licensed premises. The Department of Alcoholic Beverage Control (“ABC”) responded to several of these questions on January 18, 2018, by way of an Industry Advisory. First, the ABC confirmed that there is nothing in the ABC Act or the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) that prohibits ownership in both alcohol and cannabis related licenses. However, licenses cannot be held at the same location and the premises need to be sufficiently separated so that a person going to a licensed cannabis establishment will not be required to pass through a licensed alcohol establishment and vice versa. The ABC also clarified that cannabis cannot be sold or consumed on ABC licensed premises and that infusing alcohol with cannabis products is strictly prohibited.

Contact one of the attorneys at Strike & Techel if you have questions about cannabis under MAUCRSA or the ABC Act.


End of 2017 Review: Winery Direct to Consumer Shipments

January 08, 2018

Previously, we blogged about the 2017 changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. This past year did not see any changes with respect to the permissibility of interstate winery DTC shipments, but there is one change on the horizon in 2018. Currently, winery DTC shipments are permissible and available in 43 states (including Washington, DC). The following eight states have laws prohibiting interstate winery DTC shipments, or have laws or other circumstances that effectively prevent interstate winery DTC shipments in most situations (such as laws limiting winery DTC shipments to on-site sales, or common carriers not servicing the state, etc.):

  • Alabama
  • Arkansas
  • Delaware
  • Kentucky
  • Mississippi
  • Oklahoma
  • Rhode Island
  • Utah

In 2018, the list above will be narrowed to seven states and winery DTC shipments will be permissible and available in 44 states, as Oklahoma opens up to direct winery shipments. As part of Oklahoma’s sweeping alcohol reform that was passed in 2016, a Direct Wine Shipper’s Permit was created (effective October 1, 2018), which will allow shipments by out-of-state wineries to Oklahoma consumers.

Contact one of the attorneys at Strike & Techel if you have questions about your winery’s operations or direct to consumer wine shipments.


Ring in the New Year with Major Industry Excise Tax Reform

December 29, 2017

Last week, the President signed into law sweeping alcoholic beverage excise tax reform as part of the Tax Cuts and Jobs Act of 2017 (the “Act”). These alcohol excise tax changes originated in the Craft Beverage Modernization and Tax Reform Act, and were incorporated into the larger $1.5 trillion tax overhaul. The new law is scheduled to take effect on January 1, 2018. The law sunsets at the end of 2019, but with the possibility that the changes might be extended if successful. The TTB is working on guidance and the form revisions necessitated by these fast-approaching excise tax changes, and expects to issue more information in the coming weeks.

The Act will drastically lower the tax rate payable on alcoholic beverages through the course of 2018 and 2019. Already-existing excise tax reductions for small brewers and small winemakers are expanded and extended to all producers of beer and wine, distilled spirits producers will get significantly lowered excise tax rates, and importers will gain the opportunity to stand in the shoes of their foreign producers to access similar reductions. Specific reductions include:

  • Spirits: The tax rate for distilled spirits will be reduced from $13.50 a proof gallon to only $2.70 on the first 100,000 gallons taxably removed during each calendar year, and to $13.34 on additional gallons up to 22,130,000.
  • Beer: Beer excise taxes will be reduced from $18 a barrel to $16 a barrel on a brewer’s first 6 million barrels, with the small producer tax payment halved to $3.50 a barrel on the first 60,000 barrels for those brewers producing less than 2 million barrels.
  • Wine: All wine producers will now benefit from a tax credit on the first 750,000 gallons produced by the winery and taxably removed during each calendar year. The tax credit is $1 on the first 30,000 gallons removed, $0.90 on the next 100,000 gallons, and $0.535 on the next 620,000 gallons. There is a proportionate tax credit for qualifying hard cider. All producers will be eligible for this tax credit, including sparkling wine producers. The base tax rates are also affected by this reform, and there are reductions in the tax rates for certain types of mead, low alcohol grape wines, and still wines with 14.1% ABV to 16% ABV.

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.


End of 2017 Review: Retailer Direct To Consumer Wine Shipments

December 18, 2017

This year brought changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. In August 2017, Missouri repealed Mo. Rev. Stat. § 311.462, which allowed out-of-state retailers to ship wine to Missouri consumers, provided the retailer was located in a state that allowed Missouri retailers to ship into the state (“reciprocal states”). Thus, the list of states that allow out-of-state retailer DTC shipping is now as follows:

  • Alaska
  • California
  • Idaho
  • Louisiana
  • Nebraska
  • Nevada
  • New Hampshire
  • New Mexico
  • North Dakota
  • Oregon
  • Virginia
  • Washington, D.C.
  • West Virginia
  • Wyoming

Bear in mind that California, Idaho, and New Mexico are reciprocal states, and only allow shipments from out-of-state retailers located in one of states listed above. Furthermore, in order for a retailer to ship wine to consumers in the following states, the retailer must obtain a license: Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia, and Wyoming. Many of the states with a DTC license requirement for retailers also require retailers to report shipments into the state and pay taxes.

If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.


TTB Delays Hard Cider Tax Labeling Requirement

December 13, 2017

In January 2017, the federal laws on alcoholic cider were revised to expand the definition of what constitutes “hard cider” and to revise its federal tax rate. We posted about those and other developments in the “hard cider” arena here and here.

Included in those changes to the law was a requirement, to be effective starting January 1, 2018, that the statement “Tax class 5041(b)(6)” appear on any hard cider removed from wine premises or Customs custody for which the “hard cider” tax rate is claimed. However, on December 5, 2017, the TTB published a temporary rule, delaying the new labeling requirement until January 1, 2019. Until the new effective date, the tax class statement continues to be optional.

Along with the labeling delay, the TTB has also decided to reopen the public comment period, providing an opportunity for the public to make additional comments over the next two months regarding both the delayed labeling requirement and other “hard cider” regulatory amendments.

For more information regarding hard cider licensing and regulatory requirements, contact one of the attorneys at Strike & Techel.


California Alcoholic Beverage Legislative Update

December 08, 2017

With the close of the 2017 legislative session, Governor Brown signed several new alcoholic beverage bills into law, which will become effective on January 1, 2018. Two of the more controversial bills failed to make it through the legislative process – SB 254 would have further regulated alcohol delivery services and SB 384 (renamed) would have allowed on-sale licensees to apply to the ABC to extend hours of sale and service to 4 am. While dead in the water at the close of this session, these closely watched bills are expected to surface again in upcoming legislative sessions.

Joint Tasting Room for Beer and Wine Manufacturers

AB 997 provides an exception to the restriction that prohibits a licensee from having alcoholic beverages on its licensed premises other than the type that the licensee is authorized to sell. Business and Professions Code Section 25607 is amended to allow a licensed winegrower (Type 02) and a licensed small beer manufacturer (Type 23) to share a joint tasting room, so long as it is adjacent to the area where both of the licensees hold production licenses. The privilege is not extended to holders of large beer manufacturer licenses (Type 01), nor does it apply to branch office locations (duplicate licenses).

Mandatory Server Training

AB 1221 establishes the Responsible Beverage Service (RBS) Training Program Act of 2017 and requires the ABC to “develop, implement, and administer a curriculum for an RBS training program” by January 1, 2020. Beginning July 1, 2021, all alcohol servers will be required to complete an RBS training program. Alcohol servers include employees of on-sale licensees who serve alcoholic beverages, any person who supervises or manages such an employee, and a designee for alcoholic beverage sales and service pursuant to a temporary license. The training will include instruction on state laws and regulations relating to alcoholic beverage control and driving under the influence, the social and physical impacts of alcohol, and intervention techniques to prevent sales to underage and intoxicated persons. Training may be provided by the ABC for a maximum fee of $15 or through an accredited agency as approved by the ABC. The provisions of the RBS Training Program will be found in newly added Business and Professions Code Sections 25680 – 25686.

Beer Manufacturers May Provide Free or Discounted Rides

AB 711 amends Business and Professions Code Section 25600 to allow beer manufacturers to provide free or discounted rides to consumers for the purposes of furthering public safety. Such free or discounted rides, so long as not conditioned on the purchase of an alcoholic beverage, provide an exception to the prohibition on giving any premium, gift or free goods in connection with
the sale or distribution of alcoholic beverages. Beer and wine wholesalers are prohibited from participating and beer manufacturers are prohibited from providing a gift or anything of value directly or indirectly to a licensed retailer.

For more information about the recent changes to California’s alcohol laws, contact an attorney at Strike & Techel.


Another Misleading Beer Packaging Case: A Step Beyond “Mere Puffery”

September 20, 2017

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.


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