California ABC Announces 2017 New License Authorizations

August 07, 2017

August in California means one thing to alcohol beverage attorneys – ABC priority license announcements! Every year the California ABC announces which counties are eligible for new on-sale and off-sale general licenses based on population growth within each county. The 2017 figures have been released, and the numbers this year are sure to excite a lot of retail applicants. In addition, recent legislation granted the ABC the ability to authorize new on-sale general licenses in certain counties regardless of population growth. Along with the authorized priority licenses, the ABC will be accepting applications for licenses in the following counties: Napa (5), Inyo (5), and Alpine (4). Applicants for these licenses will need to meet certain restaurant seating capacity requirements.

The Low-Down

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, during the ‘priority application period,’ the ABC accepts new license applications. In addition, they announce a number of inter-county transfer allowances – where an applicant in a priority county can purchase a general license on the open market 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. Note that an applicant may be approved for an On-Sale General Public Premises License (Type 48), but only if the applicant is able to establish during the formal application process that there is a substantial public demand that cannot otherwise be satisfied.

County Availability

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, San Diego, and Santa Clara. For a complete list of license available by county, click here.

Deadlines

ABC District offices will accept priority applications by mail or in person from September 11-22, 2017. If by mail, it must be postmarked on or before September 22nd. If the ABC receives more applications than licenses available, a public drawing will be held at the District office, usually in early-mid October. Successful applicants will have 90 days to complete a formal application.

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.

Additional Requirements

Residency requirements specify that every applicant must have been a resident of California for at least 90 days prior to the scheduled drawing. For corporations, limited partnerships, and limited liability companies, the 90-day residency clock starts ticking upon registration with the California Secretary of State.

An applicant doesn’t need to have a specific premises secured to apply for a priority license, but if successful, will need to submit a formal application for a specific location (within that same county) within 90 days. The applicant will be required to present a lease with at least a two-year term for the premises. Priority licenses are subject to certain conditions, including a prohibition against transferring the license for two years after issuance.

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.


TTB Publishes Industry Guidance for Producers of Hard Cider

July 10, 2017

Recently, the TTB published Industry Circular No. 2017-2, providing guidance for producers of hard cider. This guidance details the new criteria for the hard cider tax rate, which went into effect on January 1st of this year. We addressed those changes, as well as the old criteria for the hard cider tax rate, on our prior blog post, “Federal Definition of “Hard Cider” Will Be Expanded in 2017”. As a recap, the current definition of hard cider eligible for the lower hard cider tax rate, is a product that meets the following criteria:

  • Contains no more than 0.64 gram of carbon dioxide per 100 milliliters;
  • Is derived primarily from apples or pears, or from apple juice concentrate or pear juice concentrate and water;
  • Contains no fruit product or fruit flavoring other than apple or pear; and
  • 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.


North Carolina Legislature Passes ABC Omnibus Legislation

June 29, 2017

Last night, the North Carolina legislature passed Senate Bill 155 (“SB155”), ABC Omnibus Legislation (LINK). SB155 is known as the “Brunch Bill,” but over the past week other pending alcohol legislation has been merged in with the bill, including House Bill 500, which contains several provisions benefitting North Carolina’s breweries. Below is a summary of some of the alcohol law changes coming to North Carolina, if SB155 is signed by Governor Cooper.

Earlier Sunday Sales – The highlight of the “Brunch Bill” is a section authorizing local governments to allow sales of alcohol before noon on Sunday. Local governments may pass an ordinance allowing alcohol sales as early as 10 a.m. on Sunday mornings. SB155 previously focused only on restaurants serving alcohol for on-premises consumption, but the legislation was expanded to include all permittees, whether selling alcohol for on- or off-premises consumption.

Removing Food Sales Requirements for the Sale of On-Premises Unfortified Wine – North Carolina has food sales requirements for some on-premises permits. Generally speaking, the higher the average alcohol of the product type, the more food must be sold by the permittee in order to serve that product type. Currently, no food must be sold in order to sell beer for on-premises consumption, some food for unfortified wine (16% ABV and under), and substantial food for fortified wine and mixed beverages. SB155 removes the food sales requirements for unfortified wine by enabling an establishment that does not sell any food to obtain a permit for unfortified wine on-premises consumption.

Approval of “Crowlers” as Growlers – Currently, “crowlers”—32 ounce aluminum cans designed to be filled for consumers on-demand in the same fashion as a growler—do not meet the definition of a growler in North Carolina because the container is not “resealable.” SB155 amends the definition of a growler to remove the resealable requirement, so that crowlers may be filled by retailers for consumers on-demand in the same way that the retailer may currently fill and sell growlers.

Off-Site Storage – SB155 will allow alcohol producers to store alcohol off of the permitted premises, if the off-site storage location has been approved by the federal Alcohol and Tobacco Tax and Trade Bureau. Currently, breweries, wineries, and distilleries are limited to storing alcohol only at their permitted production facility and any permitted wholesale locations.

Distillery Special Event Permit – Breweries and wineries have the ability to obtain a special event permit allowing tastings and sales at off-site special events, such as festivals, fundraisers, and conventions. SB155 creates a similar permit for distilleries. Distilleries (including supplier and broker representatives) holding the special event permit would be able to give away free tastings at certain special events. Tastings per consumer are limited to 0.25 ounces of any one product and 1 ounce
total.

Farm Breweries – North Carolina has several communities that do not allow the sale of alcohol. However, winery tasting rooms are currently allowed to obtain permits for the sale of wine for on- or off-premises consumption, regardless of the results of any local wine election. SB155 creates a similar exception for brewery tasting rooms, but only if local government approval is obtained, and only if the brewery is also a farm that produces agricultural products, including barley, other grains, hops, or fruit, for use in the brewery.

Clarifications for Breweries – SB155 contains several clarifications for breweries, formalizing operations or activities that are for the most part already in practice but not yet explicitly authorized. The ability of a brewery to give beer tastings to tour participants is made official by SB155, as well as authorization for a brewery to sell beer from other producers in its taproom. SB155 also allows a brewery to receive beer in North Carolina from an out-of-state production facility for sales to North Carolina wholesalers. Further, the bill confirms that a brewery (and any other commercial permittee) may taste alcohol on the permitted premises for sensory analysis, quality control, or educational purposes.

If your business has questions about SB155 or North Carolina alcohol law, contact Strike & Techel for more information.


Alcohol Advertising 101

June 12, 2017

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?

May 02, 2017

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.


Michigan Relaxes Labeling and Shipping Requirements for Direct-to-Consumer Wine Shipments

March 13, 2017

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.


Michigan Senate Bill 1088: New Rules on Shipping & Delivery for Retailers and Third Party Providers

March 01, 2017

On January 9, 2017, Michigan Governor Rick Snyder signed Senate Bill 1088 (“SB 1088”) into law, which revises Mich. Comp. Laws § 436.1203. SB 1088 amends direct-to-consumer shipping laws for wineries and retailers, but most notably expands in-state retailer privileges to ship and deliver wine and beer – and in some cases spirits – directly to consumers in the state of Michigan. This post will focus on the changes SB 1088 makes with respect to retail shipping and delivery and use of third party providers (“TPPs”) and common carriers. The law takes effect on March 29, 2017.

Retailer Shipping and Delivery

Prior to SB 1088, retailer shipping and delivery options were limited. Only retailers in Michigan that held Specially Designated Merchant (“SDM”) licenses were allowed to deliver beer and wine to Michigan consumers, provided the delivery was made by the retailer’s employee. SB 1088 allows several additional methods of retailer shipping and delivery. Shipment by common carrier and use of a TPP are now permissible in some circumstances. Additionally, Specially Designated Distributor (“SDD”) retail licensees may also now deliver spirits to Michigan consumers. Once SB 1088 goes into effect, the following retail shipping and delivery methods will be permissible:

Retailer Shipping and Delivery

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.


Changes to Federal Excise Tax Bond Requirements – Do You Still Need a TTB Bond?

January 17, 2017

The Protecting Americans from Tax Hikes Act (the “PATH Act”) took effect on January 1st, 2017. The PATH Act changes the bond requirements for some TTB-permitted producers that are liable for excise taxes on distilled spirits, wine, and beer. Currently, all producers are required to file a bond covering operations and withdrawals of spirits, wine, and beer. The PATH Act provides that producers that reasonably expect not to owe more than $50,000 in excise taxes during the year are no longer required to have a bond on file with the TTB. Beginning this year, a new applicant that indicates that they do not expect to owe more than $50,000 in excise taxes during the first calendar year will not be required to submit a bond with the permit application. Also, an existing producer may request termination of its bond requirement by filing an amendment to its permit, which the TTB will process only after the producer has submitted excise tax returns, payments, and reports for 2016, so that the TTB can determine the producer’s eligibility to terminate its bond. The chart below provides examples of production volumes that would result in annual excise taxes of less than $50,000, meaning that producers under those volumes would not be required to file a bond with the TTB covering operations.

The TTB has issued Industry Circular 2016-2 with more information, and will publish regulations to implement the above statutory changes in the near future. For more information regarding the PATH Act and TTB bond requirements, contact one of the attorneys at Strike & Techel for further guidance.


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