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.


Strike & Techel Welcomes Mark Hervey

October 27, 2017

Strike & Techel is excited to announce the addition of Mark Hervey to our ever-expanding Raleigh, North Carolina office! Mark joins us from Dressman Benzinger LaVelle in Cincinnati, Ohio, where he represented alcoholic beverage manufacturers and retailers in both Ohio and Kentucky.

Mark’s practice focuses on providing counsel to alcoholic beverage industry members in a wide variety of matters including business formation, contracts, trademarks, and general alcohol regulatory advice.

Mark is licensed to practice law in Ohio and Kentucky, a number of federal district and appeals courts, and the United States Supreme Court; his application for reciprocal admission to the North Carolina Bar is currently pending.

We are delighted to have found another attorney who shares industry-specific knowledge and passion for this quirky alcoholic beverage practice of law!

To learn more about the firm, visit alcohol.law or call 415-226-1400.


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.


Balancing the First Amendment and the Three Tier System – The Retail Digital Network Case

August 28, 2017

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.


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.


CLOSE

Browse posts by category: