Category archives for “California Alcoholic Beverage Control”

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.


Governor Brown Signs Three New Alcoholic Beverage Laws

October 03, 2016

On Wednesday, September 28, 2016, Governor Brown signed three alcohol-related bills into law, creating new on-sale restaurant licenses for San Francisco, legalizing the glass of bubbly you have with your haircut and criminalizing powdered alcohol. All three laws become effective on January 1, 2017.

SB 1285 - 5 New Restricted Restaurant Licenses for San Francisco

Senate Bill 1285 (“SB 1285”) adds Section 23826.13 to the California Business and Professions Code, which authorizes the California Department of Alcoholic Beverage Control (“ABC”) to allocate 5 new “neighborhood-restricted special on-sale general” licenses in San Francisco. The 5 new licenses are subject to most of the same privileges and restrictions – and the same original fee of $13,800 – as an on-sale general license for a bona-fide eating place (Type 47). However, these 5 licenses differ from regular Type 47 licenses in that they are neighborhood-specific, are nontransferable, and when surrendered, revert back to the ABC for issuance to a new applicant. This means that licenses will only be available, and must remain in, the eligible neighborhoods – Bayview’s Third Street, outer Mission Street in the Excelsior, San Bruno Avenue, Ocean Avenue, Noriega Street, Taraval Street and Visitacion Valley. Licenses in the most popular restaurant hubs remain available only by purchasing an existing license, market values of which often run several hundred thousand dollars. The new licenses also do not permit the exercise of off-sale privileges, like a Type 47 does.

In order to be eligible to apply for a license, SB 1285 requires a pre-application meeting, which must be conducted and verified by a local government body. This requirement includes notifying nearby residents, conducting a community meeting, outreach to certain neighborhood associations and to the San Francisco Chief of Police. The ABC will establish a priority application period in accordance with Cal. Bus. & Prof. Code § 23961, and if more than 5 applications are received, they will hold a lottery for eligible applicants.

AB 1322 - Beauty Salons and Barber Shops

Assembly Bill 1322 (“AB 1322”) permits beauty salons and barber shops to serve wine and beer without a license provided there is no extra charge for the service. The service can only be offered during business hours and no later than 10:00 p.m., and the amount of beer and wine cannot exceed 12 ounces and 6 ounces per customer, respectively. Further, the salon or barber shop providing the service must be in good standing with the State Board of Barbering and Cosmetology. Prior to AB 1322, the exception allowing unlicensed service of alcohol by a business to its customers only existed for limousines and hot air balloon ride services. (Cal. Bus. & Prof. Code § 23399.5)

AB 1554 - Ban on Powdered Alcohol

Assembly Bill 1554 makes it a crime to purchase or possess powered alcohol. The bill defines powdered alcohol as “an alcohol prepared or sold in a powder or crystalline form that is used for human consumption in that form or reconstituted as an alcoholic beverage when mixed with water or any other liquid.” The definition makes clear that vaporized alcohol (which is already illegal in California) is not powdered alcohol. The bill also prohibits the manufacture, distribution and sale of powered alcohol. An individual caught making, selling or using powered alcohol is guilty of an infraction and must pay a $125 fine. (Cal. Bus. & Prof. Code §§ 23794 and 25623)

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


California ABC Announces 2016 New License Authorizations

August 15, 2016

It’s that time of year when the ABC announces priority applications, and this year’s numbers are sure to make a lot of retail business owners very happy! Every year the California ABC announces which counties are eligible for new on-sale and off-sale general licenses based on population growth versus existing license ratios within each county. The 2016 figures have been released, and the numbers this year are higher than usual.

What is a Priority application?

General retail licenses authorize the sale of beer, wine, and distilled spirits. They are restricted by county population and must typically be purchased on the open market from an existing licensee, often for a very high premium. Licenses are usually confined to the county in which originally issued, so prices vary drastically across the state. Every year, the ABC announces a ‘priority application period’ when they will accept new license applications. In addition, they announce a number of inter-county transfer allowances – where a business owner in a priority county can purchase a general license from a licensee in any other county and transfer it into the priority county.

If you’re in the market for an Off-Sale General Package Store License (Type 21), an On-Sale General Eating Place License (Type 47), or a Special On-Sale General Club License (Type 57) within a county where licenses are available, you should apply.

Licenses Available by County

The maximum number of priority applications the ABC typically authorizes for each category (new on-sale, new off-sale, inter-county on-sale, inter-county off-sale) is twenty-five. The ABC has authorized the maximum number of priority applications in several counties, including Alameda, Contra Costa, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, and San Diego. For a complete list of license available by county, click here.

2016 Filing Period

ABC District offices will accept priority applications by mail or in person from September 12-23, 2016. If by mail, it must be postmarked on or before September 23rd. If the ABC receives more applications than licenses available, a public drawing will be held at the District office. Successful applicants will have 90 days to complete a formal application for the specific premises.

Fees

Priority application fees are $13,800 for new general licenses and $6,000 for inter-county transfers. A certified check, cashier’s check, or money order must be submitted along with the priority application. Unsuccessful applicants will be refunded the application fee, minus $100 service charge.

Residency Requirements

Every applicant must have been a resident of California for at least 90 days prior to the scheduled drawing. Exact drawing dates vary by District office, but all are in mid-late October. For corporations, limited partnerships, and limited liability companies, the 90-day residency requirement starts ticking upon registration with the California Secretary of State. Individual and general partnership applicants must submit proof of California residency.

If you’re interested in applying for a new or inter-county on- or off-sale general priority license, contact an attorney at Strike & Techel.


Suppliers Now Allowed to Use Social Media to Support Certain Charity Events Sponsored by Retailers

February 17, 2016

Effective January 1, 2016, the California ABC Act contains a new section that loosens the restrictions suppliers face when mentioning a retailer in a social media post. Newly added Business and Professions Code § 23355.3 is aimed at clarifying how suppliers and retailers can co-sponsor nonprofit events. It was drafted, in part, as a response to the backlash that occurred after the ABC filed accusations against several wineries for advertising sponsorship of the “Save Mart Grape Escape” charity fundraising event in 2014. In that instance, several wineries posted or tweeted their support and sponsorship of the event on social media. The ABC reasoned that the suppliers were impermissibly advertising for Save Mart, a retailer, even though the event was held under a nonprofit permit issued to a bona fide nonprofit organization. The ABC alleged that by posting or tweeting about the event, the suppliers were giving a thing of value to the retailer, a practice that has long been considered a violation of California’s tied house restrictions.

California law has long permitted supplier licensees to sponsor nonprofit events if the nonprofit gets an event license, and the new law does not fundamentally change that. However, the new section clarifies that a supplier may advertise sponsorship or participation in such events even if a retailer is also a named sponsor of the event. Payments or other consideration to the retailer are still considered a thing of value, and are not allowed, but social media postings no longer fall under that broad category. There are restrictions on what the supplier is permitted to post about the retailer; posts cannot contain the retail price of alcoholic beverages and cannot promote or advertise for the retail licensee beyond mentioning sponsorship or participation in the event. The supplier can share a retailer’s advertisement for the event on social media, but the supplier is not permitted to pay or reimburse the retailer for any advertisement and cannot demand exclusivity of its products at the event. In short, the new section will allow exactly the type of supplier social media support that occurred in the Save Mart Grape Escape situation.


New California Law Creates License for Craft Distilleries, Updates Spirits Tasting Rules

October 13, 2015

On October 8, 2015, California Governor Brown signed the Craft Distilleries Act of 2015 into law, which creates a new license for craft distilleries. AB 1295 is a step forward for craft spirits producers, who will no longer be subject to the same strict restrictions that apply to traditional Distilled Spirits Manufacturers (Type 4 licensees). The new Craft Distiller’s license allows the production of up to 100,000 gallons of distilled spirits each year and also includes several other key privileges not available to larger distilleries that hold Type 4 licenses: Craft Distillers will be able to sell distilled spirits to consumers, operate restaurants from their premises, and hold interests in on-sale retail licenses.

AB 1295 adds several sections to the California Alcoholic Beverage Control Act, including Business and Professions Code Sections 23500 through 23508. Those sections include the following privileges for Craft Distillers:

  • Manufacture of up to 100,000 gallons of distilled spirits each fiscal year (July 1 – June 30), excluding any brandy the licensee may have produced under a Brandy Manufacturer license. Licensees can also package, rectify, mix, flavor, color, label, and export distilled spirits manufactured by the licensee.
  • Sale of up to 2.25 liters of its distilled spirits per consumer, per day, in conjunction with instructional tastings held on its licensed premises.
  • Operation of a bona fide eating place on its licensed premises or a location contiguous to its premises, from which the licensee may sell beer, wine, and distilled spirits.
  • May hold an interest in up to two California on-sale licenses, provided certain conditions are met.
  • Cannot be issued to anyone who manufactures or has manufactured for him over 100,000 gallons of distilled spirits, whether inside or outside California, excluding any brandy the licensee may have produced under a Brandy Manufacturer license.

The new bill also amends Business and Professions Code Section 23363.1 to allow Craft Distillers to conduct distilled spirits tastings either: a) off their licensed premises at a nonprofit event held under a nonprofit permit; or, b) at their licensed premises under specific conditions. The other notable change to the statute is that tastings can be provided in the form of a cocktail or mixed drink, and the sample size limitation has been changed to one and one-half ounces maximum per consumer per day. Those changes apply to both Craft Distillers and Distilled Spirits Manufacturers.

The new laws take effect January 1, 2016.

Contact one of the attorneys at Strike & Techel if you have any questions about distillery licenses in California or elsewhere.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •


California Brewpub Licenses: What You Need to Know

October 08, 2015

Craft beer continues to be all the rage in California and across the country. With the increase in demand for local craft beers, we’ve been getting a lot of questions about how to get licensed as a brewery in California. The California Department of Alcoholic Beverage Control (“ABC”) issues three primary license types that permit beer production, including Beer Manufacturer licenses (Type 1), Small Beer Manufacturer licenses (Type 23) and the increasingly popular On-Sale General Brewpub license (Type 75). The license privileges of each type of brewery license vary, and the brewpub license is a good choice for brewers that primarily want to operate a brewpub or microbrewery restaurant rather than sell their beers for consumers to drink off the brewery’s premises.

A Type 75 brewpub license authorizes the sale of beer, wine and distilled spirits for consumption at a bona fide eating place, which essentially requires that the facility be a restaurant with its own kitchen that serves meals. The ability to sell distilled spirits as a brewpub is a privilege that many find attractive in deciding between brewery licenses. Type 1 and Type 23 breweries may, but are not required to, operate bona fide eating places, but they are limited to beer and wine, and cannot sell distilled spirits. Additionally, beer, wine, and distilled spirits restaurant licenses (i.e., Type 47 On-Sale General for Bona Fide Public Eating Place) are often extremely expensive as the number of licenses issued is limited per county based on population. There is no cap on the number of Type 75 licenses that can be issued, so the Type 75 license can be an attractive option for businesses that want to sell distilled spirits, although all Type 75 licensees must meet certain brewing requirements.

Brewpubs must produce at least 100 barrels of beer per year and can produce no more than 5,000 barrels of beer per year. That production cap is substantially lower than the production allowances for Small Beer Manufacturers (less than 60,000 barrels per year) and Beer Manufacturers (60,000 barrels per year or more). Additionally, a Type 75 brewpub premises must have brewing equipment that has at least seven-barrel brewing capacity. The ABC has recently been looking into the brewing equipment of Type 75 licensees and enforcing against brewpubs that aren’t actually brewing beer or don’t have the requisite brewing capacity.

Other key features of Type 75 brewpub licenses include the following:

• Cannot make sales from the brewpub premises for off-premises consumption. This means that a brewpub cannot sell bottles, cans, growlers or other containers for consumption away from the brewpub.

• Can sell beer produced by the brewpub to California licensed wholesalers.

• Must buy all wine, distilled spirits, and beer not produced by the brewpub from a licensed wholesaler or winegrower. Note that brewpubs cannot buy or sell beer or other alcoholic beverages from other brewpubs or retailers.

The initial fee for a brewpub license is currently $12,000, which is more expensive than most California license types. The annual fee is determined by the population where the brewpub is located, and varies between approximately $500 and $1,000 per year. Additionally, local rules where the brewpub is located may require additional permitting or other approvals before the brewpub can operate. Lastly, all breweries, including brewpubs, must obtain a brewery basic permit from the Alcohol and Tobacco Tax and Trade bureau, the federal agency that regulates alcoholic beverages. There is no fee for the federal permit, but a bond is required.

Contact one of the attorneys at Strike & Techel if you have any questions about starting a brewery!


New California ABC Advisory on Merchandising Services by Suppliers

January 07, 2015

In December 2014, the California ABC posted a new Industry Advisory about merchandising services. Free services provided by suppliers to retail licensees, such as stocking shelves, pricing inventory, rotating stock, etc., are prohibited things-of-value under California Business & Professions Code sections 25500 and 25502. However, a number of permitted exceptions are separately provided for in Section 25503.2. The Advisory was posted in response to inquiries and complaints about the scope of permissible activity. When ABC receives multiple complaints about impermissible conduct, investigations and license accusations may well follow, so it would be prudent for suppliers to review the scope of permissible merchandising activities.

Permitted activity varies depending on the type of retailer and the products involved so we created a simple chart below to help keep it straight.

Note that in all cases, any merchandising activities can only be done with the retailer’s permission. In no case can a supplier move the inventory of another supplier, except for “incidental touching” to access the space allocated to the licensee providing the merchandising service.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 · All Rights Reserved ·


Clarifications from the ABC on Sweepstakes and Contests in California

October 17, 2013

On June 13, 2013, guests attending ShipCompliant’s “Direct 2013” conference heard from Matthew Botting, General Counsel to the California ABC, on supplier participation in sweepstakes and contests under California’s new law. We’ve previously blogged about the new law here and here.

California Code of Regulations Title 4, Section 106 (“Rule 106”) has always allowed suppliers to “sponsor” a contest, meaning suppliers could give money or otherwise participate when the contest was organized by “bona fide amateur or professional organizations.” Previously, the privilege was limited. Now, the privileges are broader: suppliers (including wineries) can now “conduct” a contest under recently enacted Business and Professions Code Section 25600.1, and conduct or sponsor a sweepstakes under 25600.2. Mr. Botting discussed the different available privileges and their limitations:

* “Conduct” means the promotion is managed and organized by the supplier.
* “Sponsor” means it is someone else’s sweepstakes or contest and the supplier is providing a prize or other sponsorship of the promotion.
* For the time being, suppliers can only sponsor a contest in accordance with the existing Rule 106, which means sponsorship is limited to a contest conducted by bona fide amateur or professional organizations.
* Sponsoring a sweepstakes and conducting a sweepstakes or contest is now covered by Business and Professions Code Section 25600.1 and 25600.2. Sweepstakes or contests cannot require a visit to a licensed premises of any kind, so there must be an alternate method of entry (“AMOE”) if entry forms are available at a licensee.
* Sweepstakes and contests cannot be conducted on retail premises (e.g., a grocery store, liquor store, bar or restaurant). A “retail premise” includes some locations you might not think of, such as: an unlicensed premises if a licensed caterer is present, or at an event held by a nonprofit under a one-day permit. The ABC considers events held with a caterer’s license or a nonprofit one-day permit to occur “at the premises of a retail licensee,” and therefore a supplier may only provide a means of entry at either of these types of events.
* While suppliers may provide a means of entry for the contest or sweepstakes, the contest or sweepstakes may not be conducted at a winery or brewery’s duplicate tasting room.
* A contest or sweepstakes can only be advertised at a retailer if it is advertised at a minimum of three different retailers, and winners shouldn’t be picked at a licensed retail event nor in a tasting room.

The full presentation by Mr. Botting can be seen here (starting at the 5:00 minute mark).

Before conducting or sponsoring any contest or sweepstakes, be sure to consult the relevant laws, Business & Professions Code Sections 25600.1, 25600.2, and, if applicable, Rule 106 (regarding contests), and pay particular attention to whether the supplier involved holds a license that allows it to participate.

Contact one of the attorneys at Strike & Techel if you have questions about contests and sweepstakes in California or other states.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


California On Sale General Public Premises (Type 48) Licensees Must Post Human Trafficking Notificat

September 24, 2013

To raise awareness and provide resources to potential victims of human trafficking, California Civil Code Section 52.6 now mandates that, as of April 1, 2013, all On Sale General Public Premises (Type 48) retail licensees, along with certain other types of businesses, must post a notice about human trafficking. The United States Department of State estimates that 14,500-17,500 victims are trafficked into the United States each year, with California as one of the country’s top four destination states.

The notice must be posted in a conspicuous place (near the public entrance or in clear view of the public and employees), measure at least 8.5 inches by 11 inches, and the following message must appear in at least size 16 font:

“If you or someone you know is being forced to engage in any activity and cannot leave—whether it is commercial sex, housework, farm work, construction, factory, retail, or restaurant work, or any other activity—call the National Human Trafficking Resource Center at 1-888-373-7888 or the California Coalition to Abolish Slavery and Trafficking (CAST) at 1-888-KEY-2-FRE(EDOM) or 1-888-539-2373 to access help and services. Victims of slavery and human trafficking are protected under United States and California law.

The hotlines are:

Available 24 hours a day, 7 days a week.
Toll-free.
Operated by nonprofit, nongovernmental organizations.
Anonymous and confidential.
Accessible in more than 160 languages.
Able to provide help, referral to services, training, and general information.”

This notice must be in English and Spanish, and a model notice is available here. Depending on the county, the notice may also be required in another language. A list of those counties is available here.

For more information on this posting requirement, call the Victim Services Unit at the California Attorney General’s Office toll free: (877) 433-9069.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Scary Letters from the ABC

October 31, 2012

In honor of Halloween, we’re writing about a very scary letter alcoholic beverage licensees in California sometimes receive. The letter is from the local alcoholic beverage control (ABC) office, and usually says something like “Dear Licensee: An appointment has been made for you to discuss an important matter concerning your alcoholic beverage license. The appointment is scheduled for October 31, 2012 at 9:00 a.m. at the office indicated above. Sincerely, an ABC District Administrator.”

This letter is referred to as a “309” letter. If you receive it you have reason to be scared, because the letter typically precedes a disciplinary accusation filed against your license. You should expect a letter like this a few weeks after a sale to a minor decoy, but you should be especially wary if you receive the letter and have no knowledge of any cause for discipline. By the time the ABC sends you a 309 letter, it is probably already set on filing an accusation, so attending the meeting to find out about the “important matter” will rarely change its course. However, at this stage the accusation has not yet been filed and it is possible the licensee may be able to describe extenuating circumstances and avoid an accusation – instead, perhaps getting a warning letter inserted in the licensee’s ABC file. But, this is unusual. Typically if the ABC feels it has sufficient evidence to support an accusation, it will file one. If you believe your situation merits explanation, you may wish to attend the meeting. The ABC will sometimes agree to conduct it by telephone. If you do elect to attend the 309 meeting, in person or by phone, be aware that anything you say at the meeting can be used against you. If you’d prefer not to attend the meeting, you can call in advance of the meeting and request that the ABC send you the accusation paperwork. In any case, we recommend you respond to the ABC’s letter and make it clear that you are a conscientious licensee who is concerned about maintaining your license.

Collect as much information about any potential cause for discipline as soon as you can. Has law enforcement been by your premises? Has a neighbor been complaining? Do you have video of any suspicious activity? If your budget permits, you should also speak to an attorney who can help you with the legal filings, particularly if you have a history of discipline as the penalties get larger for repeat offenses. Take immediate steps to prevent the problem from repeating.

In our experience, most ABC accusations result from licensee mistakes and are resolved by payment of a fine and the implementation of steps to avoid a repeat violation. However, there are occasions when the accusations and penalties are more serious, and on those occasions you could be at risk of license suspension or revocation.

Contact one of the attorneys at Strike & Techel if you have questions about your 309 letter.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·


San Francisco Type 47s

August 27, 2012

A Type 47 license is for an On-Sale General for Bona Fide Public Eating Place. It allows the sale of all kinds of alcoholic beverages (beer, wine, distilled spirits) at a place that serves food to the public. These licenses, like others in San Francisco, are extremely difficult to acquire. The California Alcoholic Beverage Control Act (ABC) limits the number of on-sale general liquor licenses that can be issued to one for each 2,000, or fraction thereof, of inhabitants of the county in which the licensed establishment is situated (see Cal. Bus. & Prof. Code § 23816). If there is already one on-sale general license issued for each 2,000 people in a county, then no new licenses can be issued. Licenses that already exist can, however, be transferred to new locations.

Once a year the ABC announces counties where new on-sale liquor licenses will be issued, but because of the density of alcoholic beverage licenses in San Francisco county new licenses haven’t been allowed for years and may never be allowed again unless the population density of the county greatly increases. Earlier this month, the ABC announced new liquor license authorizations for counties where the population density has increased (you can read the ABC’s announcement here). These new applications, along with the ability to apply for priority applications to transfer on-sale general and off-sale general licenses between counties, will be accepted by the ABC from September 10th through 21st. Unfortunately, if you’re looking to start a restaurant in San Francisco you’re stuck buying a license on the open market, which can be difficult given their rarity and expense (typically six figures). If you have questions about opening a business that sells alcoholic beverages in San Francisco, please feel free to contact any of the Strike & Techel attorneys.


California Industry Advisory on Third Party Providers: The Rise of the Escrow Account

November 16, 2011

The California ABC released an Advisory earlier this month that outlines a compliant path for California alcoholic beverage licensees to engage unlicensed service providers. In our practice, this issue comes up often in reference to websites that look like wine shops, but hold no alcoholic beverage licenses of their own. The Advisory is available here.

We were active on the working group that made suggestions on this issue to the ABC, and were pleased that the ABC was willing to listen to industry feedback before deciding on a course of action. We’ve been getting lots of questions on the provision regarding control of funds, which (is long!) and states:

“The control of funds from a transaction involving the sale of alcoholic beverages constitutes a significant degree of control over a licensed business. As such, while a Third Party provider may act as an agent for the collection of funds (such as receiving credit card information and securing payment authorization), the full amount collected must be handled in a manner that gives the licensee control over the ultimate distribution of funds. This means that the Third Party Provider cannot independently collect the funds, retain its fee, and pass the balance on to the licensee. The Third Party Provider should pass all funds collected from the consumer to the licensee conducting the sale, and that licensee should thereafter pay the Third Party Provider for services rendered. Alternatively, the parties may utilize an escrow account, or similar instrument, that disburses the funds upon the instructions of the licensee. So, for example, a Third Party Provider may accept consumer credit card information, debit the card, deposit the funds in an account under the licensee’s ultimate control, and, upon the licensee’s acceptance of the order and direction to the account holder, receive a fee from the account. Given the nature of Internet transactions, the Department recognizes that such collection, acceptance, and disbursement of funds will often times be accomplished solely through computer-generated means.”

We’re looking forward to seeing how the industry adapts to this provision, which seems to require that all funds for an alcoholic beverage sale settle to the account of a licensee before they are disbursed. Will new “alcohol escrow” businesses pop-up to service the need? Will each unlicensed website create its own special accounting to comply? Will fee collection be adversely affected for the unlicensed websites, such that the business model becomes less viable? We’re watching this issue unfold with great anticipation.


Win Fabulous Cash and Prizes!!!**

September 30, 2011

** Unless you live in California

Alcoholic beverage companies often sponsor sweepstakes and contests with prizes ranging from elaborate vacations to concert tickets to spa days. Do you know who can enter these contests and sweepstakes? Anyone in the U.S except a Californian.

California is the only state to specifically prohibit alcoholic beverage companies from sponsoring sweepstakes and contests with exciting prizes. Seriously, the only one. Adding insult to injury, companies that do not sell alcoholic beverages are welcome to offer contests and sweepstakes to Californians.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2011 · All Rights Reserved ·


No More Alcopops in California

August 03, 2011

On Monday Governor Jerry Brown signed Senate Bill 39 banning the production, importation, and sale of beer to which caffeine as a separate ingredient has been directly added. Senator Alex Padilla, a Democrat from the San Fernando Valley, introduced the Bill last December. In order to enforce the prohibition, licensees may be required by the California Department of Alcoholic Beverage Control to provide product formulas. All formulas provided will be considered confidential trade secrets and not subject to disclosure under the California Public Records Act. The new law can be found in Section 25622 of California’s Business and Professions Code. The law does not prohibit beers where caffeine is a part of the brewing process itself, such as a coffee porter. It is aimed instead at the Progressive Adult Beverages (PABs) (also commonly referred to as Ready to Drinks (RTDs) and Flavored Alcoholic Beverages (FABs)) that have been in the news since last fall. See our prior coverage here, here, here, and here. This puts California in line with states like New York, Massachusetts, Washington, Michigan, Kansas, and Utah, which have also banned such beverages.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


When Wine is Not Wine for California Tax Purposes

April 14, 2011

Although it has not been extensively covered in the media, those involved in the manufacture and importation of certain wine products should be aware of the California Board of Equalization’s (“BOE”) proposed Regulation 2558.1, involving the definition of “wine” for excise tax purposes in California. The regulation should not affect typical wine producers; however, those that create alternative wine products where a portion of the alcohol within the product is derived from, for example, apples or malt grains, instead of grapes, but the product is marketed as a typical grape wine product, should be aware of the proposed Regulation. Enactment of the Regulation essentially means that a sangria product that is classified as “wine” by the ABC could be classified as a distilled spirit by the BOE, and thus be taxed at $3.30/gallon (the rate for distilled spirits that are 100 proof or less) as opposed to the $0.20/gallon rate applied to wine. That constitutes a tax increase of 1650%. The proposed Regulation would define “wine” for BOE purposes as products that do not include more than .5% alcohol by volume derived from the distillation of fermented agricultural products other than the main agricultural product from which the wine is made. This is different that the California Department of Alcoholic Beverage Control’s (“ABC”) definition, which defines wine as:

…the product obtained from normal alcoholic fermentation of the juice of sound ripe grapes or other agricultural products containing natural or added sugar or any such alcoholic beverage to which is added grape brandy, fruit brandy, or spirits of wine, which is distilled from the particular agricultural product or products of which the wine is made and other rectified wine products and by whatever name and which does not contain more than 15 percent added flavoring, coloring, and blending material and which contains not more than 24 percent of alcohol by volume, and includes vermouth and sake, known as Japanese rice wine.

Essentially the ABC’s definition looks at wine as a product to which only a certain amount (15%) of “other” material can be added, while the BOE’s definition is based on a requirement that 95.5% of the alcohol in the product be derived from a single commodity. The process of this change began at the BOE’s November 17, 2010 meeting, wherein it authorized an informal rulemaking process and proceeded on an expedited basis. On December 17, 2010, after preparing an initial draft of the proposed change, an interested parties meeting was held. During the meeting, it became clear to the staff that there was an industry divergence regarding what constituted legitimate “blending material” under the ABC’s definition and what should be included under the BOE’s definition. Thus, the BOE decided that further interested party meetings would not be useful and they settled on a BOE definition that did not derive from the blending viewpoint, but rather from the alcohol derivation viewpoint. On February 23, 2011, the final proposed regulation was issued. A 45-day comment period then began and the next step is a public hearing in front of the BOE in May 2011. The proposed Regulation is scheduled to go into effect on January 1, 2012.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Winery Licensing in California

March 03, 2011

The typical license for a winery in California is a Type 02 Winegrower license, but many businesses interested more in marketing wine, or having wine custom crushed to their specifications, instead of actually producing the wine on a bonded wine premises, obtain a combination Type 17/20 license instead. The Type 17 license is a wine and beer wholesaler license, and the type 20 is a retail license for the sale of wine and beer for consumption off the licensed premises. When the licenses are held together, they allow the sale to retailers and consumers of wine only. The combination license does not allow the holder to produce wine. Significantly, California law was changed in 2009 to permit these 17/20 license holders (sometimes called “virtual wineries”) to donate their wines to non-profit organizations. This privilege, previously reserved to licensed producers and importers, enables virtual wineries to participate in wine tastings and other events held by non-profit organizations. The 17/20 license structure and abundance of wineries that do custom crush production in California have made it relatively easy for virtual wineries to succeed and, as a result, we have seen tremendous increases in the 17/20 license model over the last several years.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Have Wine, Will Travel

February 25, 2011

It is called everything from the bombastic “corkage” to the everyperson “BYOB,” but it means the same across all fifty states and beyond: bringing ones own bottle of alcohol to a restaurant for consumption with ones meal. Not every state allows the practice, but Virginia is on the brink of joining the list of states where brown-bagging is permissible. On February 8th, the Virginia Senate passed SB 1292 (27-Y, 13-N) and the bill passed the House on February 22nd (78-Y, 18-N), leaving only Governor Robert McDonnell’s signature to make it official. The bill was introduced by Republican state Senator Jeffrey McWaters, who argued passage of SB 1292 would help boost Virginia’s restaurant and wine industries. SB 1292 will add Section 16 to § 4.1-201(A) of the Code of Virginia, thereby allowing licensed restaurants to permit customers to consume legally acquired wine on a restaurant premises and allowing the restaurant to charge a corkage fee if desired.

Each state that allows BYOB has its own unique set of regulations. Virginia’s neighbor to the South, North Carolina, has a “brown-bagging” permit, which allows customers in permitted establishments to bring and consume on the premises “up to eight liters of fortified wine or spirituous liquor, or eight liters of the two combined.” Restaurants, hotels and community theaters are only allowed such permits if they are located in a county where the sale of mixed beverages has not been approved. Eight liters of fortified wine, which in North Carolina is defined as 16-24% alcohol by volume, or distilled spirits, may seem like an exorbitant amount of alcohol. However, unlike Virginia’s SB 1292, North Carolina’s law is not about enjoying a glass of ones own wine with dinner, but rather about consuming a gin and tonic at ones local haunt when such establishment is not allowed by law to sell gin. Attending “liquor locker” provisions in North Carolina allow patrons to store their brown-bagged alcohol in individual lockers at licensed facilities, so that they can drain their provisions over time. Traditional bottle opening fees do not apply in such situations, rather the restaurant makes money selling the mixer used by the patron, commonly referred to as a “set-up.”

The North Carolina arrangement would be defined as an illegal “bottle club” in California. California only allows people to bring their own alcohol to a licensed premises, and one can only bring alcohol that could have been sold by the licensee at the establishment. So if a restaurant only sells beer and wine, one cannot bring in vodka. Also, in California any unfinished portion of the BYOB must be left at the restaurant, so if you bring a bottle of expensive wine to a restaurant, bring enough friends to drink it all!

As we head into the weekend, we’ll leave you to ponder these burning questions: Is it counterintuitive for California to forbid people from bringing wine to restaurants that do not serve it, but permit patrons to bring wine to restaurants with the exact same bottle available for sale on their wine list? Also, who pays more in BYOB alcohol costs—North Carolina patrons bringing in eight liters of distilled spirits or New York patrons (blind item) dining at a well known restaurant with a $90 corkage fee?

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Vertical Integration in California (“Tied-House” Laws)

February 17, 2011

The general rule with alcoholic beverage licensing is that you cannot be involved in more than one “tier” of the industry, meaning that suppliers and importers can’t be wholesalers, wholesalers can’t be retailers, retailers can’t be suppliers, and vice versa. The objective, which came about following the repeal of prohibition, was to promote the organized and responsible distribution of alcohol. It was thought that by keeping the three tiers separate, suppliers would not exert undue influence over retailers, consumers would not be encouraged to over consume, and the societal ills that led to prohibition in the first place would not be repeated. In the 75+ years since the creation of the three-tier system, dozens of exceptions have found their way into the California ABC Act. The tiers are no longer entirely separate and some licensees are permitted to hold licenses in other tiers. For example:

12/18 (Distilled Spirits Importer)/(Distilled Spirits Wholesaler)

17/20 (Wine and Beer Wholesaler)/(Wine and Beer Retailer)

9/17/20 (Wine and Beer Importer)/ (Wine and Beer Wholesaler)/(Wine and Beer Retailer)

There are restrictions on operating under each of these combinations, but the ability to hold them in combination remains a privilege available in California that is not available in many other states. The “tied-house” rules have implications that extend well beyond the licensing structure. If you are interested in learning more about tied-house issues, feel free to contact any of the attorneys here at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


California ABC Stakeholder Meeting

February 08, 2011

Last week, partners Barry Strike and Kristen Techel attended the California ABC’s annual Stakeholder Meeting in Sacramento. The meeting covered everything from furlough status and budget to planned action items for 2011 and 2012. Stakeholder working groups were established to further investigate and provide recommendations to the new ABC Director, Jacob Appelsmith. The four groups will cover issues related to Third Party Providers, Brands and Trademarks and other Things of Value, Licensing Process and Industry Training, and Public Convenience or Necessity.

Interestingly, during the meeting Matt Botting, General Counsel to the ABC, indicated they had not seen many applications for the new tasting permit for off-sale retailers, which we originally discussed here and here. If you’re interested in learning more about or applying for the new instructional tasting license, please feel free to contact any of the attorneys here at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


ABC VIOLATION ROUND-UP: Failure to Observe License Conditions

January 03, 2011

The California ABC actively enforces the alcoholic beverage laws of the state. We’ve been posting a series of “ABC Violation Round-Up” items discussing some of the violations we have seen in recent enforcement actions.

This week….. failure to observe license conditions.

The Violation: It is common for the ABC to issue a conditional license, particularly when issuing a retail license in an over-concentrated or high-crime area. A conditional license contains restrictions in excess of the rules typically applicable to a license of that type. For example, a conditional license might restrict operating hours, prohibit loitering, or restrict the sale of single cans of beer or malt liquor. If a conditional license is issued, the printed conditions must be available for review upon request by any ABC investigator and all listed conditions must be followed. Failure to comply with any condition is grounds for ABC discipline, which can include license revocation.

How to Avoid It: If you have a conditional license, make sure the printed conditions are kept in a secure place at the licensed premises and are available upon request by the ABC or other law enforcement personnel. Make sure the limitations are reviewed with all of your employees and that they understand the importance of compliance. Take particular time to review the conditions with employees who have worked at an alcoholic beverage licensee in the past. Since conditions are license-specific, they may have worked under different restrictions in their prior employment.

Petition to Remove Condition: If a conditional license has been in place for a year or more, and the grounds that led to imposition of a condition no longer exist, it may be possible to petition the ABC to have the condition removed from the license. Our firm routinely files Petitions to Remove Conditions and any of our attorneys can discuss the process with you.

Statute: California Business and Professions Code § 23804

Standard Penalty: 15 day suspension with 5 days stayed for one year. Penalties vary depending on the specific condition violated.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


2011 New Year’s Resolutions: Employee Training on Sales to Minors

December 17, 2010

If it’s not already there, move employee training to the top of the resolution list for 2011. In January, California’s Department of Alcoholic Beverage Control (“ABC”) will begin awarding grants to local law enforcement agencies to continue the implementation of Minor Decoy and Shoulder Tap programs. The operational period for the grants and this round of programs will run from February 1, 2011 through June 30, 2011. California law enforcement has been using the Minor Decoy program since the 1980s. For details on the Minor Decoy program, see our prior post here. The Shoulder Tap program is a newer program where an underage individual working with the police asks adults near alcohol retailers to purchase alcohol for the individual. The grants for this cycle of programming range from $2,500 to $10,000. While employee training is always important, given the likelihood of increased enforcement beginning in February 2011, now is a good time to review, revise, and update policies and make sure employees understand the consequences of selling to minors.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


Update on New Sampling Rules at Retail Stores in California

December 07, 2010

A few weeks ago, we wrote about the new permit available to California off-premise consumption retailers that will allow suppliers to come to their premises and conduct instructional consumer tastings. The ABC just released an industry advisory with additional helpful information. The industry advisory is available here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


California Sampling at Retail Stores

November 22, 2010

Effective January 1, 2011, California off-sale retailers will be eligible for a $300 instructional tasting license that will allow wine, beer and spirits suppliers to conduct free consumer tastings on the retail premises.

The instructional tasting license will be available to most off-sale retailers. Off-sale retailers with a gas station are not eligible unless the retail store is over 10,000 sq. ft. Premises under 5,000 sq. ft. are not eligible unless 75% of gross sales on the premises are alcohol. This will tend to exclude convenience stores and small markets but will enable small wine and liquor stores to obtain the license. Permits may also be denied to retailers in “overconcentrated” areas, i.e., locations with more than the statutorily authorized number of ABC licenses.

Retailers obtaining the permit must separate the tasting area with a barrier and post signage prohibiting minors from entering the tasting area. The retailer is responsible for making sure no minors are in the tasting area and no open containers leave the tasting area. Tastings may only be conducted between the hours of 10:00 a.m. and 9:00 p.m., provided the retail license allows sale of alcohol within that time period.

The tastings must be free, and sample size is limited as follows:

Sample Limitations
Beer 8 oz. per person per day
Wine 3 tastings per person per day, 1 oz. per sample
Spirits 3 tastings per person per day, ¼ oz. per sample

Each tasting event can only involve one class of product and one “authorized licensee” tasting per retailer per day, so a single tasting event may not combine beer and wine tastings or multiple suppliers. “Authorized licensees” who may conduct the tastings are California licensed: winegrowers, winegrower’s agents, beer and wine importer generals, beer and wine wholesalers, wine rectifiers, distilled spirits manufacturers, distilled spirits manufacturer’s agents, distilled spirits importer generals, distilled spirits rectifiers, distilled spirits general rectifiers, rectifiers, out-of-state distilled spirits shipper’s certificate holders, distilled spirits wholesalers, brandy manufacturers, brandy importers, California brandy wholesalers, beer manufacturers, or an out –of-state beer manufacturer certificate holders.

The alcohol tastes are to be served by the “authorized licensee” or her/his agent. The exception is that beer and wine wholesalers, though “authorized licensees”, may not serve tastes unless they hold additional licenses. Wine and spirits for the tasting may be supplied by the “authorized licensee” or bought from the retailer at the original invoiced cost. Beer cannot be provided by an “authorized licensee”, but may be purchased from the retailer at invoice cost. Unused product must be removed at the conclusion of the tasting.

An “authorized licensee” must be present for the tasting, unless the event has been previously advertised and the “authorized licensee” can’t attend. On that note, the “authorized licensee” can advertise the retailer event in advance, subject to restrictions. Retailers are also allowed to advertise the events on their own initiative. Special rules apply if the off-sale retailer already has a Type 42 on-sale license for a tasting bar.

For the complete rules, see Cal. Bus. & Prof. Code §23396.6 and §25503.56.

If you would like assistance in applying for the instructional tasting license, please contact licensing paralegal Lindsay McCarthy at .(JavaScript must be enabled to view this email address).

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


Watch Out for Hidden Issues When Food and Drink Combine

October 26, 2010

Food and drink often go hand in hand, but when they become one, problems related to California’s rectification laws can arise. In early 2010, several bars in San Francisco were hit with a rude awakening when agents from California’s Alcoholic Beverage Control Department informed them that serving house-made infused alcoholic beverages could be considered illegal under section 23355.1 of California’s Business & Professions Code. The code section deals with distilled spirits manufacturers and their agents. Part (b) of the code reads:

“A distilled spirits manufacturer, distilled spirits manufacturer’s agent, distilled spirits rectifier general, or rectifier may store, bottle, cut, blend, mix, flavor, color, label, and package distilled spirits owned by another distilled spirits manufacturer, distilled spirits manufacturer’s agent, distilled spirits rectifier general, rectifier, or a distilled spirits wholesaler, and may deliver those distilled spirits from the premises where stored, bottled, cut, blended, mixed, flavored, colored, labeled, or packaged, or from a warehouse located in the same county as that premises for the account of the owner of those distilled spirits to any licensee that owner would be authorized to deliver to under his or her own license, except to a retail licensee.”

Essentially, the code requires a license to be a distilled spirits rectifier, however, such a license cannot be granted to establishments that hold on-sale or off-sale licenses. The law, which seems to have originated in order to ensure that patrons received the actual beverage they ordered, as opposed to a watered down version of such beverage, can be read broadly to ban infused alcohol items that sit for longer than an ordinary cocktail mixing period of a few minutes. The house-made bitters and infused alcohols that can be found on many Bay Area menus can be seen as falling into this category.

In 2008, the ABC issued this advisory warning against engaging in rectification without a permit. Business owners met with Senator Mark Leno and ABC officials in March of 2010 to discuss the wording of the law and enforcement issues. It appears that as a result of the meeting ABC will back away from enforcing the provision; however, until the law is changed to clear up the wording, it remains an issue. Given the Bay Area’s adventurous food and drink scene, it is important to remember that when food and alcohol combine, even in ways that may seem minor, new and often unheard of regulations can be triggered. Make sure you’re thinking about these issues when developing a drink menu, after all if ABC is thinking about it, you should be too.

Imbiblog is published for general informational purposes only and is not intended as legal advice.


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