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:
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 •
September 04, 2014
Traditionally a customer wanting a bottle of alcohol in California would go to their local package or grocery store to get it or, if they were lucky enough to be in wine country, directly to a winery. In recent years, with consumers actively experimenting and looking for more variety, and with the boom in online shopping generally, consumers have a lot more options to find that elusive boutique wine, craft beer or small batch spirit brand that they have heard about and have been looking for. All of this means that consumers are turning more and more to the internet to find the alcohol that they want to serve at home. A quick Google search of internet alcohol sales in California yields more than 10 million results.
SPIRITS: Only a California Type 21 off-sale general licensee can sell a bottle of distilled spirits direct to consumer (DTC). Although a distiller can host a customer at the distillery to taste the products that are made there, a distiller cannot sell a bottle of spirits to a customer to take home.
BEER: There is a bit more leeway for beer with brewers being able to offer tastings and sell beer to customers. The CA law was revised just this year to make it very clear that a brewer can only sell its own beer to customers, and not beer made by other brewers, unless it gets a retail license. As a matter of policy, the ABC will allow a beer manufacturer to also make an online sale of its beer to a consumer. An on-premises retailer like a restaurant or a bar can also sell beer to customers to take home, and by the same ABC policy can sell online. Off-sale retailers like grocery stores can sell beer to consumers online.
WINE: As with other alcohol, wine can be sold DTC by off-sale retailers. An on-sale retailer can also sell wine online, under ABC policy allowing online sales by retailers. A winery can also sell wine DTC, both at the winery and online, including through wine clubs. The state also offers two opportunities for the online retail sale of wine without a traditional brick and mortar store. The first of these is with a 17/20 wholesale and retail combination, or a 9/17/20 import/wholesale/retail combination. In both cases, wine can be sold online to customers and indeed can only be sold by direct mail, telephone or the internet from a location which is not open to the public. The license combination is often located right at the warehouse, enabling the licensee to easily pick and pack and ship out customer orders. The 17/20 combination allows the holder to sell directly to retailers as well as consumers and, with the addition of the type 9, the licensee can bring in wine from out-of-state and get it all the way to a consumer without passing through any other licensee’s hands. The second option is more recent and consists of a type 85 license, which gives the licensee the ability to sell wine at retail without the added wholesale or import rights. The chief distinction between the 85 and the 17/20 combination is that the 17/20 licensees have a wholesale license so they are required to make sales to retailers in addition to consumers, whereas the type 85 licensee sells only to consumers.
OUT-OF-STATE SELLERS: If you are a seller of alcohol located out-of-state, only wine can be sold DTC to California consumers and only under certain circumstances. A licensed winery in another U.S. state can get a direct shipper’s permit to sell DTC. For a licensed retailer in another state, the laws are murkier. California has a “reciprocity” statute which only permits out-of-state retail sales from states which allow a California retailer to ship to that state’s consumers. Currently, only thirteen states and the District of Columbia allow such sales. However, the concept of “reciprocity” was criticized by the Supreme Court in its 2005 decision in Granholm v. Heald, 544 U.S. 460, with specific reference to this California law. The law itself has not been challenged and thus the limitation remains on the books.
If you are interested in learning more about direct shipping laws in California or elsewhere, contact one of the attorneys at Strike & Techel.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·
July 09, 2014
“Ready-to-drink” alcoholic beverage categories are continuing to boom. Variously known as flavored malt beverages (FMBs), alcopops, progressive adult beverages (PABs) and ready-to-drink cocktails (RTDs), all sorts of flavors are being added to all sorts of products to create new taste sensations. Despite RTDs generally suffering some decline after Four Loko triggered state bans on adding caffeine to alcoholic beverages (covered here, here, here, here, and here), the category has well and truly picked up again in recent times.
If you are looking to produce a flavored product, we have put some tips together to keep in mind.
One of the key things under federal law to be aware of with FMBs is that most of the alcohol must come from the malt beverage base. If the product is below 6% alcohol, at least half of the alcohol must come from the production of the beverage itself and cannot come from nonbeverage items like flavorings (which often contain high alcohol levels). Above 6%, no more than 1.5% of the alcohol can be from nonbeverage ingredients.
For wine-based products, an important factor to keep in mind is to make sure that your formula leaves you with a product that you can sell in grocery stores in states that do not allow them to sell wine. In New York, for example, a wine product that can be sold in grocery stores must meet a strict definition which includes that it must be below 6% alcohol, and it must contain juice and carbon dioxide. If you can meet the definition, you fall outside price posting requirements in the state, but you still have to register the brand there. Similarly, in a state like New York, you should be aware that a distilled spirits based RTD, even if below 6% or 7% alcohol, can’t be sold at grocery, convenience and pharmacy type stores where most low alcohol products are sold.
It is important to know about the various regulatory agencies that monitor the labeling of alcoholic beverages. FMBs and wine coolers, depending on their alcohol content, could fall under the regulation of the Food and Drug Administration (FDA), the Alcohol and Tobacco Tax and Trade Bureau (TTB), or both. For example, labeling requirements for wines containing 7% or more alcohol are controlled by the TTB, but wine coolers under 7% alcohol are regulated by the FDA, because such products do not fall under the federal definition of wine. In addition, labeling requirements for beers not made from malted barley and hops are regulated by the FDA (such as sorghum beer), while malt based products and distilled spirit based products are subject principally to TTB requirements.
If your product falls under TTB’s labeling jurisdiction, you will need to get a Certificate of Label Approval (COLA) and you will likely need to get formula approval (see, for example, our previous blog on easing up of beer formula requirements here). If your product label is FDA regulated, you will have to include a nutrition facts statement and other information that would not be required under the TTB labeling regulations. Bear in mind that even products under FDA jurisdiction for labeling still may need TTB formula approval. You need to be careful about using any type of name which makes customers think that the product might be a spirit drink if it isn’t (including cocktail names like margarita or daiquiri).
In addition to formulation and labeling issues, recycling laws surrounding FMBs and similar products can be tricky. Ten states, including California (with its CalRecycle program), Connecticut, Hawaii, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont, have container recycling laws that apply to a variety of alcoholic beverages. The specific products that are subject to the laws vary from state to state, as do the container marking requirements. Wine- and spirits-based products may be subject to recycling laws, even in states where wine and distilled spirits are exempted.
Before producing a flavored malt beverage or other ready to drink beverage, be sure to familiarize yourself with the special rules that apply to these products. For questions about any of these products, contact one of the attorneys at Strike & Techel.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·
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 ·
January 23, 2012
Currently, distilled spirits plants (DSPs) are required to complete and file operational report forms, which can number up to seven per month. The TTB has proposed eliminating the current forms and replacing them with two new report forms (TTB F 5110.77 and TTB F 5110.78) in order to streamline the reporting process and reduce costs. According to the TTB’s research, DSPs currently submit an average of 28.4 operational reports per year. The TTB notes that certain data within the required reports is not analyzed or used. Moreover, the increased use of alcohol as a fuel and the growth in artisanal distillers has resulted in many new DSPs and the corresponding burden on TTB to process the paperwork from these DSP has grown tremendously. If the proposal is approved, one report would be used for operations involving spirits for beverage use, while the other would handle reporting on industrial use spirits. Additionally, DSPs that submit quarterly tax returns could switch to quarterly operational reporting, as opposed to the current monthly reporting requirement. The comment period for this proposed revision runs through February 3, 2012, which is right around the corner. The full text of the proposal can be found here.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·
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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