Tag archives for “Alcohol”

Compliance with California Prop 65 – The August 30, 2018 Deadline is Approaching!

Effective August 30, 2018, new Prop 65 signage requirements will be in effect in California for alcohol retailers and suppliers with ten or more employees. In a nutshell, there are two new requirements: (1) The existing Prop 65 general alcohol warning language has been slightly revised to include the word WARNING and a link to the state government’s Prop 65 website; (2) A new warning is required to warn consumers about Bisphenol A (BPA), which is a chemical present in certain packaging materials, such as some synthetic wine corks and aluminum cans, and in certain processing equipment, such as some hoses. (We previously wrote about BPA here.) Suppliers and retailers of alcoholic beverages must comply to the letter with the new requirements to remain safe from possible lawsuits for violating the Prop 65 consumer warning requirements. Below is a summary of the specific signage requirements and instructions about where these required warnings will need to be posted. (1) The Prop 65 General Alcohol Warning Sign (a) Who must provide the general alcohol warning? All retailers of alcoholic beverages in California with 10 or more employees must post the new general alcohol warning sign pictured below. The posting requirements also extend to California producers with tasting rooms, ecommerce websites, catalog sales, and to retailers outside of California shipping wine to California consumers. (b) What does the general alcohol warning say? The warning must use the exact language shown below, including the word WARNING in uppercase, bold type. When it is posted at the retail point-of-sale, it must be presented within a rectangular border, as shown below.

P65 Warning
(c) Where must the general alcohol warning sign be posted?
  • Must be visible to consumers before they purchase alcohol. Retail stores and tasting rooms have two options:
1) on an 8.5” x 11” sign with 22-point type at the point-of-display, that is at eye level, and is “readable and conspicuous” i.e., on the wall of the tasting room or retail store near where the alcohol is displayed; or 2) on a 5” x 5” sign with 20-point type presented within a square border, just as pictured above, placed at each point-of-sale (i.e., near each cash register) or each point-of-display.
  • Bars and restaurants may use one of the options above, or may provide the warning on a menu or drink list.
  • Websites and product catalogs displaying alcohol for purchase also must display the general alcohol warning. In cases where the size of the sign and text is not specified, such as on menus, websites and catalogs, the warning must be prominently displayed with such conspicuousness as compared to other words and designs on the labels or related signage as to make the warning likely to be seen, read and understood by an ordinary individual.
  • Deliveries of alcohol direct-to-consumer must include the general alcohol warning “on or in the shipping container or delivery package in a type size no smaller than the largest type used for other consumer information on the product,” and in no case smaller than 8-point type. The warning must be readable and conspicuous, so place it where it will be seen before consumption.
(2) The BPA Warning Sign (a) Who must provide the BPA warning sign? The BPA warning only applies to companies with 10 or more employees that sell products that contain BPA, and may not apply to your business. If you aren’t sure if your product contains BPA, you can seek written certification letters from your suppliers of equipment and packaging materials (e.g., cans, bottles, caps, hoses, synthetic corks, etc.). If you are unsure, it would be wise to err on the side of caution and include the warning. (b) What does the BPA warning sign say? The BPA warning must use the exact language shown below: including the symbol (a black exclamation point within a yellow triangle) at least as large as the word “WARNING,” which must appear in uppercase, bold type. (The triangle symbol can be black and white if the sign is black and white.)
Warning triangleWARNING: This product can expose you to chemicals including bisphenol A (BPA), which are known to the State of California to cause birth defects or other reproductive harm. For more information go to www.P65Warnings.ca.gov. For a list of products go to: www.prop65bpa.org.
(c) Where must the BPA warning sign be posted?
  • Must be visible to consumers before they purchase alcohol. Retail stores and tasting rooms have two options:
1) on a posted sign, shelf tag or shelf sign at the point-of-display; or 2) with an automatic warning provided to the consumer prior to or during the purchase, that does not require the consumer to seek out the warning.
  • Websites displaying alcohol can either use one of the methods above, or can print only the word WARNING on the product display page with a hyperlink directly to the text of the warning above. In any case, the warning must be prominently displayed and cannot be buried in the general website content. (A website wanting to use the automatic warning option above, could enable a pop-up warning that appears when the consumer enters a California zip code, for example.)
  • Catalogs featuring alcohol for sale must display the warning “in a manner that clearly associates it with the item being purchased.”
  • Shipments of alcohol delivered direct-to-consumer must include the BPA warning prominently on or in the packaging if the products may expose the consumer to BPA.
If the alcohol products being displayed or sold contain advertising or consumer information in a foreign language, the general alcohol warning and the BPA warning must also appear in that language, as well as English. More information on the BPA requirements, including sign templates, can be found at the Wine Institute’s website here. Note that you can order free signs that are compliant, provided by Prop 65 Sign Management, as we noted in our earlier article. This summary is provided for general information purposes only and should not be construed as legal advice. Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.

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Florida Clarifies Permissibility of Delivery by Third Party Providers

Earlier this month, Florida House Bill 667 was passed and signed into law (effective July 1, 2018), which clarifies and expands delivery and third party provider rules for Florida retailers (known as “vendors” under Florida law). The bill amends Florida Statute § 561.57 to clarify that vendors can take orders online, and delivery can be made by a vendor in its own vehicle “or in a third-party vehicle pursuant to a contract with a third party with whom the vendor has contracted to make deliveries, including, but not limited to, common carriers.”. This amendment clarifies prior ambiguity over whether third party providers can deliver alcoholic beverages on behalf of vendors. The new law thus should provide comfort to both vendors and third party providers that third party providers can deliver in their own vehicles if they have an agreement with the vendor that makes the sale. Delivery vehicles are subject to search by law enforcement or employees of the Division of Alcoholic Beverages and Tobacco without a warrant to ensure compliance with the law. The new law makes a couple of additional changes relating to delivery. It expressly prohibits brewpubs (i.e., a Florida manufacturer with a vendor license under Florida Statute § 561.221(2)) from delivering alcoholic beverages. And, a new section was added to § 561.57 which requires that proof of identification must be produced by the customer and checked by the delivery person upon delivery. If you have any questions about delivery or third party providers, contact one of the attorneys at Strike & Techel for guidance.

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TTB Publishes Industry Guidance for Producers of Hard Cider

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.

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Alcohol Advertising 101

With news last week that the NFL will now be allowing distilled spirits suppliers to advertise during televised football games, it is a good time for a reminder about some of the special issues that come up when advertising alcohol. Under federal law, there are several rules that regulate the advertising of alcohol by suppliers. The main one is that advertisements must include mandatory information about the responsible advertiser and about the product. If a supplier is advertising all of its brands, the only information needed is the advertiser’s name and address, as approved on its federal permit. If a single brand is being advertised, its class and type must appear, and a distilled spirits ad must also show the alcohol content of the product, and the percent and type of any neutral spirits it contains. The federal laws, and many state laws, also have general restrictions around legibility, comparative advertising, and around certain prohibited statements, including, for example, health claims or obscene or indecent statements. Advertising laws prevent the use of a supplier advertisement to provide something of value to a retail licensee, e.g., by giving information about retailers other than a basic mention of where to find the supplier’s products, including at least two, unaffiliated retailers. Suppliers and retailers cannot cooperate or share in the costs of advertising. At the state and local level, other concerns include things like the direct mailing or televising of alcohol advertisements, and advertising of pricing or discounting on products. A number of states require alcohol ads to be preapproved by the regulators there before they can be published. Many states will not allow any listing or mention of retailers in advertisements unless all known retailers of the product are mentioned. It is important to be aware of what exactly constitutes an advertisement. Don’t forget that social media posts by a brand are also subject to advertising rules. Third party posts by influencers and others are also ads, and are subject to Federal Trade Commission guidelines on making sure that readers know that the placement of the brand’s name was paid for. The same goes for sweepstakes and other competitions run by brands, where it must be clear in the post that a consumer has been incentivized to post content on their own social media pages in return for a chance to win a prize. The FTC recently sent letters to dozens of brands and influencers, warning that “material connections” between influencers and brands must be disclosed in social media posts promoting the brands. This suggests that the FTC is focused on the issue and could take enforcement action against companies that fail to comply. Each of the major supplier industry trade groups (Beer Institute, Wine Institute, and the Distilled Spirits Council) maintain voluntary compliance guidelines for advertising in the alcohol industry. These guides contain recommendations related to making sure that target audiences are over 21, that actors appear to be well over 21, and which recommend limiting certain content, for example, ads that encourage overconsumption or suggest that drinking leads to sporting or other success. The guides are extremely useful reading for all industry members, even if they are not members of the association in question. If you are looking for specific guidance on alcohol advertising, contact one of the attorneys at Strike & Techel.

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

Recently, we posted about Michigan Senate Bill 1088 here (“SB 1088”), which expands the delivery privileges of in-state retailers, and which authorizes third party providers and common carriers to assist with shipping and delivery on behalf of in-state retailers, subject to certain limitations. SB 1088 also amends Michigan’s winery direct-to-consumer shipping law, Mich. Comp. Laws § 436.1203(4). The revisions relax the labeling and packaging requirements for direct winery shipments, which will be welcome news to direct winery shippers as the Michigan Liquor Control Commission (“MLCC”) has actively enforced these labeling and packaging requirements in recent years. As of March 29, 2017, wineries no longer need to include their direct shipper license number or the order number on the outside label of each package shipped into Michigan. Direct shippers will still be required to label the top panel of the shipping package with the name and address of the individual placing the order and the name of the designated recipient, if different from the person placing the order. The outside label must also state “Contains Alcohol. Must be delivered to a person 21 years of age or older.” Inside each package to be shipped, the invoice or packing slip is no longer required to list the Michigan wine label registration number of approval for each wine shipped, although wineries will still be required to register their wine labels with the MLCC. SB 1088 also establishes new rules for common carriers. Common carriers acting on behalf of winery direct shipper licensees are subject to new recordkeeping and reporting requirements, as detailed in our prior post regarding SB 1088. If your winery is in need of assistance regarding direct shipping laws, contact one of the attorneys at Strike & Techel.

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

On January 9, 2017, Michigan Governor Rick Snyder signed Senate Bill 1088 (“SB 1088”) into law, which revises Mich. Comp. Laws § 436.1203. SB 1088 amends direct-to-consumer shipping laws for wineries and retailers, but most notably expands in-state retailer privileges to ship and deliver wine and beer – and in some cases spirits – directly to consumers in the state of Michigan. This post will focus on the changes SB 1088 makes with respect to retail shipping and delivery and use of third party providers (“TPPs”) and common carriers. The law takes effect on March 29, 2017. Retailer Shipping and Delivery Prior to SB 1088, retailer shipping and delivery options were limited. Only retailers in Michigan that held Specially Designated Merchant (“SDM”) licenses were allowed to deliver beer and wine to Michigan consumers, provided the delivery was made by the retailer’s employee. SB 1088 allows several additional methods of retailer shipping and delivery. Shipment by common carrier and use of a TPP are now permissible in some circumstances. Additionally, Specially Designated Distributor (“SDD”) retail licensees may also now deliver spirits to Michigan consumers. Once SB 1088 goes into effect, the following retail shipping and delivery methods will be permissible:

Retailer Shipping and Delivery
Third Party Providers As explained above, SB 1088 allows in-state SDM and SDD retailers to use third-party providers to facilitate sales and delivery to Michigan consumers. The law allows a “third party facilitator service” (or, TPP) to facilitate sales and delivery to consumers by means of the internet or a mobile application. SB 1088 requires a TPP to obtain a “third party facilitator service license” from the Michigan Liquor Control Commission (“MLCC”), and imposes recordkeeping and reporting requirements. Once licensed, a TPP may make deliveries of beer and wine on behalf of a SDM retailer, or spirits on behalf of a SDD retailer. Interestingly, SB 1088 provides that a violation by a licensed TPP will not be considered a violation of the retailer (whereas in most states the violation will be imputed to the retailer). It appears that the new TPP license will be considered a relative to a retail license, as SB 1088 contains tied house restrictions prohibiting manufacturers, suppliers, and wholesalers from directly or indirectly having any interest in a TPP licensee and from aiding or assisting a TPP licensee with anything of value. TPPs must also offer their services to all brands of each retailer without discrimination. Common Carriers SB 1088 also permits common carriers to deliver wine on behalf of SDM retailers. There is no license requirement, but SB 1088 requires common carriers to keep records of deliveries and file quarterly reports with the MLCC. The reports, records, and supporting documents must be kept for three years, and must include: (1) the name and address of the person shipping the product; (2) the name and address of the person receiving the product; (3) the weight of the alcoholic beverages delivered; and (4) the date of delivery. For more information about the recent changes to Michigan law, contact one of the attorneys at Strike & Techel.

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Strike & Techel Welcomes Tom Kerr as a Partner.

The partners at Strike & Techel are pleased to announce the elevation of Tom Kerr from Senior Associate to Partner in the firm! Tom spent his first few years after law school practicing commercial litigation, but once he joined Strike & Techel in 2011, he quickly realized alcohol law was much more fun. Tom’s diverse practice includes advising supplier and retailer clients on trade practice issues, distribution, promotions, advertising, marketing, and tied-house issues. Tom has particular expertise in ecommerce and he advises many third party providers and others on emerging industry practices. If you have questions in these areas, or regarding foreign travel, the Denver Broncos, or Star Wars, Tom’s probably got the answers. To learn more about Tom and Strike & Techel, visit us at www.alcohol.law.

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Governor Cuomo Vetoes Empire Wine Bill (Again)

On November 4, 2016, New York Governor Andrew Cuomo vetoed Assembly Bill 10248 (AB 10248). This is the second time in two years that Governor Cuomo has vetoed a bill seeking to amend the state’s alcohol laws to clarify the basis upon which the New York State Liquor Authority (SLA) can revoke, suspend or cancel a license or permit.  AB 10248 would have prevented the SLA from taking disciplinary action against licensees for violations of other states’ alcoholic beverage laws unless the alleged violation independently violated a provision of NY law, or the other state had determined that a violation had occurred after providing the accused with full due process of law; the SLA could not take action based on a mere allegation of a violation in another state. AB 10248 would have specifically permitted the SLA to take action against licensees for knowingly making alcohol sales to minors or failing to pay taxes in other states, but presumably the other state still would have had to prove liability before the SLA could act.  AB 10248 stems from the SLA’s ongoing battle with Empire Wine. In 2014, the SLA alleged that Empire Wine was violating other states’ laws by direct shipping wine to consumers in a number of states that prohibit direct shipping by out-of-state retailers. In Governor Cuomo’s veto memo, he reasoned that the veto ensured that licensees would abide by New York’s alcohol laws and prevent a “regulatory gap” in which retailers could violate other states’ laws without repercussions in New York.

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World’s Best Alcohol Law Blog Gets New Name!

Our regular readers will notice that our blog has a new name: Alcohol.law Digest. We’ve been posting topical information about the legalities of the alcoholic beverage industry on our Imbibe-Blog (aka Imbiblog) webpage for six years and we felt like it was time for a change. Going forward, we’ll continue posting about the topics we think will be interesting and important to our readers, but we’ll do it under a name everyone can pronounce! Farewell Imbiblog (or is it Im-BEE-blog?) and welcome Alcohol.law Digest!

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California ABC Announces 2016 New License Authorizations

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.

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

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.

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

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 •

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California Brewpub Licenses: What You Need to Know

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!

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Changes to Small Brewery, Winery and Distillery Bonding, Reporting and Filing Requirements

The general rule for excise tax reporting for alcohol producers is that returns must be filed semi-monthly (i.e. twice a month). A special exception to that rule allows a small producer, who does not reasonably expect to be liable for more than $50,000 in excise tax in the year, to file quarterly returns. Each small producer is required to make a choice of whether to file quarterly or semi-monthly, with that choice impacting the bonding requirements for the production facility. The less frequent the excise tax payment, the higher the required bond amount. Very small wineries currently benefit from even longer reporting and tax deadlines. Wineries that expect to pay less than $1,000 in wine excise taxes in the coming year may file excise tax returns annually. Operations reports may also be filed annually if the winery doesn’t expect to produce more than 20,000 gallons of wine in any one month in the calendar year. Now, under recent guidance from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), small brewers will be forced to file returns quarterly rather than semi-monthly. This change will affect around 90% of licensed brewers. With the mandatory quarterly filing, the required bond is set at a flat $1,000 amount (previously, the bond for a brewer paying $50,000 in excise tax would have been $5,000 if filing semi-monthly, and close to $15,000 if filing quarterly). A brewery filing quarterly tax returns must also file a quarterly report of operations. To further lessen the burden of reporting for both brewers and TTB employees, the information required in the reports has been revised, with two sections removed. To see the full guidance, click here. In addition to the TTB changes for small breweries, there is also a bill pending in the Senate that could reduce the compliance burden for all small producers. It would exempt small breweries, wineries and distilleries (i.e. not liable for more than $50,000 in excise tax in the year) from all current bonding requirements and would allow any small producer – not just small wineries—owing less than $1,000 a year to file annually. The proposal passed the Senate Finance Committee on February 11, 2015, and is awaiting consideration on the Senate floor. It has not yet been introduced in the House. If you have any questions about brewery, winery or distillery operations reporting or taxes, contact an attorney at Strike & Techel. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •

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Compliance Check-In: 2014 TTB Beverage Sample Program Results

Each year, the Alcohol and Tobacco Tax and Trade Bureau (TTB), conducts a random sampling of alcoholic beverages, known as the Alcohol Beverage Sample Program. TTB agents purchase alcohol products from retail stores and take them back to the TTB lab for review. The survey identifies compliance issues with the tested beverages, including incorrect alcohol content levels, and Certificate of Label Approval (COLA) discrepancies. The TTB recently released the results of their 2014 review, finding 139 out of 450 total products sampled to be non-compliant. The most commonly identified issue was mislabeled alcohol percent by volume (ABV), in which the ABV stated on the label was either above or below the actual tested alcohol content. In distilled spirits products, 42 of the 190 beverages sampled were found to contain an ABV over the advertised content, while 14 products contained a lower ABV than advertised. Aside from misleading the consumer, incorrect ABVs can lead to regulatory action from federal tax authorities if the actual alcohol content would place the product in a different tax class. Another common compliance issue was a discrepancy between the product’s label information and the information listed on the product’s COLA. When a bottler or importer applies for label approval with the TTB, they are issued a COLA and their product’s label must match the information provided on their COLA application (with the exception of some limited information which can be changed without a new COLA). Of the 139 non-compliant products, 40 had labels with missing or added information that did not match their approved COLA. Other prevalent compliance issues included no COLA for the product, errors in the mandatory government warning message, and incorrect statements of class or type of alcohol. Possible TTB actions in response to incorrectly labeled products could include monetary fines and other regulatory penalties, and at a minimum, would require that the non-compliant labels be corrected. To see the full results of the sample program, click here. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 · All Rights Reserved ·

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New California ABC Advisory on Merchandising Services by Suppliers

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 ·

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Prescriptions for Alcohol

In honor of Repeal Day, partner Kate Hardy agreed to share these fun pieces from her collection of Prohibition-era alcohol prescriptions. One prescribes whisky for the treatment of anorexia, and the others prescribe wine and whisky for unknown ailments. The directions for usage seem reasonable enough: take a pint in a wine glass every four hours, or mix it in eggnog. One of the prescriptions is for “Vin Gallici,” a contemporary of the also often prescribed “Spiritus Frumenti.” These are liquids more commonly referred to as wine and whisky. They were used in many prescriptions during Prohibition, possibly in the hope that they would look more medicinal if they were in Latin.

Liquor Prescription Stub
Prescription form for medicinal liquor
Liquor Prescription Stub
Prescription form for medicinal liquor
Form with stub
Prescription
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·

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