Last week, the Supreme Court issued its opinion in Tennessee Wine and Spirits Retailers Association v. Thomas, No. 18-96 (“Tennessee Retailers”). The full opinion can be read here, and our introduction to the case and issues can be found here. To recap, at issue in this case is the interplay between the Dormant Commerce Clause and the 21st Amendment. The Dormant Commerce Clause prohibits states from discriminating against interstate commerce, while the 21st Amendment grants to each state the authority to regulate alcohol within its borders. In Tennessee Retailers, the Court considered to what extent the 21st Amendment allows states to pass laws regulating the alcohol industry that would otherwise be prohibited by the Dormant Commerce Clause. The Court last addressed this question in 2005, when the Court held in Granholm v. Heald that the 21st Amendment “does not immunize all [state alcohol] laws from Commerce Clause challenge.” In that case, the Court invalidated laws that favored in-state wineries over out-of-state wineries with respect to direct sales and shipments to consumers. Last week’s ruling in Tennessee Retailers confirmed a broad reading of the prior ruling in Granholm, as applied to a Tennessee law requiring applicants for retail liquor store licenses to live in the state for two years before being eligible for the license. The Court held that Tennessee’s discrimination against out-of-state individuals in the granting of retail licenses violates the Dormant Commerce Clause, and is not saved by the 21st Amendment. The Court ruled that the 21st Amendment “allows each State leeway to enact the measures that its citizens believe are appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests,” but that it does not “license the States to adopt protectionist measures with no demonstrable connection to those interests” in violation of the Dormant Commerce Clause. The Court also clarified that the prior ruling in Granholm was not limited to prohibiting discrimination against out-of-state products and producers, and that states are prohibited from discriminating against any out-of-state interests, including out-of-state individuals or retailers. Much of the news coverage and discussion of this case has focused on the impact of the case on state laws that allow in-state retailers to ship alcohol directly to consumers, but prohibit out-of-state retailers from doing the same. Some coverage implied that such laws were automatically invalidated by the Court’s ruling, but the retailer direct shipping issue was not in front of the Court. While the ruling in Tennessee Retailers does confirm that the principles in Granholm apply to all out-of-state interests, rather than just out-of-state producers, the ruling does not categorically prohibit all state alcohol laws that do not treat in-state and out-of-state businesses equally. The ruling is instead a continuation of the Granholm conversation. The ruling confirms that states “‘remain free to pursue’ their legitimate interests in the health and safety risks posed by the alcohol trade,” and that the 21st Amendment does confer additional regulatory authority to the states. However, when a discriminatory state law is “purely protectionist” and cannot be “justified as a public health or safety measure” or on some other “legitimate non-protectionist ground,” then the law will be found unconstitutional. Thus, state laws that allow in-state retailers to ship alcohol directly to consumers, but prohibit out-of-state retailers from doing so, are not definitively unconstitutional following the ruling in Tennessee Retailers. These laws are only unconstitutional if the state cannot establish that the laws are necessary to advance a legitimate local purpose, such as protecting public health and safety, and that there are no reasonable nondiscriminatory alternatives that can adequately further that purpose. So, what does this ruling really mean? First, the ruling is a victory for out-of-state individuals and entities that desire to apply for a retail liquor store license in Tennessee. Second, other states with burdensome retail residency requirements, such as Massachusetts and Maryland, are likely evaluating the legality of their laws in light of the ruling in Tennessee Retailers. Such states may opt to eliminate such requirements, or may decide to leave the residency requirements in place until challenged. Given the language in Tennessee Retailers analyzing the lack of connection between Tennessee’s residency requirements and advancing public health and safety interests, leaving burdensome residency requirements in place may be risky. But, the State of Tennessee did not attempt to defend its laws, and the public health and safety arguments put forth by the Tennessee Wine and Spirits Retailers Association were cursory, and thus other states may believe that they can do a better job defending their laws. If any states decide to leave retail residency requirements in place, it is likely that litigation will follow. Third, states with residency requirements for wholesaler licenses, such as Missouri, are also likely weighing whether to revise such laws or to leave the residency requirements in place until challenged. Missouri’s wholesaler residency requirements were upheld as constitutional by the 8th Circuit in 2013. However, the 8th Circuit ruling was based on a narrow reading of Granholm, and that interpretation was directly refuted by the Court in Tennessee Retailers. Accordingly, it would not be surprising to see litigation on this issue in the very near future, if such states do not remove wholesaler residency requirements. Finally, even less-burdensome residency requirements, such as requirements for licensees to have a resident manager, may be vulnerable to challenge. While residency requirements will be most directly in the line of fire following Tennessee Retailers, the ruling has the potential to impact many other aspects of state alcohol regulation. Unlike Granholm, the Tennessee Retailers Court declined to describe the three-tier system as “unquestioningly legitimate.” The Court clarified that while the basic three-tier model may be sound, the 21st Amendment does not sanction “every discriminatory feature that a State may incorporate into its three-tiered scheme.” It is unclear to what extent Tennessee Retailers will spur states to act on their own to revise discriminatory aspects of the state’s alcohol regulatory scheme. We may see states make changes independently, but it may be that significant change will only be achieved through litigation. As the Court noted, “each variation [of three-tiered alcohol regulatory schemes] must be judged on its own features.” Because discriminatory alcohol laws are only unconstitutional if they are not reasonably necessary to advance a legitimate local purpose, states may leave discriminatory laws on the books in the hopes that they can justify those laws if challenged. Accordingly, the most direct outcome of Tennessee Retailers will likely be a considerable amount of litigation. Which laws are the most likely targets of litigation? Any state alcohol laws that discriminate against “out-of-state economic interests” are vulnerable to challenge under Granholm and Tennessee Retailers. So, litigation could focus on laws that authorize only in-state retailers to deliver or ship to consumers, or it could target laws such as physical presence requirements, tied-house exceptions that allow only in-state producers to operate retail locations, laws that require retailers to purchase from in-state sources, laws that authorize only in-state suppliers to self-distribute products to retailers, at-rest laws, or franchise law exemptions that apply only to in-state suppliers. The recent ruling in Tennessee Retailers may also inspire further litigation and move the needle in the related area of alcohol laws that are facially neutral but potentially discriminatory in effect. For example, states such as New Jersey or Ohio with laws that have special privileges for certain “small” producers, where the definition of “small” may be designed to encompass most or all in-state producers while excluding many out-of-state producers. While we noted above that some news coverage has overstated the immediate impact of Tennessee Retailers on out-of-state retailer direct to consumer shipping or delivery, the ruling will undoubtedly lead to more litigation regarding these laws. Some of that litigation may be successful in invalidating laws that allow in-state retailers to ship or deliver alcohol directly to consumers, but prohibit out-of-state retailers from doing so. However, each case will depend upon the specifics of the state’s regulatory scheme and the state’s public health and safety justifications for that scheme. While the justifications for Tennessee’s residency requirements were weak, states may have stronger public health and safety justifications for laws regulating delivery and direct shipping, such as preventing underage drinking or delivery of alcohol to intoxicated persons. Note, however, that this argument was held in Granholm to be insufficient justification for treating in-state and out-of-state wineries differently with respect to the shipment of wine to consumers. But, the strength of public health and safety justifications will likely be different in states that allow retailer hand delivery but not shipment by common carrier of alcohol, and these justifications may also be different with respect to beer or spirits as opposed to wine. Furthermore, states may have additional public health and safety justifications based on preventing counterfeit alcohol. An out-of-state retailer would not obtain its products from the same distribution system as an in-state retailer, and the state’s public health and safety justifications for its distribution system and requirements for alcohol sourcing may be persuasive. However, a state making this argument would likely also need to assert that there are no reasonable nondiscriminatory alternatives to accomplishing the goal of preventing counterfeit alcohol. There are at least two cases already pending that challenge state laws with respect to alcohol shipping and delivery. In Missouri, Sarasota Wine Market v. Schmitt is on appeal to the 8th Circuit. The lower court held that Missouri’s laws permitting in-state retailers to ship wine directly to consumers, but prohibiting out-of-state retailers from doing the same, are valid under the 21st Amendment. However, this ruling was based on the 8th Circuit precedent mentioned above, which relied on a narrow interpretation of Granholm that was contradicted by the Court in Tennessee Retailers. Further, Lebamoff Enterprises v. Snyder, challenging Michigan’s wine shipping laws that treat in-state and out-of-state retailers differently, is pending before the 6th Circuit. In that case, the lower court held that Michigan’s laws are unconstitutional, as they impermissibly discriminate against out-of-state interests without sufficient justification in violation of the Dormant Commerce Clause. This ruling and appeal were stayed pending the outcome in Tennessee Retailers. These two cases will likely provide the earliest insight into how courts will apply the recent Supreme Court ruling. Even if the outcome of these cases is that state laws are found invalid, it will not necessarily mean that these states will allow out-of-state retailer direct shipments. Upon a court ruling that a state’s laws are discriminatory and unconstitutional, the state could decide to rectify the issue by “leveling down” to prohibit all retailer alcohol shipments to consumers, from both in-state and out-of-state retailers. As such, the law would apply equally to all retailers regardless of location, so it would not be discriminatory. “Leveling down” to remove all retailer alcohol shipping privileges would likely be unpopular with consumers, but it may find support from some segments of the alcohol industry. Thus, this outcome remains a possibility even if litigation challenging laws prohibiting out-of-state retailer shipping is successful. Overall, we will have to wait and see what the ruling in Tennessee Retailers will mean for the alcohol industry. But, if you have any questions regarding this ruling or how current laws affect your alcohol business, contact one of the attorneys at Strike & Techel.
*** Update: The Oklahoma County District Court has ruled that Senate Bill 608 violates the Oklahoma Constitution. The new law, which was set to go into effect on August 29, 2019, would have required the top 25 wine and spirits brands sold in Oklahoma to be made available for distribution by all Oklahoma distributors. As a result of the Court’s finding, manufacturers of Oklahoma’s top selling alcoholic beverages retain the right to choose their own distributors. However, an appeal of the District Court's ruling could be filed. *** Oklahoma Governor Kevin Stitt recently signed Senate Bill 608 into law, mandating that as of August 29, 2019, suppliers of the top 25 wine and spirits brands must make their products available to all licensed Oklahoma distributors. The top 25 brands will be determined by total sales over the preceding twelve-month period. Since October 2018, wine and spirits manufacturers have been allowed to enter exclusivity agreements with Oklahoma distributors. Prior to that time, wine and spirits manufacturers were required to make products available to all distributors in Oklahoma. The change was brought about by State Question Number 792, approved by voters in 2016, which amended the Oklahoma Constitution to permit the sale of cold, strong beer in liquor stores and to allow distributors to obtain sole distribution rights. Although the law allowing wine and spirits brands to be distributed exclusively by one Oklahoma distributor has been in effect for less than a year, smaller Oklahoma distributors and some Oklahoma retailers argued that the new distribution system was detrimental to their businesses. Senate Bill 608 purports to even the playing field and remedy the alleged business disadvantage to smaller distributors by mandating that top-selling products be made available to all distributors within the state. Opponents of Senate Bill 608 contend that the legislation runs afoul of the voter-approved constitutional amendment, because it is manufacturers’ right to choose their own distributors. It is possible that the provisions of Senate Bill 608 will be challenged in the courts. But for now, it appears that suppliers of top wine and spirits brands in Oklahoma must again navigate a revised distribution system, beginning at the end of August.
Since the repeal of Prohibition in 1933, U.S. Supreme Court cases addressing the way alcohol is sold in the United States are not common. Most recently, the Court’s 2005 decision in Granholm v. Heald held that a state could not permit in-state wineries to sell and ship wine directly to consumers if the state precluded out-of-state wineries from enjoying the same right. In light of the ruling, many states revised their laws to allow direct-to-consumer sales and shipments from out-of-state wineries as well as in-state wineries. Retailers on the other hand, were more or less unaffected by the Granholm ruling and remain subject to various state prohibitions against out-of-state retailers shipping alcohol directly to in-state consumers. In January, the Supreme Court heard oral argument on a new alcohol law case that will further delineate the states’ powers to regulate alcohol. Tennessee Wine and Spirits Retailers Association v. Blair, No. 18-96, (“Tennessee Retailers”) asks whether the 21st Amendment, which gives states broad discretion to govern alcohol, empowers Tennessee to regulate the sale of alcohol through strict residency requirements for alcohol retail license applicants. Or, whether the imposition of those residency requirements and the effect on out-of-state license applicants violates the Dormant Commerce Clause, which prohibits states from discriminating against interstate commerce. The Petitioner in Tennessee Retailers, Tennessee Wine and Spirits Retailers Association (“TWSRA”), contends that the 21st Amendment permits states to regulate the sale of alcohol within their own borders, so Tennessee may require alcohol retail license applicants to reside in the state for two years before a retail license may be granted. The Respondents, Total Wine and Doug and Mary Ketchum, claim that Tennessee’s residency requirements violate the Dormant Commerce Clause because they discriminate against non-residents. The case originated when the Tennessee Alcoholic Beverage Commission (“TABC “) asked a court to determine the legality of the subject restrictions. The district court and the Sixth Circuit held that Tennessee’s residency requirement is unconstitutional, as the law is facially discriminatory and there was no evidence that alternative non-discriminatory regulations could not achieve the same purpose of protecting the health and safety of Tennessee residents. TWSRA appealed the Sixth Circuit decision to the Supreme Court. The case is now fully-briefed, oral argument is over (the transcript from oral argument can be found here), and the parties await the Court’s opinion. The Supreme Court has previously ruled that the Dormant Commerce Clause applies to prohibit states from discriminating against out-of-state alcohol products or producers, despite the 21st Amendment. The Tennessee Retailers case asks the Court to weigh the balance of the 21st Amendment and the Dormant Commerce Clause in the context of laws governing the issuance of in-state retail alcohol licenses. Advocates of retailer direct-to-consumer alcohol shipping hope that the Court will issue a broad ruling that holds that the Dormant Commerce Clause applies to limit states’ 21st Amendment powers to regulate alcohol retailers generally. The hope is that a broad ruling that applies the non-discrimination requirements of the Dormant Commerce Clause to alcohol retailers would require states to treat in-state and out-of-state retailers equally with respect to direct-to-consumer shipping privileges. However, even if the Court finds that the Dormant Commerce Clause limitsstates’ powers under the 21st Amendment with respect to the regulation of alcohol retailers, that would not automatically open up out-of-state retailer direct-to-consumer shipping. Under the Dormant Commerce Clause, a state is still permitted to enact discriminatory laws if the law advances a legitimate state purpose that cannot be adequately served by other reasonable nondiscriminatory alternatives. The Supreme Court has previously held that the three-tier system is “unquestionably legitimate,” and thus a state could still pass discriminatory laws that support the three-tier system, unless there are other reasonable nondiscriminatory alternatives. We will have to wait to see whether the Court will rule broadly or narrowly. Regardless of how the Court rules, the case will have an impact on the regulation of alcohol by individual states. The Court could issue its opinion soon, and Strike & Techel will update the Alcohol.law Digest with further information when that happens.
We last covered winery and retailer direct to consumer (“DTC”) wine shipments on this blog one year ago. (For those prior posts, see the following links: winery DTC shipping, retailer DTC shipping.) This blog post summarizes the changes that occurred in 2018 with respect to winery and retailer DTC wine shipping. Winery DTC Wine Shipping – Beginning on October 1, 2018, Oklahoma’s new law allowing wineries to ship wine directly to Oklahoma consumers became effective. Retailer DTC Wine Shipping – There were no final changes in 2018 with respect to retailer DTC wine shipping; however, there are potentially some changes on the horizon. In August, the Florida Division of Alcoholic Beverages and Tobacco issued a Declaratory Ruling holding that it was enjoined by a prior court order from enforcing the laws prohibiting out-of-state retailers from selling wine into Florida. However, this ruling has been appealed, and thus may be reversed. Further, in September, a federal district court held that Michigan’s prohibition against out-of-state retailer wine shipping was unconstitutional. However, the Michigan litigation is stayed pending the outcome of a case in front of the U.S. Supreme Court, which is set for hearing on January 16, 2019. There is also similar litigation pending relating to Illinois’ and Missouri’s prohibitions against out-of-state retailer wine shipments, and accordingly there is the potential for future changes in these states as well. If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.
Several new provisions of the California ABC Act were signed into law recently; below is an overview of the ones we find most relevant to our clients’ businesses. All statutory references are to the California Business & Professions Code. All of the laws described below take effect January 1, 2019.
Changes Affecting Craft Distillers (License Type 74)
Production Cap Increase – Craft distillers currently can produce no more than 100,000 gallons of distilled spirits per year (excluding brandy), and no owner, officer, director, etc., of a craft distiller can be affiliated with a producer of more than 100,000 gallons per year. Section 23502. Those limits will be increased to 150,000 gallons. (SB 1164)
Sales at the Distillery – Section 23504 is amended to eliminate the requirement that a person must attend a tasting before being able to purchase prepackaged containers of the craft distiller’s spirits at the licensed premises. The 2.25 liters per day restriction remains in place. (AB 1164)
Consumer Tastings – Current California law allows for tastings of spirits at on- and off-sale licensed premises, subject to various restrictions. Sections 25503.56, 25503.57. Those tastings can only be conducted by “authorized licensees,” which did not include craft distiller licensees. The definition of that term was expanded in the two cited statutes to include craft distiller licensees. (AB 1891)
Trade Tastings – Existing Section 25503.5(b) allows distilled spirits manufacturers, rectifiers, importers, and distilled spirits manufacturer’s agent licensees to conduct instructional tastings for licensees and their employees; it has now been amended to include craft distillers. (SB 1164) In addition, Section 25503.51 was added, which essentially does the same thing as the revision to 25503.5(b), except that the new section adds distilled spirits wholesalers, which can now also provide the instructional tastings. (AB 3264)
Changes Affecting Advertising by Suppliers
Advertising Consumer Tastings - Existing Section 25503.4 allows wineries and wine importers to conduct consumer tasting events at on-sale retailers’ premises. Existing Section 25503.56 allows consumer tastings of beer, wine or spirits at off-sale licensed premises, and 25503.57 allows consumer tastings of wine and spirits at on-sale licensed premises. All three statutes allow the supplier licensee conducting the tasting to advertise the event in advance, but restrict them from providing any information about the retailer beyond its name and address. Revisions to the three laws will allow the ads to also include still photos (no video) of the retailer’s “premises, personnel and customers,” and expanded contact info for the retailer, including its email and website addresses, and social media accounts. Suppliers also can re-post social media posts about the events, including posts by the retailer, as long as they comply with the content restrictions in the statutes. The references to the retailer still must be “relatively inconspicuous” in relation to the ad as a whole, and the supplier still cannot make laudatory references to the retailer. Note that the expanded ad content relates only to advertisements for the events allowed under the three statutes referenced above – it does not apply to supplier advertising in other contexts. (AB 2452, SB 1164)
Venue Advertising – The ABC Act prohibits supplier licensees from paying retailers for advertising rights at retail licensed premises. There are a number of exceptions to the prohibition, carving out allowances for supplier advertising at specific stadiums, parks, arenas, and other on-sale licensed venues. Section 25503.6 was revised to add three San Jose venues (San Jose Giants stadium, San Jose
Earthquakes stadium, SAP Center) and the San Diego Padres stadium (Petco Park). (AB 2000, AB 2146) Wine Institute and others have been working to pass an “Entertainment Venue Sponsorship” exception that would more broadly allow venue advertising, but it remains in legislative limbo.
The primary statute governing California brewpubs was recently amended by SB 1283, resulting in several changes for brewpubs that go into effect on January 1, 2019. The primary changes include heightened beer production requirements, the ability to sell beer produced by the brewpub for off-premises consumption, and the inclusion of brewpubs among on-sale licensees subject to quota restrictions beginning in 2020. The following are among the new provisions of California Business & Professions Code Section 23396.3 as a result of SB 1283:
Governor Brown approved a bill on September 19, 2018, that will impose a range of significant new restrictions on California-licensed beer wholesalers. The bill number is AB-2469.
The new section §23378.05 of the Business & Professions Code (B&PC) will require a beer wholesaler to:
Last month, the TTB released TTB Procedure Number 2018-1 addressing the transfer of beer between breweries not of the same ownership. Unlike wineries, prior to the Tax Cuts & Jobs Act of 2017 (the “Act”), breweries could not transfer beer under bond unless the transferring and receiving brewer were under common control. However, the Act now allows the transfer of beer under bond (i.e., without the payment of excise tax) between breweries not of the same ownership, subject to certain conditions, and only through December 31, 2019. In these transfers, the receiving brewery must accept responsibility for the payment of excise taxes on the beer, when the beer is ultimately removed from the receiving brewery for sale. TTB Procedure Number 2018-1 sets out the record keeping and documentation requirements for these transfers, and also provides instructions for completing TTB operational reports to reflect transfers of beer under bond. Note that a brewery may only claim the reduced excise tax rates on beer that the brewery has produced. Beer is considered to be “produced” if it is brewed or produced at a brewery premises, including beer that has been brewed by fermentation or to which water or other liquids have been added during any stage of production. However, blending or combining two beers does not count as “production” for reduced tax purposes. Thus, for beer transferred in bond, the receiving brewery may not be eligible to claim the reduced excise tax rates on the beer received under bond. However, transfers beer produced at the brewery to another brewery for bottling, and which receives the same beer back under bond, would be eligible to remove such beer at reduced tax rates. The TTB is still working on guidance regarding the Act’s changes to alcohol excise taxes. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here, here, and here. The TTB has not yet issued guidance on the controlled group and single taxpayer rules, but such guidance could impact how your business is able to claim the Act’s reduced excise tax rates. We will continue to post updates on the TTB’s guidance as it is released. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.
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. (c) Where must the general alcohol warning sign be posted?
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.
Last year, we covered the South Carolina Supreme Court case that ruled the state’s prohibition against an entity holding more than three off-premises retail liquor licenses was unconstitutional. The court held that the South Carolina law was enacted to protect small retailers, and that economic protectionism was not a sufficient justification for the law. Read our previous blog on that March 2017 decision in Total Wine v. South Carolina DOR here. The South Carolina legislature recently passed a law that reenacts limits on the number of off-premises retail liquor licenses that an entity may hold. Act 147 was signed by the South Carolina Governor in April, and it went into effect immediately. In an attempt to distinguish the Act from the law previously ruled unconstitutional by the South Carolina Supreme Court, the legislature listed a variety of health and safety policy arguments in favor of the legislation, in addition to the economic goals of spurring competition and reducing monopolization of the alcohol market. The legislature asserted that harms related to excessive alcohol consumption are tied to liquor retailer density, and cited statistics involving alcohol-related deaths, traffic fatalities, as well as binge drinking rates. The new law, S.C. Code § 61- 6-141, provides that an entity may only obtain three off-premises retail liquor licenses in the state. However, an entity may obtain three additional off-premises retail liquor licenses, if the new retail liquor licenses are obtained in counties with more than 250,000 residents. Furthermore, an entity seeking any of the three additional off-premises retail liquor licenses may not operate more than two stores in a county with more than 250,000 residents. However, if the entity already operated three off-premises retail liquor licenses in a county with more than 250,000 residents as of March 21, 2018, then the entity may obtain two additional off-premises retail liquor licenses to operate in that county. Currently, only seven counties have a population larger than 250,000 residents. The issuance of the three additional off-premises retail liquor licenses is staggered under the new law. Entities may obtain only one additional license between now and May 31, 2020, a second additional license between June 1, 2020 and May 31, 2022, and the third additional license will not be available until June 1, 2022. If you have any questions about retail liquor licensing or chain limitations, contact one of the attorneys at Strike & Techel.
The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has issued a revised industry circular regarding the alternate procedure for wineries to claim the excise tax credit on wines that are stored at a bonded wine cellar or bonded winery. Per Industry Circular 2018-1A, that alternate procedure is now available through December 31, 2019, rather than expiring on June 30th as originally determined. Thus, the alternate procedure is available for the entire term of the federal excise tax revisions, which are set to expire on December 31, 2019, although industry groups are working to get the excise tax revisions extended. Furthermore, the alternate procedure is available for wines stored untaxpaid at a bonded winery as well as at a bonded wine cellar. The prior industry circular had only specified bonded wine cellars. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here and here.
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.
California’s Prop 65 (officially the Safe Drinking Water and Toxic Enforcement Act of 1986) requires businesses in the state to inform Californians about exposure to chemicals identified by the state as causing cancer or reproductive toxicity. Inconveniently, though the obligation is on the producer of the product to ensure that the consumer is warned, it is the retailer that must display a notice sign at the point of sale to comply with the law. The Act provides for reimbursement of attorney fees to claimants who bring suit based on missing notice signs, leading to watchdog lawsuits calling out different consumer goods producers. To address the responsibilities of alcoholic beverage suppliers, whose products often include a number of chemicals from the list, three key trade bodies, the Beer Institute, the Wine Institute, and the Distilled Spirits Council, set up the Prop 65 Sign Management Company in 2014. This group distributes signs to retail licensees free of charge, on behalf of all members of the alcohol industry. These signs generally indicate that the consumption of alcoholic beverages may expose drinkers to Prop 65 chemicals, but do not name specific chemicals. This means that when new chemicals are added to the list, such as the impending August 2018 addition of a common ingredient in caramel color, the signs do not need to change. One of the main aspects of Prop 65 is that chemicals are added to the list if the State of California identifies them as potentially harmful. This means that the California list does not always correlate with guidance from other regulators. As an example, in 2015, the state added Bisphenol A (BPA) to the Prop 65 list of chemicals, for warning to be provided where it is “intentionally added” (which can include where it is present in materials that consumer goods are exposed to – BPA is a common ingredient in linings of lids and beverage cans, and is often used in equipment such as hoses at production facilities). Although the regular Prop 65 warning doesn’t have specific language, in the case of BPA, California created emergency regulations in 2016 with a special safe harbor warning notice. That regulation ran out in January, meaning that sign is no longer mandatory until the regular regulations take effect in August, but it is recommended by trade bodies to keep distributing it in the interim. Prop 65 Sign Management Company distributes a safe harbor warning, but only on behalf of identified suppliers (who are encouraged to add their affected products directly at the site). The Food & Drug Administration (FDA) allows the use of BPA, and opposed California’s addition of BPA to the list in 2015, indicating the FDA’s research did not indicate it caused reproductive toxicity. A draft report released by the National Toxicology Program (NTP) this month also found only minimal effects on persons exposed to BPA. On the other hand, a new Regulation passed by the European Commission (EU 2018/213) in February introduces stricter measures for BPA use in food contact materials in Europe from September this year, and the European Food Safety Authority (EFSA) is re-evaluating its impact after it originally cleared its use in 2015, in the face of many health bodies calling for a complete ban on its use. Despite the differences of opinion among regulatory agencies, both in the US and abroad, BPA remains on the Prop 65 list and suppliers whose products or packaging are exposed to BPA are subject to the California signage requirements. 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.
Back in December, we wrote about the new Tax Cuts and Jobs Act of 2017 (the “Act”) and the 2018-2019 excise tax reform for the alcoholic beverage industry. The TTB has since issued additional guidance on the changes to federal excise taxes, including more information on the production requirements for beer and wine to be eligible for reduced excise taxes. Wine: To be eligible for the new wine excise tax credit, the wine must have been produced by the winery claiming the tax credit. The TTB’s guidance states that in addition to fermentation, the following activities constitute “production” for purposes of claiming the new tax credit:
In 2016, we blogged about a new Illinois law that created a requirement for licensed winery shippers to disclose to the Illinois Liquor Control Commission (“ILCC”) all third party providers (“TPPs”) authorized to ship the licensee’s wine into Illinois, excluding common carriers. That law also imposes a new annual reporting requirement for all TPPs appointed to ship wine into Illinois on behalf of winery shipper licensees. The first report for TPPs shipping wine into Illinois is due on February 1, 2018. The report must provide details regarding each shipment made in 2017 to an Illinois resident on behalf of a winery shipper licensee. The ILCC has not drafted a form for this report, but the Wine Institute explains that the following specifics must be included in the TPP report to the ILCC:
Last week, the President signed into law sweeping alcoholic beverage excise tax reform as part of the Tax Cuts and Jobs Act of 2017 (the “Act”). These alcohol excise tax changes originated in the Craft Beverage Modernization and Tax Reform Act, and were incorporated into the larger $1.5 trillion tax overhaul. The new law is scheduled to take effect on January 1, 2018. The law sunsets at the end of 2019, but with the possibility that the changes might be extended if successful. The TTB is working on guidance and the form revisions necessitated by these fast-approaching excise tax changes, and expects to issue more information in the coming weeks. The Act will drastically lower the tax rate payable on alcoholic beverages through the course of 2018 and 2019. Already-existing excise tax reductions for small brewers and small winemakers are expanded and extended to all producers of beer and wine, distilled spirits producers will get significantly lowered excise tax rates, and importers will gain the opportunity to stand in the shoes of their foreign producers to access similar reductions. Specific reductions include:
In the latest in a string of cases alleging misleading advertising of alcoholic beverages, a federal court in California recently refused to dismiss a case against Craft Brew Alliance, Inc. (“CBA”), makers of Kona Brewing Company beer. Broomfield v. Craft Brew Alliance, Inc., No. 17-cv-01027-BLF (Sept. 1, 2017). You’ve probably seen the products – they are all Hawaiian-themed, with names like Longboard Island Lager, Big Wave Golden Ale, Hanalei Island IPA, etc. Kona Brewing Company does have a brewery in Hawaii, but the only beer produced there is draft beer to be sold in Hawaii. All of the bottled and canned product, and draft sold outside of Hawaii, is brewed at CBA’s breweries in OR, WA, NH and TN. The plaintiffs alleged that they were misled by the product packaging and believed the products were produced in Hawaii. Had they known that the products were brewed on the US mainland, they claim they would not have bought them or would not have been willing to pay as much for them. They brought claims based on violations of California’s unfair competition and false advertising statutes, as well as breach of warranty, fraud, intentional misrepresentation, etc., and are attempting to get the case certified as a class action. The CBA filed a motion to dismiss, relying in part on previous cases involving Red Stripe and Sapporo where plaintiffs had claimed the product packaging misrepresented the origin of the beers. Those cases were dismissed because the allegedly misleading statements on the labels were “vague and meaningless” and not likely to deceive a reasonable consumer into believing the beers were made in Jamaica or Japan, respectively. Moreover, the packaging clearly indicated where the beers were made. CBA argued in this case that the references to Hawaii were either true, or were “mere puffery,” and not likely to deceive a reasonable consumer. The court said it would have dismissed the complaint against CBA if the only allegedly misleading references to Hawaii were pictures of surfboards and Hawaiian imagery, and vague language like “Liquid Aloha.” But the packaging on these products went further, and included a map of Hawaii that showed the location of the Kona brewery, with the statement “visit our brewery and pubs when you are in Hawaii.” Further, the references to the other US breweries where the beers are made only appears on the can/bottle labels, not on the outer packaging, so it would not have been visible to a consumer purchasing a 12-pack, for example. And the only visible address on the outer packaging was an address in Kona, Hawaii. The court held that those were “specific and measurable representations of fact” that could be sufficient to deceive a reasonable consumer. Exactly what can and cannot be said on product packaging without being misleading is not a black-and-white test – courts apply a reasonableness standard, which necessarily involves some subjectivity. In the Kona Brewing case, the court noted that references to Hawaii and its culture generally, and language that evokes the “spirit” of Hawaii or that claim the beer is “Hawaiian-style” wouldn’t have been actionable. The court’s decision was only at the motion to dismiss stage, and does not mean that the CBA’s Kona Brewing company packaging will ultimately be found misleading. But this decision illustrates that not all packaging statements will be allowed as mere “puffery,” so suppliers would be wise to consider carefully references to locations and cultures different than the location where the products are produced. Strike & Techel will follow this case, and will post future updates on this blog. If you have any questions about alcohol labeling, packaging, or advertising, contact one of the attorneys at Strike & Techel.
After a January 2016 Ninth Circuit decision, there was a big question mark in California over whether the state could justify its laws creating and protecting the three tier system. The decision raised a real issue over whether the First Amendment right to free speech might triumph over three tier laws preventing supplier-paid advertisements in retail stores. In January 2016, no position was taken by the court on whether the law was justified, but the language of the opinion strongly suggested that the court had doubts that it could be. A June 2017 decision lays that question to rest, and affirms California’s right to legislate to prohibit suppliers from paying retailers for advertising, based on its powers under the Twenty-First Amendment, and thus issuing a strong reinforcement of the validity of the three tier system and the laws that maintain it. On June 14, the Ninth Circuit handed down a ten-to-one en banc decision, rejecting a First Amendment challenge to California’s law preventing suppliers from paying for advertising on licensed retail premises (Retail Digital Network v. Prieto, No. 13-56069). The plaintiff/appellant, Retail Digital Network, LLC (“RDN”), operates a business supplying digital screen displays to retailers across California, most of which are licensed to sell alcoholic beverages. The screens show short advertisements for various different consumer products, and the income received by RDN from those advertisers is shared with the host retail store. Frustrated at their difficulty in selling advertising slots to alcoholic beverage suppliers, RDN brought an action against the California Department of Alcoholic Beverage Control (ABC), in the U.S. District Court for California, asking the Court to find the law stopping suppliers from paying for ads on their screens unconstitutional. In order to succeed in the case, RDN had to overcome a thirty year old decision by the Ninth Circuit in a very similar case, where the company in question sold ads on shopping carts used in retail stores (Actmedia, Inc. v. Stroh, 830 F. 2d. 957 (9th Cir. 1986)) (“Stroh”). The same statute at issue in the RDN case, which prevents anything of value from being provided by a supplier or wholesaler to a retailer in return for advertising, had been challenged in that case, based on the same argument that it infringed the advertiser’s First Amendment right to free speech (the statute in question is California Business & Professions Code §25503(f)-(h)). Back in 1986, the Ninth Circuit concluded that the state’s right to regulate the commercialization of liquor pursuant to the Twenty-First Amendment, and, in particular, to legislate to achieve goals like the promotion of temperance and protection of the three tier system, provided sufficient justifications to uphold the constitutionality of the law. The court used the recognized, four-part, intermediate scrutiny test for analyzing content-based restrictions on non-misleading commercial speech, known as the “Central Hudson” test (based on the Supreme Court’s decision in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557 (1980)). In order to get around the Stroh precedent, RDN argued in its claim that an intervening 2011 Supreme Court decision had changed the Central Hudson test for a First Amendment commercial speech review, creating a more demanding level of Court scrutiny over legislative restrictions on such speech, referred to as “heightened” scrutiny (Sorrell v. IMS Health Inc., 564 U.S. 552 (2011)) (“Sorrell”). After receipt of RDN’s claim, the ABC filed for, and was granted, summary judgment on the basis that the Stroh precedent was not irreconcilable with Sorrell. RDN appealed to the Ninth Circuit, where three judges agreed that Sorrell had changed the level of scrutiny to be applied to limits on speech, and remanded the case to the District Court to hear more evidence on the reasons asserted by the state to justify the law. The District Court was directed by the Ninth Circuit to apply heightened rather than intermediate review to those reasons, on the basis of the decision in Sorrell. In addition to reversing the decision, the Ninth Circuit also took time to point out some concerns for the District Court to consider on remand, in its assessment of whether the ABC could legitimately raise any justification for the law, in part because of the large number of special interest exceptions created by the Legislature over the years. When the initial Ninth Circuit decision was handed down in January 2016, it generated a huge industry response, with many concerns raised over its implied challenge to the integrity of the three tier foundational protections. In a highly unusual circumstance, the Ninth Circuit agreed to a rehearing of the case with eleven judges en banc, which hearing took place in January this year. In the decision issued in June, the Ninth Circuit reversed its own January 2016 ruling, with ten judges confirming the original District Court summary judgment ruling, and one judge dissenting. Of the three judges who originally heard the case in the Ninth Circuit, only Chief Judge Thomas was part of the bench for rehearing, and he was the lone dissent. The court reviewed and essentially reaffirmed its decision in Stroh, and the applicability of the Central Hudson intermediate scrutiny test. The Ninth Circuit majority confirmed that the law in question was as narrowly drawn as possible to serve the state’s important goal of protecting the three tier system, by preventing possible illegal payoffs from suppliers to retailers, disguised as advertising payments, and by preventing suppliers and wholesalers from exerting undue influence over retailers. They diverged from Stroh only to state that they did not endorse the state’s other listed goal of promoting temperance by limiting point of purchase advertising, as being a legitimate justification for the law. The argument raised by RDN, and referred to in the initial Ninth Circuit decision, that the special interest exceptions undermine the purpose of the tied house law, was rejected by the court on the basis that they only affect a small minority of licensed retailers, and have a minimal effect on the entire regulatory scheme. The majority’s decision leaves little question remaining as to the validity of the three tier system, and its legislative and regulatory protections in California. If you have any questions about your alcohol business’ advertising practices or its relationships with retailers, contact one of the attorneys at Strike & Techel.
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:
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.
A South Carolina law preventing an entity from holding an interest in more than three off-premise retail liquor licenses was deemed unconstitutional earlier this year. The South Carolina Supreme Court accepted an argument by Total Wines & More that the state’s cap on liquor stores had no legitimate basis. Numerous bills had been filed with the state legislature over recent years to have the cap overturned, but without success. The Supreme Court majority, however, found that the state had not offered a persuasive argument on why the restriction was a proper use of its general police power. The only justification provided by the state in the case was that the law was designed to support small businesses, and preserve the right of small, independent liquor dealers to do business, which the court identified as simple economic protectionism. A number of other states have caps on ownership of retail off-premise liquor licenses, particularly across the Northeast. Similar laws have survived constitutional challenges in states like New Jersey, New Hampshire, and Massachusetts. In these states, justifications for these laws have included reasons such as intensifying the dangers of liquor sales stimulation through retail concentration, preventing monopolies, avoiding indiscriminate price-cutting and excessive advertising, and discouraging absentee ownership. The success of the suit in South Carolina is likely to encourage a new wave of challenges to these laws, as the chain stores focus more efforts on expansion of their model in the region. The ongoing legislative and judicial dispute between Total Wine & More and the State of Connecticut, for example, on the statutory minimum pricing restrictions there, follows a similar path of seeking to open up a market more friendly to chain store liquor retail. Since the decision was handed down on March 29, the South Carolina Senate has already approved a move to legislate around it, by passing an amendment to the state budget. The change would delay the implementation of the court’s decision for a year, and would require an applicant for a fourth store to pay the equivalent of a year’s gross sales from one of its current stores before it could get the new license. The amendment now passes to the General Assembly for consideration. In the interim, the state has publicly said that they are accepting liquor store applications in light of the new ruling. It goes without saying that the elimination of the retail cap in South Carolina is likely to significantly alter the retail liquor landscape there, and that other similar decisions in other states would affect the retail market nationwide. If you want more information on retail liquor licensing, please contact one of the attorneys at Strike & Techel.
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.
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: 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.
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.
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.
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!
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.
Last week, California Governor Jerry Brown signed Senate Bill 1032 (“SB 1032”) into law. SB 1032 amends Section 25600.3 of the California Business and Professions Code, and extends the recent prohibition on supplier-funded beer, cider and perry coupons to wine. You can read more about the prohibition of supplier-funded beer coupons in our prior blog post here. What is permitted post-SB 1032? The law still permits discounts on alcoholic beverages in other forms, including mail-in rebates by wine and beer suppliers, all retailer-funded coupons, and instant coupons funded by distilled spirits suppliers for distilled spirits (provided the coupon does not also discount beer or wine). Furthermore, beer manufacturers and winegrowers can still offer instant rebates at their premises, and can offer rebates direct to consumer on internet sales. When are the changes effective? The new law takes effect on January 1, 2017. Supplier-funded wine coupons can continue to be accepted at retail until December 31, 2016, and suppliers will be able to continue redeeming coupons accepted by a retailer until March 31, 2017. Who can do what?
On Friday, August 26, 2016, Illinois Governor Bruce Rauner signed Senate Bill 2989 (“SB 2989”) into law. SB 2989 amends various sections of the Illinois Liquor Control Act that affect direct wine shipping into Illinois as well as use of third party providers (“TPPs”). This post summarizes the changes made by SB 2989, which take effect on January 1, 2017. The higher license fees, described below, take effect immediately. Harsher Penalties for Direct Wine Shipping Violations SB 2989 imposes tougher penalties on direct wine shipping violations. Any person, including wineries, importers, and retailers, who distributes or sells 108 liters or more of wine (144 bottles of wine), 45 liters or more of spirits (5 12/750 cases), or 118 liters or more of beer (more than 28 12-packs of beer) without a license is guilty of a Class 4 felony for each offense, which has a minimum sentence of 1 year. Prior to SB 2989, the first offense was a business offense with a fine of not more than $1,000, and any subsequent offense was a Class 4 felony. For illegal shipments of less than 108 liters of wine, less than 45 liters of spirits, or less than 118 liters of beer, the penalty for the first offense is still classified as a business offense with a fine of not more than $1,000, and the penalty for subsequent offenses remains a Class 4 felony. Furthermore, any person who has already been issued a cease and desist notice from the State Commission could face the same felony charges. New Disclosure Requirements for Winery Shipper’s Licensees and Reporting Requirements for TPPs For new and renewing applicants of an Illinois winery shipper’s license, SB 2989 requires disclosure of all third parties authorized to ship the licensee’s wine, excluding common carriers, to the Illinois Liquor Control Commission (“ILCC”). Licensees must submit each third party’s name and address and file a copy of the written appointment of the TPP with the ILCC. SB 2989 provides that a TPP, other than a common carrier, shipping wine on behalf of a winery shipper’s licensee is the agent of the licensee, and that the licensee is responsible for the acts and omissions of the TPP. In turn, SB 2989 requires that each TPP consent to the jurisdiction of Illinois and the ILCC. Furthermore, SB 2989 imposes a new audit requirement on any appointed TPP, which will be required to file with the ILCC, by February 1 of each calendar year, a statement detailing each shipment made to an Illinois resident. The ILCC also has the power to deny any third party appointment if the TPP previously violated the Liquor Control Act. Higher License Fees Across the board, SB 2989 increases license fees for manufacturers, wholesalers, and retailers. The fees for a winery shipper’s license for a winery producing under 250,000 gallons annually have been increased from $150 to $350 for the initial application and $200 for an online renewal. The fees for a winery shipper’s license for a winery producing over 250,000 gallons, but under 500,000 gallons annually have been increased from $500 to $1,000 for the initial application and $750 for an online renewal. The fees for a winery shipper’s license for a winery producing 500,000 gallons or more annually have been increased from $1,000 to $1,500 for the initial application and $1,200 for an online renewal. For more information about the changes to the Illinois direct shipping laws, contact an attorney at Strike & Techel.
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