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 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.
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.
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!
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.
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.
On October 8, 2015, California Governor Brown signed the Craft Distilleries Act of 2015 into law, which creates a new license for craft distilleries. AB 1295 is a step forward for craft spirits producers, who will no longer be subject to the same strict restrictions that apply to traditional Distilled Spirits Manufacturers (Type 4 licensees). The new Craft Distiller’s license allows the production of up to 100,000 gallons of distilled spirits each year and also includes several other key privileges not available to larger distilleries that hold Type 4 licenses: Craft Distillers will be able to sell distilled spirits to consumers, operate restaurants from their premises, and hold interests in on-sale retail licenses. AB 1295 adds several sections to the California Alcoholic Beverage Control Act, including Business and Professions Code Sections 23500 through 23508. Those sections include the following privileges for Craft Distillers:
The cider and perry industry is booming. More and more producers are entering the market, and existing producers of other alcoholic beverages are expanding into cider and perry production. Although commonly associated with beer, cider and perry are actually considered wine under federal law, and can be interchangeably labeled as apple wine or cider, and pear wine or perry. Production of cider or perry requires a bonded winery permit from the Alcohol & Tobacco Tax and Trade Bureau (“TTB”). It must be made wholly from the alcoholic fermentation of sound, ripe apples, or sound ripe pears (the addition of sugar, water, or alcohol is permitted in specified quantities). The TTB recently updated its FAQs with a section on cider, which can be found HERE. A cider or perry which is over 7% alcohol must be labeled in the same manner as wine, and a Certificate of Label Approval (“COLA”) must be obtained for the product from the TTB. If it is under 7%, the product is subject to Food and Drug Administration (“FDA”) labeling rules, including a required nutritional statement (see our recent blog posts on FDA alcoholic beverage labeling HERE and HERE). If any flavoring materials are added, like honey, spices, or artificial flavors, the product requires formula approval, even if it is under 7%. Each state has its own regulatory framework for cider and perry. For example, in California, a Type 2 Winegrower can make cider and perry, and a licensed Type 1 Beer Manufacturer may also produce cider and perry without any additional state license (although they still need the TTB bonded winery permit). In New York, Breweries, Farm Breweries, and Farm Wineries can make cider and other “pome fruit” wines, including perry (again with the TTB winery permit). Interestingly, in New York, a product marketed as a cider or perry, up to 8.5% alcohol, must be brand label registered, and is not eligible for the standard wine exemption from registration. If you have any questions about producing cider or perry, please contact one of the attorneys at Strike & Techel. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •
Mostly in our practice at Strike & Techel we work with clients making fairly traditional alcoholic beverage products, albeit with new flavors, production methods and quality drivers. These classic alcoholic beverages are distilled spirits, wines and beers, subject to regulation by the Alcohol and Tobacco Tax and Trade Bureau (TTB). More and more, however, we are called upon to work with alcohol products that fall outside the TTB’s jurisdiction, either because they don’t meet traditional definitions, or because they simply aren’t classified as beverages. Products that do not fit within TTB jurisdiction are subject to Food & Drug Administration (FDA) labeling requirements. Under TTB rules, wine must contain at least 7% alcohol, and beer must be malt-based. Because of these restricted definitions, common examples of drinks that are subject to FDA rules are wine coolers and ciders below 7% alcohol, and beers that aren’t made with malt. Any beers made with other grains, like sorghum, rice or wheat (usually to be sold as “gluten free” products), are under FDA rules. These beverages do not need to obtain label approval, as a standard alcoholic beverage would, but must comply with FDA rules on labeling, to avoid in-market audits for violations. In December 2014, the FDA finally published its guidance for industry on the labeling of non-malt-based beers, which had been in draft form since 2009 (LINK). It helpfully goes through all of the FDA labeling requirements that apply to such beers. These are the same requirements that apply to any FDA-regulated alcoholic beverage, including many ready to drink (RTD) beverages, as discussed in our recent blog post (LINK). Among the key distinctions from standard alcoholic beverage labeling are that the label must include an ingredient list and a nutritional statement. As well as regulating alcoholic beverages, FDA also regulates certain non-beverage alcoholic products. These are products which are consumed – often as cocktail ingredients – but which are not classified as beverages by the TTB because they have been deemed “unfit” for beverage purposes under TTB regulations. Common examples of these products are bitters and other alcohol-based flavorings. Attaining non-beverage status is a goal rather than a failure for these products because products eligible for non-beverage status are exempt from payment of federal excise taxes and they can be sold by retailers without an alcoholic beverage license. Products with a lot of sugar or other flavorings or ingredients that serve to make them more palatable as beverages may not make the cut as non-beverages and would remain subject to excise taxes and TTB label jurisdiction. TTB and FDA classifications of alcoholic products have significant implications on the way they are labeled, taxed and sold, so it is important to submit these products for TTB review before bringing them to market. For more advice on alcoholic beverages and non-beverages, contact one of the attorneys at Strike & Techel. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •
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 ·
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 ·
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. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·
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