Tag archives for “Laws And Regulations Governing Alcoholic Beverages”

Top Selling Wine and Spirits Brands Must Soon Be Made Available to All Oklahoma Distributors

*** 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.

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California Regulatory Roundup – Fall 2018

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. Cannabis & Alcohol: You Gotta Keep ‘Em Separated New Sections 25621.5 and 26070.2 prohibit licensees from selling cannabis at their licensed premises, including alcoholic beverages that contain cannabis. The laws further clarify that no alcoholic beverage can be produced or sold that contains cannabis, tetrahydrocannabinol (THC), or cannabinoids (CBD). (AB 2914) Miscellaneous Free Rides – Existing law allows beer manufacturers to provide free or discounted rides to consumers “for the purpose of furthering public safety.” Section 25600(d). The law was amended to also allow certain distilled spirits supplier licensees, including craft distillers, to provide free or discounted rides. (AB 3264, SB 973) Cemetery Cocktails – For-profit cemeteries in Los Angeles that are at least 100 years old and on the National Register of Historic Places can now get on-sale general licenses. Good news for visitors to the Hollywood Forever Cemetery, which seems to be the sole beneficiary of the new Section 24045.76. (AB 1217) Notable Unsuccessful Bills Free Glassware – AB 2573 would have allowed beer manufacturers to provide up to five cases of free, branded glassware annually to on-sale retailer licensees, had Governor Brown not vetoed the bill. Consistent with this anti-free-glassware sentiment, Bus & Prof code § 25600 was amended to clarify that glassware is not an allowable retailer advertising specialty item that could be given to retailers by wine and spirits suppliers. (AB 3264) 4 a.m. Last Call – SB 905 would have extended the hours of sale for alcohol from 2 a.m. to 4 a.m. in several California cities, including Los Angeles, San Francisco, Sacramento, and Coachella. Governor Brown vetoed the bill, noting that he believes “we have enough mischief from midnight to 2 without adding two more hours of mayhem.” We expect to see this bill resurrected in future legislative sessions. (SB 905) Duplicate Winery Tasting Rooms – Existing law allows wineries to sell wine to consumers and to conduct tastings at their licensed premises and at one additional premises under a duplicate license. The proposed amendment to 23390.5 would allow consumer sales and tastings at two additional premises licensed with duplicate licenses. The bill did not make it to the governor’s desk but we don’t expect this to be the end of it.

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

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

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

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South Carolina Off-Premises Retail Caps, Part II

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.

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Federal Excise Tax Reform Updates: Imports and Wine Transferred In Bond

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. Those following our blog will be aware that the tax changes that took effect in January apply to beverage alcohol products produced outside of the United States, as well as domestic production. Having said that, it is still not possible to claim the tax credit for wine, or the reduced beer and distilled spirits tax rates, for products coming into the US from overseas. The TTB issued preliminary guidance through its FAQ page back in February that it was working with Customs and Border Protection to establish procedures and issue guidance for importers. Based on recent public statements from TTB, we expect those procedures and guidance to issue in June. Until then, imported products continue to be subject to tax payment at the full excise tax rates for each product category. Once the new procedures take effect, importers will be eligible to claim retroactive credits and lower tax rates for products brought in since January 1st of this year. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.

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Florida Clarifies Permissibility of Delivery by Third Party Providers

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

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It’s a Chemical World – California’s Prop 65 List Expands Again, Plus Developments on BPA

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.

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TTB Publishes Industry Guidance for Producers of Hard Cider

Recently, the TTB published Industry Circular No. 2017-2, providing guidance for producers of hard cider. This guidance details the new criteria for the hard cider tax rate, which went into effect on January 1st of this year. We addressed those changes, as well as the old criteria for the hard cider tax rate, on our prior blog post, “Federal Definition of “Hard Cider” Will Be Expanded in 2017”. As a recap, the current definition of hard cider eligible for the lower hard cider tax rate, is a product that meets the following criteria:

  • Contains no more than 0.64 gram of carbon dioxide per 100 milliliters;
  • Is derived primarily from apples or pears, or from apple juice concentrate or pear juice concentrate and water;
  • Contains no fruit product or fruit flavoring other than apple or pear; and
  • Contains at least one-half of 1 percent and less than 8.5 percent alcohol by volume.
In addition to reiterating the current definition of hard cider, the TTB Industry Circular addresses guidance for hard cider producers on several other topics, including: Fruit Flavorings: The Industry Circular reminds hard cider producers that if hard cider contains fruit flavorings other than apple or pear, the product is not eligible for the hard cider tax rate. Fruit flavorings include natural fruit flavor, an artificial fruit flavor, or a natural flavor that artificially imparts the flavor of a fruit not contained in that flavor. Note that fruit flavorings do not include flavorings that impart a flavor other than a fruit flavor, such as spices, honey, or hops, so products that include those ingredients may still qualify for the hard cider tax rate. Labeling Requirements: Wines that contain 7% alcohol by volume or higher must conform to the labeling requirements found in 27 C.F.R. Part 4, and must obtain label approval from the TTB. The Industry Circular reminds hard cider producers that although the definition of hard cider that is eligible for the hard cider tax rate now includes hard ciders with up to 8.5% ABV, those cider products that contain 7% ABV or higher are still required to comply with the labeling requirements of 27 C.F.R. Part 4. TTB recognizes that the industry uses the term “hard cider” to include products that may not qualify for the hard cider tax rate. Moreover, TTB does not require that products qualifying for the hard cider tax rate be labeled with the words “hard cider.” In order to preserve this labeling flexibility without creating ambiguity regarding the appropriate tax class, TTB is imposing a new tax class statement on hard cider eligible for the hard cider tax rate: for hard cider removed from wine premises on or after January 1, 2018, the label must include the statement “Tax class 5041(b)(6).” This tax class statement may appear anywhere on any label, or may be on a sticker on the container. The addition of the tax class statement to an approved label does not require a new COLA. Formula Requirements: The Industry Circular also provides guidance on which cider products require formula approval. Generally, hard cider produced in a traditional method from apples or pears does not require formula approval. However, hard ciders that contain other ingredients, such as spices, honey, or hops, will require formula approval. Carbonation: Finally, the TTB’s guidance addresses several issues relating to a hard cider’s carbonation level. If a product contains more than 0.64 grams of carbon dioxide per 100 milliliters, that product is classified and taxed at the higher tax rates applicable to “sparkling wine” or “artificially carbonated wine.” The acceptable tolerance for error with respect to carbonation levels is 0.009 grams of carbon dioxide per 100 milliliters of hard cider. Producers of hard cider must test and keep records of carbonation levels. For more information regarding hard cider licensing and regulatory requirements, contact one of the attorneys at Strike & Techel.

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

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

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

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Strike & Techel Welcomes Tom Kerr as a Partner.

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

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Governor Cuomo Vetoes Empire Wine Bill (Again)

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

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Illinois SB 2989: Unlicensed Direct Wine Shippers Beware

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

Effective January 1, 2016, the California ABC Act contains a new section that loosens the restrictions suppliers face when mentioning a retailer in a social media post. Newly added Business and Professions Code § 23355.3 is aimed at clarifying how suppliers and retailers can co-sponsor nonprofit events. It was drafted, in part, as a response to the backlash that occurred after the ABC filed accusations against several wineries for advertising sponsorship of the “Save Mart Grape Escape” charity fundraising event in 2014. In that instance, several wineries posted or tweeted their support and sponsorship of the event on social media. The ABC reasoned that the suppliers were impermissibly advertising for Save Mart, a retailer, even though the event was held under a nonprofit permit issued to a bona fide nonprofit organization. The ABC alleged that by posting or tweeting about the event, the suppliers were giving a thing of value to the retailer, a practice that has long been considered a violation of California’s tied house restrictions. California law has long permitted supplier licensees to sponsor nonprofit events if the nonprofit gets an event license, and the new law does not fundamentally change that. However, the new section clarifies that a supplier may advertise sponsorship or participation in such events even if a retailer is also a named sponsor of the event. Payments or other consideration to the retailer are still considered a thing of value, and are not allowed, but social media postings no longer fall under that broad category. There are restrictions on what the supplier is permitted to post about the retailer; posts cannot contain the retail price of alcoholic beverages and cannot promote or advertise for the retail licensee beyond mentioning sponsorship or participation in the event. The supplier can share a retailer’s advertisement for the event on social media, but the supplier is not permitted to pay or reimburse the retailer for any advertisement and cannot demand exclusivity of its products at the event. In short, the new section will allow exactly the type of supplier social media support that occurred in the Save Mart Grape Escape situation.

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Beer that isn’t Beer, Wine that isn’t Wine and Drinks that aren’t Beverages

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 •

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IMBIBE+BLOG

Welcome to IMBIBLOG, the blog of Strike & Techel. We are attorneys specializing in the laws and regulations governing alcoholic beverages, also known as liquor law or alcohol law. Liquor law is a specialized area of legal practice. Compared to other areas of legal specialization, there are relatively few lawyers specializing in alcoholic beverage law. If you are considering starting a business related to alcohol, you will benefit from working with a competent liquor lawyer. The team at Strike & Techel is experienced and can serve as your TTB lawyer, ABC lawyer, beer lawyer, wine lawyer or distilled spirits lawyer. We are familiar with TTB law as well as state ABC law in California and across the country. Preparing and applying for the necessary alcohol beverage licenses is a big part of the alcohol beverage practice and Strike & Techel is highly experienced with ABC license applications and TTB license applications. We are based in San Francisco and are particularly familiar with the alcohol laws and regulations of our city. The attorneys at our firm practice alcoholic beverage law exclusively. This blog is our place to tell you about current issues of interest for those in the business of making, promoting, and selling alcoholic beverages.

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