Existing law, the Alcoholic Beverage Control Act, which is administered by the Department of Alcoholic Beverage Control, regulates the application, issuance, and suspension of alcoholic beverage licenses. Under the act, a brandy manufacturers license authorizes the licensee to conduct tastings of brandy, subject to certain conditions, including a prohibition on giving tastings on the licensees premises in the form of a cocktail or a mixed drink.

This bill would remove that prohibition from the conditions under which a licensee may conduct tastings of brandy.

Existing law, known as tied-house restrictions, prohibits various alcoholic beverage licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. Existing law generally provides that a violation of the act is a crime.

This bill would revise the tied-house restriction described above to apply instead to the advertising and sale of alcoholic beverages. The bill would include out-of-state beer manufacturer certificate holders and their officers, directors, and agents among the individuals who are subject to the revised tied-house restriction.

Existing law also prohibits paying money or giving or furnishing anything of value for the privilege of placing or painting a sign or advertisement or window display on or in any premises selling alcoholic beverages at retail.

This bill would expand that restriction to include providing credit or rebate for that privilege, which the bill would also expand to include the placing or painting of a floor display on or in those premises.

Existing law authorizes any manufacturer, winegrower, manufacturers agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent of any of those persons to furnish, give, lend, sell, or rent specified types of signs, including signs relating to advertising beer.

This bill would require interior signs advertising beer that are customized for the retailer to be sold by the wholesaler at a price not less than current market price.

By expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Alcoholic Beverage Control Act, which is administered by the Department of Alcoholic Beverage Control, regulates the application, issuance, and suspension of alcoholic beverage licenses. Under the act, a brandy manufacturers license authorizes the licensee to conduct tastings of brandy, subject to certain conditions, including a prohibition on giving tastings on the licensees premises in the form of a cocktail or a mixed drink.

This bill would remove that prohibition from the conditions under which a licensee may conduct tastings of brandy.

Existing law, known as tied-house restrictions, prohibits various alcoholic beverage licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. Existing law generally provides that a violation of the act is a crime.

This bill would revise the tied-house restriction described above to apply instead to the advertising and sale of alcoholic beverages. The bill would include out-of-state beer manufacturer certificate holders and their officers, directors, and agents among the individuals who are subject to the revised tied-house restriction.

Existing law also prohibits paying money or giving or furnishing anything of value for the privilege of placing or painting a sign or advertisement or window display on or in any premises selling alcoholic beverages at retail.

This bill would expand that restriction to include providing credit or rebate for that privilege, which the bill would also expand to include the placing or painting of a floor display on or in those premises.

Existing law authorizes any manufacturer, winegrower, manufacturers agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent of any of those persons to furnish, give, lend, sell, or rent specified types of signs, including signs relating to advertising beer.

This bill would require interior signs advertising beer that are customized for the retailer to be sold by the wholesaler at a price not less than current market price.

By expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Alcoholic Beverage Control Act, which is administered by the Department of Alcoholic Beverage Control, regulates the application, issuance, and suspension of alcoholic beverage licenses. Existing Under the act, a brandy manufacturers license authorizes the licensee to conduct tastings of brandy, subject to certain conditions, including a prohibition on giving tastings on the licensees premises in the form of a cocktail or a mixed drink.

Existing law, known as tied-house restrictions, prohibits various alcoholic beverage licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. Existing law generally provides that a violation of the act is a crime.

This bill would revise the tied-house restriction described above to apply instead to the advertising and sale of alcoholic beverages. The bill would include out-of-state beer manufacturer certificate holders and their officers, directors, and agents among the individuals who are subject to the revised tied-house restriction.

Existing law also prohibits paying money or giving or furnishing anything of value for the privilege of placing or painting a sign or advertisement or window display on or in any premises selling alcoholic beverages at retail.

This bill would expand that restriction to include providing credit or rebate for that privilege. privilege, which the bill would also expand to include the placing or painting of a floor display on or in those premises.

Existing law authorizes any manufacturer, winegrower, manufacturers agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent of any of those persons to furnish, give, lend, sell, or rent specified types of signs, including signs relating to advertising beer.

This bill would require interior signs advertising beer that are customized for the retailer to be sold by the wholesaler at a price not less than current market price.

By expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Alcoholic Beverage Control Act, which is administered by the Department of Alcoholic Beverage Control, regulates the application, issuance, and suspension of alcoholic beverage licenses. Existing law, known as tied-house restrictions, prohibits various licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. Existing law generally provides that a violation of the act is a crime.

This bill would revise the tied-house restriction described above to apply instead to the advertising and sale of alcoholic beverages. The bill would include out-of-state beer manufacturer certificate holders and their officers, directors, and agents among the individuals who are subject to the revised tied-house restriction.

Existing law also prohibits the above-described individuals from furnishing, giving, lending, or renting to any person any decorations, paintings, or signs, except as specified.

This bill would expand that restriction to include the furnishing, giving, lending, or renting of other related things of value.

Existing law also prohibits paying money or giving or furnishing anything of value for the privilege of placing or painting a sign or advertisement or window display on or in any premises selling alcoholic beverages at retail.

This bill would expand that restriction to include providing credit or rebate for that privilege.

By expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Alcoholic Beverage Control Act, which is administered by the Department of Alcoholic Beverage Control, regulates the application, issuance, and suspension of alcoholic beverage licenses. Existing law, known as tied-house restrictions, prohibits various licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. Existing law generally provides that a violation of the act is a crime.

This bill would revise the tied-house restriction described above to apply instead to the advertising and sale of alcoholic beverages. By

By expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Alcoholic Beverage Control Act, which is administered by the Department of Alcoholic Beverage Control, regulates the application, issuance, and suspension of alcoholic beverage licenses. Existing law, known as tied-house restrictions, prohibits various licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. Existing law generally provides that a violation of the act is a crime.

This bill would revise the tied-house restriction described above to apply instead to the advertising and sale of alcoholic beverages. By expanding the scope of an existing crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 546

Author:(Villapudua)

As Amended Ver:August 28, 2023

Majority vote

SUMMARY

This bill expands and clarifies an existing tied-house restriction that prohibits alcohol licensees from, among other things, paying, crediting, or compensating a retailer for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages. Additionally, the bill clarifies that specified alcohol licensees may sell customized interior signs to retailers at a price not less than current market value. Finally, the bill removes a current prohibition that prohibits a brandy manufacturer from conducting tastings of brandy in the form of a cocktail or a mixed drink.

Senate Amendments

1. Clarify that interior signs advertising beer that are customized for the retailer shall be sold by the wholesaler at a price not less than current market price.
2. Include out-of-state beer manufacturer certificate holders and their officers, directors, and agents among the individuals who are subject to the revised tied-house restriction.
3. Remove a current prohibition that prohibits a brandy manufacturer from conducting tastings of brandy in the form of a cocktail or a mixed drink.
4. Make technical and clarifying changes.

COMMENTS

Background.

Tied-house laws. State and federal laws generally prohibit certain relationships among those who produce, distribute, and sell alcoholic beverages. The term "tied-house" is derived from a common practice in England whereby a bar or public house was "tied" – by ownership, contractual obligations, or other influences – to a specific manufacturer. In some instances, that model encouraged intemperance in alcohol consumption. This was because retailers would offer manufacturers generous favors, such as expensive business meals and gifts. In order to recoup these costs, aggressive product promotion was needed.  Manufacturers sometimes used their influence to force tied houses to sell their products and exclude products from other manufacturers.

As a result, after the repeal of prohibition in 1933, California's current "three-tier" system was introduced. This body of law was initially created to: a) promote the state's interest in an orderly market; b) prohibit vertical integration and dominance by a single producer in the market place; c) stop commercial bribery and safeguard the public from predatory marketing techniques; d) discourage and/or prevent intemperate drinking.

Exceptions and interpretation of Tied-house laws. Existing laws and/or Tied-house laws generally prohibit manufacturers, winegrowers, and distributors from offering anything of value, including services to retail licensees. Specifically, the Act regulates the provision of signs and other advertising material to licensed retail premises by manufacturers and others under the "tied-house" and "free goods" provisions. Existing law provides that no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as allowed by the department.

It should be noted that numerous exceptions to this restriction have been enacted through the years in specific instances where the Legislature determined that the public's interests were protected. However, the Legislature traditionally does not grant exemptions that favor the products of the entity seeking the exemption or exemptions that unfairly compromise the role of distributors and/or create an unfair advantage for one licensee over another.

The ABC has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcoholic beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect ABC's current interpretation and the industry's understanding of the alcohol beverages covered by the prohibition. It would also provide further definitional clarification of what are prohibited things of value.

Custom Signs. Distributors have in house print shops that are used for merchandising signage. Occasionally alcohol retailers have asked these distributors to print signage for them that is separate from what is provided through their distribution account. This has been happening for decades. Recently the Department of ABC raised concerns that this might be problematic given the provisions under tied-house rules and recommended that the law be changed to ensure compliance with the ABC Act. This bill simply clarifies that distributors can sell customized interior signage as long as the price is not less than current market value.

Brandy Tastings. Current law authorizes a brandy manufacturer to provide tastings of brandy, subject to certain conditions, including a prohibition on giving tastings on the licensed premises in the form of a cocktail or a mixed drink. This bill removes that prohibition and thus allowing brandy manufacturers to provide for tasting of brandy in the form of a cocktail or a mixed drink on the brandy manufacturer's licensed premises.

According to the Author

According to the author's office, "This bill will ensure further clarification that the prohibition on paying, crediting, or compensating a retailer for advertising, display, or distribution services in connection with the advertising and sale of distilled spirits applies to all alcohol beverages. The statutory prohibition on paying a retailer for the privilege of placing advertising should be broadened to further identify credits and rebates as things of value, not just money."

Arguments in Support

According to the California Beer & Beverage Distributors, "the [ABC] has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcohol beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect the current department interpretation and industry understanding of the alcohol beverages covered by the prohibition and to provide further definitional clarification of what are prohibited things of value."

Arguments in Opposition

None on file.

FISCAL COMMENTS

According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

VOTES:

ASM GOVERNMENTAL ORGANIZATION: 20-0-2

YES: Santiago, Lackey, Aguiar-Curry, Berman, Bryan, Megan Dahle, Davies, Garcia, Gipson, Jones-Sawyer, Low, McCarty, McKinnor, Jim Patterson, Quirk-Silva, Ramos, Robert Rivas, Blanca Rubio, Ta, Villapudua

ABS, ABST OR NV: Cervantes, Mathis

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Robert Rivas, Sanchez, Ortega

ABS, ABST OR NV: Weber

ASSEMBLY FLOOR: 76-0-4

YES: Addis, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones‑Sawyer, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk‑Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

ABS, ABST OR NV: Aguiar-Curry, Kalra, Mathis, Papan

SENATE FLOOR: 40-0-0

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

UPDATED

VERSION: August 28, 2023

CONSULTANT: Eric Johnson / G.O. / (916) 319-2531 FN: 0001976

 THIRD READING  

Bill No: AB 546

Author: Villapudua (D)

Amended: 8/28/23 in Senate

Vote: 21

SENATE GOVERNMENTAL ORG. COMMITTEE: 15-0, 6/27/23

AYES: Dodd, Wilk, Alvarado-Gil, Archuleta, Ashby, Bradford, Glazer, Jones, Nguyen, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 76-0, 5/25/23 (Consent) - See last page for vote

SUBJECT: Alcoholic beverages: advertising and brandy tastings

SOURCE: California Beer and Beverage Distributors

DIGEST: This bill expands and clarifies an existing tied-house restriction that prohibits alcohol licensees from, among other things, paying, crediting, or compensating a retailer for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages. Additionally, the bill clarifies that specified alcohol licensees may sell customized interior signs to retailers at a price not less than current market value. Finally, the bill removes a current probhition that prohibits a brandy manufacturer from conducting tastings of brandy in the form of a cocktail or a mixed drink.

Senate Floor Amendments of 8/28/23 remove a current prohibition that prohibits a brandy manufacturer from conducting tastings of brandy in the form of a cocktail or a mixed drink.

Senate Floor Amendments of 8/14/23 clarify that specified alcohol licensees may sell customized interior signs to retailers at a price not less than current market value.

ANALYSIS:

Existing law:

1. Establishes the Department of Alcoholic Beverage Control (ABC) and grants it exclusive authority to administer the provisions of the ABC Act in accordance with laws enacted by the Legislature. This involves licensing individuals and businesses associated with the manufacture, importation, and sale of alcoholic beverages and the collection of license fees for this purpose.
2. Separates the alcoholic beverage industry into three component parts, or tiers, of the manufacturer (including breweries, wineries, and distilleries), wholesaler, and retailer (both on-sale and off-sale). This is referred to as the “tied-house” law or “three-tier” system. Generally, other than exceptions granted by the Legislature, the holder of one type of license is not permitted to do business as another type of licensee within the “three-tier” system.
3. Prohibits a manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits.
4. Authorizes specified licensees to furnish, give, lend, sell or rent interior signs, as specified.
5. Authorizes a brandy manufacturer to conduct tasting of brandy, subject to certain conditions, including a prohibition on giving tastings on the licensee’s premises in the form of a cocktail or a mixed drink.

This bill:

1. Adds to current tied-house restrictions that prohibits a manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer or wholesaler, or any officer, director, or agent of any such person, from doing any of the following:
   1. Pay, credit, or compensate a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages.
   2. Expands a restriction to providing “related things of value” to the things that cannot be furnished, given, lent, or rented to any person any decorations, paintings, or signs, except as specified.
   3. Adds a prohibition to “providing credit” and “rebates” for the privilege of placing or painting a sign or advertising, or window display, on or in any premises selling alcoholic beverages at retail.
2. Clarifies that alcohol licensees may sell customized interior signs to retailers at a price not less than current market value.
3. Removes a current probhition that prohibits a brandy manufacturer from conducting tastings of brandy in the form of a cocktail or a mixed drink.
4. Makes technical and clarifying changes to the ABC Act.

Background

Author Statement. According to the author’s office, “This bill will ensure further clarification that the prohibition on paying, crediting, or compensating a retailer for advertising, display, or distribution services in connection with the advertising and sale of distilled spirits applies to all alcohol beverages. The statutory prohibition on paying a retailer for the privilege of placing advertising should be broadened to further identify credits and rebates as things of value, not just money.”

Tied-House Laws. State and federal law prohibit certain relations between those engaged in the production, distribution, and retail sale of alcoholic beverages. The term “tied-house” is derived from a common practice in England whereby a bar or public house was “tied” - by ownership, contractual obligations, or other influences - to a specific manufacturer. In some instances, that model encouraged intemperance in alcohol consumption, as retailers would offer to manufacturers generous favors, such as expensive business meals and gifts, which added costs that needed to be recouped through aggressive product promotion. Tied houses were also subject to undue influence from manufacturers, who sometimes used their influence to force tied houses to sell their products and exclude other manufacturers’ products.

As a result, after the repeal of prohibition in 1933, California’s current “three-tier” system was introduced. The original policy rationale for this body of law was to: a) promote the state’s interest in an orderly market; b) prohibit the vertical integration and dominance by a single producer in the market place; c) prohibit commercial bribery and to protect the public from predatory marketing practices; and, d) discourage and/or prevent the intemperate use of alcoholic beverages.

Current Department of ABC Interpretation. Existing laws and/or Tied-house laws generally prohibit manufacturers, winegrowers, and distributors from offering anything of value, including services to retail licensees. Specifically, the ABC Act regulates the provision of signs and other advertising material to licensed retail premises by manufacturers and others under the "tied-house" and "free goods" provisions.

Existing law provides that no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as allowed by the department. It should be noted that numerous exceptions to this restriction have been enacted through the years in specific instances where the Legislature determined that the public’s interests were protected.

The Department of ABC has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcoholic beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect the Department of ABC’s current interpretation and the industry's understanding of the alcohol beverages covered by the prohibition. It would also provide further definitional clarification of what are prohibited things of value.

Custom Signs. Distributors have in house print shops that are used for merchandising signage. Occasionally alcohol retailers have asked these distributors to print signage for them that is separate from what is provided through their distribution account. This has been happening for decades. Recently the Department of ABC raised concerns that this might be problematic given the provisions under tied-house rules and recommended that the law be changed to ensure compliance with the ABC Act. This bill simply clarifies that distributors can sell customized interior signage as long as the price is not less than current market value.

Brandy Tastings. Current law authorizes a brandy manufacturer to provide tastings of brandy, subject to certain conditions, including a prohibition on giving tastings on the licensed premises in the form of a cocktail or a mixed drink. This bill removes that prohibition and thus allowing brandy manufacturers to provide for tasting of brandy in the form of a cocktail or a mixed drink on the brandy manufacturer’s licensed premises.

Related/Prior Legislation

AB 1149 (Villapudua, Chapter 271, Statutes of 2021) extended a tied-house exception to limitations provided for beer, to also apply to brands of distilled spirits and wine in single-serve containers for the purpose of stocking, rotating, displaying, and merchandising the product by specified distributor licensees at off-sale retail outlets.

AB 113 (Low, Chapter 623, Statutes of 2019) allowed a beer manufacturer to give up to five cases of glassware to each on-sale retail licensee and allows an on-sale retail licensee to accept, up to 10 cases of retail advertising glassware, per year per licensed premises, from any license beer manufacturers.

AB 1246 (Mcleod, Chapter 395, Statutes of 2008) allowed a beer wholesaler to sell exterior signs advertising beer for use at any on-sale or off-sale retail premises at no less than cost, as defined.

AB 395 (Briggs, Chapter 207, Statutes of 2001) provided that interior signs advertising beer that are provided to on or off-sale retail establishments remain the property of the beer wholesaler who authorized and furnished the signs, unless given or sold to the licensee.

AB 973 (Papan, Chapter 26, Statutes of 1997) clarified the type of alcohol advertising signs manufacturers and wholesalers may provide to retail licensees, with interior signs advertising beer, bearing conspicuous notice of the beer manufacturer's name and other information identifying the beer manufacturer's name or product as specified.

AB 3144 (Granlund, Chapter 99, Statutes of 1996) among other things, allowed a wholesaler to furnish acrylic tent holders to retailers in addition to other specified permissible items.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 8/29/23)

California Beer and Beverage Distributors (source)

Alcohol Justice

OPPOSITION: (Verified 8/29/23)

None received

ARGUMENTS IN SUPPORT: According to the California Beer & Beverage Distributors, “the [Department of ABC] has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcohol beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect the current department interpretation and industry understanding of the alcohol beverages covered by the prohibition and to provide further definitional clarification of what are prohibited things of value.”

ASSEMBLY FLOOR: 76-0, 5/25/23

AYES: Addis, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO VOTE RECORDED: Aguiar-Curry, Kalra, Mathis, Papan

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

8/29/23 13:20:11

**** END ****

SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Bill Dodd

Chair

2023 - 2024 Regular

Bill No: 546 Hearing Date: 6/27/2023

SUBJECT: Tied-house restrictions

DIGEST: This bill expands and clarifies an existing tied-house restriction that prohibits alcohol licensees from, among other things, paying, crediting, or compensating a retailer for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages.

ANALYSIS:

Existing law:

1. Establishes the Department of Alcoholic Beverage Control (ABC) and grants it exclusive authority to administer the provisions of the ABC Act in accordance with laws enacted by the Legislature. This involves licensing individuals and businesses associated with the manufacture, importation, and sale of alcoholic beverages and the collection of license fees for this purpose.
2. Separates the alcoholic beverage industry into three component parts, or tiers, of the manufacturer (including breweries, wineries, and distilleries), wholesaler, and retailer (both on-sale and off-sale). This is referred to as the “tied-house” law or “three-tier” system. Generally, other than exceptions granted by the Legislature, the holder of one type of license is not permitted to do business as another type of licensee within the “three-tier” system.
3. Prohibits a manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits.

This bill:

1. Adds to current tied-house restrictions that prohibits a manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer or wholesaler, or any officer, director, or agent of any such person, from doing any of the following:
   1. Pay, credit, or compensate a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages.
   2. Expands a restriction to providing “related things of value” to the things that cannot be furnished, given, lent, or rented to any person any decorations, paintings, or signs, except as specified.
   3. Adds a prohibition to “providing credit” and “rebates” for the privilege of placing or painting a sign or advertising, or window display, on or in any premises selling alcoholic beverages at retail.
2. Makes technical and clarifying changes to the ABC Act.

Background

Author Statement. According to the author’s office, “this bill will ensure further clarification that the prohibition on paying, crediting, or compensating a retailer for advertising, display, or distribution services in connection with the advertising and sale of distilled spirits applies to all alcohol beverages. The statutory prohibition on paying a retailer for the privilege of placing advertising should be broadened to further identify credits and rebates as things of value, not just money.”

Tied-House Laws. State and federal law prohibit certain relations between those engaged in the production, distribution, and retail sale of alcoholic beverages. The term “tied-house” is derived from a common practice in England whereby a bar or public house was “tied” - by ownership, contractual obligations, or other influences - to a specific manufacturer. In some instances, that model encouraged intemperance in alcohol consumption, as retailers would offer to manufacturers generous favors, such as expensive business meals and gifts, which added costs that needed to be recouped through aggressive product promotion. Tied houses were also subject to undue influence from manufacturers, who sometimes used their influence to force tied houses to sell their products and exclude other manufacturers’ products.

As a result, after the repeal of prohibition in 1933, California’s current “three-tier” system was introduced. The original policy rationale for this body of law was to: a) promote the state’s interest in an orderly market; b) prohibit the vertical integration and dominance by a single producer in the market place; c) prohibit commercial bribery and to protect the public from predatory marketing practices; and, d) discourage and/or prevent the intemperate use of alcoholic beverages.

Current Department of ABC Interpretation. Existing laws and/or Tied-house laws generally prohibit manufacturers, winegrowers, and distributors from offering anything of value, including services to retail licensees. Specifically, the ABC Act regulates the provision of signs and other advertising material to licensed retail premises by manufacturers and others under the "tied-house" and "free goods" provisions.

Existing law provides that no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as allowed by the department. It should be noted that numerous exceptions to this restriction have been enacted through the years in specific instances where the Legislature determined that the public’s interests were protected.

The Department of ABC has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcoholic beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect the Department of ABC’s current interpretation and the industry's understanding of the alcohol beverages covered by the prohibition. It would also provide further definitional clarification of what are prohibited things of value.

Prior/Related Legislation

AB 1149 (Villapudua, Chapter 271, Statutes of 2021) extended a tied-house exception to limitations provided for beer, to also apply to brands of distilled spirits and wine in single-serve containers for the purpose of stocking, rotating, displaying, and merchandising the product by specified distributor licensees at off-sale retail outlets.

AB 113 (Low, Chapter 623, Statutes of 2019) allows a beer manufacturer to give up to five cases of glassware to each on-sale retail licensee and allows an on-sale retail licensee to accept, up to 10 cases of retail advertising glassware, per year per licensed premises, from any license beer manufacturers.

AB 1246 (Mcleod, Chapter 395, Statutes of 2008) allows a beer wholesaler to sell exterior signs advertising beer for use at any on-sale or off-sale retail premises at no less than cost, as defined.

AB 395 (Briggs, Chapter 207, Statutes of 2001) provides that interior signs advertising beer that are provided to on or off-sale retail establishments remain the property of the beer wholesaler who authorized and furnished the signs, unless given or sold to the licensee.

AB 973 (Papan, Chapter 26, Statutes of 1997) clarifies the type of alcohol advertising signs manufacturers and wholesalers may provide to retail licensees, with interior signs advertising beer, bearing conspicuous notice of the beer manufacturer's name and other information identifying the beer manufacturer's name or product as specified.

AB 3144 (Granlund, Chapter 99, Statutes of 1996) among other things, allows a wholesaler to furnish acrylic tent holders to retailers in addition to other specified permissible items.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

California Beer and Beverage Distributors (Source)

Alcohol Justice

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the California Beer & Beverage Distributors, “the [Department of ABC] has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcohol beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect the current department interpretation and industry understanding of the alcohol beverages covered by the prohibition and to provide further definitional clarification of what are prohibited things of value.”

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 546

Author:(Villapudua) – As Amended Ver:March 14, 2023

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill makes clarifying and conforming changes to tied-house restrictions under the Alcoholic Beverage Control Act.

Specifically, this bill prohibits certain licensees from paying, crediting, or compensating a retailer for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages, not just distilled spirits. This bill also further details prohibited exchanges between licensees.

FISCAL EFFECT:

No costs to the Department of Alcoholic Beverage Control (ABC), which indicates this bill’s proposed changes are consistent with existing law.

COMMENTS:

1. Purpose. According to the author, “this bill will ensure further clarification that the prohibition on paying, crediting, or compensating a retailer for advertising, display, or distribution services in connection with the advertising and sale of distilled spirits applies to all alcoholic beverages.” This bill is supported by Alcohol Justice and the California Beer and Beverage Distributors.
2. Tied-house Law. California’s tied-house law prevents the vertical integration of the alcohol industry by keeping the manufacturer, wholesaler, and retailer separated. Generally, one type of license holder is not permitted to do business as another type of licensee, and licensees are prohibited from directly or indirectly giving away anything of value, such as free goods, services, or advertising, in connection with the sale or distribution of an alcoholic beverage.

ABC has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcoholic beverages, but the current statute only specifies distilled spirits. This bill codifies ABC’s current interpretation and the industry’s understanding of the alcoholic beverages covered by this prohibition.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: March 22, 2023

ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION

Miguel Santiago, Chair

ABPCA Bill Id:AB 546 (

Author:Villapudua) – As Amended Ver:March 14, 2023

SUBJECT: Tied-house restrictions

SUMMARY: This bill would expand and clarify an existing Tied-house restriction that prohibits various licensees, or their officer, director, or agent, from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages. Specifically, this bill:

1) Adds to current Tied-house restrictions that prohibits a manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent of any such person, from doing any of the following:

a) Pay, credit, or compensate a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of alcoholic beverages.

b) Expands a restriction to providing “related things of value” to the things that cannot be furnished, given, lent, or rented to any person any decorations, paintings, or signs, except as specified.

c) Add a prohibition to “providing credit” and “rebates” for the privilege of placing or painting a sign or advertisement, or window display, on or in any premises selling alcoholic beverages at retail.

2) Makes technical and clarifying changes to the Alcoholic Beverage Control Act (Act).

EXISTING LAW:

1) The enactment of the 21st Amendment to the United States (U.S.) Constitution in 1933 repealed the 18th Amendment and ended the era of Prohibition. Accordingly, states were granted the authority to establish alcoholic beverage laws and administrative structures to
regulate the sale and distribution of alcoholic beverages.

2) Establishes the Department of Alcoholic Beverage Control (ABC) and grants it exclusive authority to administer the provisions of the Act in accordance with laws enacted by the Legislature. This involves licensing individuals and businesses associated with the manufacture, importation, and sale of alcoholic beverages and the collection of license fees for this purpose.

3) Provides, under the Act, for the issuance of various categories of alcoholic beverage licenses, including the imposition of fees, conditions, and restrictions in connection with the issuance of those licenses.

4) Existing law, known as the "Tied-house" law, separates the alcoholic beverage industry into three component parts of manufacturer, wholesaler, and retailer. The original policy
rationale for this body of law was to prohibit the vertical integration of the alcohol industry
and to protect the public from predatory marketing practices. Generally, other than
exemptions granted by the Legislature, the holder of one type of license is not permitted to
do business as another type of licensee within the "three-tier" system.

5) Prohibits manufacturer, winegrower, manufacturer’s agent, California winegrower’s agent, rectifier, distiller, bottler, importer, or wholesaler, or any officer, director, or agent from, among other things, paying, crediting, or compensating a retailer or retailers for advertising, display, or distribution service in connection with the advertising and sale of distilled spirits. (California Business and Professions Code § 25503)

6) Provides no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as authorized by this rule or the Act. (ABC Rule § 106)

6) States that no more than 33% of the square footage of the windows and clear doors may have advertising or signs of any sort. Signage shall be placed so that law enforcement personnel have a clear and unobstructed view of the interior of the store from the outside. This includes areas where the cash register is located. (California Business and Professions Code § 25612.5)

FISCAL EFFECT: This bill has been keyed fiscal by Legislative counsel.

COMMENTS:

Background.

Tied-house laws. State and federal laws generally prohibit certain relationships among those who produce, distribute, and sell alcoholic beverages. The term "tied-house" is derived from a common practice in England whereby a bar or public house was "tied"—by ownership, contractual obligations, or other influences—to a specific manufacturer. In some instances, that model encouraged intemperance in alcohol consumption. This was because retailers would offer manufacturers generous favors, such as expensive business meals and gifts. In order to recoup these costs, aggressive product promotion was needed.  Manufacturers sometimes used their influence to force tied houses to sell their products and exclude products from other manufacturers.

As a result, after the repeal of prohibition in 1933, California’s current “three-tier” system was introduced. This body of law was initially created to: a) promote the state’s interest in an orderly market; b) prohibit vertical integration and dominance by a single producer in the market place; c) stop commercial bribery and safeguard the public from predatory marketing techniques; d) discourage and/or prevent intemperate drinking.

Exceptions and interpretation of Tied-house laws. Existing laws and/or Tied-house laws generally prohibit manufacturers, winegrowers, and distributors from offering anything of value, including services to retail licensees. Specifically, the Act regulates the provision of signs and other advertising material to licensed retail premises by manufacturers and others under the "tied-house" and "free goods" provisions. Existing law provides that no licensee shall, directly or indirectly, give any premium, gift, free goods, or other thing of value in connection with the sale, distribution, or sale and distribution of alcoholic beverages, and no retailer shall, directly or indirectly, receive any premium, gift, free goods or other thing of value from a supplier of alcoholic beverages, except as allowed by the department.

It should be noted that numerous exceptions to this restriction have been enacted through the years in specific instances where the Legislature determined that the public’s interests were protected. However, the Legislature traditionally does not grant exemptions that favor the products of the entity seeking the exemption or exemptions that unfairly compromise the role of distributors and/or create an unfair advantage for one licensee over another.

The ABC has maintained a long-standing interpretation that prohibits any financial benefit to a retailer in connection with the advertising and sale of all alcoholic beverages, but the current statute only specifies distilled spirits. AB 546 would amend the statute to reflect ABC’s current interpretation and the industry's understanding of the alcohol beverages covered by the prohibition. It would also provide further definitional clarification of what are prohibited things of value.

Purpose of the bill. According to the author’s office, "this bill will ensure further clarification that the prohibition on paying, crediting, or compensating a retailer for advertising, display, or distribution services in connection with the advertising and sale of distilled spirits applies to all alcohol beverages." The author’s office also states that the statutory prohibition on paying a retailer for the privilege of placing advertising should be broadened to further identify credit and rebates as things of value, not just money.

Prior legislation. AB 1149 (Villapudua), Chapter 271, Statutes of 2021. Allowed specified manufacturers and wholesalers to merchandise (e.g., stock and arrange products on shelves, etc.) single-serve containers of wine and distilled spirits, similar to as currently authorized for beer, at off-sale retail licensed premises.

AB 1133 (Low), Chapter 623, Statutes of 2019. Allowed a beer manufacturer to give up to five cases of retail advertising glassware to each on-sale retail licensee and allowed an on-sale retail licensee to accept, up to 10 cases of retail advertising glassware, per year per licensed premises, from any licensed beer manufacturers.

SB 1246 (Negrete McLeod), Chapter 395, Statutes of 2008. Allowed a beer wholesaler to sell or rent exterior signs advertising beer for use at any on-sale or off-sale retail premises at no less than "cost," as defined in existing law.

AB 395 (Briggs), Chapter 207, Statutes of 2001. Provided that interior signs advertising beer that are provided to on or off-sale retail establishments remain the property of the beer wholesaler who authorized and furnished the signs, unless given or sold to the licensee.

AB 973 (Papan), Chapter 26, Statutes of 1997. Clarified the type of alcohol advertising signs manufacturers and wholesalers may provide to retail licensees, with interior signs advertising beer, bearing conspicuous notice of the beer manufacturer's name and other information identifying the beer manufacturer's name or product as specified.

AB 3144 (Granlund), Chapter 99, Statutes of 1996. Among other things, allowed a wholesaler to furnish acrylic tent holders to retailers in addition to other specified permissible items.

REGISTERED SUPPORT / OPPOSITION:

Support

Alcohol Justice

California Beer and Beverage Distributors

Opposition

None on file

Analysis Prepared by: Eric Johnson / G.O. / (916) 319-2531