Reported by Zachary Reeves, John Hinman, and the Hinman & Carmichael LLP team.
The California legislature adopted, and the Governor approved, several changes to the state’s alcohol laws for 2024, with many amendments already effective. Below is our summary of the new laws that producers, wholesalers, and retailers of beer, wine, and spirits should know are now binding on them, along with our editorial comments on what the laws mean to our clients.
A. SB 1013 and SB 353 [CA Bus. & Prof. Code § 23661.3, CA Public Resources Code §§ 14500, et seq.] – The Bottle Bill Amendments
Hinman & Carmichael Analysis of Importance and Effect of Legislation: This is the most important and far-reaching piece of legislation to come out this year – it will affect licensees at all levels and will bring wine and distilled spirit bottles on par with all other recyclable beverage containers. The amendments were to the California Beverage Container Recycling and Litter Reduction Act (known as the “Bottle Bill”).
Wine and distilled spirits were previously not included in the Bottle Bill’s onerous requirements on beverage manufacturers, distributors, and retailers. Such requirements include filing reports with and making redemption payments to the Department of Resources Recycling and Recovery and ensuring specific California Redemption Value (“CRV”) language is included on beverage labels, among others. SB 1013 and SB 353 bring wine and distilled within the purview of the Bottle Bill.
Payment and Reporting Obligations
Starting on January 1, 2024, all beverage “distributors” of wine (including sparkling or carbonated wine, and wine which alcohol has been removed in whole or in part) and distilled spirits must report and pay the applicable CRV amount for beverage containers sold or transferred to a dealer or consumer in California. These fees are collected monthly by the Department of Resources Recycling and Recovery, with the first due date being February 28, 2024.
A beverage “distributor” is a person or entity that sells beverages in beverage containers to a “dealer” in California, including any manufacturer who engages in these sales and any person who imports beverages from outside of California for sale to dealers or consumers in California. A “dealer” is a retailer (on and off premises) who sells alcohol in original containers to go. On-site consumption sales are exempt. “Dealer” does not include lodging, eating, or drinking establishments, or wine, beer, or distilled spirits tasting rooms, however, if those entities sell beverages in the original beverage container to consumers to go, the distributor will need to make the redemption payment. But note, distributors will NOT have to make redemption payments on beverage containers used solely to pour wine, beer, or distilled spirits to consumers for consumption on the premises by a licensed wine, beer, or distilled spirits tasting room.
Confused yet? Don’t be. There will be hundreds of advisories about this requirement from the state and from your trade associations when this requirement kicks in. Even then, many will probably not get the message and there will be several months of chaos in the first part of 2024.
“Beverage manufacturers” of wine and distilled spirits will also have reporting and payment obligations for containers sold or transferred in California. Effective January 1, 2024, manufacturers will need to report and make payment by the 10th day of the 2nd month following the month of sales. This means the first report and payment for January 2024 will be due March 10, 2024. A “beverage manufacturer” of a beverage container containing beer, wine, or distilled spirits is “the person who holds the license from the Department of Alcoholic Beverage Control authorizing the manufacture of the [product], regardless of whether that person contracts with a third party to bottle, can or otherwise fill the beverage container, so long as the beverage container is provided for sale to a distributor, dealer, or consumer by the holder of the license.”
Labeling Requirements
All wine and distilled spirits sold after July 1, 2025, will need to comply with the CRV labeling requirements. The specific labeling requirements vary depending upon the type of container (e.g. aluminum, glass, plastic, etc.) but generally require a permanently affixed message about the container’s CRV value. But note, containers used in tasting rooms are exempt from these requirements. CRV labeling will be optional for wine and distilled spirits between January 1, 2024, and June 30, 2025.
Starting January 15, 2024, dealers (defined as a retail establishment that offers the sale of beverages in beverage containers to consumers) must identify the amount of any redemption payment imposed on a wine and/or beverage container on the shelf labels of the dealer’s establishment. This will require coordination with retailers and is certain to be the subject of much communication with retail accounts, who are not fond of cluttering their shelves with state mandated signs. More chaos for sure.
Wine producers should also note that starting July 1, 2025, Oregon will require canned wine to have an Oregon redemption value label (“OR 10¢” or “Oregon 10¢”). As of this writing it’s unclear how strict the TTB will be with requirements for existing or new label approvals. This is politics at its finest with punishment mixed in.
B. SB 498 [CA Bus. & Prof. Code §§ 23095, 24200.8, 25658] – Increase in Offers in Compromise
Hinman & Carmichael Analysis of Importance and Effect of Legislation: This is the ABC updating their fine schedule to make all violations very painful, especially second sale to minor violations within 3 years in ABC licensed establishments – including tasting rooms and by delivery services. If you receive a notice of violation from the ABC, we urge you to take it seriously and respond quickly to obtain and analyze the ABC’s investigation report. That way you will have time to make a reasoned decision on defending the matter.
Be careful people, $40,000 for delivering a bottle of beer or wine to a 20-year-old ABC decoy running a sting on your delivery service (for whom the licensee is responsible) is a hefty penalty, and a third violation means license revocation. We have been defending sales to minors and other ABC violation cases for four decades (up to and including the California Supreme Court) and in our experience, most violations result from a lack of attention at the point of sale, and a lack of compliance training of delivery, sales and marketing personnel.
Make no mistake, this is punishment.
The upper dollar-amount limits for Petition for Offer in Compromise (“POIC”) for all licensees for all violations, and for second-time offenders of selling to minors, will double starting January 1, 2024. The protocol is that a California licensee whose license has been suspended for 15 days or less may make a POIC to the California ABC. The ABC then has the option to accept the POIC rather than suspend the license. SB 498’s changes to the POIC amounts are:
Retail seller (including a winery with retail sale privileges) – first time accusation: increase of maximum amount from $3,000 to $6,000.
Retail seller – if any other accusations had been filed against them by the ABC during the prior 3 years: increase of maximum amount from $6,000 to $12,000.
All licensees – if a second violation of Section 25658 (selling to minors) occurs within 36 months of the initial violation: increase of maximum amount from $20,000 to $40,000 (shutting your business for 20 to 25 days is usually also an option); and
All furnishers of alcohol – if providing alcoholic beverages to persons under 21 that causes great bodily injury or death: increase of maximum amount from $1,000 to $3,000 (in addition to being a misdemeanor criminal act) and, often, license revocation.
C. AB 546 [CA Bus. & Prof. Code §§ 23363.3, 25503, 25611.1] – Advertising Tied-House Changes; Brandy Tastings
Hinman & Carmichael Analysis of Importance and Effect of Legislation: It seems that every year the industry trade associations are forced to introduce new legislation to clarify exceptions to the tied house laws and advertising restrictions because of strict ABC interpretations of existing regulations. The goal of the new legislation is to allow historic business and advertising practices to be conducted without the threat of an accusation from the ABC for violating the tied house laws (the tied house laws prohibit “things of value” going from suppliers to retailers except as permitted by an exception) on account of creative sales and marketing programs. The minimum supplier fine for one of these programs is $10,000 and every retail account in which the promotion is run will also be fined (now double, see above).
Every year some new marketing or advertising program is created and every year the ABC says that unless the program is specifically authorized, the program is prohibited, and action will be taken against the licensee responsible for the activity. The penalties can be in the hundreds of thousands of dollars (as one statewide grocery store chain running a promotion featuring sponsored game tokens found out in 2019).
AB 546 tightened the advertising-related tied house provisions, and loosened restrictions on brandy tastings.
The ABC has always taken the position that compensating retailers for advertisements violates the tied house laws. AB 546 updates the language of the tied house laws to reflect that current ABC position and set it in stone (as if there was an argument before).
While the statutory language of prohibited conduct has expanded, it should have no actual effect on businesses given the general understanding that compensation for advertising is prohibited. AB 546 clarifies that alcohol manufacturers, their agents, and wholesalers may not compensate retailers for advertisements related to the sale of “alcoholic beverages.” Previously, only compensation for “distilled spirits” advertisements was expressly prohibited (but again, the general understanding was that it applied to all alcoholic beverages). Additionally, providing “credit” or a “rebate” in exchange for the privilege of placing an advertisement at retail is now an expressly prohibited activity. Finally, it is now clear (as it was before by policy) that interior beer advertisements customized for a retailer must be sold by wholesalers at market price. When introducing the bill, assembly member Carlos Villapudua provided the below statement about the changes:
“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.
…
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.”
As for brandy tastings, the restriction on serving brandy as a cocktail or mixed drink at tastings has been removed. It is nice that brandy cocktails are no longer prohibited in tasting rooms. That is, we are sure, a major relief for brandy makers and those who enjoy Brandy Alexanders, Brandy Manhattans and Sidecars. No one is entirely sure how this snuck into the bill, but the previous restriction was, not to put too fine a point on it, silly.
This bill falls under the “we really mean it” standard of clarification.
D. AB 840 [CA Bus. & Prof Code § 25503.6] – Advertising on California State University Campuses
Hinman & Carmichael Analysis of Importance and Effect of Legislation: This is a bill that expressly permits wine, beer, spirits and RTD advertisements at college sports venues. This is an expanded exception to the tied house restrictions to allow for the purchase of advertising at various facilities on California State University campuses.
The exception already existed for many other sports arenas and stadiums so there was no good reason to discriminate against the CSU campuses – after all, state college students (probably) buy as much beer, wine and RTD’s as University students and NFL football fans.
Specifically, the additional exemptions will allow alcohol manufacturers (e.g. a beer manufacturer, the holder of a winegrower’s license, a rectifier, a craft distiller, a distilled spirits manufacturer, or distilled spirits manufacturer’s agent) to purchase advertising at California State University stadium and arena facilities in the counties of San Luis Obispo, Fresno, Sacramento, Monterey, Orange, Santa Clara, and Los Angeles, and on the campus of St. Mary’s College of California in the County of Contra Costa, and certain facilities in the County of San Bernardino, so if those are your schools you can now buy advertising space.
While this is politics, it’s also fairness.
E. AB 1704 [CA Bus. & Prof Code §§ 23015, 23358, 23961, 24072.3] – Winegrowers, Selling Spirits of Wine
Hinman & Carmichael Analysis of Importance and Effect of Legislation: This is a clarification for fairness and because the ABC read the previous exception narrowly. Holders of a winegrower’s license can now sell spirits of wine to distilled spirits manufacturers. Previously, a winegrower’s license allowed only for the sale of spirits of wine to a licensed winegrower to conduct specified activities, including the production of spirits of wine, provided those spirits of wine are blended into wine produced by the winegrower, sold to an industrial alcohol dealer, or destroyed by the winegrower.
While there is something almost ethereal about the phrase “spirits of wine,” this is a clarification of otherwise non-controversial activity.
F. AB 1088 [CA Bus. & Prof Code § 23504.5] – Craft Distillers, Selling Spirits Direct-to-Consumer
Hinman & Carmichael Analysis of Importance and Effect of Legislation: Licensed craft distillers can continue to directly ship distilled spirits manufactured or produced by the licensee directly to consumers through January 1, 2025. The privilege was set to expire on January 1, 2024.
DTC shipments of spirits are highly controversial. The bill is supported by state and federal distillers’ organizations (and small distilleries across the country) and opposed by the wholesalers (for competitive reasons) and the anti-alcohol groups because they view DTC sales as a cardinal sin leading generally to the for sure degradation of society and the end of civilization and the three-tier system as we know it. This issue is also in litigation in various places in the US, including in California, to permit distilleries from other states to be allowed to take advantage of California distiller privileges. This is a 21st Amendment/Commerce Clause case in progress. Visit the American Craft Spirits Association or National Association of Wine Retailers websites for more information. This is politics.
G. AB 1217 [CA Bus. & Prof Code § 25750.5, Gov. Code § 65907, Health & Safety Code § 114067] – Temporary Dining Premises Extended
Hinman & Carmichael Analysis of Importance and Effect of Legislation: Temporary outdoor dining has been extended until July 1, 2026 (it was set to expire on July 1, 2024). The bill will continue to allow on-sale licensees to exercise their privileges in an expanded area adjacent to their licensed premises. Allowing outdoor dining during the pandemic was a lifesaver for restaurants across the state. Now that the pandemic is basically over, restaurants and customers want to continue to enjoy a lunch or dinner with a glass of wine on a spring or summer afternoon or evening outside the venue and see no reason the privilege should be taken away.
The politics here are the restaurants’ trade associations against the anti-alcohol zealots. This battle is not yet over and will reemerge in 2025 when the privilege (unless made permanent) expires again.
H. SB 76 [CA Bus. & Prof Code §§ 23039.5, 23357, 23358, 23396, 23552, 25690] – San Francisco Entertainment Zones
Hinman & Carmichael Analysis of Importance and Effect of Legislation: The city and county of San Francisco can now, by ordinance, create an “entertainment zone” where alcohol can be consumed on public streets, sidewalks, or public rights-of-way adjacent to and during a special event permitted or licensed by the department.
Licensed beer manufacturers, licensed winegrowers, and any on-sale licensees can allow customers to leave the licensee’s premises with open containers of alcohol for consumption in any designated “entertainment zone.” This is the politics of entertainment.
This bill is supported by the entertainment venues, restaurants, and producers who can showcase their products at street fairs and similar events in communities across the state, where the nightlife groups want to see entertainment zones expanded (such as LA, San Diego, Sacramento, and Isla Vista). The opposition is the usual cabal of anti-alcohol groups who clutch their pearls and bemoan what is happening to the younger generation.
I. AB 416 [CA Bus. & Prof Code § 23398.5] – On-Sale Shochu
Hinman & Carmichael Analysis of Importance and Effect of Legislation: Shochu has been added as an acceptable product to sell for on-sale licensees authorized to sell wine. Shochu is defined as “an imported Japanese alcoholic beverage that contains not more than 24 percent of alcohol by volume and is derived from agricultural products.” The statute previously only allowed the sale of Soju, which is an “imported Korean alcoholic beverage that contains not more than 24 percent of alcohol by volume and is derived from agricultural products.” This is clarification because the ABC never really understood the product and wanted to make sure the license privileges tracked with the product constituents. Good on the ABC here.
J. SB 269 [CA Bus. & Prof Code § 25607] – Shared Premises – Craft Spirits and Brandy Manufacturers
Hinman & Carmichael Analysis of Importance and Effect of Legislation: Holders of a craft distilled spirits manufacturer’s license and/or brandy manufacturer’s license are now authorized under those licenses to maintain a designated area upon that premises where retail sales and consumption authorized under those licenses may occur.
This privilege was previously only held by holders of a beer manufacturer’s license or a winegrower’s license. This is, depending on how you view it, a clarification of an existing privilege, basic fairness for craft producers or simply the good sense to recognize that when a licensee has a privilege, they should be provided a place to exercise it.
K. SB 247 [CA Bus. & Prof Code § 23399.5] – Alcohol Service at Beauty Treatments
Hinman & Carmichael Analysis of Importance and Effect of Legislation: We love this bill. Cosmetologists, manicurists, and estheticians can now provide one serving of beer or wine at no charge to their customers. This privilege was previously reserved only for beauty salon and barber shop services. Our questions include how the customer whose nails are being painted will hold the glass, and what happens if the customer wants a refill (because these shops have no license to sell beer or wine). However, this will probably not result in a major shakedown of manicure studios across the state except, perhaps, in Sacramento where the ABC is headquartered. This is the creation of a privilege.
Welcome to 2024!
This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice please consult with your counsel.