Hard Cider Legislative Update

Hot on the heels of the craft beer revolution, hard cider is experiencing its own renaissance. Small labels are proliferating and widely available at retail locations, and cider bars are opening in major cities across the country. Hoping to capitalize on the craze, even larger producers like Stella Artois and Miller Coors are getting in on the action with Cidre (marketed towards women who would ordinarily choose white wine) and Smith & Forge (marketed towards men who would ordinarily choose beer). With so many new producers and products on the market, the confusing regulatory framework surrounding cider is now in the spotlight. Cider (including perry, or pear cider) has long resided in a legal grey area because it is regulated like wine (as it is made with fermented fruit), but often packaged and distributed like beer. Many consumers also treat cider as a substitute for beer, although this is changing (as Stella Artois is hoping with Cidre). This has led to many practical problems that states and the federal government are wrestling with. Below is an overview of recent legislative issues pertaining to cider – stay tuned for updates.

Federal Regulation

As TTB treats cider like wine for registration and labeling purposes, cider producers must register as a bonded winery, pay tax and follow other rules for winery operation per 27 CFR part 24, including TTB-enforced wine label requirements. However, the FDA, and not the TTB, has jurisdiction over the labeling of “diluted wine and cider” that contains less than 7% ABV.

Further complicating matters, TTB does not always treat cider like wine for the purposes of taxation. Depending on the sugar content of apples and the production technique, cider can be taxed like beer (if ABV is less than 7%), wine (if ABV exceeds 7%), or sparkling wine (if CO2 levels exceed a certain level).  As explained by the United States Association of Cider Makers:

Because many cider producers are small, craft operators, who rely on natural raw materials, they often have little ability to predict and control the precise alcohol content and carbonation level of their product. Meanwhile, cider consumers expect a somewhat high level of carbonation, equivalent to that of most beer.

To address these issues, Senators Chuck Schumer of New York and Patrick Leahy of Vermont are pushing legislation introduced last fall by Earl Blumenauer of Oregon (S 1531/ HR 2921) that would change the Internal Revenue Code to create a specific definition for hard cider (which would include pears) and tax it at the same rate as beer. The definition would also include a higher level of carbonation and align the allowable alcohol-content with the natural sugar content of apples (at least one-half of 1% and less than 8.5% ABV).

California

As mentioned in a previous Booze Rules post, AB 779 now permits a beer manufacturer who produces more than 60,000 barrels of beer per year to also manufacture cider. Until now, anyone who wanted to produce cider in California needed to obtain a winegrower’s license. This is still true for smaller craft producers, as the licensing exception only applies to larger operations. It is yet to be seen whether the small producers will demand equal treatment.

Colorado

HB 1346, backed by AB InBev and Miller Coors, would have allowed companies that make beer and also have an interest in a Colorado distribution company to import cider products directly without having to go through a specially licensed wine and spirits distributors, as cider imports to Colorado do now (because cider is classified as wine, beer distribution companies can’t directly import cider made out of state and sell it to retailers in Colorado). The bill was opposed by small producers and wholesalers who saw the legislation providing an unfair advantage to two wholesalers in the state owned by AB InBev and Miller Coors. Citing complexity and limited time remaining in the legislative session, the bill’s sponsor asked that it be tabled for future debate. More information can be found at the Denver Business Journal.

Maryland

Maryland’s 2014 legislative session included SB 0161, which amended the definition of hard cider to include pears. Hard cider in Maryland is taxed like beer (at 9 cents per gallon) and must be less than 7% ABV.

New York

As mentioned in a recent Booze Rules post, the NYSLA is proposing sweeping statutory revisions intended to revise and streamline the NY ABC law. With respect to cider, direct to consumer shipment rights would be extended to craft cider producers, and any producer with a NY direct shipping permit (including cider producers) would be able to ship products produced by others if those other producers were located within a 50-mile radius of the shipping producer. Additionally, manufacturers and “brand owners” would be able to obtain a permit to sell cider by the glass at special events. Liquor, wine and beer wholesale licenses would include the right to sell cider at wholesale.

 

California Legislative Roundup 2014

A new year brings new California laws regulating the alcoholic beverage industry and in our first Booze Rules post of 2014, we’re highlighting some of the biggest changes. AB 1116: Supplier Entertainment of Consumers Events

An issue near and dear to many of our clients engaging in consumer tasting events, Assemblymember Hall’s AB 1116 extends and slightly opens up B&P Code § 25600.5, which provides a mechanism for suppliers to entertain consumers off their premises and without charge.  Previously, these events were restricted to in-state licensees (distilled spirits manufacturers, winegrowers, rectifier, distillers or their authorized agents) and could only be conducted at premises not licensed for retail sale with the supplier purchasing the alcohol for the event from a licensed caterer.  Under the new law:

- Events may now be conducted by out-of-state distilled spirits shipper’s certificate holders. Note that wholesalers, beer manufacturers, out-of-state wineries and beer manufacturers are still excluded from hosting these events.

- Suppliers may now hold events on licensed hotel premises, except for lobby areas and areas designated as a club, nightclub, or other similar entertainment and alcohol may be purchased directly from the hotel, rather than using a caterer.   This is in addition to venues without a permanent retail license.

- The total number of consumers and their guests allowed at an event may be up to 600 people, instead of the previous limitation of 400 people.  Event hosts are still restricted to 12 events per calendar year with an attendance of more than 100 people and 24 events per calendar year with attendance of under 100 people.

This opens up areas like hotel restaurants and cafes (and permits hotels to cater these events), as long as the hotel keeps other areas open to the public not attending the event.  This is a welcome development for qualified suppliers who were struggling to find venues for their events.

We expect the ABC to issue a trade advisory outlining the changes to this section in the near future. In the meantime, for guidance about the other requirements for conducting these types of events, please see the ABC’s previous trade advisory here.

AB 636: More Bottlesignings!

AB 636 from Assemblymember Hall amends B&P Code § 25503.4, the winemaker’s dinner law, allowing you to add even more signed bottles to your collections.  According to the law that went into effect last year (B&P Code § 25502.2), suppliers and their agents may sign bottles at promotional events at off-sale retailers, but the same privilege was not explicitly extended to on-sale locations in the ABC Act (despite winemakers so commonly signing bottles at winemaker’s dinners that many believe the practice was implicitly authorized by the ABC).  With AB 636, winegrowers, wine importers and their agents may now also sign bottles at on-sale locations such as a restaurant where a winemaker hosts a winemaker’s dinner (B&P Code § 25503.4).  Note that beer and spirits suppliers are not included in this section—the privilege for on-premises bottlesignings is only held by wineries and importers.  This will continue to expose the on premise venues that allow celebrities to autograph bottles of cognac, tequila, vodka and other spirits products to regulatory discipline.

AB 933: Distillers Can Charge for Tastings

AB 933, sponsored by Assemblymembers Skinner and Hall, amends B&P Code § 23363.1 (distilled spirits tastings) and adds § 23363.3 (brandy manufacturer’s tastings).  These sections create a limited privilege that enables distilled spirits manufacturers and brandy manufacturers, respectively, to charge consumers for up to six ¼ ounce tastes of the manufacturer’s own products on its licensed premises. Using the tastes at the distillery in cocktails is expressly prohibited. This will create difficulty for distillers who market their products for use in cocktails.

AB 647: Regulating Beer Growlers

AB 647, sponsored by Assemblymember Chesbro, amends the container labeling requirements for beer containers provided by the consumer to be filled for off-premise consumption (aka “growlers”) by beer manufacturers (also referred to here as breweries), who are more clearly defined by this bill as those who use their facilities and equipment to manufacture beer for commercial purposes.  The new law allows consumers to re-use growlers they previously purchased and had filled by one brewery, at different brewery, though each brewery can decide for themselves whether or not to adopt this practice.  If the brewery does adopt the practice, it must affix a new label to the growler containing all the mandatory information (brand and type, manufacturer and bottler), and completely obscuring all information related to the first beer that had filled the container (brand/name of manufacturer, etc.).

AB 779: Cider Rules

Assemblymember Bocanegra sponsored AB 779, which permits a beer manufacturer who produces more than 60,000 barrels of beer per year to manufacture cider or perry (pear cider), and sell to any licensee authorized to sell wine.  This is interesting, because California regulates cider the same way as wine, as cider is fermented from fruit.  California law also limits the alcohol manufacturer to one category of beverage per manufacturing site, meaning before this bill, cider could only be made by winegrower licensees.  Now large beer manufacturers with the facilities to make cider can do so, although note that the privilege does not go the other way—cider manufacturers do not now have the privilege to make beer.

Also on the Horizon…

Proposed Rulemaking: ABC Rule 106(d)

This isn’t a legislative update, but we wanted to mention that the ABC has proposed amending Rule 106(d), which currently permits suppliers to furnish alcoholic beverage lists to retailers, up to $25 per unit cost to the supplier.  If adopted, the proposed rule will raise the limit to $50 per unit.  Comments closed on December 30, 2013, so an update should be coming out soon.

AB 520: Streamlining the Consumer On-Sale Tasting Law

The Wine Institute and Assemblymember Chesbro are sponsoring a bill to update B&P Code § 25503.5 and add § 25503.57 to permit a supplier or its representative and the on-sale retailer to independently advertise a tasting event, and permits a wine and spirits wholesaler to conduct consumer tastings on behalf of the supplier without prior ABC approval.  These changes provide more flexibility for who may conduct tastings and enables industry members to advertise more easily to consumers without potentially violating the tied house laws.

We’ll be delving into some of these topics in more detail in future postings, so stay tuned for more Booze Rules in 2014!

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