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This is the second legislative update blog post we are doing to discuss all the fun new laws in store for 2016. For this edition, we’ll get into the main course of advertising, events and tied house.
SECOND COURSE: ADVERTISING, EVENTS AND TIED HOUSE
Co-sponsoring charitable events with retailers now permitted (AB 776: 23355.3)
While there are a lot of changes to the laws around advertising, events and tied house (a particularly nuanced specialty of our firm’s marketing practice), the new law getting the most attention lately has been AB 776, which purports to provide an exception to the thing of value restrictions on supplier social media posts mentioning retailers.
This kind of social media activity (which is rampant in the industry) led to many ABC accusations against suppliers who advertised their participation in Sacramento’s 2014 Save Mart Grape Escape, which our firm defended in front of the ABC. While the law does permit licensees sponsoring a charity event to mention retailers who are co-sponsors without it being deemed an unlawful thing of value to the retailer, this law does not permit broad advertising by suppliers of retail accounts, as many mistakenly believe.
Under 23355.3, licensees (which means everybody – you too, virtual wineries!), can sponsor and participate in non-profit events that a permanent retailer is also sponsoring without giving this charitable retailer a thing of value through their sponsorship… BUT (you knew there was a but, right?):
- The money has to go to the charity (who must also get an ABC license)
- The supplier licensee can’t give the sponsoring retailer anything of value
- A retail licensee can’t sell alcohol to the charity licensee
- A licensee can advertise its participation in the event via social media and can share a retailer’s post about the event, as long as it doesn’t post prices, promote the retailer, or pay or reimburse the retailer for advertising
- Non-retail licensee sponsorships can’t involve exclusive products at the event
- Charity licensees can’t get a benefit from permanent retailers in connection with the sponsorship, and
- Permanent retailers can’t offer supplier advertising, sales or promotions in connection with the sponsorship
All of these conditions raise many questions, such as: How the ABC will interpret contracts between licensees and third-party event producers hired by charities? What kinds of lawful activities might be an impermissible thing of value when combined with an event co-sponsorship? Will retailer in-store promotions related to the event be permissible? And, will a retailer will be liable if the charity purchases alcohol for its event from its retail sponsor without the sponsor’s knowledge?
The passage of this law also served as an excuse for the ABC’s dismissal of a good decision in the Renwood case. Had the decision been adopted, it would have restricted the ABC’s enforcement of the tied house laws more broadly when there is no evidence of an actual thing of value flowing to a retailer.
Alas, onward and upward… it’s a new year, with new social strategies, and we can’t wait to see how our clients will try to push the envelope in this area!
Retailers may purchase digital advertising on supplier sites and social accounts (AB 776: 25500)
AB 776 also calls out an exception that we’ve written about before (the retailer right to pay exception). This exception was already in the code, but with AB 776 is now expressly applied to digital advertising, and it permits retailers to pay fair market value for advertising in supplier publications and social media accounts. This means that if a retailer wants to promote a supplier product or campaign, it can now pay to do so!
You may be wondering: why is that a thing? This is a concept so foreign to other industries that it’s worth mentioning why an alcohol beverage retailer would have to pay a supplier for advertising when it’s already buying the supplier’s product (isn’t that included in the price?). In the alcohol industry, a supplier can’t legally give a retail licensee (either on-premises or off-premises) anything of value, including a form of advertising common in other industries – the “retailer shout out.” While the middle tier members may bemoan the gradual chipping away at these so-called tied house laws, until that happens, this is a decent fix for the current advertising predicament, in which rather than giving a retailer a thing of value, most suppliers just want to be able to let their fans know they’re doing an event.
Minimal changes made to retailer locator laws (AB 780: 25500.1)
Another bill getting a lot of attention is AB 780, which we wrote about in a previous post. This law does not change the privileges available, but recodifies them into one statute that permits suppliers to advertise two or more unaffiliated retail accounts (sometimes referred to as retailer locators). We find it interesting that in its advisory, ABC makes a point of interpreting what constitutes a "direct communication" with consumers, requiring "some relationship between the non-retail licensee and the consumer(s) to whom the information is provided." Apparently "following" or affirmatively going to the supplier's website qualifies, but taking out an ad in a newspaper does not. While we think this distinction is likely irrelevant based on how suppliers are likely to use this exception, we note that we find little basis for the ABC's interpretation here to distinguish between a website retailer locator and a traditional advertising retailer locator. If anyone gets an accusation for this kind of activity, please give us a call - it would be a fun case to defend!
Napa gets a sponsorship money exception for Bottle Rock Festival (AB 527: 25503.40)
After the Bottle Rock cases we defended this past year and the continuing appeals we will argue this week in front of the ABC Appeals Board related to sponsorships paid for the Bottle Rock Festival 2014 in Napa, we had hoped for an overhaul of the special event provisions in California as an entire state. But alas, AB 1547, which would have created a major event license, didn’t make it out of committee this session. Instead we are left with AB 527, which is one more in a growing list of venue- and event-specific exceptions to the tied house laws rather than a larger fix, this time couched bizarrely as “earthquake relief” for Napa County.
The Bottle Rock cases centered on the allegation that a winery cannot pay an event producer sponsorship funds, meaning it’s on the supplier to conduct event-by-event vetting to determine whether that sponsorship money will somewhere down the line support any retail licensees or whether those event producers happen to have any investments – even distant ones – in retail licensees. According to the ABC, a supplier can be subject to a $10,000 fine for sponsoring an event if it’s possible that those funds eventually made their way to a retail account—except in Napa under the exception in AB 527, and the dozen or more other venues in the state that have already been granted similar exceptions.
Throw another one onto the pile - Sonoma State Green Music Center and San Diego Del Mar Racetrack Exceptions (SB 462: 25503.6 and 25503.34)
We have long lamented the piecemeal approach to tied-house legislation in California, and this is just another example. SB 462 expands existing tied-house exceptions in 25503.6 of the code applicable to advertising arrangements between licensees at certain venues to include the Green Music Center at Sonoma State University, and fairgrounds with a horse racetrack and equestrian and sports facilities located in San Diego County.
Additionally, 25503.34 was added to the code, permitting alcoholic beverage licensees to make monetary or alcoholic beverage contributions to the Green Music Center under certain conditions.
Brewers can now have instructional tasting events at farmers' markets (AB 774: 23399.45, 24045.6 and 25607.5)
We have blogged before about brewers’ incremental parity with wineries with regard to tasting opportunities at farmers’ markets, and it seems as though they are closing the gap. Brewers who obtain a Type 84 Certified Farmers’ Market Beer Sales Permit may now also hold instructional events for consumers, brief outline of the parameters below:
- Existing off-sale privileges are unchanged;
- Eight ounces of beer can be provided per person, per day;
- The tasting area must be roped off in some way from the rest of the market and consumers may not leave the area with open containers;
- Only one licensed beer manufacturer may conduct an instructional event per farmers’ market;
- Type 84 permits may be issued for up to a year, but are not valid for more than one day a week at any particular farmers’ market, however more than one permit can be held at a time for multiple markets; and
- Annual sales at farmers’ markets cannot exceed 5,000 gallons annually.
Find our next post tomorrow for the third course of our legislative updates series!
The recent news about California’s AB 780 being signed into law tells an inspiring story about freedom on social media for alcohol suppliers, but is it really true? Unfortunately… not really. (Cue the bursting bubble that usually trails lawyers).
AB 780, intended to address the Save-Mart Grape Escape ABC accusations, was signed into law by Governor Brown on Monday.
AB 780 doesn't even pretend to be a method of solving the social media issues currently bedeviling the industry. Rather, the bill was an attempt by well-meaning politicians to address constituent issues while not interfering with the stranglehold that the wholesalers lobby has on Sacramento. A more robust solution that would have actually accomplished the goal of freeing social media was supported by senior ABC officials as well as every supplier trade association in the state but was blocked by the wholesalers.
Here is what AB 780 does NOT do:
- It does NOT allow wineries, breweries or distillers to post on social media that they will be pouring at retailer title-sponsored charity-licensed event such as the "Save-Mart Grape Escape" put on and licensed by the Sacramento Convention & Visitors Bureau. That still remains a crime and at least one Grape Escape accusation is still in the process of being adjudicated. The existing laws still prevent suppliers from legally promoting retail title sponsors of charitable festivals and events, an entirely separate form of harm to communities and organizations doing good work.
- It does NOT permit wineries, breweries or distillers to sponsor events where there are any "tied house" relationships (including the payment of a rental fee to a retail account) between an event organizer and the winery, brewery or distiller. For example, the BottleRock 2013 accusations (now at the ABC Appeals board) are not affected by this bill.
- It does NOT affect the existing exceptions that allow some suppliers to promote their involvement in and location of legal tasting events occurring on retail premises. (Disclaimer: these exceptions are event and statute specific and do not apply to all events nor to all supplier license types.)
Here is what AB 780 DOES do:
- It DOES require suppliers to observe current law (combining two existing statutes into one statute with truly minor changes to existing law).
Under current law, some supplier licensees may list two or more unaffiliated on-sale retailers selling their product (like bars and restaurants) under Business and Professions Code Section 25500.1 and may list two or more unaffiliated off-sale retailers selling their product (like liquor stores, wine shops, etc.) under Business and Professions Code Section 25502.1. These restrictions (which include other limitations--such as no pricing information, the listing is the only reference to the retailer and the retailer can’t jointly pay for the listing) are basically unchanged under AB 780 (which combines 25500.1 and 25502.1 into 25500.1 and eliminates 25502.1) except that now the furnishing of the information does NOT have to be in response to a “direct inquiry from a consumer,” a provision that has never (to our knowledge) even been enforced by the ABC.
What does this mean for the industry? More confusion, more complaints, and more difficulty in threading the tied house needles that currently are scattered throughout the ABC Act.
This bill does, however, update the current locator service exemption that exists in the ABC Act for suppliers to list on their websites, social media or other publications where their products may be found, as long as at least two unaffiliated retailers are mentioned.
This of course prevents announcing new account placements unless other accounts are also mentioned. Designing ways to use that new exemption will be fun for all. For example, think about this:
"Jack's Restaurant in San Francisco now carries our wines, but don't forget to find our wine at Jill's Wine Bar across the street!"
Despite the lack of meaningful change, let's all remember to have fun with social media and perhaps think of the ABC restrictions as a creative challenge for marketers, while encouraging those suppliers with one retail account to pick up another so they can advertise where to find their product.
We still need real reform and if it doesn't come from the legislature maybe it will come from the cases that are working their way through the system.
New legislation effective January 1 in California banning food employees from touching “ready-to-eat” food with their bare hands is causing an uproar in the bartender community. Ready-to-eat food must now be handled with “suitable utensils,” effectively requiring bartenders to wear gloves when making drinks that contain something edible, including cocktail basics such as lime and mint. As of January 28, over 9,000 people have signed the petition on change.org to exempt bartenders from this requirement. However, limiting the exemption to bartenders does not go far enough. Wine and beer tasting room employees will also be required to wear gloves if they serve food in addition to drinks at the tasting room, which is common practice at many locations. While larger brewpubs and wineries often have commercial kitchens with staff that prepare food for guests, many smaller operations do not. For example, under this law leanly staffed establishments may now have to require their tasting room employees to don gloves between pours in order to prepare a cheese and cracker plate ordered to accompany a tasting unless there is a dedicated employee for food service that is properly outfitted. This requirement is not only esthetically irksome, but wasteful and unwieldy.
It is not a foregone conclusion that bartenders and tasting room employees will be wearing gloves in the immediate future. As reported by NPR, California Assemblyman Richard Pan stated that "the purpose of the law was not to force everyone to wear gloves, as much as to ensure that we have cleanliness and food safety in restaurants." Indeed, the requirement can be avoided by applying for prior approval from the appropriate regulatory authority (usually local health agencies), and maintaining documentation regarding food safety procedures, health policies and special training for food employees. However, applying for this exemption is no small burden for bars and tasting rooms - and local health agencies will no doubt be inundated with exemption requests.
While we have been informed that no penalties will be issued for six months while proprietors adjust to the new requirements, it will be interesting to see how health department and other regulators enforce the new requirements in establishments that are not primarily in the business of serving food. Right now the ABC does have the authority to enforce (and does enforce) the health laws in establishments that serve alcoholic beverages. Check back for updates in the near future.
In the past few years, wine packaging and dispensing in the U.S. has taken on new forms, going beyond the now-ubiquitous screw caps on bottles. These include the various permutations of wine “in a box,” Tetra Paks, and single servings of sparkling and still wine in cans. On-premise retailers are also increasingly offering wines on tap by the glass or carafe, which retain their freshness better than wines from open bottles. These new technologies offer a range of benefits, from environmental (reduction in the use of glass and the supplier’s carbon footprint) to economic (cheaper packaging and lighter, more efficient freight loads), to widening wine’s appeal to new consumers—particularly the younger set, who are more likely to welcome innovation and are less bound to tradition.
Enter the concept of growlers for wine. A “growler” is a container that most commonly is filled with beer from a tap at a brewery or on-premises beer seller for the consumer to take home, drink, and then refill and use again. Originally a growler might have been a simple metal pail, but today’s growlers are likely to be glass or ceramic jugs. Since they are reusable, they are better for the environment, fitting right in with the modern day “reduce, reuse, recycle” ethos.
Starting before Prohibition, when wineries sold most of their wines in bulk rather than bottles, wineries in California and elsewhere have been allowed to fill reusable containers for customers at the winery. This has also been a longstanding practice in Europe (in France, where it is referred to as wine “en vrac,” it’s not uncommon to see a winery employee filling up a customer’s 1.5 liter plastic Evian bottle with wine from a hose).
But while many states also allow retailers to sell beer by the growler, very few states allow retailers to sell wine by the growler. Oregon is one of the first.
Oregon passed House Bill 2443 in April 2013, which, for the first time in that state, permitted wine and cider to be sold in growlers (or, as worded in the bill, “securely covered containers provided by the purchaser”). The new law also expands the privilege to off-premise licensees, so now restaurants, wine shops, and grocery stores can join breweries and wineries in offering growlers of wine and cider (as well as beer) to their customers.
The law restricts the size of growlers to a maximum of 2 gallons each, and any employee who dispenses alcoholic beverages into a growler must hold a valid service permit issued by the Oregon Liquor Control Commission.
Some winery associations in Washington hope to have a similar law soon in their state, which currently only allows wineries to sell growlers of wine at the winery location itself, and not at additional tasting room locations. They would also like to see wine growlers become legal for Washington retailers to sell.
Could California be next?
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