We have parsed the byzantine California credit laws related to buying and selling alcohol many times and in many contexts, most recently in 2017, when Booze Rules published an extensive article on the history, application, penalties, and enforcement of the federal and California credit laws (Business and Professions Code Section 25509). The impetus for the 2017 article was an ABC crackdown on credit practices resulting in ABC accusations (that we defended) against industry members on the supplier and retailer tiers, and class action litigation over the calculation and assessment of mandatory late charges under the credit law against multiple wholesalers, including Southern Glazers.
We hope that another ABC crackdown (or more class actions) will not occur but are concerned that the adoption of the new January 1, 2026 EFT protocols (kicking in with a mandated - no later than July 1, 2025 - retailer election of what EFT service provider they will use) will require significant education of the many thousands of independent retailers throughout the state (restaurants, bars, clubs, convenience stores, specialty retailers, etc.).
Education of the virtual winery tier of the wine industry, who for the purposes of this statute are treated as wholesalers, will be equally important.
Our 2017 article is linked here, and we encourage all compliance personnel at the supplier and retailer tiers of the industry to review it as background to the implementation of the new law. The consequences of getting it wrong may be significant.
Business practices involving California’s 30-day credit laws (originally designed to prevent the use of excessive credit as an inducement to purchase more inventory, a vestige of Prohibition era concerns with encouraging temperance) have gotten no easier since 2017, and they are about to get much more complicated.
The New Required Payment by EFT Law
California recently passed AB 2991 which, starting January 1, 2026, will require “retailer licensees” to pay “wholesaler licensees” by electronic funds transfer for the “delivery” of beer, wine, or distilled spirits. The bill amends section 25509 and creates a new section 25509.1. While this sounds easy enough, and progressive in the context of the usual regulatory treatment of new technology and protocols, the devil is in the details and there are multiple traps for the unwary in the legislation.
Electronic Fund Transfers
“Electronic funds transfer” or “EFT” means the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems. The bill enables (and requires unless the affected retailers make a succession of elections before the effective date of the statute) “wholesalers” to select the third-party payment processor used to make an electronic funds transfer. Also, technically, each party must bear their own costs for any transaction fees. Payment processors required per transaction EFT fees are generally more expensive than writing checks or paying with cash. Checks are typically processed without charge (unless they bounce), cash is cash and legal tender for monetary transactions, but payment processing fees may run from $1 to $3 or more dollars a transaction unless lower fees can be negotiated with the payment processor (which is what we expect will happen for larger retailers and wholesalers).
Who is a “Wholesaler” Under the New Legislation?
Defining “who” is a wholesaler seems easy enough, but the answer is tied to the complex licensing system regulating suppliers and what they can do under different combination of licenses. So, for example, the grape grower with wine made for them from grapes they grow and who then sells the wine under the “17/20” (wholesaler/retailer, sometimes called a “virtual winery”) license combination (there are hundreds of such licensees in the state) must suddenly adhere to the same credit protocols and requirements as Southern Wine & Spirits and the other large wholesalers to sell wine to a local restaurant, retail store or other retail licensees.
Who is a “Retailer” under the new Legislation?
The answer is anyone with a license to sell at retail except for temporary permit holders when having a retail license transferred to them. The way we read the statute, event and charitable license holders are not subject to the statute because of the provision that doesn’t apply the statute during the first 30 days after issuance of the permit, and charitable and event permits seldom exceed 30 days (but when they do the situation will get complicated).
This also means that retailers will often need multiple EFT accounts since each “wholesaler” will likely use different EFT systems (e.g. one for each wholesaler). This only makes retailers’ lives more difficult, particularly those local mom and pop retailers and restaurants that small wine makers work so hard to sell directly to and have their product included on their menus.
The additional credit compliance hurdle for dealing with small 17/20 virtual wineries is likely to dissuade many independent retailers from working directly with those producers. The result may be that it will be easier to just purchase inventory from fewer sources (i.e., the large statewide distributors) to avoid the hassle of setting up new EFT accounts.
Mandatory Wholesaler Access to Retailer Bank Accounts
The new statute mandates establishing sophisticated credit relationships, including mandatory wholesaler access to the retailer’s bank account, something that small restaurants and small store operators may have difficulty with managing:
As subsection (a) of the new 25509.1 puts it:
(1) The wholesaler licensee shall initiate the electronic funds transfer by initiating the withdrawal of funds from the retailer licensee’s bank account.
(2) The electronic funds transfer shall occur by the expiration of the 30th day from the date of delivery of the beer, wine, or distilled spirits.
(3) Any costs related to electronic payment services shall be paid by the party that incurred those costs.
Note the use of the mandatory word “shall.” Not a lot of small restaurants and retail shops will enjoy the process, particularly when multiple “wholesalers” can initiate EFTs directly from the retailer’s bank account. Additionally, the question of the timing of the withdrawal is at the option of the wholesaler so for those retailers operating on slim margins and managing multiple beverage purchase and payroll needs there is no option to forgo paying for inventory (via cash control) and going on mandatory COD with certain vendors (which is an option under the current version of 25509, which includes mandatory late charges). One retailer workaround may be to set up separate bank accounts specifically for alcohol inventory purchase to retain control of their operating cash.
Selecting the Payment Processor
The question of who selects the payment processor (which is the vendor charged with setting up the accounts and managing the payment and withdrawal process) is answered in 25509.1 subsection (c) in an interesting way:
(c)(1) To maintain control of its ability to receive payment for delivery, a wholesaler licensee shall be responsible for selecting the third-party payment processor used to facilitate an electronic funds transfer pursuant to this section. The wholesaler and retailer may agree on the third-party payment processor. If the parties are unable to agree, the parties shall use the third-party payment processor used by the retailer as of July 1, 2025, to pay for wholesale alcohol purchases. If by July 1, 2025, the retailer does not use a third-party payment processor, the parties shall use the third-party payment processor selected by the wholesaler.
So, the wholesaler selects the payment processor (unless the retailer already has one as of July 2025 and the wholesaler agrees to use that processor), or the retailer has no processor vendor, in which case the wholesaler chooses. Retailers need to pay a lot of attention to this new section because 25509.1 is silent on how much the processing fees will be except to say in subsection (a)(3) that:
(A) Any service fees related to electronic payment transactions shall be applied in an equitable manner to each subscribing wholesaler and retailer and shall justifiably match the services they receive from the electronic payment service provider.
(B) The wholesaler shall not pay, directly or indirectly, for electronic payment service fees incurred by a retailer.
(C) The retailer shall not pay, directly or indirectly, for electronic payment service fees incurred by a wholesaler.
We expect a lot of questions to the ABC asking what is and is not an “equitable manner” to “justifiably match” the services each party receives from the electronic payment service provider. We don’t know the answer, and this is an invitation to litigation.
Cash, Credit Cards, and Legal Tender?
The prohibition on cash payments (you know, “legal tender” as it says on the face of the dollar bill) is odd if for no other reason than it may violate federal law, which mandates that cash is legal tender for all debts and obligations. Regardless, 25509.1(b) does permit using cash, check, or money order but only in these instances:
(1) If accepting payment following an electronic funds transfer of insufficient funds.
(2) If the retailer holds an interim operating permit or a temporary permit.
(3) During temporary service interruption of the third-party payment processor.
(4) During the first 30 days following the issuance of a license to the retailer licensee.
Credit Cards
The legislature does permit retailers to pay by credit card, but only if the wholesaler “choose[es] to accept credit card payments” and the retailer bears all cost of the transaction to “mitigate the value of secondary benefits realized by the retailer using the credit card.” 25509.1(c)(1). Thus, a credit card can be used but if there is a charge from the wholesaler’s bank related to accepting the card, the retailer must pay it.
The new law does NOT apply to wineries, breweries or distilleries with direct to retail privileges – UNLESS they elect to participate
Finally, the wineries, breweries and craft distillers wanted no part of this “new” EFT privilege and winery, brewery and distillery licensees are not required to adhere to the new rules when exercising their direct to retail sale privileges.
However, should wineries, breweries or distillers elect to participate in the EFT systems set up by the retailers (which the retailers, especially the large ones, may require to simplify their accounting protocols) we expect (the new statute is not clear on this) that the new EFT procedures outlined in the statute will be required to be complied with by the ABC. Our reasoning is that the EFT procedures are considered a “thing of value” otherwise prohibited under the ABC Act unless authorized under an exception, and this new statute outlines the boundaries of the exception.
Regardless, the principal mandatory compliance impact will be on small producers using the type 17 license and small retailers (restaurants, specialty retailers, local stores, clubs, etc.) buying from wholesalers. The large chain retailers have sophisticated credit departments and should be able to parse the requirements without a lot of angst and they will most likely require all suppliers to comply with the EFT requirements.
Modernization of the payment system is positive but at what cost? Other Questions?
This modernization of forms of payments was proposed by wholesalers (according to the bill sponsors) to avoid dealing in cash, checks, or money orders, and to protect beer delivery drivers from having to carry a lot of cash on their beer routes. Until further guidance is issued by the ABC (if any), the bill has holes in it. Most glaring, the bill only applies when “retailer licensees” pay “wholesaler licensees.” This means that retailers may still pay manufacturers direct selling to retail via cash, check, or money order.
Many California manufacturers (including wineries) also hold wholesale licenses (especially those that are owned by foreign producers whose wine, beer and/or spirits products they also sell in California), which presumably would make them a “wholesaler licensee” requiring payment by electronic funds transfer. So, for them, the trick is to ensure that the sale is being made under the correct license so a check or cash may be accepted, if the retailer will permit it.
Another ambiguous aspect of the bill is that the new section only covers the “delivery” of beer, wine, or distilled spirits, whereas section 25509 (the general credit law) applies when alcohol is “sold and delivered.” Does this mean the EFT rules do not apply to the sale of alcohol, only the delivery?
The obvious implication of this language change is that if retailers pick up their product at the wholesalers loading dock (or salesroom), electronic payment will not be required. We assume that is the case, but we (and everyone else) must wait for further ABC guidance on dock pick-up and wholesaler salesroom inventory purchases questions.
We do not question the need to modernize the alcohol payment systems to permit the use of EFT. However, we have concerns about the application of this new law to the thousands of small California retail and small producer licensees that will be impacted. Small businesses already have trouble keeping up with California’s complex regulatory scheme, and this only incentivizes small retailers to consolidate their purchases with the vendors whose payment processes are the easiest to understand.
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.