WHY THE FDA IS INSPECTING WINERIES

By Barbara Snider* and Erin Kelleher

The FDA is on the march and busy auditing food processors under their jurisdiction. While this leads to angst for the business caught up in the FDA bureaucracy, it is a fact of life for those who handle food and beverages, which are substances that are ingested by the public. No one argues against food and beverage safety and it’s one of the reasons we have the most respected alcoholic beverage industry in the world.  Our products are safe and the world knows it. The FDA is one reason why.

The purpose of this post is to give some comfort to those who are FDA compliant (or are small enough to be outside of the ambit of the FDA’s inspection power but who comply anyway) and to give some guidance to those who may have missed the message until now.

At the end of the post are important checklists. We urge you to pay close attention to the acronyms, and to the guidelines. There will be a test, but hopefully not one that starts with a knock on the winery’s door.

Federal Law, Wineries and the Very Narrow Small Winery Exemption

Under Federal law, wineries are “food manufacturing plants.”  As a food manufacturing plant, every winery must:

(1) Be registered with the FDA under the Bioterrorism Act (BTA),

(2) Re-register every two years, and

(3) Keep records of every source of food received (for example, grapes) and the destination of food (in this case, wine) shipped. 

Wineries with fewer than 11 employees and that sell more than 50% of their product out the front door (direct to consumer is how we interpret this) are exempted from this regulation.

Because the fermentation process kills pathogens and wine is low pH, wineries are categorized to be “low risk” food manufacturing facilities.  Thus, inspections of wineries have been a low priority for the FDA.  Most wineries have never even had an FDA inspection. 

That is now changing because of the FSMA.

The FSMA Priorities

The Food Safety Modernization Act (“FSMA”) was signed into law in January 2011, and made sweeping changes to food safety laws.  The FSMA focus changed food safety regulations from responding to food contamination to preventing food contamination.  Under the new FSMA law, even all “low risk” facilities (such as wineries) must be inspected within seven years of the Act becoming law, which means the FDA has now stepped up winery inspections for 2017. 

The Good Manufacturing Practices (“GMP”) and the Sub-parts Applicable to Wineries

The FSMA also updated the Good Manufacturing Practices (“GMP”) regulations. The FDA notes that wineries are exempted from Subpart C (Hazard Analysis and Risk-based Preventative Controls) and Subpart G (Supply-Chain Program) both of which require a written and documented food safety plan at the facility.  Wineries, however, must specifically comply with Subpart B (education and training of employees in food hygiene and safety) and Subpart F (record-keeping).

FDA Inspections – No Prior Notice Required and What to Prepare for

The FDA is not required to, and generally does not give prior notification of an inspection.  The FDA also partners with state agencies to help get the inspections done; so, for example, in California, the inspection could be made by the California Department of Food and Agriculture (“CDFA”) on the FDA’s behalf.  Other states also have counterpart agencies with the same functions as the CDFA. There can be no doubt that the FDA has geared up for inspecting the wineries, thus, wineries should be prepared. 

The best way for a winery to prepare is to do an internal inspection now, ahead of time, on all compliance requirements.  Here is our suggested checklist:

1.  The winery should designate one or two persons who can be available on-site during an inspection without prior notice. 

2.  The winery should be sure all necessary documents are up-to-date and readily available.  This includes the Bioterrorism reporting on food ingredients received and used in each wine shipped by the winery (see BTA checklist below). Copies of approved COLAs should also be readily available.

3.  Wineries should be aware that one important change under the FSMA for wineries is that education and training in food hygiene and safety is now required for all employees.  The winery must maintain records of the training for two years.  Each employee must be trained as necessary to conduct the winery processes.

4.  It is best to have a written flow chart of the winery processes demonstrating sanitation in the stages of winemaking.  The flow chart should also include monitoring with adequate frequency.

5.  One area of concern raised by the FDA inspections has been outdoor receiving of product, washing and fermentation tanks.  Wineries should document efforts to assure these processes and the area are kept as sanitary as possible (the FDA has specifically raised concerns regarding birds, dogs, cats in the area which could contaminate the grapes/juice).

6. Everything in the winery should be clearly labeled, even sanitizer spray bottles, etc. 

7. The FDA is particularly concerned that bottling rooms/areas be kept clean and sanitized to avoid contamination during bottling.

8. The Code of Federal Regulations (21 CFR 110.35) sets forth very specific sanitation issues with which wineries should be sure to comply.  Briefly, the only toxic materials that may be used or stored in a plant where food is processed or exposed include:

(a)    Those required to maintain clean and sanitary conditions;

(b)   Those necessary for use in laboratory testing procedures;

(c)    Those necessary for plant and equipment maintenance and operation;

(d)   Those necessary for use in the plant’s operations.

(e)   Toxic cleaning compounds, sanitizing agents, and pesticide chemicals must be identified, held, and stored in a manner that protects against contamination of food, food-contact surfaces, or food-packaging materials.

(f)    Pest control, and pets. No pests shall be allowed in any area of a food plant. Effective measures must be taken to exclude pests from the processing areas and to protect against the contamination of food on the premises by pests. The use of insecticides or rodenticides is permitted only under precautions and restrictions that will protect against the contamination of food, food-contact surfaces, and food-packaging materials.  With respect to Pets, the CFR states that guard or guide dogs may be allowed in some areas of a plant if the presence of the dogs is unlikely to result in contamination of food, food-contact surfaces, or food-packaging materials.

9. Make sure sufficient water, hot water and water pressure is available for sanitizing and that all drainage and sewage facilities are in working order.

10. The FDA also requires adequate toilet and hand-washing facilities be available for employees with proper signage requiring hand-washing.

Remember the Bio-terrorism Report requirement?  We have a checklist for that also

For immediate previous food sources (yeast, fining, eggs, etc.), the report must include:

●  Name of the firm providing the food source

●  Name of responsible individual

●  Address

●  Telephone number

●  Fax number and e-mail address, if available

●  Type of food, including brand name and specific variety

●  Date received

●  Lot number or other identifier if available

●  Quantity and type and size of packaging (e.g., 750 ml bottles)

●  Name of carrier that brought the item to you

●  Carrier's address

●  Carrier's telephone number

●  If available, carrier's fax number and e-mail address

The winery must also keep track of each ingredient used in each wine that is produced, bottled and shipped by the winery.

The FDA has not prescribed specific penalties, but simply reminds food facility operators and importers that non-compliance with registration, prior notice, or recordkeeping requirements (once they are mandatory) are prohibited acts, and violators are subject to civil or criminal court action. Foods imported from non-registered facilities or without proper prior notice are subject to being detained at the port of entry.

Conclusion: Preventative Maintenance Works

If your eyes aren’t fatigued by reading these checklists, then you haven’t been paying attention! Because these regulations apply to almost all wineries, being prepared is much better than being audited, found wanting, perhaps fined and faced with the possibility of future audits.

 

*As a former winery owner (and a skilled Hinman & Carmichael LLP attorney), Barbara Snider approaches FDA matters from experience, a realistic compliance perspective, and a thorough appreciation for best practices.

2016 LEGISLATIVE UPDATES: Part III

By Rebecca Stamey-White and Erin Kelleher

It’s round three in our legislative updates for 2016.  Part three gets into the meat of licensing, qualification and tied-house ownership, our favorite issues!

THIRD COURSE: LICENSING, QUALIFICATION & TIED-HOUSE OWNERSHIP ISSUES

ABC qualification relief, but no tied-house changes, for private equity investors  (SB 796: 23405.4)

Investors (and not just private equity investors) have struggled in California to legally make investments in licensed businesses largely for two reasons. First, upper tier investors are loathe to provide personal information and qualify with ABC, largely due to privacy concerns. Second, generally speaking, there is no de minimus exception to the California tied-house laws. Thus, an investor might have a passive investment in a fund which holds retail interests, which could prevent them from making another passive investment in a fund which holds supplier interests. ABC has struggled with these issues, out of a legitimate desire to know the ultimate owners of a licensee. The limited partners in a fund, which might technically be the ultimate "owners" of a license, however, generally do not have an active role in the management of the fund or the licensee. Further, they might not even know what investments the fund makes at all. So why qualify them or prevent them from making an investment in a licensee?

SB 796 attempts to address the first problem regarding qualification, but does not address the second and larger problem regarding the tied-house laws. Specifically, the statute will not require qualification (but still requires compliance with the tied-house laws--an important distinction of which to be mindful) of an investor in a private equity fund, provided:

  • The fund's interest is passive (no involvement with the licensee's business);
  • The fund's advisors are registered under the Investment Advisors Act of 1940 and are subject to federal reporting requirements;
  • The investor holds less than 10% of the fund (not the licensee); and
  • The investor has no control in the investment decisions of the fund.

SB 796 does not apply to hedge funds, liquidity funds, REITS, securitized asset funds or VC funds. Why not? Good question--though it is consistent with other legislative changes to the code governing alcoholic beverage licensees; that is, hyper-specific and very limited.

ABC may require the manager of the fund to execute an affidavit confirming compliance with the conditions above and affirming that the investors not being qualified do not have interests that would violate the tied-house laws. Importantly, if the manager does not have direct knowledge of any facts necessary to execute the affidavit, the statute requires them to make a direct inquiry of investors, and requires notification if any of the attested-to facts change. Ostensibly, this creates an ongoing investigation and reporting obligation of the fund.

The statute clearly states that it is not intended to permit someone from making an investment through a private equity fund in a license if such investment is not otherwise permitted. Therefore, the statute does not address the larger and more difficult problem of passive investments in licensees and the tied-house laws. Thus, while qualification might be slightly easier, private equity funds will still be limited in how they can invest in licensees.

The Craft Distillers Act of 2015 (AB 1295: 23500, 23501, 23502, 23504, 23506, 23508, 23363.1, 23771 and 23772)

AB 1295 represents a big change in the industry, and could be a huge boon to folks looking to take advantage of the recent craft spirits craze that has swept the country. Historically, spirits have lagged behind wine and beer in terms of securing exceptions to the tied-house laws, which has made it more difficult for spirits products to get to the ultimate consumer without the backing of a major distributor. The new regulations not only create a new license type for small distillers, but also create tied-house exceptions that do not exist for their larger-production counterparts. These regulations do, however, amend the tasting provisions for spirits, which are applicable to large distillers as well.

  • Basic License Permissions and Limitations (23500, 23501, 23502, 23504, ABC Industry Advisory) 

The new craft distiller’s license (Type 74) will allow the production of no more than 100,000 gallons (liquid volume and not proof gallons) of distilled spirits per fiscal year (July 1 – June 30), excluding brandy that it manufactures or is manufactured for the licensee with a brandy manufacturer’s license. Fees and qualification will be the same as for Type 4 spirits producers. Craft Distillers must report their production volume to ABC when applying for an annual renewal, and if they exceed the production cap their license will be renewed as a Type 4.

They can package, rectify, mix, flavor, color, label and export only their own products. They will only be able to sell to wholesalers, manufacturers (and their agents), winegrowers and rectifiers that hold a license authorizing the sale of spirits. Thus, Craft Distillers cannot make sales to retailers–-however note the limited DTC exception for consumers outlined below.

  • Tastings (23363.1)

The tastings statute applicable to spirits now covers both large distillers and craft distillers. Like regular distilled spirits manufacturers, craft distillers will be able to conduct tastings and charge for them on their premises, subject to the following conditions:

  • Total volume of pours cannot exceed 1.5 oz per person, per day;
  • Tastings can only include products produced (or produced for) the licensee; and
  • Servers have to be at least 21.

The statute has been changed to allow the service of cocktails or mixed drinks at the tastings, however, note that licensees can only use product that they make or that they have made for them. Therefore, cocktail creativity here is limited (or, encourages companies to start making their own mixers, which could be good for everyone).

Tastings can occur off licensed premises as well, provided they take place within permitted events sponsored by a nonprofit organization. No sales or solicitations are permitted at these events.

  • Direct to Consumer Sales (23504)

Craft distillers can sell up to 2.25 liters of their pre-packaged product at instructional tastings that occur on the licensee’s premises pursuant to the tasting provision of 23363.1 outlined above. This represents a huge win for craft distillers attempting to get their products to market, as DTC sales of spirits to consumers have until now been barred by ABC.

  • Bona Fide Public Eating Place & Private Events (23506(c) and 23508)

Like their wine and beer making counterparts, Craft Distillers may also operate a bona fide public eating public place located on, or contiguous to, their licensed premises. However, they may also serve distilled spirits, which is a big difference from wineries or breweries, who may not. Additionally, Craft Distillers may also offer beer, wine and distilled spirits, regardless of source, for sale to guests during private events. All beverages sold on the premises that are not manufactured by or for the Craft Distiller must be purchased from a wholesaler.

If the Craft Distiller loses this designation and becomes a large distiller, they may continue have events on their premises. This is a huge win for Craft Distillers who wish to market their space for events for extra revenue, something that is has become quite popular for all types of manufacturers. However, the ABC advisory indicates that if the Craft Distiller becomes a large distiller, they do not get to keep operating the bona fide public eating place under their distiller license. The bona fide public eating place on the premises would have to have a separate on-sale license, which could raise some tied-house issues.

  • Tied-House (23502(b), 23771, 23772, ABC Industry Advisory) – No Interests with Large Manufacturers, Agents, Wholesalers or Rectifiers

Craft Distiller licenses cannot be held by anyone “affiliated,” directly or indirectly, with a person who manufactures (or has manufactured for them) more than 100,000 gallons of distilled spirits per year within or without California (excluding brandy it manufactures or has manufactured for it with a brandy manufacturer license). The term “affiliate” is not generally defined in the code, though it is sometimes defined within the specific section where the term is used. Not so in this case, leaving it ambiguous as to what exactly “affiliated” means in this context. Nonetheless, the main take-away here is that Craft Distillers cannot also have Type 4 licenses or Type 5 licenses (Distilled Spirits Manufacturer's Agent licenses) in California, and also that they cannot be affiliated with larger scale manufacturers of distilled spirits located outside of California.

Additionally, Craft Distiller licenses may not be issued to anyone “affiliated” with, directly or indirectly, a wholesaler. The same ambiguity exists here with respect to the meaning of “affiliate.” The prohibition appears to only to apply to wholesale interests in the state of California (Type 17 beer and wine wholesaler or Type 18 distilled spirits wholesaler), and not to wholesale interests in other states.

Because a Craft Distiller can package, rectify, mix, flavor, color, label and export only their own products, ABC has indicated that they cannot also hold a Rectifier’s (Type 07 or Type 24) license. Craft Distillers may however use grain-neutral spirits manufactured by another distiller in the manufacture of their product.  

  • Tied-House – Interests in On-Sale Licensees (23506)

Craft distillers, or one or more of their subsidiaries of which they own at least 51% who also manufactures or produce, bottle, process, import or sell distilled spirits under a craft distiller’s license “or any other license issued pursuant this division” may hold an ownership interest in, or have a “financial or representative relationship” in up to two on-sale licensees.

Before we discuss the conditions on this important tied-house exception, we wanted to address some of the language in this statute. First, it is unclear what ABC means by the phrase “or any other license issued pursuant to this division.” This could allow Craft Distillers who have subsidiaries with other licenses to partake of this exception, where they otherwise would not have been able to do so. Second, “financial or representative relationship” is broader than the similar exception for winery interests in on-sale licensees found in 25503.15, meaning that not just ownership of the retailer is at issue for the tied-house analysis, but also the broader relationship of the Craft Distiller and the retailer.

The exception does contain a wholesaler poison pill, requiring the on-sale licensee to make all alcohol purchases (including wine and beer) from California wholesalers, except for those spirits which are made by or for the interested Craft Distiller. This could be a deal breaker for many on-sale licensees. Additionally, the number of spirits by brand offered by the off-sale licensees are limited to 15% of those produced by the interested Craft Distiller.

Importantly, this exception is not lost if the Craft Distiller eventually exceeds the production cap and becomes a regular large distiller.

Pedicabs get licenses (SB 530), no luck for beauty salons (AB 1322)

While clearly we all need to find out more about pedicabs, which can apparently carry up to 15 passengers and still qualify as pedicabs (our minds are spinning, meaning we may need to go to spin class more often), passengers may also now consume alcohol in pedicabs without requiring a license by the pedicab from the ABC. These pedicab operators must receive LEAD training from ABC and may not “sell, serve, or furnish” these beverages, but provided all the passengers are 21+, the passengers may serve themselves while enjoying the ride.

Other possible licensees or exceptions to the rule were not as lucky as the pedicab operators. A bill to provide an ABC licensing exception to beauty salons to enable them to provide alcoholic beverages incidental to the service of beauty treatments did not pass. We have a feeling the long-standing practice will not entirely go away, since it's been happening without this exception in place for many years (shhh! We ladies need our champagne!).

Larger brewers join small brewers in exception permitting on-sale retail license ownership (SB 796: 25503.28)

25503.28 used to allow only small beer manufacturers (those producing 60,000 barrels a year or less) to have an interest in up to 6 on-sale licenses, and now that privilege has been extended to large beer manufacturers in California as well.

The new privilege cannot be combined with the existing privilege under 23389(c) which allows beer manufacturers to sell their beer at 6 branch locations, 2 of which may be bona fide public eating places selling wine in addition to beer. Thus, a beer manufacturer (regardless of the number of licenses they hold alone, in common ownership with another beer manufacturer, or under common ownership with anyone operating as a on-sale retailer), may exercise on-sale retail privileges at premises where they do not manufacture beer at no more than 6 locations. Despite this, there is still no limit on the number of manufacturer locations, or the exercise of retail privileges at those locations.

Beer specifically added to non-profit temporary licenses (AB 774: 24045.6 and 25607.5)

Beer was specifically added to the statute permitting nonprofits to obtain special temporary on-sale and off-sale licenses for fundraising activities. While there are a variety of temporary off-sale licenses available for nonprofits, we most commonly see the combination of the licenses covered by 24045.1 (the on-sale general license, usually used for full bars at nonprofit fundraisers) and 24045.4 (the off-sale license that permits nonprofits to auction off bottles of wine). 24045.6 could be used by a nonprofit hosting an event featuring on-site consumption and also selling alcohol donated to it for off-sale consumption (but not using a silent or live auction to do it).  Most commonly, this privilege is used by nonprofit wine varietal or regional organizations who might conduct larger wine tastings and also sell wine donated to it by wineries participating in the event or who make special blends as a private label for the organization.  Previously, the statute was limited to wine, but now nonprofits can receive donated beer as well for their fundraising events under this section, which likely means we’ll see more beer association events structured like the wine association events.

Beer label approval no longer required by ABC, however brands must be registered with ABC prior to sale (AB 893:25200, 25201 and 25204)

Beer manufacturers and certificate of compliance holders are no longer required to furnish labels of beer containers to ABC, however every beer manufacturer, before the first sale of a brand of beer in California, must register the brand with ABC. Form 412 has been amended and is now titled the Beer Brand Registration Form. Manufacturers do not have to register brands that currently have accepted labels on file with ABC. ABC will not send a response to the brand registration form, and licensees may submit malt beverage price schedules and territorial agreements simultaneously with brand registration forms.

25200 was repealed and replaced with a provision that governs beer labels and brand registration, as well as alcohol content labeling previously included in 25204 (which has been repealed). Beer labels must meet federal malt beverage labeling regulations, and must also include:

  • the brand and class or type of beer;
  • the manufacturer’s name (can be a DBA) and address (if the beer is a collaborative effort, everyone must be identified);
  • the bottler (if other than the manufacturer); and
  • a statement of alcohol content if the beer is over 5.7% ABV.

Provisions on growlers used to be contained in 25200, but are now addressed in a separate and new section 25201. Although the citation is new, the law has not changed. 

If you're full of legislative updates, don't worry, we'll have a post next week that will help bring back your appetite! Have a great weekend!

2016 LEGISLATIVE UPDATES: Part II

By Rebecca Stamey-White and Erin Kelleher

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!

2016 LEGISLATIVE UPDATES: Part I

By Rebecca Stamey-White and Erin Kelleher

In 2016, we’ll see a lot of changes to California’s laws regulating alcoholic beverages. As the state’s legal experts on alcohol, we’ve been answering a lot of questions from clients about how they can comply with these new laws and take advantage of the new exceptions, so we decided to compile our analysis of the legislative changes into a series of blog posts to ensure your compliance is off to a great start in the new year.

 In order to help our readers digest the information and understand the changes, we’ve grouped our legislative discussion into four courses:

  • First Course: Promotional Activities

Pairing Suggestion: an H&C big bottle of wine; best served with your sweepstakes dinner prize.

  • Second Course: Advertising, Events and Things of Value

Pairing Suggestion: Renwood 2014 Old Vine Zin, to be enjoyed while you check-in at our restaurant on social media.

  • Third Course: Licensing, Qualification and Tied House Ownership

Pairing Suggestion: White Russian with craft coffee liqueur and locally-sourced vodka, because you can soon enjoy a cocktail when you visit your favorite craft distillery.

  • Fourth Course: The Medical Marijuana Regulation and Safety Act from an alcohol industry perspective.

Pairing Suggestion: Cannabis-infused wine… as soon as we can legally get our hands on some! Rebecca will also be speaking on some of these issues at the Women Grow Bay Area chapter meeting this Thursday in Oakland if you can’t wait for this course.

If you get heartburn from any of these courses, please reach out to us for a legal remedy.  

FIRST COURSE: PROMOTIONAL ACTIVITIES

Alcohol may now be part of a prize for contests & sweepstakes (SB 796: 25600.1 & 25600.2)

In big news for a state that only rejoined the rest of the country in 2013 by even permitting alcohol supplier-sponsored sweepstakes and contests, alcohol may now also be given away as a prize in connection with a contest or sweepstakes, provided that it is an “incidental part of a prize package.”

This is a marked departure from California’s previous position of being strictly against the potentially "overly aggressive marketing" of alcoholic beverages in the form of sweepstakes and contests. The state now blazes a trail by permitting the beverages themselves to be a prize (but not without a gray area to interpret!).

What “incidental” means exactly is not clear. While it is still the case that alcohol cannot be the sole prize that is given away in a contest or sweepstakes, it is less clear how marginal the alcohol prize must be and whether it can be specifically advertised or highlighted in the official rules. In our view, while “incidental” likely includes alcohol poured in connection with trips to supplier premises or at hosted dinners that may involve pairing with the supplier’s products, it likely would not include things like prized bottles of wine or a free bottle of wine every month for a year in addition to such trips.

Bottle signing events are here to stay (SB 796: 25502.2)

The sunset provision of this statute was deleted, allowing celebrity bottle signings to occur indefinitely (click here for a link to the previous Booze Rules post on this topic, outlining the requirements).

Still hungry? Good, because there are three more courses to go…

 

AB 2004: Brewer's Incremental Parity with Wine Makers

California’s piece-meal approach to alcoholic beverage regulation continues with AB 2004, which was recently signed by Governor Brown and gives breweries two privileges previously only granted to wineries. Beginning next year, breweries will be allowed to have outside beer and wine during private events, and they will be allowed to sell packaged beer at certified farmers’ markets.

Wineries are allowed to have other beer and wine on their premises for private events, and have been able to sell packaged wine at farmers’ markets for almost 15 years. For the most part, the new privileges (and their parameters) afforded to breweries are similar to those that wineries have enjoyed, although there are some interesting differences.

First, the new private event privilege will allow breweries to have outside beer and wine not only on their licensed premises, but also contiguous unlicensed premises that are operated by and for the manufacturer. This increases the total area of possible space permitted for private events and is not a privilege currently available to wineries.

Second, AB 2004 does not give brewers the privilege of holding instructional tasting events at farmers’ markets, which wineries will be permitted to do pursuant to AB 2488 signed by Governor Brown this past July.

Third, while wineries and breweries must each sell product that they made themselves at farmers’ markets (as opposed to product they contracted for manufacture), breweries are additionally limited in what farmers’ markets they can attend. The brewery’s manufacturing facility must be located within the county or an adjacent county of the farmers’ market. This requirement brings up some interesting issues, especially in the Bay Area where county boundaries are small and the number of producers is high. Beer producers in Santa Cruz, Mendocino, Napa and Sonoma will not be able to sell their products at San Francisco farmers’ markets.

Brewers and distilleries have been turning up their efforts in California to receive the same benefits as wineries, and have been slowly realizing the benefits of these efforts. Stay tuned for more legislative updates from the Booze Rules blog.  

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  7. TTB Speaks up on Social Media
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  12. TTB and Consignment Sales – Is There a Disconnect Between Policy Development and Business Reality?
  13. RBS ADDENDUM – THE LATEST FROM THE ABC AS THE AGENCY PROVIDES MORE INFORMATION ON THE CALIFORNIA ABC’S MANDATORY RESPONSIBLE BEVERAGE SERVER PROGRAM
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  36. John Hinman’s May 22, 2020 interview with Wine Industry Advisor on the ABC COVID-19 Regulatory Relief initiatives and the ABC “emergency rule” proposals
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