BILL ANALYSIS
Bill No: AB
1245
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Dean Florez, Chair
2007-2008 Regular Session
Staff Analysis
AB 1245 Author: Torrico
As Proposed to be Amended: June 10, 2008
Hearing Date: June 10, 2008
Consultant: Art Terzakis
SUBJECT
Alcoholic Beverages
DESCRIPTION
AB 1245 allows a beer manufacturer to give adult consumers
promotional items valued up to $5.00, as opposed to the
current amount of $0.25.
EXISTING LAW
Existing law establishes the Department of Alcoholic
Beverage Control (ABC) and grants it exclusive authority to
administer the provisions of the ABC Act in accordance with
laws enacted by the Legislature. This involves licensing
individuals and businesses associated with the manufacture,
importation and sale of alcoholic beverages in this state
and the collection of license fees or occupation taxes for
this purpose.
Existing law prohibits the ABC from imposing a dollar limit
of less than $5 for consumer advertising specialties
furnished by a distilled spirits supplier to a retailer or
the general public.
With respect to beer, existing law provides that premiums,
gifts, or free goods, including advertising specialties
that have no significant utilitarian value other than
advertising, shall be deemed to have greater than
inconsequential value if they cost more than $0.25 per
unit, or cost more than $15 in the aggregate for all those
AB 1245 (Torrico) continued
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items given by a single supplier to a single retail
premises per calendar year.
The ABC Act permits an on-sale retail licensee of wine or
distilled spirits to conduct "instructional" consumer
tastings on the licensed retail premise provided the
following conditions are met: (1) no more than ounce of
distilled spirits is offered in one tasting; (2) no more
than one ounce of wine is offered in one tasting; and, (3)
no more than three tastings are offered to an individual in
one day. An instruction may include the history, nature,
values and characteristics of the product being offered,
and the methods of presenting and serving the product.
Existing law authorizes beer manufacturers and wholesalers
to offer beer samples (not to exceed 8 ounces per person,
per day) to individuals of legal drinking age at on-sale
retail licensed premises under specified conditions.
Existing law permits a licensed winegrower, manufacturer,
importer, or wholesaler to provide samples of the alcoholic
beverages which are authorized to be sold by the licensee
in accordance with rules prescribed by the ABC. A retail
licensee, however, is not authorized to provide any free
samples of alcoholic beverages. Moreover, ABC regulations
provide that samples of alcoholic beverages may only be
given away to licensees or employees of licensees who are
in a position to purchase the product or who are in need of
additional information about the product, as specified.
Existing law authorizes distilled spirits manufacturers to
conduct tastings and provide distilled sprits without
charge for events sponsored by nonprofit organizations.
Only persons affiliated with the nonprofit organization,
including up to three guests, may attend. No distilled
spirits may be sold or solicited for sale at the tasting,
and the organization must obtain a permit from ABC prior to
the event.
Existing law, known as the "tied-house" law, separates the
alcoholic beverage industry into three component parts of
manufacturer, wholesaler, and retailer. The original
policy rationale for this body of law was to prohibit the
vertical integration of the alcohol industry and to protect
the public from predatory marketing practices. Generally,
other than exemptions granted by the Legislature, the
AB 1245 (Torrico) continued
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holder of one type of license is not permitted to do
business as another type of licensee within the
"three-tier" system.
BACKGROUND
Purpose of AB 1245: The author's office notes that
currently, distilled spirits manufacturers are allowed to
give consumers items valued up to $5.00, such as t-shirts
and hats, while the beer industry is only permitted to give
items up to $0.25. According to the author's office, this
measure is intended to level the playing field between beer
and spirits by allowing both sectors to spend equal
amounts. The author's office points out that by raising
the existing limit to $5.00, California would be joining 45
other states that permit beer manufacturers to give items
valued at $5.00 or more to consumers. The author's office
cites the following examples: Arizona permits items up to
$5.00 per consumer while Colorado, Florida, Georgia,
Illinois, Massachusetts and New York have no dollar limits.
Arguments in Support: Proponents state that allowing the
beer industry to stay competitive is in California's best
interest. Proponents claim that as a whole, the beer
industry supplies 200,000 jobs and provides $1.5 billion in
state and local taxes. The sponsor of this measure,
Anheuser-Busch, employs thousands of Californians statewide
in numerous facilities (e.g., breweries, rice mill,
entertainment venues, packaging and wholesaling) that
represent a capital investment of $2.7 billion in the
state.
Proponents note that throughout the 1990s per capita
consumption of beer, wine and spirits fell - since 2000,
wine and spirits have rebounded but beer sales continue to
struggle. Proponents believe that eliminating the dollar
disparity between beer and spirits will allow the beer
industry to compete fairly in the marketplace.
Anheuser-Busch points out that some small brewers have
expressed concern that this measure will not allow them to
compete if the dollar limit is raised. Anheuser-Busch
contends that data from other states show that the opposite
is true and that the craft beer business is thriving. For
example, according to data from Adams Beer Handbook, craft
beer sales in Colorado (which imposes no limit on gifts to
consumers) have done much better than craft beer sales in
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California. Anheuser-Busch argues that this data suggests
that closing the dollar gap will not harm craft beer sales.
Arguments in Opposition: Opponents point out that for more
than seven decades California law has limited the value of
marketing novelties and promotional items that alcoholic
beverage manufacturers and distributors can give away to
licensed retailers and consumers. These laws are intended
in large part to prevent overly aggressive marketing
practices by alcohol suppliers that could improperly
influence purchasing preferences of retailers and adult
consumers. These laws also help prevent a dominant
alcoholic beverage manufacturer from gaining an unfair
advantage over smaller competitors.
Opponents contend that while it is true the spirits
industry enjoys a higher allowable per-item marketing
expenditure for giveaway items - it is also true that the
spirits industry does not engage in other forms of
marketing, such as widespread T.V. advertising, in the same
way as the beer industry. Opponents note that the industry
in California is balanced in its current marketing
structure - they argue that implementation of this measure
could lead to an "arms race" in beer marketing
expenditures, especially in a manner that entices retailers
and consumers to vie for giveaway items of ever increasing
value.
Furthermore, opponents emphasize that AB 1245 not only
provides an unfair marketing advantage for one beer
supplier, it also has been widely referred to as "a
solution in search of a problem," meaning it's claimed
benefits would actually lead to greater problems and
instability in the marketplace; from weakening the
three-tier system to indirectly contributing to
over-consumption by consumers as they vie for more
expensive giveaway items that would become legal under AB
1245.
PRIOR/RELATED LEGISLATION
AB 2293 (DeLeon) 2007-08 Session. Would allow a
manufacturer of distilled spirits, winegrower, rectifier,
distiller, bottler, importer, or wholesaler of distilled
spirits or wine or its authorized agent to entertain
consumers by invitation at private parties and events in
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connection with the sale or distribution of wine or
distilled spirits, subject to certain conditions. (Pending
on Assembly floor)
SB 1548 (Murray) Chapter 670, Statutes of 2006. Authorized
beer manufacturers and wholesalers to offer beer samples
(not to exceed 8 ounces per person, per day) to individuals
of legal drinking age at on-sale retail licensed premises
under specified conditions.
AB 2285 (V. Brown) Chapter 248, Statutes of 1998. Allowed
on-sale retail licensees to offer limited tastings of wine
or distilled spirits at the licensed establishment.
SB 993 (Burton) Chapter 544, Statutes of 1997. Among other
things, provided that no rule of the Department of ABC may
impose a dollar limit for consumer advertising specialties
furnished by a distilled spirits supplier to a retailer or
to the general public of less than $5 per unit original
cost to the supplier who purchased it. Also, authorized a
licensed distilled spirits manufacturer to conduct tastings
of distilled spirits on the licensed premises under
specified conditions. In addition, authorized a licensed
distilled spirits manufacturer or a licensee designated by
an out-of-state distilled spirits manufacturer to conduct
tastings of distilled spirits off licensed premises only
for events sponsored by certain nonprofit organizations and
only if persons attending the event are affiliated with the
sponsor, as specified.
SUPPORT: As of June 6, 2008:
Anheuser-Busch Companies (sponsor)
Anheuser-Busch Sales of Los Angeles, Pomona, and Riverside
California Teamsters
Delta Sierra Beverage
Eagle Distributing Company
Heimark Distributing Company
Markstein Beverage Company
Matagrano, Inc.
Straub Distributing Company
OPPOSE: As of June 6, 2008:
California Council on Alcohol Problems
California Small Brewers Association
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Coors Brewing Company
Crown Imports, LLC
Heineken International
Marin Institute
Miller Brewing Company
FISCAL COMMITTEE: Senate Appropriations Committee
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