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At Strike & Techel, we don’t just write legal briefs. Check out our blog about the ins and outs of alcohol beverage law.

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Imbiblog is published for general informational purposes only and is not intended as legal advice.

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Brewing Beer in California

April 14th, 2014

With the explosive growth in craft beers and micro and nano and other really, really small breweries, we at Strike & Techel wanted to put together some helpful tips for anyone looking to brew beer in the state. If you want to make beer commercially, these guidelines will help you work out the best way to start your new business. You will find three ways to get going in the guidelines: small beer manufacturing, beer manufacturing (over 60,000 barrels of beer), and brewpub operations where you get to brew beer and sell it to people in a restaurant or pub setting.

Contact one of the attorneys at Strike & Techel if you have questions about brewing beer in California or other states.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·

Nevada Signals Intention to More Actively Monitor Trade Practices

March 5th, 2014

Almost three years ago now, as reported on Imbiblog here, the TTB accepted its largest set of offers in compromise ever, for trade practices violations. Some of the biggest names in the business agreed to pay hundreds of thousands of dollars to the TTB even though they denied violating any laws or regulations. The allegations of trade practice violations came from participation by the companies in the 2008-2009 Harrah’s Nationwide Beverage Program. Unlike notable earlier trade practice investigations by the TTB, where there was state participation and a parallel investigation, there were no allegations made against retailers involved in the program, and no fines or penalties assessed against retailers (see for example the 2004-2009 joint investigation by Illinois and TTB into payments made by suppliers and wholesalers to Sam’s Wine & Spirits, Inc., then the largest wine retailer in the country, and its captive third party marketing organization Skyline Marketing, Inc.). The 2011 settlement by TTB was acknowledged to result from a retailer-initiated promotional program. Given that the TTB has extremely limited jurisdiction over alcohol retailers, however, the agency was unable to enforce any allegations against Harrah’s for the promotion. Had the State of Nevada participated in the investigation, it is more likely that charges could have been brought.

Now, the Office of the Attorney-General in Nevada has come out with an open letter to retailers, wholesalers and suppliers of liquor in Nevada in what appears to signal an intention to focus more attention on trade practice issues in the State. The advice contained in the letter is phrased as a “reminder” to the industry of prohibited and restricted activities. It covers the following issues:

-          No loans from wholesalers to retailers of money or other thing of value, no investments by a wholesaler in a retailer, no complimentary furnishing of premises or equipment, and no joint operation of a retail business;

-          Adherence to strict payment terms, with no preference accorded by wholesalers to certain retailers, and with a cessation of sales and monthly service charges in case of delinquency;

-          No substitution of brands without consent, and no delivery of unwanted or unnecessary inventory;

-          No required boycotts of other suppliers;

-          No price fixing down the supply chain by suppliers imposing resale prices on wholesalers, and no profit splitting with the supplier getting a specified portion of the wholesaler’s profit margin;

-          No excessive marketing contributions being required by suppliers of their wholesalers, for promotions outside the wholesaler’s market or beyond the terms agreed by the parties;

-          Strict adherence to the quoted price from suppliers to wholesalers;

-          No discrimination by suppliers among wholesalers (note that Nevada has a franchise law meaning that this refers to discrimination between wholesalers in different parts of the state as only one wholesaler can be appointed in any given market); and,

-          No deceptive trade practices.

The letter refers to concerns with illegal terms or incentives by industry members looking for a competitive edge in the market. It notes that the Attorney General has jurisdiction over these issues and is required by law to take appropriate legal action to enforce the provisions of law setting forth the restrictions above. The Attorney General’s office recognizes in the letter its duty to investigate and prosecute deceptive trade practices in Nevada. Should the type of circumstances in the TTB’s investigation in 2011 arise again, it will be very interesting to see what action is taken by the state in light of this clear signal that it is unlikely to sit by if unlawful trade practices occur in Nevada.

If you have any questions about trade practice issues, in Nevada or elsewhere, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·

TTB Updates its Position on Gluten-Free Label Claims

February 11th, 2014

On Tuesday, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) issued an Announcement regarding its treatment of “gluten-free” claims on alcoholic beverage labels. As we previously blogged here, TTB has been looking into the issue of gluten-free labeling since at least 2012, and TTB Ruling 2012-2 implemented a policy of allowing the term “gluten-free” only on the labels of products that are produced without any ingredients that contain gluten. For products made from gluten-containing materials, the 2012 Ruling implemented several requirements, including: a) a statement that the product is “Processed or Treated or Crafted to remove gluten;” b) a qualifying statement to inform consumers that (i) the product was made from a grain that contains gluten, (ii) there is currently no valid test to verify the gluten content of fermented products, and (iii) the finished product may contain gluten; and, c) a detailed description of the method used to remove gluten from the product.

TTB explains in its most recent announcement that it has finished its review of the FDA’s rule on gluten-free labeling, and has updated its requirements accordingly. TTB will continue to allow the term “gluten-free” only on the labels of products that are produced without any ingredients that contain gluten. However, for products made from gluten-containing materials, TTB has lessened the labeling requirements, and now provides that such products may be labeled with a statement that the product was “processed, “treated” or “crafted” to remove gluten, if that claim “is made together with a qualifying statement that warns the consumer that the gluten content of the product cannot be determined and that the product may contain gluten.” Labels no longer require a detailed description of the method used to remove gluten from the product.

If you have any questions about alcoholic beverage labeling, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·

Getting Started in the Business: Entity

January 15th, 2014

This blog entry is part of a continuing series discussing important steps to get started in the alcoholic beverage industry. In addition to choosing a location for your business (discussed in a previous post, here), and before you prepare the applications to obtain the license(s) required to operate your business (discussed in a previous post, here), you will also need to consider what type of business entity should be formed in order to operate your business.

We usually counsel clients to hold their alcoholic beverage license under an entity, rather than as an individual.  Formation of an entity that is separate and distinct from its owners offers protection against certain liabilities and may be advantageous from a tax perspective.

The type of entity (e.g., corporation, limited liability company, trust, etc.) and the domicile (state) of the entity can impact how the entity is taxed.  Your tax advisor may have an opinion on these issues.  If the entity is not domiciled in California and you intend to apply for a California ABC license, the entity will have to qualify to do business in California before you can file your applications. You may also need to register a fictitious business name in the county in which your business will operate and obtain a local business license(s).

In order to establish an entity in California, you will have to file Articles with the Secretary of State.  You will also need to prepare corporate bylaws or an LLC operating agreement, depending on which type of entity you form.  These documents are very important, as they set forth the specifics about ownership percentages, voting rights, profit distributions, etc.  Bear in mind that certain changes in ownership, such as added shareholders/LLC members can affect your alcohol licenses.  It is wise to consider carefully who will be an owner of the business entity and whether any ownership changes are likely to occur before submitting your license applications.

Contact one of the attorneys at Strike & Techel if you have questions relating to forming a business entity in order to get started in the alcohol beverage business.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved

Getting Started in the Business: Licensing

December 12th, 2013

This blog entry is part of a continuing series discussing important steps to get started in the alcoholic beverage industry. Once you have pinpointed a location for your business (discussed in a previous post, here), you will need to obtain a license, or a combination of licenses, before you commence operations.  To determine what type(s) of license(s) you need, here are some answers to questions you may be asking:

*   Do the Tied-House Laws Permit Me to Hold the Licenses I Want?  Federally and across all states, “tied house” laws generally prohibit the same person or entity from having an ownership interest in alcohol beverage businesses in more than one of the 3 tiers -manufacturing/importing, distribution and retail.  (To learn more about tied house laws, review this post.)  However, that restriction is far from absolute.  Many statutory exceptions have been carved out of the 3-tier system to permit cross-tier licensing and the resulting patchwork of exceptions can be difficult to comprehend.  For example, in California, wineries can also own restaurants (subject to restrictions) and certain off-sale retail stores.  Small breweries (less than 60,000 barrels/year) can own on-sale retailers but large breweries cannot.  Beer and wine wholesalers cannot also be retailers, unless they sell only wine through the retail store.  Other states have their own set of hard-to-explain exceptions.

*   What Does My License Permit Me to Do?  The general rule is that manufacturers sell to wholesalers; wholesalers sell to retailers; and retailers sell to consumers.  But this, too, is riddled with exceptions.  California wineries and breweries can sell their products directly to retailers and consumers without using a distributor, but distilled spirits manufacturers can sell only to distributors and cannot themselves hold a distributor license.  Rectifiers, on the other hand, can act as their own distributor and sell their products – and spirits products made by anyone else – directly to retailers.  Moreover, you may need more than one license to operate your business.  For example, if you are going to be operating a distillery, you will need a Type 4 (Distilled Spirits Manufacturer’s license), and a Type 6 (Still) license.  If you are importing distilled spirits from outside of California and distributing them to retailers you’ll need a Type 12 (Distilled Spirits Importer), and a Type 18 (Distilled Spirits Wholesaler).  California issues dozens of different licenses so it is important to know exactly what you want to do, which licenses are needed to accomplish it, and whether you are eligible to hold them.

*   What are the Processing Times to Obtain a License?  In California, it takes about 90-120 days to process an application for a new license, and slightly less time to transfer an existing license at a premises that is already licensed. It will take longer to process an application that is incomplete, contested by neighboring residents or the local authorities, or filed incorrectly.  Also keep in mind that the ABC cannot issue a license until it has received confirmation from the City/County that all required use permits have been obtained.  Each applicant will be assigned a local ABC investigator to handle the application until the process is completed.  Currently, U.S. Alcohol Tobacco Tax Trade Bureau (“TTB”) licenses are processing in about 90 days, similar to California licenses.

*   May I Obtain a Temporary Permit?  Provided that you are transferring an existing license at an already licensed premises, the California ABC may grant a temporary permit so you may operate your business while the license transfer application is being processed. A temporary permit is not available in connection with applications for new licenses or applications to transfer existing licenses to a premises that has not been previously licensed.

*    What Are the Costs Involved?  Depending on what type(s) of license(s) applied for, the cost can vary considerably.  A schedule of license costs is available here.  Some retail licenses are limited in numbers and must be purchased on the open market.  Prices for these licenses vary greatly by type and location.  For instance, a Type-47 (On-sale general eating place) may sell for $200,000 in San Francisco, whereas the same type of license in Fresno County currently only costs $12,000.

In conjunction with your ABC application, you may also need to obtain other federal, state or local licenses/permits.   In California this may include, for example:  federal licenses through the TTB; a certification from the Secretary of State that you are qualified to do business in the state; and a sales tax permit from the State Board of Equalization.

Contact one of the attorneys at Strike & Techel if you have questions about applying for a license to get started in the alcohol beverage business.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·

Happy Repeal Day! 80 Years Ago Prohibition was Repealed

December 5th, 2013

On December 5, 1933, the 21st Amendment to the United States Constitution was ratified, thus repealing the 18th Amendment and marking the end to enforcement of the Volstead Act and the official end of the period known as “Prohibition.”  Most historians agree that Prohibition was a failure.  Born out of the late 19th Century formation of temperance societies, like the Woman’s Christian Temperance Union, Prohibition was intended to strengthen families and reduce social problems caused by overconsumption of alcohol.  Instead, it brought more than 10 years of increased crime, and little or no decrease in alcohol consumption (but it did give rise to great terms like Speakeasy, the Real McCoy, and Blind Pig).  After 13 years, 10 months, 19 days, 17 hours and 32.5 minutes of Prohibition, the Noble Experiment finally ended and alcohol could once again be purchased legally in the U.S.

Happy Repeal Day from everyone at Strike & Techel.

Cheers!

Getting Started in the Business: Location

December 2nd, 2013

This blog entry is part of a continuing series discussing important steps to get started in the alcoholic beverage industry. If you intend to obtain an alcoholic beverage license for your business, you’ll need to have a location for the business before you apply.  In selecting a location, you should consider the following factors.

 

State:  Each state has different licenses available, charges different fees for its licenses, and applies different rules to its licensees.  Further, some states move faster than others in issuing licenses.  Once you’ve settled on a business model, you should choose a state that is favorable to your model and where you can get licensed on a schedule that works for your launch plans.

 

Zoning and Lease:  Check with the local planning department to make sure the location that you are considering is properly zoned for the proposed activity.  If it is not properly zoned, the process to obtain an exception can be long, expensive and unpredictable, so proceed with caution.  If you must enter a lease before applying for an alcoholic beverage license, be sure to include a provision that allows you to vacate the lease if you are unable to obtain the desired alcoholic beverage license at the location.

 

Limited Availability: In some localities and for some license types, the number of available licenses is limited.  If you cannot obtain a new license from the alcohol regulatory agency and have to buy one on the open market, prices may vary widely depending on supply and demand. This is particularly common in densely populated areas.  Be aware that a slight change in location can have a large impact on the availability and cost of the license you need.

 

Consideration Points: Though each state is different, most states do not want alcohol businesses to be close (within 500 ft.) to churches or schools.  If there are residential neighbors near your proposed location, they will also be given an opportunity to oppose your license application.  Try to determine if your business will be welcomed by the local police department and residents.  If local law enforcement does not support your project, you may face an uphill licensing battle.  Moreover, sometimes an active anti-alcohol neighborhood group can delay or even derail a licensing project. Typically, a large poster-sized notice announcing your application will be posted while the license is pending, so if you elect to license your home, be prepared for curious neighbors.

 

The most important consideration in choosing a location for your business is deciding where you want/need to be located.  For example, where do you want to spend your time? Where do you want to make most of your sales?  Do you need to have access to a warehouse or will an office suffice?  What sort of staffing will you need to operate the business and is it available within the local labor pool?  Are economies of scale possible by sharing warehousing or production facilities? 

 

Contact one of the attorneys at Strike & Techel if you have questions about things to consider when choosing a location to get started in the alcohol beverage business.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·

Clarifications from the ABC on Sweepstakes and Contests in California

October 17th, 2013

On June 13, 2013, guests attending ShipCompliant’s “Direct 2013” conference heard from Matthew Botting, General Counsel to the California ABC, on supplier participation in sweepstakes and contests under California’s new law.  We’ve previously blogged about the new law here and here.

California Code of Regulations Title 4, Section 106 (“Rule 106”) has always allowed suppliers to “sponsor” a contest, meaning suppliers could give money or otherwise participate when the contest was organized by “bona fide amateur or professional organizations.”  Previously, the privilege was limited.  Now, the privileges are broader:  suppliers (including wineries) can now “conduct” a contest under recently enacted Business and Professions Code Section 25600.1, and conduct or sponsor a sweepstakes under 25600.2.  Mr. Botting discussed the different available privileges and their limitations:

*   “Conduct” means the promotion is managed and organized by the supplier.
*   “Sponsor” means it is someone else’s sweepstakes or contest and the supplier is providing a prize or other sponsorship of the promotion.
*    For the time being, suppliers can only sponsor a contest in accordance with the existing Rule 106, which means sponsorship is limited to a contest conducted by bona fide amateur or professional organizations.
*    Sponsoring a sweepstakes and conducting a sweepstakes or contest is now covered by Business and Professions Code Section 25600.1 and 25600.2.  Sweepstakes or contests cannot require a visit to a licensed premises of any kind, so there must be an alternate method of entry (“AMOE”) if entry forms are available at a licensee.
*     Sweepstakes and contests cannot be conducted on retail premises (e.g., a grocery store, liquor store, bar or restaurant).  A “retail premise” includes some locations you might not think of, such as: an unlicensed premises if a licensed caterer is present, or at an event held by a nonprofit under a one-day permit. The ABC considers events held with a caterer’s license or a nonprofit one-day permit to occur “at the premises of a retail licensee,” and therefore a supplier may only provide a means of entry at either of these types of events.
*     While suppliers may provide a means of entry for the contest or sweepstakes, the contest or sweepstakes may not be conducted at a winery or brewery’s duplicate tasting room.
*     A contest or sweepstakes can only be advertised at a retailer if it is advertised at a minimum of three different retailers, and winners shouldn’t be picked at a licensed retail event nor in a tasting room.

The full presentation by Mr. Botting can be seen here (starting at the 5:00 minute mark).

Before conducting or sponsoring any contest or sweepstakes, be sure to consult the relevant laws, Business & Professions Code Sections 25600.1, 25600.2, and, if applicable, Rule 106 (regarding contests), and pay particular attention to whether the supplier involved holds a license that allows it to participate.

Contact one of the attorneys at Strike & Techel if you have questions about contests and sweepstakes in California or other states.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·

Strike & Techel Speaking at Upcoming Conferences

October 15th, 2013

Barry Strike will be a presenter at the International Wine Law Association (AIDV) International Conference on October 18-20 in Vienna, Austria.  This annual conference brings together speakers and participants from around the world to discuss global strategies for legal issues related to the wine industry.  Barry will present on U.S. regulatory agencies available to assist international wine companies.

Kristen Techel will be speaking at the Wine Law Forum on Friday November 22, from 9:00am-5:00pm at Hotel Paradox in Santa Cruz, California.  Kristen will share her expertise on the emerging role of third party providers in a discussion entitled “Third Party Providers:  Unlicensed Participants in a Licensed Industry.”  The event is co-sponsored by the International Wine Law Association (AIDV).

If you would like more information on the AIDV organization or about either conference, please click here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·

Governor Cuomo Signs Law Allowing New York Wine to be Sold at Local Farmers’ Markets

October 10th, 2013

On October 1, 2013, Governor Andrew Cuomo signed into law S. 267/A.1512, creating a new venue for New York wineries to sell their wines to consumers.  As of March 26, 2014, farm market stands may apply for a new “roadside farm market license” to sell New York State labeled wine that is produced by no more than 2 licensed farm wineries, micro-wineries or special wineries located within 20 miles of the roadside farmers’ market.

This law is in keeping with Governor Cuomo’s efforts to bolster the New York wine industry.  In a statement released after enacting the new law, Governor Cuomo said: “These new laws will build on our continuing efforts to promote New York’s wine industry across the state and beyond, boosting tourism, local economies and job growth.  We are increasing market opportunities for local producers and farmers…Our state is home to hundreds of wineries that produce some of the best wine in the world, and we want both New Yorkers and visitors to come and enjoy them.”

The new law does not include tasting privileges at the farm stands, which is probably not surprising, given the possible connection between wine tasting at a roadside stand and driving a car.  We’ll be interested to see if other states follow New York’s lead and enact legislation to license farm stands.

For the full text of the new law, click here.

Contact one of the attorneys at Strike & Techel if you have questions about licensing in New York or any other state.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·