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Wine Industry Tips From a California ABC Veteran

Columnist: Scott Gerien
April, 2012 Issue

Scott Gerien
All articles by columnist
For this business of wine issue, I thought I’d discuss a legal topic that’s always of interest to my winery clients: the California Department of Alcoholic Beverage Control (ABC) and its rules and regulations. To have this discussion, I turned to my colleague, Mike Mann. Mike is a consultant with our firm, but before that, he worked for ABC for two decades and retired as district administrator of ABC’s Santa Rosa office, which is responsible for the North Bay’s major wine producing counties. I posed a few questions to Mike so he could share his insights as an ABC veteran with NorthBay biz’ wine industry readership.

Who is ABC today? As with many public and private organizations, staffing at all levels changes through budget cuts, employee buyout incentive programs and retirements. With these changes, a lot of the institutional knowledge and historical perspective of the organization is lost.

ABC is facing this transition today and is in the process of evaluating and reevaluating its huge role in the alcoholic beverage industry in California. With changes in the way business is being conducted in the marketplace with the use of social media and online marketing, ABC finds itself having to adapt and make changes to prior interpretations of existing laws and rules, as well as create new ones to meet today’s business climate.

ABC has reached out to the industry with “stakeholders” meetings and has created committees comprised of industry members and representatives to address current industry concerns.

ABC recently issued an advisory related to third-party providers, or third parties that assist wineries in some way in helping them sell and market their wine. If a winery is interested in using one of these third-party providers, are there any precautions the winery needs to take so as not to run afoul of ABC regulations? The first rule is to always remember that a winery licensee using the services of a third party is ultimately responsible for the actions of the third party acting on the winery’s behalf and must control the transaction.

In practice, the advertising or webpage of a third party should clearly identify the winery and note that all sales will be conducted and all orders will be fulfilled by the winery licensee. The winery must make all decisions concerning the selection of wines to offer for sale, the pricing of the wine and the acceptance or rejection of a sale.

The winery must also be responsible for the shipment of the wine either from its licensed premises or another authorized shipping location and, don’t forget, when going out of state, all of the same laws apply.

Remember, this is your transaction. If there are ever any doubts or second thoughts, refer to the first rule.

Most wineries assume they can pour their wine at events away from their winery, but this isn’t always the case. What precautions should a winery take to ensure compliance with ABC regulations when pouring wine at an event not on the winery premises?

The majority of these events are those open to the public where the winery marketing folks want to gain exposure. Simply remember that if an event is open to the public and wine is being poured, the event must be licensed.

These events are normally sponsored by a nonprofit organization that must obtain a “temporary” or “daily” license from ABC. If asked to participate in, and/or donate wine to, any event open to the public away from the winery-licensed premises, ask the event coordinator for proof of a license issued by ABC for the event.

Keep in mind that there are numerous variations on how and where events are held. Be sure to get specific clarification that the nonprofit is properly licensed, especially if an event is to be held at an existing ABC-licensed retail location.

On the flip side, many wineries assume they can conduct special events and serve alcoholic beverages at their wineries pursuant to their production licenses. Is this truly the case, or are there precautions a winery must take to prevent violating its license in hosting such events?

In general, a winery may have special events that are open to the public and serve or sell its wines only to the attendees. A winery should, however, confirm with ABC that there are no restrictions on its specific winery license prohibiting such events. A winery should also confirm that local land use laws or use permits allow such events.

A winery may also have private events or private functions not open to the general public. At these types of events, only beer, wine and brandy may be sold or served to guests. It should also be noted that alcoholic beverages sold or served during a private event at the premises that are not produced by the winery must be purchased from a licensed wholesaler.

Keep in mind that ABC statute specifically allows for only wine, beer and brandy at these private events and no other types of alcoholic beverages, such as vodka or tequila, may be served.

With the financial crisis and changes in lending practices, many wineries are looking for outside investors to help provide financial support to keep an existing business solvent or to establish an entirely new business. Are there certain licensing provisions a winery must take into consideration when taking on an investor?

In California, there are what are referred to as tied-house laws, which are similar to antitrust laws that exist in other regulated industries. These laws restrict one’s cross ownership within the three tiers of the alcoholic beverage industry, which are the manufacturer, wholesaler and retailer.

The trend currently being seen is that successful retailers or restaurateurs are investing in the manufacturing arena and vice versa. Although there are some tied-house exceptions for this to occur, they are very specific and need to be looked at early in the process when investors are being sought.

Any changes that occur must be reported statutorily whether they’re in the ownership or even the management of an ABC-licensed business.

Although all of these changes make for a healthier future for the business owner, the failure to report the “change of control” of one’s business to ABC and TTB could have severe consequences.


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