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From lovewallpaperphotos.blogspot.com
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Alcohol Regulation
• Taxation of Alcohol
• Control of Alcohol
- Prohibition (18th Amendment)
- Prohibit the “tied house” (Federal and State laws)
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Alcohol Regulation - Taxation
• The Whiskey Excise Tax
(1791)and Whiskey Rebellion
• Alcohol, beer, distilled spirits
were considered safer than
drinking water
• In 1830, average American
over age 15 years drank the
equivalent of 88 bottles of
whiskey a year (3x as much
as today)
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Events Leading to Prohibition
• Temperance Movement: 1830s-1850s
- Maine in 1851 was first state to prohibit
sale and consumption of alcohol
- Several other states had some form of
prohibition
• Target: the saloon, particularly, the
“tied house”
• Civil War 1861-1865
• Beer excise tax to pay for war
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What is a “Tied House”
• Ownership of saloons and
bars (retailers) by the alcohol
beverage maker (usually
breweries)
• Trade Practices
• England and US
• Problems
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Alcoholism
Disorderly conduct
Domestic strife
Loss of wages and workers
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Temperance Movement: Late 19th and Early 20
Century
• Grew in last half of the 19th century,
part of “progressive” political ideas
including women’s suffrage, and
antitrust laws.
• Women’s Christian Temperance
Union (1874) and Anti-Saloon
League (1893)
• Sixteenth Amendment
- authorized federal income tax
- passed Congress 1909, ratified 1913
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Carrie Nation
The Eighteenth Amendment
• Eighteenth Amendment
- Section 1. After one year from the ratification of this
article the manufacture, sale, or transportation of
intoxicating liquors within, the importation thereof into,
or the exportation thereof from the United States and all
the territory subject to the jurisdiction thereof for
beverage purposes is hereby prohibited.
- Ratified in 1919, quickly
- Banned “intoxicating liquors”
- The “noble experiment”
• Volstead Act
- Defined “intoxicating liquors” as at or below 0.5%
alcohol by volume
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Prohibition 1920-1933
• Early signs were favorable, but led to:
- Organized crime
- Dangerous illegally-produced liquor
and moonshine
- Corruption
- Disrespect for the law
• The Great Depression
- Federal government needed
excise tax revenue
• Cullen-Harrison Act (1933)
allowed for 3.2% beer
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Repeal – The 21st Amendment
• Section 2. The transportation
or importation into any State,
Territory, or possession of the
United States for delivery or
use therein of intoxicating
liquors, in violation of the laws
thereof, is hereby prohibited.
• The 21st Amendment did not
establish tied house laws or
three-tier system
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Federal Alcohol Administration Act (1935)
• Federal regulatory framework: (Brewers Notice,
COLAs, etc.)
• Federal Tied House Law (27 USC Section 205)
• Trade Practices:
- Pay to Play
- Advertising
- Difference from CA state law: federal law requires an
inducement to a retailer that causes retailer to exclude
products of another supplier
• Ownership: Did not establish a three-tier system, did
not separate the upper tiers from each other
(producers and wholesalers)
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Toward Liquor Control
• Prohibitionists had lost, but still advocated for
governmental regulation of liquor . . . but how?
• Seminal book on state liquor regulation Toward Liquor
Control (1933)
Funded by Rockefeller Foundation
Emphasized state and local regulation
Prohibit “tied houses”
Advocated “control” system for spirits,
fortified wines and strong beers
John D. Rockefeller, Jr.
- Advocated a “license” system for table wine and 3.2%
beer; 3.2 beer should be freely allowed
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Toward Liquor Control – Rationales
• Ownership: “The ‘tied house’ system had al the vice of absentee
ownership. The manufacturer knew nothing and cared nothing
about the community. All he wanted was increased sales. He
saw none of the abuses, and as a non-resident he was beyond
local social influence.”
• Trade Regulation: “There are many devices used by brewers and
distillers to achieve the same end, such as furnishing of bars,
electric signs, refrigerating equipment, the extension of credit, the
payment of rebates, the furnishing of warranty bonds when
required to guarantee the fulfillment of license conditions and of
bail bonds when the dealer is haled into court. A license law
should endeavor to prohibit all such relations between the
manufacturer and the retailer, difficult as this may be.”
-- as quoted by Marc Sorini, 2013 presentation about “Toward Liquor Control”
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Map of License/Control States (control states are in blue)
Oregon
Idaho
Montana
Wyoming
Utah
Iowa
Michigan
Ohio
Alabama
Mississippi
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Maine
New Hampshire
Vermont
Pennsylvania
W. Virginia
Maryland
North Carolina
Development of Three Tier System
• States that were not full “control” states, created
(mostly) mandatory middle tier of wholesalers to
separate producers from retailers
• 1940s-1950s: interstate highway system, technology
advances, television, national retail chains
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California Tied House Law
• 1932 - Proposition 2 gave State of California exclusive
right to license or regulate alcohol in state; Original
alcohol regulatory “tied house” laws passed in 1935
- Forbade tied house
• Alcohol Beverage Control Act moved into Business &
Professions Code in 1953, still on the books
- Original law 9 sections and 3 pages; by 2005, 40 sections
and 32 pages; current law, about 1/3 prohibitions and 2/3
exceptions
• 1955 - Department of Alcoholic Beverage Control (ABC )
- Proposition 3 passed in 1954, amending CA Constitution
(Article XX, Section 20)
- Corruption in Board of Equalization, Prop. 3 established the
Department of Alcoholic Beverage Control
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CA Business & Professions Code Section 25550
• “No manufacturer, winegrower, manufacturer’s
agent, rectifier, California winegrower’s agent, distiller,
bottler, importer, or wholesaler, or any officer, director,
or agent of any such persons shall:
- 1) hold the ownership, directly or indirectly, of any
interest in any on-sale license.”
- 2) furnish, give, or lend any money or other thing of
value, directly or indirectly, to . . . Any person engaged
in operating, owning or maintaining any on-sale
premises where alcoholic beverages are sold . .
• Same prohibition for off-sale license (B&P Code 25502)
• Two Tiers in CA
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California: Four policy reasons for Tied House Laws
• Orderly Market. Promote the state's interest in an
orderly market
• Antitrust. Prohibit the vertical integration and
dominance by a single producer in the market place
• Fair Trade & Marketing Practices. Prohibit commercial
bribery and to protect the public from predatory
marketing practices; and
• Temperance. Discourage and/or prevent the
intemperate use of alcoholic beverages.
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1960s-1970s
• 1965 - Fritz Maytag buys Anchor Brewing
• 1960s-1970s – Consolidation of national
and regional breweries
• 1971 – First state beer “franchise” law
(Mass.); CA a “partial” franchise state
• 1971 – CA Beer Wholesalers Assn. v ABC
• 1976 – New Albion Brewing
• 1978 – Federal homebrewing
law passed
• 1979 – Sierra Nevada Brewing
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Homebrewing
• Left off Federal Register in 1933
• Federal law in 1978 (H.R. 1337),
effective in 1979, no longer
prohibited home brewing
• Sponsored by Senator Alan
Cranston (D-CA)
• Limit of 200 gallons per household
per year, or 100 gallons if only one
adult resides in such household
• For personal or family use, not for
sale, in a “household” (CA Bus.
&Prof. Code § 23356.2)
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Sen. Alan Cranston
Brewpub Law: AB 3610
• AB 3610
- Assemblyman Tom Bates
- Passed1982, enacted 1983
• Allowed brewery to sell
beer and wine on premises
directly to consumers if
brewery had a bona fide
eating establishment.
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AB 3610 Developments
•
•
•
•
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Mendocino Brewing (1983) (2nd)
Buffalo Bill’s (1984) (3rd)
Triple Rock (1986) (5th)
Today over 500+ breweries and
brewpubs in California
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Type 23 License: Small Beer Manufacturer
• 1953: Sell your beer to licensee (wholesaler or retailer)
• 1978: Sell your beer for consumption on premises
(taproom)
• 1983: Sell beer and wine, including other’s beer and
wine, for consumption on premises if you have an onpremises restaurant (AB 3610)(modern brewpub)
• 1988: Can get off-premises retail beer and wine
license (Type 20 license), so long as others’ beer and
wine is purchased from a licensed distributor
• 1992: Sell own beer for consumption off premises
(growlers)
• 2015: Sell beer and wine for customer’s private event
held at brewery (others’ beer/wine must be purchased from wholesaler)
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US History of Beverage Alcohol
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US History of Beverage Alcohol
2,538
1,850
1,179
703
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California Tied House Law – “Exceptions “
• Breweries can self-distribute
• Breweries can get wholesaler license
(beer and wine)
• Bus. & Prof. Code 25503.28 (1994)
- small brewer (Type 23) or its owners, officer,
director, employee or agent, can own or
have an interest in up to 6 retail on-sale
licensees
- actually the law states that owner of no
more than 6 on-sale (retail) licenses can
own a Type 23 license, and must purchase
alcohol from wholesaler or winegrower,
except as to beer brewed on premises
- became operative in 1998
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Wolfgang Puck
Type 75 License “On-Sale Brewpub-Restaurant”
• Bus. & Prof. Code 23396.3 (1996)
- created the Type 75 “brewpubrestaurant” license
- a retail license that allows the
licensee to brew up to 5,000
barrels of beer, minimum of 100
- AB 684 sponsored by a retail chain (CA Café Restaurants)
supported by California Restaurant Association; opposed
by CCBA
- can sell spirits too
- confusing
- fee is much higher than Type 23, but can be cheaper than
other retail license
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Internet & Social Media
• Bus. & Prof. Code Sections 25502.1 and 25502.2
• Passed in 1999, effective 2000; sponsored by
Assemblyman Chesbro
• Allowed manufacturers to list retailers that sold their
products in response to a direct inquiry from a
consumer by phone, mail, or electronic means or in
person; this was no longer a “thing of value”
• Amended in 2015 to remove the
requirement for a “direct inquiry” from
a consumer, so it now effectively
allows a brewery to identify retailers in
a social media post, subject to certain
conditions
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Tied House Laws Future
• Ownership – not bad
• Trade Regulation – confusing, but law evolving; adopt
federal standard of inducement to exclude?
• Competition
- Distributors help small breweries reach other markets
- Franchise laws can harm small breweries, but CA
franchise law not as severe
- Issue is consolidation of distributors and larger breweries
ownership or control of distributors; need an
independent and numerous system of distributors
• Alcohol Consumption
- Overall beer consumption is flat, but craft growing
- Fewer alcohol related deaths and accidents
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Tied House Law and Three-Tier Future
• Brewers Association. “State laws should support an
independent distribution tier that is unencumbered by
undue influence, ownership or control by the largest
brewers and ensures access to market for all brewers.
For small brewers, the ability to be licensed as a
distributor is often an essential element that serves to
provide them access to market and increase
consumer choice.”
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Contact Information:
Eugene M. Pak
[email protected]
Wendel, Rosen, Black & Dean LLP
1111 Broadway 24th Floor
Oakland, CA 94607
510-622-7684
Twitter: @beerattorney
Blog: www.beerandlaw.com
Website: www.wendel.com/breweries
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