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03.21.2013  
 

Why Vintners Can't Sign Wine Labels

And other often absurd restrictions in California alcohol regulation

 
by Paul Franson
 
 
wine bottle sign
 
Winemakers can sign labels at retailers under strict regulations but never at their California wineries.
Napa, Calif.—Experts at the Best Practices in Winery Operations conference last week in Napa discussed topics such as social media, evaluating vineyard property and contract winemaking. But the most lively sessions at the two-day event sponsored by the Seminar Group were an update about California’s onerous tied-house laws and holding events in Napa County, which has the most restrictive regulations for winery events in the United States.

‘Don’t tell me what you’re doing’
Matthew D. Botting, general counsel of the California Department of Alcoholic Beverage Control, presented a summary of updated tied-house rules about contests and sweepstakes as well as a seemingly trivial bill that uncovers a dirty little secret: It’s illegal for winemakers or vintners to sign wine labels at their wineries or restaurants. A new law allows them to sign labels at retailers under strict restrictions, however.

Clearly appreciating the absurdity of some of the trivial restrictions, Botting held up the phonebook-size summary of alcohol laws in California and pointed out a concept foreign in most American life: When it comes to alcoholic beverages, you start with nothing. You can only do what your permit specifically allows you. All else is forbidden.

Replying to a few questions from the audience, Botting exclaimed, “Don’t tell me what you’re doing!” He admitted that the ABC is unlikely to make a priority of busting label signers, but they do take the tied-house laws seriously.

These laws were set up after Prohibition to prevent beer, wine and spirits manufacturers from owning bars and restaurants and unfairly monopolizing the business. The laws established the three-tier systems and carefully control relations between the tiers.

For example: Wineries can’t give anything of significant value to retailers or restaurants and bars. Signing a label is considered of value, which is why a specific rule had to be added to permit it. The consumer has to buy the bottle first, not as a condition of the signing, and the consumer can have winemaker sign something else such as a piece of paper.

Rules for sponsoring contests
Contests and sweepstakes are a bigger issue. Until last year, wineries couldn’t hold contests that gave consumers prizes, leading to the absurdity of Californians being the only Americans who couldn’t win prizes in Sutter Home Winery’s Build a Better Burger contest.

New provisions let wineries conduct their own consumer contests and sweepstakes as well as sponsor someone consumer sweepstakes for other companies. (Previously they could sponsor contests by providing prizes.)

There are lots of restrictions, including:
•    No one under 21 can enter
•    You can’t require the purchase of alcohol for entry or extra chances to win
•    Entry can’t involve consumption of alcohol
•    Packaging, caps, labels, etc., cannot be used as entry form—though a neck hanger can
•    You must offer an alternative entry form that does not require a visit to a licensed premise
•    The entry forms must clearly state that no purchase of alcohol is required
•    You may conduct the contest at a winery but not at duplicate licenses such as remote tasting rooms
   
You can’t give alcohol as a prize. “Don’t give away free alcohol,” Botting warns.

Also, suppliers can sponsor contests by making monetary payments to “bona fide amateur or professional organizations established for the encouragement and promotion of the activities involved.”

Botting emphasizes that penalties can be severe: Typically for first-offense violations of trade practice statutes, the license can be suspended for 15 days or warrant a $750-$10,000 fine (or up to value of the “thing” given to a retailer).

For violation of the sweepstakes statute, the penalty also may include prohibiting sweepstakes for California residents for up to one year.

An update about events
Two other speakers discussed events. Mimi Gatens, the marketing manager at Trefethen Family Vineyards, covered events at wineries in Napa County.

She outlined the two defining events for wineries in Napa County: the establishment of the agricultural preserve in 1968, which stated that the best use of most of the county’s unincorporated land was agriculture (and watershed), and the 1990 Winery Definition Ordinance, which stated that producing wine must be the principal business of a winery.

It outlawed social events including weddings, business meetings unless they spent 75% of their time on wine education (and the winery didn’t make money on anything but wine) and required appointments for tours and tastings. It did allow restricted marketing events including for the trade and wine clubs.

Each new winery was also allowed a certain number of events and visitors.

Markups for food not allowed
During the downturn of 2010, some local wineries and hospitality businesses lobbied for loosening the rules. The primary change was allowing food and wine pairing, however the only charge for the food could be cost recovery.

Wineries that offer food pairings—even precut cheese—must have commercial kitchens, which are inspected by the county health department. Staff must also undergo food-safety training.

Following Gatens’ Napa-centric talk, Lori Ajax, the deputy division chief of the California ABC, talked about events off winery property, including nonprofit events and those at restaurants (they’re not allowed at off-premise locations).

Ajax first noted that the ABC has about 70 different licen ses held by 85,000 organizations, most of them retailers. The list includes about 4,700 Type-02 winery licenses (in this article, “wineries” refer to wine producers with Type-02 licenses, not type 17/20 “virtual wineries”). The ABC just posted an interactive map of all permanent licenses.

One area of confusion surrounds nonprofit events including wine festivals, which have no special privileges, but Ajax noted, “We don’t like events offering ‘all you can drink.’”

License for events
The event must truly be driven by the nonprofit group, not the winery or promoters.

The group needs a special event one-day license to offer alcoholic beverages. “If a nonprofit approaches you, ask to see their permit before you donate.” She added, “That may cut down the requests, too!”

Wineries can donate or sell wine to nonprofit organizations, tend bar, provide tastes, help in other ways and advertise the event. They can’t benefit permanent retail licenses, however.

If an event is held at a licensed premise like a restaurant, the restaurant must surrender its license for that part of its property, and the nonprofit must get a one-day license.

Types of licenses
You can’t sell wine directly to consumers at a nonprofit event, but organizers can get a Type-81 wine sales event permit and set up a separate area. Wineries can’t solicit orders, however, and any transaction must be completed at a winery, so no use of mobile credit card-processing (such as Square) is allowed.

Some events are held under caterers’ licenses (Type 58), but in this case, a winery can’t donate wine since it’s a retailer.

In a few unrelated issues, Ajax noted that wineries can’t give things to consumers that are worth more than $1 (and even those must be branded).

Shipping and decoys
Free shipping is a prime no-no. You can include it in the cost, but it can’t be free. Matt Botting jokingly noted that they always buy the cheapest bottle to bust you. “We’re cheap,” he said.

And on the heels of massive sting busts in Southern California for selling alcohol to underage drinkers, Ajax noted that decoys don’t have to truthfully answer any questions other than their age—not even, “Are you a decoy?”

Clearly, regulations about alcohol are challenging. In general, Botting warned, “Tied-house provisions are often complex, and these new provisions are no exception. Before undertaking any promotion or event, you should review the requirements of the law and seek independent legal counsel.”

You can find advisories on these issues at abc.ca.gov.

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LATEST READER COMMENTS
 
 
Posted on 03.22.2013 - 10:23:31 PST
 
The ABC's position that "whatever is not expressly permitted is prohibited" directly conflicts with licensed wineries, distributors and retailers 1st Amendment commercial free speech rights to market their products. The SCOTUS has spoken on this issue and affirmed these rights. We defended a bottle-signing accusation brought by the ABC last June on this basis and a week after the hearing the case was dismissed. http://www.beveragelaw.com/blog/would-you-like-me-to-autograph-your-bottle/ to be continued I'm sure.
 
John Hinman
 
 
 
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