(By Eugene Pak)
During Prohibition the term “scofflaw” was coined to refer to someone who disregarded or flouted the law. Today, although the sale and distribution of alcoholic beverages is no longer prohibited, it is still heavily regulated. Some retailers have scoffed, intentionally or unintentionally, at these regulations by buying hard-to-find premium craft beers such as Pliny the Elder (Russian River Brewing) directly from brewery tap rooms and brewpubs and then re-selling them at inflated prices. This practice was described in a recent article by Kate Bernot in DRAFT magazine, “In Search of Craft Beer’s Most Wanted.”
During Prohibition the term “scofflaw” was coined to refer to someone who disregarded or flouted the law. Today, although the sale and distribution of alcoholic beverages is no longer prohibited, it is still heavily regulated. Some retailers have scoffed, intentionally or unintentionally, at these regulations by buying hard-to-find premium craft beers such as Pliny the Elder (Russian River Brewing) directly from brewery tap rooms and brewpubs and then re-selling them at inflated prices. This practice was described in a recent article by Kate Bernot in DRAFT magazine, “In Search of Craft Beer’s Most Wanted.”
Assembly Bill 776: New Business & Professions Code Section 23402.5
The California Legislature recently took aim at this practice by passing AB 776. The bill was signed by Governor Brown last month and goes into effect in January 2016. AB 776 is a sort of catch-all of alcohol beverage laws that was introduced by Assemblymember Jim Cooper. Section 3 of the bill targets these new era scofflaws by prohibiting the re-sale of any beer purchased from a brewery at the brewery’s premises under any of the following circumstances:
Section 3 of the bill will add new Section 23402.5 to the Business & Professions Code.
Arguably, under current law this practice was already suspect if not proscribed. Alcohol beverage retailers are generally required to purchase beer for re-sale to consumers from licensed distributors or from breweries which self-distribute, at prices posted for particular counties, but there was some ambiguity about direct purchases by retailers from breweries at "retail.". AB 776 helps clarify that this practice or buying beers at "retail" from breweries' for later re-sale is not allowed under the conditions set forth above. The new law applies to retail licensees (e.g., liquor store owners) but not to individual consumers; however, the commercial re-sale of liquor by individual consumers is already prohibited without a license from the ABC (see Bus. & Prof. Code Section 23300), though enforcement is rare.
- the brewery has not filed a price schedule (price posting) for that beer in the county in which the retailer is located and sells the beer;
- the price at which the retailer purchases the beer is different from the price in the price schedule filed by the brewery; or
- the beer container contains the statement, or is marked, “Not Packaged for Resale.”
Section 3 of the bill will add new Section 23402.5 to the Business & Professions Code.
Arguably, under current law this practice was already suspect if not proscribed. Alcohol beverage retailers are generally required to purchase beer for re-sale to consumers from licensed distributors or from breweries which self-distribute, at prices posted for particular counties, but there was some ambiguity about direct purchases by retailers from breweries at "retail.". AB 776 helps clarify that this practice or buying beers at "retail" from breweries' for later re-sale is not allowed under the conditions set forth above. The new law applies to retail licensees (e.g., liquor store owners) but not to individual consumers; however, the commercial re-sale of liquor by individual consumers is already prohibited without a license from the ABC (see Bus. & Prof. Code Section 23300), though enforcement is rare.
Why It Matters: You Can't Download Beer
Some might ask what is wrong with this, aren’t these retailers simply trying to get sought after craft beers into consumers’ hands? The problem is manifold.
First, it disrupts the distribution channels of the brewery and beer distributors. Craft breweries often have to carefully allot their most popular beers among many different distributors and retailers, to give everyone a chance to buy the beers. If one liquor store in an area has more of those beers, at inflated prices, it can create tension and discord among a brewery’s distributors and other retailers. It also causes consumers to erroneously believe that it is the brewers who are charging high prices for their beers and reaping huge profits.
Second, there is no guarantee how the beer is handled. For hop heavy beers like double and triple IPAs, prompt delivery and cooling is important to keep the beers fresh. If a retailer buys the beer from a brewery and does not properly transport and store the beer, this can lead to degradation of the beer which can harm the brewery’s reputation. In contrast, when a brewery or distributor delivers beer to retailers, it is more likely the beers are maintained properly.
Third, it is price gouging which can lead to an undesirable secondary or black market in beer.* Often, when a product starts to fetch an inflated price due to these types of practices, counterfeiters become interested in selling knock-offs to get that high price, and then later flood the market with cheap imitations.
I represented large software and technology companies in anti-counterfeiting efforts in the 2000's when intricate Certificates of Authenticity and holographic images on CD-ROM discs were used to deter the trafficking in counterfeit software; it was a game of “whack-a-mole” as the counterfeiters would eventually catch on to the latest anti-counterfeiting technology. Much of this has since been deterred or at least made harder due to digital downloading – but you can’t download beer. Counterfeiting is already bedeviling the wine industry as this article describes. Once counterfeiting starts, it can be hard for a producer or an industry to reel it in.
As craft beers become more popular, breweries and regulators will need to carefully monitor beer distribution and strengthen laws to deter illegal secondary or black markets. AB 776 is a step in that direction.
_____________________________________
* A CNN article from 2014 about the black market in craft beers can be found here..
First, it disrupts the distribution channels of the brewery and beer distributors. Craft breweries often have to carefully allot their most popular beers among many different distributors and retailers, to give everyone a chance to buy the beers. If one liquor store in an area has more of those beers, at inflated prices, it can create tension and discord among a brewery’s distributors and other retailers. It also causes consumers to erroneously believe that it is the brewers who are charging high prices for their beers and reaping huge profits.
Second, there is no guarantee how the beer is handled. For hop heavy beers like double and triple IPAs, prompt delivery and cooling is important to keep the beers fresh. If a retailer buys the beer from a brewery and does not properly transport and store the beer, this can lead to degradation of the beer which can harm the brewery’s reputation. In contrast, when a brewery or distributor delivers beer to retailers, it is more likely the beers are maintained properly.
Third, it is price gouging which can lead to an undesirable secondary or black market in beer.* Often, when a product starts to fetch an inflated price due to these types of practices, counterfeiters become interested in selling knock-offs to get that high price, and then later flood the market with cheap imitations.
I represented large software and technology companies in anti-counterfeiting efforts in the 2000's when intricate Certificates of Authenticity and holographic images on CD-ROM discs were used to deter the trafficking in counterfeit software; it was a game of “whack-a-mole” as the counterfeiters would eventually catch on to the latest anti-counterfeiting technology. Much of this has since been deterred or at least made harder due to digital downloading – but you can’t download beer. Counterfeiting is already bedeviling the wine industry as this article describes. Once counterfeiting starts, it can be hard for a producer or an industry to reel it in.
As craft beers become more popular, breweries and regulators will need to carefully monitor beer distribution and strengthen laws to deter illegal secondary or black markets. AB 776 is a step in that direction.
_____________________________________
* A CNN article from 2014 about the black market in craft beers can be found here..
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