Keith Mack
California's three-tier alcohol distribution system, created by the 21st Amendment, separates producers (wineries, breweries, distilleries, and importers), distributors/wholesalers, and retailers/restaurants. This system restricts wineries to selling their products exclusively to wholesalers, who then sell to retailers and restaurants, who ultimately sell to consumers. However, licensed wineries that produce no more than 50,000 gallons per year may apply for additional licensing to sell directly to retailers and consumers in tasting rooms. This raises the question: can a winery sell brandy under California law?
| Characteristics | Values |
|---|---|
| Definition of wine | Any alcoholic beverage obtained by the fermentation of agricultural products containing natural or added sugar or such beverage fortified with brandy and containing not more than 24% alcohol by volume |
| Self-distribution to retailers | Licensed wineries that produce no more than 50,000 gallons per year may apply for additional licensing to sell directly to retailers |
| Out-of-state winery license | Allows the holder to sell to Montana wholesalers and retailers using their own equipment |
| Winemaker Self-Distribution License | Permits the licensee to self-distribute to Oklahoma retailers; delivery is only permitted using the winery’s own vehicles |
| Nonresidential Seller License | Allows the holder to sell to Oklahoma wholesalers and act as their own broker |
| Nonresident Manufacturer License | Does not allow the holder to act as their own broker |
| Alcohol and Tobacco Tax and Trade Bureau | Oversees the AVA approval process and all alcohol beverage law |
| Three-tier system | The system for distribution and sales of all alcohol beverages in the U.S. |
| Tasting rooms | Wineries can operate a tasting room in another location in California and sell wine to consumers there without having to maintain a production facility on the same premises |
| Advertising of charitable donations | Generally prohibited in connection with the sale of alcohol, but licensees can donate to specified charities and nonprofit organizations |
| Distilled spirits rectifier’s general license | Authorizes the holder to sell brandy produced to persons holding licenses authorizing the sale of brandy |
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What You'll Learn
Winery licensing requirements
The typical license for a winery in California is the Type 02 Winegrower license. This license is for any person or business with the "facilities and equipment for the conversion of grapes, berries, or other fruit into wine" and is engaged in wine production. However, businesses more focused on marketing wine or having wine custom-crushed to their specifications may instead obtain a Type 17/20 license combination. The Type 17 license is a wine and beer wholesaler license, and the Type 20 license is a retail license for the sale of wine and beer for consumption off the licensed premises. When held together, they allow the sale of wine to retailers and consumers, but the license holder cannot produce wine.
In 2009, California law changed to permit 17/20 license holders, sometimes called "virtual wineries", to donate their wines to non-profit organizations. This change allowed virtual wineries to participate in wine tastings and other events held by non-profits. However, a drawback of the 17/20 winery license is that licensees cannot offer tastings to consumers.
To address the changing needs of licensees, the ABC introduced the Type 85 "Off-Sale Retail" license. This license enables licensees to sell wine directly to consumers via the internet, direct mail, or telephone without requiring a wholesaler license.
In addition to winery licenses, there are other types of licenses relevant to the wine industry. For example, the Out-of-State Winery Shipper's Permit for Wine allows out-of-state wineries to sell to Montana wholesalers and retailers using their own equipment. There are also various tax rates and fees associated with different licenses.
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Brandy manufacturing licenses
In California, a brandy manufacturer's license authorizes the holder to manufacture brandy and not other distilled spirits. The license applies to brandy made by the distillation of wine or fermented fruit. The production of brandy involves three steps: fermentation, distillation, and aging.
A distilled spirits rectifier's general license authorizes the holder to cut, blend, rectify, mix, flavor, and color distilled spirits. It also permits the holder to package, label, export, and sell the distilled spirits to specific entities, including distilled spirits manufacturers, distilled spirits manufacturer's agents, and distilled spirits wholesalers. This license is issued only to the holder of a beer and wine wholesaler's license and authorizes the sale of brandy to persons holding licenses that permit the sale of brandy.
A California winegrower's agent acts as the sole representative for a California winegrower or brandy manufacturer. This license authorizes the holder to possess wine and brandy produced in California in public and private warehouses. The license also permits the holder to sell only to wholesalers for their own account or to solicit and make sales of California-made wine or brandy to wholesalers for their principal.
In terms of wine distribution in California, the three-tier system stipulates that producers (wineries, breweries, distilleries, and importers) are restricted to selling their products exclusively to wholesale distributors, who then sell to retailers and restaurants, which ultimately sell to consumers. By law, each tier of alcohol beverage production, distribution, and sales must remain separate. However, there are variations to this model. For example, in some states, a brewpub may simultaneously act as a producer and retailer without the need to sell to a distributor. Additionally, licensed wineries that produce no more than 50,000 gallons per year may apply for additional licensing to sell directly to retailers using their own delivery equipment or common carriers, with an annual delivery limit of 4,500 cases.
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Winery distribution laws
- Importers or producers (wineries, breweries, distilleries, and importers)
- Distributors/wholesalers
- Retailers/restaurants (both on-premise accounts like restaurants and hotels, and off-premise accounts like retail stores)
The three-tier system stipulates that wineries and other producers can only sell their products to wholesale distributors, who then sell to retailers and restaurants, who ultimately sell to consumers. Each tier must remain separate, meaning a producer cannot have ownership or business interests in a distributor or retailer.
However, there are some variations to this model. In some states, brewpubs can act as both producers and retailers without selling to a distributor. Additionally, some states allow wineries to sell directly to consumers, such as in tasting rooms.
Wineries that produce a limited amount of wine annually may also be able to apply for additional licensing to sell directly to retailers, as is the case in Oklahoma and Montana. For example, licensed wineries that produce no more than 50,000 gallons per year may be able to sell directly to retailers using their own delivery equipment or common carriers, as long as they do not exceed 4,500 cases annually.
While the three-tier system is the standard for alcohol distribution in the US, there are ongoing legal challenges to this model. Some wineries, particularly smaller ones, argue that the current laws create barriers to entry in the marketplace and reduce wine options for retailers and consumers. There have been lawsuits challenging state laws that permit in-state producers certain rights while denying them to out-of-state producers, claiming that these laws violate the Constitution's Dormant Commerce Clause.
California, in particular, has faced legal challenges to its wine distribution laws. California grants local wineries economic advantages, such as the ability to distribute directly to retailers and restaurants, which is not available to out-of-state wineries. Plaintiffs in a recent lawsuit argue that California's restriction is unnecessary and unconstitutional, serving primarily "to protect in-state business interests." The outcome of this case could have significant implications for wine distribution laws in the state.
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Brandy sales regulations
Licensing and Permits
Any individual or business intending to sell brandy in California must possess the appropriate license or permit. The specific license required depends on the nature of the business and its role in the supply chain. For instance, a "distilled spirits rectifier's general license" is necessary for those seeking to blend, rectify, mix, flavor, and color distilled spirits, including brandy. This license also authorizes the sale of brandy to licensed brandy sellers.
A "winegrower's agent license" is specific to California and authorizes the holder to possess and sell wine and brandy produced in the state, but only to wholesalers. This license does not extend to representing out-of-state brandy manufacturers.
An "Out-of-State Winery License" is required to sell brandy to wholesalers and retailers in Montana, with fees varying based on the number of cases shipped.
Wineries producing a limited volume of brandy (up to 50,000 gallons per year) may apply for additional licensing to sell directly to retailers, either using their delivery equipment or common carriers, with annual caps in place.
Labeling Laws
California has stringent regulations for labeling wine and brandy. Labels must provide a substantial amount of data, including the origin of the grape variety and vintage dating. If a specific AVA (American Viticultural Area) is listed, at least 85% of the grapes used must originate from that AVA. For a label listing a county, state, or other country, the minimum percentage of grapes from that region increases to 75%. However, California, Washington, and Oregon are exceptions, requiring wine and brandy labeled with these states as the appellation to be made entirely from grapes grown within their respective states.
Sales and Distribution
California operates under the three-tier system for the distribution and sales of alcohol, including brandy. This system dictates that importers or producers (the first tier) can only sell to wholesale distributors (the second tier), who then sell to the third tier, comprising retailers and restaurants, who ultimately sell to consumers. Each tier must remain separate, and a producer cannot hold ownership in a distributor or retailer.
However, there are variations to this model. Some states allow entities to sell directly to consumers, as in the case of wineries selling to customers in their tasting rooms. Wineries can also operate duplicate tasting rooms in other locations in California, providing an additional avenue to reach consumers without maintaining a production facility on-site.
Advertising and Charitable Donations
California law generally prohibits licensees from providing gifts or "things of value" in connection with the sale of alcohol. However, licensees are permitted to donate to specified charities and nonprofit organizations. With the passing of AB 1267, manufacturers, including brandy manufacturers, can now donate a portion of the purchase price of alcoholic beverages to nonprofit charities, provided that the promotion does not encourage the consumption of alcohol and that the donation does not benefit a retail licensee.
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Winery advertising rules
Labelling Laws
Wineries must follow specific labelling laws that provide consumers with detailed information about the wine. These laws include regulations on the statements of geographical origin, with 100% of the grapes used in the wine being grown in that state for it to be designated as "California" wine. To bear a viticultural area designation, such as "Napa" or "Sonoma," 85% or more of the grapes must be grown in the specified area. The winery production and bottling designations also provide insights into the wine's quality, with "Estate Bottled" and "Grown, Produced, and Bottled by..." indicating that 100% of the grapes came from a vineyard owned or controlled within the viticultural area.
Social Media Advertising
The laws regarding social media advertising for wineries have evolved over time. Initially, wineries faced restrictions on how they could advertise certain events held at retailer premises, with limitations on listing anything other than the name and address of the retailer and a prohibition on pictures or illustrations of the retailer's premises. However, in 2018, a new law (AB2452) was enacted, granting wineries more flexibility in social media promotions. This amendment to the ABC Act allows suppliers, including wineries, to include additional retailer information, such as website addresses and other electronic media, as long as it is relatively inconspicuous. They can also incorporate pictures, illustrations, and depictions of the retailer's premises, personnel, and customers in their event advertisements, but videos are still prohibited.
Distribution and Sales
The three-tier system governs the distribution and sales of alcoholic beverages in California. This system comprises importers or producers, distributors/wholesalers, and retailers/restaurants. Wineries, as producers, are restricted to selling their products exclusively to wholesale distributors, who then sell to retailers and restaurants, who ultimately sell to consumers. Wineries that produce less than a certain amount of wine per year may apply for additional licensing to sell directly to retailers or operate tasting rooms at off-site locations.
Charitable Donations
Under the ABC Act, alcohol beverage licensees are generally prohibited from giving gifts or "things of value" in connection with the sale and distribution of alcoholic beverages. However, there are exceptions, such as allowing licensees to donate to specified charities and nonprofit organizations. Wineries can now advertise and promote these charitable donations in connection with the sale of alcohol, thanks to a new law (AB 1267) that went into effect on January 1, 2022.
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Frequently asked questions
Yes, a licensed winery in California can sell brandy, but only to wholesalers.
A winery in California needs a winegrower's agent license to sell brandy to wholesalers.
Yes, a winery in California can sell directly to consumers in their tasting room or in a Duplicate Type 02 tasting room.
