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California Steps Up Liquor License Enforcement

We always recommend you regularly review your state liquor licenses to ensure you hold the correct licenses for your business needs. However, given recent feedback from California regulators, you may want to expedite such a review. We have learned that California is scrutinizing liquor licenses and enforcing regulations that prohibit licensees from obtaining licenses that could create tier violations.

California recently provided guidance on which industry members can hold a Type 13 Distilled Spirits Importer’s General license. As a reminder, a Type 13 license authorizes licensees to import and sell distilled spirits to other distilled spirits manufacturers, wholesalers, rectifiers and importers within the state. Historically, California issued a Type 13 license to out-of-state supplier-tier companies importing distilled spirits in their name. These companies would use licensed public warehouses for storage before distributing their products to authorized California licensees, such as licensed California wholesalers.

However, the California Department of Alcoholic Beverage Control (CA ABC) asserts that CA BPC § 23771 prohibits distilled spirits suppliers from holding a Type 13 license if they have any interest in manufacturing within or outside of the state. This prohibition applies to suppliers who manufacture distilled spirits outside of California or have a parent company that manufactures distilled spirits overseas. The state has said that these suppliers should hold a manufacturer-type license, such as a Type 5 license.

A Type 5 Distilled Spirits Manufacturer’s Agent license is frequently held by an agent of out-of-state distilleries or manufacturers who promotes the products and does missionary work for the out-of-state distillers or manufacturers. They can also solicit sales from licensed distilled spirits manufacturers, rectifiers or distilled spirits wholesalers and hold possession of distilled spirits in public or private warehouses. Although Type 5 licensees cannot import distilled spirits into California, they can sell distilled spirits to other Type 13 license holders who may import into the state.

While we have not seen proactive enforcement from CA ABC on this matter, the issue may arise when or if Type 13 license-holding companies renew a license or file a person-to-person transfer or premises transfer for a current license. CA ABC has indicated that Type 13 license-holding suppliers will not be penalized for holding an improper license; the agency will expect these suppliers to work with it to determine if they should hold a different set of licenses to meet their business needs.

If you have any questions about California ABC liquor licenses, please contact Alva Mather, Nichole Shustack, Alice Chung or McDermott’s alcohol team.




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The Expanding Landscape of Alcohol Delivery Services

Following consumer trends and fueled by the pandemic and related loosening of restrictions on in-state retailer alcohol delivery regulations, the marketplace for alcohol delivery services has expanded exponentially over the last several years and shows no signs of slowing down. Industry forecasts predict double-digit growth year-over-year until at least 2025 for alcohol-focused e-commerce platforms. However, like anything in the alcohol beverage space, various avenues of penetration for new or existing companies come with certain restrictions that need to be balanced against opportunities for delivering customer convenience through alcohol delivery services.

Available Models

As alcohol delivery has grown and expanded in nearly every US state, numerous delivery models have developed to bring alcohol to a consumer’s doorstep. Of the various models, three have emerged as the most dominant go-to-market approaches to service this new industry sector.

The first are purely e-commerce platforms that connect consumers directly with a wide variety of licensed alcohol retailers but are themselves unlicensed (such as Drizly). The second are unlicensed white-labeled alcohol delivery services which appear as a branded website but integrate with a network of licensed retailers (like Thirstie). And the third are delivery platforms that themselves hold alcohol licenses (such as Gopuff).

Regulatory Opportunities and Impediments

While each of these models presents growth opportunities to service consumers’ desires to receive alcohol at their doorsteps, they also come with a host of restrictions that entities—and any investors in these companies—need to understand. Chief among these considerations are:

  • “Sale of Alcohol”: If the alcohol delivery service is itself unlicensed, the “sale” of alcohol must be between the consumer and the ultimate retail license holder. This means that the service cannot itself first receive the funds for the sale, take its fee and then pass the monies forward to the license holder. In some states, the provider may, however, be able to direct funds in the first instance to an escrow account or other independent account if the licensee retains a degree of control over the account. The licensed retailer should also always maintain control over the “sale” of alcohol, including setting pricing and accepting or rejecting orders.
  • Fee Structure: While state regulators allow for platforms to charge for their delivery and hard costs related to their services, how that fee is derived can be of particular significance if it is or can be correlated with alcohol sales. This restriction is premised on the fact that only a licensed entity should receive the benefit or privilege of the sale of alcohol. Accordingly, certain states like New York have suggested that if the fee structure is not a “flat fee” for services, receiving more than 10% of the revenue from a retailer as part of the sale of alcohol renders the platform a “Co-Licensee” and subject to the state’s authority and licensee vetting process.
  • Supplier Advertising: The ability of alcohol suppliers to pay to advertise on alcohol delivery platforms is of particular focus to alcohol state regulators. First, if the platform is itself unlicensed, the [...]

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Ruling Permits On-Premises Beer and Wine Licenses for New York Movie Theaters

On January 26, 2022, the New York State Liquor Authority issued a Declaratory Ruling regarding the eligibility of New York movie theaters to apply for and obtain on-premises retail licenses for beer and wine service. This is a value-add for theaters, and it allows businesses to provide a new amenity to customers and increase their revenues. The Authority determined that theaters would be eligible for these licenses provided the following:

  • They can establish the theater will prepare and serve food;
  • The primary source of revenue for the theater will be from the ticket sales and/or snacks; and
  • The revenue from the sales of alcoholic beverages (beer and wine only) will be incidental to revenues from tickets and food offerings.

For questions about this ruling, retail licenses in New York or other alcoholic beverage licensing and compliance matters, please contact Adena Santiago or McDermott’s alcohol regulatory and distribution team.




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