By Zachary Reeves and the Hinman & Carmichael LLP Team
The California legislature adopted, and the Governor approved, several amendments to the state’s alcohol laws this past year (with many amendments already in effect) and several new statutes creating privileges and responsibilities.
Our summary below of the new laws that producers, wholesalers, and retailers of beer, wine, and spirits should know are now binding on them (or will soon be) include new mandatory EFT payment protocols, bans on hemp products, creation of cannabis cafes, CRV bottle bill labeling requirements, biometric age verification to prevent sales to minors, more entertainment zones throughout the state, mandatory reporting of drug tests in bars, requirements for lids on drinks in bars, free lids for drinks in bars to prevent drink spiking, and permitting certain privileged clubs to serve alcohol until 4 am.
There were also several technical changes affecting the extension of craft distillery DTC privileges, spirits of wine authorizations and clarifications, beer catering permit clarifications, the sale of domestically produced soju and shochu in restaurants and on-premises locations with wine licenses, as well as the ever-popular clarification of seasonal beer returns.
Not covered in this article, as the changes aren’t finalized, are proposed amendments to ABC Rules 35 (applications for licenses by Trusts) and 106 (the broad rule covering advertising, merchandising, and “things of value”). These will likely be the biggest changes coming in 2025, or 2026.
While each amendment affects specific licensees and specific businesses, the EFT protocols, CRV bottle labeling requirements, and new rules for on-premises bars to prevent drink spiking are the new laws likely to have the biggest effect in the new year. We will inform you of new rules and policies as the ABC and the TTB announce them. Meanwhile, we are all looking forward to an exciting and prosperous year for California licensees.
A) AB 2991 – Electronic Funds Transfers Required Between Wholesale and Retail Licensees
We previously did an extensive write-up on the new EFT requirements here, but it is worth reviewing the summary of the requirements and our concerns about who is affected, and how. Starting January 1, 2026, “retailer licensees” must pay “wholesaler licensees” by electronic funds transfer for “delivery” of beer, wine, or distilled spirits. The bill amends California Business and Professions Code section 25509 and creates a new section 25509.1.
“Electronic funds transfer” or “EFT” means the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems. The bill enables (and requires, unless the affected retailers make a succession of elections not later than July 1, 2025) “wholesalers” to select the third-party payment processor used to make an electronic funds transfer.
Payment may be made using cash, check, or money order only in these instances:
(1) If accepting payment following an electronic funds transfer of insufficient funds.
(2) If the retailer holds an interim operating permit or a temporary permit.
(3) During temporary service interruption of the third-party payment processor.
(4) During the first 30 days following the issuance of a license to the retailer licensee.
Several issues arise from this bill, some of which are: who is considered a retailer and who is considered a wholesaler (for example, virtual wineries [9/17/20 license types] are considered wholesalers); mandatory wholesaler access to retailer bank accounts is called for by the new statute; and what is considered a “delivery” of beer, wine, or distilled spirits should be clarified. Again, our in-depth analysis is here if you would like to read more about it.
B) DPH-24-005E-Emergency Regulation – Ban on Certain Hemp Products
On September 23, 2024, Governor Gavin Newsom announced an emergency regulation that prohibited hemp products from containing any “detectable” amount of THC. The regulation also prohibits the sale of “industrial hemp final form food products” to a person under 21.
The devil is in the details. The regulation requires any “industrial hemp final form food product intended for human consumption” to have: (1) servings that contain “no detectable amount of total THC,” (2) that each package has no more than 5 servings; and (3) for serving sizes to be the same as federal standards for non-industrial hemp food products. “Detectable” means any amount of analyte, subject to the limit of detection. “Limit of detection” means the lowest quantity of a substance or an analyte that can be reliably distinguished from the absence of that substance within a specified confidence limit. The rule specifies as to what is considered THC, which includes Delta-8 and Delta-9, among numerous others.
Once this rule was adopted, the ABC began strongly enforcing these requirements against licensees. Unfortunately, because everything happened so quickly, the licensees that were most affected were the small convenience and liquor stores without the resources to monitor the regulatory environment and implement business changes quickly. The moral of the story here is products with THC or compounds that produce similar effects can only be sold in stores licensed to sell THC. Hemp products are not a workaround for licensees and the penalties for noncompliance are harsh.
C) AB 1775 – Amsterdam Style Cannabis Cafes
Starting January 1, 2025, Amsterdam style cannabis cafes may start puffing up (poor pun intended) in California. While the bill goes into effect on January 1st, local jurisdictions must first approve of and license such businesses, so we expect to see a delay in implementation.
Specifically, the bill amends Section 26200 of the Business and Professions to authorize local jurisdictions, if specified conditions are met, to allow for the preparation or sale of noncannabis food or beverage products, by a licensed retailer or microbusiness where the consumption of cannabis is allowed. The bill also allows selling tickets for live musical or other performances on the premises of a licensed retailer or microbusiness where the consumption of cannabis is allowed. This bill does not, however, authorize the service of alcohol and cannabis in the same establishment. In fact, the privileges of existing alcohol licenses to serve alcoholic beverages are expressly suspended during the duration of the cannabis event. So, if you are an entertainment venue, an election of what substances to permit being used during specific events will be a challenge. This bill is a Cheech and Chong skit waiting to happen.
D) SB 1013 and SB 353 – Bottle Bill Amendments Taking Effect
In last year’s “new law” update here, we summarized the Bottle Bill amendments. This serves as a reminder that all wine and distilled spirits sold after July 1, 2025 will need to comply with the CRV labeling requirements. The specific labeling requirements vary depending upon the type of container (e.g. aluminum, glass, plastic, etc.) but generally require a permanently affixed message about the container’s CRV value. But note, containers used in tasting rooms are exempt from these requirements. CRV labeling will be optional for wine and distilled spirits until June 30, 2025.
E) SB 1371 – Biometric Devices can be used for Age Verification
SB 1371 amended section 25660 of the Business and Professions Code (evidence of age and identity; proof of reliance as defense) to allow biometric devices to verify age and provide a defense if such device was used. Examples of such devices are the photo devices often seen at airports when checking in.
Now, proof that a licensee or their employee utilized a “biometric system” to verify the age of a purchaser of alcohol is a defense to any criminal or license proceedings. “Biometric system” means technology that links the identity of a person to that person’s biometrics. “Biometrics” means the unique characteristics of a person, including, but not limited to, fingerprints, iris, face, or other similar biometric characteristics, or any combination thereof.
What is a valid technology that links the identity of a person to that person’s biometrics is still up for debate. Presumably licensees will need to prove that such devices are legitimate and can accurately identify a person’s age. Using biometric systems for age verification is likely a worthy investment since its use can be a defense to sales to minors but may face resistance from customers. Theoretically the use of such devices eliminates risks of getting caught in a minor decoy operation, and thereby paying hefty fines or losing your license, but implementation of the devices will be expensive and require serious training of employees.
F) SB 969 – Expansion of Entertainment Zones
Our local entertainment zone champion, Senator Scott Wiener, scored a massive victory with the passage of SB 969. Before the first event in an entertainment zone even took place (the first being the San Francisco Front Street Entertainment Zone around the corner from our offices, which turned out to be a massive economic boost to the Financial District, as reported here), California expanded this privilege.
Originally limited to the City and County of San Francisco, entertainment zones can now be created by any California city or county on or after January 1, 2025. Like the prior law, entertainment zones authorize the consumption of one or more types of alcoholic beverages on public streets, sidewalks, or public rights-of-way. The list of licensees that can allow customers to leave the licensee’s premises with open containers of alcohol for consumption in any designated “entertainment zone” is still limited to beer manufacturers, licensed winegrowers, and on-sale licensees. Welcome to the party!
G) AB 2389 – Type 48 Licensees Are Required to Report Positive Drug Tests
Under AB 1013 (enacted October 7, 2023 that added Section 25624.5 to the Business and Professions Code, which we wrote about here), Type 48 licensees (bars and nightclubs that do not sell food) must be able to provide drug testing devices to customers.
This year, the state made a couple of additions to these requirements. Under AB 2389, section 25624.5 was added to the Business and Professions Code, which requires, starting January 1, 2025, Type 48 licensees to contact law enforcement or emergency medical services when notified by a customer that the customer or another customer believes they have been a victim of drink spiking. These actions require notification:
A positive test result from a drug testing device.
Observation of someone tampering with a customer’s drink.
Verbal communication to staff that a customer has been drugged.
Observation of symptoms associated with the effects of drink spiking, or the controlled substances used for drink spiking.
After contacting law enforcement or emergency medical services, the licensee or their staff must, to the best of their ability, follow any instructions provided by law enforcement or emergency medical services and, to the best of their ability, monitor the customer until law enforcement or emergency medical services arrive at the premises to assess the customer. Drink spiking includes, but is not limited to, adding a controlled substance or alcohol to a person’s drink without their knowledge or consent.
A violation of this provision is not a crime and, while that is good news for Type 48 licensees, the potential regulatory consequences are serious and will require intensive training of bar staff and servers.
H) AB 2375 – Type 48 Licensees Must Have Lids Available
Under AB 1013 (enacted October 7, 2023 that added Section 25624.5 to the Business and Professions Code, which we wrote about here), Type 48 licensees (bars and nightclubs that do not sell food) must be able to provide drug testing devices to customers. Now, Type 48 licensees must also be able to provide lids to customers for their drinks upon request.
AB 2375 amends section 25624, and adds and repeals Section 25625, effective July 1, 2025. “Lid” means a removable cover of any size that attaches to the rim of a beverage. The lid is not required to fit all containers in which alcoholic beverages are served on the premises but must fit at least one. Licensees may offer the lid complimentary or charge a fee that does not exceed a reasonable amount based on the wholesale cost. These lids will probably become standard in type 48 licensed venues providing music and other entertainment.
Type 48 applicants and licensees must also update their mandated drug test signage. Specifically, signs must now read, “Don’t get roofied! Drink lids and drink spiking drug test kits available here. Ask a staff member for details.”
This bill is scheduled to repeal January 1, 2027, unless extended by the Legislature.
I) AB 3206 – Intuit Dome may Serve Alcohol Until 4 am
In California, on-sale licensees cannot sell alcohol after 2 am, and efforts to extend service hours to 4 am in specific entertainment zones around the state (such as in San Diego, San Francisco, and LA) have routinely failed in the face of pressure from the groups such as Alcohol Justice, who generally believe and maintain that alcohol consumption is evil. Now the door opens a crack, but only for the privileged.
Starting September 9, 2024, the only place in California that may serve alcohol between the hours of 2am and 4am is the Intuit Dome (home of the Los Angeles Clippers). Well, the bill does not specifically state that the Intuit Dome is the only place that can do so, technically the privilege is for any “on-sale licensed premises operated in a fully enclosed arena with a seating capacity of at least 18,000 seats located in the City of Inglewood.” But wait, there’s more. Sales must “occur in a private area in the arena that is available only to members of a private club who are assessed dues in order to belong to the club and thereby gain access to the area, and guests of those members, when the member is in attendance” and must be “in the hours immediately following a day on which a sporting event, concert, or other major event, or a private event not open to the public, has occurred in the arena.”
OK, so maybe this doesn’t really get us closer to having 4 am privileges, but if you are a VIP of California’s newest $2 billion sports arena, you can stay out past 2 am! Congratulations, be sure not to drink and fly home.
J) AB 3203 – Extension of Distillery DTC Privileges to January 1, 2026
Licensed craft distillers can continue to directly ship distilled spirits manufactured or produced by the licensee directly to consumers through January 1, 2026. The privilege was set to expire on January 1, 2025.
K) AB 2177 – Winegrowers May Sell Certain Spirits of Wine
AB 2188 amended sections 23358 and 23502 of the Business and Professions Code. Starting January 1, 2025, any person holding a license authorizing the manufacture or rectification of distilled spirits may sell spirits of wine to rectifiers and craft distillers (the privilege was previously limited to selling to Type 04 licensees). This bill also clarifies that craft distillers may produce distilled spirits using spirits of wine produced by a winegrower. We are not sure how many people this privilege will benefit but someone, somewhere, is happy.
L) AB 2174 – Beer Catering Permit (Type 91)
AB 2174 amends Section 23320 and adds Section 23399.01 to the Business and Professions Code.
Effective January 1, 2025, licensed beer manufacturers can now apply for a beer catering permit (known as a Type 91). The permit authorizes the sale of beer produced by or for the beer manufacturer for consumption at (e.g. on-sale privileges only) conventions, sporting events, trade exhibits, picnics, social gatherings, community events, or similar events held any place in the state approved by ABC. To exercise the privileges of the permit, the beer manufacturer will need to apply to ABC for a catering event authorization and receive local law enforcement approval for each event.
Type 91 holders are limited to 36 total event authorizations in a calendar year, and no more than 2 beer caterers may participate per day at a single event. Type 91 holders are limited to selling no more than 124 gallons of beer. Records of all beer sales conducted under this permit must be maintained for at least three years.
The permit will have an annual fee of $275 (subject to increases). Each event authorization will cost $100 for events with anticipated attendance of less than 1,000 people, $325 for anticipated attendance of 1,000-4,999, and $1,000 for anticipated attendance of 5,000 or more.
This privilege is sure to increase sponsorship money for local sports teams, community events, and concerts throughout the state.
M) AB 2069 – On-sale Licensees with Wine Privileges may sell US Made Soju and Shochu
Effective January 1, 2025, on-sale licensees with wine privileges (e.g. Type 41 and Type 42 licenses) may sell now sell domestically produced soju and shochu that is up to 24 percent alcohol by volume and derived from agricultural products (previously limited to imported Korean and Japanese products). To qualify for the exception, the alcohol must be legitimate soju or shochu and be labeled as such. This is a major crack in the wall of the wine and beer only restrictions of the Type 41 and 42 licenses because cocktails made with Soju and Shochu are popular and expand the offerings available at wine and beer licensed entertainment venues.
N) AB 1940 – Beer Returns
AB 1940 amended section 23104.2 of the Business and Professions Code to allow a wholesaler or manufacturer, with ABC approval, to accept the return of a seasonal brand of beer from a retail licensee if the beer is exchanged for a quantity of beer of similar quality of a brand produced or sold by the same manufacturer, or of another manufacturer if the original manufacturer has ceased doing business, with a value no greater than the original sales price to the retail licensee of the returned beer. Got that? If your seasonal ale isn’t selling you can exchange it for the next season’s product if the ABC approves.
Welcome to 2025. We are looking forward to it at Hinman & Carmichael LLP and we are excited about the opportunity to make sure that our clients and friends (and the many trade associations we work with) understand and are prepared to make the most of the new privileges and rights provided by the California legislature this year.
Happy New Year!
This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice please consult with your counsel.