Business & Corporate Articles

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Golden Opportunity for San Diego's Craft Brewers, or Trap for the Unwary? 

Beer Sales and Tastings at Farmers' Markets, Legal Issues Arising Therefrom, and Best Practices for Addressing and Resolving Them

By Josh Herndon

For anyone who is a San Diego resident, it is highly likely that you have had some exposure to San Diego’s craft brewing industry, whether by reading or hearing about the industry in the news, or as a consumer of one of the many delicious craft beers offered by San Diego’s craft brewers. According to the “The Economic Impact of Craft Breweries in San Diego”, a policy brief from the National University System Institute for Policy Research (hereinafter, the “NUSIPR”):

• Craft breweries are small, independent brewers that produce less than six million barrels a year and mostly focus on all-malt beers.[1]
• Craft breweries are experimental, often producing unique recipes and varietals, seasonal beers and limited release editions.
• Tracing its roots back to the 1970’s, today there are more than 2,300 craft breweries operating in the United States.

According to “News & Notes: Economic Impact of Craft Brewing in San Diego – 2015 Update”, another policy brief from the NUSIPR, the craft brewing industry’s economic value to the San Diego region has doubled in the last three years, from an estimated $300 million ($299.5) in 2011 to $600 million ($599.4) in 2014. The craft brewing industry’s economic value to the San Diego region not only surpasses the economic impact of Comic-Con International, San Diego’s largest trade show, it also surpasses the estimated economic impact of the 2015 Super Bowl to the Arizona state economy ($500 million), as well. Clearly, business is booming for San Diego’s craft brewers.

Notwithstanding the success they have already achieved, San Diego’s craft brewers continue to seek out new customers and new markets for their products. Farmers’ markets provide San Diego’s craft brewers with a ready source of new customers and new markets because farmers’ markets provide San Diego’s craft brewers with a venue for selling their products, and for allowing customers to sample their products.

San Diego’s craft brewers have only been allowed to sell beer at farmers’ markets for a very short period of time, and they are not yet authorized to allow customers to taste their beers at farmers’ markets. Assembly Bill (“AB”) 2004, which Governor Jerry Brown signed in September 2014, and which became effective on January 1, 2015, enacted Section 23399.45 of the Business and Professions Code (“Section 23399.45”). Section 23399.45 authorizes certain craft brewing companies to sell beer tastings at farmers markets, or within permitted areas adjacent to, and operated in conjunction with, farmers’ markets, subject to certain limitations.  More recently, Governor Jerry Brown signed AB 774 in July 2015. AB 774 will become effective on January 1, 2016, and it will amend Section 23399.45 to allow certain craft brewing companies to conduct beer tastings at farmers markets, or within permitted areas adjacent to, and operated in conjunction with, farmers’ markets, subject to certain limitations.  

Although farmers’ markets provide San Diego’s craft brewers with an excellent opportunity to attract new customers for their products through beer sales and tastings, such sales and tastings also confront San Diego’s craft brewers with new and complex legal issues. In order for San Diego’s craft brewers to reap all of the benefits of beer sales and tastings at farmers’ markets, they must understand, proactively address, and resolve the legal issues created by beer sales and tastings at farmers’ markets. Moreover, the legal counsel who represent San Diego’s craft brewers will play an indispensable role in ensuring that their clients understand, proactively address, and resolve those legal issues.

STATUTES AUTHORIZING BEER SALES AND TASTINGS AT FARMERS’ MARKETS  

Prior to the passage of AB 774, Section 23399.45 allowed “licensed beer manufacturers” to obtain a “certified farmers’ market beer sales permit” (hereinafter, a “Permit”). A Permit is only valid for one day a week at any single specified certified farmers’ market or community event location. Although a licensed beer manufacturer may hold more than one Permit, the licensed beer manufacturer “shall not sell more than 5,000 gallons of beer annually pursuant to all certified farmers’ market beer sales permits held by any single beer manufacturer.” The licensed beer manufacturer must also “maintain records of annual beer sales made pursuant to all certified farmers’ market beer sales permits issued.” A Permit also allows the licensee, a member of the licensee’s family who is 21 years of age or older, or an employee of the licensee, to sell beer “at a certified farmers’ market or within a permitted community event area adjacent to, and operated in conjunction with, the certified farmers’ market.” However, the sales must take place “within the same county or adjacent county of the location of the licensed beer manufacturer’s manufacturing facility.” The licensed beer manufacturer may also only sell packaged beer that it has manufactured.

Section 23399.45, as amended by AB 774, authorizes the same persons who are authorized to sell beer to also conduct “instructional tasting events on the subject of beer”. Section 23399.45, as amended by AB 774, also authorizes the instructional tasting events at the same places and venues where beer can be sold.  Section 23399.45, as amended by AB 774, also mandates that an instructional tasting event area must be separated from the remainder of the market or community event by a wall, rope, cable, cord, chain, fence, or “other permanent or temporary barrier”, at all times during the instructional tasting event. In addition, only one licensed beer manufacturer may conduct an instructional tasting event during the operational hours of any one certified farmers’ market or community event. Furthermore, a licensee is not allowed to pour more than eight ounces of beer per person per day, and a licensee may not permit any consumer to leave the instructional tasting area with an open container of beer.

BEST PRACTICES REGARDING BEER SALES AND TASTINGS AT FARMERS’ MARKETS  

As explained above, Section 23399.45 confronts San Diego craft brewers with a myriad of legal issues that they must understand, proactively address, and resolve if they wish to sell their beer, and allow their beer to be sampled, at farmers’ markets. A San Diego craft brewer which fails to comply with Section 23399.45 may have its license suspended, or even revoked. As such, the legal counsel who represent San Diego’s craft brewers should do each of the following things for their clients in order to assist them in complying with Section 23399.45:

• Help the client obtain and hold one or more “certified farmers’ market beer sales permits”. The number of permits the client needs will depend on the client’s goals and objectives.
• Make sure that the client understands that he/she “shall not sell more than 5,000 gallons of beer annually pursuant to all certified farmers’ market beer sales permits held”, so that the client is aware of the limitation and can plan accordingly.
• Make sure the client understands that each permit is only valid for one day a week at any single specified certified farmers’ market or community event location, so that the client does not accidentally try to utilize a permit for two or more days in a given week, when it is invalid.
• Assist the client, as needed, in gathering and maintaining “records of annual beer sales made pursuant to all certified farmers’ market beer sales permits issued.”
• Make sure that the client understands that they are only allowed to sell beer that they have manufactured.
• Make sure that the client understands exactly who is authorized to sell their beer and conduct instructional tasting events (i.e., (1) the licensee, (2) a member of the licensee’s family who is 21 years of age or older, or (3) an employee of the licensee), so that the client can staff properly.
• Make sure the client understands exactly where they can sell their beer, and conduct instructional tasting events (i.e., within the same county or adjacent county of the location of the client’s manufacturing facility), so that they can focus on farmers’ markets in the authorized areas, and avoid farmers’ markets in unauthorized areas.

The legal counsel who represent San Diego’s craft brewers should also do each of the following things for their clients in order to assist them in complying with additional provisions of Section 23399.45 which pertain to instructional beer tastings:

• Review the subject matter of the tasting event the client wants to hold, and advise the client as to whether it constitutes an “instructional tasting event on the subject of beer”.
• Make sure the client understands that their instructional tasting event area must be separated by a wall, rope, cable, cord, chain, fence, or “other permanent or temporary barrier”, so that the client can obtain the necessary materials.
• Make sure the client understands that only one licensed beer manufacturer may conduct an instructional tasting event during the operational hours of any one certified farmers’ market or community event, so that the client can schedule their instructional tasting event at a time that it does not conflict with another licensed beer manufacturer’s instructional tasting event.
• Make sure the client understands that (1) no more than eight ounces may be poured per person per day, (2) that the client may not permit any consumer to leave their instructional tasting area with an open container of beer, and (3) that the instructional tasting event area must be separated at all times during the instructional tasting event, so that the client may staff properly, and train their staff as needed to carry out each of those items.

CONCLUSION

Proceeding with beer sales and tastings at a farmers’ market, without understanding, proactively addressing, and resolving all of the legal issues which arise from such sales and tastings, is a trap for the unwary. The legal counsel who represent San Diego’s craft brewers can, and should, help their clients avoid that trap by understanding all of the legal issues which arise from such sales and tastings, and helping their clients proactively address and resolve those legal issues by following the best practices set forth above. By doing so, the legal counsel who represent San Diego’s craft brewers are not only serving the best interests of their clients, they are actively participating in, and facilitating, the continuing success of one of San Diego’s most exciting and growing industries.

 

This article is for information purposes and does not contain or convey legal advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer.