California legislation creates a niche instead of a solution

California legislation, AB-495, proposes to loosen the strict rules, which forbid a distilled spirits manufacturer from distributing its own products. Under California law a Distilled Spirits Manufacturer and a Craft Distiller cannot self-distribute their own product, and unlike the wine and beer industry, they cannot obtain a wholesaler license, which would allow them to distribute their own products via a company owned wholesaler. Clearly, this leaves distillers at a disadvantage as compared to the wine and beer industry.

A bill recently gaining traction in the California legislature, AB-495, would attempt to break this prohibition and provide relief for the distilled spirits industry.

In theory this sounds great and I support efforts to provide greater self-distribution rights, especially for small producers. However, as they say the devil is in the details.

When looking into the bill’s text, one will see that this is not about creating freer markets and enhancing opportunities, but about creating a special interest niche.

The proposed bill would allow a distilled spirits manufacturer, the ability to obtain to a distilled spirits wholesaler license, which is positive.

However, examining the language closer, you will discover that the legislation’s purpose is not to create opportunities for all distilled spirits manufacturers, but to create opportunity for a specific segment of the industry and maybe for only a single player.

Under the legislation, a distilled spirits manufacturer can obtain a spirits wholesaler license if they meet all of the following:  (A) They are a beer manufacturer with at least two manufacturing locations in this state or another state. (B) They hold at least two beer and wine wholesale licenses in this state. (C) They have a direct ownership interest in a distilled spirits manufacturer in this state or another state.

As there are few distilled spirits manufacturers that can meet these criteria and maybe just a single distilled spirits manufacturer that can qualify, the legislation does not benefit the general marketplace.

By limiting the scope to single player or group of large players, the legislation fails to enhance freer markets and create opportunities for the industry.

Throughout the years there has been legislation that seems to create a better marketplace, but when applied to the market the legislation fails in its mission. The West Virginia DTC spirits shipping bill comes to mind. When West Virginia created a spirits DTC shipping bill, it also required that the spirits be shipped to an in-state retailer and that there be a 10% markup in price.

Similar to the West Virginia DTC spirits shipping law, AB-495, although great in theory, does not move the needle in a positive direction.

Time will tell whether the legislation passes or whether it is amended to a broader scope.