The recent notice of the proposed new AVA “The Rocks” in northeast Oregon has kicked off a round of questions about what Northwest wineries may use as an appellation of origin on their labels when grapes are grown in multi-state AVAs such as the Columbia Valley, Walla Walla Valley, Columbia Gorge, Snake River Valley, or the newly proposed “The Rocks” AVA. What all of these viticultural areas, except The Rocks, have in common is boundaries that cross state lines.
The use of AVA references on wine labels trigger specific requirements per federal regulations that sometimes can be confusing. First, it is important to remember that American Viticultural Areas are delimited grape-growing regions having distinguishing features which have been accepted and approved by TTB by name and a delineated boundary as established and published in federal regulations. In other words, there are unique features about the AVA that transcend political boundaries.
So…what are the three requirements for use of an AVA as an appellation of origin on a wine label?
First, the named appellation must have been approved by TTB and published in 27 CFR Part 9.
Next, not less than 85 percent of the wine is derived from grapes grown within the boundaries of the named viticultural area. Finally, in the case of American wine, it has been fully finished within the State, or one of the States, within which the labeled viticultural area is located (except for cellar treatment pursuant to §4.22(c), and blending which does not result in an alteration of class and type under §4.22(b)).
This last condition can get a little tricky so here is some clarification:Continue Reading...
The Washington State Liquor Control Board (WSLCB) issued the state’s first licenses to produce and process recreational marijuana today. According to news reports, the licenses were issued to Spokane’s Sean Green who will operate his business under the trade name Kouchlock Productions.
The WSLCB began processing applications for all three license types (producer, processor and retailer) on November 20, 2013. The window for accepting license applications remained open for a period of 30 days. Although the WSLCB explained that it did not intend to limit the amount of producer or processor licenses to be issued, the agency will only be issuing 334 retail licenses.
Despite the issuance of the first licenses under Initiative 502, the marijuana industry continues to face challenges as marijuana remains an illegal substance under federal law.
New California General Industrial Storm Water Permit Slated For Adoption on April 1, 2014 May Hold Surprises for California's Wineries, Breweries and Distilleries
Today, the State Water Resources Control Board (State Board) released for public comment its Draft Industrial Storm Water Permit and supporting documents. This is the fourth (and likely final) version of the Draft Industrial Storm Water Permit, which is designed to replace the existing Industrial Storm Water Permit issued in 1997.
The Draft Industrial Storm Water permit is relevant to the beverage industry because it will affect currently regulated California based breweries, wineries and distilleries, and also will require previously unregulated breweries, wineries and distilleries to either comply with the permit or show that storm water does not come into contact with their industrial activities and materials.
The public comment period on the Draft permit runs until Tuesday, March 4, 2014, at 12:00 noon. The State Board will only accept and consider “written and oral comments that are limited to the identified proposed revisions to the Final Draft Industrial General Permit made since July 19, 2013.” (Notice of Adoption Meeting and Notice of Availability of Draft Documents (Feb. 19, 2014).)
The Draft Industrial Storm Water permit is slated for adoption at the April 1, 2014, State Board hearing. If adopted on April 1st, the Draft Industrial Storm Water permit will be effective on July 1, 2015, giving all California wineries, breweries and distilleries a little over a year to come into compliance.
Stoel Rives attorneys are analyzing the Draft Industrial Storm Water permit, and future posts will report on the public comments submitted as well as discuss potential problems or concerns with the draft permit.
The Oregon Liquor Control Commission (OLCC) is undertaking rulemaking that would impose new regulations on the service of alcohol at food carts and other outdoor areas throughout the state. The rules would distinguish between outdoor areas not abutting a licensed building (e.g., areas associated with food carts and food cart pods) and outdoor areas connected to a brick-and-mortar licensed premise.
Overall, the proposed rules would establish a clear licensing pathway for food cart applicants. OAR 845-005-0329 outlines the basis upon which the OLCC may refuse to issue a license, and OAR 845-006-0309 establishes the requirements a licensee must meet for alcohol service. While the proposed rules are fairly straightforward, some may criticize the rules for being too restrictive.
- The outdoor area must qualify for a Number III minor posting. This posting requires that the designated drinking area not constitute a “drinking environment and drinking alcohol will never predominate.” This would be a more stringent minor posting than that required for outdoor areas adjacent to a physical licensed building. Food carts would not be allowed to have outdoor beer garden areas or environments similar to a winery tasting room. A solution to this issue would be to revise the proposed rule to allow a Number IV minor posting (“Minors Allowed During These Hours ___ to ___”) or a Number V minor posting (“Minors Allowed Only with Their Parent, Spouse or Domestic Partner Age 21 or over”) when authorized by the OLCC on a case-by-case basis.
Late last week, Oregon lawmakers shot down SB 1559, a bill that proposed what some called a compromise on liquor privatization in Oregon. It would have allowed grocery stores 10,000 square feet or more to sell liquor from their shelves, while keeping the Oregon Liquor Control Commission in control of the supply. Lawmakers sent the issue to a state task force for further consideration. We likely will not have to wait until the 2015 legislature, however, to continue the privatization debate. A coalition of grocery outlets filed initiative petitions seeking to privatize sales and allow stores over 10,000 square feet to stock liquor. In total, five petitions were filed, all with different language (here, here, here, here and here). It is anticipated that the grocery backers will select one version of the initiative to qualify for the fall ballot. The initiatives look similar to measures private sector retailers backed in Washington in 2010 and 2011.
Stoel Rives LLP lawyers from the firm’s Beverage & Hospitality Group attended the 2014 Unified Wine & Grape Symposium last week in Sacramento, where they connected with new contacts, old friends, and current clients.
On Tuesday, Colin Hunter, Chris Hermann and Elaine Albrich visited winegrape growers, industry contacts and production facilities in Clarksburg, Lodi and Modesto. In the evening, Stoel’s in-house Alcohol Compliance Advisor Bernie Kipp joined the group for Zepponi & Company’s impressive wine reception, which extended onto the Hyatt’s 12th-story deck, providing an amazing view of the State Capitol.
At the symposium, Stoel attorneys caught up with growers and winemakers at the firm’s booth and showed off the firm’s new e-based Law of Wine book. Among many visitors was Kipp’s former colleague, Theresa McCarthy, Assistant Administrator for Headquarters Operations, at the Alcohol and Tobacco Tax and Trade Bureau (TTB). Stoel concluded the first day of the symposium by hosting its annual industry dinner at Ella Dining Room and Bar for clients and friends of the firm. No one was disappointed with the wine selection, as Chris Hermann chose Fiddlehead Sauv Blanc, Arnot Roberts Chardonnay and Syrah, ’09 Caillou CDP Quartz, ’09 Mortet Gervrey Chambertin, ’10 Ramonet Chassagne Montrachet Boudriotte, ’76 Lopez Bosconia and ’90 Chapouter Hermitage to accompany dinner.
Legal Marijuana Business Faces Increased Local Resistance in Wake of Recent Washington State AG Opinion
Despite the fact that implementation of Initiative 502 (I-502), a measure legalizing the recreational use of marijuana that was approved by Washington voters in 2012, is in full swing, and other states such as Florida and New York are loosening their laws on the use of medical marijuana, there is growing resistance to legal marijuana as local municipalities across the country seek to ban legal sales of the controlled substance.
According to a New York Times article this week:
In Washington, the Yakima County Commission has already said that it plans to ban marijuana businesses in the unincorporated areas outside Yakima city. Clark County, Washington, is considering a ban on recreational sales that would affect the huge marijuana market in Portland, Ore., just across the Columbia River. And the state’s second most populous county, Pierce, just south of Seattle, said last month it would bar recreational businesses from opening.
In fact, the Center for the Study of Cannabis and Social Policy, a pro-legalization research group in Seattle, reported this month that 36 cities in Washington covering more than 1.5 million people have passed local moratoriums putting a hold on the acceptance of marijuana licenses. Three cities have banned marijuana businesses entirely until use of the drug is approved federally.
Opposition to legalized marijuana has been seen outside of Washington State as well. In California, for instance, Fresno County recently became the first county in the state to ban all marijuana cultivation. In addition, several local governments throughout Colorado have taken steps to prohibit marijuana businesses in their respective cities.
These local efforts appear to be spurred by “the opening, or imminent opening, of retail marijuana stores [in Washington] and in Colorado,” as the New York Times reports, as well as anxiety over how the production and sale of marijuana may impact neighborhoods and communities. In Washington, the Liquor Control Board opened the application process in late November for individuals and businesses to apply for marijuana licenses within a 30-day window. Although there is no set timeline for issuing these licenses to qualified applicants, it is expected that the Washington recreational marijuana industry will open for business beginning in spring 2014. In Colorado, 37 new dispensaries opened their doors on January 1, 2014 and commenced legal sales of marijuana for recreational use in the state.
In addition to the looming legal marijuana business in Washington and Colorado, and the fear expressed by some residents over the effect marijuana sales may have on communities and youth, another factor fueling the opposition of local municipalities to marijuana businesses setting up shop in their towns is simply their legal right to issue local bans against legal marijuana sellers and growers. A January 16, 2014 legal opinion issued by Washington State Attorney General Bob Ferguson appears to support this position. According to the nonbinding opinion, under Washington law, local governments have broad authority to regulate within their jurisdictions, and nothing in I-502 limits that authority with respect to licensed marijuana businesses. In fact, in Washington, there is a strong presumption against finding that state law preempts local ordinances.
Ferguson further explains that “[a]lthough Initiative 502 (I-502) establishes a licensing and regulatory system for marijuana producers, processors, and retailers in Washington State, it includes no clear indication that it was intended to preempt local authority to regulate such businesses.” Ferguson concluded that I-502 left in place the normal powers of local governments to regulate within their jurisdictions. As a result, many local governments have seen this opinion as a green light to move forward with local ordinances banning marijuana production and sale.
The fight over legalized marijuana is expected to continue into the foreseeable future. However, the debate involves more than tax revenues and community values. As New York Times reporter Kirk Johnson puts it, “the fight also signals a larger battle over the future of legal marijuana: whether it will be a national industry providing near-universal access, or a patchwork system with isolated islands of mainly urban sales.” Only time will tell.
Based on preliminary results from Tuesday’s election, it appears that Washington State’s hotly debated Initiative 522 (I-522) concerning the labeling of genetically-engineered foods has gone the way of California’s Proposition 37. Washington officials reported on Wednesday, November 6, 2013 that voters had rejected the measure, 54% to 46%. California’s similar labeling measure, Proposition 37, was rejected by California voters in November 2012.
County by county results show that certain counties in Washington including, King, Whatcom, and Jefferson, were largely in favor of passing I-522. However, the measure lost heavily in the southwest, central and eastern regions of the state.
If it had passed, I-522 would have required that any food offered for retail sale in Washington that was or may have been entirely or partly produced with genetic engineering to be labeled as follows:
- In the case of a raw agricultural commodity, the package offered for retail sale must clearly and conspicuously display the words “genetically engineered” on the front of the package, or where such a commodity is not separately packaged or labeled, the label appearing on the retail store shelf or bin where such a commodity is displayed for sale must display the words “genetically engineered;”
- In the case of any processed food, the front of the package of such food must clearly and conspicuously bear the words “partially produced with genetic engineering” or “may be partially produced with genetic engineering;” and
- In the case of any seed or seed stock, the seed or seed stock container, sales receipt or any other reference to identification, ownership, or possession, must state clearly and conspicuously that the seed is “genetically engineered” or “produced with genetic engineering.”
Importantly, I-522 would have exempted certain foods from the genetically engineered labeling requirements. In particular, the measure carved out an exemption for alcoholic beverages as well as other food products such as certified organic products, medical foods, food sold for immediate consumption such as in a restaurant, products unintentionally produced with genetically engineered material, food made from animals fed or injected with genetically engineered material but not genetically engineered themselves, food processed with or containing only small amounts of genetically engineered ingredients, and any processed food that would be subject to the labeling requirement solely because one or more processing aids or enzymes were produced or derived with genetic engineering.
Several other states currently have pending GMO labeling legislation that will be addressed during the next legislative session for those respective states. Stoel Rives attorneys will continue to track these state GMO labeling measure as developments occur. Check back here for updates.
The Oregon Liquor Control Commission (“OLCC”) is initiating rulemaking that would amend licensing requirements for outdoor areas and distilled liquor tasting.
The OLCC has proposed two new rules to address the licensing qualifications and operating requirements for “exclusively outdoor areas,” or areas that do not abut a licensed building. The rule would apply to the areas around food carts, for example. The proposed measures, for the most part, implement best management practices the OLCC currently requires of food cart licensees. The rule would require an applicant to demonstrate that the outdoor area (1) allows the OLCC to legally access it, (2) qualifies for a Number III minor posting, (3) has defined physical boundaries, and (4) has a designated area for alcohol consumption. With respect to operations, the rule would prohibit a patron from having more than two containers at a time or bringing alcohol into, or removing alcohol from, the designated alcohol consumption area. Alcohol service and amplified entertainment would also not be allowed after 10 pm.
Food cart licensees (and prospective licensees) most likely will want to ensure that the hours of service meet business needs and, notwithstanding the prohibition of removing alcohol from designated consumption areas, that a patron can remove beer or wine from the premises if it is in a packaged container or growler. The OLCC advisory committee meeting is scheduled for December 10, 2013 and a rulemaking hearing likely will be scheduled in February 2014. More information to follow.
Distilled Liquor Tastings
Effective January 1, 2014, Oregon House Bill 3435 amends ORS 471.230 to allow a distillery licensee to conduct tastings at its annually licensed premises as well as up to five other premises it owns or leases. The OLCC is in the process of amending OAR 845-005-0431 to reflect this new privilege. A licensee will need to provide the OLCC with written proof of its “exclusive use and possession” of the other locations.
UPDATE: Although the RPC proposal mentioned below is still under consideration by the Washington State Supreme Court, the KCBA Board of Trustees has adopted an ethics advisory opinion to assist the bar in the interim as attorneys consider practice issues under the existing RPCs. The full text of the KCBA Ethics Advisory Opinion on I-502 & Rules of Professional Conduct can be found here.
An interesting question that has arisen in the wake of the passage of Initiative 502 (I-502) — Washington’s marijuana legalization measure — is whether attorneys run the risk of disciplinary action under the state’s Rules of Professional Conduct (RPCs) for advising clients on their marijuana business or for personally participating in the recreational use of marijuana.
Under Initiative 502, both activities are technically legal under state law, however, they remain illegal under federal law, creating a catch-22 situation. When trying to solve this dilemma, the RPCs unfortunately offer no guidance, and there are no ethics advisory opinions that address the issue.
Due to this lack of guidance, Washington lawyers have been left to wonder what the potential consequences might be. Indeed, earlier this month, King County Bar Association (KCBA) President Anne Daly asked in an article on the subject, “where does this leave…the more than 14,000 lawyers in King County who could easily find themselves in [this] predicament?”Continue Reading...
Over the next few weeks, the Washington State Liquor Control Board (WSLCB) Marijuana Licensing staff will be conducting a series of educational seminars across Washington State. During the seminars, WSLCB staff will be advising potential licensees of the license application process under Initiative 502 and will be available to answer any additional questions.
Those interested in attending can register online. The following is a list of all upcoming licensing seminars:Continue Reading...
With several states now moving forward with legalized medical or recreational marijuana regulatory schemes, how to obtain business financing remains a hurdle legal marijuana growers and distributers have yet to solve. As noted in a recent New York Times article, “financial institutions, security providers and landlords that serve marijuana businesses can be prosecuted for racketeering, money laundering and trafficking” under federal law. Marijuana continues to be a prohibited substance under federal drug laws, and as a result, federally insured financial institutions are highly unlikely to lend to marijuana businesses, even if those businesses are legitimate.
To determine how differences between state and federal marijuana laws can be resolved, the U.S. Senate Judiciary Committee held an unprecedented hearing this past Tuesday in Washington, D.C. The hearing came hot on the heels of the release of a DOJ memo that announced that federal authorities will not challenge state laws legalizing medicinal or recreational marijuana use, and set out the agency’s anticipated enforcement strategy.
At the Senate hearing, King County Sheriff John Urquhart urged that a solution be found for banks and other financial institutions that wish to do business with a state-sanctioned marijuana industry. He stated, “I am simply asking the federal government to allow banks to work with legitimate marijuana businesses that are licensed under state law.”
It is hard to say how this conflict will be resolved. Should marijuana businesses be shut out of commercial finance options, they will be forced to operate on a cash basis. Such business operations have historically been associated with tax evasion and other criminal activity. As Deputy Attorney General James Cole pointed out in the hearing, “there are no perfect solutions here. We’re at the point where we’re trying to find the best of the imperfect solutions before us.”
The DABC unexpectedly decided to forgo adopting an administrative rule interpreting Utah’s “intent to dine” law. As we discussed previously, the Commission was considering three draft rules that were intended to clarify the steps a restaurant licensee must take to confirm a patron’s intent to order food before a server can furnish an alcoholic drink. The Commission decided, however, that each of the proposed rules may result in more confusion for restaurant licensees and patrons alike. Instead, the Commission will leave compliance to the discretion of each licensee. Although no new rule was adopted, a recent article noted that the DABC may issue informal guidelines on how to comply with the “intent to dine” requirement.
On Thursday, the U.S. Department of Justice finally addressed its enforcement strategy as it relates to the recent Washington and Colorado initiatives legalizing marijuana in those jurisdictions. In a memo issued to U.S. Attorneys (PDF), Deputy Attorney General James M. Cole announced that the United States would not sue the states to overturn the voter-endorsed initiatives.
The DOJ instead expects to focus on preventing marijuana sales to minors, illegal cartel and gang activity, interstate trafficking of marijuana, and violence and accidents involving the drug. See generally the New York Times report for complete background.
The announcement was welcomed by the Washington State Liquor Control Board, which endorsed Governor Jay Inslee’s view that the U.S. DOJ “helped lay a path forward for Washington and Colorado to implement its systems of producing, processing and retailing recreational marijuana.” The Board explained that, “[our] primary rule-making focus has been to create a tightly regulated market with emphasis on public safety and restricting youth access. In his letter, AG Holder shared the same concerns. . . . The Board is confident that Washington’s recreational marijuana system will meet most, if not all, of the federal government’s stated concerns.”
What does this mean for Washington businesses? They may go forward, at least on a small scale, without the threat that the federal government will immediately sue to suspend I-502 on supremacy cause grounds. They should be careful, however, not to engage in activities that would trigger federal inquiry -- that is, those activities outlined by the DOJ on Thursday. There is no question that the DOJ will scrutinize Washington’s implementation of I-502 to make certain it reinforces federal law enforcement priorities.
For example, a business selling recreational marijuana that complies with state laws nevertheless could trigger federal wrath if it were involved in selling pot to Oregon distributors from someone connected to the supply of marijuana from illegal sources, including gangs or cartels. Moreover, the fact remains that marijuana will remain classified as illegal for recreational use by the federal government. Although the new policy is certainly friendly toward I-502 and Washington’s thoughtful implementation of a working pot market, a new administration could revoke the policy and choose to enforce federal law. At the end of the day, the policy removes some uncertainty for the time being. It may be a first step toward legalization under federal law, but it is by no means a permanent green light for Washington marijuana businesses.
The controversy continues over Utah’s so-called “intent to dine” requirement for restaurants licensed to serve alcohol. As we previously discussed, the Utah Legislature amended the law to require restaurants to confirm that a patron has the intent to order food before serving an alcoholic drink. In response to the change, the DABC has proposed three draft rules, which are intended to clarify the steps a restaurant must take to comply with the statute. As noted on the DABC’s website, the “statutory language requires affirmative action on the part of the server (handing a patron a menu or having a sign or menu available is not enough).”
Draft Rule #1 allows a restaurant to provide a single alcoholic beverage once the server has verbally confirmed that the patron will be ordering food at the establishment. Verbal confirmation can be that the patron is waiting for a table or reviewing the menu so long as it is not intended as subterfuge to get around the “intent to dine” requirement. The rule also provides that food provided gratuitously or ordered for takeout does not qualify. Draft Rule #2 is similar, but eliminates the wait-list and menu reviewing clarification.
Draft Rule #3, however, takes a slightly different approach. It would allow a server to confirm an intent to dine by verbally establishing that “the patron is on a wait list for a table or waiting for the rest of his or her party.” In addition, reviewing a food menu would also be sufficient confirmation.
Importantly, under each of the DABC’s draft rules, the server is the person who is required to confirm a patron’s intent to order food. The statute, however, places this burden on the restaurant licensee without singling out specific employees. This shift could create potential issues with enforcement. If, for example, a hostess or manager confirms that a patron intends to dine, and a server then serves the patron a drink, the restaurant licensee still could be subject to a DABC enforcement action under any of these three rules.
Several recent articles highlight the current tension between the restaurant industry and some legislators over the “intent to dine” requirement. In fact, two members of DABC’s newly-formed Advisory Committee recently testified before the Legislature’s Interim Labor Committee and expressed concerns that both the statutory requirement and the proposed rules are awkward, inhospitable and unnecessary in light of the mandatory food-to-beverage ratios for restaurant licensees. Additional legislative changes, however, would be necessary to address fully those concerns.
The best that the industry can hope for under the current statute is for a rule that does not unduly burden restaurants and annoy patrons. Out of the current draft rules, the third comes closest to achieving that balance, but perhaps with additional feedback the DABC will allow confirmation by any employee as opposed to putting the onus solely on servers.
The DABC is accepting feedback on the draft rules until August 20, 2013. Comments can be submitted by email to Nina McDermott at firstname.lastname@example.org. If you wish to further discuss this issue, please contact us.