Rebuilding: Dealing with or Without Earthquake Insurance

The following post was written by my colleagues Tom Woods, Parissa Ebrahimzadeh & Bao Vu

As part of the Northern California business community and as an advisor to business, we support the Napa and the surrounding Bay Area in getting homes and businesses back on their feet following the August 24, 2014 Napa Valley earthquake.

The earthquake that rocked Napa Valley and nearby regions left an estimated $1 billion in damages, according to a county news release. The McClatchy News Service recently observed the quake “upended more than wine barrels and mobile homes. It also was an unsettling reminder of how few Californians – homeowners and businesses alike – carry earthquake insurance.”

Sure, insurance agents will discuss earthquake insurance policies with business owners, but Napa Valley region had not experienced a quake of such magnitude since 1989. Thus, this rare but catastrophic risk was one for which the cost-benefit analysis dictated to many Californians that they should forgo the expensive form of insurance. Statistically, the shocking drop in homeowner earthquake insurance policies purchased over the last decade was dwarfed by the 29% drop in the number of California businesses that purchased policies over the same period. Reports are that only 10% of California businesses and residents carrying property insurance also carry earthquake insurance.

Where the wine and agriculture industry suffered $48 million worth of damage, and with over 120 businesses affected, the questions running through so many confused and disrupted lives include: “What do I do now? Did I need earthquake insurance, specifically? Am I covered? How do I perfect a claim if I am covered and where can I go for help?”

Continue Reading...

TTB Will Consider Penalty Waivers for Late Payment of Excise Taxes By Businesses Impacted by Northern California Earthquake

The Alcohol and Tobacco Tax and Trade Bureau (TTB) issued a notice yesterday stating that it will consider waiving - on a case-by-case basis - late filing, payment or deposit penalties for taxpayers unable to file payment of Federal excise taxes due to the August 24, 2014, Northern California earthquake. Text of the statement follows below.

Continue Reading...

Compliance Checklist for Mandatory Quality Assurance Testing of Marijuana Products

To considerable fanfare - and the occasional stumble - the legal recreational marijuana industry opened for business in Washington state last week. So far, the Washington State Liquor Control Board (WSLCB) has issued the state’s first 24 marijuana retailer licenses, representing the first of 334 licenses allotted by the WSLCB for retail sales who have successfully completed the Initiative 502 licensing process. Now that sales of legal marijuana and marijuana-infused products have commenced in the state, many are asking about the quality and safety of these products.

Like other food and beverage items we ingest, marijuana products can contain mites, molds, and even foodborne pathogens such as E. coli. In order to stave off potential health and safety risks, WSLCB mandated that all marijuana products undergo rigorous quality assurance testing by certified labs. In fact, as Dan Flynn at Food Safety News reports, “Washington state is off to a safer start than Colorado.” According to Flynn:

Continue Reading...

Doors Open for Business for Licensed Marijuana Retailers in Washington State

Hundreds of eager customers lined up outside of Washington’s newly licensed marijuana retailers on Tuesday to make history by participating in the first legal sales of recreational marijuana in the state. Earlier this week, the Washington State Liquor Control Board (WSLCB) issued the state’s first 24 marijuana retailer licenses. These businesses represent the first of 334 licenses allotted by the WSLCB for retail sales who have successfully completed the licensing process.

Early in the morning on Monday, July 7, 2014, the 24 applicants were notified via email that they were approved for a retail license. According to the recently finalized rules around state-sanctioned sales of marijuana, once approved for a license, producers and/or processors are able to file a required manifest for transporting to the licensed retail locations. Following a 24 hour quarantine period, they may begin transporting products to retail stores. After this 24 hour period, licensed marijuana retailers are then permitted to sell their inventory and enter it in to the established traceability system.

Despite the issuance of 24 new retailer licenses, only a handful of licensed marijuana retailers opened their doors for business on Tuesday. Retailers explained that this was largely due to a lack of supply. Marijuana growers in the state only received their licenses in March, which was not enough time to produce a substantial crop. Because of this supply issue, some retailers have decided to ration supplies over the next several weeks, allowing customers to buy only a fraction of what is permissible under the law.

Locations receiving licenses were selected by taking into account population, geographic dispersion and the individual applicant’s readiness to be licensed. A complete listing, including contact information of the new retail licensees, can be found online within the Public Records section of the WSLCB website.

Buying and Selling Liquor Licenses in Utah

By Adrienne Bell and Catherine Parrish Lake

Utah's Transfer of Retail License Act (the "Act"), which becomes effective today, permits the transfer and sale of retail liquor licenses by current retail license holders. Although enacted in 2011, the legislature previously delayed implementing the Act in response to concerns that the creation of a private market for retail licenses would drive up prices and create additional barriers to entry for small businesses. The legislature opted against further extending the effective date of the Act during the last session. Consequently, current holders of retail licenses, such as restaurant and club licenses, are now able to sell and transfer these licenses subject to the provisions of the Act.

To transfer a retail license, a proposed buyer first has to file a notice of intended transfer with the Department of Alcoholic Beverage Control (the "DABC") at least 10 days before filing a transfer application. The buyer must include a statement regarding the amount to be paid to the license holder for the transfer. If the transfer includes payment to the license holder, steps are required to protect any creditors of the license holder. The license holder must provide the buyer with a list of creditors with claims against the license holder. The license holder and buyer also have to establish an escrow [with an approved institution] into which any payment for the license will be deposited. The Act sets forth the priority for disbursement of payment, with claims for back taxes and wages and other secured and statutory claims have priority over the license holder. Escrow is not required for transfers that do not include payment for the license.

Before the Commission can approve the transfer, the DABC is required to conduct an investigation and may hold public hearings to gather information and make recommendations to the Commission as to whether the transfer should be approved. The Commission may not, however, approve a transfer of a retail license between two different counties or to an entity that is not eligible to hold that type of retail license.

The Act also applies to certain changes in ownership of a business entity that currently holds a retail license. Each of the following must comply with the Act:

  • a change in ownership of 51% or more of the shares of stock of a corporation;
  • admission of a new general partner into a partnership or when 51% or more of the capital or profits of a limited partnership is acquired by or transferred to others as general or limited partners; and
  • a change in ownership of 51% or more of the interests in a limited liability company.
Importantly, if a license holder fails to comply with the provisions of the Act within 30 days following one of the changes noted above, the retail license is automatically forfeited. Additionally, the Commission may void any transfers of retail licenses that violate the provisions of the Act and require the forfeiture of the retail license.

The DABC anticipates that the process to review and approve transfer applications will take at least 45 to 60 days. Application forms and materials should be available on the DABC website beginning today. Please contact me or Catherine Parrish Lake with questions about the Act or for assistance with the license transfer process.

Reclamation Will Not Approve the Use of Federal Irrigation Water for Marijuana Cultivation

This post is authored by Environment, Land Use and Natural Resources lawyer Kirk Maag of Stoel Rives.

The U.S. Bureau of Reclamation issued a temporary policy regarding the use of water from Reclamation reservoirs for activities prohibited by the Controlled Substances Act of 1970 (CSA)—for example, growing marijuana. The temporary policy is effective for one year.

The policy was prompted by the recent legalization of marijuana in states like Washington and Colorado. Similar initiatives are being considered in other states, like Oregon. However, despite these changes (and proposed changes) to state law, the cultivation, possession, use, and sale of marijuana remains illegal under federal law.

The recent changes to state law caused Reclamation to consider whether water from its reservoirs can be delivered to marijuana growers by the irrigation districts that deliver Reclamation water. The first line of the policy emphasizes the key issue: The CSA and its implementing regulations prohibit the cultivation of marijuana. The policy explains that Reclamation, as a Federal agency, must uphold federal law. As such, Reclamation and its employees cannot (and will not) approve the use of Reclamation water or facilities to facilitate the cultivation of marijuana. However, the policy acknowledges that “Reclamation does not have a responsibility or designated role in actively seeking enforcement of the CSA.”

Nevertheless, the policy provides that, if a Reclamation employee becomes aware of Reclamation water being used to irrigate marijuana, the employee must report such use to their regional director. The regional director will report this information to the U.S. Department of Justice (DOJ). Reclamation employees will document all activities and communications regarding known or potential uses of Reclamation water for the irrigation of marijuana. This information will presumably be turned over to DOJ. It remains to be seen whether the DOJ will take enforcement action based on these reports.

Some elected officials have blasted the policy. The Huffington Post reports that Rep. Jared Polis (D-Colo.) issued the following statement:

Today’s backward-looking decision by the Bureau of Reclamation will hinder the growth and success of Colorado and Washington’s legal marijuana industry. . . . This policy places the Bureau of Reclamation at odds with the administration's current guidance to not interfere with the marijuana and hemp industries made lawful by voters in those states. The Bureau of Reclamation is challenging the commonly-held understanding in the arid west that water rights are state-based, an extremely delicate proposition for citizens dependent on water for their livelihood.

Rep. Earl Blumenauer (D-Ore.) criticized the decision by stating: “Today’s decision again brings federal, state, and local law into conflict in a way that creates uncertainty among residents of states that have approved the use of marijuana. . . . The administration needs to give clear marching orders to the various agencies and for them to get in step to avoid problems like this in the future.”

The Seattle Times editorial board wrote: “The federal government’s response to the marijuana revolt brewing on the state level should carry a warning label. Beware: signs of impaired decision-making, with erratic policy-swerving and conflicting statements.”
 

Will Bureau of Reclamation Leave Washington's Marijuana Crop High and Dry?

The U.S. Bureau of Reclamation provides irrigation water to one out of five farmers in the Western United States. According to Reclamation, the irrigation water it provides is used to produce 60% of our nation’s vegetables and 25% of our fruits and nuts. But Reclamation is now deciding whether to leave one Washington crop high and dry: marijuana.

Washington recently issued licenses that allow licensees to grow marijuana. But the cultivation, possession, use, and sale of marijuana remains illegal under federal law. This tension between state and federal law is forcing Reclamation to analyze whether it can provide irrigation water to contract holders who plan to grow marijuana.

The timing of Reclamation’s decision is important because the irrigation season is rapidly approaching in many parts of Washington and has already arrived in other parts of the state. The Olympian reports that Dan DuBray, a spokesman for Reclamation, recently said that Reclamation will make a decision on this issue by early May, and perhaps as early as this week.

Continue Reading...

Attending the Craft Beverage Expo: A Few Reasons Why You Should!

The Craft Beverage Expo is right around the corner, and there is still time to register! This inaugural event takes place in San Jose, CA on May 6 - 8, 2014, and the Stoel Rives Beverage & Hospitality Group has you covered! We are pleased to offer our blog subscribers a $100 discount off of the full registration. Please click here to register by using registration code: STOELRIVES14.

Here are some reasons why we are especially excited for the Expo:

  1. Agenda! The CBE Advisory Board did its homework and has lined up a unique mix of speakers covering a wide range of topics, including sales, marketing, regulatory and legal compliance, and business development, among others. You certainly don't want to miss the "Trademark Primer," presented by Anne Glazer of Stoel's Technology and Intellectual Property Group on Wednesday, May 7 at 11:00 a.m. Attendees will walk away with an understanding of the trademark clearance and registration process, as well as how to avoid conflicts. You can read more about the presenters and topics at Craft Beverage Expo Schedule at a Glance.
  2. Audience! The conference promises to unite artisan wine makers and craft beer, cider, and spirit producers over the course of two days. Each market segment will be able to share best practices with one another at a trade show dedicated exclusively to the growing craft industry.
  3. Exhibitors! More than 100 exhibitors and vendors committed to moving the craft beverage industry forward will be in attendance at the expo. Be sure to stop by Booth #405, where Stoel alcohol beverage lawyers will answer your hot topic industry questions. Follow us on Twitter at @stoelrives to test your knowledge on legal issues that impact your industry. Correct answers will receive a prize (while supplies last).

We look forward to mixing and mingling with our clients and friends at the 2014 Craft Beverage Expo.

About Stoel Rives LLP - Beverage & Hospitality Group
Over the past 30 years, Stoel Rives LLP has developed a strong reputation for the successful representation of wineries, breweries, distilleries, and alcohol beverage retailers on a wide range of legal matters, including corporate and finance, licensing and regulatory compliance, intellectual property, advertising/marketing law, employment, and real estate. The firm has nearly two dozen beverage and hospitality lawyers operating out of offices in Portland, Seattle, Salt Lake City, Sacramento, and Boise.
 

Distribution Agreements: Cover Your Bases!

Before entering into a distribution agreement, alcohol beverage producers should do their homework. Here is a list of questions to ask a potential distributor:

  • Where are you doing business as a distributor?
  • How long have you been in business?
  • How did you get started?
  • Is your state a franchise state?
  • Are you affiliated with a particular large beer, wine, or spirits producer? Are you independent?
  • What is your product mix?
  • Do you already have products like mine? What are they? How have you increased sales over time for them?
  • How much wine, beer, cider or spirits did you sell last fiscal year? How does that compare with the last 2-3 years?
  • What are your total annual gross sales?
  • How many employees do you have?
  • How often do your sales people visit accounts?
  • What length of term do you want for our agreement?
  • What is the territory covered by the agreement?
  • Do you have an exclusive right to sell my products in the territory?
  • Is the distributor entitled to new products that the producer develops after the relationship starts?
  • What, if any accounts, does the producer already work with and does the producer get to continue to handle those accounts?
  • Are you willing to meet and jointly develop an annual sales and marketing plan for my brands, including sales goals, marketing activities and pricing?
  • What performance standards will you agree to in writing?
  • What happens if we can’t agree on sales goals and pricing?
  • Is the agreement for a fixed term or does it automatically renew if the distributor meets their goals?
  • Can either of us terminate the agreement if we are not happy?
  • What happens at termination in terms of payments, return/buyback of product, etc.
  • Who arranges for delivery of my product? When does risk of loss shift to the distributor?
  • What types of insurance do you have? What are the limits of liability on the policies?
  • Who pays for delivery of product to the distributor?
  • How is my product shipped, stored and delivered to retailers to ensure no impairment in quality?
  • Who is my sales person and/or Brand Manager?
  • How long have they worked for you?
  • Are they a top producer?
  • Can I have my own sales people visit accounts by themselves and, if we want, in tandem with your sales force?
  • Will you give me the names of all your accounts and all accounts visited to show my wine, beer, and cider?
  • Who pays for samples?
  • What kind of marketing events and activities will you do, when, how will they be supported, and who pays for it?
  • Who pays for by the glass promotions or volume discounts?
  • What monthly, quarterly and annual reports will I receive regarding orders, depletions, marketing and sales events and related costs? 

For alcohol beverage contract-related questions, please contact Chris Hermann at crhermann@stoel.com or visit http://www.stoel.com/wine-law.
 

Top 5 Takeaways From This Year's Wine Law Seminar

Stoel Rives' 7th Annual Oregon Wine Law Seminar attracted nearly 100 wine industry professionals and covered several hot topics ranging from employment law, allergen and organic labeling regulations, growler enforcement and other legislative updates, and distribution agreements. We also caught up with Mark Freund, Managing Director, Silicon Valley Bank, Kevin O’Brien, Director - Business Advisory, Irvine & Company, LLC, Artie Weiner, Director of Finance, King Estate Winery, and Mario Zepponi, Wine Industry M&A Advisor, Zepponi & Company to bring our attendees a unique perspective on how best to maximize their professional services teams.

So, the Top 5 takeaways from this year's seminar are:

  1. An ounce of prevention is better than a pound of cure -- winery and vineyard owners need to make sure their FLCs are up-to-date and fully compliant.
  2. Don't be afraid to negotiate the terms of your distribution agreements. You should know who you’re dealing with, the length of the agreement, whether it can be renewed, etc. Pay attention to the details.
  3. Don’t be fooled! Growlers are considered bottling under TTB Ruling 2014-3.
  4. Producers, bottlers, and importers may declare the presence of food allergens on their labels, but they are NOT required to do so by TTB.
  5. When selecting professional services providers -- do your homework! Industry experience is critical to the outcome you are trying to achieve.

Also, attendees wanting to stay up-to-date on initiatives impacting the Oregon wine industry, please contact Tom Danowski, Executive Director of the Oregon Wine Board or visit: http://www.oregonwine.org. And, don't forget to sign up for Stoel's new e-based Law of Wine book coming out later this summer.

Spent Grains: FDA Proposed Rule May Cause Concern for Brewers

There has long existed a symbiotic relationship between brewers and farmers in which spent grains, a byproduct of the brewing process, are given or sold to farmers for use as food for livestock. A proposed rule regarding preventive controls for pet and animal food as required under the Food Safety Modernization Act (FSMA) is causing a commotion among brewers over the effect it may have on this relationship.

In late October, the Food and Drug Administration (FDA) issued a proposed rule that would require facilities producing animal food to have written plans that identify hazards, specify the steps that will be put in place to minimize or prevent those hazards, identify monitoring procedures and record monitoring results, and specify what actions would be taken to correct problems that arise. The proposed rule also would establish certain Current Good Manufacturing Practices (CGMPs) that specifically address animal food. According to the proposed rule, brewery operations that sell their spent grain as animal feed could fall within the scope of the rule requirements. Accordingly, this rule could potentially have a significant impact on operations, handling procedures, record keeping and other food safety processes within the brewery setting.

According to an April 17 Food Safety News article, the major concern among brewers, as well as some members of Congress, is that the additional regulations on the spent grain, which would require that it be treated in the same way as commercial animal feed, would make it cost-prohibitive for brewers to continue to supply spent grain to farmers. In addition, brewers argue that the rule would offer no further safety assurances. The brewing industry submitted extensive comments to the proposed rulemaking during the extended comment period which ended in March 2014.

The FDA is currently revising the proposed rule to clarify exactly what will be expected of the byproducts of brewing. The agency intends to issue a re-release of the revised proposed rule some time during the summer.

I will continue to following the proposed rule change and  report on FSMA developments as they relate to the alcoholic beverages industry.

WSLCB Approves Lottery to Rank Marijuana Retail License Applicants

The Washington State Liquor Control Board (WSLCB) has approved the use of a lottery system to select the apparent successful applicants for marijuana retail licenses. WSLCB staff recommended the independent, double-blind process in order to limit the number marijuana retail stores per county as directed by Initiative 502, the measure legalizing the recreational use of marijuana in Washington state.

The lottery will take place on April 21-25, 2014, and will produce an ordered list of applicants for each jurisdiction that the agency will use to continue its retail licensing process. The WSLCB is expected to post that ordered list of applicants for each jurisdiction in the public records section of the agency website on May 2, 2014.

Continue Reading...

Why California Breweries, Distilleries, and Wineries Need to Know About California's New Industrial Storm Water Permit

My colleagues Ryan Waterman and Parissa Ebrahimzadeh have evaluated the potential impacts of the new California industrial storm water permit on breweries, distilleries, and wineries in the state.  See below for their report.

On April 1, 2014, the California State Water Resources Control Board (“State Board”) unanimously adopted a new Industrial Storm Water permit (2014 Permit). You can find the new Industrial Storm Water permit and supporting documents here, along with a change sheet also adopted by the State Board.

By way of background, the federal Clean Water Act prohibits certain discharges of storm water containing pollutants except in compliance with a permit. The 2014 Permit is a state-wide permit (called a “general” permit) for all covered industrial facilities in California. Covered industrial facilities must comply with the 2014 Permit when it comes into force in order to be in compliance with the Clean Water Act. 

The 2014 Permit completely re-writes the prior 1997 Industrial Storm Water permit (1997 Permit), and includes many substantive changes. In particular, the 2014 Permit will vastly increase the number of industries affected and impose new and increased compliance requirements.

That is one reason why California breweries, distilleries, and wineries need to know about the 2014 Permit.

Continue Reading...

SB 1335 and What it Means for Idaho Distilleries

Beginning July 1, 2014, Idaho distilleries will be allowed to provide samples of their products at their manufacturing facilities, as has been permitted at breweries and wineries throughout the state of Idaho for quite some time. There are some conditions on the samples offered by a manufacturer: (1) the samples must be free; (2) samples must be offered on the premises of the manufacturer’s distillery site; (3) samples are limited to one-quarter of one ounce; (4) a person can only receive up to 3 samples in a 24-hour period; (5) samples must be served by a person over the age of 21. In addition, the manufacturer must purchase the distilled spirits from the Idaho State Liquor Division, and pay all appropriate taxes on the purchased samples.

The change in the law, which passed through the Idaho legislature on March 13, is prompted by the opportunities for state and agricultural suppliers to increase revenue and employment opportunities in Idaho.

Prior to the legislative change, visitors of Idaho distilleries could view the distilling process, but they could not taste or consume any of the spirits. As a result, Idaho distilleries lost the opportunity sales from the potential customers who toured their facilities, and there was likely a reduced interest in distillery tours without the opportunity to sample the product on the tour. Product samples are expected to boost product sales from those who embark on the distillery tours, as well as make the tour a more compelling marketing tool for the distilleries.

The new law impacts not only the current eight Idaho distilleries, but the future of the Idaho distillery market. Idaho’s willingness to respond legislatively to the distilleries business needs is a positive sign of support from an otherwise conservative state.

The Idaho State Liquor Division controls the importation, distribution, sale and consumption of distilled spirits in Idaho. The ISLD is responsible for balancing the curtailment of excessive use of alcohol while maximizing the revenues to the citizens of Idaho. Manufacturers of distilled spirits must be licensed in Idaho, which is overseen by the ISLD and licensed by the alcohol and Tobacco Tax and Trade Bureau (TTB).

Colorado Amends Ethics Rules to Provide Safe Harbor for Lawyers Advising Marijuana Businesses

According to a new comment adopted by Colorado’s Supreme Court last week, Colorado lawyers who provide legal services to state-regulated medical and recreational marijuana businesses will not violate the state’s Rules of Professional Conduct.

The rule change added the following comment to Rule 1.2 regarding the scope of representation and allocation of authority between the client and the lawyer:

A lawyer may counsel a client regarding the validity, scope, and meaning of Colorado constitution article XVIII, secs. 14 & 16, and may assist a client in conduct that the lawyer reasonably believes is permitted by these constitutional provisions and the statutes, regulations, orders, and other state or local provisions implementing them. In these circumstances, the lawyer shall also advise the client regarding related federal law and policy.

Previously, Colorado Rules of Professional Conduct had prohibited attorneys from aiding clients “in conduct that the lawyer knows is criminal.” Despite the fact that medical and recreational use of marijuana is legal within the state, lawyers were left at an impasse because the production, use, sale, and distribution of the drug is still illegal under federal law. Based on this prior rule, a Colorado lawyer providing anything more than basic legal advice to marijuana businesses could run afoul of his or her ethical obligations and faced disciplinary action.

The newly adopted comment provides a safe harbor for lawyers seeking to represent those engaged in the legal marijuana industry within Colorado. On March 24, 2014, the comment was signed by Chief Justice Nancy Rice and became effective immediately. Justices Nathan Coats and Allison Eid would not approve the comment.

Lawyers in Washington state also are in the process of navigating the ethical dilemmas presented by the potential representation of the emerging statewide legal marijuana industry; a similar dilemma is presented to those lawyers in other states seeking to represent clients in the medical marijuana industry (in those states where it is legal). With the passage of Initiative 502, Washington became the second state in the nation to legalize the production and sale of marijuana for recreational use. However, as Washington’s ethics rules currently stand, lawyers could face discipline, such as disbarment, for advising marijuana business clients.

For the past few months, the Washington State Supreme Court Rules Committee has been considering proposals from both the King County Bar Association and the Washington Bar Association as to how lawyers can advise clients on issues where state and federal law conflict, specifically in response to Washington Initiative 502. Lawyers in Washington state are still awaiting the Rules Committee’s decision.