2017 Food Service Guidance for Oregon Wineries

The January 2017 “Guidance for Food Service at Wineries on Farmland under Oregon Senate Bill 841” issued by the Oregon Land Conservation and Development Commission and Oregon Liquor Commission with input from the Oregon Winegrowers Association, seeks to help answer questions that have arisen since the 2013 enactment of Senate Bill 841.

Prior to enactment of SB 841, food service at permitted use wineries on farm land was limited to “individually portioned prepackaged foods prepared from an approved source by a commercial processor.” Guidance at 2. Counties may no longer enforce that limited service restaurant restriction on wineries that qualify as permitted uses under current law. Guidance at 3. That said, restaurants are still not allowed.

Oregon’s land use system places a high priority on preservation of farmland for farm use, and state law identifies types of uses permitted outright on land with exclusive farm use zoning and uses that may be conditionally allowed on those lands. (See, for example, ORS 215.283.) SB 841 revised ORS 215.452 to provide production and vineyard size standards for wineries classified as permitted outright. Food service is allowed at these permitted wineries on both exclusive farm use land and mixed farm forest lands subject to statutory limitations.

Given that Oregon Liquor Control Commission Rules may require that food be available as part of the onsite consumption of wine, and the fact that tailored events such as wine-food pairings and winemaker dinners may promote winery success, the enhanced flexibility provided by SB 841 is welcome. Still, as the Guidance makes clear, food service may not become the predominant activity. The Guidance ends with a series of questions that may help a winery operation determine whether proposed food service is authorized at a permitted use winery. Among those questions are: Continue Reading

2017 Changes to Utah Liquor Laws

Significant changes are on the way for Liquor Laws in Utah.  H.B. 442 passed the legislature on March 8, 2017 and Governor Herbert signed it into law March 29, 2017.  The new law makes numerous changes to how restaurants, dining clubs and off-premise beer retailers will operate.  These changes will create opportunities for some, and present significant challenges for others.  Following is a summary of some of the more meaningful changes for businesses.  Note that the law affects many licensees though, so we encourage anyone who sells alcohol in Utah to discuss the changes with their attorney.

Restaurants and Bars

The law replaces the current Restaurant – Dining Club – Social Club structure with two categories: Restaurants and Bars, making Dining Clubs obsolete.  Bars and restaurants will have to start displaying an 8.5 x 11 sign declaring that they are either a bar or a restaurant, and not the other.

On the good news front, restaurants will be able to choose how they want to operate their own bars from the following three options: Continue Reading

Sonoma County Rejects Wine Industry Request for Voice in Groundwater Regulations

This blog post was co-authored by Stoel Rives attorneys Wes Miliband and Eric Skanchy.

Under the Sustainable Groundwater Management Act (“SGMA”), California’s landmark groundwater legislation, local Groundwater Sustainability Agencies (“GSAs”) must be formed to assess conditions in their local water basins and to develop locally-based groundwater sustainability plans (“GSPs”).

GSAs, which must be formed by June 30, 2017, will have the ability to register and monitor wells and to potentially restrict pumping and prevent drilling of new wells. GSAs will also have the ability to assess new fees and taxes. These local agencies will be in the driver’s seat when it comes to addressing a very complex problem seen in many areas of California: managing groundwater to ensure long-term sustainability of groundwater supplies.

Given the influence these GSAs will have, it is not surprising that various interest groups and stakeholders covet a seat at the table. This was not lost on wine industry representatives in Sonoma County, who petitioned the County to give the industry voting power on the yet-to-be-formed GSAs. Continue Reading

California Expands Overtime for Farmworkers

The following is an adaptation by my colleague Tony DeCristoforo of a post by Bryan Hawkins, Kirk Maag and Adam Belzberg that originally appeared on Stoel Rives World of Employment blog.

California Governor Jerry Brown recently signed AB 1066, which will require grape growers and other agricultural employers in California to pay overtime under the same conditions as non-agricultural businesses. The bill is the first of its kind in the nation.

California law defines employees “employed in an agricultural occupation” broadly to include any employment relating to the cultivation or harvesting of agricultural commodities, or the maintenance and improvement of a farm and/or farm equipment.  Prior to the signing of AB 1066, such employees were entitled to time-and-a-half pay after working 10 hours in a day or 60 hours in a week.  This is substantially different from the overtime laws for California employees in most other industries and occupations, where overtime pay typically kicks in after eight hours in a day or 40 hours in a week. Continue Reading

EPA Hits Brewery Hard: Is Your Brewery In Compliance With CWA Standards?

This post was guest authored by Stoel Rives summer associate Olivier Jamin.

Last week the Environmental Protection Agency (EPA) and the Department of Justice (DOJ) announced that D.G. Yuengling and Son, Inc., a Pennsylvania brewery, settled Clean Water Act (CWA) violations involving wastewater discharge into public treatment facilities for $2.8 million and a commitment to spend over $7 million to reduce environmental impacts of its brewery operations.

Breweries generally need to obtain a permit to discharge industrial waste into municipal treatment facilities. Breweries’ wastewater is considered industrial waste because the water discharged usually contains high concentrations of nutrients which, although they are not toxic, lead to more costly treatment. In many cases, a permit has limits on the discharge and requires pretreatment of waste before it is discharged. Although Yuengling obtained had the permit required by Section 402 (b)(8) of the CWA for both of its Pottsville breweries, they violated the terms and conditions of the pretreatment program. The Greater Pottsville Area Sewer Authority (GPASA) referred the case to EPA, and the United States identified 141 instances between 2008 and 2015 where Yuengling violated pretreatment permit requirements, and discharged biological oxygen demand (BOD), phosphorus, and zinc to the GPASA treatment plant in quantities exceeding their permit limits.  The resulting fine was hefty, resulting not only in a cash penalty but Yuengling agreeing to make significant facility upgrades and operational changes.  Such measures include having to design and implement an environmental management system for its breweries, conduct environmental audits, or optimize and improve operation and maintenance of the pretreatment system.

Breweries use, on average, 7 gallons of water to produce 1 gallon of beer, which means wastewater discharges can quickly become problematic if not properly monitored pre-discharge. Although it is uncertain whether EPA will start investigating breweries for CWA violations more regularly, this case reinforces the importance of breweries double checking their compliance plans and operational protocols to make sure they are staying in compliance with their discharge limits and that pretreatment systems are adequate to reduce the risk of potential violations.

Idaho District Court finds beer and wine “sub-distributorships” should be afforded same protections for distribution rights as distributor

Beer and wine distributorships are protected under Idaho franchise laws, like the majority of other states, from having their distribution rights terminated unless the reason falls within one of those enumerated under Idaho franchise laws. Without one of the listed reasons, a distributor cannot involuntarily lose its distribution rights.  This franchise protection has increased the marketable value of the distribution rights, so that the distributor’s investment in creating the brand and outlet for that particular product is protected as a transferrable right (one that is bought and sold for up to four times the annual gross revenues).  Once a beer or wine distributor is granted distribution rights, the supplier has little opportunity to unilaterally decide to terminate the distribution rights, short of purchasing those distribution rights for an amount agreed upon by the distributor.

Recently, the Idaho District Court found that the same protections are afforded to “sub-distributors” of beer and wine products, limiting the first distributor’s ability to terminate any sub-distribution. With Idaho’s three-tier system, each tier’s role is broken down as:  (1) a supplier, (2) a distributor, and (3) the retail outlet.  In Idaho, there can be more than one supplier for the exact same product, and an entity can be considered both a supplier and a distributor, depending on its actions and how it handles the product.  An entity’s statutory role determines that entity’s obligations in how it engages in its business activities and how its relationships with its buyers must be handled.

Here is how it works. A producer, supplier, manufacturer, or importer is the original “supplier” of the beer or wine.  The person or entity who receives the product, with the intention to resell to retail outlets, is usually the “distributor.”  In some instances, however, a distributor will buy large volumes of product from a supplier, distribute some of that product, and then enter into an agreement (verbally or in writing) with another distributor to “sub-distribute” the product.  In this situation, the original “distributor” also becomes a “supplier” to the “sub-distributor.”  And the original distributor (now also a supplier) becomes subject to the prohibitions and obligations of a supplier when interacting with its “sub-distributor.”

In the case of Bill Jones Distributors, Inc. v. Boise Sales Co., d/b/a Hayden Beverage Co. and Young’s Market Company of Idaho, LLC d/b/a Hayden Beverage Co., the First Judicial District Court for the State of Idaho held that a sub-distributor’s rights to distribute the product could not be terminated by the original distributor when the original distributor wanted to take back its product.  The court found that the original distributor was considered the “supplier” or “dealer” under the respective beer and wine acts, and as the supplier and dealer, it could not terminate the distribution rights without complying with the enumerated statutory grounds for termination.  While Idaho had not previously addressed the “sub-distributor’s” rights under the franchise laws, it was a logical conclusion based on the clear and unambiguous language of the franchise laws.

For more background, please read the court’s decision here (PDF).

Oregon Now Accepting Applications for Recreational Marijuana Licenses

Yesterday, January 4th, 2016 marked the start of the Oregon Liquor Control Commission (OLCC) accepting online applications for recreational marijuana licenses. Producers, laboratories, processors, wholesalers, retailers, and handlers are now lining up to receive OLCC licenses under Oregon’s new regulatory framework. Many cities and counties, however, are not enthusiastic with the new regulatory framework and have “opted out” by prohibiting, by ordinance, the establishment of licensed recreational marijuana producers, processors, wholesalers, and/or retailers. To date, over 80 local jurisdictions have exercised the “opt out” provision under HB 3400.

Licensing resources are available here.

Congress Passes the CIDER Act

Good news for the cider industry with today’s passage of the CIDER Act.  The CIDER Act provides a much needed update to the tax and regulatory framework cider.  To date, the regulatory framework and tax structure for cider has been known to cause cider makers angst given how cider is characterized under the law.  Now, ciders with up to 8.5 percent alcohol will fall in the definition of “hard cider” and be regulated as such instead of being subject to the Tax and Trade Bureau’s wine labeling and packaging requirements.  In addition, the law lessens the tax burden on cider makers by expanding the definition of hard cider to include higher alcohol content ciders and by increasing the amount of carbonation allowed in hard cider before it is taxed at a higher rate that applies to champagne.

For more on the reaction of the cider industry, see   http://www.nwcider.com/news/2015/3/6/press-release-passage-of-cider-act-in-senate-finance-committee.

Issues that private equity firms should consider before acquiring alcohol beverage producers

By Chris Hermann and Bernie Kipp:

Type of Transaction – Asset Purchase versus Stock Purchase. Very important if the acquiring entity wants an immediate continuing operations privilege. Specifically If a PE firm  purchases the assets of the target company  (including the operating name, equipment, IP, inventory and the current brewery  building) and intends to do business post-closing through a new legal entity, TTB will consider that a Change in Proprietorship and 27 CFR 25.72 applies. That means about a 90-100 day delay in order to get the approval from TTB and during that time the new entity cannot commence operations on its own until the new notice is approved by TTB.

If on the other hand, the PE firm purchases the stock of the target company  and operates the business going forward using the existing legal entity, as is, with the only change being the new stockholders and potentially new personnel, then 27 CFR 25.71 and .74 apply and there is no discontinuance of operations because the entity holding the approved permit/notice continues in business.  The company will have to file an amended application within 30 days of the stock purchase. Any new company officials will also have to be vetted and information on the new shareholder(s) and a list of current officers and directors must be provided, but the approximate 90-100 day delay between applying for a new basic permit to produce wine or spirits or registration of a  brewery is avoided.  A new bond will also be required. Main issue:  Does the acquiring firm want/need to be able to produce and sell wine/beer/spirits under the auspices of the acquired company/facility immediately upon closing?  If so then there are several structural issues to consider.

Type of entity – If the entity acquiring the business is a Limited Liability Company very specific personal information regarding background, residences, employment, and source of funds will have to be provided by members (potentially all of them) of the LLC regardless of the level of ownership. TTB’s position is that it requires all members be listed in the Owner Officer table and complete an OOI questions (Place of birth, date of birth, SSN, Criminal history (arrests, convictions) source of funds, etc. ) At a minimum, a list of all members must be provided.  With corporations, the vetting process is limited to Officers, Directors, and holders of 10% or more of outstanding stock. This is important to potential investors that don’t want to go through the vetting process. Main issues are: Have any of the principals in the company ever been arrested for any violation of federal or state law? If so have they been convicted of a felony or a misdemeanor involving taxation of alcohol or tobacco ? and Are the funds invested in the company from known legitimate sources that can be documented?

Potential Tied House issues – Potential issue if the PE firm or any of its principals already own any interest in retail businesses that sell alcohol.  That is very much an issue both at the federal and state level, especially if the PE firm’s  interest is used to influence the purchases of the retailers. (This is the heart of the 3 Tier system). The key regulations are Tied House and Exclusive Outlet sections of the business practices laws. Some states will not allow any common ownership (no matter how diluted)  of a producer and a retailer at the same time while other’s may allow it as long as there is no undue influence on the retailer’s purchasing decisions. It’s mainly a “top down” statute which means there is more concern of a producer controlling a retailer than the other way around. The federal statute is very specific about a Brewer/Winery/Distillery owning or controlling partial interest in a retailer, especially if that interest affects the purchasing patterns of the retailer. Main issues are:  Does the PE for or any of its members own hold interests in restaurants, bars, retail stores or shops that hold state licenses to sell on or off premises, alcohol beverages.

Current standing of Target company – The PE firm should request confirmation as part of its due diligence of the target company that:

The Target Company:

  • Is in possession of approved federal and state licenses from the TTB and state regulatory agency
  • Is in possession of approved  Bonds
  • Is current on its excise tax obligations as of time of purchase
  • Is current in its filing of required and has timely filed all required reports for last three years.
  • Is eligible for any tax credits taken  as small producer for last three years and has filed required notices to establish eligibility.
  • Is in possession of copies of filed excise tax returns, Brewer’s Reports of Operations, exportation documents, and supporting cellar records for brewery operations that occurred in 2012, 2013, and 2014.
  • Is in possession of Certificates of Label approval and Statements of Process approved by TTB which related to products currently produced and sold by the target company.



Licensed beer/wine Distributors also selling non-alcohol beverages in Washington state

Due to the explosive growth of craft beer sales in many states, including Washington, many distributors are combining non-alcoholic and alcoholic beverage sales into their distribution business.  A key point for Washington distributors is to be aware that the Washington Liquor Control Board (WLCB) contends that the so-called “Tied-House” rules governing the sale of alcoholic beverages apply to any such distributors sale of non-alcoholic, as well as, alcoholic beverages. While the WLCB may not be actively enforcing the rules because they are overwhelmed with marijuana production and sale issues, a  distributor in Washington state selling non-alcohol and alcoholic beverages, must be aware that all of the Tied House restrictions on things provided to retailers (Slotting fees, free goods, free fills) apply to the non-alcohol products as well as beer and wine. The only exception is a 30 day credit period for non-alcohol sales.