California craft distillers closer to selling spirits on premise

California craft distillers will be able to sell their bottles at their tasting rooms under a legislative compromise reached with the politically powerful liquor wholesalers, which had previously stymied their efforts to better market their products.

The breakthrough came Tuesday as the state Senate Governmental Organization Committee approved legislation authored by Assemblyman Marc Levine, D-San Rafael, which is designed to allow California’s burgeoning craft spirits industry to have similar rights as the craft beer and wine industry to sell their products on premise.

The compromise marks an abrupt turnaround for Levine’s bill, which was almost derailed in April after a fellow Democrat, Assemblyman Adam Gray of Merced, made a motion to hold it for further study while Levine was out of the committee room. At the time, the liquor wholesaler lobby was not on board with the measure, fearing it would erode the three-tier distribution system that was put in place in the aftermath of Prohibition and has helped protect their business operations. Levine said at the time that Gray “was doing the bidding of lobbyists.”

Levine, however, said he and Gray were able to bring the distillers and distributors together and carve out a new compromise, including in a key meeting held last week.

“This huge victory for Sonoma County. This is going to be great for our local distilleries and gives them parity with our wineries and craft breweries,” Levine said.

The revised bill would create a new craft distillers license that would be available for those who produce less than 100,000 gallons annually, about 42,000 cases. The state has almost 50 distilleries, with 11 in Sonoma County.

It would allow them to sell up to three bottles per person per day on site and permit them to operate up to three restaurants or pubs, giving them the opportunity to open up eateries that have been very popular in the craft beer industry given the long lines at Russian River Brewing Co. in Santa Rosa and Lagunitas Brewing Co. in Petaluma. In addition, they could hold private events.

Wholesalers got language in the bill stating that distillers with the new license may sell spirits only to a wholesaler or manufacturer’s agent, except for the limited exemptions allowed for sales at tasting rooms and production facilities. In addition, the bill notes the legislators’ intent for continuing to uphold and support the three-tier distribution of manufacturing, distributing and retailing.

“We were concerned the three-tier collapsing completely,” said ?Manuel Espinoza, executive director at the Wine & Spirits Wholesalers of California. “We’re hoping this buys us at least 10 years.”

Levine stressed during his pitch to the wholesalers that he didn’t seek an end to the current system, just some flexibility, which could also benefit the wholesalers as spirits sales continue to grow in the United States to $4.2 billion last year, driven by a boom in craft whiskey and bourbon.

“This is to everyone’s benefit,” Espinoza said.

Distillers are currently allowed to do on-site tastings. The bill will allow them to make mixed drinks on site to show how such spirits can be used in cocktails, whether to make at home or to order at a restaurant.

Forty states currently allow distillers to sell their products on premise, most recently Arizona last year, according to Levine’s office.

“I think a lot of people will come into industry from the sidelines given this lowers the barriers of entry in the state,” said Timo Marshall, co-owner with his wife, Ashby, of Sebastopol’s Spirit Works Distillery. “I think this is going to open more opportunity.”

Marshall said he doesn’t expect much change from a retailing standpoint as most customers will likely buy his gin, whiskey and vodka from the liquor aisle.

“Where the change will happen is in the experience of actually visiting the distillery and walking out with the product. That is going to lead to further sales,” Marshall said. He added that he will likely bring on more staff as he explores opportunities to expand his tasting room allowed under the new bill.

“It’s going to be huge for us,” he said.

The bill goes next to the Senate Appropriations Committee, and if approved, then to Senate floor and over to the Assembly. Levine said he does not envision any hurdles that will stop passage of the legislation because the stakeholders are in agreement.

“I believe this is going to be successful,” he said.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@press?democrat.com. On Twitter @BillSwindell.