House Study Bill 574 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON STATE GOVERNMENT BILL BY CHAIRPERSON VANDER LINDEN) A BILL FOR An Act concerning alcoholic beverage control, including 1 micro-distillery production and sales and dramshop liability 2 insurance requirements, requiring a comprehensive study on 3 alcoholic beverage control, and establishing fees. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5994YC (1) 86 ec/nh

H.F. _____ Section 1. Section 123.3, subsection 29, Code 2016, is 1 amended to read as follows: 2 29. “Micro-distillery” means a business with an operational 3 still which, combining all production facilities of the 4 business, produces and manufactures less than fifty one hundred 5 thousand proof gallons of distilled spirits on an annual basis. 6 Sec. 2. Section 123.28, Code 2016, is amended to read as 7 follows: 8 123.28 Restrictions on transportation. 9 It is lawful to transport, carry, or convey alcoholic 10 liquors from the place of purchase by the division to a state 11 warehouse or depot established by the division or from one such 12 place to another and, when so permitted by this chapter , it 13 is lawful for the division, a common carrier, or other person 14 to transport, carry, or convey alcoholic liquor sold from a 15 state warehouse, depot, or point of purchase by the state to 16 any place to which the liquor may be lawfully delivered under 17 this chapter . The division shall deliver alcoholic liquor 18 purchased by class “E” liquor control licensees. Class “E” 19 liquor control licensees may deliver alcoholic liquor purchased 20 by class “A”, “B”, or “C” liquor control licensees and class 21 “C” micro-distilled spirits permittees , and class “A”, “B”, 22 or “C” liquor control licensees and class “C” micro-distilled 23 spirits permittees may transport alcoholic liquor purchased 24 from class “E” liquor control licensees. A common carrier or 25 other person shall not break or open or allow to be broken or 26 opened a container or package containing alcoholic liquor or 27 use or drink or allow to be used or drunk any alcoholic liquor 28 while it is being transported or conveyed, but this section 29 does not prohibit a private person from transporting individual 30 bottles or containers of alcoholic liquor exempted pursuant to 31 section 123.22 and individual bottles or containers bearing 32 the identifying mark prescribed in section 123.26 which have 33 been opened previous to the commencement of the transportation. 34 This section does not affect the right of a special permit 35 -1- LSB 5994YC (1) 86 ec/nh 1/ 9

H.F. _____ or liquor control license holder to purchase, possess, or 1 transport alcoholic liquors subject to this chapter . 2 Sec. 3. Section 123.32, subsection 1, Code 2016, is amended 3 to read as follows: 4 1. Filing of application. An application for a class “A”, 5 class “B”, class “C”, or class “E” liquor control license, for 6 a class “A” micro-distilled spirits permit, for a class “C” 7 micro-distilled spirits permit, for a retail beer permit as 8 provided in sections 123.128 and 123.129 , or for a class “B”, 9 class “B” native, or class “C” native retail wine permit as 10 provided in section 123.178 , 123.178A , or 123.178B , accompanied 11 by the necessary fee and bond, if required, shall be filed with 12 the appropriate city council if the premises for which the 13 license or permit is sought are located within the corporate 14 limits of a city, or with the board of supervisors if the 15 premises for which the license or permit is sought are located 16 outside the corporate limits of a city. An application for 17 a class “D” liquor control license and for a class “A” beer 18 or class “A” wine permit, accompanied by the necessary fee 19 and bond, if required, shall be submitted to the division 20 electronically, or in a manner prescribed by the administrator, 21 which shall proceed in the same manner as in the case of an 22 application approved by local authorities. 23 Sec. 4. Section 123.33, Code 2016, is amended to read as 24 follows: 25 123.33 Records. 26 Every holder of a liquor control license or a class “C” 27 micro-distilled spirits permit shall keep a daily record, in 28 printed or electronic format, of the gross receipts of the 29 holder’s business. The records required and the premises of 30 the licensee or permittee shall be accessible and open to 31 inspection pursuant to section 123.30, subsection 1 , during 32 normal business hours of the licensee or permittee . 33 Sec. 5. Section 123.43A, subsection 2, Code 2016, is amended 34 to read as follows: 35 -2- LSB 5994YC (1) 86 ec/nh 2/ 9

H.F. _____ 2. A micro-distillery shall not sell more than one and 1 one-half liters per person per day, of micro-distilled spirits 2 on the premises of the micro-distillery. In addition, a A 3 micro-distillery shall not directly ship micro-distilled 4 spirits for sale at retail. The micro-distillery shall 5 maintain records of individual purchases of micro-distilled 6 spirits at the micro-distillery for three years. 7 Sec. 6. Section 123.43A, Code 2016, is amended by adding the 8 following new subsection: 9 NEW SUBSECTION . 4A. Notwithstanding any other provision of 10 this chapter, a person engaged in the business of manufacturing 11 micro-distilled spirits may sell micro-distilled spirits 12 it manufactures at retail for consumption on the premises 13 of the manufacturing facility by applying for a class “C” 14 micro-distilled spirits permit with the authority as provided 15 in section 123.43B. A manufacturer of micro-distilled spirits 16 may be granted not more than three class “C” micro-distilled 17 spirits permits. 18 Sec. 7. Section 123.43A, subsection 6, Code 2016, is amended 19 to read as follows: 20 6. The division shall issue no more than three class 21 “A” micro-distilled spirits permits under this section to a 22 person. In addition, a micro-distillery issued a permit under 23 this section shall file with the division , on or before the 24 fifteenth day of each calendar month, all documents filed by 25 the micro-distillery with the alcohol and tobacco tax and 26 trade bureau of the United States department of the treasury, 27 including all production, storage, and processing reports. 28 Sec. 8. Section 123.43A, subsection 7, Code 2016, is amended 29 by striking the subsection and inserting in lieu thereof the 30 following: 31 7. A micro-distillery may sell the micro-distilled spirits 32 it manufactures to customers outside the state. 33 Sec. 9. NEW SECTION . 123.43B Authority under class “C” 34 micro-distilled spirits permit. 35 -3- LSB 5994YC (1) 86 ec/nh 3/ 9

H.F. _____ 1. A person holding a class “C” micro-distilled spirits 1 permit for the same location for which the person holds a 2 class “A” micro-distilled spirits permit may sell the person’s 3 micro-distilled spirits only at retail to patrons by the 4 individual drink for consumption on the licensed premises where 5 the spirits were manufactured. 6 2. A person holding a class “C” micro-distilled spirits 7 permit shall purchase micro-distilled spirits the person 8 manufactures from a class “E” liquor control licensee only. 9 3. A class “C” micro-distilled spirits permit for a 10 micro-distillery shall be issued and renewed annually upon 11 payment of a fee of two hundred fifty dollars. 12 4. A person holding a class “C” micro-distilled spirits 13 permit may also sell and dispense micro-distilled spirits and 14 native wine the person manufactures to patrons on Sunday for 15 consumption on the premises between the hours of 8:00 a.m. on 16 Sunday and 2:00 a.m. on the following Monday. 17 5. Unless otherwise provided by this chapter, the 18 provisions of this chapter applicable to liquor control 19 licenses shall also apply to class “C” micro-distilled spirits 20 permits. 21 Sec. 10. NEW SECTION . 123.43C Class “C” micro-distilled 22 spirits permit —— application. 23 1. Except as otherwise provided in this chapter, a class “C” 24 micro-distilled spirits permit shall be issued to a person who 25 complies with all of the following: 26 a. Submits electronically, or in a manner prescribed by the 27 administrator, an application for the permit and states on the 28 application under oath: 29 (1) The name and place of residence of the applicant and 30 the length of time the applicant has lived at the place of 31 residence. 32 (2) That the applicant is a citizen of the state of Iowa, 33 or if a corporation, that the applicant is authorized to do 34 business in Iowa. 35 -4- LSB 5994YC (1) 86 ec/nh 4/ 9

H.F. _____ (3) The location of the class “A” micro-distillery where the 1 applicant intends to use the permit. 2 (4) The name of the owner of the premises, and if that owner 3 is not the applicant, that the applicant is the actual lessee 4 of the premises. 5 b. Establishes all of the following: 6 (1) That the applicant meets the test of good moral 7 character as provided in section 123.3, subsection 34. 8 (2) That the premises for which the permit is sought is and 9 will continue to be equipped with sufficient tables and seats 10 to accommodate twenty-five persons at one time, and in areas 11 where such business is permitted by any valid zoning ordinance 12 or will be so permitted on the effective date of the permit. 13 (3) That the premises where the applicant intends to operate 14 conform to all applicable laws and health and fire regulations. 15 (4) That the applicant is not engaged in the business of 16 manufacturing beer. 17 c. Consents to inspection as required in section 123.30, 18 subsection 1. 19 2. A manufacturer of micro-distilled spirits may be granted 20 a class “C” micro-distilled spirits permit regardless of 21 whether that manufacturer is also a manufacturer of native wine 22 pursuant to a class “A” wine permit. 23 Sec. 11. Section 123.56, subsection 5, Code 2016, is amended 24 to read as follows: 25 5. Notwithstanding any other provision of this chapter , a 26 person engaged in the business of manufacturing native wine may 27 sell native wine at retail for consumption on the premises of 28 the manufacturing facility by applying for a class “C” native 29 wine permit as provided in section 123.178B . A manufacturer of 30 native wine may be granted not more than one class “C” native 31 wine permit. A manufacturer of native wine may be granted 32 a class “C” native wine permit regardless of whether that 33 manufacturer is also a manufacturer of micro-distilled spirits 34 pursuant to a class “A” micro-distilled spirits permit. 35 -5- LSB 5994YC (1) 86 ec/nh 5/ 9

H.F. _____ Sec. 12. Section 123.92, subsection 2, paragraph a, Code 1 2016, is amended to read as follows: 2 a. Every liquor control licensee , and class “B” beer 3 permittee, class “C” native wine permittee, and class 4 “C” micro-distilled spirits permittee, except a class “E” 5 liquor control licensee, shall furnish proof of financial 6 responsibility by the existence of a liability insurance 7 policy in an amount determined by the division. If an insurer 8 provides dramshop liability insurance at a new location to 9 a licensee or permittee who has a positive loss experience 10 at other locations for which such insurance is provided by 11 the insurer, and the insurer bases premium rates at the new 12 location on the negative loss history of the previous licensee 13 or permittee at that location, the insurer shall examine and 14 consider adjusting the premium for the new location not less 15 than thirty months after the insurance is issued, based on the 16 loss experience of the licensee or permittee at that location 17 during that thirty-month period of time. 18 Sec. 13. ALCOHOLIC BEVERAGE CONTROL —— COMPREHENSIVE STUDY. 19 1. The alcoholic beverages division of the department of 20 commerce, in collaboration with the office of the attorney 21 general and interested stakeholders, shall conduct a 22 comprehensive study concerning alcoholic beverage control, 23 to include consideration of the manner of properly balancing 24 appropriate regulation of the manufacturing, distribution, and 25 sale of alcohol, wine, and beer in this state with emerging 26 trends in the industry. 27 2. In conducting the study, the division shall consider, 28 among any other relevant issues the division identifies 29 for study, issues relating to the three-tiered system as it 30 impacts the ability of manufacturers and retailers to meet 31 changing marketplace conditions and business opportunities, 32 the marketing of beer, wine, and alcohol manufactured in this 33 state, and the manner of licensing and regulating liquor 34 licensees and wine and beer permittees in this state. 35 -6- LSB 5994YC (1) 86 ec/nh 6/ 9

H.F. _____ 3. The division shall submit an interim report on the 1 study, including any findings and recommendations, to the 2 general assembly by January 27, 2017. The division shall 3 submit a final report on the results of the study, including 4 any findings and recommendations, to the general assembly by 5 January 5, 2018. 6 EXPLANATION 7 The inclusion of this explanation does not constitute agreement with 8 the explanation’s substance by the members of the general assembly. 9 This bill concerns micro-distilleries and the authority of 10 micro-distilleries and micro-distilled spirits manufacturers 11 and makes dramshop liability insurance requirements applicable 12 to certain native wine and micro-distilled spirits permittees. 13 Code section 123.3(29), concerning the definition of a 14 micro-distillery, is amended to provide that a micro-distillery 15 is a business that produces less than 100,000 proof gallons of 16 distilled spirits instead of the current limit of 50,000. 17 Code section 123.43A, providing for a class “A” 18 micro-distilled spirits permit, is amended. The bill 19 eliminates the current one and one-half liters per day limit 20 on sales of micro-distilled spirits on the premises. The 21 bill also allows the micro-distillery to sell the spirits it 22 manufactures to customers outside the state. The bill also 23 allows the micro-distillery to sell the spirits it manufactures 24 for consumption on the premises of the manufacturing facility 25 by applying for a new class “C” micro-distilled spirits permit. 26 The bill limits a manufacturer to no more than three of the new 27 permits. 28 Code provisions governing restrictions on transportation 29 (Code section 123.28), applications to local authorities for 30 certain permits (Code section 123.32), and records (Code 31 section 123.33), are made applicable to the new class “C” 32 micro-distilled spirits permit. 33 New Code section 123.43B establishes the authority for a 34 class “C” micro-distilled spirits permit. The Code section 35 -7- LSB 5994YC (1) 86 ec/nh 7/ 9

H.F. _____ provides that the permit shall allow the manufacturer to sell 1 its micro-distilled spirits only at retail to patrons by the 2 individual drink for consumption on the licensed premises where 3 it was manufactured, and that the person holding the permit 4 shall purchase micro-distilled spirits it manufactures from a 5 class “E” liquor control licensee only. The new Code section 6 also allows a person holding a class “C” micro-distilled 7 spirits permit and the new class “A” micro-distilled spirits 8 permit to sell and dispense micro-distilled spirits and native 9 wine the person manufactures on Sunday. The annual fee for the 10 permit shall be $250. 11 New Code section 123.43C provides the information necessary 12 for a person to apply for a class “C” micro-distilled 13 spirits permit. The bill requires the applicant to submit 14 information regarding the applicant and the location of the 15 micro-distillery. The application shall also provide that the 16 applicant is of good moral character and that the premises for 17 which the permit is sought is authorized to sell spirits for 18 consumption on the premises by applicable zoning ordinance and 19 is of sufficient size. The bill provides that the applicant 20 may be a manufacturer of native wine but shall not also 21 manufacture beer. 22 Code section 123.56, concerning native wines, is amended to 23 allow a manufacturer of native wine to be granted a class “C” 24 native wine permit regardless of whether the manufacturer also 25 manufactures micro-distilled spirits. 26 Code section 123.92, concerning the dramshop Act, is amended 27 to provide that a class “C” native wine permittee and a class 28 “C” micro-distilled spirits permittee shall furnish proof 29 of financial responsibility by having a liability insurance 30 policy. 31 The bill requires the alcoholic beverages division of the 32 department of commerce, in collaboration with the attorney 33 general and interested stakeholders, to conduct a comprehensive 34 study concerning alcoholic beverage control, and to submit to 35 -8- LSB 5994YC (1) 86 ec/nh 8/ 9