Tied House Reminder: Payments Between Retailers and Suppliers

A supplier is any licensee which either manufactures alcoholic beverages or is a wholesaler of alcoholic beverages. These include, but are not limited to, manufacturers, winegrowers, manufacturer’s agents, California winegrower’s agents, rectifiers, distillers, bottlers, importers, wholesalers, and any individual that acts as any officer, director or agent of any of the preceding entities. Although some of the listed supplier licenses may have limited and specific retail privileges, usually around the products that they manufacture, they are not considered retail licenses under the tied house laws.

A retailer is any licensee which is authorized to sell alcoholic beverages to consumers for either consumption at their licensed premises or for consumption elsewhere. These include, but are not limited to, grocery stores, liquor stores, bars, restaurants, hotels, theaters, online stores, and private clubs. Although some manufacturers in California do have some limited retail privileges granted to them through tied-house exceptions, they remain suppliers for the purposes of the tied house laws.

A tied house is a reference to the alcoholic beverage industry prior to prohibition. Retailers were often tied to specific suppliers and pushed consumers to higher levels of alcohol consumption through aggressive marketing or other anticompetitive business practices.

Anything that can be given from a supplier to a retailer that has intrinsic, utilitarian, or a secondary value other than a value authorized by a tied house exception, such as advertising value.

The supplier should be wary of what they give to retailers under certain advertising exceptions. If the retailer applies intrinsic, utilitarian, or secondary value other than the value authorized by an exception to the item, it can become a prohibited thing of value. A retailer may do this through a variety of ways, including using it in a prohibited manner, selling the item, gifting the item, or keeping the item for their own use. This is a violation of the law even if the supplier did not authorize or foresee the value assigned to it by the retailer. The result for this type of conduct is a violation of the prohibition on the giving or receiving of things of value for both the supplier and the retailer.

The general prohibition against payments or giving things of value applies to the company which owns an ABC license as whole regardless of what other products it also sells. Payments or things of value given in connection to the sales or marketing of any product, whether directly or indirectly by any supplier to a retailer are generally prohibited by law. There is no exception for a licensee to violate these rules when dealing with licensed retailers for any other products they might manufacture.

There is an exception in law that authorizes suppliers to give specified branded retail advertising specialties to a retailer. There are both strict lists of the types of items and strict dollar limits to the value of all items a supplier may give to any retailer in any given year under this exception. In addition, retailers cannot sell or give away any retail advertising specialties given by suppliers under this exception to consumers. There are a variety of exceptions to tied house laws like this with specific requirements that must be met for the actions to be authorized. However, unless an exception exists and is followed in every aspect, giving or furnishing a thing of value to a retailer is illegal, and violations will subject both the supplier license holder and retail license holder to disciplinary action that may include license suspension or revocation.

Although the law specifically prohibits suppliers from providing payments or things of value to retailers, the act of inducing those payments or things of value by a retailer would still constitute a violation of the ABC Act. If a retailer is demanding illegal payments from a supplier to carry a supplier’s product that is also illegal under the prohibitions found in Business and Professions Code sections 25500 and 25502.

Although these two prohibitions are often lumped together as “trade practice laws,” they are two separate restrictions meant to protect two separate public policy mandates.

Things of value, in the context of Business and Professions Code sections 25500 and 25502, are specific things given by suppliers to retailers to promote a supplier’s product being sold by a retailer and are specifically prohibited. These are commonly known as the tied house laws that support the general separation of the three tiers of manufacturers and distributors as suppliers and the third tier of the retailers which typically sell to consumers.

The prohibition for all licensees of giving premiums, gifts, or free goods in connection with the sale or distribution of alcohol, in the context of Business and Professions Code section 25600, is based in protecting consumers from aggressive marketing practices in the alcoholic beverage market. This prohibition is meant to protect consumers from being induced to drinking in excess through the giving away of alcoholic beverages or other desirable things.

Form ABC-273 must be completed and submitted to the local ABC office. This form is the application by a former licensee to sell their stock of alcoholic beverages. The form is needed to request permission to sell the stock of alcoholic beverages that remain in inventory once the ABC license is surrendered or canceled pursuant to Rule 65.

Reference: Rule 65 CCR

The governor’s executive order expands the relief afforded by Business and Professions Code section 24081, allowing licensees with licensed premises in the designated zip codes to temporarily relocate their licensed premises. The licensee may temporarily relocate to another location anywhere within Los Angeles County and may operate for up to 360 days without the need to transfer their license to that new location. Once you find an appropriate location, all you have to do is notify the department and you may commence operation immediately. There is no fee for this temporary relocation.

Once you notify ABC of your new temporary location, the information for your license in the public License Lookup system will be updated with the new address. Your license number will remain the same. This should be sufficient for your wholesaler to know that it may sell alcohol to you at this new premises. However, if the wholesaler has any question, they can contact the department at (916) 419-2500.

Business and Professions Code section 24082 and the governor’s executive order provide that a licensees with licensed premises in the designated zip codes may transfer their license to a new location within Los Angeles County without the payment of the normal premises-to-premises transfer. While the licensee could operate at this new location on a permanent basis, if the original premises is rebuilt, the license may be transferred back within 18 months of the initial transfer without the normal transfer fee (this only applies if the license has not been transferred to another person). This transfer could be done to either the temporary location or to a new location within Los Angeles County.

A premises-to-premises transfer application must be completed and submitted to ABC. This is required whether the transfer is to the same location that is being operated on a temporary basis or to a brand-new location. The department will conduct the same investigation that it normally conducts with respect to a premises-to-premises transfer. However, the governor’s executive order provides some relief that will streamline this process:

1. Although the Notice of Intention to Sell Alcoholic Beverages must still be posted at the proposed licensed premises pursuant to Business and Professions Code section 23985, the prohibition against selling alcoholic beverages for 30 days following such posting is suspended until January 30, 2026.
2. Business and Professions Code section 23987 is suspended until January 30, 2026 to the extent it prohibits issuing or transferring a license until at least 30 days after mailing the notices required by that section.
3. The department may issue an Interim Operating Permit (“IOP”) upon request even though no protest may have been filed against the application. The department must still make a preliminary determination that the license should issue, but this will be done in an expedited manner.

If your licensed premises has been destroyed or damaged in the fire, and you have relocated your licensed business, the governor’s executive order provides that annual renewal fees for licenses with renewal dates between January 1, 2025, and July 1, 2025, shall be deferred for a period of one year. In addition, any penalty fees for late payment of the annual fee shall be waived.