04/16/2019 01:30 PM Senate LABOR & COMMERCE

          SB 52-ALCOHOLIC BEVERAGE CONTROL; ALCOHOL REG                                                                     
                                                                                                                                
1:33:11 PM                                                                                                                    
CHAIR REINBOLD  announced that the first  order of business would                                                               
be SENATE BILL  NO. 52, "An Act  relating to alcoholic beverages;                                                               
relating  to the  regulation of  manufacturers,  wholesalers, and                                                               
retailers   of  alcoholic   beverages;   relating   to  licenses,                                                               
endorsements,   and   permits   involving  alcoholic   beverages;                                                               
relating  to  common carrier  approval  to  transport  or deliver                                                               
alcoholic beverages;  relating to the  Alcoholic Beverage Control                                                               
Board;  relating  to   offenses  involving  alcoholic  beverages;                                                               
amending  Rule 17(h),  Alaska Rules  of Minor  Offense Procedure;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
1:34:20 PM                                                                                                                    
SENATOR  COSTELLO moved  to  adopt  Amendment 7,  work  order 31-                                                               
LS0004\U.8, Bruce, 4/5/19:                                                                                                      
                                                                                                                                
                           AMENDMENT 7                                                                                        
                                                                                                                                
     Page 6, line 13:                                                                                                           
          Delete "At least 80 percent of each final product                                                                     
     that contains"                                                                                                             
          Insert "The fermentation process of all"                                                                              
                                                                                                                                
     Page 6, line 14:                                                                                                           
          Delete "be manufactured"                                                                                              
          Insert "occur"                                                                                                        
                                                                                                                                
     Page 6, line 20:                                                                                                           
          Delete "At least 80 percent of each final product                                                                     
     that contains"                                                                                                             
          Insert "The fermentation process of all"                                                                              
                                                                                                                                
     Page 6, line 21:                                                                                                           
          Delete "be manufactured"                                                                                              
          Insert "occur"                                                                                                        
                                                                                                                                
CHAIR REINBOLD objected for discussion purposes.                                                                                
                                                                                                                                
1:34:36 PM                                                                                                                    
SENATOR MICCICHE  said that  Amendment 7  would address  an issue                                                               
that arose  last year. He  stated that AS  04.09.020 (c) contains                                                               
language  that  defines  a  manufacturer  in Alaska.  This  would                                                               
clarify that  any business  in Alaska manufacturing  alcohol must                                                               
manufacture  the  alcoholic  product  in  Alaska  and not  simply                                                               
import  and  relabel it.  Federal  law  currently  prohibits this                                                               
activity,  but  state law  does  not.  This  would  protect small                                                               
business  owners  since  SB  52  clearly  defines  regulation  of                                                               
manufacturers  in  Alaska.  This  language  seeks  to to  protect                                                               
consumers who  want to purchase locally  made beverages. It would                                                               
also protect the limited  license system related to tasting rooms                                                               
from being monopolized  by large manufacturers.  It would close a                                                               
loophole allowing  a large manufacturer that  would otherwise not                                                               
be allowed to sell direct  to consumers, own a tasting room, or a                                                               
licensed premise  from creating a subsidiary  company and selling                                                               
the  parent company's  product  under a  subsidiary  name thereby                                                               
creating a "shell brewery."  These large outside companies desire                                                               
to take over the industry in Alaska, he said.                                                                                   
                                                                                                                                
1:37:56 PM                                                                                                                    
SENATOR  COSTELLO   asked  whether  industry   has  provided  any                                                               
negative response.                                                                                                              
                                                                                                                                
SENATOR MICCICHE  answered no. He  said that that  he worked with                                                               
industry on this language and has not had any opposition.                                                                       
                                                                                                                                
1:38:28 PM                                                                                                                    
SENATOR BIRCH asked  whether anyone in Alaska  brings in a barrel                                                               
of Everclear  grain alcohol  to use  as a  base. He  recalled his                                                               
relative  made  cranberry  liqueur  using  it. He  asked  whether                                                               
Amendment 7 would prevent  someone from making home liqueur as an                                                               
unintended consequence.                                                                                                         
                                                                                                                                
SENATOR  MICCICHE related  his  understanding  that manufacturers                                                               
use local materials,  but it was not  possible to ferment without                                                               
bringing  in some  products. That  was the  rationale for  the 80                                                               
percent  language, he  said. He  said that  spruce tip,  hops and                                                               
Mat-Su Valley grains  are used, but Alaska  is limited in what it                                                               
can grow due to its short growing season.                                                                                       
                                                                                                                                
1:40:03 PM                                                                                                                    
CHAIR  REINBOLD  expressed   concern  about  the  language,  "The                                                               
fermentation  process  of  all."  She  asked  whether this  would                                                               
adversely impact wineries or distilleries.                                                                                      
                                                                                                                                
SENATOR MICCICHE answered  that it would not.  He said this means                                                               
the  fermentation process  must  happen in  Alaska.  He explained                                                               
that it was difficult to  meet the 80 percent threshold. It would                                                               
free manufacturers  since it does not  limit where the businesses                                                               
purchase the raw materials.                                                                                                     
                                                                                                                                
1:41:25 PM                                                                                                                    
LEE ELLIS, President, Brewers  Guild of Alaska, Anchorage, stated                                                               
that  the industry  asked for  a language  change from  the 80/20                                                               
percent because  it is confusing to  determine. He explained that                                                               
fermentation  is the production  of alcohol.  He related  that 90                                                               
percent of the product  is water and the remaining percentage was                                                               
malt and  hops. Ingredients  like berries  and spruce  tips would                                                               
fall under  the Federal Drug  Administration (FDA).  He said that                                                               
the guild is very happy with this language.                                                                                     
                                                                                                                                
MR.  ELLIS  related   his  understanding  that  the  distilleries                                                               
retained the 80/20 language.  The federal Alcohol and Tobacco Tax                                                               
and Trade Bureau (TTB)  and FDA regulate the ingredients that can                                                               
be used, he said. He  did not believe that Amendment 7 would have                                                               
negative  consequences since  it more  clearly  defines who  is a                                                               
manufacturer.  Amendment  7 was  developed  because  a distillery                                                               
brought alcohol in from the  Lower 48, mixed in spices and resold                                                               
it as "Alaskan made."  He cautioned that if manufacturers are not                                                               
regulated that  issues arise  in managing the  three-tier system.                                                               
In  response  to  a   question,  he  stated  that  he  absolutely                                                               
supported  Amendment   1.  He   said  he  could   not  speak  for                                                               
distilleries  or wineries,  but it  will  work for  breweries. He                                                               
related  that   distilleries  sometimes   import  wash   for  the                                                               
distillation  process, so  distilleries chose  to keep  the 80/20                                                               
ratio.                                                                                                                          
                                                                                                                                
1:44:49 PM                                                                                                                    
CHAIR REINBOLD removed her objection.                                                                                           
                                                                                                                                
1:45:18 PM                                                                                                                    
SENATOR BISHOP  reviewed the fiscal  note from  the Department of                                                               
Commerce,  Community and  Economic Development  (DCCED), Division                                                               
of  Corporations, Businesses,  and Professional  Licensing (CBPL)                                                               
zero  fiscal  note  prepared  by  Sara  Chambers.  The Office  of                                                               
Management  and  Budget (OMB)  component  is  2360,  he  said. He                                                               
reviewed the fiscal analysis:                                                                                                   
                                                                                                                                
     SB 52  modifies the exemption from  the Alaska business                                                                    
     licensing  requirement for  businesses  that  sell only                                                                    
     liquor to  reflect the updated  statutory reference. If                                                                    
     the  business  sells anything  in  addition  to liquor,                                                                    
     they  would be  required to  obtain an  Alaska business                                                                    
     license.                                                                                                                   
                                                                                                                                
     There is  no anticipated fiscal impact  to the Division                                                                    
     of Corporations,  Business, and Professional Licensing.                                                                    
     Business  licensing  fees are  set  per  AS  43.70, and                                                                    
     revenue  in  excess  of  authorized  budgeted  expenses                                                                    
     revert to the State of Alaska general fund.                                                                                
                                                                                                                                
1:46:21 PM                                                                                                                    
CHAIR REINBOLD  asked to put  on the record that  she was working                                                               
with the sponsor and the  Department of Law. Some changes will be                                                               
requested  during  the next  committee  of  referral,  the Senate                                                               
Judiciary Committee.  She noted  that the Legislative  Budget and                                                               
Audit Division  had several suggestions.  She would  also like to                                                               
resolve winery license fees for the half dozen wineries.                                                                        
                                                                                                                                
1:48:56 PM                                                                                                                    
ANNA  BRAWLEY,   Title  4  Project   Review  Coordinator,  Senior                                                               
Associate, Agnew Beck Consulting, Anchorage, echoed her thanks.                                                                 
                                                                                                                              
1:49:07 PM                                                                                                                    
TIFFANY  HALL,  Executive  Director,  Recover Alaska,  Anchorage,                                                               
expressed her sincere thanks to the committee.                                                                                  
                                                                                                                                
1:49:40 PM                                                                                                                    
ERIKA MCCONNELL,  Director, Alcohol and  Marijuana Control Office                                                               
(AMCO), Anchorage, echoed her thanks.                                                                                           
                                                                                                                                
1:50:04 PM                                                                                                                    
SENATOR BIRCH  said he was  supportive of passing  a similar bill                                                               
last year. He said thousands  of hours have been put forth by the                                                               
public, the industry  and stakeholders. He said  this bill cuts a                                                               
fine balance and was a good and positive step forward.                                                                          
                                                                                                                                
1:51:02 PM                                                                                                                    
SENATOR BISHOP asked whether this bill would raise new revenue.                                                                 
                                                                                                                                
SENATOR MICCICHE  agreed it  would raise  revenue, most  of which                                                               
would be put  towards better management of  alcohol sales and the                                                               
impacts of alcohol in Alaska.                                                                                                   
                                                                                                                                
SENATOR  BISHOP asked  whether the  state would  start recovering                                                               
some of the funds from internet sales.                                                                                          
                                                                                                                                
SENATOR MICCICHE  agreed that it  has a positive  fiscal note. He                                                               
related that  he began  working on  the bill because  alcohol was                                                               
about 95  percent of the  adverse substance abuse  problem in the                                                               
state.                                                                                                                          
                                                                                                                                
SENATOR BISHOP thanked the sponsor and staff.                                                                                   
                                                                                                                                
CHAIR  REINBOLD thanked  Senator  Costello  for her  work  on the                                                               
committee.                                                                                                                      
                                                                                                                                
1:53:01 PM                                                                                                                    
SENATOR COSTELLO  moved to report SB  52, Version 31-LS0004\U, as                                                               
amended,  from  committee  with  individual  recommendations  and                                                               
attached  fiscal note(s).  There being  no objection,  the CSSB52                                                               
(L&C) was  reported from the  Senate Labor  and Commerce Standing                                                               
Committee.                                                                                                                      
                                                                                                                                
1:53:25 PM                                                                                                                    
At-ease.