A common misconception of new winery operators is the interplay between Federal and State laws.  Here in California, we have a fairly comprehensive law that is prohibitory in nature.  In short, the California ABC Act essentially says “You can’t do it, unless you have express permission.”

Depending on what part of the State (of California) a winery will operate in, getting approval to open a winery from the various state and local governments can be as simple as filling out the appropriate ABC forms or extremely cumbersome and costly requiring tens of thousands of dollars and multiple rounds of approval from County Governments (e.g. Riverside county).

Two sets of laws impact the (1) manufacture and (2) sale of alcoholic beverages in the State of California.  These laws are the Federal tax, labeling and advertising laws (i.e. Internal Revenue Code Section 51 (Distilled Spirits, Wine and Beer), Federal Alcohol Administration Act (27 USC, Chapter 8), and State laws regulating the manufacture, sale, purchase, possession and transportation of alcoholic beverages within the State.

Federal Law

Prior to enactment of the 18th Amendment, the manufacture, sale and transportation of alcoholic beverages was regulated by the States.  In October 1919, Congress enacted the 18th Amendment, after its ratification by 38 of the 48 States in January 1919.  The 18th Amendment (known as the National Prohibition Act of 1920) reads as follows:

Section 1. After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.

Section 2. The Congress and the several states shall have concurrent power to enforce this article by appropriate legislation.

Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of the several states, as provided in the Constitution, within seven years from the date of the submission hereof to the states by the Congress.

The 21st Amendment to the U.S. Constitution was adopted on December 5, 1933.  The 21st Amendment repealed the 18th Amendment and reads as follows:

Section 1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.

Section 2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.

Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.

The effect of the 21st Amendment was to merely give back to the States the right to legislate and control the manufacture and sale of alcoholic beverages.  The Court in Hayes v. U.S. 112 F.2d 417, 421 -422 (C.A.10 1940), recognized this principal:

Furthermore, under the Twenty-First Amendment a state may wholly prohibit the transportation or importation of intoxicating liquors thereinto, or it may forbid all importations which do not comply with the conditions which it prescribes, regardless of how it may deal with or regulate the transportation of the intoxicating liquor within its boundaries, without violating the equal protection clause of the Fourteenth Amendment. ‘A classification recognized by the Twenty-First Amendment cannot be deemed forbidden by the Fourteenth.‘

The power of a state to prohibit the manufacture and transportation of intoxicating liquor within its boundaries is well settled. …

It has long been recognized that in order for states to effectively enforce their prohibitory laws, they must have protection against importation thereinto from states where the manufacture, sale, and transportation of intoxicating liquor is lawful. The Twenty-First Amendment is an additional recognition of this need. Section 2 thereof provides: ‘The transportation or importation into any State, * * * of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.‘

The U.S. Government has enacted federal laws aimed at the collection of excise taxes on alcohol and regulation of labeling and advertising of alcoholic beverages.  The TTB (Alcohol and Tobacco Tax and Trade Bureau) is the enforcement body and issues “Basic Permits” and collects the Federal excise taxes.  The TTB’s website summarizes its mission[1] as follows:

Because the repeal of the 18th Amendment and the enactment of subsequent alcohol related laws by the U.S. Government did not “preempt” the rights of the states to regulate the manufacture and sale of alcohol within their borders, there are now two sets of laws that must be complied with by alcohol producers.

State Law

The California Constitution gives the state exclusive power to license and regulate the manufacture, sale, possession, and transportation of liquor, subject to federal laws (Cal. Const., Art. XX, §22).  Section 22 of Article XX of the Constitution of the State of California provides in relevant part:

Sec. 22. The State of California, subject to the internal revenue laws of the United States, shall have the exclusive right and power to license and regulate the manufacture, sale, purchase, possession and transportation of alcoholic beverages within the State, and subject to the laws of the United States regulating commerce between foreign nations and among the states shall have the exclusive right and power to regulate the importation into and exportation from the State, of alcoholic beverages. In the exercise of these rights and powers, the Legislature shall not constitute the State or any agency thereof a manufacturer or seller of alcoholic beverages.

The Department of Alcoholic Beverage Control shall have the exclusive power, except as herein provided and in accordance with laws enacted by the Legislature, to license the manufacture, importation and sale of alcoholic beverages in this State, and to collect license fees or occupation taxes on account thereof. The department shall have the power, in its discretion, to deny, suspend or revoke any specific alcoholic beverages license if it shall determine for good cause that the granting or continuance of such license would be contrary to public welfare or morals, or that a person seeking or holding a license has violated any law prohibiting conduct involving moral turpitude. It shall be unlawful for any person other than a licensee of said department to manufacture, import or sell alcoholic beverages in this State.

With regard to wineries, Section 23013 of the California Business and Professions code, is the operative section and provides:

Any manufacturer's or Winegrower's license authorizes the person to whom it is issued to become a manufacturer or producer of the alcoholic beverage specified in the license, and to do any of the following:

(a) Whether manufactured or produced by him or her or any other person, to package, rectify, mix, flavor, color, label, and export the alcoholic beverage specified in the license.

(b) To sell only those alcoholic beverages as are packaged by or for him or her only to persons holding wholesaler's, manufacturer's, Winegrower's, manufacturer's agent's, or rectifier's licenses authorizing the sale of those alcoholic beverages and to persons who take delivery of those alcoholic beverages within this state for delivery or use without the state.(c) To deal in warehouse receipts for the alcoholic beverage specified in the license.

The bottom line is both Federal and State law much be complied with.  A basic permit issued by the TTB is required under current Federal law; likewise a Type 02 License is also required under State law.