Three Tiers for California

By Daniel Hayes and Aaron Wais

Last week, California’s tied-house law – the Alcoholic Beverages Control Act (Bus. & Prof. Code §§ 23000, et seq.) – withstood a hard-fought First Amendment challenge.  In Retail Digital Network v. Prieto, the Ninth Circuit Court of Appeals was asked to decide whether Business and Professions Code § 25503(h) – which prevents manufacturers and wholesalers from paying money or giving anything of value to a retailer for advertising their alcoholic beverages – is an unconstitutional restriction on commercial speech.  The Court decided 8-1 that it is not:  “Section 25503(h) serves the important and narrowly tailored function of preventing manufacturers and wholesalers from exerting undue and undetectable influence over retailers.  Without such a provision, retailers and wholesalers could side-step the triple-tiered distribution scheme by concealing illicit payments under the guise of ‘advertising’ payments.”  The bottom line?  The barriers between the three tiers of alcohol distribution (manufacture, wholesale, and retail) set by the Golden State remain firmly intact. If you have any questions on the decision or how it affects your business, please contact us.

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