Current law imposes restrictions on the issuance of alcohol beverage licenses and permits and the interests that such licensees or permittees may hold in other licensees or permittees. For example, a Class “B” license may not be issued to a brewer or a beer wholesaler, and a beer wholesaler’s permit may not be issued to a brewer or Class “B” licensee. As another example, a manufacturer, rectifier, or winery may not hold any direct or indirect interest in any wholesale permit or establishment. Current law includes many similar provisions, which generally prohibit one type of licensee or permittee from having a direct or indirect interest in specified other types of licensees or permittees. DOR has promulgated a rule used to implement some of these statutory interest restrictions, which include definitions and examples of direct and indirect interests.

The bill modifies these existing interest restriction provisions. In general, the bill expands these provisions to explicitly apply to “cross-tier” interests, such as a beer wholesaler’s interest in a winery permit or a winery’s interest in a retail beer license. The bill also standardizes language among the various interest restriction provisions, partly by adopting the phrase “an interest in” rather than “a direct or indirect interest in” or “a direct or indirect ownership interest in” and partly by explicitly stating whether the interest restriction applies to retail licensees, retail permittees, beer wholesalers, liquor wholesalers, brewers, brewpubs, wineries, manufacturers and rectifiers, out-of-state beer shippers, and out-of-state liquor shippers. The bill also incorporates the new interest restriction exceptions discussed below. The bill further repeals the DOR rule that guides determinations relating to interest restrictions.

In addition to these changes to existing interest restriction provisions, the bill creates new provisions relating to interest restrictions and creates exceptions to interest restrictions. The bill specifies all of the following:

1. No production permittee may hold any interest in any distribution permittee or in any retail licensee or permittee, except as authorized under current law for a brewpub.

2. No distribution permittee may hold any interest in any retail licensee or permittee or any interest in any production permittee, with an exception for a beer wholesaler holding an interest in a brewer on July 1, 2011.

3. No retail licensee or permittee may hold any interest in any distribution permittee or in any production permittee, except as authorized under current law for a brewpub.

For purposes of these provisions, employment in a nonmanagerial capacity for an alcohol beverage licensee or permittee is not an interest in that licensee or permittee.

The bill defines a “production permittee” as a person holding a permit issued to a brewer, brewpub, manufacturer, rectifier, or winery; a brewer in another state that holds an out-of-state beer shipper’s permit; a manufacturer, rectifier, or winery in another state that holds an out-of-state liquor shipper’s permit; or a restricted individual of any such person. A “restricted individual” is an individual who 1) is identified on a manager’s license or who works or acts in a managerial capacity for an alcohol beverage permittee or licensee; 2) serves as an officer, director, member, manager, or agent of a corporation or limited liability company that holds an alcohol beverage permit or license; or 3) holds more than a 10 percent ownership interest in an alcohol beverage permittee or licensee. The bill defines a “distribution permittee” as a person holding a beer or liquor wholesaler’s permit or a restricted individual of such a person. The bill defines a “retail licensee or permittee” as a person holding a Class “A,” Class “B,” “Class A,” “Class B,” or “Class C” license, a Class “B” or “Class B” permit, or a no-sale event venue permit (discussed further below), or a restricted individual of any such person. The bill also defines a “restricted entity” as an entity holding more than a 10 percent ownership interest in an alcohol beverage permittee or licensee. The bill defines a “restricted investor” as a restricted individual or restricted entity.

The bill also specifies the following three situations, applicable to both new and existing interest restriction provisions under the bill, in which interests are explicitly authorized:

1. An alcohol beverage licensee or permittee may be owned in part by, or grant an ownership interest to, a restricted investor in a different tier if specified requirements are satisfied, including that no restricted investor holds more than a 10 percent ownership interest or is involved in day-to-day operations and the aggregate amount of ownership held by all restricted investors does not exceed 49 percent. Each restricted investor must execute an affidavit swearing to a lack of involvement in the day-to-day operations of the licensee or permittee. A restricted investor who materially violates a representation in the affidavit may be required to forfeit not more than $1,000.

2. An alcohol beverage licensee or permittee, or a restricted individual of a licensee or permittee, may enter into a landlordtenant relationship with another licensee or permittee operating in a different tier if specified requirements are satisfied, including that the landlord has no control over or day-to-day involvement in the business of the tenant.

3. A spouse may have an interest in the alcohol beverage license or permit of the other spouse if specified requirements are satisfied, including that the marriage is governed by a marital property agreement or prenuptial agreement and both spouses execute an affidavit swearing to a lack of involvement in the day-to-day operations of each respective business. A spouse who materially violates a representation in the affidavit may be required to forfeit not more than $1,000.

As discussed above, the bill also eliminates the authority of a winery to hold a retail license and provisions allowing this common interest.

Current law prohibits a brewer, brewpub, or beer wholesaler from furnishing anything of value to a Class “B” licensee, but there are numerous exceptions to this prohibition.

The bill creates an exception under which a brewer, brewpub, or beer wholesaler may enter into a landlordtenant relationship with a Class “B” licensee if the same requirements are satisfied that are referenced in item 2, above, relating to interest restrictions and landlord-tenant relationships.

The bill specifies authority for a brewer, brewpub, winery, manufacturer, or rectifier (producer) to produce alcohol beverages by means of contract production, alternating proprietorship, or licensing agreement and further specifies certain requirements for and consequences of such an arrangement. These arrangements must be established by written agreement, which generally may be entered into only by producers holding the same type of producer’s permit.

The bill defines “contract production” as a contract, agreement, or business arrangement whereby a recipe producer or out-of-state recipe supplier provides consideration to a contract producer for the production, bottling, or labeling of alcohol beverages. In a contract production arrangement, the “contract producer” manufactures, bottles, or labels the alcohol beverages, which are purchased from the contract producer by the “recipe producer” or “out-of-state recipe supplier.” A recipe producer, with an exception, holds the same type of Wisconsin permit as the contract producer, while an out-of-state recipe supplier is a person located in another state that produces alcohol beverages in that state.

The bill specifies that alcohol beverages produced under a contract production arrangement between a contract producer and recipe producer count toward the production volume of the recipe producer, except they may not be considered for purposes of determining a producer’s retail sales authority (discussed above). The recipe producer is considered the producer for purposes of taxation and reporting to the division.

The bill defines an “alternating proprietorship” as an arrangement in which a host producer provides use of space and equipment, and may additionally provide personnel, to a guest producer for the production of alcohol beverages. In this arrangement, a “host producer” provides its production facility to a “guest producer” for the guest producer to use to produce the guest producer’s alcohol beverages. The bill specifies that alcohol beverages produced under an alternating proprietorship count toward the production volume of the guest producer, and the guest producer is considered the producer for purposes of taxation and reporting to the division.

The bill defines a “licensing agreement” as an agreement between a licensor and a producer for the production of alcohol beverages containing the name, symbol, or mark of the licensor. A producer may enter into a written licensing agreement with a licensor authorizing the producer-licensee to use the licensor’s trademark or name if the producer-licensee is entirely responsible for producing the alcohol beverages and for all related processing steps and regulatory requirements.

The bill also specifies that a producer entering into a contract production arrangement, alternating proprietorship arrangement, or licensing agreement does not act as an agent for or in the employ of another with respect to certain provisions of current law.

The bill prohibits a common carrier from transporting or delivering alcohol beverages into or within this state, other than to an alcohol beverage licensee or permittee, unless the common carrier first obtains a permit from the division. This permit authorizes a common carrier only to transport or deliver into or within this state wine on behalf of a person holding a Wisconsin direct wine shipper’s permit, which generally may be an in-state or out-of-state winery, or on behalf of a person holding a fulfillment house permit (discussed below). A common carrier must pay an annual permit fee of $1,000. A common carrier that fails to obtain a permit prior to commencing delivery of alcohol beverages in this state is subject to a fine of not more than $10,000. A common carrier that ships alcohol beverages other than wine obtained from a direct wine shipper permittee or fulfillment house permittee is subject to a forfeiture of not more than $2,000, and the division must revoke the common carrier’s permit if the common carrier violates this prohibition in more than one month during a calendar year.

The bill also requires a common carrier that holds a common carrier permit to submit a monthly report to the division that includes all of the following information for each shipment of alcohol beverages during the preceding month: 1) the name and address of the manufacturer of the alcohol beverages; 2) the name and address of the consignor of the shipment, if different from the manufacturer; 3) the name and address of the consignee of the shipment; 4) the date of the shipment; 5) the type and quantity of alcohol beverages shipped to the consignee, as reported to the common carrier; and 6) the parcel tracking number for the shipment. The division must keep confidential the name and address of the consignee and the parcel tracking number, but other information in the reports is not confidential and is subject to the public records law. A common carrier required to submit reports under the bill must maintain for three years all records related to the reports. A common carrier that fails to submit a required report is subject to a forfeiture of not more than $2,000.