California lawmakers have introduced a bill that would allow wine and beer retailers to sell spirits-based, ready-to-drink (RTD) beverages that are lower than 10% ABV and in containers no larger than 16 oz.
The new bill (S.B. 277), introduced by Sen. Bill Dodd on Feb 1, could potentially grant wider market access for spirits-based RTDs, and is one of a number of state-level efforts by the spirits industry to lower taxes and create more distribution channels for the hot category. Like many states, California grocery and convenience stores require a unique license to sell spirits-based RTDs. As a result, beer- and wine-based RTDs are sold in more than 28,000 locations in the Golden State, while spirits-based RTDs are sold in about half as many outlets, according to the Distilled Spirits Council of the United States (DISCUS).
“The ready-to-drink market is booming, and with new innovation comes new opportunities to look at and update our laws,” Adam Smith, vice president of government relations at DISCUS, said in a statement.
Last year, all eyes were on California’s other spirits-related bill, S.B. 620, which would allow distillers to ship directly to consumers in California— although this now-stalled latest iteration came with significant caveats.
Since the growth of RTDs began heating up the battle for the coldbox, similar tax bills have been introduced across the country. The RTD category value is expected to increase by an additional $11.6 billion over the next five years, and the number of spirit-based SKUs on the market in the U.S. has risen by approximately 70% between 2020 and 2022, according to drinks data company IWSR.
The results of those efforts so far have been mixed. In 2022, similar bills were defeated or stalled in Alabama, Arizona, Hawaii, Kentucky, Maryland, Washington and West Virginia. In 2021, tax reductions for spirits-based RTDS were signed into law in Michigan and Nebraska. Last year, a new Vermont law also lowered state excise tax on spirits-based RTDs and allowed for wider distribution. Cocktails less than 12% ABV and in containers with fewer than 24 oz. can also now be sold at Vermont beer and wine stores, in contrast to their full spirit counterparts, which can only be sold in state-run liquor stores.
DISCUS has expressed its commitment to bring new tax rates to at least 10 states in 2023, including some where previous efforts were defeated. The argument over how spirits-RTDs are taxed compared to malt-based alternatives came to a head late last year when a study analyzing sales in Nebraska and Michigan claimed decreased excise tax rates for spirits-based RTDs have cost consumers more.
The spirits industry group and representatives of the beer industry also faced off in January while testifying for and against a North Dakota bill that would reduce the tax rate on spirits-based RTDs from the current rate of $2.50 per gallon to $0.60 per gallon. The Beer Institute (BI) released a statement today praising the North Dakota House of Representatives for rejecting the legislation.
“We are pleased the North Dakota House rejected HB 1303, which would have arbitrarily reclassified liquor products as wine to reduce their tax rate – blurring the lines between distinctly different alcohol categories,” Brian Crawford, president and CEO of the BI. “Legislators were wise to reject this handout for big liquor – saving significant tax revenue while protecting North Dakotan brewers, agricultural suppliers and consumers. We also know from the experience in Nebraska and Michigan, where similar legislation was enacted in 2021, that these tax cuts don’t result in lower prices for consumers at the store.”