MINUTES OF THE ASSEMBLY COMMITTEE ON COMMERCE Sixty-eighth Session May 31, 1995 The Committee on Commerce was called to order at 3:38 p.m., on Wednesday, May 31, 1995, by the presiding Chairman, Larry Spitler, in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda, Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Larry L. Spitler, Chairman Ms. Sandra Tiffany, Chairman Ms. Maureen E. Brower, Vice Chairman Mr. Richard Perkins, Vice Chairman Mr. Dennis L. Allard Mr. Morse Arberry, Jr. Ms. Barbara E. Buckley Mr. Thomas A. Fettic Ms. Chris Giunchigliani Mr. Lynn Hettrick Mr. David E. Humke COMMITTEE MEMBERS EXCUSED: Mr. Michael A. (Mike) Schneider GUEST LEGISLATORS PRESENT: Assemblyman Pete Ernaut, Assembly District 37 STAFF MEMBERS PRESENT: Paul Mouritsen, Research Analyst OTHERS PRESENT: Sharon Shaffer, State Board of Funeral Directors, Embalmers, Operators of Cemeteries and Crematories Bob Auer, Deputy Attorney General Harvey Whittemore, Nevada Beer Wholesalers Randy Peraldo, Nevada Beer Wholesalers Dick Murray, Self Robert Morin, Great Basin Research Institute J. Holmes Armstead, Great Basin Research Institute Sydney Abrams, Wine Institute Tommy Almquist, Big Dog's Hospitality Group Bob Barengo, Distilled Spirits Council Monita Fontaine, Distilled Spirits Council Billy Vassiliadis, Nevada Resort Association Ray Vega, Vega Enterprises Doug Dickerson, City of Las Vegas Redevelopment Agency Curt Brown, Capital Beverages, Carson City David Howard, Reno/Sparks Chamber of Commerce Following roll call, Chairman Spitler opened the hearing on Senate Bill 355. SENATE BILL 355 - Makes various changes to provisions relating to disposition of dead human bodies. The Chairman of the State Board of Funeral Directors, Embalmers, Operators of Cemeteries and Crematories, Sharon Shaffer, along with Bob Auer, Deputy Attorney General, came forward to offer opening testimony in support of S.B. 355. Ms. Shaffer offered a copy of her written comments (Exhibit C) and read her testimony into the record. She also offered a letter written to her from Palm Mortuaries and Cemeteries dated May 30, 1995 (Exhibit D), for entry into the record. Referring to page 1, line 16, Mr. Arberry questioned the language, "The fee shall not exceed $300." Was there one fee that would be established for all funeral establishments? Ms. Shaffer answered there would be one fee, and this would be set by regulation. With no further questions from the committee and no additional testimony forthcoming, Chairman Spitler closed the hearing on S.B. 355 and opened the hearing on A.B. 594. ASSEMBLY BILL 594 - Revises provisions relating to sale of alcoholic beverages. Opening the testimony, the bill's prime sponsor, Assemblyman Pete Ernaut, Assembly District 37, claimed the bill had garnered a great deal of misinformation; however, this was a bill of compromise, entered into by both sides of the question. Assemblyman Ernaut then went on to trace previous efforts to further such legislation. Ultimately, he said, it was his endeavor to bring the various entities together to compose language acceptable to everyone. He spoke philosophically on the nature of compromise and recalled then-Assemblyman Lou Bergevine had once remarked, "If everybody walks out of the room relatively unhappy, you've got a pretty darned good deal." A.B. 594 was difficult. It was a bill that gave everybody a little and nobody all, according to Assemblyman Ernaut. The two main directions of the bill were: 1) Brew pub deregulation; and 2) defining existing "good cause" language regarding the wholesaling of beer. Seemingly these two things were incongruent, Assemblyman Ernaut stated. The question was: Who was most affected by the proliferation of brew pubs? Obviously, Assemblyman Ernaut pointed out, it was the beer wholesalers. As for why, he explained there was a three-tiered liquor distribution system: 1) Suppliers, 2) wholesalers and 3) retailers. Currently, an entity could be only one of these -- not a combination thereof, i.e., a supplier could not be a retailer, etc. This had been so organized for a number of reasons, he said. First, taxes. With a three-tiered system, the state could gauge the flow of liquor from one point to the next. Also with the three-tiered system, the major brands were each manufactured by one specific brewer, who had an agreement with the wholesaler to distribute their product to the retailer (bars, grocery stores, etc.). The proliferation of brew pubs effectively created an additional brand. While one brew pub itself would not impact the system greatly, when an ever-increasing number was considered, there was a competition against the existing three-tiered liquor system created. While Assemblyman Ernaut did not state this was "bad," he said his aim with A.B. 594 was to take an incremental step towards a completely deregulated brew pub system. He did not believe a totally free enterprise system could operate against a heavily regulated system, as was currently occurring. If the entire brew pub industry, being considered as a whole, was placed in direct competition with existing beer wholesalers, the fact that the brew pub was both a manufacturer and a retailer placed the rest of the industry at a tremendous disadvantage. He acknowledged some people disagreed with this premise. Assemblyman Ernaut indicated the barrelage thresholds in the bill would allow Clark County to increase to 10,000 barrels upon enactment of A.B. 594, and to 15,000 barrels in January 1, 1997; and A.B. 594 would allow the brew pubs to incrementally be placed in resort hotels. If in Clark County such establishments as MGM, the proposed New York/New York and all the Circus properties, installed brew pubs with a threshold of nearly 15,000 barrels a year, a very significant competition would be created. The question was, what should be done by a public policy setting body to compensate one heavily regulated market in direct competition with a market not subject to the rules. This was why the "good cause" legislation was created and defined in A.B. 594. Turning to Section 9 of the bill, page 3, line 35, Assemblyman Ernaut opined there was considerable misunderstanding of "good cause" legislation. Simply put, "good cause" said that a beer supplier could not revoke the franchise of a beer wholesaler without "good cause," and "good cause" only (and merely) allowed that wholesaler to remedy the cause by which he was having his franchise revoked within 60 days. There were, however, some exceptions to the 60-day provision by which a person did not have to go through "good cause" to take the franchise away from the wholesaler. He brought attention to page 4, where the exceptions were listed. These were appropriate reasons why a supplier should be able to revoke a wholesalers license, Assemblyman Ernaut remarked. Focusing on page 4, line 31, Assemblyman Ernaut said some wholesalers had the misconception that if they were a small manufacturer, and the wholesaler decided to let their product set on the shelf, their remedy against the wholesaler had been taken away. The language on page 4, line 31, provided that this was simply not true, Mr. Ernaut stated. Currently, a brew pub was allowed in a historic or redeveloped area. This had been done to provide an incentive for people to patronize the historical and redeveloped areas. Explaining the 200-room provision, Assemblyman Ernaut said they wanted to direct certain cliental/patrons to specific areas, i.e., the gaming corridors, and this appeared to be the logical first step in deregulating the brew pub industry. Obviously, he said, the lifeblood of the state of Nevada was gaming, providing 65 percent of the taxes. This industry was in a constant state of competition, and Assemblyman Ernaut believed it was only logical to provide them with the first choice of refining and perfecting the industry and providing it a competitive edge to gaming abroad. While he said he did not intend to go through the bill section by section, he did draw attention to page 6, line 10. In Clark County, he pointed out -- counties over 400,000 -- the barrelage threshold would be 10,000 for 1996, and this increased to 15,000 in January 1997. Section 19 amplified Section 17, Assemblyman Ernaut explained. In Washoe County, i.e., counties with a population between 100,000 and 400,000 -- the barrelage threshold would be 5,000. Currently, the only existing brew pub in Washoe County was at approximately 2,000 barrels, so he believed this was a legitimate cap. In the rural counties, since there were no large resort hotels, a brew pub in a historical redevelopment area, or any place in a rural county, the threshold could go to 3,000 barrelage, with approval by the County Commission. Finally, Assemblyman Ernaut cautioned the committee they were looking at 85 years of liquor law, and he asked the committee to be careful and not create a market of free enterprise that was allowed to compete against a heavily regulated, standardized market. Also testifying in support of A.B. 594, K. Eugene Shutler, Executive Vice President and General Counsel for MGM Grand, Inc., said the MGM and their joint venture company, New York/New York, believed brew pubs were a desirable addition to the variety of entertainment provided to their resort customers. These varieties needed to continue to change and grow as time went on, he stated. He acknowledged the popularity of brew pubs, and because of this popularity, said he wished to participate in it. A.B. 594 would assist the tourism business, and this business needed to continue to grow to allow the Nevada economy to continue to prosper. Harvey Whittemore, partner with Lionel, Sawyer and Collins, and representing the Nevada Beer Wholesalers, introduced the President of the Nevada Beer Wholesalers, Randy Peraldo. Mr. Peraldo read into the record his statement in support of A.B. 594. He told the committee his was one of eleven beer wholesalers throughout the state, and maintained the wholesalers played an important role in the safe and controlled distribution of alcohol. Allowing brew pubs to operate outside the well established regulatory atmosphere, while forcing the wholesaler to function under the strict regulations of a long-standing system, placed the wholesaler on an uneven playing field, and threatened the beer industry and the wholesalers' livelihood. After opening remarks revealing his legal firm had been involved in provisions affecting the sale of alcoholic beverages since 1978, Mr. Whittemore said he had been involved in every piece of legislation on one side or the other with respect to the issue. He revealed in 1987 he was on opposite sides of the beer wholesalers with respect to the issue, and added, "... in fact, opposing legislation which was similar in at least a portion of the context of this bill, and I wanted to get that on the record so there's no mistake about that. As lawyers we believe that our job is advocacy, and we believe that we try to do a good job on behalf of our client." With respect to the bill, Mr. Whittemore reiterated some of the remarks made earlier by Assemblyman Ernaut. He pointed out, "... Again, individuals who are opposing A.B. 594, in the present context, suggesting that the brew pub area should be opened up -- I will get this out on the record and not make anything else of it -- back in 1993 individuals who have been suggesting that this bill is a special piece of legislation -- in fact the Big Dog Hospitality Group, in 1993 suggested that before you did anything with respect to this legislation, there should be a period of five or six years before you opened up competition. Again, we know of no party who wants brew pub legislation that opposes this. In fact, as Assemblyman Ernaut ... will testify in response to questions, there's other individuals and there's an amendment which he will propose, that will clarify the difference between breweries and brew pubs." Speaking to the policy issues expressed in A.B. 594, Mr. Whittemore said the bill established: - Section 1: Defined differences between brew pub and brewery, with no limitation on breweries in the state of Nevada. The intention of the bill was to expand the areas in which brew pubs could operate. The beer wholesalers believed they were giving up a very strong right under the existing three- tiered system, that said only the state of Nevada could establish, regulate and control the alcoholic beverage market in the state. Mr. Whittemore pointed out there might be allegations made that the Legislature would violate the federal anti-trust law, or a 1977 U.S. Supreme Court case, and this, he stated, was absolutely not true. He acknowledged it could potentially be a subject for litigation, but there was a severability provision read into every bill wherein a particular provision which proved to be unconstitutional did not impact the rest of the bill. - Section 3, subsection (g) and (h): Subsection (g) set up a lien provision which said, those individuals who failed to pay their bill for 60 days, or reconstituted themselves as a new partnership, had to pay their bill before the wholesaler sold them any more liquor. Mr. Whittemore suggested there were many ways to achieve this objective, and he would be happy to work with the committee on language which created either a bond mechanism or any other proposal to make a buyer pay for the product. - Section 8: The retailers had taken exception to the provisions on page 2, lines 40 and 43 dealing with the terms of payment. Section 8 merely stated that new retail liquor stores (except gaming licensees and all retail liquor stores in existence before October 1, 1995) would be exempt. Mr. Whittemore explained all states bordering Nevada, except California, had a cash system. The wholesalers, he said, paid within five days of receiving the product. This section also contained a reach-back provision which prohibited a unilateral increase in price after a wholesaler had previously paid for the liquor. Mr. Whittemore declared this was a strong policy statement that no one should have the unilateral right to reach back into someone's profit. - Section 4 through 13: The "heart" of the bill with respect to the "good cause" provision. - Section 9: Explained by Assemblyman Ernaut. - Section 10: Defined wholesaler Mr. Whittemore briefly touched on the main force of the remaining sections of the bill, and pointed out the underlying three-tiered system in Nevada was unique in terms of the prominence of the sale of alcoholic beverages in the state, and that there were only two metropolitan areas. Also speaking in favor of the bill, and representing the Nevada Resort Association, Billy Vassiliadis said in his experience the resort industry had always sought to be competitive, and to obtain more attractions in the interest of drawing more tourists. Brew pubs were one of those new attractions, and Mr. Vassiliadis said for that reason, the resort industry wish to have brew pubs on their properties. Also representing the Resort Association, Greg Ferarro indicated they felt this was consistent with the state's Legislative expression since 1979 when the brew pub exemption for historical districts was enacted to create and enhance traffic in certain areas. Also, he wished to point out after the 1993 Session, the Nevada Resort Association had directed a Legislative agenda to include seeking brew pub legislation. With Assemblyman Ernaut they had worked together to derive a piece of compromise legislation. Returning to testify, Assemblyman Ernaut drew attention to page 1, line 17. He proposed an amendment to omit subsection 7. There was a desire, he stated, to allow existing brew pubs to grow in the brewery area. Assemblyman Ernaut further clarified the difference between breweries and brew pubs. Also, for existing brew pubs, a growth factor had been added which would allow a brew pub to manufacture off-site and distribute as a brewery to local bars and grocery stores. Thus, the stipulation they could not hold a brewer's license and a brew pub license at the same time was erroneous and should be deleted from the bill. Ms. Tiffany asked Randy Peraldo to better explain his reference to "heavy regulation" and how he distinguished that from a brew pub which would not be regulated. In response, Mr. Peraldo said one difference was in the way taxes were collected. Depending on inventory levels being carried at any particular time, state taxes were paid at the beginning of the month following a purchase, and in this way, 30 to 40 days inventory could be on hand. There were instances when an account simply walked away from a bill, and when this occurred, the wholesaler, who had already paid taxes on those goods, had no recourse for either the taxes which had been paid or for the beer itself. Mr. Whittemore interjected the restrictions Ms. Tiffany appeared to be concerned about were contained in NRS 369.485 dealing with special taxes, and NRS 597 dealing with vertical integration. Mr. Whittemore gave examples of the manner in which these restrictions operated. Ms. Tiffany also asked whether there was a difference between the wholesaler and the brew pub in respect to taxes, compliance reports, audits, Health Department requirements, federal mandates, etc. Mr. Peraldo answered their industry regulations tracked not only the gallonage brought into the state, but there were also other tracking brew pubs were exempt from. Ms. Tiffany questioned if it was the wholesalers' recommendation to also place brew pubs within those compliance provisions. Mr. Peraldo believed it might be difficult to determine brew pub gallonage, depending on the number of brew pubs. Assemblyman Ernaut pointed out that brew pubs, minus the three-tiered system, combined the manufacture and retail operations, which meant there was no check and balance between how much was produced and how much was sold. Thus, he was not certain how accurate reports on gallonage could adequately be obtained, and this made the payment of taxes very difficult. Discussing "good cause," Ms. Tiffany asked Mr. Peraldo if his contract with Budweiser Anheuser/Busch provided him any protection. Although Mr. Peraldo said his company had an agreement with Anheuser/Busch, they would prefer a statutory agreement, not simply for Anheuser/Bush, but for other suppliers represented. As for a contractual protection, Mr. Peraldo said it was similar to what was written in A.B. 594 -- an equity agreement and "good cause." He said if there was a discrepancy it had to be shown they were not performing up to a certain level, and in the beer industry, this was a typical contract. Ms. Brower questioned the language of Section 3, lines 46 through 48, and wondered about the logic of a buyer being required to assume the liquor debts of a seller. Mr. Whittemore answered that currently a supplier could not sell liquor to a retail liquor store that was delinquent in payments unless paid in cash. Therefore, if credit terms were established under subsection (f) (lines 44 and 45), there was no way to recover the delinquent portion from an unscrupulous operator without a bond or lien provision. Ms. Brower believed this was ordinarily a matter which was worked out between the buyer and the seller, rather than putting the buyer immediately on a cash basis. She also questioned subsection (h), page 3, lines 1 through 6, and ascertained that the standard industry practice was to require cash until credit terms were established. Mr. Wittemore assured Ms. Brower this section was not unusual, and, in fact, Nevada had one of the most liberal credit policies in the 50 states. Paying after the 10th day of the following month was very liberal. He suggested this was "really no burden." Mr. Whittemore introduced, for the record, the Executive Committee of the Nevada Beer Wholesalers, John Morrey, President of Morrie Distributing Company in Sparks, Mike Rikard, General Manager of Nevada Beverage Company, Bill Giackotsis, Vice President of Bonanza Beverage, and Bob Rosevear, Controller of Black Distributing. Questioning the policy toward a new business owner, Mr. Arberry asked if the wholesaler would be willing to make deliveries every other day based on an individual's cash flow. Mr. Peraldo replied it depended on the wholesaler. While they were definitely in a service industry, the wholesaler accommodated those retailers in as much as it was affordable. He assured Mr. Arberry his suppliers were paid by electronic transfer, and if there were no funds available, no beer was received. Mr. Arberry stated his question was more, one of frequency. Mr. Peraldo said they looked for the long-term growth of the retailer, and part of their service was to help the retailer grow. However, if the retailer was located at a great distance, it was cost prohibitive to send a regular delivery truck for every-other-day deliveries. In these instances, "hotshot" trucks were sent with a small load for quick delivery. Mr. Arberry also questioned the term "cash." Did this really mean "cash" or were other means of payment possible? Mr. Whittemore pointed out there was existing language on page 2, lines 30 to 32, which set forth payment by cash, money order, certified check, cashier's or similar bank officer's check. Assemblyman Ernaut believed, in reality, the supplier and the retailer would set up some form of voucher system in order for supplies to be delivered when needed. Mr. Whittemore believed Mr. Arberry's point was well taken, and there needed to be something added to the bill to allow payment, perhaps, by personal check. Ms. Buckley questioned why the state should not allow brew pubs, casinos and any other type of liquor establishment proposed by an entrepenuer. Was this the wholesalers' fear of competition and erosion of the three-tiered system currently in place? It was her observation there were different customers for different locations. Why was it viewed so competitive? Mr. Whittemore reiterated comments regarding an unregulated entity competing with a heavily regulated three-tiered system. He maintained this would create a balance, and questioned why the resort industry should, "... bring in the tourists, pay the room tax, stay in the hotel, take the elevator down, walk out to the street, walk across the street into the brew pub, and their money be given to the individuals opening these brew pubs, taking the cream. You're letting people siphon off the cream." Mr. Allard asked if under current law a wholesaler could charge a retailer on a COD basis. Mr. Peraldo said, "yes." Why was the provision needed, then, Mr. Allard inquired. Mr. Whittemore interjected this could be considered "collusion," and therefore, a violation of the anti-trust laws. Calling attention to the language on page 4, line 20, dealing with the different ways a supplier could terminate a franchise, Mr. Allard asked the consequences of a supplier finding that one of his wholesalers was selling to a retailer who, in turn, had more than one store in different marketing areas. In answer, Mr. Peraldo indicated their equity agreements set out the responsibilities for their territory. If beer was trans-shipped to another territory, a tracking system alerted the wholesaler to the retailer's sudden increase in purchases; and this was a violation of the agreement. Mr. Allard also said he had received a letter suggesting that possibly the definition of "beverage" could include wine. He asked if there was any kind of wine containing "malt." Mr. Whittemore said the provision of the "malt" beverage seen in the bill, was taken from NRS 369, but he was not aware of any wine falling into this category. Ms. Giunchigliani noted she could not find a statutory definition of "good cause." Mr. Whittemore agreed. He said the "good cause" provision was originally proposed in S.B. 458 in 1973 or 1975, and this had been removed. Since then there was a judicial decision defining "good cause," which said suppliers could not terminate an individual for an arbitrary, irrational or other than a business purpose; however, this decision was not as complete as the provisions in A.B. 594. Ms. Giunchigliani asked if the intent of the language was to overturn a court ruling or to expand that court ruling. Mr. Whittemore opined this was to codify and, perhaps, amplify the definition. Ms. Giunchigliani asked Mr. Whittemore to provide the language of the Seagrams decision as opposed to the language in the bill. She also wished to see a typical contract which was negotiated between the supplier and the wholesaler or the wholesaler and retailer. Mr. Whittemore said many of the contracts were oral. As for the wholesaler/retailer relationship, there was no way to terminate except for delinquent payment. Referring to Assemblyman Ernaut's mention of "free enterprise," Ms. Giunchigliani said if "free enterprise" was the goal of the Resort Association, what harm would it do to make it a fully open process for proper competition. Assemblyman Ernaut responded they were not talking about "free enterprise." The three-tiered system was a "hybrid" market, and had nothing to do with "free enterprise" whatsoever. Also, in the bill were reach back provisions. He reiterated previous testimony showing the allowance of brew pubs, in effect, opened an entity enjoying almost no regulation, while competing with other heavily regulated entities. Initially, this was of little consequence because brew pubs were allowed only in historic or redeveloped areas. In order to open the brew pub industry to certain qualifying sites, regulations would be placed on the brew pub which would put in place a more even playing field. If the bill was seen as an incremental step in completely deregulating brew pubs, Assemblyman Ernaut said, this would give the wholesalers the ability to develop the existing brew pubs within the Resort Associations and develop a market to wholesale the beers. The following came forward in opposition to the bill: - Tom Almquist, Vice President of Operations and Administration for Big Dog's Hospitality Group in Las Vegas, offered an exhibit containing "Commerce Committee Testimony" and supporting documentation (Exhibit E - not included with this set of minutes, but may be viewed in the Legislative Counsel Bureau Research Library), and a memorandum dated May 4, 1993, addressed to Chairman Senator Dean A. Rhoads regarding S.B. 365 of the Sixty-sixth Session and S.B. 254 of the Sixty-sixth Session (Exhibit F). Mr. Almquist pointed out there had been no reference to a "restaurant," and indeed, a brew pub had to be successful as a restaurant before it could be successful as a brew pub. He believed it was very difficult to lure tourists into the present areas allowed to brew pubs; and if others were allowed to build brew pubs in any section of a town, they would enjoy access to a market unavailable to the present brew pubs. Also, if a resort hotel put in a brew pub, would this have to be a primary part of the business or would it be considered an attraction? Referring to regulations, Mr. Almquist opined the business could regulate itself through competition. Also, there were 14 states allowing brew pubs which had no brew pub laws, but operated strictly within the existing alcohol and restaurant mandates already in place. - Richard "Dick" Murray, submitted his testimony (Exhibit G) and read his remarks into the record. - Eric Fenster, Marketing and Special Events Assistant with Big Dog's Hospitality Group, stressed the position of Big Dog's Hospitality Group was one of free enterprise. He said they had been enticed, as were others, to enter into the redevelopment areas, assuming they would have protection of a sort, in that area. If that protection was to be removed and the present industry limited to the historic and redevelopment areas while others were free to open brew pubs in high traffic areas, how could this be considered "free enterprise?" Mr. Fenster also questioned why the bill was not tied to gaming, rather than the 200-room requirement. Referring to Assemblyman Ernaut's statement regarding the desire to bring the benefits of a booming industry into the hotel/resort arena, Mr. Fenster agreed -- this was exactly true. He encouraged the committee to carefully consider the 200-room requirement. - Kirk Ellern, President and CEO of the Reno Brewing Company, submitted his written remarks (Exhibit H), and read his remarks into the record. Testimony was taken from Tom Young, General Manager Great Basin Brewing Company, who submitted his written remarks (Exhibit I) and the testimony of Eric McClary, partner in the Great Basin Brewing Company of Sparks (Exhibit J). Mr. McClary pointed out it was not difficult to make beer -- it was difficult to make "good beer." He said, "We support this bill and we also support the amendment Assemblyman Ernaut put into the bill which states that a brewery can be a brew pub simultaneously. Both the Holy Cow and the Great Basin are engaged in limited distribution. We would like to continue this aspect. We use distributors for all our distribution. ...". Mr. Young pointed out Great Basin Brewing Co. did, indeed, pay state excise tax on production before it was sold, and when it was a finished product they had to pay the state. They also paid federal excise tax and were regulated by all the Beer, Alcohol, Tobacco and Firearms (BATF) regulations. Sydney Abrams, representing the Wine Institute, a trade association of wineries, observed there were 1,300 wineries in the United States, and the only way a winery could sell in the state was if a wholesaler would agree to take them on. He said they were mainly opposed to exclusive sales territory as it decreased the potential of competition. Mr. Abrams then deferred to James Armstead who, he said, would cover a research study on the effects of A.B. 594. James Armstead, J.D., Ph.D., Professor at the University of Nevada Reno, and a Research Associate with the Great Basin Policy Research Institute, stated he and the study's co-authors had been asked by the Wine Institute to consider A.B. 594. He submitted "An Analysis of AB 594," (Exhibit K - not included with this set of minutes, but may be viewed in the Legislative Counsel Bureau Research Library) which set forth the recommendations regarding the bill. He offered background remarks dealing with the Great Basin Research Institute, which is set forth on the page following the title page of Exhibit K, and continued with a brief summary of the study and recommendations. Also representing the Great Basin Policy Research Institute, Robert Morin, J.D., Ph.D., Research Associate, noted most of the testimony had dealt with beer and the brewing and brew industry. He wished to expand this to the alcohol beverage industry in Nevada. Dr. Morin continued with an overview of the major points of the study contained in Exhibit K. Pursuing a previous question regarding contract protection, Ms. Tiffany asked what contractual protection was offered from the supplier to a wholesaler for wine and distilled spirits. Mr. Abrams told her the large wineries had contracts with wholesalers, but hundreds of wineries could not get a contract as oftentimes the wholesalers' attitude was that the winery was lucky just to have the wholesaler handle them. Since Ms. Tiffany was not entirely satisfied with Mr. Abrams answer, Mr. Morin said the absence of a written contract between a supplier and a wholesaler, did not render either party without recourse as there was the judicial system. In the event a supplier and a wholesaler were unable to execute a written contract which would contain protective provisions, the definition of "good cause," as set forth by the Federal District Court for the District of Nevada, provided a definition of "good cause." Why was there a problem with the definition of "good cause?" she asked. In reply, Mr. Morin said their analysis led them to believe the "good cause" definition ran only in favor of protection for the wholesaler with insufficient protections for the supplier. Doug Dickerson, representing the City of Las Vegas Redevelopment Agency, said they enjoyed the advantage of brew pubs being in redevelopment areas, but anticipated this would not last forever. Therefore, he stated, they supported the bill as written. He reminded the committee the City of Las Vegas Redevelopment Agency and the Fremont Street Experience Company had a major investment in the redevelopment areas and wanted to see the law continue for a period of time in order to attract brew pubs into the downtown area. Monita Fontaine, Director of State Government Relations for the Distilled Spirits Council of the United States, told the committee she represented the manufacturers of over 90 percent of the distilled spirits products sold in the United States. Ms. Fontaine also pointed out the brands falling under the Distilled Spirits Council had provided Nevada $40 million in state and local taxes in 1994, and the Distilled Spirits Council was firmly opposed to Sections 4 through 13 of A.B. 594. She urged the committee to amend the bill to remove those sections. The three reasons she cited for opposition were: 1. It would grant a monopoly to the wholesalers currently doing business in Nevada, thus harming Nevada retailers, consumers and efficient wholesalers. 2. It represented an unconstitutional and unjustifiable interference by the state in the free market right to private parties to contract, and she believed wholesalers were adequately protected under current Nevada law. 3. It was basically a beer bill. Ms. Fontaine then offered her main points of testimony (Exhibit L), and made remarks regarding a report entitled "Impact" (Exhibit M), which set forth the top 25 U.S. Wine and Spirits Wholesalers and their market share. Ms. Fontaine also submitted copies of letters from Southern Wine and Spirits, Luce and Son, Inc., and DeLuca Liquor and Wine, Ltd. (Exhibit N). According to Ms. Fontaine, this kind of legislation, dealing with wine and spirits, had been vetoed, and very recently, George Bush, Governor of Texas, had vetoed very similar legislation, saying, "This represents excessive government intervention in private industry. ...". Finally, Ms. Fontaine stated she was not concerned about the "brew pub" bill, but she was concerned about how the language applied to the suppliers she represented and their ability to contract with wholesalers in the state. This needed very serious consideration from the committee. She recommended they take the bill and leave the existing franchise language in place, striking the language affecting the wine and spirits wholesalers. Following Ms. Fontaine, Kevin Tipton, also representing the Distilled Spirits Council of the United States, stated his Council opposed A.B. 594, Sections 4 through 13, solely because the franchise provisions in Nevada state statute were changed. He pointed out Nevada was one of 15 states in the United States who had franchise laws which also pertained to distilled spirits, although many states had franchise laws dealing with beer. Mr. Tipton said his wholesalers paid nothing to obtain a brand from them -- and both of them made investments. Some of the language, he opined, would forever preclude them from dropping a wholesaler they could not get good products sold through. In current law, they could, using good, prudent business judgment, go to another wholesale house. If A.B. 594 passed, this would be impossible. Testimony was then offered by Ray Vega, Vega Enterprises, who offered the committee his informational business brochure (Exhibit O - not included with these minutes, but may be viewed in the Legislative Counsel Bureau Research Bureau). Mr. Vega also stated Sections 4 through 13 would literally put him out of business. Presently he received brands the two major companies did not carry. He just wanted fair competition, and to be able to prove the kind of job he could do. Ms. Tiffany asked Ms. Fontaine to provide her a copy of a typical contract between her company and the suppliers, showing the "good cause" definition, and also what was written into the contract for product distribution or exclusivity. Representing the Nevada Resort Association, Bob Barengo cited a long history in the liquor industry, and stated adamantly this was a beer specific issue and the bill should be amended to limit it to that industry. The words "alcoholic beverages" should be replaced by the word "beer." He did not believe there was a compelling state interest to change the law, and he saw nothing in any court cases (Exhibit P and Exhibit Q), which would support making the kind of change proposed in A.B. 594. The Executive Director of the Retail Association of Nevada (RAN), Grocery Industry and Chain Drug Committee, Mary Santina-Lau, submitted her testimony (Exhibit R) and read her remarks into the record. Curt Brown, Capital Beverages in Carson City, indicated the different federal excise taxes charged only small brewers. The present excise tax rate in Internal Revenue Code Section 5051, for large brewers, was $18 per barrel. Brew pubs and those who brewed less than 2 million barrels a year, were taxed at $7 per barrel for the first 60,000 barrels. This gave the brew pubs a great price advantage. Mr. Brown believed this was neither fair nor free enterprise, and he wished to have the committee look at this inequity. David Howard from the Reno/Sparks Chamber of Commerce, said he wished to place on record his organization's 25-year old legislative policy in opposition to A.B. 594. The Chamber's continuing major legislative objectives were to: 1) Reduce the dominating role of government in business affairs and in the private lives of citizens; and 2) to restore the economic freedom and vitality that would allow the private enterprise system to function in the best interests of all Americans. Mr. Howard opined the bill was overregulation, at best. With no further testimony, the hearing was closed on A.B. 594 and the meeting adjourned at 6:28 p.m. RESPECTFULLY SUBMITTED: _____________________________ Iris Bellinger, Committee Secretary APPROVED: ________________________________ Chairman, Larry L. Spitler ________________________________ Chairman, Sandra Tiffany Assembly Committee on Commerce May 31, 1995 Page