Title of Regulation: 3VAC5-50. Retail Operations (amending 3VAC5-50-60).

Statutory Authority: §§ 4.1-103 and 4.1-111 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: June 29, 2016.

Effective Date: July 15, 2016.

Agency Contact: Shawn Walker, Director of Law Enforcement, Department of Alcoholic Beverage Control, 2901 Hermitage Road, Richmond, VA 23220, telephone (804) 213-4569, FAX (804) 213-4411, or email shawn.walker@abc.virginia.gov.

Basis: Subdivisions B 11 and B 20 of § 4.1-111 of the Code of Virginia require that the Alcoholic Beverage Control Board promulgate a regulation that (i) prescribes the terms and conditions under which mixed beverage licensees may infuse, store, and sell flavored distilled spirits, including a provision that limits infusion containers to a maximum of 20 liters and (ii) permits mixed beverage licensees to premix containers of sangria and other mixed alcoholic beverages and to serve such alcoholic beverages in pitchers, subject to size and quantity limitations established by the board.

Subdivision A 14 of § 4.1-201 of the Code of Virginia was amended to allow a mixed beverage licensee, his agent, or his employee to offer for sale or sell for one price to any person to whom alcoholic beverages may be lawfully sold a flight of distilled spirits consisting of samples of not more than five different spirits products. Pursuant to the general authority outlined in § 4.1-111 A, which allows the board to promulgate regulations as deemed necessary, regulatory action is intended to implement the statutory language.

Purpose: The amendments are intended to respond to specific statutory directives in Chapter 404 of the 2015 Acts of Assembly to modernize business practices by the retail mixed beverage licensee sector of the regulated community. The proposed regulation enhances public safety by placing limitations on the outlined practices in order to prevent overconsumption by consumers.

Rationale for Using Fast-Track Rulemaking Process: The rulemaking process is expected to be noncontroversial because the proposal closely follows the statutory requirement. The agency has minimal discretion.

Substance: The proposal (i) gives retail mixed beverage licensees the authority to sell up to five samples of spirits each no more than one-half ounce in size; (ii) increases the container size for infused spirits to 20 liters; and (iii) permits the sale of premixed containers of sangria and other mixed beverages in pitchers, with certain limitations.

Issues: The primary advantage of the proposal is to meet the legislative mandate to promulgate regulations that provide guidance to the regulated community. The proposed regulation enhances public safety by placing limitations on the outlined practices in order to prevent overconsumption by consumers. There are no disadvantages to the public or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Pursuant to Chapter 404 of the 2015 Acts of Assembly, the Alcoholic Beverage Control Board proposes to allow retail mixed beverage licensees to mix spirits in larger containers and to allow the sale of mixed beverages in pitchers and in flights.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Chapter 404 of the 2015 Acts of Assembly amended Virginia Code section 4.1-111(B)(11, 20) to: 1) increase the size of containers retail mixed beverage licensees may use for infusion of spirits from two to twenty liters in volume, and 2) allow the sale of premix containers of sangria and other mixed beverages in pitchers subject to limitations (i.e., cannot be sold in pitchers greater than 32 ounces, a pitcher may not be served to a single patron, and the containers must be labeled as to the type of and quantity of the ingredients it contains). The legislation also amended § 4.1-201(A)(15) to allow a mixed beverage licensee to offer for sale a flight of distilled spirits consisting of up to five different types, each not exceeding one-half of one ounce by volume for one price. Thus, the proposed regulation will allow in general more flexibility to the licensees in making and selling of mixed beverages.

While the proposed changes could be expected to increase the sales of mixed beverages in the Commonwealth, the Department of Alcoholic Beverage Control notes that the licensees currently could achieve the same sales goals by a larger number of transactions, or infuse the same quantity by a larger number of mixings, but has no information on the likely magnitude of such impact. In that sense, the proposed regulation provides greater flexibility to achieve the same sales and production goals.

Businesses and Entities Affected. The proposed regulation applies to approximately 6,600 retail mixed beverage restaurant licensees.

Localities Particularly Affected. The proposed changes apply statewide.

Projected Impact on Employment. Allowing mixed beverages for sale in pitchers and in flights could be expected to increase sales of mixed beverages and demand for labor associated with increased production and sales. On the other hand, allowing larger containers for mixing could be expected to reduce the demand for labor used in production to some extent.

Effects on the Use and Value of Private Property. Allowing the sale and mixing of larger quantities of spirits may increase revenues and reduce production costs, which in turn would have a positive impact on affected licensees and their asset values.

Real Estate Development Costs. No impact on real estate development costs is expected.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. The majority of the 6,600 retail mixed beverage restaurant licensees are estimated to be small businesses. Some of the chain restaurants are owned by large corporations. The proposed regulation does not impose costs on them. The effects on small businesses are the same as discussed above.

Alternative Method that Minimizes Adverse Impact. No adverse impact on small businesses is expected.

Adverse Impacts:

Businesses. The proposed regulation does not have an adverse impact on non-small businesses.

Localities. The proposed regulation will not adversely affect localities.

Other Entities. The proposed regulation allows consumers to purchase mixed beverages in pitchers and in flights.

Agency's Response to Economic Impact Analysis: The Department of Alcoholic Beverage Control concurs.

Summary:

The amendments (i) permit retail mixed beverage licensees to sell up to five samples of spirits each no more than one-half ounce in size; (ii) increase the container size for infused spirits to 20 liters; and (iii) permit the sale of premixed containers of sangria and other mixed beverages in pitchers, with certain limitations. The amendments conform the regulation to Chapter 404 of the 2015 Acts of Assembly. 

3VAC5-50-60. Procedures for mixed beverage licensees generally; mixed beverage restaurant licensees; sales of spirits in closed containers.

A. No mixed beverage restaurant or carrier licensee shall:

1. Prepare, other than frozen drinks, or sell any mixed beverage except pursuant to a patron's order and immediately preceding delivery to him.

2. 1. Serve as one drink the entire contents of a container of spirits in its original container for on-premises consumption except as provided by subsections C, D, and E of this section.

3. 2. Sell any mixed beverage to which alcohol has been added.

B. No mixed beverage restaurant licensee shall:

1. Allow to be kept upon the licensed premises any container of alcoholic beverages of a type authorized to be purchased under his license that does not bear the required mixed beverage stamp imprinted with his license number and purchase report number.

2. Use in the preparation of a mixed beverage any alcoholic beverage not purchased from the board or a wholesale wine licensee.

3. Fail to obliterate the mixed beverage stamp immediately when any container of spirits is emptied.

4. Allow any patron to possess more than two drinks of mixed beverages at any one time, except that a mixed beverage licensee may sell to a patron who may lawfully purchase mixed beverages a flight of distilled spirits products consisting of samples of not more than five different spirits products. Each distilled spirits product shall contain no more than one-half ounce of distilled spirits.

C. If a restaurant for which a mixed beverage restaurant license has been issued under § 4.1-210 of the Code of Virginia is located on the premises of a hotel or motel, whether the hotel or motel be under the same or different ownership, sales of mixed beverages, including sales of spirits packaged in original closed containers purchased from the board, as well as other alcoholic beverages, for consumption in bedrooms and private rooms of such hotel or motel, may be made by the licensee subject to the following conditions in addition to other applicable laws:

1. Spirits sold by the drink as mixed beverages or in original closed containers must have been purchased under the mixed beverage restaurant license upon purchase forms provided by the board;

2. Delivery of sales of mixed beverages and spirits in original closed containers shall be made only in the bedroom of the registered guest or to the sponsoring group in the private room of a scheduled function. This section shall not be construed to prohibit a licensee catering a scheduled private function from delivering mixed beverage drinks to guests in attendance at such function;

3. Receipts from the sale of mixed beverages and spirits sold in original closed containers, as well as other alcoholic beverages, shall be included in the gross receipts from sales of all such merchandise made by the licensee; and

4. Complete and accurate records of sales of mixed beverages and sales of spirits in original closed containers to registered guests in bedrooms and to sponsors of scheduled private functions in private rooms shall be kept separate and apart from records of all mixed beverage sales.

D. Carrier licensees may serve miniatures not in excess of two fluid ounces or 50 milliliters, in their original containers, for on-premises consumption.

E. A mixed beverage restaurant may serve as one drink the entire contents of a container of soju in its original container for on-premises consumption under the following conditions:

1. The container may be no larger than 375 milliliters.

2. Each container of soju served must be served for consumption by at least two patrons legally eligible to consume alcoholic beverages.

F. A mixed beverage restaurant licensee may infuse, store, and sell flavored distilled spirits under the following circumstances:

1. If infused in the original spirits container, the mixed beverage stamp must remain affixed to the bottle.

2. If infused in a container other than the original spirits container, the substitute container, which shall not exceed two 20 liters in volume, will be labeled with the following information:

a. Date of infusion;

b. Brand of spirits; and

c. Amount of spirits used.

3. Accurate records must be kept by the mixed beverage licensee as to the spirits used in any spirits infusion process.

4. Licensees infusing distilled spirits shall comply with all applicable state and federal food safety regulations.

G. Mixed beverage licensees may premix containers of sangria and other mixed beverages and serve such alcoholic beverages in pitchers subject to the following limitations:

1. Pitchers of mixed beverages may only be sold in containers with a maximum capacity of 32 fluid ounces or one liter if the container is in metric size containing a spirits product mixed with nonalcoholic beverages.

2. A pitcher of mixed beverages may only be served to two or more patrons. A licensee shall not allow any two patrons to possess more than one pitcher at any one time.

3. Containers of premixed sangria and other mixed beverages must be labeled as to the type of mixed beverage and the quantities of the products used to produce the mixed beverage.