Title of Regulation: 3VAC5-20. Advertising (amending 3VAC5-20-90).

Statutory Authority: §§ 4.1-111 and 4.1-320 of the Code of Virginia.

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: January 21, 2022.

Effective Date: February 7, 2022.

Agency Contact: LaTonya D. Hucks-Watkins, Senior Legal Counsel, Alcoholic Beverage Control Authority, 2901 Hermitage Road, Richmond, VA 23220, telephone (804) 213-4698, FAX (804) 213-4574, or email latonya.hucks-watkins@virginiaabc.com.

Basis: Section 4.1-103 of the Code of Virginia authorizes the Board of Directors of the Alcoholic Beverage Control Authority to adopt regulations and to do all acts necessary or advisable to carry out the purposes of Title 4.1 of the Code of Virginia. Section 4.1-111 of the Code of Virginia provides the board of directors with the authority to adopt reasonable regulations to carry out the provisions of the Alcoholic Beverage Control Act (§ 4.1-100 et seq. of the Code of Virginia) and to amend or repeal such regulations.

Purpose: Virginia Alcoholic Beverage Control Authority recognizes that the regulation needs to be revised because there are instances where discounts being offered to the public require the consumer to redeem coupons through other means besides mailing them to the manufacturer or importer. This regulatory change benefits the public by providing more ways for the public to enjoy money-saving discounts while still prohibiting instantly redeemable coupons that may encourage excessive drinking. The goal of this regulatory change is to update the regulation with technology.

Rationale for Using Fast-Track Rulemaking Process: The rulemaking should not generate any controversy because it simply adds the ability for members of the public to redeem coupons by additional options beyond mailing, updating the regulation with current technology.

Substance: The regulatory change replaces the words "mail in" and "mailed" with the word "submitted" to allow for alternative methods by which a consumer may redeem a coupon.

Issues: This regulatory change benefits the public by providing more ways for the public to enjoy money-saving discounts. The regulatory change benefits the Commonwealth by continuing to prohibit instantly redeemable coupons, which may encourage excessive drinking. There are no disadvantages to the public or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia (Code) and Executive Order 14 (as amended, July 16, 2018). The analysis presented represents DPB's best estimate of these economic impacts.¹

Summary of the Proposed Amendments to Regulation. The Virginia Alcoholic Beverage Control Authority Board of Directors (Board) proposes to broaden the methods of redemption for coupons that can be offered by manufacturers and importers and used by consumers to purchase alcoholic beverages.

Background. Currently, the regulation allows manufacturers and importers of spirits, wine, and beer to use only consumer "mailed in" coupons. According to the Virginia Alcoholic Beverage Control Authority (Authority), advancements in technology now allow various methods by which a coupon may be redeemed (i.e., email, mobile devices, websites). The proposed amendments would substitute the words "mail in" and "mailed" with the word "submitted," which would effectively allow additional types of redemption methods. However, the proposed revision maintains the prohibition against instantly redeemable discounts.

Estimated Benefits and Costs. Allowance of additional coupon redemption methods (i.e., email, mobile devices, websites) in addition to mail is expected to provide consumers with more flexibility as to how coupons may be redeemed. Electronic redemption methods that would be allowed under the proposed regulation also appear to be more convenient for consumers in terms of the speed of redemption and avoidance of standard mail costs (e.g., envelopes, postage stamps, trip to the mailbox). Because of such advantages, manufacturers and importers would likely have incentives to utilize coupons that can be electronically redeemed over the coupons that require mailing in. Thus, some substitution between the types of coupons used may be expected in favor of electronically redeemable coupons.

In theory, increased use of electronically redeemable coupons would lead to an increase in aggregate alcoholic beverage sales and consumption in the Commonwealth to some extent. So, it is reasonable to expect some benefits from this action (i.e., monetary savings by consumers, improved profits for suppliers). Although excessive drinking is usually associated with societal costs, there are many rules geared toward addressing a variety of aspects of excessive drinking that may mitigate any such risks. Additionally, whether the expected increase in aggregate sales or consumption would be significant or not is impossible to accurately assess from the information available.

Businesses and Other Entities Affected. This revision will impact manufacturers and importers of alcoholic beverages and consumers. Currently, there are 889 manufacturers and 658 importers licensed by the Authority. None of the affected entities appear to be disproportionately affected.

The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.² An adverse impact is indicated if there is any increase in net cost or reduction in net revenue for any entity, even if the benefits exceed the costs for all entities combined. As noted, the proposed changes would provide more flexibility to the manufacturers and importers as well as consumers of alcoholic beverages. Given the rules to prevent excessive drinking, an adverse impact does not appear to be indicated.

Small Businesses³ Affected.⁴ The proposed amendments do not appear to adversely affect any businesses including small businesses.

Localities⁵ Affected.⁶ The proposed amendments do not directly affect localities.

Projected Impact on Employment. Expected increase in sales or consumption of alcoholic beverages indicates a positive effect on business activity and thus may positively affect total employment.

Effects on the Use and Value of Private Property. To the extent electronic redemption methods add to the manufacturer or importer sales, a positive effect on their asset values may be expected. The proposed amendments do not appear to affect real estate development costs.

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¹Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.

²Pursuant to § 2.2-4007.04 D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.

³Pursuant to § 2.2-4007.04, 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."

⁴If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.

⁵ "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁶Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency's Response to Economic Impact Analysis: The Virginia Alcoholic Beverage Control Authority concurs with the Department of Planning and Budget's economic impact analysis.

Summary:

The amendments provide consumers with flexibility as to how coupons from manufacturers or importers of spirits, wine, and beer may be redeemed by replacing the words "mail-in" and "mailed" with the word "submitted."

3VAC5-20-90. Advertising; coupons.

A. "Normal retail price" shall mean the average retail price of the brand and size of the product in a given market, and not a reduced or discounted price.

B. Coupons may be advertised in accordance with the following conditions and restrictions:

1. Manufacturers or importers of spirits, wine, and beer may use only consumer mail-in submitted refund, not instantly redeemable discount, coupons. The coupons may not exceed 50% of the normal retail price and may not be honored at a retail outlet or state government store but shall be mailed submitted directly to the manufacturer or importer or its designated agent. Such agent may not be a wholesaler or retailer of alcoholic beverages. Consumer proof of purchase (such as a dated, retail specific receipt) is required for redemption of all consumer coupons. Coupons are permitted in the print media, via the Internet, by direct mail or electronic mail to consumers, or as part of, or attached to, the package. Manufacturers, importers, bottlers, brokers, wholesalers, and their representatives may provide coupon pads to retailers for use by retailers on their premises, if done for all retail licensees equally and after obtaining the consent, which may be a continuing consent, of each retailer or his retailer's representative. Wholesale licensees may attach refund coupons to the package if done for all retail licensees equally and after obtaining the consent, which may be a continuing consent, for each retailer or his retailer's representative.

2. Manufacturers or importers offering refund coupons on spirits and wine sold in state government stores shall notify the board at least 15 days in advance of the issuance of the coupons of its amount, its expiration date, and the area of the Commonwealth in which it will be primarily used, if not used statewide.

3. Wholesale licensees are not permitted to offer coupons.

4. Retail licensees may offer coupons, including their own discount or refund coupons, on wine and beer sold for off-premises consumption only. Retail licensees may offer their own coupons in the print media, at the point-of-sale, or by direct mail to consumers.

5. No retailer may be paid a fee by manufacturers or wholesalers of alcoholic beverages for display or use of coupons, and the name of the retail establishment may not appear on any refund coupons offered by manufacturers. No manufacturer or wholesaler may furnish any coupons or materials regarding coupons to retailers which that are customized or designed for discount or refund by the retailer.

6. Retail licensees or employees thereof may not receive refunds on coupons obtained from the packages before sale at retail.

7. No coupons may be honored for any individual below younger than the legal age for purchase.