TITLE 3. ALCOHOLIC BEVERAGE AND CANNABIS CONTROL

VIRGINIA ALCOHOLIC BEVERAGE CONTROL AUTHORITY

Proposed Regulation

Title of Regulation: 3VAC5-40. Requirements for Product Approval (amending 3VAC5-40-10, 3VAC5-40-20, 3VAC5-40-30).

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

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: September 27, 2024.

Agency Contact: LaTonya D. Hucks-Watkins, Senior Legal Counsel, Virginia Alcoholic Beverage Control Authority, 7450 Freight Way, Mechanicsville, VA 23116, 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 provides that the Virginia Alcoholic Beverage Control Authority Board of Directors (board) has the 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 authorizes the board to promulgate regulations regarding the sale of beer and wine for off-premises consumption in resealable containers.

Purpose: This regulation is essential to protect the health, safety, and welfare of citizens because it provides guidance for how alcohol is labeled so that the label does not encourage unlawful consumption, does not mislead the consumer, and does not exceed maximum lawful quantities for containers.

Substance: The proposed amendments include (i) addressing the labeling of alcoholic brands of nonalcoholic products and (ii) adding language regarding wine and beer sold for off-premises consumption by on-premises licensees.

Issues: The proposed revisions will benefit the public because they update the rules to comport with modern practices for label approval while maintaining the mission of preventing misleading advertising, advertising that encourages overconsumption, and advertising that is otherwise improper. The Commonwealth benefits from these revisions because they clarify the authority's regulation and make the regulation more accessible and understandable and easier to apply equitably. There are no disadvantages to the public or 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 and Executive Order 19. The analysis presented represents DPB's best estimate of the potential economic impacts as of the date of this analysis.¹

Summary of the Proposed Amendments to Regulation. The Virginia Alcoholic Beverage Control Board of Directors (board) proposes to (i) add that the Virginia Alcoholic Beverage Control Authority (ABC) may withhold approval of any wine or beer label that is an imitation of a spirits product or is a complete facsimile of a spirits product, excluding low alcohol beverage coolers; (ii) add that ABC may withhold approval of any wine or beer label that is not clearly distinguishable from a nonalcoholic product, or which minimizes, fails to identify, or disguises the product's alcoholic contents; (iii) remove current language that states that the agency may withhold approval of any wine or beer label "that implies or indicates that the product is government (federal, state, or local) endorsed"; (iv) amend the current language, which states that ABC may withhold approval of labels designed to induce "minors" to drink, to labels designed to induce "underage persons" to drink; (v) amend text to reflect current nomenclature, repeal text that the board states is duplicative of the Code of Virginia, and add clarifying language.

Background. This action is part of a periodic review of the regulation.²

Estimated Benefits and Costs. According to ABC, there have been instances where beer and wine product labels imitate spirits products, and this has led to market confusion and complaints to the agency. The proposal to add that ABC may withhold approval of any label that is an imitation of a spirits product or is a complete facsimile of a spirits product, excluding low alcohol beverage coolers, would be beneficial in that members of the public may become less likely to be misled concerning the nature of some beverages they consume. Similarly, the agency has stated that there has been a nationwide issue where beer or wine labels are not clearly distinguishable from a nonalcoholic product or minimize, fail to identify, or disguise the product's alcoholic contents. These occurrences have led to consumer confusion and underage consumption.³ Thus, the proposal to add that ABC may withhold approval of any label that is not clearly distinguishable from a nonalcoholic product or that minimizes, fails to identify, or disguises the product's alcoholic contents would be beneficial in that it may decrease the likelihood of unintentional underage consumption and unintentional consumption of alcohol by adults. ABC also proposes to eliminate text that states that the agency may withhold approval of any wine or beer label that implies or indicates that the product is government endorsed. The agency reports that stakeholders have advocated for this change as more manufacturers were producing brands with labels that had state college or university logos or Virginia landmarks, and that these labels were being rejected because of this prohibition. Manufacturers would still have to get permission from the colleges and universities or other relevant entities to get to use their logos or images. Most of the landmarks on labels have been buildings associated with colleges or universities, and the manufacturer has to have permission here as well.⁴ Since under the proposed language the manufacturers would have to receive consent from the entities whose image or logo is represented, there appears to be no cost associated with this proposed change. Since it newly allows manufacturers to use labels that they appear to wish to use to sell their product, these firms would be better off. Because public colleges and universities could be compensated for their permission, these institutions may benefit as well.

The current regulation entitles ABC to withhold approval of labels designed to induce minors to drink. Because minors are younger than 18 years of age, and the legal drinking age is 21 years of age, the current text does not specifically allow the agency to withhold approval of labels designed to induce individuals who are older than 18 years of age but younger than 21 years of age to drink. Amending "minors" to "underage persons" would conform the prohibition to the legal drinking age. This could be beneficial in that it could potentially reduce the encouragement of drinking by those who are older than 18 years of age, but not yet legally permitted to consume alcohol.

Businesses and Other Entities Affected. The proposed amendments potentially affect ABC's approximate 20,892 licensees⁵ who manufacture, distribute, or sell and serve alcoholic beverages in Virginia, public colleges and universities in the Commonwealth, and other interested members of the public.

The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.⁶ An adverse impact is indicated if there is any increase in net cost or reduction in net benefit for any entity, even if the benefits exceed the costs for all entities combined.⁷ The proposed amendments appear to neither increase cost nor reduce benefit. Thus, an adverse impact is not indicated.

Small Businesses⁸ Affected.⁹ The proposed amendments do not appear to adversely affect small businesses.

Localities¹⁰ Affected.¹¹ The proposed amendments neither disproportionally affect any particular localities nor directly affect costs for local governments.

Projected Impact on Employment. The proposed amendments do not appear to substantively affect total employment.

Effects on the Use and Value of Private Property. Proposed amendments would affect which beer and wine labels may be used. Manufacturers that wish to use labels with state college logos or Virginia landmarks, and distributers and direct sellers of beer or wine who believe their sales would increase with such labels may have some increase in value. The proposed amendments do not 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 but not be limited to: (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.

² Pursuant to the Administrative Process Act, agencies are required to review regulations every four years. See § 2.2-4007.1 of the Code of Virginia https://law.lis.virginia.gov/vacode/title2.2/ chapter40/section2.2-4007.1/) and § 2.2-4017 of the Code of Virginia https://law.lis.virginia.gov/ vacode/title2.2/chapter40/section2.2-4017/.

³ Source: ABC

⁴ Ibid.

⁵ Data Source: ABC

⁶ Pursuant 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.

⁷ 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. As a result, DPB has adopted a definition of adverse impact that assesses changes in net costs and benefits for each affected Virginia entity that directly results from discretionary changes to the regulation.

⁸ Pursuant 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."

⁹ If 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.

¹⁰ "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.

¹¹ Section 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 economic impact analysis prepared by the Department of Planning and Budget.

Summary:

The proposed amendments (i) add that the Virginia Alcoholic Beverage Control Authority (authority) may withhold approval of any wine or beer label that is an imitation of a spirits product or is a complete facsimile of a spirits product, excluding low-alcohol beverage coolers; (ii) add that the authority may withhold approval of any wine or beer label that is not clearly distinguishable from a nonalcoholic product or that minimizes, fails to identify, or disguises the product's alcoholic contents; (iii) remove current language that states that the authority may withhold approval of any wine or beer label that implies or indicates that the product is government endorsed; (iv) update "minor" to "underage person"; and (v) reflect current nomenclature, repeal text that is duplicative of the Code of Virginia, and add clarifying language.

3VAC5-40-10. Spirits; labels, definitions and standards of identity.

Spirits sold in the Commonwealth shall conform with regulations adopted by the appropriate federal agency, relating to labels, definitions, standards of identity, and standards of fill. In addition, the prior approval of the board Virginia Alcoholic Beverage Control Authority (authority) must be obtained as to the spirits, containers, and labels. The board authority may request a copy of the federal certificate of label approval before a product is approved for sale.

Subsequent sales under an approved label shall conform to the analysis of the spirits originally approved by the board, authority and shall be packaged in approved types and sizes of containers.

3VAC5-40-20. Wine and beer; qualifying procedures; disqualifying factors; samples; exceptions.

A. Except as provided in subsection F of this section, all wine and beer sold in the Commonwealth shall be first approved by the board Virginia Alcoholic Beverage Control Authority (authority) as to content, container, and label.

1. All wine and beer sold in this the Commonwealth shall conform with regulations adopted by the appropriate federal agency, relating to labels, definitions, and standards of identity. An application acceptable to the board authority or on a form prescribed by the board authority describing the merchandise shall be submitted for each new brand and type of wine or beer offered for sale in the Commonwealth. Applicants shall submit a copy of the approval of the label by such federal agency. A registration fee in such the amount as may be established by the board authority shall be included with each application.

2. A gift package containing wine or beer for which label approval has been granted may be sold without additional approval by the board authority.

B. While not limited thereto, the board shall withhold approval of any wine if the alcoholic content exceeds 21% by volume.

C. While not limited thereto, the board B. The authority may withhold approval of any label if it has reasonable cause to believe the container or label:

1. Which implies or indicates that the product contains spirits;

2. Which contains the word "fortified" or implies that the contents contain spirits, except that the composition and alcoholic content may be shown if required by regulations of an appropriate federal agency;

3. Which contains 1. Contains any obscene subject matter or illustration;

4. Which contains subject matter designed 2. Contains a design or statement that is likely to induce minors underage persons to drink, or is suggestive of the intoxicating effect of wine or beer 5. Which contains targets underage persons;

3. Suggests the intoxicating effect of wine or beer;

4. Contains any design or statement which that is likely to mislead the consumer;

5. Is an imitation of a spirits product or is a complete facsimile of a spirits product, excluding products defined as "low alcohol beverage coolers" in § 4.1-100 of the Code of Virginia;

6. Which implies or indicates that the product is government (federal, state, or local) endorsed; or Is not clearly distinguishable from a nonalcoholic product or minimizes, fails to identify, or disguises the product's alcoholic contents. The authority shall take into account:

a. The number, location, size, and clarity of references to the alcohol content on the label;

b. Whether the labeling or container emphasizes features that are more commonly associated with nonalcoholic consumable products;

c. Any and all differences between the product's container or label and the nonalcoholic product, including color palette, font type, imagery, placement of words, images or descriptions, and backgrounds; and

d. Any other relevant factor, including whether the nonalcoholic product is clearly marketed as a nonalcoholic beverage alternative to an alcoholic beverage product; or

7. Which implies Implies that the product enhances athletic prowess or includes any reference to any athlete, former athlete, or athletic team except that references to athletes or athletic teams shall be allowed to the extent such references are permitted in point-of-sale advertising pursuant to 3VAC5-20-10 depicts any athlete consuming or about to consume alcohol prior to or while engaged in an athletic activity; or depicts an athlete consuming alcohol while the athlete is operating or about to operate a motor vehicle or other machinery.

C. In analyzing products and labels for approval, the authority may consider the totality of the product label and packaging and consider any other relevant factors.

D. A person holding a license as a winery, farm winery, brewery, or a wine or beer wholesaler shall, upon request, furnish the board authority without compensation a reasonable quantity of such brand sold by him the person for chemical analysis.

E. Any wine or beer sold only by direct shipment to consumers by holders of wine or beer shippers' licenses shall be approved upon compliance with subdivision A 1 of this section.

F. If the board authority has not approved a wine or beer for sale within 30 days after receipt by the board authority of a complete application and registration fee, the wine or beer may be sold in the Commonwealth pending a decision from the board authority on the application. If the application for approval is rejected, the manufacturer or importer shall discontinue sales of the rejected product upon notice from the board authority. Any wholesale or retail licensee may continue sales until any inventory on hand at the time of notice from the board authority is depleted.

3VAC5-40-30. Wine and beer containers; sizes and types; on-premises and off-premises limitations; cooler-dispensers; novel containers; carafes and decanters.

A. Wine and beer may be sold at retail only in or from the original containers of the sizes that have been approved by the appropriate federal agency, except that farm winery licensees may conduct barrel tastings at the winery, at which samples of wine not yet bottled may be sold to visitors to the winery. Each farm winery conducting a barrel tasting shall measure the wine withdrawn for the tasting, maintain full and complete records, and remit the taxes imposed by § 4.1-234 of the Code of Virginia.

B. Wine sold for on-premises consumption shall not be removed from the licensed premises except in the original container with closure. Beer dispensed for on-premises consumption shall not be removed from authorized areas upon the premises. No wine or beer shall be sold for off-premises consumption in any container upon which the original closure has been broken, except for (i) a growler; or (ii) wine or beer sold for off-premises consumption by on-premises licensees that are not in the manufacturer's original sealed container, which shall (a) be enclosed in a container that has no straw holes or other openings and is sealed in a manner that allows a person to readily discern whether the container has been opened or tampered with subsequent to its original closure; (b) display the name of the licensee from which the wine or beer was purchased; (c) be clearly marked with the phrase "contains alcoholic beverages"; and (d) have a maximum volume of 16 ounces per beverage. A "growler" is defined as a resealable container made of glass, ceramic, metal, or other materials approved by the board Virginia Alcoholic Beverage Control Authority (authority) as well as resealable containers approved by the board authority.

1. Beer and cider may be sold for off-premises consumption by persons licensed to sell beer and cider for off-premises consumption in growlers with a maximum capacity of 128 fluid ounces or, if in metric size containers, four liters.

2. Wine may be sold for off-premises consumption in growlers with a maximum capacity of 64 fluid ounces or, for metric size containers, two liters. Wine sold in growlers may only be sold by persons licensed to sell wine for both on-premises and off-premises consumption and by gourmet shop licensees. Wine sold by gourmet shop licensees shall be labeled with the (i) manufacturer's name or trade name, (ii) place of production, (iii) net contents in fluid ounces, and (iv) name and address of the retailer.

3. Retail licensees licensed to sell wine and beer for both on-premises and off-premises consumption and gourmet shop licensees licensed for off-premises consumption may sell wine and beer in sealed containers made of metal or other materials approved by the board authority with a maximum capacity of 32 fluid ounces or, if in metric size containers, one liter, provided that the alcoholic beverages are placed in the container following an order from the consumer.

C. Novel or unusual containers are prohibited except upon special permit issued by the board authority. In determining whether a container is novel or unusual, the board authority may consider, but is not limited to, the following factors: (i) nature and composition of the container;, (ii) length of time it has been employed for the purpose;, (iii) the extent to which it is designed or suitable for those uses;, (iv) the extent to which the container is a humorous representation;, and (v) whether the container is dutiable for any other purpose under customs laws and regulations.

D. Wine may be served for on-premises consumption in carafes or decanters not exceeding 52 fluid ounces (1.5 liters) in capacity. Beer may be served for on-premises consumption in pitchers not exceeding 80 fluid ounces in capacity.