Title of Regulation: 3VAC5-50. Retail Operations (amending 3VAC5-50-160).

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: Subdivision B 15 of § 4.1-111 of the Code of Virginia requires the Alcoholic Beverage Control Board to promulgate regulations that permit a mixed beverage licensee to advertise the products featured during a happy hour promotion and to serve pitchers and flights of mixed beverages to patrons. Section 4.1-111 also provides the board with broad authority to promulgate reasonable regulations necessary to carry out the provisions of Title 4.1 of the Code of Virginia.

Subdivisions 13 and 18 of § 4.1-103 of the Code of Virginia authorize the board to promulgate regulations and to do all acts necessary to carry out the provisions of Title 4.1 of the Code of Virginia.

Purpose: These amendments respond to specific statutory requirements. The amendments enhance 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 proposed amendments closely follow the statutory requirements. The agency has minimal discretion.

Substance: The proposed amendment provides for retail on-premises licensees to have the option of listing the alcoholic beverage products featured during a happy hour promotion in any lawful advertisement. In addition, retail on-premises licensees may serve a flight of five samples of wine or beer to a patron. Mixed beverage licensees may also serve a flight of five mixed beverage samples and pitchers of mixed beverages to patrons during a happy hour in accordance with the regulations of the board.

Issues: The primary advantage to the public is accomplishing the legislature's stated goal to permit certain activities. The amendments include safeguards to prevent overconsumption by placing limitations on the amounts of alcoholic beverages that can be served. 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 (Board) proposes to relax the limitations on happy hour promotions.

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)(15) requiring the Board to prescribe the limitations for happy hour promotions. In addition, Chapter 826 of the 2006 Acts of Assembly amended Virginia Code section 4.1-201(A)(11) and (14) to allow flights of wine and beer to be sold subject to certain restrictions. Currently, a person is not allowed more than two drinks at any one time during a happy hour. The Board now proposes to allow mixed beverage retail licensees: 1) to permit patrons to possess a flight of wine, beer or mixed beverages consisting of no more than five sample products provided each sample of distilled spirits contains no more than one half ounce of spirits, 2) to sell pitchers of mixed beverages during a happy hour in accordance with limitations established by the Board, and 3) to list the alcoholic beverage products featured during a happy hour in any lawful advertisement. Thus, the proposed regulation will allow in general more flexibility to the licensees in the sale and promotion of alcoholic beverages during a happy hour. The proposed changes will likely increase the sales of mixed beverages during happy hour.

Businesses and Entities Affected. The proposed regulation applies to approximately 6,000 retail licensees authorized to sell for on-premises consumption.

Localities Particularly Affected. The proposed changes apply statewide.

Projected Impact on Employment. The proposed amendments could be expected to increase sales of mixed beverages during happy hours and demand for labor employed in production and sales.

Effects on the Use and Value of Private Property. Allowing more flexibility in the sale and promotion of alcoholic beverages during a happy hour may have a positive revenue 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. Approximately 75 percent of the 6,000 retail licensees are estimated to be small businesses. 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 will not adversely affect other entities.

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

Summary:

The amendments permit (i) retail on-premises licensees to list the alcoholic beverage products featured during a happy hour promotion in any lawful advertisement and serve flights of five samples of wine or beer to a patron and (ii) mixed beverage licensees to serve flights of five mixed beverage samples and pitchers of mixed beverages to patrons during a happy hour.

3VAC5-50-160. Happy hour and related promotions; definitions; exceptions.

A. Definitions:. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

1. "Happy Hour." A hour" means a specified period of time during which alcoholic beverages are sold at prices reduced from the customary price established by a retail licensee.

2. "Drink." Any " means any beverage containing the amount of alcoholic beverages customarily served to a patron as a single serving by a retail licensee.

B. No retail licensee shall engage in any of the following practices:

1. Conducting a happy hour between 9 p.m. of each day and 2 a.m. of the following day;

2. Allowing a person to possess more than two drinks at any one time during a happy hour, with the exception of flights of wine and beer consisting of samples of not more than five different wines or beers or samples of five different distilled spirits products provided each distilled spirits sample contains no more than one-half ounce of distilled spirits;

3. Increasing the volume of alcoholic beverages contained in a drink without increasing proportionately the customary or established retail price charged for such drink;

4. Selling two or more drinks for one price, such as "two for one" or "three for one";

5. Selling pitchers of mixed beverages except in accordance with 3VAC5-50-60;

6. Giving away drinks;

7. Selling an unlimited number of drinks for one price, such as "all you can drink for $5.00";

8. Advertising happy hour anywhere other than within the interior of the licensed premises, except that a licensee may use the term "Happy Hour" or "Drink Specials," and, a list of the alcoholic beverage products featured during a happy hour as well as the time period within which alcoholic beverages are being sold at reduced prices in any otherwise lawful advertisement; or

9. Establishing a customary retail price for any drink at a markup over cost significantly less than that applied to other beverages of similar type, quality, or volume.

C. This regulation shall not apply to prearranged private parties, functions, or events, not open to the public, where the guests thereof are served in a room or rooms designated and used exclusively for private parties, functions or events.