What’s ahead for California wine law in 2023

Leaders in wine law in the North Coast talked about California’s upcoming “Bottle Bill” and other key issues facing the wine industry.

Answers have been edited for space and clarity.

What should vintners know about the California Beverage Container Recycling and Litter Reduction Act (”Bottle Bill”), set to take effect Jan. 1, 2024? How could the tasting room exception help or complicate the package planning process?

Nick Donovan: The Bottle Bill applies to beer, malt beverages, wine, spirits, wine and spirit coolers (regardless of percentage of alcohol by volume) and certain other nonalcoholic beverages intended for sale in California. For bottles 750-milliliter or larger (24 fluid ounces or more), the CRV (California Redemption Value) is 10 cents per bottle.

All wineries and distilleries should register with CalRecycle as soon as possible to prepare for payment and reporting requirements beginning Jan. 1.

All wines and distilled spirits sold in California after July 1, 2025, must be labeled with: “CA Redemption Value,” “California Redemption Value,” “CA Cash Refund,” “California Cash Refund,” or “CA CRV.”

Currently, there is no exemption for wines or spirits labeled before July 1, 2025. While the Wine Institute is working on legislation to create an exemption for wines labeled before Jan. 1, 2024, wineries and distilleries should start including the required labeling on all applicable containers as soon as possible.

If any wines or spirits are sold for on-site consumption in a tasting room, then those products are exempt from the Bottle Bill’s requirements. Any products sold for off-site consumption are subject to the requirements of the Bottle Bill. Because of this, delineating between products sold for consumption in a tasting room will increase the package planning process as bottles sold for on-site consumption will be labeled differently than those consumed off-site. This also raises questions like what happens if a bottle is only half consumed on-site then taken home? For simplicity, maybe all bottles should just carry the stricter off-site consumption labels to avoid any potential mislabeling liability.

Jeremy Little: This new law expands the definition of “beverage” to include wine and distilled spirits. If you produce or send beverage containers in California, you will need to comply. One step in complying is to register with the Department of Resources Recycling and Recovery (”CalRecycle”) as beverage manufacturers and distributors. This is required prior to shipping wine directly to California residents.

Under this new law, the term “distributor” includes licensed alcoholic beverage wholesalers, manufacturers who sell beverages to California retailers (i.e., “dealers” under the Act), and importers who import beverages from out-of-state for sale to California retailers or consumers. The new law authorizes the ABC to suspend or revoke wine direct shipper permits for noncompliance with the Act.

While, tasting rooms are excluded from the “dealer” definition, and thus, containers used in tasting rooms are not subject to the new “dealer” obligations, the complication of creating two separate labels for every SKU that is sold in a tasting room, will likely result in most wineries following these new regulations.

The good news is that wine and spirits labels will not have to display the California Refund Value labels until July 1, 2025, which gives producers an additional year to update their existing labels.

Michael Newman: The period of Jan. 1, 2024 to June 30, 2025 is a labeling transition/grace period for adding the CA CRV message to the labels. Items can be sold with or without the CA CRV message during this period. Beginning July 1, 2025, the CA CRV message is required to be on all wine and spirits containers offered for sale in CA regardless when the product was produced, bottled, or labeled. Items without a CRV message can’t be offered for sale in CA after this date. No exception is provided. CalRecycle does not appear willing to grant any exceptions. We understand at one time the Wine Institute was considering or working on legislation to create an exemption for wines labeled before Jan. 1, 2024 but we haven’t heard of any proposed legislation in the works (at least for the 2023 legislative session).

How should Napa County’s approach inform the movement toward such regulations in Sonoma County? How does the evolution of winery land use law in Napa Valley suggest what is ahead for other parts of the North Coast?

Josh Devore: Napa County was the first Agriculture Preserve in the nation. It has 55 years of history, and considerable evolution over that time toward stricter, more definitive regulation of wineries. Such changes have been a constant point of tension, with competing interests of industry, non-industry locals and environmental groups, consistently attempting to move regulation toward their views. For example, some groups that began with opposing hillside vineyard development have now moved to opposing winery hospitality requests even in the developed valley floor, due to the purported environmental impact of tourism.

Sonoma County can likely expect the same; it has an extensive history in its neighbor’s experience to borrow from, and it will need to decide whether the current Napa model fits with Sonoma County’s historically more laid-back approach. Napa history suggests regulations tend toward tightening (with some interruption during COVID). But the strict limitations on visitation force Napa County wineries to focus on the most profitable and thus high-end visitors. Tasting fees have soared. Sonoma will need to consider whether it wants to head the same way, resulting in more perceived elitism. If it does, it may push visitation to other more-relaxed North Coast counties.

Brian Russell: Napa County has always been ahead of the curve in ensuring that agriculture, and the processing of grapes, remains the focus of Napa County wineries. At the same time, Napa County officials understood that a winery's visitation and events are important marketing tools. Those activities are necessary for the wineries to remain prosperous in a very competitive market. In an effort to prevent restaurants and event centers at wineries, Napa County adopted the Winery Definition Ordinance in 1990. It clarified that winery events, wine tastings and retail sales are "incidental and subordinate" to the main use of the winery, which is an agricultural processing facility.

When processing use permits, Napa County staff provides the Planning Commission with information on gallons of wine produced at the winery, the number of daily visitors being requested by the applicant, and the number of annual events. In the staff report, the County provides a comparison table to show the number of events and daily visitors that is being requested by the winery and compares those numbers to other wineries in the vicinity. With this information, the Planning Commission makes a determination if the requested event and visitation numbers are in line with other wineries of similar size and location as the winery that is making the use permit request. This approach to analyzing the appropriate number of events and visitors seems to set predictable expectations for the applicant, since the Planning Commission is typically able to approve winery requests for visitation and events that are reasonably within the range of other similarly situated wineries, so long as the specific site conditions do not prevent the Planning Commission from moving forward with the approval of applicant's request.

What do recent high-profile California Environmental Quality Act lawsuits involving climate change and wildfire risk such as over the Walt Ranch vineyard project in Napa County and the Guenoc Valley luxury housing project in Lake County say about the future of rural winery and vineyard projects in the North Coast?

Nick Donovan: Brace yourselves for heightened environmental scrutiny. These lawsuits highlight the understandable increased concerns regarding environmental impacts of projects and increased wildfire risk. Future projects will likely face additional scrutiny from regulatory bodies regarding environmental impacts and climate-resistant practices and generally take longer to review and approve.

You will likely need more comprehensive environmental impact assessments. Winery and vineyard developers may need to demonstrate compliance with new (and existing) environmental regulations and take measures to mitigate potential negative effects on the environment, including wildfire risk.

Be prepared to incorporate climate resiliency measures. Increased funding, development, and implementation of sustainable and climate-resistant practices for vintners in Northern California should be a chief concern. This will align with heightened environmental scrutiny noted above and also appeal to younger generations who seek environmentally sustainable products.

Josh Devore: Given that much of the easily accessible, valley floor portions of wine country are already heavily developed, new vineyard and winery projects are necessarily being proposed in more rural areas. These projects will face ultimately the same scrutiny as any development project under CEQA; but due to their location, have more apparent issues related to access and wildfire risk. These projects will need to show these risks are managed and adopt mitigation measures to address those risks. Those measures may make development more costly, and perhaps eventually unfeasible.

Litigants challenging projects will continue to have the opportunity to raise wildfire risk as an issue. In relation, the recent rule making process leading to CAL FIRE’s updated fire access regulations suggest there remains considerable tension in attempting to regulate such development; rather, the regulation has resulted in more mitigation and fire control and access requirements, not development prohibitions.

Jeremy Little: Rural winery and vineyard projects have faced an uphill battle for years. This is another item in a long list that those looking to develop such projects must face. Careful planning with attorneys, engineers, land use experts, and others are essential to minimize obstacles.

Brian Russell: For years, CEQA has analyzed the Green House Gas emissions of a project, but recently CEQA has started to examine how new projects will exacerbate existing wildfire risks, allowing jurisdictions to consider project design features, alternatives, and mitigation measures that provide for smarter development and the protection of existing communities. As the wildfire risk analysis is relatively new, applicants and local governmental agencies are still trying to sort through guidance from the state agencies and the courts as to how to fully and properly mitigate wildfire risk.

Besides the obvious project aspects to reduce wildfire risk (like having adequate water supply for fighting fires and utilizing nonburning or slow-burning building materials), developers should consider implementing features into their projects like no dead-end, non-looped roads; additional hardscape on either side of roadways to create wider fire breaks; and staffing and supplying a 24-hour on-site emergency fire response service. These elements should be considered by the owner when designing a project that mitigates wildfire risk.

As for a project's reduction of GHG emissions, applicants should expect to implement solar into their project's design and provide an adequate number of charging stations for electric cars.

How well have key questions over contract and insurance law on smoke damage to grapes and resulting wine been resolved after the major wildfires in recent years? What new questions have arisen?

Nick Donovan: The increased awareness and number of claims have in many cases improved the way that growers and vintners approach smoke taint issues in the contracts between them. There is a better and more nuanced approach to risk-sharing for those growers and wineries that have addressed this issue in new contracts.

Josh Devore: Smoke damage remains a somewhat elusive and contentious issue, with little legal authority to assist. A Westlaw search for “smoke taint” in California state and federal courts yields precisely three cases. Thus, most importantly, the concerns about smoke damage have led (responsible) parties to plan for the eventuality and incorporate provisions into their contracts to address such risks. Those that have not done so still face much of the same uncertainty as before. Helpfully, academic research has continued to develop in the area, leading to better methodologies for detection. This in turn allows for better contracting. But it remains unclear what will happen the next time the parties who have not updated their contracts end up having a smoke taint dispute.

Jeremy Little: There is a growing recognition in the industry that each side needs the other and the more they can work together the better. Recently, more and more wineries and growers are working together for a mutually beneficial result. A few years ago, grape purchase agreements added page-long sections dealing with smoke taint and testing procedures.

This year, many have returned to allow for the two parties to find a business solution rather than fight. The labs and the industry are grappling with the impact, short and long-term, of smoke taint. Until science is clear, the legal approach to this issue remains in flux.

Brian Russell: Grape growing contracts are now being drafted with clear provisions as to when grapes can be rejected by the winery. The grape contract should establish clear tolerance levels of the key compounds believed to be predictors of smoke taint and the levels that would trigger a total rejection of the grapes by the winery.

Issues between grower and the winery tend to arise when it is unclear if the wine grapes have been tainted by smoke. Many of the wineries located in Napa and Sonoma Counties produce high quality luxury wine products, so any remote chance that the grapes might be tainted, which would negatively impact the final product, the winery may look to reject the fruit. In reality, there are many factors that go into wildfire smoke's influence on wine grapes. That is why it is critical for the grower and the winery to have clear metrics in the contract to identify when the grapes have been tainted by smoke, so that there is no ambiguity as to when the fruit can be rejected by the winery.

Additionally, crop insurance has become a necessity for grape growers in fire prone regions like the North Bay. If a fire devastates a grape grower's entire harvest and if they do not have crop insurance, they will have a total loss for that grape growing season. Crop insurance helps offset the losses that the grape grower experiences when smoke taint negatively impacts wine grapes.

What other significant legal issues are emerging for the wine industry?

Josh Devore: The wine industry, given its high-profile nature, remains a target for opportunistic legal claims by numerous groups. Those range from claims regarding accessibility of websites under the ADA, to technical compliance with permits under the Clean Water Act, to emerging privacy laws in various states. The wine industry is heavily regulated, and complying with every applicable rule requires extensive vigilance. As rules continue to develop, particularly in the digital space, the industry will need to keep pace. Disclaimer: The author opinion contained in this article is for informational purposes only and should not be construed as legal advice.

Michael Newman: The federal agency regulating wine industry trade practices, the Alcohol & Tobacco Tax & Trade Bureau has issued an advance notice of proposed rule-making relating to alcohol beverage industry trade practices. The concept as I understand behind the rule-making initiative is both to deregulate where it can and clarify existing regulation rather than add more regulation.

Whereas, virtually all retail sales through the 90s occurred in bricks and mortar stores, that is no longer the case. Clarification is particularly needed to address marketplace developments like digital marketplaces and apps, marketplace facilitators, third party providers, and third party promotional companies.