Wineries and Spirits Manufacturing and Wholesaling in Sonoma County

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1 County of Sonoma, Permit and Resource Management Department Wineries and Spirits Manufacturing and Wholesaling in Sonoma County A Technical Report based on County, State and Federal Permits for Alcoholic Beverage Processing in Sonoma County Denise Peter, AICP Planner III

2 Table of Contents Executive Summary... 4 Purpose of Study... 4 Background... 5 Location of winery facilities in urban areas... 6 Growth of virtual wineries/custom crush clients... 6 Continued popularity of winery tasting rooms & events to provide direct marketing... 7 Dominance of production capacity in unincorporated County in rural areas north of Hwy Breweries on the rise in the last 5 years in urban locations... 8 Regulatory Environment... 9 Federal FTTB Permits Wine Producer/Blender Permits Distillery Permits Wholesaler Permits State ABC Licenses Winegrower (Winery) Distilled Spirits Manufacturer & 06-Still Public Warehouse Beer & Wine Wholesaler /20- Wholesaler/Offsale Beer & Wine Combination (virtual wineries/custom crush clients) Wine Blender Small Beer Manufacturer (Brew Pub or Micro-brewery) County Permits Use Permits for Processing, Tasting Rooms, Events Zoning Permits for Wine Wholesaler Home Office Occupation Design Review for Permitted Uses in Industrial Parks Alcoholic Beverage Facilities: Location & Trends Wineries (FTTB Wine Producer/Blender, ABC Type 02, County Use Permit) City vs. County Unincorporated County: Urban vs. Rural Unincorporated County: American Viticultural Areas Unincorporated County: Case Production Approved with Use Permits Unincorporated County: Tasting Rooms Approved with Use Permits Unincorporated County: Agricultural Promotional Events at Wineries Approved with Use Permits. 35 Spirits Manufacturing (FTTB Distillery Permit, ABC License Types 04 & 06) City vs. County Unincorporated County: Urban vs. Rural Warehouses Allowing Wine Blending (Public Warehouse ABC 14) Wholesalers (FTTB Wholesaler Permit, ABC Type 17 Beer & Wine Wholesaler) Virtual Wineries (ABC License Types 17/20 Combination) City vs. County Unincorporated County: Urban vs. Rural Unincorporated County: American Viticultural Areas ABC Type 17 Wholesalers Not Associated with ABC Type 20 (Offsale) License Wine Blenders (ABC License Type 22) Small Breweries (ABC License Type 23) Attachments AVA Map Urban Service Area Map ABC License Types & Description Appendices A. Listing of County Approved Winery Sites, June B. Partial Listing of State ABC Licenses for Alcoholic Beverage Manufacturing, July C. Listing of Federal FTTB Permits for Wine Producers, Wholesalers, Distilleries, May Page 2

3 Table of Figures Figure 1: Top 5 CA Counties with Wineries... 5 Figure 2: Top 5 CA Counties for Winery Employees... 5 Figure 3: Top 5 CA Counties for Annual Winery Payroll... 6 Figure 4: ABC Wholesale/Offsale Licenses by City or County and Type Figure 5: ABC Wholesale/Offsale Licenses by Type and City or County Figure 6: Types of Wineries Approved in Unincorporated Sonoma County Figure 7: # of Approved Wineries by Year of Last Application and Type Figure 8: Average Processing Fees for Approved Wineries by Year Figure 9: Wine Wholesaler Home Occupation Permits by Year Figure 10: Wine Wholesaler Home Occupation Permits by AVA Figure 11: FTTB Wine Producer/Blender Permits by City or County Figure 12: ABC Type 02 Winegrower/Winery Licenses by City or County Figure 13: ABC Type 02 Winegrower/Winery Licenses by Year and City or County Figure 14: Sewer and Water Services (USA s) in Unincorporated Sonoma County Figure 15: FTTB Wine Producer/Blender Permits by USA or Not Figure 16: ABC Type 02 Winegrower/Winery Licenses by Year and USA or Not Figure 17: ABC Type 02 Winegrower/Winery Licenses by Year and USA (Uninc.) Figure 18: # of Winery Applications Processed by Year and USA (Uninc.) Figure 19: Sonoma County American Viticultural Areas (AVA's) Figure 20: FTTB Wine Producer/Blender Permits by AVA (Uninc.) Figure 21: ABC Type 02 Winegrower/Winery Licenses by Year & AVA (Uninc.) Figure 22: # of Approved Wineries by Year of Last Application Submittal and AVA Figure 23: Type of Winery by AVA (Uninc.) Figure 24: Case/Year Approved Production Capacity by AVA (Uninc.) Figure 25: Case/Year Production Capacity by USA or Not (Uninc.) Figure 26: # of Approved Tasting Rooms by Type and AVA (Uninc.) Figure 27: Type of Winery by AVA (Uninc.) Figure 28: Wineries Approved for Events by AVA (Uninc.) Figure 29: Total Approved Winery Events per Year by AVA (Uninc.) Figure 30: Average # of Annual Events per Winery by AVA (Uninc.) Figure 31: Average Winery Maximum Event Size by AVA (Uninc.) Figure 32: ABC Type 04 & 06 (Spirits & Stills) by Year (Cities and County) Figure 33: FTTB Distillery Permits by City or County Figure 34: ABC Type 04 & 06 (Spirits & Stills) by Year and City or County Figure 35: ABC Type 04 & 06 (Spirits & Stills) by Year and USA or Not (Uninc.) Figure 36: ABC Type 14 Public Warehouses by Year and City or County Figure 37: ABC Type 14 Public Warehouses by USA or Not (Uninc.) Figure 38: FTTB Wholesaler Permits by City or County Figure 39: FTTB Wholesaler Permits by USA (Uninc.) Figure 40: ABC Type 17 (Beer & Wine Wholesaler) Licenses by City or County Figure 41: ABC Type 17 (Beer & Wine Wholesaler) Licenses by USA or Not (Uninc.) Figure 42: ABC Type 17/20 ("Virtual Winery") Combination by City or County Figure 43: ABC Type 17/20 ("Virtual Winery") Combination by AVA & Year (Uninc.) Figure 44: County Wine Wholesaler Home Occupation Zoning Permits by Year Figure 45: ABC Type 17/20 ("Virtual Winery") by Year and USA or Not (Uninc.) Figure 46: ABC Type 17/20 ("Virtual Winery") by AVA (Uninc.) Figure 48: County Wine Wholesaler Home Occupation Zoning Permits by AVA Figure 47: ABC Type 17/20 ("Virtual Winery") by AVA & Year (Uninc.) Figure 49: ABC Type 17 (Beer & Wine Wholesaler) w/o ABC Type 20 by Year & City or County Figure 50: ABC Type 17 (Beer & Wine Wholesaler) w/o ABC Type 20 by Year and USA (Uninc.) Figure 51: ABC Type 22 Wine Blender by Year & City or County Figure 52: ABC Type 23 Small Beer Manufacturer by Year and City or County Page 3

4 Executive Summary Purpose of Study For several years, the Sonoma County Permit and Resource Management Department has published an annual inventory of its approvals for winery facilities. This inventory is commonly referred to as the Winery Database and is used by staff to assess cumulative impacts associated with the approval of new wineries. The inventory has also been distributed to local wine industry organizations. This year, the update of the PRMD Winery Database has been expanded to include an inventory of State Alcoholic Beverage Control (ABC) wholesale and offsale licenses active in Sonoma County, and Federal Alcohol, Tobacco, Tax and Trade Bureau (FTTB) permits for Wine Producer/Blenders, Distilleries and Wholesalers. While this report focuses on County approved wineries, it also compares City and County permit data at the local, state and federal levels. The charts in this report show trends over the last ten to fifteen years indicating the changing nature of wine making from the traditional bricks and mortar model where most operations occur at one winery - to an increasing number of virtual wineries, custom crush facilities, and bulk wine liquid storage and bottling facilities. These trends have resulted in the ability for a particular wine label to contract out the various components of wine production & promotion, aging, bottling, storage and sales at multiple locations and with multiple entities. This report also briefly discusses the emerging new small brewery and distillery industries in Sonoma County. The purpose of this study is to provide technical data on existing conditions and highlight major trends to help inform future decision making processes related to permitting and to make this data more accessible to wine industry stakeholders and the public. Page 4

5 Background The alcoholic beverage industry and related food and wine tourism are top industries in Sonoma County. Sonoma County s direct sales of wine reached $1.6 billion in 2013 (Industry Sector Report, Wine Industry, Sonoma County Economic Development Board, 2014). The wine industry contributes both direct and indirect economic benefits to the County in the form of food and wine tourism and winery events. A 2012 study commissioned by the Sonoma County Winegrowers found that the combined economic impact of the wine business to the Sonoma County economy was $13.4 billion in 2012, and provided over 54,000 related jobs (Stonebridge Research Group, 2014). US Census data also reflects the strength of Sonoma County s wine industry. In the context of the California wine industry, Sonoma County s wine industry is second only to Napa County with regard to the number of wineries, number of winery employees, and winery payroll (US Census County Business Patterns, 2012). The substantial contribution of Sonoma County s winery manufacturing and wholesaling industries to the California economy is illustrated in the following charts: Figure 1: Top 5 CA Counties with Wineries Figure 2: Top 5 CA Counties for Winery Employees Page 5

6 Figure 3: Top 5 CA Counties for Annual Winery Payroll The numbers represented in the above charts are based on the Census Bureau s 2012 County Business Patterns (CBP). The CBP data is not all inclusive for this winery sector, but does allow for a relative comparison of statewide County rankings. The CBP data is based on companies that directly hire employees and are assigned an Employer Identification Number (EIN) for IRS purposes. CBP data does not include self-employed individuals or agricultural production employees. The CBP data undercovers businesses with less than 10 employees, and multi-unit businesses with less than 250 employees. It should be noted that in the next 6 months, the annual 5 year Economic Census will be released by the Census Bureau which will contain much more robust data at the County and City levels. Location of winery facilities in urban areas A noticeable trend since the Year 2000 is the movement of wineries into urban areas both cities and unincorporated County areas with public sewer. These trends are most apparent in the state s ABC licensing data. According to ABC records, the City of Santa Rosa gained all of its 130 Type 02 (Winegrower/Winery) licenses since 2001, and Healdsburg gained 99% of its 90 Type 02 licenses since More than half of Santa Rosa s and Healdsburg s Type 02 licenses have been issued in the last 4 and ½ years. Within unincorporated County Urban Service Areas, 71% of the total of 147 ABC Type 02 licenses issued have been issued in the last 4 and ½ years. Wineries and services that support the wine industry (liquid wine blending, storage & bottling) are moving into industrial parks at a very large scale in the unincorporated area, and in particular the Sonoma Valley USA which currently has 83 ABC Type 02 licenses. Some of these operators have an ABC Type 02 license and County Use Permit allowing the full range of wine processing, while others are allowed a more limited range of wine processing operations (excluding crush/fermentation) with an ABC wine wholesaler or blender license and a much simpler County Design Review Permit. An example of the large scale of these facilities is an 8,000,000 case/year blending/storage/bottling facility in the 8 th Street East industrial park area approved with a streamlined County Design Review permit process. The 8 th Street East industrial park area was specifically planned in the 1990 s for the establishment of a sewer assessment district and industrial buildings to serve the wine industry. The establishment and build out of the 8 th Street East sewer assessment district has been very successful in providing additional crush, bottling and storage capacity for the processing of grapes into wine. Growth of virtual wineries/custom crush clients Another trend observed in the last 10 years is the emergence of permits for virtual wineries. The availability of ABC s Type 17/20 virtual winery license combination has allowed nearly 400 license holders (246 in the unincorporated area) to operate as wineries with the exception of the crush/ferment Page 6

7 process and certain tasting room privileges. Virtual winery licenses (also known as custom crush clients) can be held by vineyard owners, or persons that buy grapes, juice or bulk wine for blending. Often, the licensee s premises is their home office. The approximately 400 ABC virtual winery licenses obtained only since about the Year 2000, is substantial when compared with the 1,079 ABC s Type 02 (winegrower/winery) licenses obtained since the 1960 s. Continued popularity of winery tasting rooms & events to provide direct marketing Tasting rooms and winery events are important direct marketing tools for wineries in Sonoma County. Approximately 50% of California s wineries are located in Napa and Sonoma County (2012 Census County Business Patterns), and the ability to introduce wines to locals and tourists at the winery site provides a competitive advantage particularly when the winery is located in a beautiful setting as so many of Sonoma County s wineries are. Approximately two thirds of the County s 439 approved wineries are approved to operate tasting rooms. In terms of percentages, the Dry Creek Valley American Viticultural Area (AVA) has the highest percentage of wineries that accommodate tasting rooms (62 of 78 wineries or ~80%). Slightly over 31% of the County s approved wineries are approved to operate special events. The Russian River Valley AVA (35 of 104 wineries) and Dry Creek Valley AVA (33 of 78 wineries) have the most wineries where special events may be held. Cumulatively, the County has approved 2,600 events per year at County approved wineries. The average number of events/per year per winery varies greatly by AVA. At the high end is the Sonoma Valley AVA with an average of 26 events/per year per winery, to a low of 12 to 13 events per year per winery in the Russian River Valley and Dry Creek Valley AVA s. The average maximum event size varies also by AVA, from a high of 211 persons/event average in the Sonoma Valley to 85 to 115 in the Green Valley, Russian River Valley and Dry Creek Valley AVA s. (Note: In order to get more representative averages, the calculation of these averages excluded 16 events of 500 to 3000 persons, and 6 wineries that were approved for 60 or more annual events.) Dominance of production capacity in unincorporated County in rural areas north of Hwy 12 The County s 439 approved winery sites have a combined approved production capacity of 44 million cases per year. 37 million, or 84%, of this production capacity is located outside of Urban Service Areas. The following AVA s have the highest total annual production capacity: Alexander Valley: 12.3 million cases Russian River Valley: 10.5 million cases Green Valley: 6.9 million cases Dry Creek Valley: 6.6 million cases (4.9 million cases from the Gallo Winery) Sonoma Valley: 3.5 million cases With regard to wine production in Urban Service Areas, the top three are: Graton Urban Service Area: 3.1 million (3 million cases/year from one facility, remainder from four others) Santa Rosa Urban Service Area: 3 million cases (all from one facility) Sonoma Valley Urban Service Area: 750,000 cases (from 12 facilities ranging from 12,000 to 256,000 cases per year) In terms of zoning interpretation, wineries that are approved to produce a specified number of cases per year, are allowed the full range of winery operations from the crushing and fermenting process to bottling and storage. Large blending and bottling facilities that do not involve the crush/fermentation process and Page 7

8 that are located in Urban Service Areas are not considered wineries. They are considered a form of wholesale warehousing. The County does not collect data on case/year bottling operations associated with these industrial wholesale blending, warehousing and bottling operations. Nor does the County have access to data indicating where the bulk wine that is received at industrial warehouse facilities was crushed and fermented. But as an example of the magnitude of some of these urban blending/bottling/warehousing facilities, one such site noted on its Design Review application that it had a bottling capacity of 8,000,000 cases per year. Breweries on the rise in the last 5 years in urban locations Breweries are locating in urban areas. The emerging small beer manufacturing industry is overwhelmingly choosing to locate in Cities. Only four of the 31 ABC Type 23 licenses are in the unincorporated County. Other significant trends include: 87% of ABC small brewery licenses (31 total) are in Cities. The only large brewery (ABC Type 01) is located in the City of Petaluma in an industrial park. 70% of ABC small brewery licenses were originally issued in the last 4 ½ years. Page 8

9 Regulatory Environment The production and sale of alcoholic beverages is highly regulated at the local, state and federal levels. At the federal level consumer protection and truth in labeling are primary regulatory functions. At the State level, issues of community over-concentration are addressed with certain types of licenses. At the local level, neighborhood compatibility and minimizing environmental impacts are major concerns in the permit review process. The table below is a very simplified summary showing correlations between permits and licenses required at the County, State and Federal level for various alcoholic beverage business operations. There are many combinations of permits and licenses possible. With the exception of a referral process for proposed ABC license applications to the County for zoning compliance, there is not coordination amongst the 3 agencies during their separate permit application processes. Wine Production/ Winery Wine Blender Federal TTB State ABC County Notes Wine 02 Use Permit Producer/ (Winegrower/ Blender Winery) Wine Producer/ Blender 22 (Wine Blender) Design Review (industrial zones) Use Permit (ag zones) Traditional bricks & mortar winery allowing full range of activities. Does not allow crush/fermentation. ABC Type 22 may be used with a TTB Bonded Wine Cellar permit for the storage of non-tax paid wine that may or may not involve blending. Virtual Wine 17/20 Zoning Permit The virtual winery does not crush Winery Wholesaler (Wholesale/ Home Office or ferment grapes. The site where Wholesaler Offsale) the wine is actually made (the Office (includes custom crush clients) custom crush winery) must have the appropriate ABC & TTB permits typically a County Use Permit, an ABC Type 02, and a TTB Wine Producer/Blender and Wine Bond. Brewery Brewers 01 (Large) Use Permit Also requires TTB Brewers Bond Notice 02 (Small) Distillery Registration of Distilled Spirits Plant 04 (Distilled Spirits) Use Permit Also requires TTB Spirits Bond. There are no TTB exemptions for home stills for personal use. 06 (Stills) Public Wine 14 (Public Design TTB Wine Producer/Blender permit Warehouse Producer/ Blender Warehouse) Review required if warehouse is a Bonded Wine Cellar, or Taxpaid Wine Wholesale Warehouse Wholesaler 17 (Beer & Wine Wholesaler) Design Review Bottling House. Page 9

10 Federal FTTB Permits The Federal Alcohol, Tobacco, Tax and Trade Bureau (TTB) regulates the tobacco and alcohol industries. Its primary purpose is for the collection of excise taxes and consumer protection through compliance programs such as the prevention of misleading labeling and advertising. This report focuses on the following types of TTB permits: Wine Producer/Blender Wholesaler Distillery Wine Producer/Blender Permits Wine Producer/Blender Permits are required for the following types of operations. Bonded Winery: a Bonded Winery is a facility that is authorized to produce wine, and is responsible for all production activities: receipt, production, blending, cellar treatment, storage and bottling or packaging and are required to register under the Internal Revenue Code for tax purposes. Bonded Wineries that contract to produce wine for Custom Crush Clients (Wholesalers) are a type of Bonded Winery referred to as a Custom Crush Winery and are responsible for wine production, records and reports, obtaining label approval and wine tax payments. Involves untaxed paid wine. Bonded Wine Cellar: a Bonded Wine Cellar does not engage in the production of wine, but in the blending, cellar treatment, storage, bottling, and/or packaging of wine. These facilities are bonded storage warehouses established to store, blend, or bottle untaxpaid wine. Alternating Proprietor Winery (shared winery facilities): This type of winery accommodates companies that desire to share an existing bonded winery facility rather than build or purchase their own. Each proprietor using the Bonded Winery premises must separately meet application requirements and be independently responsible for meeting labeling requirements and paying wine taxes. Taxpaid Wine Bottling House bottles, packages, repackages, and may mix wine of the same kind and taxable grade when excise tax has already been paid on such wine. Distillery Permits Distilled Spirits Plant Beverage: A distilled spirits plant may produce, bottle, rectify, process or store beverage spirits. Examples of distilled spirits include neutral spirits or alcohol (i.e. vodka or grain spirits), whiskey, gin, brandy, blended applejack, rum, Tequila, cordials and liqueurs. Wholesaler Permits Wholesaler (Alcohol): Wholesaler businesses which sell beverage alcohol products they did not produce or manufacture at wholesale to other wholesalers or retailers. Custom Crush Client: A type of wholesaler arrangement that allows for someone with grapes or other winemaking materials to contract with existing Bonded Winery facilities to make wine for Page 10

11 them. These companies are referred to as Custom Crush Clients, and will qualify as TTB Wholesalers. Custom Crush Clients receive the wine from the Bonded Custom Crush Winery and are able to sell and market as their own. State ABC Licenses The purpose of the California Alcoholic Beverage Control (ABC) Department is to tax and regulate the manufacturing, distribution and sale of alcoholic beverages consistent with the California Alcoholic Beverage Control Act (CA Business and Professions Code, Division 9 Alcoholic Beverages). The ABC refers proposed license applications to the County PRMD for zoning compliance verification before the ABC license is approved. This report includes data on the following ABC Wholesale and Offsale license types, with specific focus on the license types in bold. See also Attachment 3 (ABC License Types and Descriptions) which provides more detail on ABC license type descriptions. 01-Beer Manufacturer (Large Brewery) 02-Winegrower (Winery) 03-Brandy Manufacturer 04-Distilled Spirits Manufacturer 05-Distilled Spirits Manufacturer Agent 06-Still 07-Rectifier 09-Beer & Wine Importer 10-Beer & Wine Importer General 11-Brandy Importer 12-Distilled Spirits Importer 13-Distilled Spirits Importers General 14-Public Warehouse 16-Winebroker 17-Beer & Wine Wholesaler 18-Distilled Spirits Wholesaler 20-Offsale Beer & Wine 21-Offsale General 22-Wine Blender 23-Small Beer Manufacturer (Brew Pub or Micro-brewery) 29-Winegrape Growers Storage The charts below summarize the types of ABC Wholesale and Offsale licenses in Sonoma County. Page 11

12 Figure 4: ABC Wholesale/Offsale Licenses by City or County and Type Figure 5: ABC Wholesale/Offsale Licenses by Type and City or County Page 12

13 02-Winegrower (Winery) Wineries and Spirits Manufacturing and Wholesaling in Sonoma County This type of ABC license is the most typical and comprehensive type of ABC license in terms of allowing the full range of activities associated with the traditional bricks and mortar winery that crushes grapes, ferments juice into wine, ages, bottles, stores, sells and markets its finished product through tasting rooms and events. As of mid-year 2014, there were 1,079 Type 02 licenses in Sonoma County, 754 of which are in the unincorporated part of the County. This license allows the following privileges: Sale of wine Production of wine and brandy by fermentation Use of grapes other than licensee s own Crushing fruit or purchasing unfermented juice or bulk wine Not required to own bottling equipment Providing tastings of own wine Selling own brands of wine and brandy to wholesalers or retailers and consumers for offsale use Selling bulk wine to other winegrowers, blenders and wholesalers 04-Distilled Spirits Manufacturer & 06-Still The Type 04 license allows for the production of distilled spirits from naturally fermented materials or in other manners. The functions of this type of license, in addition to that of production, include packaging, bottling, rectifying, and flavoring. The Type 06 license applies to stills used for the making of alcoholic beverages or capable of such use. A still is defined in the Alcoholic Beverage Control Act as "...any apparatus capable of being used for separating alcohol, or alcoholic vapors or solutions from alcohol or alcoholic solutions or mixtures...". As of mid-year 2014 there were 47 Type 04 & Type 06 permits in the County, with 31 of those located in the unincorporated part of the County. 14-Public Warehouse The Alcoholic Beverage Control Act defines a public warehouse as "...any place licensed for the storage of, but not for sale of, alcohol, or alcoholic beverages, for the account of other licensees including storage in a United States customs bonded warehouse, a United States internal revenue bonded warehouse, and a United States bonded wine cellar.". It is also one of the types of premises from which a distilled spirits wholesaler may make deliveries if it is in the county where he/she is licensed. Public Warehouses are also one of the few premises that may consign for alcoholic beverages imported from out of state. There are 48 public warehouse licenses in the County, with 26 located in the unincorporated area almost equally divided between locations with urban services and those without. 17-Beer & Wine Wholesaler A Type 17 (Beer & Wine Wholesaler) license allows the sale of the alcoholic beverage only to persons holding ABC licenses that allow for its resale. It also allows for the labeling, bottling, or packaging of wine. Page 13

14 17/20- Wholesaler/Offsale Beer & Wine Combination (virtual wineries/custom crush clients) This license combination is typically held by custom crush clients who buy finished wine from a winery that has produced it under the client s direction. The Type 17 (Wholesaler) allows for receiving finished wine, bottling, labeling, packaging and wholesale to persons with ABC licenses that authorize its resale. The Type 20 (Offsale Beer & Wine) allows for the retail sale of beer and wine for consumption off site. When these licenses are held together they allow for resale to retailers and other licensed wholesalers who sell to consumers. This license combination allows new vintners to enter the winemaking business without the time and expense of developing a standalone bonded winery facility. This license combination facilitates internet retail sales and has responded to the emerging wine business on the Internet beginning approximately 15 years ago. It has created another sales channel for California wine and the state's wine grape growers. The winemaking for custom crush clients must occur at a bonded winery that is responsible for all production and federal TTB record keeping/reporting/tax payments. The custom crush client receives its wine in a fully finished bottled, labeled and TTB taxpaid state. Alternately the custom crush client s wine may be transferred to another bonded facility such as a warehouse. Custom crush clients with this license combination must also obtain a federal TTB Wholesaler permit. Many of the holders of this license combination in the unincorporated part of the County have also obtained County Zoning Permits for wine wholesaler home office occupations a simple over the counter permit costing less than $200. The County has issued 336 of this type of zoning permit 95% of which have been issued since the Year There were 391 ABC Type 17/20 licenses in Sonoma County as of mid-year 2014, with 246 of these occurring in the unincorporated part of the County. The majority of these 17/20 licenses in the unincorporated County are in rural areas not served by public utilities. 22-Wine Blender A Type 22 ABC Wine Blender License authorizes the operation of a Bonded Wine Cellar pursuant to Federal TTB permit requirements for such. The Type 22 license applies to those who do not have facilities or equipment for the conversion of fruit into wine and do not engage in the production of wine. A wine blender is not required to engage in blending or bottling wine. He/she may elect to operate only a warehouse facility for the storage of non-tax paid ("in-bond") wine. This activity requires a Bonded Wine Cellar permit from TTB in addition to the ABC Type 22 wine blender license (ABC Act, Section 23770). The Type 22 license allows all of the privileges of a 02-Winegrower's license except: to crush and ferment and produce wine from grapes, berries, or other fruits; to obtain or be issued a duplicate winegrower's license; to buy, sell, receive, or deliver wine from persons other than authorized licensees; to sell and deliver wine to consumers for consumption off the premises where sold; to exercise certain on-sale privileges as provided by state law There are 16 Type 22 Wine Blender licenses in Sonoma County, half of which are in the unincorporated part of the County. More than half of the Type 22 licenses in the unincorporated County are located in industrial areas. Page 14

15 23-Small Beer Manufacturer (Brew Pub or Micro-brewery) The privileges and limitations for this type of license are the same as for the Type 01 Beer Manufacturer (Large Brewery) except that it is limited to the manufacture of 60,000 barrels/year. The Type 23 license also allows the following privileges: Sale of its beer at the licensed premises to consumers for offsite or onsite consumption Sale of its beer to any person holding a license authorizing the sale of beer Sale of beer and wine, regardless of source, to consumers for consumption at a bona fide public eating place on the manufacturer's licensed premises or adjacent to and owned by manufacturer There were 31 active Type 23 Small Beer Manufacturer licenses in the County only 4 of which are in the unincorporated part of the County. Santa Rosa has 10, followed by Petaluma with 7. Over two thirds of these permits originated within the last five years. In addition to the Active licenses, there were 3 applications for Type 23 licenses as of mid year 2014, one of which was in the unincorporated part of the County. There is only 1 ABC Type 01 (Large Brewery) license in the County - Lagunitas Brewery in the City of Petaluma. Page 15

16 County Permits The following types of permits are required for winery activities in Sonoma County: Use Permit/Design Review: wine processing, tasting, events Design Review: blending & bottling wine, bulk wine and case goods storage in industrial parks Zoning Permit Only: home occupation office for wine wholesalers Wineries are allowed in rural agricultural and resource zones and in urban industrial zones where sewer service is available. All winery activities in rural and agricultural zones require a Use Permit. In Industrial zones, grape crushing and fermenting requires a Use Permit, but liquid storage and blending, bottling, and dry case goods storage and distribution require only a Design Review Permit. Home office activities that do not involve wine processing or storage can be approved with an over the counter Zoning Permit. Use Permits for Processing, Tasting Rooms, Events Wine processing, tasting rooms and special events (5 or more/year) require Use Permits and are allowed in the following zoning districts in unincorporated Sonoma County: Zoning District Processing Tasting Events (5+/year) Rooms LIA (Land Intensive Agriculture) UP UP UP LEA (Land Extensive Agriculture) UP UP UP DA (Diverse Agriculture) UP UP UP RRD (Resources and Rural Development) UP UP UP RC (Rural Commercial)f UP UP UP AS (Agricultural Services) UP UP UP AR (Agricultural and Residential) UP Not allowed Not allowed M1 (Limited Urban Industrial) UP Not allowed Not allowed M2 (Heavy Industrial) UP Not allowed Not allowed M3 (Limited Rural Industrial) UP Not allowed Not allowed MP (Industrial Park) UP Not allowed Not allowed The Use Permit process can be lengthy and costly due to public notice and/or hearing requirements and environmental review. It is a discretionary permit process resulting in conditions of approval being applied which address impacts including the following: Water Wastewater Noise Traffic Solid Waste Disposal Grading/Drainage Impacts to creeks/trees Aesthetics Neighborhood compatibility In many cases special study reports (biology, traffic, water, wastewater, and noise) are required to be provided at the applicant s expense as a part of the environmental review process required by the California Environmental Quality Act (CEQA). Page 16

17 Staff assigned to process these applications typically focuses on specific geographical areas such as Dry Creek/Alexander Valley, Sonoma Valley, the Russian River Valley or specific industrial parks. Total Numbers and Types Wineries with County Use Permit Approvals As of June 2014, 439 sites have been identified in the unincorporated area that have been approved for a variety of winery operations. Not all of these sites have active winery operations, as it can take many years to construct and begin operations. Use Permits do not expire once vested or once conditions of approval have been met. Roughly two-thirds of these sites approved for winery-related activities involve some form of visitorserving activity such as a tasting room or special events. A very small number of sites in industrial zoning districts which were approved as warehouses for the storage of wine in tanks and barrels have been included in the County s winery database this year, due to the very large volume of tank and barrel storage involved. At one site alone, a warehouse with tank and barrel storage of bulk wine is bottling up to 8 million cases/year. This facility was approved as storage and not wine processing. In the future, it may be necessary to better track and monitor liquid storage sites for impacts related to water and sewer use. These liquid storage and bottling warehouses are becoming increasingly more prevalent and are important facilities needed to provide bulk wine blending, storage and bottling capacity for local grape grower. The chart below shows the number of sites that have been approved for the various combinations of winery operations. Figure 6: Types of Wineries Approved in Unincorporated Sonoma County Page 17

18 The chart below show County Use Permit activity by year and by the type of winery permitted. This chart represents County permit activity where wineries have been approved. It does not represent the number of new wineries approved by year. Some of these approvals are only for minor revisions or time extensions. What is noticeable in the chart below is that the vast majority of permit activity after the recession of 2008 involved wineries that have production facilities with visitor serving activities (tasting rooms and/or events) represented by color bands of blue or orange. Figure 7: # of Approved Wineries by Year of Last Application and Type Page 18

19 Permit Processing Fees The Permit and Resource Management Department processes Use Permits for wineries on an At-Cost basis with a planner billing rate of $140/hour. Fees can vary widely. An initial deposit ranging from $8,500 to $16,000 for a major revision or new winery (based on environmental review with special study reports) is required at application submittal. Staff time is tracked, and if staff time exceeds the initial deposit, subsequent deposits are required. At-Cost processing fees continue to be collected after project approval to ensure condition compliance. The condition compliance phase typically extends through the building permit and construction phases. Final permit costs vary based on the environmental review process in agricultural and environmentally sensitive areas. Rarely, an Environmental Impact Report (EIR) may be required which could result in an additional one to two years of processing time and several hundred thousand dollars in EIR costs. Lower fees are associated with simple time extensions and minor revisions. In 2011, the Board approved an Economic Stimulus Ordinance that created a streamlined automatic approval process for Use Permit time extensions. Winery Use Permit approvals that were eligible for such streamlined time extensions appear in the charts below in the years 2011 to The chart below shows a simple averaging, by year, of approved Use Permit application processing costs. Figure 8: Average Processing Fees for Approved Wineries by Year Page 19

20 Zoning Permits for Wine Wholesaler Home Office Occupation In addition to Use Permits, the County issues Zoning Permits for Home Offices for wine wholesalers. These can be for any combination of home office uses associated with winery transactions, but do not allow onsite production, storage or bottling. These permits are typically signed off at the front counter upon submittal and a fee of under $200. The charts below show the numbers per year, and location of County-issued Zoning Permits for Wine Wholesaler Home Occupations. Figure 9: Wine Wholesaler Home Occupation Permits by Year Figure 10: Wine Wholesaler Home Occupation Permits by AVA Page 20

21 Design Review for Permitted Uses in Industrial Parks The County has four manufacturing (industrial) districts that allow certain wine-related operations with a staff level Design Review Permit (i.e. no Use Permit). The following zoning districts allow bottling works and wholesale warehouses as a permitted use with only a Design Review requirement. M1 (Limited Urban Industrial) M2 (Heavy Industrial) M3 (Limited Rural Industrial) MP (Industrial Park) The Design Review requirement focuses on onsite parking and driveway configuration, loading zones, signage, exterior lighting, solid waste and recycling facilities, and building aesthetics. No public hearing is required. Environmental review is typically not conducted. This is a very streamlined process. The County has issued Design Review Permits in industrial parks for wine barrel and bulk wine stored in tanks. For example, one of these sites on 8 th Street East in the Sonoma Valley, received a staff level approval for a wholesale warehouse/bottling facility that stores wine in barrels, tanks, and bottles up to 8,000,000 cases per year. For comparison, the largest winery Use Permit the County has approved to date was for the Gallo Winery in the rural Dry Creek Valley which was approved for a production capacity of 5,000,000 cases per year. The difference between the two is that Gallo is allowed to crush and ferment, while the 8 th Street East facility stated it did not crush and ferment. If staff determines that activities conducted in warehouses in industrial parks constitute a winery, then a Use Permit is required. There is currently no definition for winery in the zoning code. Often the definition for ag processing is relied upon in making such zoning interpretations: Agricultural processing means the act of changing an agricultural product from its natural state to a different form, as grapes to wine, apples to juice or sauce, etc. The County does not currently maintain a database of where all bottling and winery warehouse uses occur in industrial districts. Page 21

22 Alcoholic Beverage Facilities: Location & Trends To illustrate trends related to location and time, this section of the report will focus on the following categories of winery activities: Wineries (FTTB Wine Producer/Blender, State ABC Type 02, County Use Permit) Distilleries (FTTB Distilleries, State ABC Type 04 & 06) Warehousing, Public (FTTB Wholesaler or Wine Producer/Blender, State ABC Type 14) Wholesalers (FTTB Wholesaler, State ABC Type 17) Virtual Wineries (State ABC Type 17/20 Combination, County Zoning Permit) Wine Blenders (FTTB Wine Producer/Blender, State ABC Type 22) Small Breweries (State ABC Type 23) Permit data will be illustrated and discussed at the federal, state and local levels. Note that data for the year established was not available for federal permits. Wineries (FTTB Wine Producer/Blender, ABC Type 02, County Use Permit) City vs. County The vast majority of TTB Wine Producer/Blender and ABC Type 02 (Winegrower/Winery) licenses are located in unincorporated Sonoma County and have been established after the Year 2000, as shown in the two charts below. 78% of Federal TTB Wine Producer/Blender permits and 70% of ABC Type 02 Winegrower licenses are in the unincorporated area. The two charts below compare the numbers of federal and state winery permits for the cities and unincorporated area. Figure 11: FTTB Wine Producer/Blender Permits by City or County Page 22

23 Figure 12: ABC Type 02 Winegrower/Winery Licenses by City or County State annual issuance of ABC Type 02 permits almost tripled from the year 2002 to 2006, with even steeper increases occurring in the Year 2012 to the present. Note that the Year 2014 below only represents half of one year. Figure 13: ABC Type 02 Winegrower/Winery Licenses by Year and City or County Page 23

24 Unincorporated County: Urban vs. Rural As mentioned in the prior section, most of the County s wineries are in rural unincorporated areas. While public sewer and water services are available in all nine of the cities in Sonoma County, only the following unincorporated communities have public sewer and water. These unincorporated areas with public sewer and water are identified in the Sonoma County General Plan as Urban Service Areas (USA). Those indicated in bold below are the Urban Service Areas that serve the majority of wineries that are located in unincorporated USA s. 8 th Street East Airport Industrial Area (near Sonoma County Airport) Bodega Bay Forestville Geyserville Graton Guerneville Larkfield/Wikiup Occidental Penngrove Santa Rosa County Islands (primarily Roseland/Santa Rosa Ave) Sea Ranch The Springs (Agua Caliente, Boyes Hot Springs, El Verano) Public sewer and water services in unincorporated communities are shown in the map below: Figure 14: Sewer and Water Services (USA s) in Unincorporated Sonoma County Page 24

25 The chart below illustrates the location of the 565 Federal TTB Wine Producer/Blender permits with regard to location in a rural area with no public services (464 permits) or in a County Urban Service Area. The Sonoma Valley USA has the majority of these types of permits (69) as compared to the other unincorporated USA s. Figure 15: FTTB Wine Producer/Blender Permits by USA or Not The chart below illustrates the location of the 754 ABC Type 02 licenses in the unincorporated County with respect to whether they are located in areas without public sewer, or a specific Urban Service Area (USA) with public sewer. Most ABC Type 02 licenses in the unincorporated area are located in rural areas. The Sonoma Valley USA with 83 ABC Type 02 licenses has the most as compared to other USA s. Figure 16: ABC Type 02 Winegrower/Winery Licenses by Year and USA or Not Page 25

26 The chart below highlights the location of only the 147 ABC Type 02 licenses that are in unincorporated USA s and illustrates the high number of this type of license in the Sonoma Valley USA as compared to other USA s. Figure 17: ABC Type 02 Winegrower/Winery Licenses by Year and USA (Uninc.) With regard to County Use Permits for wineries, in Urban Service Areas, The Sonoma Valley USA again takes the lead with 20 Use Permit approved winery sites as compared with the next highest area Geyserville with 6 Use Permits. Figure 18: # of Winery Applications Processed by Year and USA (Uninc.) Page 26

27 Unincorporated County: American Viticultural Areas American Viticultural Areas (AVA) are grape growing regions that are established by the federal government. Federal rules apply to labeling wines that are associated with AVA s. The map below illustrates AVA s in Sonoma County. Where AVA s overlap, this report assigns the data to the smaller AVA. For example, if a winery was in both the Russian River Valley and Green Valley AVA s, the data in this report would be assigned to the Green Valley AVA. Figure 19: Sonoma County American Viticultural Areas (AVA's) Page 27

28 Most of the FTTB Wine Producer/Blender permits (92%) are located in the unincorporated County and found in the following AVA s: Figure 20: FTTB Wine Producer/Blender Permits by AVA (Uninc.) For For ABC Type 02 licenses, the Russian River Valley and Green Valley together contain almost one third of the unincorporated County s ABC Type 02 licenses. Dry Creek Valley has the second highest amount of Type 02 licenses with 17%. Page 28

29 The chart below illustrates both the rate of establishment of State ABC Type 02 licenses in the various AVA s, and the total number of ABC Type 02 permits currently in each AVA. For example, the Los Carneros AVA is represented by a bright blue band in the bar chart below and currently has 107 ABC Type 02 licenses. As can be seen in the chart, the Los Carneros AVA has had the majority of its currently active Type 02 licenses established in the last five years. Figure 21: ABC Type 02 Winegrower/Winery Licenses by Year & AVA (Uninc.) The chart below illustrates permit activity at sites where the County has approved wineries by year and by AVA. Note that the top three AVA s with regard to total number of winery sites are: Russian River Valley (103) Sonoma Valley (80) Dry Creek Valley 78) Figure 22: # of Approved Wineries by Year of Last Application Submittal and AVA Page 29

30 The chart below shows the types of wineries for each AVA. This chart shows the visitor-serving wineries in red and green bands, as compared to wineries that are used for production activities only. Of note, is that the highest percentage of visitor-serving wineries has been in the Dry Creek Valley AVA as compared to the other top six AVA s. Figure 23: Type of Winery by AVA (Uninc.) Page 30

31 Unincorporated County: Case Production Approved with Use Permits The chart below shows the approved maximum case/year production capacity by each AVA. Alexander Valley has the most production capacity approved, with 5 wineries at 1,000,000 or more cases per year and another eight at 100,000 to less than 1,000,000 cases per year. The Russian River and Green Valley AVA s also have a mix of very large wineries, large wineries, mid-size and smaller. The Dry Creek Valley (total approved production capacity of ~6.6 million cases/year) is somewhat unique in that it has one very large winery (Gallo with 4.9 million cases/year), four wineries with production capacities between 100,000 to 350,000 cases/year, and the remaining approximately 1,000,000 cases/year divided amongst 74 other wineries. 42% of the Dry Creek Valley wineries are approved with 5,000 cases/year or less production capacity. Figure 24: Case/Year Approved Production Capacity by AVA (Uninc.) Page 31

32 The chart below shows the County s ~44 million case/year permitted production capacity distributed by whether the winery is in an Urban Service Area or not. Note that permitted (or approved) capacity may be larger than actual built capacity. 84% of the County s permitted wine production capacity is located in rural and agricultural areas without access to public sewer. The Graton (with 5 approved wineries) and Santa Rosa (with 1 approved winery) Urban Service Areas are the two USA s with the most production capacity. The Sonoma Valley USA (with 20 approved wineries) is only the third ranking Urban Service Area in terms of production capacity, although previous charts show that the Sonoma Valley USA has by far the most winery approvals at the federal, state and local levels of all the unincorporated USA s. Figure 25: Case/Year Production Capacity by USA or Not (Uninc.) Page 32

33 Unincorporated County: Tasting Rooms Approved with Use Permits Roughly two-thirds of the County approved sites for winery activities are approved for tasting rooms. The chart below shows where these occur, and if the tasting room is open to the public, open by appointment only or a combination. The top four AVA s for numbers of tasting rooms are: Russian River Valley (64 tasting rooms) Dry Creek Valley (62) Sonoma Valley (50) Alexander Valley (43) 235 of the winery sites approved for tasting rooms have had hours of operation established. The most common hours of operation are: 10 am to 5 pm (73 tasting rooms) 10 am to 4 pm (20) 11 am to 5 pm (17) 10 am to 6 pm (16) 8 am to 5 pm (15) 10 am to 4:30 pm (13) 11 am to 4:30 pm (7) Figure 26: # of Approved Tasting Rooms by Type and AVA (Uninc.) Page 33

34 The chart below illustrates the mix of winery types by AVA. Of note, in the Dry Creek Valley, is the high proportion of wineries with tasting rooms, as compared to the other AVA s. Wineries with tasting rooms are represented by red and green bars. Wineries that process wine only are represented in blue. Figure 27: Type of Winery by AVA (Uninc.) Page 34