Category archives for “Alcohol”

Off-Premise Retail Caps - Are They Constitutional?

May 02, 2017

A South Carolina law preventing an entity from holding an interest in more than three off-premise retail liquor licenses was deemed unconstitutional earlier this year. The South Carolina Supreme Court accepted an argument by Total Wines & More that the state’s cap on liquor stores had no legitimate basis. Numerous bills had been filed with the state legislature over recent years to have the cap overturned, but without success. The Supreme Court majority, however, found that the state had not offered a persuasive argument on why the restriction was a proper use of its general police power. The only justification provided by the state in the case was that the law was designed to support small businesses, and preserve the right of small, independent liquor dealers to do business, which the court identified as simple economic protectionism.

A number of other states have caps on ownership of retail off-premise liquor licenses, particularly across the Northeast. Similar laws have survived constitutional challenges in states like New Jersey, New Hampshire, and Massachusetts. In these states, justifications for these laws have included reasons such as intensifying the dangers of liquor sales stimulation through retail concentration, preventing monopolies, avoiding indiscriminate price-cutting and excessive advertising, and discouraging absentee ownership. The success of the suit in South Carolina is likely to encourage a new wave of challenges to these laws, as the chain stores focus more efforts on expansion of their model in the region. The ongoing legislative and judicial dispute between Total Wine & More and the State of Connecticut, for example, on the statutory minimum pricing restrictions there, follows a similar path of seeking to open up a market more friendly to chain store liquor retail.

Since the decision was handed down on March 29, the South Carolina Senate has already approved a move to legislate around it, by passing an amendment to the state budget. The change would delay the implementation of the court’s decision for a year, and would require an applicant for a fourth store to pay the equivalent of a year’s gross sales from one of its current stores before it could get the new license. The amendment now passes to the General Assembly for consideration. In the interim, the state has publicly said
that they are accepting liquor store applications in light of the new ruling.

It goes without saying that the elimination of the retail cap in South Carolina is likely to significantly alter the retail liquor landscape there, and that other similar decisions in other states would affect the retail market nationwide. If you want more information on retail liquor licensing, please contact one of the attorneys at Strike & Techel.


Michigan Relaxes Labeling and Shipping Requirements for Direct-to-Consumer Wine Shipments

March 13, 2017

Recently, we posted about Michigan Senate Bill 1088 here (“SB 1088”), which expands the delivery privileges of in-state retailers, and which authorizes third party providers and common carriers to assist with shipping and delivery on behalf of in-state retailers, subject to certain limitations. SB 1088 also amends Michigan’s winery direct-to-consumer shipping law, Mich. Comp. Laws § 436.1203(4). The revisions relax the labeling and packaging requirements for direct winery shipments, which will be welcome news to direct winery shippers as the Michigan Liquor Control Commission (“MLCC”) has actively enforced these labeling and packaging requirements in recent years.

As of March 29, 2017, wineries no longer need to include their direct shipper license number or the order number on the outside label of each package shipped into Michigan. Direct shippers will still be required to label the top panel of the shipping package with the name and address of the individual placing the order and the name of the designated recipient, if different from the person placing the order. The outside label must also state “Contains Alcohol. Must be delivered to a person 21 years of age or older.” Inside each package to be shipped, the invoice or packing slip is no longer required to list the Michigan wine label registration number of approval for each wine shipped, although wineries will still be required to register their wine labels with the MLCC.

SB 1088 also establishes new rules for common carriers. Common carriers acting on behalf of winery direct shipper licensees are subject to new recordkeeping and reporting requirements, as detailed in our prior post regarding SB 1088.

If your winery is in need of assistance regarding direct shipping laws, contact one of the attorneys at Strike & Techel.


Michigan Senate Bill 1088: New Rules on Shipping & Delivery for Retailers and Third Party Providers

March 01, 2017

On January 9, 2017, Michigan Governor Rick Snyder signed Senate Bill 1088 (“SB 1088”) into law, which revises Mich. Comp. Laws § 436.1203. SB 1088 amends direct-to-consumer shipping laws for wineries and retailers, but most notably expands in-state retailer privileges to ship and deliver wine and beer – and in some cases spirits – directly to consumers in the state of Michigan. This post will focus on the changes SB 1088 makes with respect to retail shipping and delivery and use of third party providers (“TPPs”) and common carriers. The law takes effect on March 29, 2017.

Retailer Shipping and Delivery

Prior to SB 1088, retailer shipping and delivery options were limited. Only retailers in Michigan that held Specially Designated Merchant (“SDM”) licenses were allowed to deliver beer and wine to Michigan consumers, provided the delivery was made by the retailer’s employee. SB 1088 allows several additional methods of retailer shipping and delivery. Shipment by common carrier and use of a TPP are now permissible in some circumstances. Additionally, Specially Designated Distributor (“SDD”) retail licensees may also now deliver spirits to Michigan consumers. Once SB 1088 goes into effect, the following retail shipping and delivery methods will be permissible:

Retailer Shipping and Delivery

Third Party Providers

As explained above, SB 1088 allows in-state SDM and SDD retailers to use third-party providers to facilitate sales and delivery to Michigan consumers. The law allows a “third party facilitator service” (or, TPP) to facilitate sales and delivery to consumers by means of the internet or a mobile application. SB 1088 requires a TPP to obtain a “third party facilitator service license” from the Michigan Liquor Control Commission (“MLCC”), and imposes recordkeeping and reporting requirements. Once licensed, a TPP may make deliveries of beer and wine on behalf of a SDM retailer, or spirits on behalf of a SDD retailer. Interestingly, SB 1088 provides that a violation by a licensed TPP will not be considered a violation of the retailer (whereas in most states the violation will be imputed to the retailer).

It appears that the new TPP license will be considered a relative to a retail license, as SB 1088 contains tied house restrictions prohibiting manufacturers, suppliers, and wholesalers from directly or indirectly having any interest in a TPP licensee and from aiding or assisting a TPP licensee with anything of value. TPPs must also offer their services to all brands of each retailer without discrimination.

Common Carriers

SB 1088 also permits common carriers to deliver wine on behalf of SDM retailers. There is no license requirement, but SB 1088 requires common carriers to keep records of deliveries and file quarterly reports with the MLCC. The reports, records, and supporting documents must be kept for three years, and must include: (1) the name and address of the person shipping the product; (2) the name and address of the person receiving the product; (3) the weight of the alcoholic beverages delivered; and (4) the date of delivery.

For more information about the recent changes to Michigan law, contact one of the attorneys at Strike & Techel.


Changes to Federal Excise Tax Bond Requirements – Do You Still Need a TTB Bond?

January 17, 2017

The Protecting Americans from Tax Hikes Act (the “PATH Act”) took effect on January 1st, 2017. The PATH Act changes the bond requirements for some TTB-permitted producers that are liable for excise taxes on distilled spirits, wine, and beer. Currently, all producers are required to file a bond covering operations and withdrawals of spirits, wine, and beer. The PATH Act provides that producers that reasonably expect not to owe more than $50,000 in excise taxes during the year are no longer required to have a bond on file with the TTB. Beginning this year, a new applicant that indicates that they do not expect to owe more than $50,000 in excise taxes during the first calendar year will not be required to submit a bond with the permit application. Also, an existing producer may request termination of its bond requirement by filing an amendment to its permit, which the TTB will process only after the producer has submitted excise tax returns, payments, and reports for 2016, so that the TTB can determine the producer’s eligibility to terminate its bond. The chart below provides examples of production volumes that would result in annual excise taxes of less than $50,000, meaning that producers under those volumes would not be required to file a bond with the TTB covering operations.

The TTB has issued Industry Circular 2016-2 with more information, and will publish regulations to implement the above statutory changes in the near future. For more information regarding the PATH Act and TTB bond requirements, contact one of the attorneys at Strike & Techel for further guidance.


Strike & Techel Welcomes Tom Kerr as a Partner.

January 09, 2017

The partners at Strike & Techel are pleased to announce the elevation of Tom Kerr from Senior Associate to Partner in the firm! Tom spent his first few years after law school practicing commercial litigation, but once he joined Strike & Techel in 2011, he quickly realized alcohol law was much more fun. Tom’s diverse practice includes advising supplier and retailer clients on trade practice issues, distribution, promotions, advertising, marketing, and tied-house issues. Tom has particular expertise in ecommerce and he advises many third party providers and others on emerging industry practices. If you have questions in these areas, or regarding foreign travel, the Denver Broncos, or Star Wars, Tom’s probably got the answers.

To learn more about Tom and Strike & Techel, visit us at www.alcohol.law.


Governor Cuomo Vetoes Empire Wine Bill (Again)

November 15, 2016

On November 4, 2016, New York Governor Andrew Cuomo vetoed Assembly Bill 10248 (AB 10248). This is the second time in two years that Governor Cuomo has vetoed a bill seeking to amend the state’s alcohol laws to clarify the basis upon which the New York State Liquor Authority (SLA) can revoke, suspend or cancel a license or permit.

AB 10248 would have prevented the SLA from taking disciplinary action against licensees for violations of other states’ alcoholic beverage laws unless the alleged violation independently violated a provision of NY law, or the other state had determined that a violation had occurred after providing the accused with full due process of law; the SLA could not take action based on a mere allegation of a violation in another state. AB 10248 would have specifically permitted the SLA to take action against licensees for knowingly making alcohol sales to minors or failing to pay taxes in other states, but presumably the other state still would have had to prove liability before the SLA could act.

AB 10248 stems from the SLA’s ongoing battle with Empire Wine. In 2014, the SLA alleged that Empire Wine was violating other states’ laws by direct shipping wine to consumers in a number of states that prohibit direct shipping by out-of-state retailers. In Governor Cuomo’s veto memo, he reasoned that the veto ensured that licensees would abide by New York’s alcohol laws and prevent a “regulatory gap” in which retailers could violate other states’ laws without repercussions in New York.


World’s Best Alcohol Law Blog Gets New Name!

November 07, 2016

Our regular readers will notice that our blog has a new name: Alcohol.law Digest. We’ve been posting topical information about the legalities of the alcoholic beverage industry on our Imbibe-Blog (aka Imbiblog) webpage for six years and we felt like it was time for a change. Going forward, we’ll continue posting about the topics we think will be interesting and important to our readers, but we’ll do it under a name everyone can pronounce! Farewell Imbiblog (or is it Im-BEE-blog?) and welcome Alcohol.law Digest!


Governor Brown on a Hot Streak, Signs Three New Alcoholic Beverage Laws

October 03, 2016

On Wednesday, September 28, 2016, Governor Brown signed three alcohol-related bills into law, creating new on-sale restaurant licenses for San Francisco, legalizing the glass of bubbly you have with your haircut and criminalizing powdered alcohol. All three laws become effective on January 1, 2017.

SB 1285 - 5 New Restricted Restaurant Licenses for San Francisco

Senate Bill 1285 (“SB 1285”) adds Section 23826.13 to the California Business and Professions Code, which authorizes the California Department of Alcoholic Beverage Control (“ABC”) to allocate 5 new “neighborhood-restricted special on-sale general” licenses in San Francisco. The 5 new licenses are subject to most of the same privileges and restrictions – and the same original fee of $13,800 – as an on-sale general license for a bona-fide eating place (Type 47). However, these 5 licenses differ from regular Type 47 licenses in that they are neighborhood-specific, are nontransferable, and when surrendered, revert back to the ABC for issuance to a new applicant. This means that licenses will only be available, and must remain in, the eligible neighborhoods – Bayview’s Third Street, outer Mission Street in the Excelsior, San Bruno Avenue, Ocean Avenue, Noriega Street, Taraval Street and Visitacion Valley. Licenses in the most popular restaurant hubs remain available only by purchasing an existing license, market values of which often run several hundred thousand dollars. The new licenses also do not permit the exercise of off-sale privileges, like a Type 47 does.

In order to be eligible to apply for a license, SB 1285 requires a pre-application meeting, which must be conducted and verified by a local government body. This requirement includes notifying nearby residents, conducting a community meeting, outreach to certain neighborhood associations and to the San Francisco Chief of Police. The ABC will establish a priority application period in accordance with Cal. Bus. & Prof. Code § 23961, and if more than 5 applications are received, they will hold a lottery for eligible applicants.

AB 1322 - Beauty Salons and Barber Shops

Assembly Bill 1322 (“AB 1322”) permits beauty salons and barber shops to serve wine and beer without a license provided there is no extra charge for the service. The service can only be offered during business hours and no later than 10:00 p.m., and the amount of beer and wine cannot exceed 12 ounces and 6 ounces per customer, respectively. Further, the salon or barber shop providing the service must be in good standing with the State Board of Barbering and Cosmetology. Prior to AB 1322, the exception allowing unlicensed service of alcohol by a business to its customers only existed for limousines and hot air balloon ride services. (Cal. Bus. & Prof. Code § 23399.5)

AB 1554 - Ban on Powdered Alcohol

Assembly Bill 1554 makes it a crime to purchase or possess powered alcohol. The bill defines powdered alcohol as “an alcohol prepared or sold in a powder or crystalline form that is used for human consumption in that form or reconstituted as an alcoholic beverage when mixed with water or any other liquid.” The definition makes clear that vaporized alcohol (which is already illegal in California) is not powdered alcohol. The bill also prohibits the manufacture, distribution and sale of powered alcohol. An individual caught making, selling or using powered alcohol is guilty of an infraction and must pay a $125 fine. (Cal. Bus. & Prof. Code §§ 23794 and 25623)

For more information about the recent changes to California’s alcohol laws, contact an attorney at Strike & Techel.


Supplier-Funded Instant Rebate Coupons No Longer Permitted on Wine in California

September 06, 2016

Last week, California Governor Jerry Brown signed Senate Bill 1032 (“SB 1032”) into law. SB 1032 amends Section 25600.3 of the California Business and Professions Code, and extends the recent prohibition on supplier-funded beer, cider and perry coupons to wine. You can read more about the prohibition of supplier-funded beer coupons in our prior blog post here.

What is permitted post-SB 1032?

The law still permits discounts on alcoholic beverages in other forms, including mail-in rebates by wine and beer suppliers, all retailer-funded coupons, and instant coupons funded by distilled spirits suppliers for distilled spirits (provided the coupon does not also discount beer or wine). Furthermore, beer manufacturers and winegrowers can still offer instant rebates at their premises, and can offer rebates direct to consumer on internet sales.

When are the changes effective?

The new law takes effect on January 1, 2017. Supplier-funded wine coupons can continue to be accepted at retail until December 31, 2016, and suppliers will be able to continue redeeming coupons accepted by a retailer until March 31, 2017.

Who can do what?

Capture


Illinois SB 2989: Unlicensed Direct Wine Shippers Beware

September 01, 2016

On Friday, August 26, 2016, Illinois Governor Bruce Rauner signed Senate Bill 2989 (“SB 2989”) into law. SB 2989 amends various sections of the Illinois Liquor Control Act that affect direct wine shipping into Illinois as well as use of third party providers (“TPPs”). This post summarizes the changes made by SB 2989, which take effect on January 1, 2017. The higher license fees, described below, take effect immediately.

Harsher Penalties for Direct Wine Shipping Violations

SB 2989 imposes tougher penalties on direct wine shipping violations. Any person, including wineries, importers, and retailers, who distributes or sells 108 liters or more of wine (144 bottles of wine), 45 liters or more of spirits (5 12/750 cases), or 118 liters or more of beer (more than 28 12-packs of beer) without a license is guilty of a Class 4 felony for each offense, which has a minimum sentence of 1 year. Prior to SB 2989, the first offense was a business offense with a fine of not more than $1,000, and any subsequent offense was a Class 4 felony. For illegal shipments of less than 108 liters of wine, less than 45 liters of spirits, or less than 118 liters of beer, the penalty for the first offense is still classified as a business offense with a fine of not more than $1,000, and the penalty for subsequent offenses remains a Class 4 felony. Furthermore, any person who has already been issued a cease and desist notice from the State Commission could face the same felony charges.

New Disclosure Requirements for Winery Shipper’s Licensees and Reporting Requirements for TPPs

For new and renewing applicants of an Illinois winery shipper’s license, SB 2989 requires disclosure of all third parties authorized to ship the licensee’s wine, excluding common carriers, to the Illinois Liquor Control Commission (“ILCC”). Licensees must submit each third party’s name and address and file a copy of the written appointment of the TPP with the ILCC. SB 2989 provides that a TPP, other than a common carrier, shipping wine on behalf of a winery shipper’s licensee is the agent of the licensee, and that the licensee is responsible for the acts and omissions of the TPP. In turn, SB 2989 requires that each TPP consent to the jurisdiction of Illinois and the ILCC. Furthermore, SB 2989 imposes a new audit requirement on any appointed TPP, which will be required to file with the ILCC, by February 1 of each calendar year, a statement detailing each shipment made to an Illinois resident. The ILCC also has the power to deny any third party appointment if the TPP previously violated the Liquor Control Act.

Higher License Fees

Across the board, SB 2989 increases license fees for manufacturers, wholesalers, and retailers. The fees for a winery shipper’s license for a winery producing under 250,000 gallons annually have been increased from $150 to $350 for the initial application and $200 for an online renewal. The fees for a winery shipper’s license for a winery producing over 250,000 gallons, but under 500,000 gallons annually have been increased from $500 to $1,000 for the initial application and $750 for an online renewal. The fees for a winery shipper’s license for a winery producing 500,000 gallons or more annually have been increased from $1,000 to $1,500 for the initial application and $1,200 for an online renewal.

For more information about the changes to the Illinois direct shipping laws, contact an attorney at Strike & Techel.


Strike & Techel Welcomes Associate Attorney, Alana L. Joyce

August 18, 2016

Strike & Techel is delighted to announce the addition of another fabulous attorney to our team! Alana L. Joyce has joined S&T as an associate attorney, and will advise alcohol industry clients on a wide range of legal matters, including business formation, contracts, trademarks, and general alcohol regulatory advice. Alana received her J.D. from University of California, Davis, and then began practicing alcoholic beverage law at a Napa Valley law firm before deciding to join S&T. We feel very fortunate to have found another attorney who shares our passion for the quirky and ever-fascinating world of alcoholic beverage law!

To learn more about the firm, visit strikeandtechel.com or call 415-226-1400.


California ABC Announces 2016 New License Authorizations

August 15, 2016

It’s that time of year when the ABC announces priority applications, and this year’s numbers are sure to make a lot of retail business owners very happy! Every year the California ABC announces which counties are eligible for new on-sale and off-sale general licenses based on population growth versus existing license ratios within each county. The 2016 figures have been released, and the numbers this year are higher than usual.

What is a Priority application?

General retail licenses authorize the sale of beer, wine, and distilled spirits. They are restricted by county population and must typically be purchased on the open market from an existing licensee, often for a very high premium. Licenses are usually confined to the county in which originally issued, so prices vary drastically across the state. Every year, the ABC announces a ‘priority application period’ when they will accept new license applications. In addition, they announce a number of inter-county transfer allowances – where a business owner in a priority county can purchase a general license from a licensee in any other county and transfer it into the priority county.

If you’re in the market for an Off-Sale General Package Store License (Type 21), an On-Sale General Eating Place License (Type 47), or a Special On-Sale General Club License (Type 57) within a county where licenses are available, you should apply.

Licenses Available by County

The maximum number of priority applications the ABC typically authorizes for each category (new on-sale, new off-sale, inter-county on-sale, inter-county off-sale) is twenty-five. The ABC has authorized the maximum number of priority applications in several counties, including Alameda, Contra Costa, Los Angeles, Orange, Riverside, Sacramento, San Bernardino, and San Diego. For a complete list of license available by county, click here.

2016 Filing Period

ABC District offices will accept priority applications by mail or in person from September 12-23, 2016. If by mail, it must be postmarked on or before September 23rd. If the ABC receives more applications than licenses available, a public drawing will be held at the District office. Successful applicants will have 90 days to complete a formal application for the specific premises.

Fees

Priority application fees are $13,800 for new general licenses and $6,000 for inter-county transfers. A certified check, cashier’s check, or money order must be submitted along with the priority application. Unsuccessful applicants will be refunded the application fee, minus $100 service charge.

Residency Requirements

Every applicant must have been a resident of California for at least 90 days prior to the scheduled drawing. Exact drawing dates vary by District office, but all are in mid-late October. For corporations, limited partnerships, and limited liability companies, the 90-day residency requirement starts ticking upon registration with the California Secretary of State. Individual and general partnership applicants must submit proof of California residency.

If you’re interested in applying for a new or inter-county on- or off-sale general priority license, contact an attorney at Strike & Techel.


New FDA Menu Labeling Regulations Will Be Enforced Beginning May 2017

May 31, 2016

The Food and Drug Administration (“FDA”) recently released final industry guidance on the new menu labeling requirements in accordance with 21 C.F.R. § 101.11, implemented to comply with a provision of the 2010 Affordable Care Act. The new menu labeling rules require chain restaurants to provide calorie information on the menu and provide, upon customer request, additional nutritional information for menu items. The FDA’s final guidance can be found here, and will help industry members comply with these new menu labeling rules, which the FDA will begin to enforce in May 2017. This blog post provides a summary of the menu labeling rules and the FDA’s industry guidance.

What businesses must comply?

The new menu labeling rules apply to restaurants or similar retail food establishments, such as a bakery, a convenience store selling foods intended for immediate consumption, or a concession stand, that are a part of a chain with 20 or more locations that do business under the same trade name and that offer substantially the same menu items for sale. Additionally, a restaurant or retail food establishment may voluntarily register to be subject to the menu labeling requirements.

What is required of those businesses?

Under the new menu labeling rules, these businesses will be required to include calorie information on menus for all standard menu items. Additionally, these businesses will be required to have written information available upon customer request, regarding nutritional information for standard menu items, including the amount of total calories, calories from fat, total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, dietary fiber, sugars, and protein. These requirements apply to standard menu items, and do not apply to daily specials, custom orders, alcoholic beverages on display that are not self-service, or temporary menu items that only appear on the menu for less than sixty days per calendar year.

Are alcoholic beverages included?

Yes, the new menu labeling rules apply to alcoholic beverages sold in a restaurant or similar retail food establishment that is required or has registered to comply with the menu labeling rules. The rules apply to all alcoholic beverages that are listed on the establishment’s menu, subject to the exceptions for daily specials, custom orders, alcoholic beverages on display that are not self-service, or temporary menu items that only appear on the menu for less than sixty days per calendar year. The exception for alcoholic beverages on display that are not self-service will be helpful for establishments preparing mixed drinks. If the liquor bottles are on display, and the drinks are not listed on the menu, the establishment will not be required to make available calorie or other nutritional information.

How can calorie and nutrient information for alcoholic beverage products be obtained?

An establishment must have a “reasonable basis” for determining the calorie and other nutritional information for standard menu items. Establishing a “reasonable basis” may include utilizing nutrient databases, published cookbooks that contain nutritional information for recipes in the cookbook, nutrition information determined by laboratory analyses, or any other means that is reasonable. The
U.S. Department of Agriculture (“USDA”) maintains a nutrient database, available here, which the FDA’s guidance refers to as reasonable basis for calorie and nutrient calculations.

How will alcoholic beverage producers be affected?

The new menu labeling regulations will impact all alcoholic beverage producers that sell products to chain establishments with 20 or more locations. Those establishments will likely request that the alcoholic beverage producer provide the calorie and nutritional information for its products sold at the establishment. As most alcoholic beverages are not subject to the FDA rules governing labeling and nutritional information, this law will mainly affect alcoholic beverage producers that do not currently maintain calorie or nutritional information regarding the beverages that they produce. Alcoholic beverage producers should check the USDA database referenced above to see whether their products match entries currently listed in the database, as the database includes entries for several common types of alcoholic beverages. Additionally, the Brewers Association has announced that it will be running laboratory analyses for approximately 100 beer styles over the next year, which the Brewers Association plans to submit for inclusion in the USDA database. Alternatively, producers could submit their products for laboratory analyses in order to obtain accurate nutritional information.

For more information about menu and product labeling requirements, contact one of the attorneys at Strike & Techel for a consultation.


The Burden of Proof: TTB’s Annual Alcohol Sampling Program

April 20, 2016

Most of what consumers know about the alcoholic beverage products they buy comes from their interaction with the label, so it is important to get it right. The Alcohol and Tobacco Tax and Trade Bureau (TTB), which regulates the labeling of most beverage alcohol products, recently released their annual alcohol beverage sampling program results, highlighting the most common compliance issues with drinks labels in the marketplace. Every year, the TTB conducts a random survey of alcoholic beverage products available for sale to the public. They select a range of brands across the distilled spirits, wine and malt beverage categories, and crosscheck the information on the label against the beverage in the bottle (or can, or alternative packaging). In 2015, well over a third of the distilled spirits and malt beverages surveyed were non-compliant (at 62 out of 154, and 61 out of 158 respectively), and just under a quarter of the wines were non-compliant (at 34 out of 138).

Many of the products in the market were found to have labels that were different from the certificates of label approval (COLAs) that the TTB had issued for those products. The TTB has worked hard in the last few years to balance its limited resources against ever increasing numbers of COLA submissions, and has published a long list of allowable changes that can be made to approved COLAs. However, some changes still require a new COLA. Some of the information on the label can be changed or removed, the shape and color can be altered, and statements and graphics can be moved, but it is difficult to add anything new without getting a new COLA.

Leaving aside COLA compliance, however, far and away the biggest issue identified by the TTB was related to the alcoholic content claims of the products surveyed. Each category of alcoholic beverages has some room to maneuver with the stated alcohol content. In particular, wine and malt beverages have greater tolerances, because the regulations recognize that they are products which can and often do continue to evolve in the bottle. However, even with these permitted tolerances, over 20% of the samples had a stated alcoholic content that was non-compliant. A table wine between 7% and 14% alcohol by volume (ABV), is allowed to be up to 1.5% either above or below the stated alcoholic content on the label (provided the wine remains in the same tax class, below 14%). Wine with over 14% alcohol can still be up to 1% over or under the stated amount. Malt beverages can be up to 0.3% different from the labeled ABV, either higher or lower. In contrast to the permitted variations for wine and beer, distilled spirits are not allowed to contain any alcohol over the stated ABV. The regulations reflect TTB’s view that there is no reason why distilled spirits should not be able to be accurately proofed upon completion of production. Spirits are allowed a small 0.15% tolerance below the labeled amount, which reduction is only to recognize possible losses during bottling. The proofing and gauging of distilled spirits is key to the TTB’s principal aim of protecting the revenue, and is directly linked to how much tax is paid by the producer. The TTB offers a range of resources to help producers and bottlers with that process, and it is important to ensure that care is taken when your product is labeled.

For any questions related to labeling of beverage alcohol, contact one of the attorneys at Strike & Techel.


Class Action Dismissed in Arsenic in Wine Claim

March 28, 2016

Just over a year ago, a class action was filed in California against a group of six winery defendants, producing 83 named wine brands, alleging that the wines contained unsafe levels of arsenic (Charles et al. vs. The Wine Group, Inc., et al, No. BC576061). The case triggered numerous articles about wine potentially being unsafe for consumption. On March 23, 2016, the Los Angeles Superior Court sustained a demurrer by the wineries defending the claim, and dismissed the action. The plaintiffs did not allege actual harm from exposure to arsenic; rather, they asserted that the non-disclosure of trace arsenic constituted a breach of California’s “Prop 65” labeling and consumer notification requirements. The court disagreed. All claims against the wineries were dismissed.

Due to its presence in soil and ground water, virtually all food and beverages contain trace elements of arsenic. There is no US regulation setting a maximum quantity of arsenic that may be present in either food or wine, although the US Environmental Protection Agency (EPA) does have a limit for inorganic arsenic in drinking water, at 0.01mg per liter. Other countries regulate arsenic levels in wine. For example, the European Union adopted a maximum of 0.2mg per liter, a standard set by the International Organization of Vine and Wine (OIV). In Canada, there is a maximum limit of 0.1mg/liter of wine. The Liquor Control Board of Ontario (LCBO), one of the world’s largest wine purchasers, conducts regular testing of wines from all over the world, including some of the wines identified in the lawsuit, and all were below the regulatory limit for arsenic.

Shortly after the original claim was filed in this matter, UC Davis published a very helpful factsheet about arsenic contamination, which can be found HERE for more information.

Around the time of the original California state case, nearly identical arsenic lawsuits were also filed in federal courts in Louisiana, Florida, and Puerto Rico, with a long list of additional defendants. Those lawsuits were each dismissed without prejudice, and are not affected by the decision in California. The California plaintiffs have said they plan to continue to pursue their case, indicating that an appeal may be forthcoming.

For more information about the case, or about California wine labeling generally, contact an attorney at Strike & Techel.


Suppliers Now Allowed to Use Social Media to Support Certain Charity Events Sponsored by Retailers

February 17, 2016

Effective January 1, 2016, the California ABC Act contains a new section that loosens the restrictions suppliers face when mentioning a retailer in a social media post. Newly added Business and Professions Code § 23355.3 is aimed at clarifying how suppliers and retailers can co-sponsor nonprofit events. It was drafted, in part, as a response to the backlash that occurred after the ABC filed accusations against several wineries for advertising sponsorship of the “Save Mart Grape Escape” charity fundraising event in 2014. In that instance, several wineries posted or tweeted their support and sponsorship of the event on social media. The ABC reasoned that the suppliers were impermissibly advertising for Save Mart, a retailer, even though the event was held under a nonprofit permit issued to a bona fide nonprofit organization. The ABC alleged that by posting or tweeting about the event, the suppliers were giving a thing of value to the retailer, a practice that has long been considered a violation of California’s tied house restrictions.

California law has long permitted supplier licensees to sponsor nonprofit events if the nonprofit gets an event license, and the new law does not fundamentally change that. However, the new section clarifies that a supplier may advertise sponsorship or participation in such events even if a retailer is also a named sponsor of the event. Payments or other consideration to the retailer are still considered a thing of value, and are not allowed, but social media postings no longer fall under that broad category. There are restrictions on what the supplier is permitted to post about the retailer; posts cannot contain the retail price of alcoholic beverages and cannot promote or advertise for the retail licensee beyond mentioning sponsorship or participation in the event. The supplier can share a retailer’s advertisement for the event on social media, but the supplier is not permitted to pay or reimburse the retailer for any advertisement and cannot demand exclusivity of its products at the event. In short, the new section will allow exactly the type of supplier social media support that occurred in the Save Mart Grape Escape situation.


(Un)Happy Hour Regulations

February 10, 2016

Several states restrict or ban happy hour promotions, and many people assume that these restrictions are a remnant of Prohibition. However, the practice of “happy hour”—gathering before dinner for cocktails, wine, or beer—did not actually arise until during Prohibition. Because the sale of alcohol was illegal, drinking was a surreptitious activity performed in the privacy of homes or speakeasies. Thus, enthusiastic imbibers would gather in private for a couple of drinks prior to heading out to a public establishment for dinner, where alcohol would not be served. Following the repeal of Prohibition, happy hour specials were popular at restaurants and bars across the nation. However, the 1980s brought an increased focus on preventing drunk driving, which spurred changes to alcohol laws. In 1984, President Reagan signed a bill encouraging the nationwide adoption of 21 as the minimum drinking age, and states that refused to raise the legal drinking age to 21 lost substantial federal highway funds. Also, during this time, several states and municipalities passed laws banning happy hours in an attempt to reduce excessive consumption and drunk driving.

Happy hour regulations can take many forms. Examples of happy hour promotion types that are frequently prohibited or restricted include:

  • Unlimited Drinks — Many states, including New York, prohibit on-premise licensees from offering unlimited drinks for a single price. See N.Y. Alc. Bev. Cont. Law § 117-a.
  • Specials Lasting Only a Portion of the Day —North Carolina is one of several states that disallow on-premises licensees from offering a reduced price drink for only a portion of the day, such as between 4-6pm. See 14B N.C. Admin. Code 15B .0223.
  • Specials Only Available to a Segment of the Population — North Carolina also prohibits drink specials that are only offered to a segment of the population, such as a “Ladies’ Night” special. 14B N.C. Admin. Code 15B .0223. California also prohibits businesses from offering discriminatory price specials, such as specials that are based on a patron’s sex. Cal. Civ. Code § 51.
  • “Two-for-One” or Multiple Drink Specials — Several states, including Virginia, prohibit retail licensees from selling multiple drinks for a single price, such as a “two-for-one” special. See 3 Va. Admin. Code § 5-50-160.
  • Stacking – Massachusetts and Hawaii do not permit retail licensees to deliver more than two drinks to one person at one time, while Connecticut prohibits the delivery of more than one drink to any one person at one time. 204 Mass. Code Regs. 4.03; Honolulu Liquor Comm’n, Rule 3-84-78.52; Conn. Agencies Regs. § 30-6-A24b.
  • Temporal Restrictions — Ohio permits “happy hour” time periods, where drinks may be sold at a reduced price; however, no “happy hour” specials are permitted after 9pm. Ohio Admin. Code 4301:1-1-50.
  • Limit to Amount of Discount – Some states regulate the permissible amount of a discount for drinks for on-premises consumption, such as South Carolina which prohibits discounts greater than 50%, and Tennessee where drink discounts may not result in a price below the licensee’s cost. See S.C. Code Ann. § 61-4-160; Tenn. Code Ann. § 57-4-203.

Although many states have regulations prohibiting happy hour promotions, there have been some permissive changes in the past few years. In 2012, Kansas relaxed its laws regarding on-premises alcohol promotions, and drink specials that last only a portion of the day or apply only to a segment of the population are now permissible. In 2014, Virginia revised its happy hour laws slightly, allowing bars and restaurants to use the phrase “happy hour” via advertisements both on and off the licensed premises. In 2015, happy hour returned to Illinois, which now allows licensees to offer temporary drink specials for up to four hours per day, and not more than fifteen hours per week.

For advice regarding your state’s regulations governing happy hours and other alcohol promotions, contact one of the attorneys at Strike & Techel.


2015 at the TTAB: Are All Alcoholic Beverages Related Goods for Trademark Purposes?

January 25, 2016

In 2015, the Trademark Trial and Appeal Board (“TTAB”) continued the trend of finding different categories of alcoholic beverages to be related goods for purposes of a Section 2(d) likelihood of confusion analysis. Although there is no per se rule that all alcoholic beverages are related goods, trademark examiners at the Patent and Trademark Office (“PTO”), the TTAB, and reviewing courts routinely find that beer, wine, spirits, and other alcoholic beverages are related goods. For the average consumer or business owner, the grouping of all alcoholic beverages together as related goods for trademark purposes makes little sense. As the TTAB has stated, “[w]hile it is clear that tequila and wine are both beverages that contain alcohol, not even an unsophisticated purchaser would mistakenly buy one expecting the other.” In re Proximo Spirits, Inc., Serial No. 85865962 (Mar. 16, 2015) (not precedential). However, the question is not whether the goods are similar or competitive, but rather the question is whether a consumer encountering the goods in the market “would mistakenly believe that they share or are affiliated with or sponsored by a common source.” Anheuser-Busch, LLC v. Innvopak Systems Pty Ltd., 115 U.S.P.Q.2d 1816 (TTAB 2015) (precedential).

Why does the TTAB frequently find, when the marks are similar, that consumers would believe alcoholic beverages of different types originate from a common source? One reason is that some manufacturers produce multiple types of alcoholic beverages and sell those beverages under the same mark. In In re Sugarlands Distilling Company, LLC, the TTAB cited five examples of wineries also engaged in distillation and the sale of spirits, as well as “internet evidence show[ing] that there are a number of combination wineries and distilleries,” and that evidence alone was sufficient for the TTAB to find that the goods, wine and spirits, were related. Serial No. 85818277 (Nov. 20, 2015) (not precedential); see also In re Sonoma Estate Vintners, LLC, Serial No. 85842056 (Jan. 9, 2015) (not precedential) (citing fifteen registrations showing that various entities registered a single mark for wine and beer). The TTAB also typically finds that alcoholic beverages are sold in the same channels of trade, such as liquor stores and restaurants, and thus that consumers will encounter multiple types of alcoholic beverages in the same stores. In re Brent Theyson, Serial No. 85663894 (Dec. 4, 2015) (not precedential); In re Millbrook Distillery, LLC, Serial Nos. 85924732 and 85954556 (Feb. 9, 2015) (not precedential). Further, the TTAB commonly finds that alcoholic beverages of all types can be found at lower price points, and thus that consumers may purchase alcohol “without exercising great care.” In re Millbrook Distillery, LLC, Serial Nos. 85924732 and 85954556; Anheuser-Busch, LLC, 115 U.S.P.Q.2d 1816. These factors all tend to lower the bar for a finding of likelihood of confusion by the PTO and TTAB.

See below for examples of cases involving the relatedness of alcoholic beverages that were considered by the TTAB in 2015:

Contrary to the above trend, the TTAB reversed a refusal to register REUBEN’S BREWS (and design) in Class 32 for beer, despite the prior registration of RUBENS (and design) in Class 33 for wine. In re Reubens Brews LLC, Serial No. 86066711 (Oct. 27, 2015) (not precedential). The TTAB found the marks to be different in appearance, meaning, and commercial impression, although they were similar in sound. Considering evidence of manufacturers producing both beer and wine, an overlap in trade channels, and similar price points, the TTAB conceded that the “record establishes that there is some degree of relationship between beer and wine.” However, the TTAB acknowledged that the PTO “has in the recent past taken inconsistent positions when it comes to likelihood of confusion between marks for beer and wine,” and cited eighteen examples of similar or identical marks registered to different owners in beer and wine. The TTAB ultimately found in favor of the applicant, and reversed the refusal to register. However, the TTAB stressed that the finding was based on the “overall differences between the marks in their entireties.”

Notwithstanding the TTAB’s reversal in the REUBEN’S BREWS case, it would be premature to conclude that the PTO or the TTAB will increasingly recognize the potential differences between types of alcohol products, so it would be wise to consider trademarks in use on beverages of all types when evaluating a trademark for use with an alcoholic beverage product.

For specific trademark guidance, contact one of the attorneys at Strike & Techel.


Federal Definition of “Hard Cider” Will Be Expanded in 2017

January 18, 2016

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) (LINK). The PATH Act provides for changes to the definition of “hard cider,” which will bring valuable tax rate changes for some makers of cider and perry. Currently, “hard cider” is defined as a “still wine derived primarily from apples or apple concentrate and water, containing no other fruit product, and containing at least one-half of 1 percent and less than 7 percent alcohol by volume.” 26 U.S.C. § 5041(b)(6). Because the current definition of hard cider states that the wine must be still, the definition excludes ciders with carbonation in excess of 0.392 grams of carbon dioxide per 100 milliliters. 26 U.S.C. § 5041(a). The current definition also excludes perry, which is wine made from pears. Finally, the alcohol content of many wines made from cider apples ranges from approximately 5% to 8.5% alcohol by volume, and cider products with more than 7% alcohol do not meet the current hard cider definition.

Beverages that meet the definition of hard cider are taxed at the rate of 22.6 cents per gallon. 26 U.S.C. § 5041(b)(6). This rate is much more favorable than the $1.07 per gallon tax rate on still table wines, as well as the $3.40 per gallon tax rate on sparkling wines, and the $3.30 per gallon tax on artificially carbonated wines. 26 U.S.C. § 5041(b). Passage of the PATH Act will be welcome news to the cider and perry producers who have advocated for an expansion of the definition of hard cider in order to get the lower tax rate. Beginning on January 1, 2017, the definition of hard cider will be a wine that meets the following parameters:

  • Contains not more than 0.64 grams of carbon dioxide per 100 milliliters;
  • Made from apples, pears, or concentrate of apples or pears and water;
  • Contains no other fruit product or fruit flavoring other than apple or pear; and
  • Contains at least 0.5% and less than 8.5% alcohol by volume.

For more information on cider and perry, see our July 29, 2015 blog post “Comparing Apples and Pears” (LINK), and contact one of the attorneys at Strike & Techel for further guidance.


New California Law Creates License for Craft Distilleries, Updates Spirits Tasting Rules

October 13, 2015

On October 8, 2015, California Governor Brown signed the Craft Distilleries Act of 2015 into law, which creates a new license for craft distilleries. AB 1295 is a step forward for craft spirits producers, who will no longer be subject to the same strict restrictions that apply to traditional Distilled Spirits Manufacturers (Type 4 licensees). The new Craft Distiller’s license allows the production of up to 100,000 gallons of distilled spirits each year and also includes several other key privileges not available to larger distilleries that hold Type 4 licenses: Craft Distillers will be able to sell distilled spirits to consumers, operate restaurants from their premises, and hold interests in on-sale retail licenses.

AB 1295 adds several sections to the California Alcoholic Beverage Control Act, including Business and Professions Code Sections 23500 through 23508. Those sections include the following privileges for Craft Distillers:

  • Manufacture of up to 100,000 gallons of distilled spirits each fiscal year (July 1 – June 30), excluding any brandy the licensee may have produced under a Brandy Manufacturer license. Licensees can also package, rectify, mix, flavor, color, label, and export distilled spirits manufactured by the licensee.
  • Sale of up to 2.25 liters of its distilled spirits per consumer, per day, in conjunction with instructional tastings held on its licensed premises.
  • Operation of a bona fide eating place on its licensed premises or a location contiguous to its premises, from which the licensee may sell beer, wine, and distilled spirits.
  • May hold an interest in up to two California on-sale licenses, provided certain conditions are met.
  • Cannot be issued to anyone who manufactures or has manufactured for him over 100,000 gallons of distilled spirits, whether inside or outside California, excluding any brandy the licensee may have produced under a Brandy Manufacturer license.

The new bill also amends Business and Professions Code Section 23363.1 to allow Craft Distillers to conduct distilled spirits tastings either: a) off their licensed premises at a nonprofit event held under a nonprofit permit; or, b) at their licensed premises under specific conditions. The other notable change to the statute is that tastings can be provided in the form of a cocktail or mixed drink, and the sample size limitation has been changed to one and one-half ounces maximum per consumer per day. Those changes apply to both Craft Distillers and Distilled Spirits Manufacturers.

The new laws take effect January 1, 2016.

Contact one of the attorneys at Strike & Techel if you have any questions about distillery licenses in California or elsewhere.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •


California Brewpub Licenses: What You Need to Know

October 08, 2015

Craft beer continues to be all the rage in California and across the country. With the increase in demand for local craft beers, we’ve been getting a lot of questions about how to get licensed as a brewery in California. The California Department of Alcoholic Beverage Control (“ABC”) issues three primary license types that permit beer production, including Beer Manufacturer licenses (Type 1), Small Beer Manufacturer licenses (Type 23) and the increasingly popular On-Sale General Brewpub license (Type 75). The license privileges of each type of brewery license vary, and the brewpub license is a good choice for brewers that primarily want to operate a brewpub or microbrewery restaurant rather than sell their beers for consumers to drink off the brewery’s premises.

A Type 75 brewpub license authorizes the sale of beer, wine and distilled spirits for consumption at a bona fide eating place, which essentially requires that the facility be a restaurant with its own kitchen that serves meals. The ability to sell distilled spirits as a brewpub is a privilege that many find attractive in deciding between brewery licenses. Type 1 and Type 23 breweries may, but are not required to, operate bona fide eating places, but they are limited to beer and wine, and cannot sell distilled spirits. Additionally, beer, wine, and distilled spirits restaurant licenses (i.e., Type 47 On-Sale General for Bona Fide Public Eating Place) are often extremely expensive as the number of licenses issued is limited per county based on population. There is no cap on the number of Type 75 licenses that can be issued, so the Type 75 license can be an attractive option for businesses that want to sell distilled spirits, although all Type 75 licensees must meet certain brewing requirements.

Brewpubs must produce at least 100 barrels of beer per year and can produce no more than 5,000 barrels of beer per year. That production cap is substantially lower than the production allowances for Small Beer Manufacturers (less than 60,000 barrels per year) and Beer Manufacturers (60,000 barrels per year or more). Additionally, a Type 75 brewpub premises must have brewing equipment that has at least seven-barrel brewing capacity. The ABC has recently been looking into the brewing equipment of Type 75 licensees and enforcing against brewpubs that aren’t actually brewing beer or don’t have the requisite brewing capacity.

Other key features of Type 75 brewpub licenses include the following:

• Cannot make sales from the brewpub premises for off-premises consumption. This means that a brewpub cannot sell bottles, cans, growlers or other containers for consumption away from the brewpub.

• Can sell beer produced by the brewpub to California licensed wholesalers.

• Must buy all wine, distilled spirits, and beer not produced by the brewpub from a licensed wholesaler or winegrower. Note that brewpubs cannot buy or sell beer or other alcoholic beverages from other brewpubs or retailers.

The initial fee for a brewpub license is currently $12,000, which is more expensive than most California license types. The annual fee is determined by the population where the brewpub is located, and varies between approximately $500 and $1,000 per year. Additionally, local rules where the brewpub is located may require additional permitting or other approvals before the brewpub can operate. Lastly, all breweries, including brewpubs, must obtain a brewery basic permit from the Alcohol and Tobacco Tax and Trade bureau, the federal agency that regulates alcoholic beverages. There is no fee for the federal permit, but a bond is required.

Contact one of the attorneys at Strike & Techel if you have any questions about starting a brewery!


Re-Register Your Labels in Louisiana

September 28, 2015

Louisiana recently changed its system for label registration, and all labels previously registered with the state must be re-registered in the new system by the end of 2015.

Louisiana is one of many states that requires label registration before alcoholic beverages can be sold in the state. Until recently, Louisiana’s Department of Health and Hospitals handled the registration process, but as of August 2015, the label registration function is being handled by Louisiana Alcohol and Tobacco Control (ATC), the state’s alcohol beverage regulatory agency. The move should create a more efficient registration system, and allows the same agency that enforces alcoholic beverage laws to oversee the label registration process, which is consistent with how registration works in nearly all other states that have a registration requirement.

Labels must now be renewed annually, and all labels currently registered in the state must be updated with the ATC by December 31, 2015. Importantly, label registration can be completed online here. When a licensee with a valid Louisiana license number submits a label with an approved Certificate of Label Approval (COLA), the registration process is complete with no need to wait for further approval. Additionally, the price to register labels has been reduced from $27 per label to $5 per label.

Call one of the attorneys at Strike & Techel if you have any questions about label registration in Louisiana or other states.


Staying up to Date

August 31, 2015

Congratulations! You have your alcohol license and you are now in business. Don’t forget though, applying for and getting your license is not the end of your regulatory responsibilities – you also have ongoing reporting obligations. If anything changes in your business, e.g., if you get new investors, or some investors leave, if you appoint a manager, if your officers or directors change, or if you move or open a new location, you must report it to the licensing authorities. Depending on the nature of the change, it may even be deemed a license transfer and may require the same type of paperwork that was involved in getting your license in the first place.

A winery in Northern California recently found this out the hard way after it failed to update its federal permit when there was a change of ownership, with shares in the business being moved into a trust. The Alcohol and Tobacco Tax & Trade Bureau (TTB) discovered this fact during a routine audit and took disciplinary action. The winery settled the matter by submitting an offer in compromise of $3,000, for failing to meet its reporting and tax obligations, which was accepted by the TTB. You can find out more HERE.

An industry member’s reporting obligations should not be taken lightly. If you make any changes to your business, you should report them as soon as possible. In California and under the federal regulations, you have thirty (30) days to report such changes and failure to do so may expose your license to disciplinary actions like the one described above.

If you have any questions about reporting or licensing, please contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •


Comparing Apples and Pears

July 29, 2015

The cider and perry industry is booming. More and more producers are entering the market, and existing producers of other alcoholic beverages are expanding into cider and perry production. Although commonly associated with beer, cider and perry are actually considered wine under federal law, and can be interchangeably labeled as apple wine or cider, and pear wine or perry. Production of cider or perry requires a bonded winery permit from the Alcohol & Tobacco Tax and Trade Bureau (“TTB”). It must be made wholly from the alcoholic fermentation of sound, ripe apples, or sound ripe pears (the addition of sugar, water, or alcohol is permitted in specified quantities). The TTB recently updated its FAQs with a section on cider, which can be found HERE.

A cider or perry which is over 7% alcohol must be labeled in the same manner as wine, and a Certificate of Label Approval (“COLA”) must be obtained for the product from the TTB. If it is under 7%, the product is subject to Food and Drug Administration (“FDA”) labeling rules, including a required nutritional statement (see our recent blog posts on FDA alcoholic beverage labeling HERE and HERE). If any flavoring materials are added, like honey, spices, or artificial flavors, the product requires formula approval, even if it is under 7%.

Each state has its own regulatory framework for cider and perry. For example, in California, a Type 2 Winegrower can make cider and perry, and a licensed Type 1 Beer Manufacturer may also produce cider and perry without any additional state license (although they still need the TTB bonded winery permit). In New York, Breweries, Farm Breweries, and Farm Wineries can make cider and other “pome fruit” wines, including perry (again with the TTB winery permit). Interestingly, in New York, a product marketed as a cider or perry, up to 8.5% alcohol, must be brand label registered, and is not eligible for the standard wine exemption from registration.

If you have any questions about producing cider or perry, please contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •


Beer that isn’t Beer, Wine that isn’t Wine and Drinks that aren’t Beverages

April 27, 2015

Mostly in our practice at Strike & Techel we work with clients making fairly traditional alcoholic beverage products, albeit with new flavors, production methods and quality drivers. These classic alcoholic beverages are distilled spirits, wines and beers, subject to regulation by the Alcohol and Tobacco Tax and Trade Bureau (TTB). More and more, however, we are called upon to work with alcohol products that fall outside the TTB’s jurisdiction, either because they don’t meet traditional definitions, or because they simply aren’t classified as beverages.

Products that do not fit within TTB jurisdiction are subject to Food & Drug Administration (FDA) labeling requirements. Under TTB rules, wine must contain at least 7% alcohol, and beer must be malt-based. Because of these restricted definitions, common examples of drinks that are subject to FDA rules are wine coolers and ciders below 7% alcohol, and beers that aren’t made with malt. Any beers made with other grains, like sorghum, rice or wheat (usually to be sold as “gluten free” products), are under FDA rules. These beverages do not need to obtain label approval, as a standard alcoholic beverage would, but must comply with FDA rules on labeling, to avoid in-market audits for violations. In December 2014, the FDA finally published its guidance for industry on the labeling of non-malt-based beers, which had been in draft form since 2009 (LINK). It helpfully goes through all of the FDA labeling requirements that apply to such beers. These are the same requirements that apply to any FDA-regulated alcoholic beverage, including many ready to drink (RTD) beverages, as discussed in our recent blog post (LINK). Among the key distinctions from standard alcoholic beverage labeling are that the label must include an ingredient list and a nutritional statement.

As well as regulating alcoholic beverages, FDA also regulates certain non-beverage alcoholic products. These are products which are consumed – often as cocktail ingredients – but which are not classified as beverages by the TTB because they have been deemed “unfit” for beverage purposes under TTB regulations. Common examples of these products are bitters and other alcohol-based flavorings. Attaining non-beverage status is a goal rather than a failure for these products because products eligible for non-beverage status are exempt from payment of federal excise taxes and they can be sold by retailers without an alcoholic beverage license. Products with a lot of sugar or other flavorings or ingredients that serve to make them more palatable as beverages may not make the cut as non-beverages and would remain subject to excise taxes and TTB label jurisdiction.

TTB and FDA classifications of alcoholic products have significant implications on the way they are labeled, taxed and sold, so it is important to submit these products for TTB review before bringing them to market.

For more advice on alcoholic beverages and non-beverages, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •


Strike & Techel is hiring!

March 27, 2015

Strike & Techel LLP, a law firm specializing in alcoholic beverage law, is seeking an associate attorney with 2-5 years of law firm experience and enthusiasm for the alcoholic beverage field. The firm represents a broad range of clients, including producers (wineries, breweries and distilleries), importers, retailers, advertising/promotional agencies, and other related beverage industry businesses. S&T provides comprehensive counsel on a variety of topics relevant to our clients. We handle alcohol-specific matters such as regulatory compliance, dealings with state and federal alcohol agencies, and alcohol licensing, as well as general legal matters such as trademark registrations, contract drafting and review, purchase and sale transactions, etc. For more information about the firm, visit www.strikeandtechel.com.

Alcohol beverage law experience is highly desirable but not mandatory. The selected attorney will be responsible primarily for corporate matters and alcohol licensing projects. Strong corporate/transactional skills are essential, and familiarity with entity structuring and operating agreements/bylaws, commercial leases, and conditional use permits is preferred. The ideal applicant will have strong analytical, writing and communication skills, an engaging personality and a sense of humor.

If you think that you’d be a great fit with us, please send us your resume, a short sample blog post (modeled on the ones on our website) about a current alcoholic beverage issue that has caught your attention, a cover letter, references and salary requirements. In the cover letter, please tell us why you chose the issue in your sample blog post and why you are interested in alcoholic beverage law. We
will be accepting resumes through the end of April at .(JavaScript must be enabled to view this email address).


Changes to Small Brewery, Winery and Distillery Bonding, Reporting and Filing Requirements

March 11, 2015

The general rule for excise tax reporting for alcohol producers is that returns must be filed semi-monthly (i.e. twice a month). A special exception to that rule allows a small producer, who does not reasonably expect to be liable for more than $50,000 in excise tax in the year, to file quarterly returns. Each small producer is required to make a choice of whether to file quarterly or semi-monthly, with that choice impacting the bonding requirements for the production facility. The less frequent the excise tax payment, the higher the required bond amount. Very small wineries currently benefit from even longer reporting and tax deadlines. Wineries that expect to pay less than $1,000 in wine excise taxes in the coming year may file excise tax returns annually. Operations reports may also be filed annually if the winery doesn’t expect to produce more than 20,000 gallons of wine in any one month in the calendar year.

Now, under recent guidance from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), small brewers will be forced to file returns quarterly rather than semi-monthly. This change will affect around 90% of licensed brewers. With the mandatory quarterly filing, the required bond is set at a flat $1,000 amount (previously, the bond for a brewer paying $50,000 in excise tax would have been $5,000 if filing semi-monthly, and close to $15,000 if filing quarterly). A brewery filing quarterly tax returns must also file a quarterly report of operations. To further lessen the burden of reporting for both brewers and TTB employees, the information required in the reports has been revised, with two sections removed. To see the full guidance, click here.

In addition to the TTB changes for small breweries, there is also a bill pending in the Senate that could reduce the compliance burden for all small producers. It would exempt small breweries, wineries and distilleries (i.e. not liable for more than $50,000 in excise tax in the year) from all current bonding requirements and would allow any small producer – not just small wineries—owing less than $1,000 a year to file annually. The proposal passed the Senate Finance Committee on February 11, 2015, and is awaiting consideration on the Senate floor. It has not yet been introduced in the House.

If you have any questions about brewery, winery or distillery operations reporting or taxes, contact an attorney at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •


Compliance Check-In: 2014 TTB Beverage Sample Program Results

February 02, 2015

Each year, the Alcohol and Tobacco Tax and Trade Bureau (TTB), conducts a random sampling of alcoholic beverages, known as the Alcohol Beverage Sample Program. TTB agents purchase alcohol products from retail stores and take them back to the TTB lab for review. The survey identifies compliance issues with the tested beverages, including incorrect alcohol content levels, and Certificate of Label Approval (COLA) discrepancies. The TTB recently released the results of their 2014 review, finding 139 out of 450 total products sampled to be non-compliant.

The most commonly identified issue was mislabeled alcohol percent by volume (ABV), in which the ABV stated on the label was either above or below the actual tested alcohol content. In distilled spirits products, 42 of the 190 beverages sampled were found to contain an ABV over the advertised content, while 14 products contained a lower ABV than advertised. Aside from misleading the consumer, incorrect ABVs can lead to regulatory action from federal tax authorities if the actual alcohol content would place the product in a different tax class.

Another common compliance issue was a discrepancy between the product’s label information and the information listed on the product’s COLA. When a bottler or importer applies for label approval with the TTB, they are issued a COLA and their product’s label must match the information provided on their COLA application (with the exception of some limited information which can be changed without a new COLA). Of the 139 non-compliant products, 40 had labels with missing or added information that did not match their approved COLA.

Other prevalent compliance issues included no COLA for the product, errors in the mandatory government warning message, and incorrect statements of class or type of alcohol. Possible TTB actions in response to incorrectly labeled products could include monetary fines and other regulatory penalties, and at a minimum, would require that the non-compliant labels be corrected. To see the full results of the sample program, click here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 · All Rights Reserved ·


New California ABC Advisory on Merchandising Services by Suppliers

January 07, 2015

In December 2014, the California ABC posted a new Industry Advisory about merchandising services. Free services provided by suppliers to retail licensees, such as stocking shelves, pricing inventory, rotating stock, etc., are prohibited things-of-value under California Business & Professions Code sections 25500 and 25502. However, a number of permitted exceptions are separately provided for in Section 25503.2. The Advisory was posted in response to inquiries and complaints about the scope of permissible activity. When ABC receives multiple complaints about impermissible conduct, investigations and license accusations may well follow, so it would be prudent for suppliers to review the scope of permissible merchandising activities.

Permitted activity varies depending on the type of retailer and the products involved so we created a simple chart below to help keep it straight.

Note that in all cases, any merchandising activities can only be done with the retailer’s permission. In no case can a supplier move the inventory of another supplier, except for “incidental touching” to access the space allocated to the licensee providing the merchandising service.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 · All Rights Reserved ·


Prescriptions for Alcohol

December 04, 2014

In honor of Repeal Day, partner Kate Hardy agreed to share these fun pieces from her collection of Prohibition-era alcohol prescriptions. One prescribes whisky for the treatment of anorexia, and the others prescribe wine and whisky for unknown ailments. The directions for usage seem reasonable enough: take a pint in a wine glass every four hours, or mix it in eggnog. One of the prescriptions is for “Vin Gallici,” a contemporary of the also often prescribed “Spiritus Frumenti.” These are liquids more commonly referred to as wine and whisky. They were used in many prescriptions during Prohibition, possibly in the hope that they would look more medicinal if they were in Latin.

Liquor Prescription Stub

Prescription form for medicinal liquor

Liquor Prescription Stub

Prescription form for medicinal liquor

Form with stub

Prescription

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


What is in the Bottle? Rules for California Appellations on Wine Labels

November 10, 2014

Appellations of origin are the place names that describe where the grapes that make up a given wine were grown. There are rules controlling the statement of appellation on the label, all of which are aimed at making sure that the label of the product accurately reflects what is inside the bottle. Most of the appellation labeling rules are in the Code of Federal Regulations at 27 CFR Part 4, but state law must also be considered, and can sometimes be more limiting than the federal rules.

Appellations are required on wines if the label also includes a varietal designation or a vintage year (27 CFR 4.34(b)). The chart below lists some of the basics on appellations for wines made from California grapes.

Federal Rules

Appellation on Label What is in the Bottle?
California 75% of the fruit must be from California and the wine must be finished within California or an adjoining state. (27 CFR 4.25)
A County in California 75% of the fruit has to be from the county and the wine has to be finished in California. (27 CFR 4.25)
Two or Three Counties in California All of the fruit has to come from the listed counties, the percentage of fruit from each county has to be listed on the label, and the wine has to be finished in California. No more than three counties can be listed. (27 CFR 4.25)
An American Viticultural Area (AVA) in California AVAs are specific geographic areas approved by the TTB. A list of all of the AVAs in the country is available here. 85% of the fruit has to come from the AVA and the wine has to be finished in California. (27 CFR 4.25)


Special California Requirements

Appellation on Label Special California Rule
“California” or any geographical subdivision of California (including a county or two or three counties) 100% of fruit must come from California. (Cal. Code Regs., tit. 17, § 17015). This rule is more specific than the federal rules, and means that any wine with a California appellation of any kind must be made from 100% California fruit.
“Sonoma County” Labels MUST say this if also labeled with an AVA entirely within Sonoma County. (Cal. Bus. & Prof. Code 25246)
“Napa Valley” Labels MUST say this if also labeled with an AVA entirely within Napa County. (Cal. Bus. & Prof. Code 25240)
“Lodi” Labels MUST say this if also labeled with an AVA entirely within the Lodi AVA (Cal. Bus. & Prof. Code 25245)
“Paso Robles” Labels MUST say this if also labeled with an AVA entirely within the Paso Robles AVA (Cal. Bus. & Prof. Code 25244)
“Napa”, “Sonoma” and any AVA in Napa County The rules for using “Napa,” “Sonoma,” and any AVAs in Napa are especially strict. Those terms cannot appear on the labels unless the wine in the bottle qualifies for use of the term under the federal labeling regulations.(Cal. Bus. & Prof. Code 25241, 25242 and 27 CFR 4.25)
Counties of Sonoma, Napa, Mendocino, Lake, Santa Clara, Santa Cruz, Alameda, San Benito, Solano, San Luis Obispo, Contra Costa, Monterey or Marin Any written representation (e.g., labels, advertising, company letterhead, etc.) that a wine is produced entirely from grapes grown in these counties must be true. (Cal. Bus. & Prof. Code 25237)
“California Central Coast Counties Dry Wine” This designation can only appear on a label if all of the grapes are from the counties of Sonoma, Napa, Mendocino, Lake, Santa Clara, Santa Cruz, Alameda, San Benito, Solano San Luis Obispo, Contra Costa, Monterey or Marin. (Cal. Bus. & Prof. Code 25236)

Related Labeling Considerations

The appellation rules noted above are intertwined with other federal labeling regulations, which may also come into play. For example, if a label includes a varietal and an appellation, 75% of the grapes used in the wine must be of the stated grape type and all of those grapes must come from the stated appellation. (27 CFR 4.23) If the label includes a vintage year and an appellation, 85% of the grapes in the wine must be from the stated vintage year – and if the appellation is an AVA, the percentage requirement rises to 95%. (27 CFR 4.27)

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


Custom Crush vs. Alternating Proprietorship: Starting a Cheaper Wine Business

October 13, 2014

There is a long running joke that it is easy to make a million dollars in the wine industry, you just start with two million dollars. Joking aside, there are relatively low cost ways that you can get started in the wine business, without having to invest in planting your own vines and building your own winery. These options allow you to get started making and building your brand without having the considerable overhead of vineyards and winery buildings. Two ways exist of doing this: you can enter into a custom crush relationship with an existing winery to make wine for you, or you can get your own winery license, based at an existing licensed winery, in what is referred to as an alternating proprietorship or AP arrangement. In both cases, you own and develop your own wine brand or brands. We have put together some information on both systems here, and also recommend that you read the full Industry Circular from the Alcohol and Tobacco Tax and Trade Bureau (TTB) on the differences between them.

Custom Crush

In a custom crush situation, you contract with a winery to make wine for you. Even if the grapes that are used for the wine are grown or purchased by you, the produced wine belongs to the winery until state and federal excise taxes are paid and it is sold to another properly licensed entity. The winery gets the label approval and maintains all records and reports. You, as the brand owner, generally obtain a wholesale license so that you can buy the tax-paid wine from the winery and then resell it to wholesalers and retailers, depending on your state licensing. Each state has a different way of managing this. In Oregon, for example, custom crush customers often get a state winery license alongside a federal wholesale license. In California, it is possible for a wholesaler to also obtain a retail license and market wine direct to consumers, although shipping to other states with such a license is limited to the small number of states which allow an out-of-state retailer to ship to their residents.

Alternating Proprietorship (AP)

The TTB will allow licensed premises to alternate between owners, such as in an AP agreement where more than one winery is licensed in the same location. Premises can also alternate between types of licenses, so that a facility can alternate between a winery and a brewery or distillery, for example. In an AP situation, the TTB will allow more than one licensee to operate a winery in the same location, and even for some of the same staff to be used, provided that each owner makes independent decisions evidencing authority and control over the winemaking process. The TTB requires and will review the written AP agreement between the parties, often referred to as “host” and “tenant,” to make sure that each licensee has a bona fide plan to conduct its own winery operations. Although an AP arrangement involves more permitting and recordkeeping than the custom crush approach, it carries some significant benefits. First, the AP tenant is licensed as a winery and will be able to benefit from the rights of a winery licensee in that state. These can include being able to sell direct to consumer in almost all states, operate one or more tasting rooms, and produce or blend other types of alcohol. Second, an AP tenant is likely to be eligible for the small domestic producer tax credit, as production is based only on the AP tenant’s production, which is not likely to exceed 250,000 gallons in the start-up phase (note that there are no minimum federal production requirements for a winery but California, for example, requires at least 201 gallons of wine a year to be made by a licensed winery). It should be noted that winery licensing under an AP agreement may trigger some grape sourcing requirements that you should be aware of, and you will need to research local planning issues more closely in an AP structure than a custom crush relationship.

If you are interested in learning more about custom crush and alternating proprietorships in California or elsewhere, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


California Revises On-Premises Wine & Spirits Consumer Tasting Law

October 01, 2014

On September 30, 2014, the California Governor signed into law Assembly Bill 520, which revises the state’s laws on consumer instructional tastings at on-premises licensed retailers (i.e., bars and restaurants). Prior to the revision, Cal. Bus. & Prof. Code § 25503.5(c) permitted winegrowers, distilled spirits manufacturers, or an “authorized agent” of those licensees to conduct consumer tastings. The new legislation removes the consumer tasting provisions from Section 25503.5 (which now deals only with tastings for licensees and their employees) and creates a stand-alone consumer tasting statute in new Section 25503.57. The new law contains the same essential provisions as the old law, e.g., the event should be instructional in nature and can include information about the history, characteristics, and methods of serving the product; limited to 3 tastings per person, per day; tasting size limited to ¼ oz. for spirits and 1 oz. for wine.

The new law expands the list of licensees authorized to conduct consumer tastings to include a “winegrower, California winegrower’s agent, beer and wine importer general, beer and wine wholesaler, wine rectifier, distilled spirits manufacturer, distilled spirits manufacturer’s agent, distilled spirits importer general, distilled spirits rectifier, distilled spirits general rectifier, rectifier, out-of-state distilled spirits shipper’s certificate holder, distilled spirits wholesaler, brandy manufacturer, brandy importer, or California brandy wholesaler.” The authorized licensee may also use a “designated representative” to conduct a tasting. The law expressly excludes wholesaler/retailer combination licensees (Type 9/17/20) and limited off-sale wine retailer licensees (Type 85).

The new law also clarifies that both authorized licensees and retailers can advertise the events in advance, subject to the usual restrictions (suppliers cannot list prices or include laudatory statements about the retailer – name and address only – and cannot pay for the retailer’s ads). Only one licensee’s products can be promoted at any one time and a “designated representative” can only represent one licensee at a tasting. The new law takes effect January 1, 2015.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


Selling Alcohol to California Consumers Online

September 04, 2014

Traditionally a customer wanting a bottle of alcohol in California would go to their local package or grocery store to get it or, if they were lucky enough to be in wine country, directly to a winery. In recent years, with consumers actively experimenting and looking for more variety, and with the boom in online shopping generally, consumers have a lot more options to find that elusive boutique wine, craft beer or small batch spirit brand that they have heard about and have been looking for. All of this means that consumers are turning more and more to the internet to find the alcohol that they want to serve at home. A quick Google search of internet alcohol sales in California yields more than 10 million results.

SPIRITS: Only a California Type 21 off-sale general licensee can sell a bottle of distilled spirits direct to consumer (DTC). Although a distiller can host a customer at the distillery to taste the products that are made there, a distiller cannot sell a bottle of spirits to a customer to take home.

BEER: There is a bit more leeway for beer with brewers being able to offer tastings and sell beer to customers. The CA law was revised just this year to make it very clear that a brewer can only sell its own beer to customers, and not beer made by other brewers, unless it gets a retail license. As a matter of policy, the ABC will allow a beer manufacturer to also make an online sale of its beer to a consumer. An on-premises retailer like a restaurant or a bar can also sell beer to customers to take home, and by the same ABC policy can sell online. Off-sale retailers like grocery stores can sell beer to consumers online.

WINE: As with other alcohol, wine can be sold DTC by off-sale retailers. An on-sale retailer can also sell wine online, under ABC policy allowing online sales by retailers. A winery can also sell wine DTC, both at the winery and online, including through wine clubs. The state also offers two opportunities for the online retail sale of wine without a traditional brick and mortar store. The first of these is with a 17/20 wholesale and retail combination, or a 9/17/20 import/wholesale/retail combination. In both cases, wine can be sold online to customers and indeed can only be sold by direct mail, telephone or the internet from a location which is not open to the public. The license combination is often located right at the warehouse, enabling the licensee to easily pick and pack and ship out customer orders. The 17/20 combination allows the holder to sell directly to retailers as well as consumers and, with the addition of the type 9, the licensee can bring in wine from out-of-state and get it all the way to a consumer without passing through any other licensee’s hands. The second option is more recent and consists of a type 85 license, which gives the licensee the ability to sell wine at retail without the added wholesale or import rights. The chief distinction between the 85 and the 17/20 combination is that the 17/20 licensees have a wholesale license so they are required to make sales to retailers in addition to consumers, whereas the type 85 licensee sells only to consumers.

OUT-OF-STATE SELLERS: If you are a seller of alcohol located out-of-state, only wine can be sold DTC to California consumers and only under certain circumstances. A licensed winery in another U.S. state can get a direct shipper’s permit to sell DTC. For a licensed retailer in another state, the laws are murkier. California has a “reciprocity” statute which only permits out-of-state retail sales from states which allow a California retailer to ship to that state’s consumers. Currently, only thirteen states and the District of Columbia allow such sales. However, the concept of “reciprocity” was criticized by the Supreme Court in its 2005 decision in Granholm v. Heald, 544 U.S. 460, with specific reference to this California law. The law itself has not been challenged and thus the limitation remains on the books.

If you are interested in learning more about direct shipping laws in California or elsewhere, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Supplier-Funded Instant Rebates No Longer Permitted on Beer in California

August 07, 2014

On July 18th, California Governor Jerry Brown signed into law Section 25600.3 of the Business and Professions Code, which expressly prohibits beer manufacturers, importers, and wholesalers from offering, funding, sponsoring, or furnishing any type of coupon whereby a consumer gets an instant discount on beer, cider or perry, at the time of purchase. Prohibited coupons include instantly redeemable coupons (IRCs) of all kinds, whether paper, digital or electronic. The bill also prohibits retail licensees from accepting or possessing any such coupon funded by a beer wholesaler or manufacturer, although it does not prevent a retailer from offering its own coupons as set out below.

Per the bill sponsor, beer IRCs have been targets for fraud and have created liability issues for beer suppliers, as well as creating an imbalance in the beer marketplace among major breweries and the burgeoning craft beer market. The bill received major support from MillerCoors and Anheuser-Busch.

Not affected by the law are mail-in rebates, retailer-sponsored coupons, instant coupons for distilled spirits and wine (provided the coupons do not also discount beer), and instant rebates offered by beer manufacturers at the production facility or other premises owned or operated by the manufacturer. This last exception keeps the door open for small brewers licensed with a Type 23 license to offer instant rebates at brew-pubs owned and operated by the brewery.

Suppliers and retailers should be careful with all beer, cider and perry coupons as they may be affected by the new prohibition. We have put together a chart below to show what coupons are caught by the law. You should check each license that is held by the sponsor to see if the law prevents the coupon.

California IRCs by Alcohol and ABC License Type

Beer Manufacturer (CA or out-of-state) Beer and Wine Wholesaler Beer and Wine Importer Winegrower (if wholly owned by a Beer Manufacturer) Winegrower (not owned by Beer Manufacturer) Retailer
Malt beverages (incl. beer) No No No No N/A Yes
Cider No No No No Yes Yes
Perry No No No No Yes Yes
Wine/spirits N/A Yes Yes Yes Yes Yes


Rebate regulations vary from state to state. For more information on coupon laws for wine, beer, and distilled spirits, contact an attorney at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


How About a Bacon Flavored Beer?

July 09, 2014

“Ready-to-drink” alcoholic beverage categories are continuing to boom. Variously known as flavored malt beverages (FMBs), alcopops, progressive adult beverages (PABs) and ready-to-drink cocktails (RTDs), all sorts of flavors are being added to all sorts of products to create new taste sensations. Despite RTDs generally suffering some decline after Four Loko triggered state bans on adding caffeine to alcoholic beverages (covered here, here, here, here, and here), the category has well and truly picked up again in recent times.

If you are looking to produce a flavored product, we have put some tips together to keep in mind.

Formulation Issues

One of the key things under federal law to be aware of with FMBs is that most of the alcohol must come from the malt beverage base. If the product is below 6% alcohol, at least half of the alcohol must come from the production of the beverage itself and cannot come from nonbeverage items like flavorings (which often contain high alcohol levels). Above 6%, no more than 1.5% of the alcohol can be from nonbeverage ingredients.

For wine-based products, an important factor to keep in mind is to make sure that your formula leaves you with a product that you can sell in grocery stores in states that do not allow them to sell wine. In New York, for example, a wine product that can be sold in grocery stores must meet a strict definition which includes that it must be below 6% alcohol, and it must contain juice and carbon dioxide. If you can meet the definition, you fall outside price posting requirements in the state, but you still have to register the brand there. Similarly, in a state like New York, you should be aware that a distilled spirits based RTD, even if below 6% or 7% alcohol, can’t be sold at grocery, convenience and pharmacy type stores where most low alcohol products are sold.

Labeling Issues

It is important to know about the various regulatory agencies that monitor the labeling of alcoholic beverages. FMBs and wine coolers, depending on their alcohol content, could fall under the regulation of the Food and Drug Administration (FDA), the Alcohol and Tobacco Tax and Trade Bureau (TTB), or both. For example, labeling requirements for wines containing 7% or more alcohol are controlled by the TTB, but wine coolers under 7% alcohol are regulated by the FDA, because such products do not fall under the federal definition of wine. In addition, labeling requirements for beers not made from malted barley and hops are regulated by the FDA (such as sorghum beer), while malt based products and distilled spirit based products are subject principally to TTB requirements.

If your product falls under TTB’s labeling jurisdiction, you will need to get a Certificate of Label Approval (COLA) and you will likely need to get formula approval (see, for example, our previous blog on easing up of beer formula requirements here). If your product label is FDA regulated, you will have to include a nutrition facts statement and other information that would not be required under the TTB labeling regulations. Bear in mind that even products under FDA jurisdiction for labeling still may need TTB formula approval. You need to be careful about using any type of name which makes customers think that the product might be a spirit drink if it isn’t (including cocktail names like margarita or daiquiri).

Recycling

In addition to formulation and labeling issues, recycling laws surrounding FMBs and similar products can be tricky. Ten states, including California (with its CalRecycle program), Connecticut, Hawaii, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont, have container recycling laws that apply to a variety of alcoholic beverages. The specific products that are subject to the laws vary from state to state, as do the container marking requirements. Wine- and spirits-based products may be subject to recycling laws, even in states where wine and distilled spirits are exempted.

Conclusion

Before producing a flavored malt beverage or other ready to drink beverage, be sure to familiarize yourself with the special rules that apply to these products. For questions about any of these products, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


TTB Loosens the Reins on Malt Beverage Formula Requirements

June 16, 2014

In an industry ruling issued June 5, the Alcohol and Tobacco Tax and Trade Bureau (TTB) announced that malt beverages made with certain ingredients, including honey and certain fruits and spices, would no longer be subject to formula approval requirements. Additionally, the ruling exempts beer aged in barrels previously used in the production of wine or distilled spirits from the need to get a formula approval. Under the TTB regulations, ingredients and processes used in the production of malt beverages must be deemed “traditional” in order to be exempt from formula and certain labeling requirements. Until the ruling was issued, TTB had a very limited view of what met the requirements for “traditional” malt beverage production.

The ruling stems from a years long battle with the Brewer’s Association, which petitioned back in 2006 and 2007 to exempt certain ingredients and processes from rigorous approval requirements in light of growing experimentation and trends in the beer industry. The petition identified the most popular ingredients and processes, and urged the TTB to broaden their definition of “traditional” brewing methods. Initially, the TTB gave a limited response and exempted beers with added brown sugar, candy sugar or lactose from approval and special labeling requirements. With the new ruling, the options for adding ingredients to standard beers and other malt beverages without needing to go through the formula approval process are greatly expanded. Additionally, there is an opportunity for brewers to request exemption from formula requirements even if their ingredients are not already on the approved list. A full list of the approved ingredients and processes can be viewed here.

Before the ruling, if flavors were added before, during, or after the fermentation process, that had to be included on the label. Now, the requirement for flavors is that the statement be truthful and in accordance with trade understanding. So for example, a brewer cannot say “ale brewed with cherries” if the cherries were added after the brewing process. To be clear, a statement must still appear on the label to show the addition of any non-standard beer ingredient; the ruling now simply allows for more relaxed processing and avoids the need for formula approval.

The TTB’s expanded ruling of “traditional” brewing ingredients and methods bodes well for brewers and importers looking to get a quick(er) approval for their products and will help speed up all formula approvals due to the reduced TTB workload. Currently approved formulas and labels will not be affected by the ruling.

For questions about brewing requirements, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


More New York Industry Guidance on Limited Availability, Brand Registration and more

June 03, 2014

Following our blog post on May 6 (http://strikeandtechel.com/imbiblog/nysla-expands-suppliers-ability-to-entertain-consumers/), regarding the new advisory from New York covering supplier events, here are some more advisories recently published by New York. The advisories summarized here cover limited availability items and closeout sales, new brand registration rules, growler information for beer and cider, and the use of third party agents for consumer tastings.

Limited Availability Items – #2014-5

New York is one of a number of states around the country which continues to require its wholesalers to post prices for wine and spirits around five weeks in advance of sale. The retail posted pricing (from in-state manufacturers and wholesalers to retailers) is available to any retailer who wants to buy the products at the posted price. In the case of products with limited availability, or in the case of closeout sales with limited inventory, the SLA published an advisory in 2013 and now replaces it with this one.

A limited availability item is one where the New York manufacturer or wholesaler believes that demand will exceed supply. As an exception to the general, and strongly enforced, rule against channel pricing, limited availability items can be allocated differently between on- and off-premises retail buyers. A closeout sale occurs when the manufacturer or wholesaler intends to sell its entire remaining inventory of an older or seasonal item at a price at least 10% lower than the last posted price.

In the case of limited availability items, the SLA is switching over the whole current price posting system to create a new category for these types of items. The new system will allow a manufacturer or wholesaler to indicate how it will allocate limited availability items. The system will also allow a manufacturer or wholesaler to move items to limited availability after prices have been posted if there is an exceptional event like a high score from a trade or consumer publication or a celebrity endorsement. In the advisory, the SLA gives a number of examples of allocation methods which are permitted.

Brand Label Registration – #2014-7

In addition to federal certificate of label approval (COLA) requirements from the Alcohol and Tobacco Tax and Trade Bureau (TTB), New York requires brand labels to be registered with the state for almost all alcoholic beverages. Wines over 7% alcohol which have a COLA do not generally need to be registered. Many of the changes in the new advisory parallel recent TTB changes allowing a number of label alterations without requiring a new COLA.

Brand labels must contain the brand or trade name, the class and type of alcoholic beverage, the net contents and other labeling information required for a COLA. If there is any change to the brand name, the flavor description, age or geographic appellation, or if qualifiers like “kosher” or “organic” are added to a label, a new registration must be obtained. If the alcoholic content of a brand registered product changes more than 1.5%, or 0.5% in the case of a cider or a “wine product,” a new registration must be obtained. Unlike wine, “wine products” can be sold in grocery stores if they meet the state-specific definition, which requires things like carbonation and added flavoring materials. Registrations are filed by the brand owner, if they are a New York licensee, or otherwise by the New York wholesaler appointed by the brand owner to post prices for and sell the product.

Brand label registrations are valid for a set calendar year depending on the type of alcoholic beverage. Current registrations will remain in effect until they expire and will then be transitioned to the new schedule. There will be additional use-up periods allowed for non-compliant products.

Private labels owned by retailers who sell them exclusively are exempt from price posting requirements. The labels do not have to contain the retailer’s name, but the brand name must belong to the retailer or the retailer must have the legal right to use the name. A retailer can license the brand name from another entity but cannot license a brand name belonging to a manufacturer or wholesaler. The use of terms like “exclusively bottled for” or “exclusive to” cannot be used to try and create a private brand label for a retailer.

Growlers – #2014-11

The advisory covers the sale of beer and cider in growlers by off premise retailers authorized to sell those beverages and confirms that liquor and wine cannot be sold in growlers in New York. In the case of beer and cider, either the consumer can provide the container or the retailer can. Due to local open container laws, retailers serving growlers should provide sealed containers where applicable.

Authorized Agents for Tastings and Bottle Sales – #2014-13

Certain New York licensees, and certain out-of-state suppliers with supplier marketing permits, are allowed to provide tastings in accordance with an advisory published in July 2013. This new advisory confirms that the licensee or supplier can use another manufacturer or wholesaler licensee as its agent for such a tasting. The only exception is that a beer wholesaler is not allowed to act as an agent for a brewer.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


TTB Reconsiders Use of “Estate Bottled” Following a Winery Sale

May 21, 2014

To be labeled as “estate bottled,” a wine must be, among other things, made from grapes grown in an American Viticultural Area, on land that is owned or “controlled by” the winery, and the winery must crush, finish, age and bottle the wine in a continuous process.

Previous guidance from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) suggested that a wine would not be entitled to use the “estate bottled” designation if a change of ownership of the winery occurred at any point during the winemaking process, because the new owner technically would not have “controlled” all phases of the process. To address this issue, sellers and buyers of wineries that produce “estate bottled” wines would sometimes enter into an Alternating Proprietorship Agreement (“AP”) whereby the seller would maintain its bonded winery operations until all wine in process at the winery as of the closing date had been bottled and labeled. This approach was difficult for both sellers and buyers, given that the AP could be in effect for a lengthy period of time depending on which stage of production the “estate bottled” wine was in.

In a recent private letter ruling, the TTB advised that it has reconsidered its position and that the proprietor of a winery can use an “estate bottled” designation for wine that was grown and fermented by a predecessor proprietor and bottled by a new proprietor (provided the wine also met the other requirements under 27 C.F.R. § 4.26). The ruling provides that the ownership of a winery may change while the wine is in process as long as the bottling winery does not change. The TTB further explains that the definition of “controlled by” refers to the land on which the grapes are grown and the winery operates, as opposed to the owner of such land. With a change in winery ownership, the “estate” land is not altered, and thus the new owner can maintain the “estate bottled” designation.

This guidance from the TTB should come as a welcome relief to potential purchasers and sellers of wineries that produce “estate bottled” wines.

For questions about the acquisition or sale of a winery, please contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


Wine Liberty for All (Adults) in Massachusetts

April 07, 2014

Massachusetts wine consumers will soon have equal access to Napa Cabs, Oregon Pinot Noirs, and New York Rieslings, as the commonwealth finally joins the ranks of direct shipping states with the passage of House Bill 294. Effective January 1, 2015, the bill will allow the Massachusetts Alcoholic Beverages Control Commission to issue licenses allowing out-of-state and in-state wineries to ship a limited amount of wine, by common carrier, directly to Massachusetts residents.

Prior to the passage of HB 294, out of state wineries were effectively shut out by the Massachusetts direct shipping law, which purported to allow direct shipping, but included so many restrictions and limitations that it was unworkable. Despite a successful court challenge to the existing law, in which the 1st Circuit Court of Appeals ruled that Massachusetts shipping law was discriminatory, the legislators have been unable until now to pass replacement legislation. In 2013, House Representative Theodore Speliotis introduced HB 294, and with the help of fellow lawmakers and a celebrity endorsement from New England Patriots quarterback-turned-Washington state vintner Drew Bledsoe, the measure was approved and has now been signed by the governor July 11th 2014. Under the new law, all U.S. wineries with a federal basic permit and home state winery license may obtain a license to ship up to 24 cases of wine per year to a Massachusetts resident 21 years of age or older. Like most direct shipper licenses, the Massachusetts license will also require the winery to submit a yearly report to the Commission and Department of Revenue detailing the total gallons of wine shipped, as well as require taxes be paid on all products shipped. The initial license fee will be $300.00 per winery, with a $150 annual renewal fee.

Common carriers delivering in the state are required to have a fleet permit and each vehicle transporting alcohol under the permit must have a certified copy of it in the vehicle, at a cost of $50 per certified copy.

The new law has drawn some criticism because it permits shipments only from U.S. wineries, effectively prohibiting direct shipment of imported wines to Massachusetts consumers. The Massachusetts law is not alone in this restriction; importers and retailers are excluded by the direct shipping laws of some other states, as well. But the law nonetheless represents another step forward in direct to consumer wine sales. Only eight states continue to have a complete ban on winery shipments direct to consumer. If you are interested in learning more about direct shipping law in Massachusetts or elsewhere, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Nevada Signals Intention to More Actively Monitor Trade Practices

March 05, 2014

Almost three years ago now, as reported on Imbiblog here, the TTB accepted its largest set of offers in compromise ever, for trade practices violations. Some of the biggest names in the business agreed to pay hundreds of thousands of dollars to the TTB even though they denied violating any laws or regulations. The allegations of trade practice violations came from participation by the companies in the 2008-2009 Harrah’s Nationwide Beverage Program. Unlike notable earlier trade practice investigations by the TTB, where there was state participation and a parallel investigation, there were no allegations made against retailers involved in the program, and no fines or penalties assessed against retailers (see for example the 2004-2009 joint investigation by Illinois and TTB into payments made by suppliers and wholesalers to Sam’s Wine & Spirits, Inc., then the largest wine retailer in the country, and its captive third party marketing organization Skyline Marketing, Inc.). The 2011 settlement by TTB was acknowledged to result from a retailer-initiated promotional program. Given that the TTB has extremely limited jurisdiction over alcohol retailers, however, the agency was unable to enforce any allegations against Harrah’s for the promotion. Had the State of Nevada participated in the investigation, it is more likely that charges could have been brought.

Now, the Office of the Attorney-General in Nevada has come out with an open letter to retailers, wholesalers and suppliers of liquor in Nevada in what appears to signal an intention to focus more attention on trade practice issues in the State. The advice contained in the letter is phrased as a “reminder” to the industry of prohibited and restricted activities. It covers the following issues:

- No loans from wholesalers to retailers of money or other thing of value, no investments by a wholesaler in a retailer, no complimentary furnishing of premises or equipment, and no joint operation of a retail business;

- Adherence to strict payment terms, with no preference accorded by wholesalers to certain retailers, and with a cessation of sales and monthly service charges in case of delinquency;

- No substitution of brands without consent, and no delivery of unwanted or unnecessary inventory;

- No required boycotts of other suppliers;

- No price fixing down the supply chain by suppliers imposing resale prices on wholesalers, and no profit splitting with the supplier getting a specified portion of the wholesaler’s profit margin;

- No excessive marketing contributions being required by suppliers of their wholesalers, for promotions outside the wholesaler’s market or beyond the terms agreed by the parties;

- Strict adherence to the quoted price from suppliers to wholesalers;

- No discrimination by suppliers among wholesalers (note that Nevada has a franchise law meaning that this refers to discrimination between wholesalers in different parts of the state as only one wholesaler can be appointed in any given market); and,

- No deceptive trade practices.

The letter refers to concerns with illegal terms or incentives by industry members looking for a competitive edge in the market. It notes that the Attorney General has jurisdiction over these issues and is required by law to take appropriate legal action to enforce the provisions of law setting forth the restrictions above. The Attorney General’s office recognizes in the letter its duty to investigate and prosecute deceptive trade practices in Nevada. Should the type of circumstances in the TTB’s investigation in 2011 arise again, it will be very interesting to see what action is taken by the state in light of this clear signal that it is unlikely to sit by if unlawful trade practices occur in Nevada.

If you have any questions about trade practice issues, in Nevada or elsewhere, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·


Getting Started in the Business: Licensing

December 12, 2013

This blog entry is part of a continuing series discussing important steps to get started in the alcoholic beverage industry. Once you have pinpointed a location for your business (discussed in a previous post, here), you will need to obtain a license, or a combination of licenses, before you commence operations. To determine what type(s) of license(s) you need, here are some answers to questions you may be asking:

* Do the Tied-House Laws Permit Me to Hold the Licenses I Want? Federally and across all states, “tied house” laws generally prohibit the same person or entity from having an ownership interest in alcohol beverage businesses in more than one of the 3 tiers -manufacturing/importing, distribution and retail. (To learn more about tied house laws, review this post.) However, that restriction is far from absolute. Many statutory exceptions have been carved out of the 3-tier system to permit cross-tier licensing and the resulting patchwork of exceptions can be difficult to comprehend. For example, in California, wineries can also own restaurants (subject to restrictions) and certain off-sale retail stores. Small breweries (less than 60,000 barrels/year) can own on-sale retailers but large breweries cannot. Beer and wine wholesalers cannot also be retailers, unless they sell only wine through the retail store. Other states have their own set of hard-to-explain exceptions.

* What Does My License Permit Me to Do? The general rule is that manufacturers sell to wholesalers; wholesalers sell to retailers; and retailers sell to consumers. But this, too, is riddled with exceptions. California wineries and breweries can sell their products directly to retailers and consumers without using a distributor, but distilled spirits manufacturers can sell only to distributors and cannot themselves hold a distributor license. Rectifiers, on the other hand, can act as their own distributor and sell their products – and spirits products made by anyone else – directly to retailers. Moreover, you may need more than one license to operate your business. For example, if you are going to be operating a distillery, you will need a Type 4 (Distilled Spirits Manufacturer’s license), and a Type 6 (Still) license. If you are importing distilled spirits from outside of California and distributing them to retailers you’ll need a Type 12 (Distilled Spirits Importer), and a Type 18 (Distilled Spirits Wholesaler). California issues dozens of different licenses so it is important to know exactly what you want to do, which licenses are needed to accomplish it, and whether you are eligible to hold them.

* What are the Processing Times to Obtain a License? In California, it takes about 90-120 days to process an application for a new license, and slightly less time to transfer an existing license at a premises that is already licensed. It will take longer to process an application that is incomplete, contested by neighboring residents or the local authorities, or filed incorrectly. Also keep in mind that the ABC cannot issue a license until it has received confirmation from the City/County that all required use permits have been obtained. Each applicant will be assigned a local ABC investigator to handle the application until the process is completed. Currently, U.S. Alcohol Tobacco Tax Trade Bureau (“TTB”) licenses are processing in about 90 days, similar to California licenses.

* May I Obtain a Temporary Permit? Provided that you are transferring an existing license at an already licensed premises, the California ABC may grant a temporary permit so you may operate your business while the license transfer application is being processed. A temporary permit is not available in connection with applications for new licenses or applications to transfer existing licenses to a premises that has not been previously licensed.

* What Are the Costs Involved? Depending on what type(s) of license(s) applied for, the cost can vary considerably. A schedule of license costs is available here. Some retail licenses are limited in numbers and must be purchased on the open market. Prices for these licenses vary greatly by type and location. For instance, a Type-47 (On-sale general eating place) may sell for $200,000 in San Francisco, whereas the same type of license in Fresno County currently only costs $12,000.

In conjunction with your ABC application, you may also need to obtain other federal, state or local licenses/permits. In California this may include, for example: federal licenses through the TTB; a certification from the Secretary of State that you are qualified to do business in the state; and a sales tax permit from the State Board of Equalization.

Contact one of the attorneys at Strike & Techel if you have questions about applying for a license to get started in the alcohol beverage business.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Happy Repeal Day! 80 Years Ago Prohibition was Repealed

December 05, 2013

On December 5, 1933, the 21st Amendment to the United States Constitution was ratified, thus repealing the 18th Amendment and marking the end to enforcement of the Volstead Act and the official end of the period known as “Prohibition.” Most historians agree that Prohibition was a failure. Born out of the late 19th Century formation of temperance societies, like the Woman’s Christian Temperance Union, Prohibition was intended to strengthen families and reduce social problems caused by overconsumption of alcohol. Instead, it brought more than 10 years of increased crime, and little or no decrease in alcohol consumption (but it did give rise to great terms like Speakeasy, the Real McCoy, and Blind Pig). After 13 years, 10 months, 19 days, 17 hours and 32.5 minutes of Prohibition, the Noble Experiment finally ended and alcohol could once again be purchased legally in the U.S.

Happy Repeal Day from everyone at Strike & Techel.

Cheers!


Wine Growlers From a Keg

October 29, 2013

Keg wine is a growing trend. Packaging and selling wine in kegs has a lot of advantages. Wine kegs are refillable and reusable. Wineries save on packaging costs, and restaurants enjoy the convenience of serving many customers without constantly uncorking bottles.

Alcohol laws dictating permissible containers and packaging for wine are expanding in concert with retailer and consumer interest in keg wine. For example:

- Effective July 1, 2013, Florida allows the sale of wine in 5.16 gallon canisters, which can be tapped like kegs, to restaurants and bars.

- Effective April 1, 2013, Oregon allows any wine shop, grocery store, wine bar or restaurant to buy wine by the keg and resell it to consumers by the glass, or in some establishments, consumers can fill their own containers in a size that is 2 gallons or less.

Most states continue to have restrictions on this “growler” type of service by a wine shop. Those restrictions comport with federal rules saying that packages cannot be filled with wine except at a winery or at a “tax paid bottling house.”

We expect to see more legislation in the coming months and years if this trend continues.

If you have any questions about keg wine, feel free to consult one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Clarifications from the ABC on Sweepstakes and Contests in California

October 17, 2013

On June 13, 2013, guests attending ShipCompliant’s “Direct 2013” conference heard from Matthew Botting, General Counsel to the California ABC, on supplier participation in sweepstakes and contests under California’s new law. We’ve previously blogged about the new law here and here.

California Code of Regulations Title 4, Section 106 (“Rule 106”) has always allowed suppliers to “sponsor” a contest, meaning suppliers could give money or otherwise participate when the contest was organized by “bona fide amateur or professional organizations.” Previously, the privilege was limited. Now, the privileges are broader: suppliers (including wineries) can now “conduct” a contest under recently enacted Business and Professions Code Section 25600.1, and conduct or sponsor a sweepstakes under 25600.2. Mr. Botting discussed the different available privileges and their limitations:

* “Conduct” means the promotion is managed and organized by the supplier.
* “Sponsor” means it is someone else’s sweepstakes or contest and the supplier is providing a prize or other sponsorship of the promotion.
* For the time being, suppliers can only sponsor a contest in accordance with the existing Rule 106, which means sponsorship is limited to a contest conducted by bona fide amateur or professional organizations.
* Sponsoring a sweepstakes and conducting a sweepstakes or contest is now covered by Business and Professions Code Section 25600.1 and 25600.2. Sweepstakes or contests cannot require a visit to a licensed premises of any kind, so there must be an alternate method of entry (“AMOE”) if entry forms are available at a licensee.
* Sweepstakes and contests cannot be conducted on retail premises (e.g., a grocery store, liquor store, bar or restaurant). A “retail premise” includes some locations you might not think of, such as: an unlicensed premises if a licensed caterer is present, or at an event held by a nonprofit under a one-day permit. The ABC considers events held with a caterer’s license or a nonprofit one-day permit to occur “at the premises of a retail licensee,” and therefore a supplier may only provide a means of entry at either of these types of events.
* While suppliers may provide a means of entry for the contest or sweepstakes, the contest or sweepstakes may not be conducted at a winery or brewery’s duplicate tasting room.
* A contest or sweepstakes can only be advertised at a retailer if it is advertised at a minimum of three different retailers, and winners shouldn’t be picked at a licensed retail event nor in a tasting room.

The full presentation by Mr. Botting can be seen here (starting at the 5:00 minute mark).

Before conducting or sponsoring any contest or sweepstakes, be sure to consult the relevant laws, Business & Professions Code Sections 25600.1, 25600.2, and, if applicable, Rule 106 (regarding contests), and pay particular attention to whether the supplier involved holds a license that allows it to participate.

Contact one of the attorneys at Strike & Techel if you have questions about contests and sweepstakes in California or other states.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Strike & Techel Speaking at Upcoming Conferences

October 15, 2013

Barry Strike will be a presenter at the International Wine Law Association (AIDV) International Conference on October 18-20 in Vienna, Austria. This annual conference brings together speakers and participants from around the world to discuss global strategies for legal issues related to the wine industry. Barry will present on U.S. regulatory agencies available to assist international wine companies.

Kristen Techel will be speaking at the Wine Law Forum on Friday November 22, from 9:00am-5:00pm at Hotel Paradox in Santa Cruz, California. Kristen will share her expertise on the emerging role of third party providers in a discussion entitled “Third Party Providers: Unlicensed Participants in a Licensed Industry.” The event is co-sponsored by the International Wine Law Association (AIDV).

If you would like more information on the AIDV organization or about either conference, please click here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Strike & Techel Speaking at Upcoming Conferences

October 15, 2013

Barry Strike will be a presenter at the International Wine Law Association (AIDV) International Conference on October 18-20 in Vienna, Austria. This annual conference brings together speakers and participants from around the world to discuss global strategies for legal issues related to the wine industry. Barry will present on U.S. regulatory agencies available to assist international wine companies.

Kristen Techel will be speaking at the Wine Law Forum on Friday November 22, from 9:00am-5:00pm at Hotel Paradox in Santa Cruz, California. Kristen will share her expertise on the emerging role of third party providers in a discussion entitled “Third Party Providers: Unlicensed Participants in a Licensed Industry.” The event is co-sponsored by the International Wine Law Association (AIDV).

If you would like more information on the AIDV organization or about either conference, please click here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Clarifications from the ABC on Sweepstakes and Contests in California

October 10, 2013

On June 13, 2013, guests attending ShipCompliant’s “Direct 2013” conference heard from Matthew Botting, General Counsel to the California ABC, on supplier participation in sweepstakes and contests under California’s new law. We’ve previously blogged about the new law here and here.

California Code of Regulations Title 4, Section 106 (“Rule 106”) has always allowed suppliers to “sponsor” a contest, meaning suppliers could give money or otherwise participate when the contest was organized by “bona fide amateur or professional organizations.” Previously, the privilege was limited. Now, the privileges are broader: suppliers (including wineries) can now “conduct” a contest under recently enacted Business and Professions Code Section 25600.1, and conduct or sponsor a sweepstakes under 25600.2. Mr. Botting discussed the different available privileges and their limitations:

* “Conduct” means the promotion is managed and organized by the supplier.

* “Sponsor” means it is someone else’s sweepstakes or contest and the supplier is providing a prize or other sponsorship of the promotion.

* For the time being, suppliers can only sponsor a contest in accordance with the existing Rule 106, which means sponsorship is limited to a contest conducted by bona fide amateur or professional organizations.

Sponsoring a sweepstakes and conducting a sweepstakes or contest is now covered by Business and Professions Code Section 25600.1 and 25600.2Sweepstakes or contests cannot require a visit to a licensed premises of any kind, so there must be an alternate method of entry (“AMOE”) if entry forms are available at a licensee.

* Sweepstakes and contests cannot be conducted on retail premises (e.g., a grocery store, liquor store, bar or restaurant). A “retail premise” includes some locations you might not think of, such as: an unlicensed premises if a licensed caterer is present, or at an event held by a nonprofit under a one-day permit. The ABC considers events held with a caterer’s license or a nonprofit one-day permit to occur “at the premises of a retail licensee,” and therefore a supplier may only provide a means of entry at either of these types of events.

* While suppliers may provide a means of entry for the contest or sweepstakes, the contest or sweepstakes may not be conducted at a winery or brewery’s duplicate tasting room.

* A contest or sweepstakes can only be advertised at a retailer if it is advertised at a minimum of three different retailers, and winners shouldn’t be picked at a licensed retail event nor in a tasting room.

The full presentation by Mr. Botting can be seen here (starting at the 5:00 minute mark).

Before conducting or sponsoring any contest or sweepstakes, be sure to consult the relevant laws, Business & Professions Code Sections 25600.1, 25600.2, and, if applicable, Rule 106 (regarding contests), and pay particular attention to whether the supplier involved holds a license that allows it to participate.

Contact one of the attorneys at Strike & Techel if you have questions about contests and sweepstakes in California or other states.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·


Maybe That’s Not Beer You’re Drinking

August 16, 2012

A professor once told me: “Always define your terms.” That statement rings true in much of the law and it turns out, also for beer. In today’s age of health consciousness and gluten intolerances, beers crafted from sorghum, rice, or wheat are starting to make inroads into the mainstream market. But from the perspective of the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), those products don’t qualify as “malt beverages.” Only beverages made from both malted barley and hops meet the definition of “malt beverage” under the Federal Alcohol Administration Act (“FAA Act”). Thus, the labeling regulations that apply to these non-traditional beer products actually come from the Food and Drug Administration, as opposed to the TTB. Some TTB/FAA Act requirements do still apply – namely the government health warning and product classification required by the Internal Revenue Code to ensure proper tax classification and collection. Additionally, formula approval may be required through the TTB.

Wine beverages containing less than 7% alcohol by volume, such as many wine coolers and cider products are also subject to FDA labeling requirements because their low alcohol content causes them to fall outside of the TTB/FAA Act definition of “wine” and therefore outside of TTB’s labeling jurisdiction. Note that although sake is made from rice, it’s considered a wine product for labeling purposes and a malt beverage for tax purposes (confusing, right?), so it falls under the TTB/FAA Act labeling requirements, provided the product contains 7% or more alcohol by volume. How to identify these new products as “gluten-free” remains difficult as no final guidance has yet been issued by the FDA or TTB about the true definition of “gluten-free.” For more information about using “gluten-free” on alcoholic beverage labels, see our post from earlier this year. The landscape for labeling these non-traditional products is complicated. If you have questions, feel free to contact a Strike & Techel attorney.


Deceptive Retail Discounts: How Much is that Wine Really Discounted?

June 26, 2012

Among the brouhaha surrounding JCPenney these days is a proposed class action complaint that was recently filed in the Central District of California. In the complaint, the plaintiff alleges that she purchased items from JCPenney because the items were advertised as being on sale, but the prices were inaccurately advertised as discounted because the “original” price advertised was not the prevailing market retail price for the goods. As in many states, false and misleading claims in advertising are prohibited in California. See Cal. Bus & Prof. Code §§ 17500, 17508(a). California consumer protection law further state that:

No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined within three months next immediately preceding the publication of the advertisement or unless the date when the alleged former price did prevail is clearly, exactly and conspicuously stated in the advertisement. Cal. Bus & Prof. Code § 17501.

Here the plaintiff asserts that the “original” prices, to which she compared the “sale” prices in order to make her decision to purchase numerous items, weren’t the prevailing market prices for the items at JCPenney for the three months immediately preceding the advertisement.

Pricing has become more difficult in this day and age of the “bargain.” Many people have come to expect an item to be always on sale or for there to always be some way to buy an item for less than what others are paying. While the pressures this creates on retailers are often great, retail prices cannot be amorphous. Advertising false “sale” prices could lead to lawsuits like the one filed against JCPenney. The Federal Trade Commission offers guidance about proper advertisements on its website, which can be found here. Regarding deceptive pricing, the FTC offers the following:

One of the most commonly used forms of bargain advertising is to offer a reduction from the advertiser’s own former price for an article. If the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison. Where the former price is genuine, the bargain being advertised is a true one. If, on the other hand, the former price being advertised is not bona fide but fictitious—for example, where an artificial, inflated price was established for the purpose of enabling the subsequent offer of a large reduction—the ``bargain’’ being advertised is a false one; the purchaser is not receiving the unusual value he expects. 16 C.F.R. § 233.1.

It’s hard to be a consumer goods retailer in any industry these days, but the wine industry in particular has seen substantial changes in consumer pricing expectations given the economic situation over the last few years. While trying to meet this consumer demand, it’s important to remember that when creating pricing structures, there’s a fine line between providing value and creating false value.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·


Formulas Online a Useful Tool for Pre-COLA Evaluations

June 12, 2012

TTB is now offering Formulas Online, a web-based system for submitting and tracking formula submissions for domestic and imported alcoholic beverages and nonbeverages. Formulas Online follows COLAs Online, which was implemented several years ago as an online option for filing and tracking COLA Applications. The feature is a welcome arrival and should be much more efficient and provide for better tracking than the paper submission system of formulas. One of the most useful changes is that applications are verified throughout the process, meaning that errors can be corrected before an application is finalized, rather than finding out weeks after a submission that an application was not properly submitted. Submissions with Formulas Online can be made using the same user ID used to access COLAs Online. New users should be sure to review the TTB’s helpful reference guide, found here, which walks through the Formulas Online process in detail, and includes a list of common errors.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·


To Bag up the Booze or Not. Your Call.

November 10, 2011

The California Department of Alcoholic Beverage has clarified in a recent industry advisory that alcoholic beverages do not have to be bagged prior to handing the beverages to consumers, unless a local ordinance requiring bagging exists. Thus, Californians can opt to “save a bag” and use their own tote bag or other carrying device when shopping for alcoholic beverages in most jurisdictions.


We Want COLAs! When Do We Want Them? NOW!

August 18, 2011

While patience is a long standing member of the virtue list, it’s not always easy. But a little patience goes a long way when dealing with regulatory compliance matters like certificate of label approvals (COLAs). The Alcohol and Tobacco Tax and Trade Bureau (TTB) began accepting COLA applications online several years ago, which reduced the processing time for new COLA applications to just a few days. In their ongoing efforts to streamline their processes for industry members, the TTB began accepting formulas and permit applications online as well. More recently, the TTB announced a streamlined approval process along with the end of expedited review (previously discussed here and here). Notwithstanding these efforts, the volume of COLA applications has continued to swell with processing times becoming progressively longer. To help people estimate their wait time the TTB is now providing average COLA processing times through its website (the information is in a chart on the upper right hand side of the page) or by phone (dial 1-866-927-2533, press 4 for malt beverages and distilled spirits labels and 6 for wine labels). Given government budgets cuts and increases in label approval applications, it seems likely that the days of getting labels approved in four or five days are not likely to return. The federal labeling regulations allow the TTB to take up to 90 days to approve a COLA application. 27 C.F.R. § 13.21(b) (2011). Processing times currently are much shorter than that, but industry members should plan accordingly and allow at least 30 days for label approval through COLAs Online. The attorneys are Strike & Techel are available if you need assistance with TTB regulatory matters, including COLAs.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


TABC Steps Up Enforcement Against Direct to Consumer Wine Shipments by Retailers

June 07, 2011

The Texas Alcoholic Beverage Commission (TABC) issued a press release on Friday, June 3rd advising that it has entered into agreements with FedEx and UPS to halt the shipment of wine by out of state retailers to Texas consumers.

The direct shipping situation in Texas has been in a state of flux for years following the seminal Granholm v. Heald decision, which opened up many states to direct shipment of wine by wineries in 2005. Following Granholm, plaintiffs in a number of states have filed lawsuits to determine the scope of the court’s ruling, particularly whether it applied to retailers or only wineries.

Lawsuits filed in Texas alleged that Texas laws preventing direct to consumer sales by out of state retailers violated the commerce clause of the U.S. Constitution because retailers within Texas were permitted to make such shipments. The cases were decided last year on appeal to the Fifth Circuit Court of Appeals, which ruled that Texas was not required to allow out of state retailers to ship wine to Texas consumers, but could continue to permit in-state retailers to do so.

Following the Court of Appeals’ ruling, the TABC began notifying retailers that shipments to consumers in Texas were not legal. More recently, the TABC has provided FedEx and UPS with the names of out of state retailers who have recently shipped wine to Texas consumers (TABC has not said how it came to identify such retailers.) FedEx and UPS in turn have agreed to notify the listed retailers that such shipments violate the retailers’ shipping agreements with the companies and may lead the shippers to refuse to ship packages for the involved retailers. For its part, TABC says it will contact the retailers directly and may also contact the alcoholic beverage control agencies in the retailers’ home states in cases where the retailers fail to comply with the TABC’s requests.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Have Wine, Will Travel

February 25, 2011

It is called everything from the bombastic “corkage” to the everyperson “BYOB,” but it means the same across all fifty states and beyond: bringing ones own bottle of alcohol to a restaurant for consumption with ones meal. Not every state allows the practice, but Virginia is on the brink of joining the list of states where brown-bagging is permissible. On February 8th, the Virginia Senate passed SB 1292 (27-Y, 13-N) and the bill passed the House on February 22nd (78-Y, 18-N), leaving only Governor Robert McDonnell’s signature to make it official. The bill was introduced by Republican state Senator Jeffrey McWaters, who argued passage of SB 1292 would help boost Virginia’s restaurant and wine industries. SB 1292 will add Section 16 to § 4.1-201(A) of the Code of Virginia, thereby allowing licensed restaurants to permit customers to consume legally acquired wine on a restaurant premises and allowing the restaurant to charge a corkage fee if desired.

Each state that allows BYOB has its own unique set of regulations. Virginia’s neighbor to the South, North Carolina, has a “brown-bagging” permit, which allows customers in permitted establishments to bring and consume on the premises “up to eight liters of fortified wine or spirituous liquor, or eight liters of the two combined.” Restaurants, hotels and community theaters are only allowed such permits if they are located in a county where the sale of mixed beverages has not been approved. Eight liters of fortified wine, which in North Carolina is defined as 16-24% alcohol by volume, or distilled spirits, may seem like an exorbitant amount of alcohol. However, unlike Virginia’s SB 1292, North Carolina’s law is not about enjoying a glass of ones own wine with dinner, but rather about consuming a gin and tonic at ones local haunt when such establishment is not allowed by law to sell gin. Attending “liquor locker” provisions in North Carolina allow patrons to store their brown-bagged alcohol in individual lockers at licensed facilities, so that they can drain their provisions over time. Traditional bottle opening fees do not apply in such situations, rather the restaurant makes money selling the mixer used by the patron, commonly referred to as a “set-up.”

The North Carolina arrangement would be defined as an illegal “bottle club” in California. California only allows people to bring their own alcohol to a licensed premises, and one can only bring alcohol that could have been sold by the licensee at the establishment. So if a restaurant only sells beer and wine, one cannot bring in vodka. Also, in California any unfinished portion of the BYOB must be left at the restaurant, so if you bring a bottle of expensive wine to a restaurant, bring enough friends to drink it all!

As we head into the weekend, we’ll leave you to ponder these burning questions: Is it counterintuitive for California to forbid people from bringing wine to restaurants that do not serve it, but permit patrons to bring wine to restaurants with the exact same bottle available for sale on their wine list? Also, who pays more in BYOB alcohol costs—North Carolina patrons bringing in eight liters of distilled spirits or New York patrons (blind item) dining at a well known restaurant with a $90 corkage fee?

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Fanciful Names and the TTB

February 23, 2011

We get lots of questions on the topic of “fanciful names” in the context of certificate of label approvals (COLAs) through the Alcohol & Tobacco Tax & Trade Bureau (TTB). The TTB recently posted a helpful clarification, which we wanted to pass along:

Fanciful Name. Have you ever wondered what information should be entered into the “fanciful name” field on the COLA application? A fanciful name is a term used in addition to the brand name for the purposes of further identifying a product. A fanciful name is mandatory for any malt beverage product that is not known to the trade under a particular designation (27 CFR 7.24(a)) or distilled spirits products that do not meet the standards of identity or does not conform to trade and consumer understanding (27 CFR 5.34(a)). The use of a fanciful name on a flavored wine product or any wine product that meets a standard of identity is not required. Please note that if a fanciful name is used on a flavored wine product, it must appear in direct conjunction with a truthful and adequate statement of composition. (27 CFR 4.34(a))

In other words, if your distilled spirits or beer product does not fall within one of the specifically defined classifications, e.g., whiskey, gin, rum, tequila, beer, lager, ale, porter, stout, etc., then it must be labeled with a “truthful and adequate statement of composition” and a fanciful name in addition to the brand name. This generally occurs when a product starts as a distilled spirit or malt beverage product, but then additional flavorings or ingredients are added and those additional items are not permitted within the standard defined classifications. In the case of wine, the fanciful name is optional. Brand names and fanciful names cannot contain the name of a class or type of alcohol, so “vodka” or “whiskey” cannot serve as a fanciful name.

When a fanciful name is mandatory, it is important to plan ahead when creating a new product name and label. We have seen products identified by a single brand name that could not obtain a label approval because they were required to also have a fanciful name. Applicants in that situation are required to add a new name to be used as a fanciful name and revise their labels so that it is included. An example of a properly identified distilled spirits product is “ABC Brand, Peachy Passion, neutral spirits with added fruit juice and natural flavorings.” It uses a brand name, a fanciful name, and a statement of composition, as required under the labeling regulations. For most products, fanciful names are not required but it’s important to consider how TTB will classify your product before you create your labels and brand identity.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Vertical Integration in California (“Tied-House” Laws)

February 17, 2011

The general rule with alcoholic beverage licensing is that you cannot be involved in more than one “tier” of the industry, meaning that suppliers and importers can’t be wholesalers, wholesalers can’t be retailers, retailers can’t be suppliers, and vice versa. The objective, which came about following the repeal of prohibition, was to promote the organized and responsible distribution of alcohol. It was thought that by keeping the three tiers separate, suppliers would not exert undue influence over retailers, consumers would not be encouraged to over consume, and the societal ills that led to prohibition in the first place would not be repeated. In the 75+ years since the creation of the three-tier system, dozens of exceptions have found their way into the California ABC Act. The tiers are no longer entirely separate and some licensees are permitted to hold licenses in other tiers. For example:

12/18 (Distilled Spirits Importer)/(Distilled Spirits Wholesaler)

17/20 (Wine and Beer Wholesaler)/(Wine and Beer Retailer)

9/17/20 (Wine and Beer Importer)/ (Wine and Beer Wholesaler)/(Wine and Beer Retailer)

There are restrictions on operating under each of these combinations, but the ability to hold them in combination remains a privilege available in California that is not available in many other states. The “tied-house” rules have implications that extend well beyond the licensing structure. If you are interested in learning more about tied-house issues, feel free to contact any of the attorneys here at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


TTB’s Permits Online System Up and Running; Expedited Review a Thing of the Past

February 14, 2011

Today the Alcohol and Tobacco Tax and Trade Bureau (TTB) launched their Permits Online system, which is available here. The system is a counterpart to the Formulas Online and COLAs Online systems. The Permits Online system allows the application procedure for federal alcohol and tobacco business permits to be completed entirely online. The system allows one to prepare, submit and track applications through the TTB’s online portal, available 24 hours a day, 7 days a week. But as with many technology innovations and advances, there is often a corresponding down side. A few weeks ago, the TTB announced that they are no longer accepting “Expedite Requests” or “Informal Reviews” for certificate of label approvals (COLAs) and formula approvals. The former expedite option allowed for rapid turnaround of approvals that was especially helpful for the industry at large.

With a dramatic increase in approval requests over the years, coupled with shrinking governmental budgets, the TTB decided that all applications will be reviewed on a first-come, first-served basis, without any expedite availability. Further, the TTB stated that applicants should plan for a full 90-day review period, which does not include any additional time that could be necessary if label or formula changes are requested. The TTB did note that online applications are processed about twice as fast as paper applications, so there is a real incentive to using the online portals. If you have an upcoming formula approval or COLA, be sure to factor in enough time for the TTB’s review given that the expedite option is no longer available. If you have questions about formula or label approvals, please feel free to call any of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


TTB Considers New Grape Varieties for American Wines

February 10, 2011

Only a grape variety name approved by the TTB may be used as a varietal “type” designation for American wine. The TTB is considering adding more than 50 names to their list of approved varietals to catch up with the explosion of U.S. wines made from obscure grape varietals. The full list of varietals up for public comments is here.

Some of the proposed varietals are not so obscure (e.g. Blaufränkisch, Carignan, Garnacha, Grenache blanc, Grüner Veltliner, Lagrein, Vermentino), but others are extremely unusual, particularly the submissions from the Minnesota Grape Growers (Louise Swenson, Sabrevois, St. Pepin), which highlighted the cold-weather resiliency of the grapes

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Privatization Fight Still Remains Strong in Washington

January 24, 2011

Although Washington State’s two privatization measures, Initiatives 1100 and 1105, were voted down in the November 2010 elections, privatization proponents have not yet given up the fight. A new bill, SB 5111, is currently presented by Washington Senators Steve Hobbs (D), Curtis King (R), Steve Litzow (R), Phil Rockefeller (D), and Tim Sheldon (D). It was introduced on January 14, 2011 and then referred to the Committee on Labor, Commerce & Consumer Protection. The bill would allow voters the opportunity to once again vote on privatizing liquor sales in Washington. Currently, liquor sales are handled by the Washington State Liquor Control Board (“WSLCB”). If the bill passes, the WSLCB’s liquor assets will be sold off and all funds deposited into the general state fund; the state will, however, maintain a revenue stream from the sale of alcohol.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


Do Not Track

December 29, 2010

The FTC issued a report on online privacy earlier this month. The report suggests sweeping changes to current practices of internet consumer data collection, including the creation of a “Do Not Track” registry equivalent to the “Do Not Call” registry. It also advocates that companies collect less information from consumers and provide a clear, non-legalese disclosure to consumers before they are asked to provide data online. The full report can be viewed http://www.ftc.gov/opa/2010/12/privacyreport.shtm”>here, and public comments on the report will be accepted through January 31, 2011.

Alcoholic beverage companies should audit their collection and sharing of online consumer data and make sure adequate measures are taken to protect consumers.

Some policies and practices to consider:

* Protection of consumer information should be an integral part of data collection.

* Only collect consumer information that is reasonably needed.

* Be transparent when collecting data. The consumer should know what information you are collecting and for what purposes it will be used.

* Consumers should be alerted before their data is collected and given a clear choice to opt out before providing sensitive data.

* Update your privacy policy. Strike & Techel can provide model language for your use, upon request.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


2011 New Year’s Resolutions: Employee Training on Sales to Minors

December 17, 2010

If it’s not already there, move employee training to the top of the resolution list for 2011. In January, California’s Department of Alcoholic Beverage Control (“ABC”) will begin awarding grants to local law enforcement agencies to continue the implementation of Minor Decoy and Shoulder Tap programs. The operational period for the grants and this round of programs will run from February 1, 2011 through June 30, 2011. California law enforcement has been using the Minor Decoy program since the 1980s. For details on the Minor Decoy program, see our prior post here. The Shoulder Tap program is a newer program where an underage individual working with the police asks adults near alcohol retailers to purchase alcohol for the individual. The grants for this cycle of programming range from $2,500 to $10,000. While employee training is always important, given the likelihood of increased enforcement beginning in February 2011, now is a good time to review, revise, and update policies and make sure employees understand the consequences of selling to minors.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


Alcoholic Whipped Cream: More Than Just a Dessert Topping

December 14, 2010

This holiday season, thousands of households will be checking “whipped cream” off their shopping lists. The Alcohol and Tobacco Tax and Trade Bureau, or TTB, wants to make sure those households are putting the right product in their cart come shopping time. A handful of whipped cream products made with alcohol have popped up over the last year. The products are typically made with grain alcohol and look like traditional whipping cream. But they pack an alcoholic punch of around 16% alcohol per volume, or a little over 30 proof. Such items are not considered food products, but rather alcoholic beverages. As one manufacturer stated in the FAQ section of its website, they’ve never had the product tested for caloric content as it is “not a food product and is not subject to FDA [U.S. Food and Drug Administration] labeling requirements; it is an alcoholic beverage.”

The fact that the product is an alcoholic beverage as opposed to a food product means it is regulated by the TTB. For more information on the TTB’s relationship with the FDA, refer back to our post on caffeinated alcoholic beverages. As the TTB reminded producers last week, all alcoholic beverage products must abide by federal labeling requirements that prohibit consumer deception. Product labels for distilled spirits are required to have a statement of the class, type and alcoholic content, along with the government warning required by 27 U.S.C. 215, among other things. Additionally, such manufacturers must comply with Federal Alcohol Administration Act, or FAA, advertising laws and the various relevant state regulatory laws. If you are of the legal drinking age and decide to try one of these alcoholic whipped cream products this holiday season, just remember, as always, to imbibe in moderation.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


New Year’s Prediction: Geo Location and Alcohol Advertising

December 08, 2010

We’ve posted about alcohol and social media before, but are revisiting the issue to discuss geo location and location-based advertising.

Websites and mobile apps like Foursquare, Shop Kick, and Facebook Places allow advertisers to identify the location of their audience members and then send an offer based on the consumer’s location. The marketing potential for alcoholic beverage suppliers and retailers is epic. Presume a social media savvy consumer, Joe, who checks in everywhere he goes and provides personal information across a variety of web platforms. Joe likes craft beer, and he likes to drink it in San Francisco’s Haight district. These geography-based applications will allow the brewers, bars and restaurants that Joe interacts with online and via the geo apps to know when Joe is in the Haight and send him a coupon for a discounted pint of craft beer, expiring in only a few hours. The opportunities for a personalized call to action are profound.

Though the technology is very cool, there are plentiful legal pitfalls. Leaving aside regulatory acronyms all mobile advertisers should heed (e.g. MMA, FCC, FTC, TCPA, CTIA), there are alcoholic beverage law issues with geo targeting. The rules on alcohol discounts vary by state and by the party selling the alcohol. How will these programs ensure that the underlying offers are legally compliant? How will the geo location sites identify users who are underage or have a chronic drinking problem? What about states where solicitation requires a license, or is prohibited? We expect to see alcohol advertising tiptoe into geo location in 2011, and expect to see regulators follow quickly.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


Update on New Sampling Rules at Retail Stores in California

December 07, 2010

A few weeks ago, we wrote about the new permit available to California off-premise consumption retailers that will allow suppliers to come to their premises and conduct instructional consumer tastings. The ABC just released an industry advisory with additional helpful information. The industry advisory is available here.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


Alcoholic Energy Drinks are Out, What’s Next?

December 06, 2010

At this point, we’ve all recovered from the landslide ban on alcoholic energy drinks that crossed the U.S. in November. We covered the opening act, here, when Michigan, quickly followed by Washington, banned the sale of alcoholic energy drinks. New York then reached an agreement with certain suppliers and distributors that halted caffeinated malt beverage sales in that state (review our coverage here). After that, the U.S. Food and Drug Administration (FDA) issued warning letters to four caffeinated alcoholic beverage companies. The letters warned those producers that caffeine added to their malt alcohol beverage products constitutes an “unsafe food additive.”

Substances added to food products, which includes beverages, are considered food additives and are subject to review and approval by the FDA, unless the substance is specifically excluded from the definition of “food additive,” has been sanctioned by the FDA, or is recognized by qualified experts as adequately safe when used as intended. This third category is referred to as Generally Recognized as Safe or GRAS.

As many know, the FDA isn’t the usual stop for federal regulation of alcoholic beverages, but rather the Alcohol and Tobacco Tax and Trade Bureau (TTB) which operates under the Federal Alcohol Administration Act (FAA Act). In this instance, the FDA’s statements meant that the beverages in question were considered adulterated under the Federal Food, Drug and Cosmetic Act (FFDCA). The TTB takes the position that adulterated beverages, even if their formulas and labels have been approved by the TTB, are mislabeled under the FAA Act. This means that shipping and selling such beverages violates the FAA Act, which can result in license revocations and misdemeanor penalties. As the TTB stated, “…each producer and importer of alcohol beverages is responsible for ensuring that the ingredients in its products comply with the laws and regulations that FDA administers. TTB’s approval of a label or formula does not imply or otherwise constitute a determination that the product complies with the FFDCA, including a determination as to whether the product is adulterated because it contains an unapproved food additive.”

Producers of alcoholic energy drinks likely thought their products fell under the GRAS status. The FDA’s announcement ended that assumption. The question is, what other assumptions might it have ended? Alcoholic beverage producers have been using caffeine in their products for years, the most popular being coffee. In the FDA’s Questions and Answers section about the warning letters, it states that the letters are not directed at “alcoholic beverages that only contain caffeine as a natural constituent of one or more of their ingredients, such as a coffee flavoring.” However, in that same section the FDA also stated that, “Other alcoholic beverages containing added caffeine may be subject to agency action in the future if the available scientific data and information indicate that the use of caffeine in those products is not GRAS. A manufacturer is responsible for ensuring that its products, including the ingredients of its products, are safe for their intended use and are otherwise in compliance with the law.” Further, the TTB stated that if requested by the FDA, it would share “formulas for beers containing added caffeine that are approved under 27 CFR Part 25 [TTB regulations].” In the upcoming months, and perhaps years, it will be interesting to see how the GRAS standard is applied to other alcoholic beverages containing some form of caffeine.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


United States Supreme Court Asked to Hear Case on Retailer Direct Shipping

November 27, 2010

A petition for writ of certiorari was filed with the United States Supreme Court earlier this week asking the court to determine

“Whether, notwithstanding Granholm v. Heald, 544 U.S. 460 (2005), the Twenty-first Amendment overrides the Commerce Clause and allows States to discriminate against out-of-state businesses in the sale of alcoholic beverages.”

In the seminal Granholm case, the Supreme Court ruled that states cannot permit in-state wineries to ship direct to consumers within the state, while prohibiting out of state wineries from doing the same. The question of whether the same rationale applies to retailers remains unresolved. The current petition to the Supreme Court is based on a dispute in Texas as to whether out-of-state alcoholic beverage retailers should be allowed to ship to Texas consumers under the same rules applied to in-state alcoholic beverage retailers. The case was originally brought in 2006 by Siesta Village Market and several other retainers against the Texas Alcoholic Beverage Commission. Siesta Village has dropped its appeal but K& L Wine Merchants and other notable retailers remain. A couple of large Texas distributors (Glazer’s and Republic) joined as intervenors in order to protect their position in the three-tier distribution system. The case was appealed to the Fifth Circuit on various issues and has now worked its way through to the final appeal – the U.S. Supreme Court. The Supreme Court accepts very few cases for review – typically accepting only those cases involving a substantial federal interest or a conflict between two or more Circuit Courts of Appeals. Statistically, the case stands little chance of being accepted, but the scope of the Granholm decision and its applicability to retailers (as opposed to only wineries) may be ripe for further judicial instruction. The State has until December 22 to file its response. The Court will decide whether or not to hear the case within a few months.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


California Sampling at Retail Stores

November 22, 2010

Effective January 1, 2011, California off-sale retailers will be eligible for a $300 instructional tasting license that will allow wine, beer and spirits suppliers to conduct free consumer tastings on the retail premises.

The instructional tasting license will be available to most off-sale retailers. Off-sale retailers with a gas station are not eligible unless the retail store is over 10,000 sq. ft. Premises under 5,000 sq. ft. are not eligible unless 75% of gross sales on the premises are alcohol. This will tend to exclude convenience stores and small markets but will enable small wine and liquor stores to obtain the license. Permits may also be denied to retailers in “overconcentrated” areas, i.e., locations with more than the statutorily authorized number of ABC licenses.

Retailers obtaining the permit must separate the tasting area with a barrier and post signage prohibiting minors from entering the tasting area. The retailer is responsible for making sure no minors are in the tasting area and no open containers leave the tasting area. Tastings may only be conducted between the hours of 10:00 a.m. and 9:00 p.m., provided the retail license allows sale of alcohol within that time period.

The tastings must be free, and sample size is limited as follows:

Sample Limitations
Beer 8 oz. per person per day
Wine 3 tastings per person per day, 1 oz. per sample
Spirits 3 tastings per person per day, ¼ oz. per sample

Each tasting event can only involve one class of product and one “authorized licensee” tasting per retailer per day, so a single tasting event may not combine beer and wine tastings or multiple suppliers. “Authorized licensees” who may conduct the tastings are California licensed: winegrowers, winegrower’s agents, beer and wine importer generals, beer and wine wholesalers, wine rectifiers, distilled spirits manufacturers, distilled spirits manufacturer’s agents, distilled spirits importer generals, distilled spirits rectifiers, distilled spirits general rectifiers, rectifiers, out-of-state distilled spirits shipper’s certificate holders, distilled spirits wholesalers, brandy manufacturers, brandy importers, California brandy wholesalers, beer manufacturers, or an out –of-state beer manufacturer certificate holders.

The alcohol tastes are to be served by the “authorized licensee” or her/his agent. The exception is that beer and wine wholesalers, though “authorized licensees”, may not serve tastes unless they hold additional licenses. Wine and spirits for the tasting may be supplied by the “authorized licensee” or bought from the retailer at the original invoiced cost. Beer cannot be provided by an “authorized licensee”, but may be purchased from the retailer at invoice cost. Unused product must be removed at the conclusion of the tasting.

An “authorized licensee” must be present for the tasting, unless the event has been previously advertised and the “authorized licensee” can’t attend. On that note, the “authorized licensee” can advertise the retailer event in advance, subject to restrictions. Retailers are also allowed to advertise the events on their own initiative. Special rules apply if the off-sale retailer already has a Type 42 on-sale license for a tasting bar.

For the complete rules, see Cal. Bus. & Prof. Code §23396.6 and §25503.56.

If you would like assistance in applying for the instructional tasting license, please contact licensing paralegal Lindsay McCarthy at .(JavaScript must be enabled to view this email address).

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·


Alcoholic Energy Drinks Banned in Michigan and Washington

November 12, 2010

In the span of a week, both Michigan and Washington have banned alcoholic energy drinks. On November 4, 2010, the Michigan Liquor Control Commission issued an Administrative Order rescinding its approval of all alcoholic energy drinks, effectively banning them in the state of Michigan. Manufacturers have 30 days from the date of the Order to remove their products from Michigan stores. The ban covers a total of 55 drinks offered by nine different suppliers. According to supporters of the ban, the high alcohol content—around 12% for a 24-ounce can, compared to 4-5% for a 12-ounce beer—combined with flashy packaging, flavors such as grape and watermelon, low prices (around $2 to $5), and the combination of stimulants such as caffeine, taurine, and guarana, along with alcohol, make the drinks dangerous to teenagers and college-aged students. As the Commission’s news release stated, “The Commission believes the packaging is often misleading, and the products themselves can pose problems by directly appealing to a younger customer, encouraging excessive consumption, while mixing alcohol with various other chemical and herbal stimulants.”

On November 10, 2010, at the request of Governor Chris Gregoire, the Washington State Liquor Control Board approved an emergency rule banning the sale of alcoholic energy drinks. The emergency ban will remain in effect for 120 days, during which time the Liquor Control Board will work to make the ban permanent. The Washington ban was partially spurred by nine Central Washington University students who became ill after consuming alcoholic energy drinks. As Gov. Gregoire stated in the Liquor Control Board’s press release, “By taking these drinks off the shelves we are saying ‘no’ to irresponsible drinking and taking steps to prevent incidents like the one that made these college students so ill.”

Michigan and Washington are not the only states with some form of limitation on alcoholic energy drinks. Both Utah and Montana reclassified such beverages as liquor, thus restricting the locations where such items can be sold. In 2009, the U.S. Food and Drug Administration announced it would look into the health risks associated with caffeinated alcoholic beverages. The FDA has never approved caffeine as an additive to alcoholic beverages, although it has approved it as an additive to soft drinks. Beverages without FDA approval can still be lawfully marketed, but their use must be subject to a prior sanction or deemed Generally Recognized As Safe, or GRAS. Given the extensive media coverage surrounding beverages containing caffeine and alcohol, it appears likely that these products will continue to attract regulatory attention.

Imbiblog is published for general informational purposes only and is not intended as legal advice.


The Votes are In: Washington Remains a Control State

November 09, 2010

There was a lot of shake-up in Congress this election season, but things stay the same for Washington’s alcoholic beverage system. Washington remains one of 18 “control” states, which hold broad reign over the wholesale distribution of alcohol. Further, Washington remains one of 12 states that are involved in the retail distribution of alcohol.

Initiatives 1100 and 1105 would have privatized the state’s liquor distribution and sales system. Initiative 1100 would have made sweeping changes to Washington’s alcoholic beverage laws, not only privatizing liquor sales, but eliminating many of the state’s distribution regulations, including price controls, restrictions on volume discounts, and prohibitions against paying on credit for beer and wine sales. Initiative 1105 was less expansive. It called for a privatization of the liquor sales systems, but left most of the distribution laws regarding beer and wine intact, although it relaxed such distribution laws related to liquor.

The two campaigns were at odds with each other. Initiative 1100 was backed largely by Costco Wholesale Corp., while Initiative 1105 was backed mostly by beer and wine distributors. Unions, including the Washington State Council of Firefighters, came out against both initiatives, arguing they would result in more access to alcohol throughout the state and greater public safety concerns.

Both measures failed, though it was a close race for Initiative 1100. Initiative 1100 received a 53.21% “No” vote to 46.79% “Yes.” Initiative 1105 received a 64.51% “No” vote to 35.49% “Yes.” Despite what was surely a significant financial investment in both initiatives by their respective supporters, for the time being it’s business as usual in Washington State.

Imbiblog is published for general informational purposes only and is not intended as legal advice.


San Francisco Board of Supervisors Approve Alcohol Fee

September 22, 2010

On Tuesday, September 21st, the San Francisco Board of Supervisors approved a controversial fee on alcohol that would take effect January 1st, 2011. Within hours, Mayor Gavin Newsom vetoed the plan. The question remains whether the board has the necessary eight votes to overcome his veto.

Proponents believe the $16 million in revenue the fee will generate is necessary to offset the cost of services such as ambulance rides, hospital visits and alcohol abuse centers/programs for alcoholics. They say the fee would only result in a small increase in costs for local consumers and business owners.

Opponents argue the fee is an additional tax on businesses struggling in a weak economy, who already have to pay San Francisco specific employment and health care taxes. They also argue the fee is an illegal tax and violates state law.

We are waiting to see what the Board of Supervisors does next. Avalos has implied the fee might be appropriate for a public vote if he is unable to secure the necessary votes from the Board. However, past history has shown Californians are not receptive of an increase in taxes on alcohol. For example, a statewide initiative proposed earlier this year for a sizeable increase on the tax to alcohol was not able to obtain the signatures necessary to qualify for the ballot (Initiative 1461).

Imbiblog is published for general informational purposes only and is not intended as legal advice.


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