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.
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 ·
January 12, 2011
As the formidable Harry Schuhmacher, editor and publisher of BeerNet, reported last week, the Brewers Association Board recently approved a change to the definition of “small” in their bylaws as it applies to craft brewers.
The Brewers Association was formed in 2005, after a merger of two longstanding organizations, The Association of Brewers and Brewers’ Association of America. Its mission is to, “promote and protect small and independent American brewers, their craft beers and the community of brewing enthusiasts.” Currently, their membership includes over 1,000 U.S. brewers. The definition of “small” was changed in their bylaws from those brewing a maximum of 2 million barrels to those brewing a maximum of 6 million barrels. The definition is relevant for both classes of the Brewers Association’s membership, Professional Packaging Brewers and Associates. The change allows brewers that were nearing the 2 million barrel mark to remain a part of the Brewers Association. Boston Beer Co., makers of Samuel Adams and a public company with a current market cap of $1.21 billion, was poised to pass the 2 million barrel mark, but the recent change allows them to remain a member.
Regarding the change, Nick Matt, chairman of the Board of Directors, stated, “A lot has changed since 1976. The largest brewer in the U.S. has grown from 45 million barrels to 300 million barrels of global beer production. The craft brewer definition and bylaws now more accurately reflect and align with our governmental affairs efforts.”
In 2010, the Brewers Association supported H.R. 4278/S. 3339, which aims to expand a reduced excise tax for certain small brewers. The excise tax for small brewers was established in 1976 and currently applies to those producing 2 million barrels per year or less. The proposed bills would both increase the production allowances for “small brewers” to 6 million barrels per year, and decrease the excise tax for such brewers. In the House, the bill was last referred to the House Committee on Ways and Means, while in the Senate, an identical bill remains in the Committee on Finance.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·
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