California passes cocktails-to-go bill!

October 10, 2021

First the good news: on October 8, 2021, California Governor Newsom signed SB 389, which permits restaurants and some types of suppliers to sell for pickup mixed drinks, wine in single serving containers, and manufacturer-sealed containers of distilled spirits. SB 389 codifies California’s Covid-19 “cocktails-to-go” regulatory relief that has been in place since March 2020. Now the bad news: SB 389 does not allow all of the privileges permitted under the current regulatory relief, and most notably, it does not enable delivery of spirits, mixed drinks, or single servings of wine, and it is instead limited to pickup. The bill adds Section 23401.5 to the California Business & Professions Code, and will go into effect on January 1, 2022. The new law is set to expire at the end of 2026.

SB 389 applies to the following types of California ABC licensees, which must notify the California ABC prior to taking advantage of the new privileges: on-sale licensees with bona fide public eating places that have off-sale privileges (this includes primarily Type 41, 47, and 75 licensees that don’t have license conditions that prohibit off-premises sales); licensed beer manufacturers (Type 1 and 23 licensees); licensed wine manufacturers (Type 2 licensees); and, licensed craft distillers that operate bona fide public eating places at their premises of production (Type 74 licensees).

The above types of licensees will have the following privileges under new Section 23401.5: 1) licensees with distilled spirits off-sale privileges (applies primarily to Type 47, 74 (with bona fide eating place), and 75 licensees) can sell distilled spirits in manufacturer-prepackaged containers for pickup; 2) licensees can sell alcoholic beverages, except beer, not in manufacturer-packages containers (i.e., cocktails-to-go) provided several conditions are met, including the following:

  • The drink must be packaged in a container with a secure lid designed to prevent consumption without removing the lid, and the package must be clearly and conspicuously labeled to identify that it includes an alcoholic beverage;
  • Drinks must be sold in conjunction with a “bona fide meal” (ABC guidance as to what qualifies is available here), and only two drinks may be sold per meal ordered;
  • Wine not packaged in manufacturer-sealed containers must be sold in “single-serve containers” in one of the following sizes: 187ml, 200ml, 250ml, or 355ml;
  • Mixed drinks can include no more than 4.5 ounces of distilled spirits per drink;
  • The following warning language must be posted on the premises, online, or “in whatever manner is necessary to ensure that the consumer purchasing the beverages to which this section applies is given notice of this warning” - “Alcoholic beverages that are packaged by this establishment are open containers and shall not be transported in a motor vehicle except in the vehicle’s trunk or, if there is no trunk, the containers shall be kept in some other area of the vehicle that is not normally occupied by the driver or passengers. This does not include a utility compartment or glove compartment (See Vehicle Code Section 23225). Additionally, these beverages shall not be consumed in public or in any other area where open containers are prohibited by law.”

Orders for alcoholic beverages under SB 389 can be placed online, by phone, or in person, but must be picked-up by the consumer, and delivery is prohibited. Lastly, the new law gives the ABC discretion to impose conditions on licenses to limit or prohibit the sale of alcoholic beverages under the new law, and it includes a mechanism for licensees to challenge any such conditions.SB 389 adds California to the list of more than 20 states that have codified cocktails-to-go privileges that were first implemented in 2020 as part of various types of emergency Covid-19 relief for restaurants and other industry members. California’s Notices of Regulatory Relief (see here and here) that address cocktails-to-go expire on December 31, so the new law will allow cocktails-to-go to continue with no lapse. However, SB 389 does not extend all cocktails-to-go privileges, and most notably, delivery privileges will expire on December 31. Similarly, all other Covid-19 regulatory relief related to delivery will expire at the end of the year. For restaurants, that means delivery privileges will be limited to beer and wine in manufacturer-packaged containers, and any license conditions limiting off-sale and delivery privileges will go back into effect.

If you’d like more information about this law, contact the attorneys at Strike Kerr & Johns.


California Legislative Update for Wineries and Other Alcohol Manufacturers

October 05, 2021

California Wineries Can Now Operate Two Off-Site Tasting Rooms, Duplicate Tasting Rooms Can Sell and Deliver Wine in Consumer-Provided Containers, and Manufacturers Can Promote Donations Related to Alcohol Sales.

California Governor Newsom recently signed a series of bills into law that loosen restrictions on wineries’ duplicate tasting rooms and allow alcohol manufacturers to promote their charitable donations related to alcohol sales. The bills below become effective January 1, 2022. The following synopses address these recent changes:

SB 19 – Wineries Can Add a Second Duplicate Tasting Room:

California Type 02 winegrowers have traditionally been limited to operating a tasting room on their primary licensed premises, as well as one “duplicate” premises where the winegrower does not conduct winemaking operations. Per SB 19’s revisions to California Business and Professions Code section 23390.5(b), a Type 02 licensee can now operate two duplicate tasting rooms located off the winery’s primary winemaking premises - three tasting rooms in total. This bill is a welcome change for wineries interested in expanding their footprints within the state.

AB 239 – Duplicate Tasting Rooms Can Sell Wine in Containers Provided by Consumers:

Currently, wineries and brandy manufacturers are permitted to exercise most of their normal privileges at duplicate tasting rooms. However, there is an exception that expressly precludes wineries and brandy manufacturers from selling or delivering wine to consumers in “containers supplied, furnished, or sold by the consumer.” See Cal. Bus. & Prof. Code § 23390(a)(3). AB 239 deletes this exception and allows duplicate tasting rooms to fill bottles provided by consumers.

AB 1267 – Alcohol Manufacturers Can Promote Donations to Nonprofit Charitable Organizations:

Like most states, California does not allow industry members to influence alcohol sales by providing premiums, gifts or free goods in connection with the sale and distribution of their products. See Cal. Bus. & Prof. Code § 25600. There is an exception that allows alcohol manufacturers to make charitable donations; however, historically, manufacturers could not advertise those donations in relation to the sale of alcohol, e.g., “buy X product and we’ll donate $$$ to charity Y.” (Those types of offers are commonplace in California, but technically noncompliant, in the view of the California ABC.)

On October 8, 2020, California ABC suspended the prohibition on advertising charitable promotions and sales as a form of Covid-19 relief. See Sixth Notice
of Regulatory Relief (permitted the promotion of donations to “a bona fide charitable organization providing relief related to the COVID-19 pandemic”). AB 1267 takes ABC’s temporary relief one step further, and amends California Business and Professions Code section § 25600 to allow winegrowers, beer manufacturers, distilled spirits manufacturers, craft distillers, brandy manufacturers, rectifiers, and wine rectifiers to “donate a portion of the purchase price of an alcoholic beverage to a nonprofit charitable organization in connection with the sale or distribution of an alcohol beverage.”

Note that several limitations apply, and unless extended by the Legislature, this new law will sunset on January 1, 2025. The above-named manufacturers are permitted to advertise their charitable donations related to alcohol sales only if the following criteria are satisfied:

(i) The donation is only related to the sale or distribution of alcohol in manufacturer-sealed containers.

(ii) Promotion or advertisement of the donation does not directly encourage or reference alcohol consumption.

(iii) The donation does not benefit a retailer, or a nonprofit charity established for the specific purpose of benefiting the employees of a retailer, and the
advertisement or promotion of the donation, cannot, directly or indirectly, advertise, promote, or reference any retail licensee. See Cal. Bus. & Prof. Code § 25600(a)(3)(A)(i)-(iii).

If you’d like more information about new California laws, contact any of the attorneys at Strike Kerr & Johns.


Alabama Opens Up To Winery DTC (and Other DTC Updates)

June 09, 2021

Alabama’s governor signed a winery direct-to-consumer (DTC) shipping bill (HB437) into law on May 13, 2021, making Alabama the 47th state to allow winery DTC. The bill will become effective on August 2, 2021 and will allow wineries to ship up to 12 cases annually. Wineries wishing to ship DTC to Alabama consumers will need to obtain a direct wine shipper license for $200, renewable annually for $150, and pay all applicable Alabama sales and excise taxes. The new law allows the use of “wine fulfillment centers” for DTC shipments, provided the fulfillment center also obtains a license. Fulfillment center licensees must obtain a separate license for each facility they use to ship DTC into Alabama for an annual fee of $500 for the first location and $100 for each additional fulfillment center. Wineries, fulfillment centers, and common carriers involved in DTC to Alabama must each file a quarterly report providing certain details of those operations. HB437 also expanded wine franchise law protection throughout the state, which is perhaps less reason for celebration by wineries.

Tennessee Amends DTC Law to License Fulfillment Houses

The Governor of the State of Tennessee signed HB0742 on May 4, 2021, which will, among other things, allow wineries to continue to use fulfillment houses for DTC sales into the state. An earlier version of the bill prohibited the use of fulfillment houses but was amended to allow fulfillment houses to obtain a license and ship direct to Tennessee consumers on behalf of licensed wineries. The Tennessee fulfilment house license costs $300, renewable annually, plus an additional $50 fee for each additional fulfillment house location to be used to ship wine into the state. The license requirement is effective January 1, 2022; in the interim, wineries can continue using unlicensed fulfillment houses.

... and So Does Kansas

Kansas recently passed HB2137, which created a new license for fulfillment houses shipping wine DTC for wineries. The license costs $50 and is good for two years. The new law also imposes typical carton marking, record-keeping and reporting obligations. The requirement that fulfillment houses hold the new license was effective in May 2021, so fulfillment houses shipping wine DTC for wineries will want to apply for the new license as soon as possible.

Etc.

There are several other pending DTC bills in other states. Delaware may be the next state to enable winery DTC if pending bill HB210 passes. It was just introduced in May 2021, so it has a long way to go before it becomes law. Rhode Island also has pending DTC bills but both are currently on hold pending further study. A promising bill in Louisiana that would have enabled wineries to sell wines DTC that are also available through the 3-tier system passed the House but looked doomed to fail in the Senate and was withdrawn. There will no doubt be more to come on these bills and other DTC activity.

If you’d like more information about these laws or about DTC generally, contact any of the attorneys at Strike Kerr & Johns.

Alcohol.Law is published for general informational purposes only and is not intended as legal advice. Copyright © 2021 · All Rights Reserved · Beverage Law Group, LLP


TTB Updates Policy on Gluten Claims on Labels and Advertising (TTB Ruling 2020-2)

January 28, 2021

In response to changes in the FDA’s regulations on gluten claims on foods, TTB issued Ruling 2020-2 in October 2020, modifying its prior position on “gluten-free” claims on labeling and advertising on alcoholic beverages. The changes are summarized below.

What Was Allowed Prior to the New Ruling?

Prior to the new Ruling, TTB allowed “gluten-free” claims (including claims such as “no gluten,” “free of gluten,” and “without gluten,”) on alcoholic beverage labels and ads only if the products were produced without gluten-containing ingredients, and provided the producer took appropriate steps to ensure the product ingredients and facilities did not have cross-contact with gluten.

Prior to the new ruling, TTB allowed labels and ads for alcoholic beverages fermented from gluten-containing grains to claim that the products were processed (or “treated” or “crafted”) to remove gluten, if the claim was accompanied by a qualifying statement and the producer has documentation to verify the steps taken to remove gluten. Such products could not include claims that they were “gluten-free,” and TTB would consider such claims to be misleading, regardless of the actual gluten content of the finished products.

What Was Changed in the New Ruling?

Distilled spirits products that are distilled from gluten-containing grains can now make “gluten-free” claims, provided they are made following good manufacturing practices to ensure the product is not exposed to gluten-containing ingredients. The distillation process removes proteins and gluten, the absence of which can be detected by scientifically valid testing methods, so TTB has determined “gluten-free” claims on these distilled products to be safe.

Producers must be prepared to substantiate, upon request, the absence of protein (and thus gluten) in the distillate, the absence of gluten in any added ingredients, and the precautions taken to prevent cross-contact, including from storage materials that may contain gluten.

Sum It All Up – What is Allowed Now?

Wine, beer or spirits products produced without gluten-containing ingredients and made in accordance with good manufacturing practices can continue to make “gluten-free” claims.

Fermented products made using gluten-containing products still cannot claim to be “gluten-free,” but can continue to make claims that their products were processed/treated/crafted to remove gluten, if (1) the producer submits a description of the method used to remove gluten along with their COLA application, and (2) the labeling and ads conspicuously bear the following qualifying statement: “Product fermented from grains containing gluten and [processed or treated or crafted] to remove gluten. The gluten content of this product cannot be verified, and this product may contain gluten.”

Distilled spirits product labels that currently make claims regarding treatment to remove gluten can be changed to say “gluten-free” without the need for a new COLA (provided they are entitled to make that claim).

It remains TTB’s policy that any other explicit or implicit claims about gluten content are prohibited if they are false or tend to create a misleading impression. TTB will evaluate such statements on a case-by-case basis, and may require a disclaimer or some other qualifying statement to dispel any misleading impression created by such statements.

Labels and ads for fermented products cannot claim a specific level of gluten in the finished product (such as “contains x ppm”) until FDA/TTB conclude that a scientifically accurate testing methodology exists for such products.

Why Are Distilled Spirits, Fermented Products, and Foods Treated Differently?

Under FDA regulations, labels and ads for food products produced with gluten-containing ingredients can make “gluten-free” claims if the product has been processed to reduce gluten to below 20 ppm (i.e., 20 mg or more per kilogram). However, FDA and TTB are not aware of any scientifically valid testing method to measure gluten in fermented products, such as beer or wine, so until such testing is available, TTB will not allow “gluten-free” claims on fermented products made with gluten-containing ingredients. Similarly, FDA will not allow “gluten-free” claims on wine under 7% abv and beer made without malt, which products are subject to FDA labeling regulations, if they are made with gluten-containing ingredients. Distilled spirits, on the other hand, can be determined to be gluten-free because of the absence of protein (and gluten) eliminated in the distillation process, which is why TTB treats spirits differently and allows “gluten-free” claims.

If you have questions about the new TTB ruling or about alcohol labeling and advertising generally, please reach out to one of the attorneys at Strike Kerr & Johns.

Alcohol.law Digest is published for general informational purposes only and is not intended as legal advice. Copyright © 2021 · All Rights Reserved ·


Direct-to-Consumer Shipping Opens in Kentucky

January 14, 2021

The state of Kentucky enacted a direct-to-consumer (DTC) shipping law for beer, wine, and spirits, effective July 15, 2020, and on December 14, 2020, finally issued the regulations to implement the new law. Here’s the new law in a nutshell:

Who is Eligible for the DTC Shipping License and What Can Be Shipped?

The law is applicable to producers of beer, wine or spirits with federal basic permits and state production licenses in their home state – it is not applicable to retailers. Producer licensees can ship up to 10 liters of distilled spirits, and up to 10 cases of wine or beer per month per Kentucky resident. The products must be produced by
the licensed shipper or produced or bottled by another producer exclusively for them under a brand name owned by, or licensed to, the direct shipper. Brands and labels must be registered with the Kentucky ABC.

What is Required to Obtain a License to Ship DTC?

In order to qualify to ship DTC, the out of state producer must obtain a direct shipper license from the Kentucky ABC, which currently costs $100/year. The applicant must first register to do business in Kentucky with the Secretary of State, and register with the Department of Revenue to collect and remit sales and alcohol taxes. Licensees can only ship product from their licensed premises and they must provide a copy of the deed or lease showing their right to occupy the licensed premises they will ship from. This is a significant limitation for licensees that typically operate their DTC program from fulfillment houses or third-party warehouses off their licensed premises.

Shippers must collect and pay a 6% sales tax, plus an alcohol wholesale tax and an alcohol excise tax. The wholesale tax is 11% of the wholesale price for spirits and 10% of the wholesale price for beer and wine. If there is no actual wholesale price for the products in Kentucky, it is deemed to be 70% of the invoiced retail price. The excise tax is currently $1.92/gallon for spirits, $0.50/gallon for wine, and ~$0.08/gallon for beer. Alcohol taxes are reported and paid quarterly.

Other restrictions apply and we recommend taking a look at the state’s direct shipping laws (KRS 243.027 et seq) and regulations (804 KAR 4:415) for details.

If you have questions about the new law or about direct shipping generally, please reach out to one of the attorneys at Strike Kerr & Johns.


TTB Amends Labeling Regulations – Adds New Standards of Fill

January 06, 2021

TTB issued a final rule, effective December 29, 2020, amending the existing labeling regulations for wine and distilled spirits. The revised regulations add seven new allowable container sizes (called “standards of fill”). For wine, TTB added 200, 250, and 355 milliliter sizes, and for distilled spirits, TTB added 700, 720, 900 milliliters and 1.8 liter sizes. The allowable sizes are now:

Wine – 27 CFR 4.72:·

  • 50, 100, 187, 200, 250, 355, 375, 500 and 750 ml, 1L, 1.5L and 3L.
  • Packages larger than 3L are allowed in even liter quantities (4L, 5L, 6L, etc.).

Spirits – 27 CFR 5.47a:·

  • Packages Other Than Cans: 50, 100, 200, 375, 700, 720, 750, and 900 ml, 1L, 1.75L and 1.8L.
  • Metal Cans: 50, 100, 200 and 355 ml.
  • Packages larger than 1.8L are not permitted for distilled spirits.

The final rule also made two other revisions:

  • TTB increased the allowable headspace (the empty space between the liquid fill line and the top of the container) from 10% to 30% of the container’s total capacity on wine packaged in clear containers of 100ml or smaller. The existing headspace limits remain in place for larger containers.
  • TTB now formally allows distilled spirits to be labeled with the equivalent standard U.S. measure in addition to the mandatory metric measure, and allows malt beverages to be labeled with the equivalent metric measure in addition to the mandatory U.S. measure. Informal TTB policy already allowed this practice, and it is allowed by regulation for wine, but the new rule makes it part of the regulations.

Background

TTB had initially proposed to eliminate the standards of fill for wine except for the minimum 50ml size (to accommodate the required labeling info) and eliminate all but the minimum and maximum standards of fill for spirits. The thought behind the proposed changes was that it would expand manufacturing options and consumer purchasing options, and would promote commerce, without impacting tax revenue calculations or collection. TTB received comments in support of the elimination from commenters who felt it would provide them greater flexibility and enable them to grow their businesses.

However, TTB received many more comments in opposition to the proposed elimination, including from some industry members and their trade groups. The concerns raised by these commenters included potential consumer confusion caused by a myriad of available sizes, making it more difficult to price compare, and a more “chaotic consumer marketplace” generally. Some wholesalers and retailers also submitted comments in opposition, asserting that the proliferation of sizes would increase their costs. In the alternative, TTB had proposed not eliminating the existing standards of fill but adding new sizes based on those it had received petitions to approve. Taking into consideration the comments it received, the majority of which opposed elimination of the standards of fill, TTB opted to add certain of the proposed new sizes, as reflected in the final rule.

If you have questions about the new TTB ruling or about alcohol labeling and advertising generally, please reach out to one of the attorneys at Strike Kerr & Johns.


TTB Issues New Ruling on Nutritional Content Statements

October 26, 2020

On September 28, 2020, TTB issued TTB Ruling 2020-1 and the corresponding TTB Procedure 2020-1, which expand the allowable tolerances for calorie statements in alcohol labeling and advertising. The new ruling further clarifies that producers are not required to conduct laboratory analyses prior to providing nutritional content information.

Expanded Calorie Tolerances.

In a 2004 Ruling, TTB began allowing permittees to voluntarily provide information about the nutrient content of their products. Specifically, TTB began to allow statements about a product’s calories, carbohydrates, protein and fat content, if truthful and accurate information was provided for each of the four elements in a “statement of average analysis.” In a subsequent 2013 Ruling, TTB expanded on its 2004 ruling and began allowing producers to provide the same nutritional information in a Serving Facts panel.

Under both the 2004 and 2013 rulings, calorie statements were compliant as long as the actual calorie content, as determined by TTB, was within a range of plus 5 or minus 10 calories from the advertised calories. For example, a label that says a serving of a product contains 100 calories was compliant as long as TTB’s testing shows no less than 90 calories nor more than 105 calories. The new ruling expands that tolerance to more closely mirror the FDA, which allows producers to understate calories by as much as 20%. Under the new TTB Ruling, a claim that a serving contains 100 calories is still compliant if the actual calories as determined by TTB are not more than 120 (vs. 105 under the old rule). There is no specific percentage tolerance for overstatements of calories on labels or ads; they are complaint if they are within a reasonable range and within good manufacturing practices. (We suspect overstatement of calories on alcoholic beverages is rare.)

TTB also will now allow permittees to round the calories to the nearest 10-calorie increment for per-serving amounts above 50 calories, and to the nearest 5-calorie increment for per-serving amounts up to and including 50 calories, which is also more consistent with FDA requirements. The same 20% tolerance applies to the advertised calorie count, whether or not it is rounded. TTB will continue to allow amounts less than 5 calories to be expressed as zero.

What About Fat, Carbs, and Protein?

The ruling does not change the tolerances for fat, carbs or protein, which have been subject to the 20% tolerance since 2004. Overstatements of protein, and understatements of carbs and fat are still compliant if within the 20% tolerance. The Ruling also does not affect the tolerances for alcohol content, which are set forth in the regulations at 27 CFR §§ 4.36, 5.37, and 7.71.

Lab Analysis Not Required.

The new rulings also clarify that permittees are not required to conduct a laboratory analysis on each batch of products they produce in order to substantiate voluntary nutrient content statements. Instead, producers may rely on databases or “typical value” charts to determine the nutrient content values applicable to their products. This announcement was particularly welcome news to the members of the wine industry, whose products are not produced in accordance with a formula, like distilled spirits and beer products, and therefore their nutrient content may vary from vintage to vintage and even from barrel to barrel.

These measures bring TTB in closer conformity to the FDA food labeling regulations, and TTB believes this will encourage broader use of nutrient content statements on alcohol labeling and advertising.

If you have questions about the new TTB rulings or about alcohol labeling and advertising generally, please reach out to one of the attorneys at Strike Kerr & Johns.


Mendocino County Earns Long-Awaited Conjunctive Wine Label

October 12, 2020

First, a note to our readers…

Like everyone, we’ve had our hands full with the pandemic and have been helping our clients work through its impact on our industry, so we haven’t had much time to write blog posts this year. We intend to resume posting with more regularity going forward, and below is our first post in a while, which is refreshingly not about COVID-19.

MENDOCINO COUNTY EARNS LONG-AWAITED CONJUNCTIVE WINE LABEL

Mendocino County is one of the largest wine-producing counties in California. From pinot noir to zinfandel, the region is known for its grape growing - particularly red varietals. However, it does not enjoy the same labeling protections as Sonoma County or Napa Valley, both of which require producers in American Viticultural Areas (“AVAs”) located within their borders to designate the greater region on their producers’ wine labels. (For an explanation of California appellations and wine labels, please see our previous post.) The practice of requiring wine labels to include both the region and sub-region of origin is coined “conjunctive labeling.” Conjunctive labeling is intended to boost consumer exposure to wines produced within a larger geographic region, in addition to the sub-region or AVA in which they were produced. Proponents believe that such uniform marketing translates to increased sales within the region as a whole. Conjunctive labeling can be particularly valuable to lesser known AVAs that lie within a region that contains other well-known AVAs.

Mendocino WineGrowers, Inc. (“MWI”), Mendocino County’s alliance of grape growers, thinks that Mendocino County deserves its own distinct conjunctive labeling law, and thanks to the enactment of SB 1009, MWI’s efforts have paid off. As of January 1, 2023, the words “Mendocino” or “Mendocino County” must appear on the front or back label of wines produced within AVAs located entirely within Mendocino County or that use a vineyard designation within Mendocino County. For containers 188 ml or larger, the “Mendocino” or “Mendocino County” designation must be in at least 2 mm font, and for containers 187 ml or less, the font cannot be smaller than 1 mm.

Mendocino County now joins “Lodi,” “Monterey County,” “Napa Valley,” “Paso Robles,” and “Sonoma County,” which mandate their producers to comply with conjunctive labeling laws. See Cal. Bus. & Prof. Code §§ 25240, 25244, 25245, 25246 and 25247.

California Senator Mike McGuire authored SB 1009 and California Governor Gavin Newsom signed the bill into law.


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