FDA Issues Final Rule on Food Ingredients that May Be Generally Recognized as Safe (GRAS)

The US Food and Drug Administration (FDA) has issued this final rule detailing the criteria for concluding that the use of a substance in human or animal food is “generally recognized as safe” (GRAS).  By way of background, if an ingredient is GRAS, food additive petition is not required and FDA does not have to approve the ingredient before it can be used in foods.  FDA has been studying the existing process that currently results in a company conducting the GRAS assessment via a panel of experts and then either proceeding to immediately use the ingredient in foods, or submitting a GRAS affirmation petition to FDA before the ingredient is used in a food.

FDA’s new regulation provides the information FDA believes a company should have to make a GRAS determination or conclusion.  Manufacturers remain free to conduct their own GRAS evaluations and then proceed to incorporate the substance into food.  FDA’s final rule changes what had been a voluntary GRAS affirmation process into a voluntary “notification” process. Under this new process, if a company decides to use the notification process, the company conducts the requisite safety assessment and then prepares a notification submission to the FDA.  The contents of the notification submission are detailed in the regulation.  Once the voluntary notification had been submitted to FDA, the agency is supposed to respond within 180 days, though that can be extended for an additional 90 days (for a total of 270 days) before the substance can be included in a food, assuming FDA does not question the basis for the notifier’s GRAS conclusion.

DEA Declines to Change Stance on Marijuana but Opens Door to Federally Sanctioned Marijuana Research

On August 11, 2016, the Drug Enforcement Administration (DEA) formally declined to change its position on the medical or recreational use of marijuana, denying two petitions urging the federal government to change marijuana’s drug classification under the Controlled Substances Act. The petitions, filed in 2009 and 2011, urged the DEA to change marijuana’s status as a Schedule I drug—a drug without any accepted medical uses—to a Schedule II drug—a drug with potential medical value but high potential for abuse—or to a drug “in any schedule other than [S]chedule I.” Despite a trend towards decriminalization and legalization on the state level, the DEA’s denial of these petitions indicates the Obama administration has not changed its stance on marijuana.

Twenty-five states currently allow some form of marijuana to be used for medical purposes.  Four state—Alaska, Washington, Oregon, and Colorado—and the District of Columbia allow the recreational use of marijuana for adults. Nevertheless, the DEA, citing an evaluation and scheduling recommendation from the Department of Health and Human Services (HHS), concluded that marijuana “has no accepted medical use in the United States, and lacks an acceptable level of safety for use even under medical supervision.” The Agency ultimately declined to remove marijuana from Schedule I because of its “high potential for abuse,” lack of “currently accepted medical use in treatment in the United States,” and lack of “accepted safety for use under medical supervision.”

The DEA’s Thursday announcements were not uniformly anti-marijuana. Most notably, the Agency also published a policy statement designed to increase the number of entities registered to grow marijuana to supply researchers in the United States. Currently the only registered facility is at the University of Mississippi, which has been the single grower registered to supply medical marijuana research for nearly 50 years. In its policy statement, the DEA gave its full support to expanding research into the “potential medical utility of marijuana.” Based on its discussions with the National Institute of Drug Abuse (NIDA) and the Food and Drug Administration (FDA), the DEA concluded that “the best way to satisfy the current researcher demand” of marijuana “is to increase the number of federally authorized marijuana growers.”  This new policy will allow more people to register with the DEA as marijuana growers.

The DEA on Thursday also signed onto a Statement of Principles on Industrial Hemp published by the Department of Agriculture and the FDA. The Agricultural Act of 2014 legalized the growing and cultivating of industrial hemp for research purposes in states where such activities are legal under state law. Growing and cultivation is limited to institutions of higher education or state departments of agriculture for purposes of agricultural or other academic research. The three federal agencies published the Statement of Principles “to inform the public regarding how Federal law applies to activities involving industrial hemp” so that those hoping to participate in industrial hemp agricultural pilot programs can do so in accordance with federal law.

FDA Brewery Inspections

Most breweries have numerous deal­ings with the Alcohol and Tobacco Tax and Trade Bureau (TTB) and un­derstand the need to comply with TTB regulations; this includes preparation for TTB audits and inspections. But the TTB is not the only federal agency with the authority to con­duct a brewery inspection.

The Food and Drug Administration (FDA) also inspects food facilities, including breweries, to ensure they comply with FDA regulatory require­ments. The FDA may conduct inspections as the result of routine surveillance, product quality is­sues, consumer complaints, or recalls. The agen­cy also may conduct inspections to follow up on a previous inspection or an FDA enforcement ac­tion. The FDA also contracts with state and local food protection programs to conduct inspections and provide certification and training.

Read the full article, originally published in the July/August 2016 issue of The New Brewer.

Join McDermott Partners Marc Sorini and Andrew B. Kratenstein at the 21st Annual CLE International Wine, Beer & Spirits Law Conference

The annual Wine, Beer & Spirits Law Conference will be held on September 22-23, 2016 in Colorado Springs, CO to discuss the latest developments in alcohol policy and practice.  Co-Chair and McDermott partner Marc Sorini has again lined up a great program of speakers on legal topics of interest to the industry.  In addition, Marc and McDermott Partner Andrew B. Kratenstein will give the following presentations:

  • Thursday, September 22, 9:30-10:15 am: Marc will help kick off the conference by discussing the intersection of the First Amendment and tied-house law.
  • Thursday, September 22, 3:15-4:30 pm: Andrew will join three other lawyers to explore the strategies and tactics of supplier-distributor disputes, touching on venue, injunctions and other topics.

For more information or to register, please visit http://www.cle.com/Broadmoor.

Sixth Circuit Tri County Decision Provides Much-Needed Clarity on “Successor” Provision in Ohio Franchise Law

I attach a copy of the US Court of Appeals for the Sixth Circuit’s recent decision in Tri County Wholesale Distributors v. Labatt USA Operating Company, Nos. 15-3710/3769 (6th Cir., July 6, 2016). For students of the increasingly byzantine case law interpreting the Ohio franchise law’s “successor” provision, Ohio Rev. Code § 1333.85(D), the opinion provides some much-needed clarity on several points.

While the Tri County decision does not formally bind Ohio state courts on questions of Ohio law, it binds lower federal courts and provides strong persuasive authority to the state courts on the following points under the successor provision:

  1. A supplier-tier entity can qualify as a “successor” where the change-in-control occurred (as it frequently does in modern transactions) at the holding company level several corporate layers above the operating (brewing/winemaking) company. Distributors in Ohio have been arguing that the successor provision requires a new operating company that is, itself, a manufacturer, but the Sixth Circuit rejected this “hyperliteral” approach.
  2. The successor provision, by providing suppliers with a means to terminate without cause upon payment of fair market value compensation, does not constitute an unconstitutional governmental taking of property under the federal and Ohio constitutions. In rejecting the distributors’ contrary argument, the Sixth Circuit characterized Ohio’s beer and wine franchise statute as “an anticompetitive statute that deprives suppliers of their freedom to terminate contracts with distributors,” and the successor provision as “an exception to this anticompetitive scheme.”
  3. Distributors are not entitled to any additional award of damages for lost future income in addition to the fair market value paid to the distributors under the successor provision. The Sixth Circuit characterized this damages claim as “asking for a double recovery” because future profits are directly included in the calculation of fair market value.
  4. Distributors’ fair market value award should be reduced by the amount of profits they earned on selling the brand during the time spent litigating the successor status of the supplier. This final holding may substantially reduce the current incentive of distributors to challenge successor terminations under the Ohio statute, as the profit reaped from continued sales now will be deducted from the fair market value award distributors are due under the statute.

In short, the Sixth Circuit’s Tri County opinion represents a win for supplier-tier companies and clarifies a number of points of Ohio law that have been litigated extensively in the past several years.

Non-Compete Agreements: Friend or Foe?

With the boom of craft producers, competition is ever-increasing. If you’re thinking about going into the business or you already have, undoubtedly you have considered how you can best protect your products, recipes, methodologies, and distribution from imitation or recreation. The sale and manufacture of unique craft drinks creates a unique set of issues and considerations.

Read the full article, originally published in the Summer 2016 issue of Artisan Spirit.

FDA to Hold Public Workshops Addressing Menu Labeling Final Rule

The US Food and Drug Administration (FDA) has announced a series of public workshops about menu labeling to help the industry comply with requirements to provide calorie and other nutrition information to consumers. The workshops will address the menu labeling final rule, which require certain chain restaurants and similar retail food establishments to give consumers nutrition information on standard menu items. The compliance date for these requirements is May 5, 2017.

These workshops are to continue FDA’s dialogue with the industry about implementation of the menu labeling final rule and provide additional clarity on the requirements. Interested parties will have the opportunity to discuss specific menu labeling questions and concerns directly with FDA subject matter experts through pre-scheduled one-on-one sessions. Continue Reading

The Evolving Alcohol Regulatory System

Most participants in the alcohol beverage industry are very familiar with the “three tier system.”  What will surprise many, however, is learning that the system did not emerge immediately after Prohibition.

Read the full article, originally published in the May/June 2016 issue of The New Brewer.

FDA Releases Final Guidance Regarding the Food Labeling Term “Evaporated Cane Juice”

The US Food and Drug Administration (FDA) has released final guidance stating its view that sweeteners derived from sugar cane should not be declared in the statement of ingredients as “evaporated cane juice.”  FDA’s view is that the term “evaporated cane juice” is false or misleading because it suggests that the sweetener is fruit or vegetable juice or is made from fruit or vegetable juice, and does not reveal that the ingredient’s basic nature and characterizing properties are those of a sugar.

FDA’s guidance recommends that ingredients currently labeled as “evaporated cane juice” be relabeled to use the term “sugar,” optionally accompanied by a truthful, non-misleading descriptor to distinguish the ingredient from other cane-based sweeteners.  Such a descriptor could be a coined term, and can be used to distinguish the ingredient from white sugar and other sugars by describing characteristics such as source, color, flavor or crystal size.  FDA would expect such a descriptor to appear before the common or usual ingredient name “sugar.”

FDA Publishes Final Rule for Protection Against Intentional Adulteration as Part of Food Safety Modernization Act

FDA has published as part of the Food Safety Modernization Act (FSMA) a final rule concerning mitigation strategies to protect food against intentional adulteration.  The rule will require domestic and foreign food facilities that are required to register as food facilities under the Federal Food, Drug, and Cosmetic Act (FFDCA) to address hazards that may be introduced with the intention to cause wide scale public health harm.  More specifically, under this regulation, both domestic and foreign food facilities are required to complete and maintain a written food defense plan that assesses their potential vulnerabilities to deliberate contamination where the intent is to cause wide-scale public health harm. Facilities will now have to identify and implement mitigation strategies to address these vulnerabilities, establish food defense monitoring procedures and corrective actions, verify that the system is working, ensure that personnel assigned to the vulnerable areas receive appropriate training and maintain certain records.

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