Importing and exporting beer or other alcohol beverages involves multiple levels of government regulation and taxation. Some regulations, taxes, and reporting requirements mirror your existing compliance obligations as a brewery. Other obligations are unique and include government agencies that are not involved in regulating domestic producers, such as US Customs and Border Protection (CBP) and the Commerce Department.
With the increasing pace of the spread of the Coronavirus (COVID-19) and the related emergent need to increase the available supply for hand sanitizer products across the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB), followed by the Federal Drug Administration (FDA), have relaxed requirements for certain alcohol producers to produce these products without first amending their existing permits or obtaining prior formula approval.
On Friday, March 13, 2019, in the wake of growing concerns and related mass cancellations of large events all across the United States, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) announced that it is relaxing federal restrictions on alcoholic beverage returns that might otherwise violate prohibitions associated with consignment sales.
In an important ruling dismissing a proposed class action, the US District Court for the Southern District of Florida ruled that the US Food and Drug Administration’s (FDA’s) generally recognized as safe (GRAS) regulation preempts a Florida statute that criminalized adding grains of paradise to liquor. More specifically, the Court in Marrache v. Bacardi USA, Inc., 2020 US Dist. LEXIS 13668 (January 28, 2020), ruled that the Florida statute was preempted because it conflicts with the Federal Food, Drug and Cosmetic Act (FFDCA) and the FDA’s regulations (21 C.F.R. § 182.10) which establish that grains of paradise are GRAS. 2020 US LEXIS 13668, at *4.
Last week, the Supreme Court of Mississippi handed down an opinion in Fitch v. Wine Express Inc., No. 2018-SA-01259-SCT. A state court decision on the rather dry subject of personal jurisdiction often merits little comment, but the Fitch opinion features an emphatic rejection of the legal theory relied upon by many direct-to-consumer retail alcohol sellers today.
As a “control” state for wine sales, Mississippi law generally prohibits the importation, transportation and sale of alcoholic beverages (a term that includes wine) outside of the state’s monopoly control system. And, as in virtually every state, the retail sale of wine to consumers is reserved to state licensees and, in the case of control jurisdictions, the state itself.
In a win for alcohol beverage suppliers, on Wednesday the Oklahoma Supreme Court issued an opinion in The Institute For Responsible Alcohol Policy v. State ex rel. Alcohol Beverage Laws Enforcement Comm’n. In a 5-4 ruling, the court struck down as unconstitutional a statute requiring the top 25 wine and spirits brands in the state, by volume, to be offered to all wholesalers without discrimination. The effect of the ruling is that a supplier of any brand of alcohol is free to choose its preferred or potentially exclusive distributor in the State of Oklahoma.
As background, Oklahoma has historically prohibited suppliers of wine and spirits from having an exclusive distribution relationship with an Oklahoma wholesaler, and required suppliers to sell their products to any Oklahoma wholesaler desiring to purchase them. For those familiar with the concept of “franchise” laws in the alcohol beverage industry—which typically require suppliers and wholesalers to establish exclusive distribution relationships—this provision effectively operated as a “reverse franchise” law.
Following a voter referendum in the fall of 2016, Oklahoma enacted a constitutional amendment overhauling its alcohol beverage laws. As part of the legislative changes, a new statute authorized suppliers to appoint a single wholesaler for their products in Oklahoma. The new statute allowed, but did not require, suppliers to establish exclusive distribution relationships with Oklahoma wholesalers.
As a reaction to the constitutional amendment and 2016 legislative changes, Oklahoma enacted a new law in May 2019 that partially restored the reverse franchise law, requiring any wine or spirit product constituting a “top brand” (i.e., by volume) to be made available to all Oklahoma wholesalers. A number of parties, including The Institute for Responsible Alcohol Policy and several members of the alcohol industry, comprising the supplier, wholesaler, and retailer tiers, sued to challenge the law. The plaintiffs argued that the law conflicted with the new constitutional amendment.
In August 2019, a district court judge held the law unconstitutional. The wholesalers appealed, and in this ruling the Oklahoma Supreme Court affirmed the lower court’s decision. Specifically, the court’s majority opinion held:
- The statute in question is “clearly, palpably, and plainly inconsistent” with the 2016 constitutional amendment’s provision giving discretion to a supplier of spirits or wine to determine what wholesaler(s) sells its products. Because the statute “infringes on a manufacturer’s constitutionally granted discretion to select one wholesaler to the exclusion of all others,” it is unconstitutional.
- The statute “is not a proper use of legislative authority,” as the constitutional amendment does not conflict with the Oklahoma constitution’s prohibition on anti-competitive activities (i.e., monopolies). The amendment does not require suppliers to sell their brands to only one wholesaler, and instead places discretion in the hands of the suppliers to determine how they will distribute their products in the state.
The ruling allows for a level playing field for all suppliers, including suppliers of high-volume brands in Oklahoma, to determine how their products will be distributed in Oklahoma.
In another blow to the constitutionality of alcohol beverage laws, the Court of Appeals for the Eighth Circuit struck down on First Amendment grounds a number of Missouri’s alcohol beverage advertising laws on the basis that Missouri failed to meets it burden to demonstrate that such laws both advanced the state’s substantial interest and were narrowly tailored to achieve that interest.
There are many laws at both the federal and state level that govern the production and distribution of distilled spirits. For example, craft distillers must comply with licensing and permitting requirements, trade practice laws, advertising restrictions, and, depending on the jurisdiction, alcohol franchise law. One of the most fundamental—and most complex—areas of law governing distilled spirits is excise taxes.
An article authored by McDermott’s Bethany K. Hatef in the Winter 2020 issue of Artisan Spirit Magazine provides a high-level overview of the federal alcohol excise tax system and some specific features that apply to distilled spirits, and also explains the current status of the Craft Beverage Modernization Act, the legislation temporarily providing for reduced tax rates for certain amounts of distilled spirits.
Originally published in Artisan Spirit Magazine: Winter 2020.
Yesterday, the Environmental Protection Agency (EPA) announced its approval of 10 new pesticides for use on hemp products. EPA’s approval of nine biopesticides and one conventional pesticide provides greater certainty to hemp farmers in time for the 2020 planting season.
The hemp industry awaits further guidance from other federal regulatory agencies.
We are very pleased to share that one of our editors for Alcohol Law Advisor and head of McDermott’s Alcohol Regulatory & Distribution Group Marc E. Sorini was named a 2019 National Law Review Go-To Thought Leader. The National Law Review’s 2019 “Go-To Thought Leader Awards” spotlight 75 legal authors—less than 1% of the publication’s 15,000 thought leaders—selected from a pool of over 100,000 news articles published in 2019. Sorini was one of three thought leaders recognized in the “Food & Drug” category. According to the awards description, “The NLR Go-To Thought Leadership recipients not only demonstrate a depth of legal knowledge but also outline the steps needed for compliance and/or adaptation. These designated authors are not only reader favorites but are often quoted in other publications and/or syndicated in other media.”
Recognized as one of the leading lawyers in his field, Sorini has represented alcohol beverage suppliers before federal and state courts, the US Alcohol and Tobacco Tax and Trade Bureau (TTB) and Federal Trade Commission (FTC) and state alcohol beverage control agencies. He advises clients on compliance with the regulations and policies of the TTB, FTC, Food and Drug Administration (FDA) and Customs and Border Protection (CBP). Here, he shares his thoughts on the recognition, how he stays on top of industry trends and the advice he has for peers and future thought leaders.
Q: What are your thoughts on being named a NLR ‘Go-To Thought Leader’?
A: My first instinct is to say, “Dude, it rocks!” But sincerely, I’m honored to be included in such a selective list of my peers. Over the past year especially, our practice group has focused on optimizing our content: getting to the heart of why, say, a regulatory update really matters and how readers should take action in response. It’s validating to see that approach has resonated.
Q: What have you found most useful in your tenure in terms of staying on top of industry trends for this practice, which led you to this recognition?
A: It starts with discipline, first and foremost. I carve out the time to read up on industry developments through daily updates like Alcohol Issues INSIGHTS, Beer Business Daily, INSIGHTS Express and Wine & Spirits Daily. I also try to keep tabs on bills and case law, as well as the monthly and bimonthly publications like The New Brewer and Artisan Spirit Magazine. Making the time to stay up to date really pays dividends, in my experience. Court cases, for instance, become old news very quickly if you don’t stay on top of them.
Q: As an established thought leader, what would you advise the peers and future thought leaders? How are you already working with the next class to ensure a continued stream of valuable content in this space?
A: As we know, the way lawyers are compensated can sometimes create a perverse incentive: The instant reward is for putting in billable hours, not for the deeper practice development hours put toward things like reading up on industry developments. I can remember when I was an associate, I would hit my 2,000 hours—but barely. I would make the time for business development activity, because I knew it would be beneficial long term. I was certainly on the low end of the bonus spectrum at that time, but the decisions I made then paid off in the long run.
Many of my clients expect and rely on my thought leadership; they ask for it. Plus, thought leadership can quickly solidify relationships with general counsel, for example. Within three to four months of working with them, if you consistently send them thought leadership that is relevant and helpful to their business, they not only recognize your name, but also associate your name with instant, consistent value.
Q: How has the way you approach writing your thought leadership changed over your tenure?
A: It used to be that a big part of the game was being the first one out of the gate. But these days, any announcements worth talking about get picked up by the trade press. Thus, being first out of the gate is no longer viable for big-news announcements; so you have to adjust what it means to deliver meaningful thought leadership.
Now, instead of putting an announcement out right away, I’ll often come in a week later with some real insight about a big news development. You don’t want oversimplified spins on an announcement just because you want to be the first to publish it (you won’t be). Delivering nuanced explanations and genuinely helpful advice is now the most value thing you can do as a thought leader.
See Marc E. Sorini’s National Law Review bio here.