Changes in Administration and other political shifts can have subtle and, occasionally, not-so-subtle influences in the Alcohol and Tobacco Tax and Trade Bureau (TTB) policies and priorities. In the article, “TTB in a Deregulatory Mood” published by Artisan Spirit, Marc Sorini explores how the Trump Administration’s desire to reduce regulatory burdens on business has already influenced TTB’s regulatory priorities. Particularly, in the most recent “Unified Agenda,” a bi-annual compilation of federal regulatory initiatives, TTB placed a priority on deregulatory projects, several of which would alter the regulatory environment for the industry. Marc discusses how the change in administration appears to have an effect on TTB’s rulemaking efforts.

Access the full article.

Originally published in Artisan Spirit, Spring 2018.

On Friday, April 13th, Senator Cory Gardner (R-CO) announced that President Trump assured him that the Department of Justice’s decision to rescind the Obama-era guidance on marijuana enforcement would not affect Colorado’s legal marijuana industry. President Trump also promised Senator Gardner that he would support a federal legislative fix that takes into account state decisions to legalize marijuana. In turn, the senator lifted holds on all Department of Justice nominees, ending an intra-GOP standoff over the Department’s cannabis policy.

In January, Attorney General Jeff Sessions rescinded guidance that outlined eight marijuana enforcement priorities, heightening the possibility of a federal crackdown in states that legalized recreational and medical cannabis. Pro-legalization advocates feared that Sessions’ announcement granted federal prosecutors broader discretion to pursue criminal charges against marijuana businesses operating legally under state law in states like Colorado, Washington, California and elsewhere. Sen. Gardner immediately responded that he would block all DOJ nominations over the new policy. Continue Reading President Trump Commits to Protect Colorado’s Legal Marijuana Industry

TTB Industry Circular 2018-2, dated March 26, 2018, expanded the list of allowable revisions for approved Certificate of Label Approval (COLA) applications. The three new allowable revisions are to:

  1. Add, delete, or change between TTB approved responsibility statements;
  2. Add, delete, or change between TTB approved sustainable farming/environmental/eco-friendly claims; and
  3. Add, delete, or change between TTB approved food pairing recommendations.

The Industry Circular also expanded the TTB approved statements under the allowable revision regarding how to best consume or serve the product. For a complete list of approved statements for these new and expanded allowable revisions, please see the full Industry Circular located here.

As most members of the alcohol and beverage industry are aware, Anheuser-Busch InBev (ABI) acquired the global holdings of SABMiller in a more than $100 billion merger in October 2016. The Department of Justice (DOJ) required ABI to divest SABMiller’s United States business, including its ownership interest in MillerCoors. Since November 2016, the parties have engaged in ongoing briefing seeking approval of a Proposed Final Judgment (PFJ) in the US District Court for the District of Columbia.

Continue Reading ABI/SAB Miller Deal: DOJ Clarifies Best Efforts Clause in Proposed Final Judgment

On March 20, 2018, a federal district court in Texas issued an opinion in Deep Ellum Brewing, LLC, et al. v. Texas Alcoholic Beverage Commission. The court delivered a blow to Texas craft brewers, upholding Texas’ prohibition on sales of beer by brewers to consumers for off-premises consumption.

Texas authorizes the manufacture and sale of beer by persons holding a: (1) brewer’s permit (allowing the production of beer of more than 4% alcohol by weight (ABW)); (2) manufacturer’s license (allowing the production of beer of 4% ABW or less); or (3) brewpub license. Like many states, Texas’ alcohol beverage laws mandate separation among the three tiers of the alcohol industry: manufacturing, wholesaling and retailing. The three-tier laws generally require alcohol beverages to be sold from manufacturers to wholesalers, from wholesalers to retailers, and finally from retailers to consumers.

Continue Reading Federal District Court Rejects Craft Brewers’ Equal Protection and Due Process Challenge of Texas’ Ban on Brewer Off-Premises Retailing

Today, TTB published additional Tax Act guidance on its website. Three new clarifications address the interaction of the new Tax Act rates/credits with the wine and flavor credits available under 26 U.S.C. § 5010. The clarifications are:

  1. TTB re-confirms that the 5010 credit applies to spirits subject to the Tax Act’s reduced rates, but the 5010 credit cannot reduce the effective rate of tax on any spirit to below zero.
  2. TTB indicates that the effective rate of tax on products receiving 5010 flavor credit will vary, depending on the applicable Tax Act rate applied to the finished product.
  3. The wine base rates, before any reduction through Tax Act credit allowances, are to be used when calculating the wine content credit applied to a spirit under Section 5010.

On February 21, 2018, the US Court of Appeals for the Sixth Circuit published its opinion in Byrd v. Tennessee Wine and Spirits Retailers Association, No. 17-5552. The decision, which includes a partial dissent, affirms a Middle District of Tennessee decision finding that the “durational-residency” (residency) requirements imposed by Tennessee law for alcohol beverage retail licensees are unconstitutional under the “dormant” Commerce Clause.

Tennessee law requires an applicant for a retail license to have been a resident of Tennessee for at least the two-year period immediately preceding the submission of the license application. For corporate license applicants, the two-year requirement applies to any officer, director or stockholder of the corporation. Moreover, to renew such a license the law requires Tennessee residency for at least ten consecutive years.

Two prospective retail applicants that did not meet the two-year residency requirement, notably including the Tennessee affiliate of Total Wine Spirits & Beer, sought licenses. Expecting litigation, the Tennessee Attorney General filed a declaratory judgement action in state court seeking to have the residency requirements declared constitutional. The action was removed to federal court, and the Middle District of Tennessee found the requirements unconstitutional.

Continue Reading Durational-Residency Requirements for Alcohol Beverage Retail Licensees Held Unconstitutional

On Friday, March 2, 2018, Alcohol and Tobacco Tax and Trade Bureau (TTB) issued its next round of guidance concerning the alcohol excise tax provisions of the recently enacted tax law (Tax Act). TTB has not yet addressed some of the biggest ambiguities contained in the Tax Act, such as (i) how foreign producers can assign excise tax credits to US importers and (ii) how the “Single Taxpayer Rule” will work. Nevertheless, TTB continues to make incremental progress in interpreting the Tax Act.

The March 2 guidance features the following:

  1. A new TTB Industry Circular, No. 2018-1 (March 2, 2018), announces the creation of a temporary “alternate procedure” (aka, variance) allowing wine producers to tax determine and tax pay wine of the winery’s own production stored untaxpaid at another bonded wine cellar as if the wine were removed from the producing winery’s bonded premises. Prior law allowed wineries eligible for tax credits under the small winery tax provisions to transfer their credits to another bonded winery. So, for example, an eligible small winery could transfer bulk wine in bond to a larger bonded winery for bottling without losing the tax credits. The new tax law does not contain a similar transfer provision, leading to the prospect of small wineries losing their tax credits because they transferred the wine to a bonded winery that already used up its tax credits available under the Tax Act. The alternate procedure permits a winery to tax pay the wine as if it were removed from the producing winery’s premises, allowing it to take the tax credit. The temporary alternate procedure authorized by Industry Circular 2018-1 expires on June 30, 2018.
  2. Beer, wine and spirits removed from a brewery, winery or distillery but received in bond from elsewhere can benefit from the Tax Act’s reduced rates and/or tax credits only if the taxpaying brewery, winery or distillery “produced,” “distilled” and/or “processed” the beer, wine or spirits in question. Exactly what processing qualifies the taxpaying facility for the reduced rate or tax credits will depend on specific facts and the commodity at issue.
  3. TTB further qualifies the produced/distilled/processed requirement by indicating that any production process should be made “in good faith in the ordinary course of production” and not done for purposes of obtaining a tax advantage.

Please let us know if you have any questions about these developments.

On February 5, 2018, the US District Court for the Eastern District of Missouri issued an opinion in one of the many false advertising class actions brought against the industry in the past five years.

Penrose v. Buffalo Trace Distillery, E.D. Mo. 4:17-cv-00294-HEA, involves the labeling of Old Charter bourbon. For years, Old Charter sold an 8-year-old version and a 12-year-old version, with their labels very prominently displaying “8” and “12” (respectively) in several places. According to the complaint, in January 2014 Old Charter “8” was re-formulated to use less-aged bourbon, described by the court as “non-age stated” or “NAS” bourbon. The labels, however, continue to prominently display the number “8” in the same manner as the prior label. In addition, while the label previously stated “aged 8 years,” the NAS bourbon’s label states “gently matured for eight seasons.” The court’s opinion catalogues a number of alleged complaints by consumers that they were deceived into purchasing the NAS product on the mistaken belief that the bourbon was still aged for eight years. Significantly, the complaint alleges that the price for Old Charter “8” remained the same after the reformulation. Continue Reading District Court Issues Opinion in Old Charter Bourbon False Advertising Class Action

Earlier this week the Trump Administration presented its Fiscal Year 2019 Budget Proposal. While many portions of a president’s proposed budget do not get enacted, such proposals provide insight into the thinking of the administration.

With respect to the alcohol beverage industry, the budget proposal would transfer to the Alcohol and Tobacco Tax and Trade Bureau the remaining (criminal) authority the old Bureau of Alcohol, Tobacco & Firearms (ATF) has over alcohol beverages, stating:

ATF would transfer the entirety of its alcohol and tobacco regulatory and enforcement responsibilities to the Alcohol and Tobacco Tax and Trade Bureau (TTB) in the Department of the Treasury. This transfer would enable the ATF to hone its focus on activities that protect U.S. communities from violent criminals and criminal organizations, while consolidating duplicative alcohol and tobacco enforcement mechanisms within the TTB.

We suspect TTB would welcome an expansion of its authority to include criminal matters involving alcohol (e.g., diversion a/k/a “bootlegging”).