On November 7, the US Food and Drug Administration (FDA) published the latest in a series of industry draft guidance documents to help implement menu labeling and nutrient disclosure regulations applicable to chain restaurants (Draft Guidance). FDA guidance documents are advisory in nature and represent the views of the FDA at a given point in time. Accordingly, guidance is subject to change, but is useful for developing a compliance plan for retail establishments covered by the menu labeling regulations. Changes are usually incremental and based on agency experience and input from regulated industry members.

The FDA established a 60-day period for comments on the draft menu labeling and nutrient disclosure guidance. The comment period ends on January 6, 2018.

The current compliance date for menu labeling and nutrient disclosure regulations is May 7, 2018.

Implementation of federal menu labeling and nutrient disclosures by chain restaurants is a study in modern American political and administrative processes. For those who already tried to comply with the formal FDA regulations and prior guidance, an explanatory note about delays in the administrative process appears at the end of this post.

Two sections of the Draft Guidance explicitly address alcohol beverages.

  • Guidance is offered for beer lists on menus and the discussion has broader application to wine and spirits products and cocktails that are standard menu items on chain restaurant menus.
  • Sources of nutrient information for beer, wine and spirits are also discussed to provide an alternative to expensive laboratory testing for each brand that a manufacturer offers.

The Draft Guidance also:

  • Includes several plain-language explanations of key terms in FDA regulations with useful distinctions between regular menu items and season or special items;
  • Displays a number of graphics designed to assist retailers with standardized formats to communicate calorie content of various foods to consumers and to distinguish menus from marketing materials;
  • Directs manufacturers and retailers to reliable sources and methods to prepare and display compliant nutrient disclosures; and
  • Provides information on presentation of mandatory standard menu notices alerting consumers to the federal government’s recommended 2,000 calorie diet and availability of nutritional information for standard menu items upon request to a server or manager at a retail establishment.

The FDA guidance and the formal regulations use subjective terms about legibility (e.g., contrasting, clear and conspicuous). Those terms aim to ensure that information is consumer-friendly, but they could lead to nuisance complaints from regulators. FDA regional personnel and local inspectors under contract with the FDA will monitor compliance with menu labeling regulations. Since chains will, by nature, have locations in multiple jurisdictions, consistency in enforcement poses a challenge to industry and government.

To mitigate regulatory risks, a conservative approach is advisable to mandatory disclosures. All aspects of calorie and nutrient disclosure should be reviewed by counsel or a knowledgeable compliance professional. The review should start with the manner used to ascertain calories and nutrients and continue through preparation and publication of new and easy-to-read menus and nutrient disclosures. While the regulations will inevitably lead to a standardized portion of chain menus, the Draft Guidance does not inhibit traditional point-of-sale marketing materials, graphics and other creative elements in a menu or associated marketing materials.

Why has menu labeling taken so long?

  • Menu labeling and nutritional disclosure requirements for chain restaurants are mandated by Congress in the Affordable Care Act of 2010 (better known as Obamacare).
  • A four-year rulemaking process on menu labeling ended with publication of a final rule on December 1, 2014. That rule is unchanged as of November 2017, and is found at 21 CFR 101.11.
  • A protracted debate occurred over the complexity of the rule and practical issues for food retailers who are responsible for compliance.
  • In 2015, Congress enacted an appropriations bill, which included a “policy rider” ordering the FDA to not to spend money on implementation and enforcement of the final rule until one-year after publication of a guidance document. Because appropriations bills deal with funding and not substantive policy, Congress provided no additional guidance to the FDA to clarify issues raised in the rulemaking and public controversies surrounding menu labeling.
  • The FDA published a “final guidance document” on May 5, 2016, with a new compliance date of May 5, 2017. Controversy continued, and the FDA extended the implementation date again to May 7, 2018.
  • The November 2017 draft FDA guidance document discussed above could be revised again following the 60-day comment period.
  • The compliance date remains May 7, 2018 unless extended again by the FDA or delayed by additional Congressional action.

Earlier this month, a Massachusetts Superior Court judge granted beer wholesaler Craft Beer Guild, LLC’s (Craft) motion to dismiss a civil suit, Shelton Bros., Inc. v. Craft Beer Guild, LLC d/b/a Craft Brewer’s Guild, brought against it by beer importer Shelton Brothers, Inc. (Shelton) in connection with Craft’s alleged breach of its distribution agreement with Shelton. Craft distributed beer imported by Shelton throughout Massachusetts.

In November 2016, Shelton filed a complaint alleging that Craft breached a 2009 oral agreement between Craft and Shelton by failing to follow through on its promises regarding pricing and providing two dedicated sales people to support Shelton’s brands. In its complaint, Shelton alleged that sales of its products were in “steep decline” by 2011 due to Craft’s discriminatory pricing of Shelton’s products in the market. Continue Reading Massachusetts Court Dismisses Brand Owner’s Suit against Wholesaler

Direct-to-consumer (DTC) sales of alcohol beverages have been a hot topic in the alcohol industry for the last two decades. The wine direct-shipping landscape has changed greatly over the past 15 or so years, most dramatically by the US Supreme Court’s decision in Granholm v. Heald. Today nearly evert state—plus the District of Columbia—allows wineries to ship wine across state lines directly to in-state consumers. The same cannot be said for spirits.

There are, however, a few avenues distillers may consider to get their products delivered to consumers around the country. Further, an initiative is underway to pursue litigation to secure DTC rights for spirits. Although it is far too early to speculate about the outcome of any such litigation, the current effort suggests the potential for interstate distiller-to-consumer sales in the coming years. Of course, lingering ambivalence toward spirits (as opposed to wine) by the public, lawmakers, and alcohol regulators makes the prospect for any legal change uncertain.

Read the full article.

Originally published in Artisan Spirit, July 2017.

In mid-April, the Federal Trade Commission (FTC) sent out 90 letters to advertisers, celebrity endorsers and influencers who use their fame and the power of digital advertising to help promote products.  The facts in each letter vary, but the FTC’s message was a strong reminder that clear and conspicuous disclosure is required if a “material connection” exists between and endorser and the marketer of a product.

Typically, the marketer is a manufacturer, importer or an advertising agency that establishes a relationship with an endorser.  In 2009, the FTC created endorsement guides to ensure that consumers are on notice that an endorser or influencer is being compensated by a marketer.  In 2015, the FTC published an Enforcement Policy Statement on Deceptively Formatted Advertisements.  Those sources provide straightforward guidance to inform consumers that an endorser is acting on behalf of a marketer and to differentiate advertising from truly independent news or reviews of products.

Throughout history, producers of consumer goods marketed their wares with endorsements from famous people and “satisfied consumers.”  Social media provides an enormous boost to the most ancient form of marketing, “word of mouth.”  An image of your product with a celebrity or the perfect “ordinary consumer” in a creative setting can quickly go viral to millions of consumers or receive hundreds of thousands of likes on Facebook.

All ads should be truthful, targeted appropriately, and compliant with industry codes.  If appropriate, ads should also be clearly identified as paid endorsements or advertising material to reduce the risk of consumer deception.  These principles are especially important in the digital domain where viewers tend to move rapidly from one destination to another.

A successful ad that includes use of celebrities or influencers should meet the FTC’s standards to avoid future enforcement initiatives.  The reputation of the advertiser and endorser as well as the integrity of the brands should not be placed at risk by the failure to include clear and conspicuous notices or disclaimers.  Congress granted the FTC broad jurisdiction to police deceptive ads.  The FTC’s guidance has now been around long enough to be on the checklist of every advertiser—particularly those under pressure to publish the next iconic image on Facebook or Instagram!

On March 30, eight bills were introduced by senior members of Congress from both parties to legalize, regulate and tax marijuana. The bills were referred to at least five House Committees, as they address federal criminal law, taxation, banking, transportation, immigration, veterans’ affairs, access to federal benefits and other issues. The legislative activity follows establishment of the Congressional Cannabis Caucus in February. Leaders of the new caucus represent four of the eight states where voters have approved recreational use of marijuana by adults.

In the initial press conference held by Cannabis Caucus members and in statements explaining the new legislation, House and Senate members made frequent reference to laws regulating alcohol beverages. Bills introduced earlier in the current session of Congress also call for state-by-state regulation using language similar to the Section 2 of the Twenty-first Amendment, which authorized each state to regulate the delivery and use of “intoxicating liquors” within its borders.

The failure of national Prohibition of alcohol beverages is often cited as a rationale to legalize recreational marijuana use. Before proceeding toward wider legalization, policymakers should gain a deeper understanding of the history of Prohibition and the regulatory scheme that emerged after repeal. Government regulation is necessary in a complex and pluralistic society of 320 million, but effective marijuana regulation is a tall order.

Continue Reading Legal, Political and Practical Challenges in Regulating Recreational Marijuana

US exporters of alcohol beverages to Canada will soon face stiffer competition from their European rivals. The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is expected to come into force by June 1, 2017, and Canadian duties on EU wines, beer and other alcoholic beverages will go to zero immediately. While tariffs on EU wine imports are already fairly low, products such as ciders will have their current duty rate reduced from 28 cents per liter to zero immediately. In fact, the European Commission is already extolling the expanded export opportunities for EU wine and spirit producers as a major selling point for CETA.

The US is expected to enter into formal North American Free Trade Agreement renegotiations with Canada and Mexico this summer. US alcohol beverage producers and trade associations should act now to ensure that the US negotiators protect US market access in Canada and otherwise promote their interests.

The USDA report and list of EU products that will receive duty-free treatment under CETA is available here.

On March 13, the European Commission approved a report that calls on members of the alcohol beverage industry to develop a comprehensive self-regulatory system of ingredient and nutritional labeling for beer, wine, and distilled spirits. The Commission is composed of representatives of each member nation of the European Union (EU) with a range of administrative responsibilities and authority to develop and propose legislation for consideration by the European Parliament.

The European Commission characterizes access to ingredient and nutrition information as a right of EU consumers, and called on industry members to develop a self-regulatory proposal over the next year. Current EU policy on alcohol beverage labeling is analogous to US policy. The EU regulation on food labeling exempts alcohol beverages containing more than 1.2 percent alcohol-by-volume.

The European Commission proposal warrants careful attention by US alcohol beverage suppliers across all beverage categories. The initial industry response by European suppliers will likely start a lengthy process leading to new ingredient disclosures.

US regulations are largely based on the presumption that consumers have a working knowledge of ingredients in alcohol beverages. Alcohol & Tobacco Tax & Trade Bureau (TTB) and its predecessor agency considered and rejected mandatory ingredient labeling proposals several times since 1970s. TTB’s most recent assessment of ingredient and nutritional labeling of alcohol beverages was an advance notice of proposed rulemaking published in 2005 soliciting public input on the existing TTB policy. No further rulemaking activity followed the TTB inquiry.

Existing TTB regulations focus on disclosures of certain ingredients that pose unique health risks or allergic reactions. Industry members are permitted to disclose ingredients on a voluntary basis.  A few alcohol beverages are subject to US Food and Drug Administration (FDA) regulations, which require comprehensive ingredient and nutritional labeling.

Many US products are exported for consumption in the EU. If a new system is adopted in the EU, producers in the US must provide ingredient and nutritional information to their customers overseas with no corresponding requirements in their home markets. EU suppliers are major players in the US market and may decide to voluntarily provide the same information to their American customers that they will ultimately have to provide in their home markets.

These dynamics will likely reinvigorate calls by consumer advocacy organizations and government agencies (e.g., Federal Trade Commission, Food and Drug Administration, and National Institutes of Health) in support of ingredient labeling of alcohol beverages in the US. In the current era of dwindling government resources, the European Commission’s call for an industry self-regulatory initiative provides an opening for a similar initiative in the US. Industry members and associations should monitor developments in the EU and consider appropriate responses directly to the EU initiative and to analogous proposals in the US.

An English version of the European Commission proposals is available here.

On December 23rd, 2016 the federal government published its Fall edition of the “Unified Agenda” – a bi-annual compilation of all ongoing federal rulemaking projects. Attached is a copy of the TTB detail from this latest Unified Agenda. As always, projected future publication dates should be viewed with a very healthy dose of skepticism.

TTB’s portion of the Unified Agenda identifies the following “priority” items:

  1. Final rules implementing the International Trade Data System (ITDS). TTB published these final rules on December 22, 2016 – mission accomplished.
  2. Revisions to TTB regulations to implement the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act). Among other things, the PATH Act amended the Internal Revenue Code definition of “hard cider” and changed the bonding requirements for small excise taxpayers. While listed as a priority for action in late 2016, TTB has shown little ability to quickly amend its regulations to reflect statutory changes enacted by Congress (see Taxpayer Relief Act note below).
  3. Revisions to modify and streamline TTB’s wine, distilled spirits, and malt beverage labeling regulations. This item has appeared in the Unified Agenda for several years, and apparently stems from a January 2011 Executive Order requiring the identification and elimination of outmoded and burdensome regulations. The Unified Agenda lists a December 2016 publication date for a Notice of Proposed Rulemaking (NPRM) on this subject.
  4. Back on the “priority” list of this Unified Agenda is the NPRM permitting the self-certification of nonbeverage product formulas. Projected publication of that NPRM now has slipped to September 2017.
  5. A project to combine the current four forms required for reporting by distilled spirits plants (DSPs) into two report forms now receives priority status. Originally proposed in December 2011, TTB now expects to publish a 2017 “Supplemental NPRM” to gather more comments on the subject.

Among the other TTB rulemaking projects industry members may take an interest in are the following:

  1. TTB’s allergen labeling rulemaking, initiated in April 2005, remains on the Unified Agenda, but under the heading of “Next Action Undetermined.”  This suggests that TTB may walk away from mandatory allergen labeling altogether.
  2. TTB is considering amendments to the “standards of fill” for wine and distilled spirits, with an NPRM projected date of April 2017.
  3. A new item proposes an NPRM to amend the wine labeling regulations in order to better address the labeling of flavored wines.  The project arises from a petition received by TTB and projects an April 2017 publication date.
  4. TTB has withdrawn (and presumably abandoned) the rulemaking project, commenced in 2010, to further define the use of terms like “estate bottled” on wine labels.
  5. TTB continues to plan for a “Supplemental NPRM” to solicit additional comments on the use of an American viticultural area as an appellation on a wine finished in an adjacent state.  TTB now expects to publish the Supplemental NPRM in January 2017.
  6. Final rules arising from the August 2016 NPRM proposal to impose certain Federal Alcohol Administration Act labeling requirements on wines below 7% alcohol by volume are expected in September 2017.
  7. TTB expects to publish an NPRM to permit the labeling of fortified wines in a manner that discloses the addition of grape spirits or brandy to the wine in September 2017.
  8. TTB still promises action to adopt regulations implementing the Taxpayer Relief Act of 1997.  That NPRM now is scheduled to appear in April 2017.

On December 22, 2016, TTB published a Final Rule implementing the streamlined importation and exportation procedures established by the International Trade Data System (ITDS). See 91 Fed. Reg. 94186 (Dec. 22, 1016). ITDS is an interagency program to establish a “singe window” that importers and exporters can use to submit all data required by Federal agencies in order to clear imports or exports. Under the new system, importers and exporters will need to file only with the “Automated Broker Interface,” a system run and administered by Customs & Border Protection (CBP). The CBP system then makes that data available to every other federal agency, including TTB, which requires it. In short, importers and exporters of alcohol beverages can fulfill all their filing requirements electronically, through a single system.

A link to TTB’s Final Rule is found here.

Until recently, few would have predicted that US craft beers would find their way into European markets, yet today they are successfully meeting European tastes. Craft beers are increasingly able to compete with other products in Europe, such as wine, and there is increasing market demand in Europe for innovative, rare and exotic beers.

US brewers looking to sell their products in Europe cannot, however, simply apply their US commercial strategies, but should instead adapt distribution models that align with their commercial goals in order to take into account the European legal and regulatory context. In addition, although the US legislative framework has a lot in common with that of the European Economic Area, each EU member state has its own regulatory and distribution peculiarities.

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