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Mixed Beverage Definition Gaining Traction in Indiana

Indiana is one step closer to passing legislation that would allow popular liquor-based, ready-to-drink products to be defined as “mixed beverages” that currently fall under the definition of liquor in the state.

An Indiana House of Representatives committee advanced House Bill 1025 earlier this month. The bill would add a new section to Indiana Code 7.1-1-3-26.2 that would read:

“Mixed beverage” means a prepared cordial, cocktail, or highball that is in a can or container that holds not more than twenty-four (24) ounces of the beverage and is a mixture of: (1) whiskey, neutral spirits, brandy, gin, or another distilled 8 spirit; and (2) carbonated or plain water, pure juice from a flower or plant, or other flavoring materials; that is suitable for immediate consumption and contains not less 12 than five-tenths percent(0.5%) of alcohol by volume and not more 13 than fifteen percent (15%) of alcohol by volume.”

The definition change would also allow for beer wholesalers, who also hold a wine license, to sell mixed beverages in Indiana. As such, there are many opposing the bill. We will continue to update the blog when any changes are made in the state.




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Key Takeaways | Going Green: Environmental and Sustainability Risks and Opportunities for Alcohol Companies

In a recent webinar, Alva MatherJacob HollingerCarl Fleming and Parker Lee guided attendees through the unique energy-related challenges and opportunities for alcoholic beverages companies presented by current megatrends relating to environmental, social and governance (ESG), carbon and sustainability.

Some of the significant topics discussed included:

  1. Sustainability Trends
  2. Related Trapdoor Risks
  3. Sustainability Opportunities Across the Alcohol and Other Industries
  4. New Tax Opportunities Under the Inflation Reduction Act of 2023
  5. Case Study: Beam Suntory’s Renewable Energy-Powered Jim Beam Expansion

Access the webinar and key takeaways.




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2022 TTB Industry Circular 1: Consignment Sales

Each year the Alcohol and Tobacco Tax and Trade Bureau (TTB) issues “Industry Circulars” that apply statutory or regulatory requirements to a “specific circumstance or set of facts” or restate existing requirements. TTB also uses Industry Circulars to announce new statutory requirements or to discuss certain corrective actions. The last few years have been relatively quiet in terms of TTB Industry Circulars, with only seven released in the last three years. Industry Circulars are an incredibly useful tool for a range of industry members and can provide clarity and direction on complicated regulatory issues.

In 2022, TTB issued three Industry Circulars. The first, released March 4, 2022, provided clarity on TTB’s views on the Federal Alcohol Administration Act’s (FAA Act) consignment sales provisions. The second, released November 16, 2022, reminded industry members of certain advertising rules, as well as clarified how those rules apply in the world of social media advertising. The third and final Industry Circular, released December 29, 2022, provided guidance for distilled spirits plants and importers on how to calculate certain reduced or effective tax rates under the Craft Beverage Modernization Act (CBMA).

As we gear up for 2023, the following is our take on how TTB’s guidance may be useful for you and your business.

Industry Circular 1: Consignment Sales

TTB issued its first Industry Circular of the year to clarify how it views extended payment terms under the consignment sales provisions of the FAA Act. The FAA Act makes it unlawful for an industry member (supplier or wholesaler) to sell, offer for sale, or contract to sell to any trade buyer (wholesaler or retailer), or for a trade buyer to purchase, offer to purchase or contract to purchase any products:

  1. On consignment
  2. Under conditional sale
  3. With the privilege of return
  4. On any basis other than a bona fide sale, or
  5. Where any part of the sale involves, directly or indirectly, the acquisition by the industry member of other products from the trade buyer or the agreement to accept other products form the trade buyer.

See 27 USC § 205(d). Sales “on consignment” are arrangements where a trade buyer is under no obligation to pay for product until they have been sold by the trade buyer. See 27 CFR § 11.22.

This Industry Circular reminds industry members that although TTB generally prohibits consignment sales, the regulations do not specifically impose payment term limitations for sales between industry members and trade buyers. That does not mean, however, that all payment terms are “beyond scrutiny as potential sales on consignment.”

In particular, TTB advised that “in the absence of explicit terms that violate the consignment sale regulations, payment terms of up to 30 days are unlikely to constitute consignment sales.” Conversely, payment terms exceeding 30 days may invite scrutiny from TTB to determine whether those payment terms were “merely a subterfuge” to sell goods on consignment because the buyer is effectively under no obligation to pay for product until the trade buyer has sold [...]

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2022 TTB Industry Circular 2: Social Media Advertising

Due to the uptick in alcohol advertisement on social media platforms, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued guidance on advertising via social media and how TTB’s rules on advertising generally apply in this new and important context, as summarized below.

  • TTB views an entire page or site as a single advertisement, so mandatory statements need only appear once on the page, but they should be conspicuous and readily apparent to the viewer.
    • This includes Facebook, LinkedIn, your brand’s Instagram or YouTube, TikTok, etc.
  • On social networking sites where providing all the mandatory information may be difficult because of space restrictions, TTB allows you to provide a link to another webpage that contains the mandatory information.
    • You must clearly name or mark it to indicate that the mandatory company and/or product information can be found by clicking the link.
    • The link should take users directly to the mandatory information and not to a “general website” that would require additional action to find the information.
  • TTB also considers content created by another party that is reposted or “liked” by an industry member or other similar action that would cause the content to show up in the feed of their page followers to be “advertising” and therefore subject to the advertising rules.
  • Your brand’s Instagram, for example, is considered a single advertisement by TTB but if a photo or video is posted to a site and is not associated with a profile section that bears mandatory information about the product, the industry member must include the mandatory statements within the photos/videos themselves.
    • Influencer marketing, for example, requires the same mandatory advertising statements that are required for industry members’ social media sites. This requirement may also be satisfied with the influencer including a clearly marked link to another website that contains all the mandatory information

SeeTTB Industry Circular 2022-2.

As a reminder, below are the basic TTB requirements for mandatory information that must appear on all alcohol advertisements:

Basics of Alcohol Advertising

TTB requires certain mandatory statements appear in advertising for a malt beverage, wine and distilled spirits products:

  • For malt beverages and distilled spirits: the name, city, and state OR the name and other contact information (phone number, website or email address) where the responsible advertiser may be contacted.
  • For wine: the name and address (city and state) of the permittee responsible for the advertisement (TTB has modernized the advertising rules for malt beverages and distilled spirits but has not yet finalized modernization of wine advertising rules).
  • For all commodities: the class to which the product belongs, corresponding with the information shown on the approved label.
  • For distilled spirits only: the alcohol content presented as a percentage of alcohol by volume (the same alcohol content that appears on the label of the distilled spirits you are advertising) and, if needed, the percentage of neutral spirits and the name of the commodity.

There are several [...]

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TTB Industry Circular 3: Calculating Tax Rates and Tax Credits on Imported Distilled Spirits

In the Alcohol and Tobacco Tax and Trade Bureau’s (TTB) final Industry Circular of the year, they provided DSPs guidance on how to calculate effective tax rates for distilled spirits products eligible for the Craft Beverage Modernization Act (CBMA) reduced tax rates, as well as providing importers with guidance on calculating and using effective tax rates or standard effective tax rates (SETRs) for imported products that are eligible for CBMA tax benefits. This Industry Circular supersedes Industry Circular 2018-4. This 2022 iteration essentially restates the procedures for DSPs calculating effective tax rates for distilled spirits products subject to CBMA reduced tax rates, but updates guidance for importers on how to calculate and use effective tax rates or SETRs for imported products that are eligible for CBMA tax benefits.

Because the guidance for DSPs on calculating effective tax rates remains essentially unchanged, we summarize the updated guidance for importers set forth in the Industry Circular below:

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 transferred responsibility for administering the CBMA tax benefits for imported alcohol from US Customs and Border Protection (CBP) to the US Department of the Treasury (Treasury) beginning with products entered for consumption in the US on or after January 1, 2023. That responsibility was then delegated by the Treasury to TTB.

Generally, the Internal Revenue Code of 1986 (IRC) imposes a tax of $13.50 per proof gallon on distilled spirits produced or imported into the U.S. See 26 USC § 5001(a)(1). However, reduced tax rates of $2.70 and $13.34 per proof gallon may be available under certain circumstances. Id. at § 5001(c). Section 5010 of the IRC allows certain credits against the tax imposed in Section 5001 on each proof gallon of alcohol in a distilled spirits product derived from eligible wine or from eligible flavors to the extent the eligible flavors do not exceed 2.5 percent of the finished product on a proof gallon basis (5010 credits).

An effective tax rate for an imported distilled spirits product is the tax rate applicable to the product after subtracting allowable 5010 credits. TTB must approve an effective tax each time a distilled spirits product containing eligible wine or eligible flavors is imported into the US. The procedure for securing approval of an effective tax rate is located in 27 CFR § 27.76.

An SETR for an imported distilled spirits product is established under 27 CFR § 27.77 based on the least quantity and lowest alcohol content of eligible wine or eligible flavors used in the manufacture of the distilled spirits products. TTB must also approve an SETR for distilled spirits in accordance with the procedure set forth in 27 CFR § 27.77.

Beginning January 1, 2023, importers who want to take advantage of CBMA tax benefits must pay the full tax rate to CBP and then submit a claim to TTB for a refund of their claimed benefits. TTB advises importers to follow the procedures set forth in 27 CFR § 27.76 to establish effective tax [...]

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Legal Considerations for Ready-to-Drink Cocktails

The ready-to-drink cocktail or “RTD” category has exploded in recent years, and it’s occupied by more than merely craft distillers familiar with a carefully made cocktail. Brewers, distillers and even vintners have joined in, capitalizing on consumers’ desires for pre-made, no-fuss beverages. The most unexpected development to emerge with RTDs, however, is the legal complexity surrounding these products—something the industry is only beginning to understand.

Many of these legal issues stem from the fact that the legal regulatory landscape in most states has not caught up with the rapidly evolving alcohol industry. That leaves ready-to-drink cocktails, much like hard seltzers, as not having a specific class or type in certain states. Suppliers looking to enter the space have plentiful options when creating a new product, subject to what licenses the manufacturer holds and what those licenses allow them to produce.

Ready-to-drink cocktails can be spirits, malt, sugar, cider or wine-based. The base of the RTD product, nonetheless, is the key federal factor. It is also an important factor in most states when determining how the product will be treated from a legal perspective in the following areas:

  • Licensing needed to manufacture, distribute and sell the product;
  • Applicable franchise law (Do beer franchise laws apply to low-proof spirits?);
  • Available channels of distribution (Can you sell this product in grocery or convenience store?);
  • Excise tax rate charged to the manufacturer (Does state law have a lower excise tax rate for low ABV products?);
  • Labeling and advertising considerations (Is your product a modified traditional product?); and
  • Trade practice considerations/promotions (Do spirits laws apply?).

Industry members dabbling in a sphere that is relatively new to the market, state regulators and legislatures should be mindful of the patchwork of emerging regulations. Like hard seltzer, ready-to-drink cocktails are not a clearly defined category under existing alcohol law. Meanwhile, states are working quickly to legislate in this domain. New Jersey is considering a reduced alcoholic beverage tax rate on low-ABV liquors to align with the beer tax rate (NJ SB 701), Vermont is considering legislation to define “low alcohol spirits beverage” and treat it as a “vinous beverage” (VT HB 590) and the Washington State Senate has a bill pending that would establish a tax on low-proof beverages (WA SB 5049).

From franchise issues to excise tax, the issues discussed here are only a glimpse of the nuanced and complicated legal landscape that governs the distribution of RTDs and alcoholic beverages across all categories. Consulting with competent legal counsel with experience in the industry is crucial to ensuring compliance with applicable federal, state and local regulations.




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Second Prop 65 Amendment Effective April 1, 2021: New Warnings Required

The Safe Drinking Water and Toxic Enforcement Act of 1986, also known as Proposition 65 (Prop 65), was enacted as a ballot initiative and requires businesses to inform Californians about exposures to chemicals that are known to cause cancer, birth defects or other reproductive harm. The regulation prohibits knowing or intentional exposure of any individual to a “chemical known to the state to cause cancer or reproductive toxicity without first giving clear and reasonable warning to such individual.” (See: 27 CCR § 25249.6.)

The state maintains and updates a list of chemicals known to cause cancer or reproductive toxicity, with alcoholic beverages being added to the list April 29, 2011, and requiring suppliers to comply with Prop 65’s “clear and reasonable warning” mandate. (Click here for more information.) This includes, without limitation, beer, malt beverages, wine and distilled spirits. (See: 27 CCR § 25607.4(a).) Generally speaking, for alcoholic beverages, it is the responsibility of the manufacturer or its distributors to ensure proper compliance with Prop 65. (See: 27 CCR § 25600.2(a).) Further, any consequences for failure to comply with Prop 65 typically rests with the manufacturer or its distributor, provided that the retailer has not frustrated the manufacturer’s reasonable efforts to properly display the warning.

The warning provided must read: “WARNING Drinking distilled spirits, beer, coolers, wine and other alcoholic beverages may increase cancer risk, and, during pregnancy, can cause birth defects. For more information go to www.P65Warnings.ca.gov/alcohol.” (Id. at § 25607.4(a)(1)-(2).) To comply with Section 25607.3, among other specific requirements, the warning must be made at either point of sale (for off-premises consumption) or on a menu or list identifying the alcoholic beverages sold on-premises. (See: 27 CCR § 25607.4.) Note, however, that a supplier who is a party to a “court-ordered settlement or final judgment, establishing a warning method or content is deemed to be providing a “clear and reasonable” warning for that exposure if the warning complies with the order or judgment,” even if the requirements set forth in the order or judgment differ from the specific requirements set forth in the regulations. (See: 27 CCR § 25600(e).)

Prop 65 is enforced by the California attorney general, any district attorney or city attorney for cities whose population exceeds 750,000 and/or any private individual or group acting in the public interest. (See: 27 CCR § 25249.7.) Penalties for violating Prop 65 can be as high as $2,500 per day. (Id.) The fine is paid to the party that brought the litigation, including individuals or groups acting in the public interest, which creates a powerful incentive for private parties to enforce Prop 65. (Id.)

Prop 65 has undergone multiple amendments, two of which are in direct response to the ever-growing e-commerce market for alcoholic beverages. The first amendment, effective August 30, 2018, required the Prop 65 warning language be displayed on websites and on or in packages containing direct-to-consumer orders sent to California addresses. (Click here for [...]

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Oregon Issues New Guidance on Hard Seltzer Classification

Recently, Oregon issued clarification pertaining to the classification of hard seltzers in the state. The guidance, as summarized below, impacts the majority of hard seltzers in the market. Classification of hard seltzer has a number of impacts, most notably on excise tax (or “privilege tax”) rates and licensing needed to produce, import, distribute and sell hard seltzers in the state. Specifically, Oregon has signaled that should the state’s guidance result in the reclassification of a supplier’s hard seltzer product, there may be retroactive tax liability imposed. This alert should assist those engaged in the production or sale of hard seltzer in Oregon in determining whether reclassification is necessary and the implications thereof. For specific questions on the implications of this guidance on your business, please do not hesitate to reach out to McDermott Will & Emery.

Classifications of Hard Seltzer
“Hard seltzer” must meet the following to be categorized as a malt beverage in Oregon:

  1. 100% of the alcohol by volume (ABV) is obtained through the fermentation of grain and the ABV is more than 0.5% but not more than 14%; or
  2. At least 98.5% of the ABV is obtained through the fermentation of grain and the ABV is more than 6% but not more than 14%. Once those criteria are met, not more than 1.5% of the ABV may be obtained through other flavoring agents containing alcohol; or
  3. At least 51% of the ABV is obtained by the fermentation of grain and the ABV is more than 0.5% and not more than 6%.

Once the criteria above is met, up to 49% of the ABV may be obtained through other flavoring agents containing alcohol.

Oregon relies on the federal definition of “grain” to mean barley, canola, corn, flaxseed, mixed grain, oats, rye, sorghum, soybeans, sunflower seed, triticale and wheat, and the subsequent definition for each grain. This may exclude hard seltzers deriving alcohol primarily through the fermentation of cane sugar from meeting the malt beverage definition in Oregon. The state may require verification that a product claimed to be a malt beverage for tax purposes is in fact produced through the fermentation of grain via the submission of an ingredients list or documentation describing the manufacturing process.

“Hard seltzer” must meet the following to be categorized as a wine in Oregon:

  1. An alcoholic beverage obtained by the fermentation of vinous or fruit juice, or other fermented beverage fit for beverage purposes, and contains more than 0.5% ABV and does not contain more than 21% ABV.
  2. Wine may contain distilled liquor and other “non-traditional” ingredients, provided that it does not contain more than 21% ABV.
  3. “Wine” does not include malt beverage, cider or distilled liquor.

“Hard seltzer” must meet the following to be categorized as a cider in Oregon:

  1. An alcoholic beverage obtained by the fermentation of the juice of apples or pears; contains more than 0.5% ABV but does not contain more than 8.5% ABV.
  2. The juice is not required [...]

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Pennsylvania Governor Calls for Cannabis Legalization and State Alcohol Tax Relief

Pennsylvania’s governor is urging the state’s legislature to legalize recreational marijuana and pass a six-month reduction or cancellation of the state’s alcohol tax on the hospitality industry. Pennsylvania would join 11 other states and Washington, D.C., in fully legalizing marijuana, which can be lucrative for states.

“It’s almost, from a legislative and a state government perspective, a no brainer, because it’s a new source of revenue that you don’t have at a time where you need it desperately,” McDermott Will & Emery partner Alva C. Mather said in a recent Brewbound article. “And there’s lots of precedent for how to make it work in many other states, so the tide has turned quite a bit in the last several years where I think it’s not as taboo as it used to be.”

“States are in a very difficult situation in light of the pandemic, in terms of how they’re going to be able to generate more revenue and more job opportunities,” Mather said. “This is an entirely new industry that brings both to the table.”

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Five Tips for Making Boozy Ice Cream That’s Legal

When you think of the relationship between alcohol and food, the classics come to mind: tiramisu, coq au vin and beer cheese. While there is a long culinary tradition of using alcohol in food, the newest trend is to utilize alcohol in innovative ways in the culinary world. Recently, a popular food/alcohol combo has been in the freezer aisle where alcohol has lent its flavor to ice cream and freezer pops. Fans consider this a win-win…it cools us down in the summer and acts as a little adult refreshment at the same time. As the tasty treats gain popularity, more and more states are approving the manufacture and sale of such items. 

Recently, New York Governor Andrew Cuomo signed legislation that allows ice cream to be mixed with liquor. He stated this would, “help New York’s dairy farmers, liquor and craft beverage producers, dairy processors and manufacturers, food retailers, and restaurants meet the increasing consumer demand for these new and innovative products.” While New York has been able to have beer and wine mixed ice cream, liquor is new. Other states, like Ohio, have created special licenses for the explicit manufacture and sale of ice cream with beer or intoxicating liquor. 

While we believe this is a win-win for adults, this space lends itself to a number of legal hurdles. We suggest the following tips:

1. Advertise specifically to adults. While this is a given in alcohol beverages, it is a good reminder to gear your advertising towards adults only. 

2. Ensure your label is clearly marked with 21+ and the Government Warning Statement. New York specified in its most recent legislation that the label must have warnings and label requirements similar to confectionary products that contain beer, wine and cider.

3. Avoid the risk of unaware consumption. Ensure that the packaging and marketing make it very clear that the product contains alcohol.

4. Check each state to learn its specific laws. For example, in New York the maximum alcohol by volume allowed in ice cream is 5% while Ohio allows up to 6%.

5. Food that has alcohol mixed in requires the submission of a nonbeverage formula to the Tax and Trade Bureau (TTB).   




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