To meet the growing need for hand sanitizing products, various federal agencies including the Alcohol Tobacco Tax and Trade Bureau (TTB), Federal Drug Administration (FDA), Health and Human Services (HHS) and Congress have been rapidly updating and providing guidance for alcohol manufacturers interested in producing or supplying alcohol for the production of these important products. The below neatly summarizes the key issues surrounding the production of alcohol for use in or production of hand sanitizers for distilled spirts plants (DSPs).
Florida Federal District Court Rules GRAS Regulation Preempts Florida Statute Criminalizing Ingredient
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.
Oklahoma Supreme Court Strikes Down New Distribution Statute as Unconstitutional
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.
Eighth Circuit Strikes Down Multiple Missouri Alcohol Beverage Advertising Laws
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.
Federal Alcohol Excise Taxes 101
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.
Congressional Committee Takes Historic Step Toward Decriminalizing Marijuana
For the first time in American history, a congressional committee approved a marijuana legalization bill. On November 20, 2019, after more than two hours of debate, the House Judiciary Committee approved the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019 (H.R. 3884) in a 24 to 10 vote. If the MORE Act becomes law, it would effectively end the federal prohibition of cannabis in the United States.
Currently, marijuana remains a Schedule I drug, alongside heroin and LSD, under the Controlled Substances Act. Schedule I drugs are those that the federal government considers to have no proven or acceptable medical use and a high abuse potential. The MORE Act, if passed into law, would remove marijuana from Schedule I.
House Judiciary Committee to Consider De-Scheduling Bill
This Wednesday, November 20, the House Judiciary Committee will hold a markup of H.R. 3884, the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act). The bill’s sponsors and advocates for cannabis normalization say the legislation is the most comprehensive ever considered by Congress. In fact, due to the bill’s sprawling reforms, it was referred to eight separate committees for consideration according to their discrete jurisdictions. The Judiciary Committee will be the first to consider the bill and the Committee members will have opportunities to amend it.
Safe Banking Act Passes House, Extends Cannabis Safe Harbor Protections
First introduced in 2013, the SAFE Banking Act just passed the House 321-103. This bill, an exciting and promising development for cannabis advocates, provides safe harbor to banks and financial institutions doing business with state-legal cannabis businesses, and allows cannabis businesses to move away from conducting business exclusively in cash.
Courts Are Siding with Employees Who Use Medical Marijuana
Marijuana, a Schedule 1 drug under the federal Controlled Substances Act (CSA), is the most commonly detected illicit drug in employment drug testing. According to Quest Diagnostics, in 2018, approximately 3% of urine-based workplace drug screenings tested positive for marijuana. Notwithstanding marijuana’s illegality under federal law, 33 states and the District of Columbia have legalized marijuana for recreational or medicinal use. And it is big business. The Colorado Department of Revenue recently revealed that its tax, license and fee revenue from marijuana has reached $1.02 billion. Legal marijuana appears here to stay in the United States. (more…)
Winds of Change Blowing for Craft Brewers
For those who follow developments in the law and craft brewing with equal passion, every year has its share of substantial issues. This year has been no exception, with a pending Supreme Court case; a substantial upswing in federal trade practice enforcement activity; a massive rewrite of US Tax and Trade Bureau (TTB) labeling and advertising regulations; and prospects for extending the biggest cuts in the excise tax on beer since the repeal of Prohibition.
As these developments play out over the next year, we may see changes translate into the marketplace. Find out what you can expect.
Originally published in The New Brewer, May/June 2019.