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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.




Distilling 101 for Brewers

The craft distilling movement is growing rapidly. Indeed, the tor­rid pace of new distillery openings and the boundless enthusiasm of new entrants seem strangely reminiscent of craft brewing (then “microbrewing”) in the late 1980s and early 1990s.  Craft dis­tillers even have a simmering product in­tegrity issue (the use of purchased neutral spirits) that splits the new industry like contract brewing divided craft brewers 20 years ago.  There are, no doubt, signifi­cant differences, but craft distilling today seems poised for a period of growth like the one craft brewers have been (mostly) enjoying for the past 25 years.  Not surprisingly, then, a growing num­ber of craft brewers have followed the path of Anchor Brewing (or should I say Anchor Distilling) and expanded their offerings to include distilled spirits.  But as brewers quickly discover, there are numerous legal, regulatory, and tax differences between these related, but distinct, businesses.  While a full exploration of those differences could fill a rather thick book, this article briefly highlights the most important.

This article was originally published in the March/April 2014 issue of The New Brewer.




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