With the increasing pace of the spread of the Coronavirus (COVID-19) and the related emergent need to increase the available supply for hand sanitizer products across the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB), followed by the Federal Drug Administration (FDA), have relaxed requirements for certain alcohol producers to produce these products without first amending their existing permits or obtaining prior formula approval.
One of the last things anyone thinks about when embarking on a new, exciting venture (like opening their own distillery), is how things will come to an end. The fun is in the journey, in the craft – and those are rightfully the focal points for entrepreneurs running their own craft distilleries. But, inevitably, the time comes for the next adventure, the next enterprise, the next journey. An entrepreneur may have to recoup the investments they have made in their business or transfer that business to the next generation to carry it forward. No matter the driving force, there comes a time in the life cycle of every business that requires an entrepreneur to consider a sale or some other form of transaction.
This article, originally published in the Winter 2016 issue of Artisan Spirit, addresses several issues that can arise when buying or selling a craft distillery.
As it does twice per year, the Alcohol and Tobacco Tax and Trade Bureau (TTB) recently published its projected Regulatory Agenda as part of the federal government’s “Unified Agenda.” Links to the U.S. Department of Treasury’s portions of the Unified Agenda appear below.
TTB’s latest contribution to the Unified Agenda lists six priority projects that it hopes to publish rulemaking notices on in 2016:
- Revise TTB’s import and export regulations to make them compatible with the International Trade Data System (ITDS). ITDS aims to create a single electronic exchange portal for all import and export activities. TTB expects to propose these new regulations by March 2016.
- Revise TTB’s labeling regulations for wine, distilled spirits, and malt beverages (beer) to eliminate outmoded, ineffective and excessively burdensome regulations. TTB plans to propose these revised regulations for industry and public comment sometime before the end of 2016.
- Finalize new regulations on specially denatured and completely denatured alcohols. Most notably, the new regulations would re-classify many specially denatured alcohol products as completely denatured alcohols – greatly reducing the amount of regulatory oversight over such products. The final regulations would build off a Notice of Proposed Rulemaking published in June of 2013, and TTB expects to finalize these regulations shortly.
- Propose new regulations to permit the self-certification of flavors and other non-beverage articles as eligible for “drawback.” By permitting industry self-certification, TTB would greatly reduce the number of regulatory filings required of the flavor, extract and fragrance industries. TTB expects to publish proposed regulations before June 2016, coupled with a “Temporary Rule” permitting industry members to begin self-certification immediately.
- Revise the Distilled Spirits Plant (DSP) regulations to reduce the TTB-mandated monthly reports required by DSP operators from four to two. $11,000 to $16,000.Already subject to a Notice of Proposed Rulemaking in 2011, TTB plans to press ahead with a “Supplemental” Notice by March 2016.
- Make an inflation-adjustment to the civil penalties for violations of the Alcohol Beverage Labeling Act of 1988, which mandated the now-familiar Government Warning on all alcohol beverage labels. TTB plans to publish a Final Rule in 2016 to raise the maximum penalty for violations from $11,000 to $16,000.
In addition to the six priority items above, TTB’s portion of the Unified Agenda includes dozens of other rulemaking projects, from those completed in the most recent fiscal year to issues expected to be first raised in a rulemaking notice during the following year. As with prior years, the industry must view TTB’s expected publication and completion dates with a great degree of caution, as resource challenges, political pressure and other factors often delay the rulemaking process.
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.
Warehouses aren’t exciting or sexy. In fact, they are usually boring to look at and think about. But a surprising amount of specialized alcohol beverage law surrounds the use of warehouses for the storage of distilled spirits.
This article, originally published in the Spring 2014 issue of Artisan Spirit, will briefly explore some of the basics.