ALCOHOL LAW ADVISOR
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
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Ruling Permits On-Premises Beer and Wine Licenses for New York Movie Theaters

by | Feb 17, 2022 | ,

On January 26, 2022, the New York State Liquor Authority issued a Declaratory Ruling regarding the eligibility of New York movie theaters to apply for and obtain on-premises retail licenses for beer and wine service. This is a value-add for theaters, and it allows businesses to provide a new amenity to customers and increase their revenues. The Authority determined that theaters would be eligible for these licenses provided the following:

  • They can establish the theater will prepare and serve food;
  • The primary source of revenue for the theater will be from the ticket sales and/or snacks; and
  • The revenue from the sales of alcoholic beverages (beer and wine only) will be incidental to revenues from tickets and food offerings.

For questions about this ruling, retail licenses in New York or other alcoholic beverage licensing and compliance matters, please contact Adena Santiago or McDermott’s alcohol regulatory and distribution team.



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Treasury Responds to Biden Administration Executive Order with Report, Recommendations to Increase Alcohol Industry Competition

by and | Feb 15, 2022 |

On February 9, 2022, the US Treasury Department (Treasury) released a report with recommendations for how the Tobacco Tax and Trade Bureau (TTB), Federal Trade Commission (FTC) and Department of Justice (DOJ) can help drive competition in the beer, wine and spirits markets by stepping up conduct enforcement, adopting creative and nuanced theories of harm in merger reviews and implementing new regulations to decrease the burden on smaller industry participants.

TREASURY REPORT SUMMARY

  • Treasury released a report entitled “Competition in the Markets for Beer, Wine, and Spirits” in response to President Biden’s July 2021 Executive Order 14036 that assesses the current market structure and conditions of competition, including an assessment of threats to competition and barriers to entry.
  • Treasury’s report is based, in part, on hundreds of comments received from industry participants and paints a detailed picture of the current landscape for alcohol beverage distribution and sale across the United States.
  • The report focuses on how changes could benefit smaller participants in the beer, wine and spirits industry. Given that the stated goal of Executive Order 14036 was, in part, “to reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s consumers, workers, and small businesses,” it is not surprising that the report is focused on analyzing how a shift in enforcement priorities may be able to help eliminate impediments that make it difficult for smaller producers, distributors and retailers to compete with the larger players in the industry. Treasury specifically recommends that TTB cease bringing cases against “smaller industry members whose conduct does not have obvious effects on competition” (i.e., the investigation several years ago against small wineries for ‘consignment sales’).
  • Treasury makes recommendation on enforcement priorities for FTC, DOJ and TTB. To address the market concentration concerns that the report describes, Treasury makes recommendations regarding how the TTB, FTC and DOJ should focus investigations and enforcement of mergers and conduct in each of the three tiers of the beer, wine and spirits markets: producers, distributors and retailers.
  • Many of the recommendations are likely to be pursued given that the Attorney General and FTC Chair were consulted. The report and its recommendations should be considered carefully as a clear indication of the kinds of issues that FTC and DOJ are likely to focus their investigations on in beer, wine and spirits because the report was developed “in consultation with the Attorney General [DOJ] and the Chair of the FTC.”

TREASURY’S KEY RECOMMENDATIONS

  • While there are myriad competition-focused suggestions in the report, we think the areas that are most likely to receive increased focus from FTC, DOJ and TTB are the following:
    • Anticompetitive Conduct: Treasury noted that FTC, DOJ and TTB have generally not brought any conduct cases on many theories of harm for which myriad complaints were received. Treasury suggests that TTB should act on [...]

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Legal Considerations for Ready-to-Drink Cocktails

by and | Jan 21, 2022 | , , , ,

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

by , and | Mar 26, 2021 | , ,

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

by , and | Jan 11, 2021 | , , , ,

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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Mississippi Supreme Court Rejects ‘Passage of Title’ DTC Theory

by | Mar 6, 2020 | ,

Last week, the Supreme Court of Mississippi handed down an opinion in Fitch v. Wine Express Inc., No. 2018-SA-01259-SCT. A state court decision on the rather dry subject of personal jurisdiction often merits little comment, but the Fitch opinion features an emphatic rejection of the legal theory relied upon by many direct-to-consumer retail alcohol sellers today.

As a “control” state for wine sales, Mississippi law generally prohibits the importation, transportation and sale of alcoholic beverages (a term that includes wine) outside of the state’s monopoly control system. And, as in virtually every state, the retail sale of wine to consumers is reserved to state licensees and, in the case of control jurisdictions, the state itself.

(more…)



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TTB Label Approval System Survives First Amendment Challenge from DC Brewery

by | Aug 20, 2019 |

I. Factual Background

During the 34-day government shutdown occurring between December 2018 and January 2019, producers and importers of beer, wine and distilled spirits needing label approval to bring new products to market were forced to wait until the shutdown was resolved, when TTB could begin again to process COLA applications. The difficulties presented by this situation included the prospect of needing to destroy valuable, perishable inventory.

Unable to obtain a COLA due to the shutdown, Atlas Brew Works (Atlas) filed suit in January in the US District Court for the District of Columbia, challenging the constitutionality of the COLA system. Atlas alleged that the requirement to obtain label approval violates the First Amendment, since, in the event of a government shutdown, the COLA requirement amounted to a prior restraint on protected speech. As the court explained in its opinion, Atlas’s argument boiled down to the claim that “a law that prohibits speech without regulatory approval becomes an outright ban on speech when the approval process is shuttered.” Shortly after the case was filed, the shutdown ended and Atlas received its COLA. The government asked the court to dismiss the case, arguing that it was now moot. After giving the parties several months in which to brief the issue, the court ruled in favor of the government’s motion, finding Atlas’s case moot. (more…)



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24th Annual Wine, Beer & Spirits Law Conference

by | Jun 6, 2019 |

On September 16–17, CLE International will host the 24rd Annual Wine, Beer & Spirits Law Conference in Charlotte, North Carolina. Those attending will include the alcohol beverage industry’s leading practitioners, including in-house counsel for producers, distributors and retailers, as well as industry lawyers and state administrators. Conference topics include:

  • Updates on TTB developments and trends
  • An overview of recent developments in alcohol trade practice and trademark law
  • The significance of regulatory compliance, and the state of data security and ownership
  • Updates on the cannabis industry, including the latest legalization efforts and how it could affect the alcohol beverage industry

McDermott partner Marc Sorini serves as co-chair for the event and will also present. Other McDermott presenters will be Michael Kimberly and Anthony DeMaio.

Click here for the full agenda and registration information.



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TTB Spring 2019 Updates to Semi-Annual Regulatory Agenda

by | May 28, 2019 | , , , ,

The spring edition of the federal government’s semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions (Regulatory Agenda) has been published. Like other federal agencies, the Alcohol and Tobacco Tax and Trade Bureau (TTB) uses the Regulatory Agenda to report on its current rulemaking projects.

The Regulatory Agenda provides glimpses into TTB’s policy focus and aspirations. But, readers should recognize that TTB rulemaking moves very slowly, and the Agency often does not meet the aspirational dates published in the Regulatory Agenda.  (more…)



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