Like most states, Minnesota has a three-tier system for distributing alcoholic beverages – the manufacturer sells to a wholesaler who sells to a retailer. Minnesota allows local wineries to apply for a farm winery license, which permits the holder to sell direct to both retailers and consumers.  The catch is that the winery must use more than 50% of its grape juice from grapes produced in Minnesota.  A winery may obtain a one-year dispensation from this requirement if it certifies that sufficient supplies of Minnesota grapes are impossible to obtain.

Two farm wineries sued the Minnesota Commissioner of Public Safety, who enforces the statute, alleging that it violates the dormant commerce clause by discriminating against out-of-state grape juice. The District Court granted the Commissioner’s motion for summary judgment.  The Court acknowledged that the statute caused plaintiffs injury in fact, because it interfered with their ability to expand their businesses.  But it reasoned that, if plaintiffs wanted to use more out-of-state grapes, they could apply for a wine manufacturing license, which imposes no such limitation.  Thus, the injury they sustained was the product of their own voluntary business decision.  The catch, however, is that a wine manufacturer must use the three-tier distribution system.  It cannot sell directly to either retailers or consumers.

Plaintiffs appealed. They argued that the District Court’s finding that the statute interfered with plaintiffs’ fiscal planning in and of itself established that the injury was fairly traceable to the statute.  According to plaintiffs, the District Court’s holding would force them to operate a different business than the one they prefer to.  They want to operate as farm wineries, due to the efficiencies in distribution that status allows, but the statute prevents them from doing so unless they use a majority of Minnesota grapes.  This theory, they assert, would allow states to discriminate against out-of-state commerce with impunity by authorizing an alternative, less desirable way of doing business.

The Commissioner argued that plaintiffs lacked standing for three separate reasons. First, the Commissioner argued that there had never been an enforcement action against a winery for using out-of-state grapes or threatened to do so.  She also claimed that her office had never denied an application for exemption.  Thus, she claimed that there was no credible threat of injury to the plaintiffs.

Plaintiffs responded that a history of enforcement or threatened enforcement has never been the standard for standing to file a pre-enforcement challenge. Rather, it is enough that there is a substantial risk of enforcement.  Here, plaintiffs have not faced a threat of enforcement because they have complied with a statute they believe to be unconstitutional.  The Commissioner has never renounced any intention to enforce the law.  And if she has no intent to do so, one wonders why she resists the lawsuit.

As for the exemption, it is limited to one year and it facially restricts exemptions to years in which plaintiffs cannot buy enough Minnesota grapes. Plaintiffs emphasized that they cannot rely on one-year exemptions, which may or may not be granted in future years, as a basis for planning their business.

The Commissioner’s second argument is that plaintiffs have not suffered any tangible economic harm as a result of the statute. The statute was in place when both plaintiffs began selling wine, so it did not cause them to terminate contracts or alter their business practices.  The Commissioner also claimed that Minnesota could constitutionally impose its three-tier distribution system, so plaintiffs’ inability to operate their business as they chose is not legal injury.

Plaintiffs respond that the statute has limited their ability to expand their business and plan for the future and that is sufficient economic injury to support standing. They acknowledge they have no right to be free of the three-tier system, but argue if Minnesota wishes to makes an exception to that distribution method it must do so in conformity with the Constitution.

Plaintiffs also assert that the Commissioner’s theory would authorize numerous forms of discrimination. A church would lack standing to challenge its exclusion from a state grant if it could obtain the necessary funds by private donation.  A public employee would lack standing to allege discrimination against her if she could find a comparable job in the private sector.

The Commissioner’s third argument is that whatever injury plaintiffs sustained is not fairly traceable to the statute because they could have obtained a wine manufacturer’s license that would allow unlimited use of out-of-state grapes. Plaintiffs respond that their injury – their inability to use non-Minnesota grapes within a farm winery license – is fairly traceable because, but for the statute, the injury would not exist.  They argue that they are facing a Hobson’s choice of continued compliance with an unconstitutional statute and risking prosecution.

On the merits, plaintiffs argued that the statute violates the dormant commerce clause, because it facially discriminates against out-of-state grapes – i.e., it prohibits farm wineries from purchasing more than 50% of those grapes.  The Supreme Court has long held that such discrimination is unconstitutional unless the state can establish a compelling state interest that cannot be satisfied by any lesser means – a very high standard that has rarely been met.  In proceedings before the District Court, the Commissioner acknowledged that she could not satisfy that burden.

The Commissioner had very little to say about the merits. She argued that there was no overt discrimination because the law only regulates wineries in the state of Minnesota.  As plaintiffs made clear in their reply, that is irrelevant, because the way in which Minnesota regulates those in-state wineries is limiting the amount of grapes they can procure from other states.  That is clearly discrimination against interstate commerce.

Based on the oral argument we expect the Eighth Circuit to reverse. The panel addressed virtually no questions of the plaintiffs.  The questions directed to the Commissioner clearly suggested that the judges thought the inability to expand plaintiffs’ businesses was concrete harm and it was directly related to the limit on out-of-state grapes.

The Statesman Journal reported on potential Oregon legislation that would allow farmers to sue for contamination from genetically engineered crops.

The LA Times discussed a California law outlawing a certain pesticide.

CBC discussed the plant-based protein business.

The Canadian Grocer discussed opportunities for cannabis-based food and beverages.

Food Dive reported on beef industry debut of a sustainability framework.

 

The Alcohol and Tobacco Tax and Trade Bureau (TTB) recently issued an industry circular which makes clear that cannabidiol (CBD), a product derived from hemp, is not permitted in alcohol beverages.

TTB generally consults with the U.S. Food and Drug Administration (FDA) when establishing whether an ingredient for use in an alcoholic beverage is safe. Last December, the Agriculture Improvement Act of 2018, which is commonly referred to as the 2018 Farm Bill, was enacted. The 2018 Farm Bill amended the definition of marijuana under the Controlled Substances Act to exempt “hemp”, which is defined as:

the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9-tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis. Source: 7 U.S.C. 1639 o(1).

Following passage of the 2018 Farm Bill, FDA Commissioner Scott Gottlieb, MD, issued a statement in December noting that the use of CBD and delta-9-tetrahydrocannabinol (THC) in food is still prohibited. As explained in Commissioner Gottlieb’s statement and an accompanying FDA guidance document, Sections 301(ll) and 201(ff)(3)(B) of the Federal Food, Drug and Cosmetic Act prohibit foods and dietary supplements from containing CBD and THC because they are active ingredients in approved drugs. FDA has recently approved Epidiolex, a drug that contains purified form of CBD for the treatment of seizures for certain conditions, as well as Marinol and Syndros, drugs which include the active ingredient dronabinol, a synthetic form of THC.

TTB previously issued guidance in May 2018 that allowed the use of hemp ingredients, such as hemp, hemp seed, and hemp oil in approved alcoholic beverage formulas. This guidance was issued prior to both the enactment of the 2018 Farm Bill and FDA’s December 2018 announcement that it had no questions regarding the generally recognized as safe (GRAS) notices submitted by Fresh Hemp Foods Ltd. for the use of hulled hemp seed, hemp seed oil, and hemp seed protein powder in foods.

According to the industry circular, TTB will not approve any formulas that contain ingredients that are controlled substances under the CSA, even if the ingredient meets the new definition for hemp. However, certain alcohol beverages may still be legally marketed as containing hemp according to the circular, so long as those products contain only hemp seeds or hemp oil as both TTB and FDA have approved those ingredients as permitted food additives. For any formulas that contain hemp ingredients other than hemp seeds or hemp seed oil, TTB will return those applications for correction.

While TTB generally takes a conservative approach to labeling, TTB generally will permit graphics and terminology on the label that accurately and specifically identify the use of a hemp derived ingredient. TTB will generally not approve labels that create a misleading impression that the product contains marijuana or has similar effects to those of a controlled substance.

Public Meeting

The FDA is holding a public hearing on May 31, 2019, where it is seeking data and information regarding the safety of products containing CBD. Because TTB closely consults with FDA regarding the safety of ingredients, alcoholic beverage manufacturers interested in using CBD and hemp ingredients in their products should seriously consider monitoring this meeting and possibly testifying or submitting comments to FDA.

Contact Us

Husch Blackwell has experience working with alcoholic beverage companies on these types of regulatory matters. Our Cannabis, Alcohol and Beverage, and FDA lawyers are available to discuss the TTB announcement and upcoming meeting. Contact Adena Santiago, Seth Mailhot, Emily Lyons or your Husch Blackwell attorney.

The U.S. Department of Agriculture (USDA) Food Safety Inspection Service (FSIS) has proposed to eliminate requirements that certain meat and poultry products display net weights using a dual declaration format (i.e. requiring that some products declare weight in both pounds and ounces). The proposal would remove the dual net weight declaration for meat or poultry products in packages of at least one pound or one pint, but less than four pounds or one gallon. This rulemaking was proposed in response to the FSIS docket seeing public input on regulations that should be reformed or repealed, a part of President Trumps regulatory reform agenda.

As outlined in 9 C.F.R. Sections 317.2(h)(5) and 381.121(c)(5), these packages currently must bear a net weight label that declares the contents in both ounces and pounds or specific units for liquid products. However, under the proposal, one unit of measurement would be used on the product label, instead of using both measures. For example, a product would state “Net Wt. 24 oz.” or “Net Wt. 1.5 lbs.” rather than “Net Wt. 24 oz. (1.5 lbs.).”

If finalized, FSIS would permit meat and poultry product companies to exhaust existing dual declaration label inventory or to continue using the existing dual declaration label indefinitely.

In a statement issued with the proposal, FSIS Administrator Carmen Rottenberg said, “[i]t’s simply good government to review old regulations to see if they are outdated and burdensome. FSIS doesn’t believe that a duplicative labeling requirement helps consumers and sees it as an unnecessary requirement for industry.” This signals that FSIS is reviewing and acting on industry recommendations for regulations that are in need of change. FSIS-regulated entities should consider if there are additional opportunities for regulatory reform and submit such information to the agency.

FSIS is seeking comments on the proposal until June 17, 2019.

Contact Us

Husch Blackwell has experience advising meat, poultry and egg product processors on the regulation of their products. Our FDA lawyers are available to discuss the proposal and if adopted how it would impact their products’ labeling. Contact Seth Mailhot, Emily Lyons, or your Husch Blackwell attorney.

On April 22, 2019, Petitioner The Dried Tart Cherry Trade Committee filed a petition for the imposition of antidumping and countervailing duties on imports of dried tart cherries from the Republic of Turkey. Dried tart cherries may be processed from any variety of tart cherries. This investigation potentially covers dried tart cherry in all shapes, sizes, and colors, and whether whole, chopped, minced, crumbled, in granules, broken, or otherwise reduced in size. Dried tart cherries that are packaged with other products, such as mixtures of dried fruits and mixtures of dried fruits and nuts, are also potentially covered by this investigation.

This case potentially will impact many businesses in the fruit and agriculture industry. It could result in a significant increase to their supply chain costs if no action is taken.

Read the full article here and contact your Husch Blackwell attorney or our trade remedy team if you have any questions about how this investigation might impact your business.

On several occasions, the latest being March 27, 2019, we blogged about the Iowa “ag gag” law, which made it a criminal offense for persons to use false representations to gain access to farms and ranches for the purpose of exposing animal rights abuses. The District Court in Iowa held that the statute violated the First Amendment.

The Iowa legislature has now amended the statute in an effort to avoid the constitutional issue. The original statute prohibited false representations for the purpose of gaining access to or employment at a farm or ranch; it did not require any actual harm to the farmer/rancher.  The amended statute prohibits deception for such purposes “with the intent to cause physical or economic harm or other injury” to the facility or its owners.  The Animal Legal Defense Fund and other plaintiffs have sued to enjoin enforcement of the new law.

Plaintiffs have stated publicly that they do not challenge the portion of the amended statute that prohibits deception for the purpose of causing physical harm. They do assert that the other two injuries – economic harm or other injury – are blatantly unconstitutional attempts to prevent them from gathering truthful information and hence protected by the First Amendment.

The amended statute is on considerably stronger constitutional foundation than plaintiffs would like to admit. As we have previously explained, the Ninth Circuit upheld Idaho’s prohibition against gaining employment through misrepresentations intended to “cause economic or other injury.” Animal Legal Defense Fund v. Wasden, 878 F.3d 1184, 1202-03 (9th Cir. 2018).

Wasden did limit the phrase to actual, out-of-pocket economic losses. It specifically held that the statute did not encompass reputational or publication damages, so a specific intent to inflict those kinds of harms would not qualify for punishment.  If the Iowa District Court does include that limitation on the statute, it likely passes constitutional muster.

If the courts do uphold the statute in that limited form, it is likely to achieve some, albeit by no means all, of its purpose in restricting undercover activity to expose animal abuse. Most animal rights organizations are primarily interested in putting an end to animal abuse.  Some of the more radical ones, however, would like nothing better than to shut down the production of meat altogether, whether for environmental or animal rights reasons.  That action would clearly entail actual economic harm to the owners.  If those organizations leave postings on social media reflecting such intentions, they may very well be vulnerable to a conviction and the prospect is likely to exercise a chilling effect on undercover activities, even if the real motive is exposing animal abuse.

As predicted, the District Court denied the State’s motion to stay the injunction of the original statute pending appeal. The new statute likely moots that appeal.

The U.S. Food and Drug Administration (FDA) recently announced that it will not begin inspecting food facilities until March 2020 to verify compliance with the Mitigation Strategies to Protect Food Against Intentional Adulteration regulations at 21 C.F.R. part 121, also known as the Intentional Adulteration (IA) rule. FDA has determined this additional time is necessary due to the novel nature of the rule and to provide more lead time for food companies to develop their food defense plans. Additionally, FDA is still in the process of developing guidance, tools, and training for the industry.

The IA rule, issued under FDA’s Food Safety Modernization Act (FSMA) authority, is designed to address hazards that may be intentionally introduced to foods, including by acts of terrorism, with the intent to cause wide-spread public health harm. Under the rule, food facilities are required to develop and implement a food defense plan that identifies significant vulnerabilities and mitigation strategies that address those vulnerabilities, as well as ensure those mitigation strategies are working. The first compliance date for the IA rule is July 26, 2019 for certain food facilities.

What to Expect During Initial Inspections

Similar to other FSMA rules, FDA plans to “educate while we [FDA] regulate” during the initial compliance inspections for the IA rule. This means that routine FDA inspections after March 2020, such as those already-scheduled to verify compliance with Preventive Controls for Human Food, Juice HACCP, Seafood HACCP, or other regulatory programs, will include a food defense plan “quick check” to verify that the facility has met the basic requirements of the IA rule. This quick check will include questions such as “Do you have a food defense plan?” and an inspector providing educational materials regarding the IA rule. This could later lead to a more comprehensive food defense inspection as FDA further develops its inspection program for the IA rule.

Guidance for Industry

To assist with compliance for this novel regulation, FDA has issued two parts of a three part guidance document that covers topics such as:
• The components of the food defense plan,
• How to conduct a vulnerability assessment using three different approaches,
• How to identify and implement mitigation strategies,
• Food defense monitoring requirements, and
• Guidance on Education, training, and experience requirements.
When complete, the guidance document is intended to be a resource that will assist the food industry in implementing the IA rule. FDA is currently accepting comments on this draft guidance until July 5, 2019.

Want to Learn More?

Husch Blackwell LLP attorney Emily Lyons is presenting alongside FDA officials at the International Dairy Foods Association’s annual Regulatory RoundUp on June 5, 2019 in Washington, DC on the IA rule. This session will offer food manufacturers, especially those in the dairy processing industry, a chance to better understand the IA rule as well as how to address key compliance issues.

Contact Us

Husch Blackwell has experience working with food manufacturers in complying with FDA regulations, including the IA rule, and has members with the required scientific and technical backgrounds to assist companies with compliance. Contact Seth Mailhot, Emily Lyons, or your Husch Blackwell attorney.