Alcohol & Beverage

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On October 15, 2018, we blogged about Tennessee’s regulations on licensing for retail sales of alcoholic beverages. Tennessee requires residency within the state for two years in order to obtain an initial license. It requires residency for 10 consecutive years to obtain a renewal of the initial license.  But the initial license only runs for a year. The statute also requires that all officers, directors and shareholders of corporations to satisfy these residency requirements. The effect of this statute is to prohibit publicly traded corporations from obtaining a liquor license. It also gives a clear edge to Tennessee residents at the expense of out-of-staters.
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On June 7, 2019, the Office of Environmental Health Hazard Assessment (OEHHA) announced that it has adopted a final regulation eliminating the requirement for coffee to carry a Proposition 65 warning label. The regulation overturns a California State Court decision that found that coffee retailers failed to prove that the chemicals present in coffee, such as acrylamide, pose no significant risk of harm, requiring coffee to bear a warning.  …
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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…

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.…

The Supreme Court recently granted certiorari to review an opinion of the Sixth Circuit on constitutional limits on states’ ability to regulate the distribution of alcohol beverages. Tennessee Wine & Spirits Retailers Ass’n v. Byrd, No. 18-96.

With the advent of the 21st Amendment in 1933, which turned control of alcohol beverage regulation over to the states, temperance groups insisted on a rigid, three-tier system for the distribution of alcohol. Typically, under state laws a manufacturer of alcohol beverages can only sell to a distributor and it may not have any ownership interest in the distributor. The distributor in turn sells to retailers who sell to the general public. Neither the manufacturer nor the distributor may have any ownership interest in the retailer. Consumers can only purchase alcohol beverages from retailers.

The rise of the internet and direct delivery companies such as Amazon has undermined this rigid distribution system. The State of Michigan amended its statute to permit wineries located in Michigan to sell directly to consumers. Out-of-state wineries, however, could only sell to Michigan distributors. In Granholm v. Heald, 544 U.S. 460 (2005), a surprisingly divided Supreme Court held, 5-4, that its anti-discrimination holdings under the Commerce Clause trumped the states’ residual authority under the 21st Amendment. It also held that the direct-sale statute impermissibly discriminated in favor of in-state wineries.

Granholm settled the question of whether states could discriminate against out-of-state manufacturers. It left open the question of whether the Commerce Clause also protected wholesalers and retailers and the lower courts are divided on that point. Granholm clearly held that the three-tier system is not a per se violation of the Commerce Clause. Based on that holding, the Second, Fourth and Eighth Circuits have all held that Granholm does not apply to wholesalers and retailers.  The Fifth and Sixth Circuits have reached the opposite result.…
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On June 13, Husch Blackwell’s Food & Agribusiness industry team presented a seminar in Denver, CO spotlighting industry finance and investment trends and regulatory developments. More than 50 professionals attended the seminar, representing ag processing, food distribution, ag production and industry-focused lenders and investors. The morning started off with Jim Ash, Husch Blackwell’s Food & Agribusiness industry team leader, moderating a panel focused on industry trends. The panelists included –

The panel discussion kicked off by discussing the current consumer trends and whether or not the current trends are considered sustainable. The panel agreed the importance of food safety is top of mind with consumers and food company executives alike. Healthy alternatives, convenience and transparency in labeling were also noted as important to consumers. Consumer demand for new products with unique flavorings is resulting in small, nimble companies being rewarded. An example of this is the growth in the craft beer industry.

The panel turned their attention to consolidation within the industry. The panelists agreed the mega-deals would likely continue over the next 18-24 months, but smaller deals at the other end of the spectrum would also continue, highlighting the importance of companies being nimble and responsive to the market. For smaller companies within the industry, 75% of the deals were for strategic reasons compared to an average across all industries of 50%. Technology advances and the need for innovation were also mentioned as driving consolidation. European companies are looking to North America for investment because of perceived opportunity.

Commodity pricing and the impact on the industry was discussed next. Over the long-term the prices for commodities are expected to rise, however in the short-term there will be continued downward pressure until there is a significant correction, which will likely be driven by a weather event. Pricing is driven by supply and demand and in the short-term there is an excess supply; however, long-term commodity demand will be driven by rising world-wide socio-economic status increasing demand for protein, which is a more inefficiently produced food source. The current excess supply is the result of technology advances resulting in improved yields and the absence of a significant weather event over the past several years.…
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In the last few years, there has been an influx of false advertising and labeling claims targeting food and beverage producers, principally though consumer class actions. The lawsuits seem to be an outgrowth of consumers’ growing interest in foods and beverages that are artisanal and locally grown or made.  The beverage alcohol industry has not…

Last week the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) published Ruling 2016-3, TTB’s most recent effort to reduce regulatory burdens on industry members. Breaking with past regulations, Ruling 2016-3 approves general-use formulas for proprietors of distilled spirits plants producing vodka, whisky, brandy or rum products that incorporate certain specified harmless coloring, flavoring or…

New regulations from the Food and Drug Administration (FDA) regarding nutritional information labeling are generating concern within the beer industry that the cost of compliance might be damaging and cost prohibitive for the industry.

Effective December 1, 2016, the FDA will require disclosure of nutritional information for regular menu items, including alcohol beverages, appearing on…