A Better Way to Define Alcohol Product Types

Alex Koral
October 4, 2022

All alcohol is divided into three parts—beer, wine and spirits. At least, those are the primary product types of beverage alcohol recognized by popular perception and defined by state and federal statutes.

Determining what is in a bottle (or can or keg or firkin) is vital for anyone who manufactures, distributes or sells the product, as there are unique laws, from license requirements to tax rates, that govern each product type. Applying the wrong rules to a product, for instance, producing vodka under a wine-only production license, can have dire consequences.

In recent years, as consumer interest in novel and less common products has exploded, these age-old definitions have increasingly been stretched and tested in ways that cause headaches for regulators and compliance consultants alike. Let’s look into how to apply the standard definitions of different beverage alcohol products and, perhaps, how the laws can change to best meet the regulatory needs of the future.

Beverage alcohol definitions explored

On their face, “beer,” “wine” and “spirits” are standard terms that most people recognize and have a pretty good idea of what they include. That amateur understanding misses a world of technical detail, though, which is only available from scouring through the various statutes and regulations across the country.

Very broadly speaking—as each state has its own rules—beer, or “malt beverage,” is any alcoholic beverage (above 0.5% ABV) produced from the fermentation of grains, which, depending on the jurisdiction, may or may not need to be malted. Wine is any alcoholic beverage produced from the fermentation of fruits, vegetables and other (non-grain) agricultural products. Spirits are alcoholic beverages that have undergone an additional distillation process and then been treated (perhaps merely diluted) to be both consumable and palatable.

These definitions largely work, removing the need to add further details and distinguish (at least at a high level) vodkas from tequilas or stouts from pilsners.

But an astute observer might notice some gaps that raise the question, what about anything that doesn’t have “beer,” “wine” or “spirits” printed on the label. The answer is, barring any special circumstances in the jurisdiction at question, the product needs to be grouped into one of the existing categories.

This means that “wine” cannot be limited to the standard image of fermented grapes but must include all sorts of alternative fruits and vegetables, from tomatoes and peppers to apples and pears. Cider, therefore, is largely regulated as a wine, though it is often taxed at a lower rate than grape or strawberry wine.

Sake, then, might seem like it’s a “beer” as it is produced from rice grains. However, the federal definition of “beer” does require the grains to be malted, which does not occur in sake production. Therefore, the Trade and Tax Bureau (TTB) has determined that sake will be regulated as a wine, requiring wine-specific licenses and applying wine-based labeling and tax rules.

However, just because it works that way at the federal level doesn’t mean that those are universal definitions. Yes, many states do treat apple and pear-based beverages as a “wine,” but there are some—New York and Tennessee, for example—that regulate cider like beer, or even treat it as a unique product type. Sake, similarly, is usually deemed a “rice wine,” but there are a few states that say, no, rice is a grain and therefore sake is “beer.”

Care and proper review must be taken to understand what rules apply to each product in each state. If you’re selling cider in New York, it would not do to apply Texas’ definition of cider.

The special case of hard seltzer and RTDs

Over the last few years, hard seltzers and ready-to-drink cocktails (RTDs) have been the hot new products, capturing consumer and industry attention. But it has not always been clear how these products should be regulated for the simple reason that they don’t easily fit into the existing categories.

Looking at those definitions, the key factor is what is the source of the alcohol—where do the sugars that trigger fermentation come from? Hard seltzers and RTDs, though, can be derived from many sources. A brewery can brew up some neutral grains and mix the results with flavorings to create a lemony seltzer or even a faux margarita—but a distiller (and even a winery) could do the same thing with whatever they are using to source ethanol.

This has led to customer confusion (the, “this Moscow Mule in a can doesn’t have vodka?” reaction) and regulatory confusion, with some producers seeming to benefit from the variegated rules around licensing, distribution and taxation so that their malt-based seltzers appear cheaper and more available than spirits-based seltzers.

Some states, such as Ohio and Vermont have taken steps to address this by creating new product categories. Most states ,though, continue to rely on the standard big three, leaving it to consumers and industry members alike to sort things out.

What is to be done?

Besides consumer confusion, the big risk with this current state of affairs is a lack of clarity for licensees. While cider makers and sake brewers have long managed to muddle through the various rules and figure out one-off solutions where needed, the newer product types of seltzers and RTDs can be very problematic for a given manufacturer or retailer.

Among the challenges: they need to understand that not all hard seltzers or RTDs are equal in terms of permissions or restrictions. For instance, grocery stores in many states can sell beer and wine, but not spirits. That means that plenty of malt-based seltzers (and malt-based RTDs) can appear on their shelves, but not any that are sourced from distilled spirits.

To the lay observer this may seem ridiculous (after all, in terms of flavor and ABV a malt seltzer and a spirits seltzer might seem identical), but for a heavily regulated industry the distinction is critical. Losing a license because they sold the wrong type of seltzer could be devastating to a given retailer.

Similarly, producers are looking to expand their offerings both by entering the market for seltzers and RTDs and by creating cross-tier mashups, which raises lots of concerns from what is permitted under their license to how to label and distribute such products.

This all should lead to the question, does this make sense? Certainly, there are reasons to distinguish between fermented and distilled products in terms of production safety, and there are arguments to be made that higher-ABV products should be taxed more than lower-ABV products (though the actual effects of “sin taxes” are very much in dispute, despite what neo-Prohibitionists might say).

But then why should we continue to base our legal understanding of different alcohol products merely on the source of their fermentable sugars? Can’t wines and beers and spirits be regulated more or less the same, with only a few extra rules to protect against methanol or tiered taxes based on ABV?

While distinguishing a porter from a Malbec from a schnapps is important for the consumer, it stands to reason that from a regulatory perspective, things could certainly be made clearer.

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Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
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