Believe it or not, there’s more to life than beer. There’s wine, spirits, cider, kombucha, hard seltzers—even non-alcoholic products. But just because a brewery has mastered beer does not mean it’s ready to begin making and selling other types of alcoholic beverages. When a brewery moves to expand its offerings and enter new markets, new requirements and restrictions apply. From new licenses to additional taxes to dealing with state control boards, the entire process can look different from everything a brewery has been accustomed to.
In the recent presentation Beyond Beer: The Rules for Expanding into Wine, Spirits, Cider & NA, experts Alex Koral, regulatory general counsel at Sovos ShipCompliant, and Candace Moon, The Craft Beer Attorney, shared key considerations for breweries pushing past the perimeter of barley, hops, water and yeast.
Beyond Beer: Tapping into new beverage categories
One of the first things that brewers going beyond beer should recognize is what is already available to them under their existing licenses. Holders of a Trade and Tax Bureau (TTB) issued Brewer’s Notices can produce beverages made from fermented malts and malt substitutes, which includes products like kombucha and certain hard seltzers. Still, these products bring unique regulatory challenges.
- Kombucha: Kombucha is a fermented beverage made from steeped tea and sugar, often including various yeast strains and bacteria. When kombucha exceeds 0.5% ABV, it becomes subject to federal and state alcoholic drink regulations. This includes if the kombucha ever crosses that threshold during post-bottling fermentation. Because kombuchas generally include non-traditional ingredients, they will almost always require formula approval from the TTB. Kombuchas have federal labeling and reporting standards similar to beer.
- Hard seltzers: Hard seltzers are commonly defined as carbonated water with fermented sugars or other additives, resulting in a low alcohol content, single container beverage. However, there is no specific definition of hard seltzers, meaning that they will be classified as a beer, wine or spirits, each with its own set of regulatory requirements, depending on the exact source of the alcoholic content.
As such, brewers can produce hard seltzers that are derived from fermented malts or malts substitutes, but they cannot produce wine or spirits-based seltzers without additional licenses. Brewers will need TTB formula approval if using non-traditional ingredients. If hops are used, then a COLA is required. Otherwise, the product is excluded from COLA approval, so FDA labeling guidelines will apply. Notably, beer products are taxed much less than wine or spirits, which gives brewers an advantage when it comes to making and selling their hard seltzers. - Non-alcoholic beer: Non-alcoholic beers are products with less than 0.5% ABV. While they are not subject to many alcohol regulations, producers must be careful with labeling, especially when indicating their non-alcoholic qualities. Beyond regulatory concerns, be aware that incorrect labeling can lead to consumer lawsuits, especially from individuals who avoid alcohol entirely. Producers must ensure accurate labeling and may need lab testing for nutritional information. While production of NA beer may need to be reported, these products are not subject to alcohol taxes.
Federal Regulations for Non-Beer Products
Things get a little more complicated for brewers looking at products that do not meet the federal definitions of “beer” or “malt beverages.” The primary issue is that these products cannot be made under a brewery’s existing Brewer’s Notice, so additional licensing is required. But for the brewery looking to go beyond beer, there are a lot of opportunities available, as long as they recognize the novel and additional regulatory requirements they will face.
- Wine: Wine is defined as a fermented beverage produced from grapes or other fruits. Producers need a Basic Permit issued by the TTB for wine production and must comply with labeling, reporting and tax requirements. Notably, wines under 7% ABV are excluded from the federal statutes related to COLA approval, so they are instead subject to FDA labeling rules. Failure to comply with labeling requirements can result in fines and product recalls. Like with beer, producers must obtain formula approval when using non-traditional ingredients. Breweries should also be aware of both the higher tax rates and the more complicated schedules for wine products, such as wines with higher ABV and sparkling wines being taxed more.
- Cider: Ciders are a specific class of wines that are made from apples or pears, including juice and concentrates, and so follow similar regulations to other wines. However, ciders that meet specific federal criteria, including not exceeding 8.5% ABV or 0.64 grams of carbon dioxide per 100 milliliters, can benefit from reduced tax rates. Many ciders top out at around 7% ABV, in which case they are excluded from COLA approval but then must comply with FDA labeling rules. Mislabeling or incorrect tax classification can lead to penalties.
- Mead: Mead, or honey wine, is also regulated as a wine. It must be derived from real honey to be labeled as mead. Producers must obtain formula approval when using non-traditional ingredients and ensure proper labeling and tax compliance. Mead is taxed at the same rate as wine. Incorrect labeling or failure to get formula approval when needed can lead to compliance issues.
- Distilled spirits: Spirits are any product derived from the distillate of fermented alcohol, and as such encompass an enormous range of products, each with its own definitions and labeling requirements. Brewers should note that depending on if they are going to get into making vodka or whiskey or rum, each will have their own more specific regulations. At a base level, producers need a Distilled Spirits Permit and must comply with generally more complex reporting and tax regulations than for beer. Incorrect reporting or tax compliance can result in significant fines. Producers must obtain formula approval for additives, ensure proper labeling and adhere to strict reporting and tax schedules. Incorrect reporting or tax compliance can result in significant fines.
State Regulations and Compliance for Multi-Product Producers
State regulations add another layer of complexity to beverage alcohol compliance. Some key considerations include licensing, distribution rules, taxes and working with control states.
- Licensing: Producers need to have state licenses in addition to their federal licenses, and states also often require separate licenses for beer, wine and spirits production. As such, a brewer going beyond beer will likely need to obtain new licenses for expanding their product lines. Operating without the proper licenses can lead to legal action and fines. Producers must navigate state-specific licensing processes and ensure compliance with local regulations.
- Distribution: Franchise rules, brand registrations and price posting requirements also vary by product type—but also state-by-state. Producers must navigate these regulations carefully to ensure compliance, abiding by the specific rules in every state they sell into. Non-compliance with distribution regulations can lead to contract disputes and loss of market access. Producers must understand state-specific franchise rules and negotiate contracts carefully.
- Taxes: States assess their own taxes on alcohol as well. Like at the federal level, wine and spirits are generally taxed at higher rates than beer, though cider is often offered a reduced tax rate. Incorrect tax reporting can result in penalties and audits. Producers must ensure accurate tax reporting and take advantage of any available tax credits.
- Control states: Control states might be a novel concept for brewers. In control states, the government acts as a distributor for alcohol products, usually only distilled spirits but often enough also wines (only Utah “controls” beer). Producers must comply with strict listing and registration requirements that are generally more complicated than working with non-control states. Often, producers must use in-state agents or brokers to sell to a state’s control board. Control boards also limit how often they will look at new products for sale. Failure to comply with control state regulations can result in loss of market access.
Breweries face both risks and opportunities as they consider expanding production beyond beer. The key risks include misclassification of products, incorrect labeling, and non-compliance with tax and licensing regulations. However, the opportunities are sizeable, with the potential to tap into new markets with diversified product offerings.
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