Category Archives: Uncategorized

Further Delay to the FDA Labeling Requirement

As part of the labeling requirement contained within the Affordable Care Act of 2010, the FDA was required to establish menu-labeling regulations. Enforcement was expected to begin December 1, 2015, but has been delayed twice. The first delay pushed the deadline for enforcement to December 1, 2016. In December, Congress directed the FDA to push the enforcement date until one year after publication of the final guidance. The FDA announcement on March 9, 2016 made this delay official. There has not yet been an indication as to when the final guidance will be published.

The rule will require restaurants and similar retail food establishments with 20 or more locations operating under the same name and serving substantially the same menu items to post calorie information for standard menu items and provide guests with additional nutrition information upon request.

Originally, alcohol was proposed to be exempted but is now included in the labeling requirement for restaurants. The majority of comments supported having alcohol beverages covered under the final rule due to impacts on public health.

A restaurant that meets the parameters of the regulations will have to list calorie and nutrition information for all beer, wine, and spirits listed on a menu. Mixed drinks that are not listed on a menu are exempted, as are liquor bottles on display behind a bar.

In some instances, the rule provides flexibility for beer and wine and allows for calorie ranges to be rather than individual calorie counts for each offering. It should be noted that the requirements of the final rule do not apply to temporary menu items, i.e., foods that appear on a menu or menu board for less than a total of 60 days per calendar year (e.g., a seasonal craft beer).

The TTB regulation of the alcohol industry will not be affected by the FDA’s labeling requirements. All of the labeling requirements will comply with TTB requirements. Additionally, alcohol producers will not be required to disclose the nutritional content of their products. The burden for disclosure under the FDA regulations will be restaurants, who will be allowed to use the accepted USDA measurements for nutritional content.


You may recall us discussing The Grape Escape event, which was cancelled this year after wineries refused to sign up, fearing that the ABC would be cracking down on retailer-sponsored events. At the previous year’s event, multiple wineries were cited for mentioning the retailer sponsor of the event. One winery, Renwood, decided to appeal the disciplinary action before an administrative law judge. The ALJ agreed with Renwood, issuing a decision that included a finding that there was “insufficient proof to conclude that any benefit inured to Save Mart Supermarkets through the posting of the Save Mart Grape Escape logo on Renwood’s Facebook page.” Consequently, the disciplinary action was dismissed.

Starting at the beginning of 2016, there will be at least a little bit more clarity regarding winery participation in events that have retailer sponsors. Wineries will now be permitted to donate and pour their product at events hosted by a bona fide non-profit organization, even if that event’s sponsor is a retailer. In addition, wineries may freely forward or share social media posts about the event, even if the retailer’s name appears on the post. However, other restrictions still apply– for example, if you share a post, you may not add any additional information specific to the retailer. This also does not include events where a retailer is the host of an event for the benefit of a non-profit. The entirety of the new legislation can be found here.

 


Non-Compete Agreements in California

With the proliferation of wineries in California, it’s not uncommon for an owner to find one of its winemakers deciding to leave and set up shop on their own. Is there anything you can do up front to prevent them from taking the craft they’ve honed at your winery elsewhere? The short answer is, in most cases, no. But as with almost everything in the law, there are some exceptions you should know.

California public policy strongly favors free and open competition in the marketplace. Business and Professions Code section 16600 states clearly that contractual restraints on competition or trade are void, except as otherwise provided. California courts interpreting this statute emphasize that it protects the right of Californians to pursue any business, occupation, or lawful employment of their choosing. Contract provisions which attempt to place restrictions on a person’s ability to work for a competitor, or open a competing enterprise, are generally unenforceable.

That said, you should be aware of the “as otherwise provided” part of the Code. The primary exceptions to the prohibition on non-compete agreements apply to “owners” of a business and arise in the following contexts.

First, if you are selling all of your ownership interest, or all of most of the operating assets together with the goodwill of the business, you can agree with the buyer to refrain from “carrying on a similar business within a specified geographic area” so long as the buyer is going to be carrying on the same or a similar business in that area.

Second, if you are leaving a partnership or an LLC, you can agree not to carry on a similar business within the geographic area where the business is operating.

If you fall within one of the above exceptions, you should consult with an attorney to make sure any non-compete agreement complies with California law and is narrowly tailored both in geographic scope and duration.


TTB Update: Return of Wine to Bonded Premises

The TTB is catching up on some regulatory house-keeping. Effective October 15, 2015, TTB regulations governing the return of taxpaid wine to bonded premises will be amended to conform to provisions of the Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and Reform Act of 1998.

The Internal Revenue Code provides that if wine is removed from bonded premises, and subsequently returned, any tax paid on the wine returned to bond shall be refunded or credited (without interest) to the proprietor of the bonded premises. If tax has not yet been paid, then any prior tax liability is relieved.

Whereas it used to be that wine returned to bond had to be “unmerchantable,” that is no longer the case under the Taxpayer Relief Act of 1997. The TTB is now amending its regulations to conform to that Act, by removing the word “unmerchantable” from provisions relating to the return of wine to bond.

It also used to be that wine returned to bond had to be produced in the United States. That is no longer the case, under the Internal Revenue Service Restructuring and Reform Act of 1998. Wine returned to bond must only have first been removed from a bonded wine cellar. TTB regulations pertaining to the return of wine to bond will no longer refer to “domestic” wine or wine “produced in the United States.”

Better late than never. We can all appreciate increased clarity and consistency when it comes to the regulation of alcoholic beverages!


New Excise Tax Structure on the Horizon?

Most alcoholic beverage producers would agree taxes rank low on the list of their favorite things about their job. And it isn’t just the payments that stink; it’s figuring out who to pay, how much to pay, and when. New legislation introduced last week in the Senate is touting promises of reduced rates of excise tax on wine, and simplification of rules regarding records, statements, and returns.

Senate Bill 1562, informally called The Craft Beverage Modernization and Tax Reform Act, is an evolution of a number of similar pitches floating around throughout the alcohol industry. Bill 1562 would attempt to solve issues across the alcohol industry by covering taxpaying brewery, distillery, cidery, and winery operators.

In the winery world, the Bill would make the following notable changes:

  • Alcohol content for “table wine” would increase from 7-14% alcohol by volume to 7- 14.25%.
  • The Small Producers Tax Credit eligibility would increase in availability to wineries producing up to 250,000 gallons annually to 2,000,000 gallons produced annually.
  • A credit of $1.00 per gallon on the first 30,000 gallons of wine for all producers, excluding sparkling or carbonated wines.
  • A $.90 per gallon credit for all wine produced beyond 30,000 gallons and up to 100,000 gallons, if total production is less than 2,000,000 gallons per year. If production is between 1,000,000 and 2,000,000 gallons the credit is reduced 1% for every 10,000 gallons produced in excess of 1,000,000.

Bill 1562 would also allow wineries with tax liability of $50,000.00 or less to file their taxes on a quarterly basis, and would remove the bonding requirement. An additional change would allow annual tax filing for wineries expecting to owe less than $1,000.00 in excise tax.


Placer County Considering Amending Winery Ordinance

Wine regulations can get complicated. Federal and state regulations must be followed, but one must also be aware that mandatory local ordinances can vary from county to county and city to city, adding further hurdles to the success of winemakers and wineries. Localized winery ordinances often regulate the size of tasting rooms, the number of events allowed, and other activities. One such ordinance affecting wineries that host events in Placer County is causing a stir.

As it currently exists, Placer County’s Ordinance 17.56.330 of the Planning and Zoning ordinances, adopted in 2008, is designed to “provide for the orderly development of wineries… encourage the economic development of the local agricultural industry, provide for the sampling and sales of value-added products, and protect the agricultural character and long-term agricultural production of agricultural lands.”  It includes provisions that keep special events and crowds to a minimum. All wineries are required to have a permit for up to six promotional events per year. Promotional events are limited to those that are related to producing wine at the facility, i.e. barrel tastings or relase parties of the host winery’s wines.

Recently, the Placer County Vintner’s Association has expressed concern that the ordinance is too restrictive, and has requested from the Planning Commission changes that would allow more leeway in holding larger and more diverse events.  According to the Association (and a County staff report on the issue), the current ordinance is more restrictive than the ordinances in neighboring Sacramento and Amador counties, and is the only ordinance in these three counties that requires promotional events to be specifically related to promoting the winery or its products. The Association’s goal is to have the ordinance amended to define promotional events more broadly to include private functions such as fundraisers and weddings, and to allow wineries to have more than six promotional events throughout the year. In addition, the Association would have any event with less than 75 people present labeled a “routine activity,” which would need no special permit. The Association argues that the proposed amendment will “help support the 20 wineries located on the Placer County Wine Trail, create local jobs, provide tax revenue to the city and county and keep our landscapes beautiful.”

Not everyone is on board with the potential changes. Some local residents fear that additional events will cause more traffic, which can be especially scary on Placer County’s winding country roads. This fear increases with the idea that people will be consuming wine at the events.  Increased traffic also means increased road maintenance, and some residents are not interested in footing that bill. Increased noise from events is also a factor that the opposition wants considered. Marilyn Jasper, who represents the Sierra Club and Public Interest Coalition, said that current protections safeguard against “de facto conversion (of farmlands) to commercial uses,” and opposes the proposed amendments.

At the end of February, the Planning Commission decided to send the proposed amendments to municipal advisory councils for comments before revisiting the issue later in 2015. We will be looking out for final word later in the year.


Craft Beverages: Where Can Wine Fit In?

It’s no secret that the craft beverage industry is booming. In the past few years, hundreds of craft breweries have opened across the state, with over 40 now in the Sacramento region alone. The liquor industry is also getting on board, with specialty flavors, blends, and other creative concoctions designed to woo the growing number of consumers who have expressed a desire for smaller, more artistic beverages. The craft industry has gotten so popular that one beer industry giant paid millions of dollars to address the issue head-on in a Super Bowl ad. With all of the hype (and, naturally, dollars) involved with “craft,” why hasn’t wine joined the movement?

On January 29, 2015, I attended a seminar titled, “Understand the Marketing of ‘Craft’ and the Opportunities for the Wine Industry” at the Unified Symposium. The panel consisted of J.E. Paino, general manager of Ruhstaller Brewery in Sacramento (you may have seen their hops being grown on the side of Highway 80 in Dixon), Kellie Shevlin of the Craft Beverage Expo (Suzanne and I will be exhibitors this year), Adam Johnson from the Kentucky Bourbon Trail, and Cindy Molchany of Craft Beverage Media. The first point that was made involved the definition of craft itself– everyone on the panel agreed that there was no set definition (or a need for a set definition), but that authenticity, lack of pretentiousness, and transparency about methodology were foundations.

The panel discussed some of the challenges that wine faces in fitting in to the “craft” scene, the first being that wine is perceived as a very traditional, stuffy, established beverage. This is contrary to the modern, younger image often marketed in the craft world. Being creative with wine also comes with some regulatory hurdles. Although ingredient regulations also exist in the beer and liquor worlds, wine regulations are the most stringent. A list of allowable and prohibited additives to wine can be found here. As one frustrated commenter at the panel stated, “Wine isn’t like beer. I can’t just dump a bunch of honey and vanilla into my wine and call it craft!”

The panel offered some alternative methods to attract craft consumers, including the finishing of wine, and advertising and marketing strategies. First, the idea of using alternative barrels was presented. For example, used bourbon or whiskey barrels can create a unique flavor profile to wine, and offer the consumer something unexpected. In addition, the panel suggested that, contrary to the traditional, customary, ahem, boring(!), labels that we’re used to see plastered on wine bottles, labeling can be a little bit more fun and creative. If the winemaker is also an artist, for example, have them render an original work for the label, or, if there is a special method that the winemaker uses, showcase that on the label! If you have a tasting room, consider adding a tour, or other special service aimed at giving the consumer a more personal experience with your wine. When consumers are able to experience the wine making process from the soil to the glass, the transparency of the process, as well as the consumer’s association of your product with the craft of the industry, increases.

If you’re in the wine business, you know that wine making is certainly a craft, in addition to being a labor of love. It’s time that the industry showcase this artistry to consumers.