Note from CAS President, Sam Holloway: I am thrilled to introduce our newest CAS Guest Expert, Janene Grace. Janene has over 11 years experience as a TTB compliance officer and as Regulatory Manager for Craft Brew Alliance. We are thrilled to bring Janene’s expertise to our learning community. As you can see from her first blog post, she brings a wealth of knowledge and practical advice for how to run your craft brewery responsibly and within federal and state regulations. This first blog post is publicly available; future content will be exclusively for CAS members.

Collaborations are becoming increasingly common amongst craft brewers, and for good reason:  working together on a beer allows for an exchange of ideas and techniques.  Unfortunately, brewery regulations in the United States aren’t exactly designed to make collaborations easy.  From a regulatory perspective, the best intentions of two willing breweries can lead those firms into trouble. I will demonstrate this with an example from cider making, an increasingly hot market within the craft food and beverage industries.

In America, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) and most states consider cider to be a type of wine, and as such, these agencies require wine permits/licenses to make cider.  Along with the wine licensing comes the wine regulations, and for TTB this means wine can be transferred in bond between any two (or more) wineries.  (“Transfer in bond” refers to the movement of alcohol between bonded facilities without the payment of tax).  This is important because once taxes are paid, breweries and wineries are very limited in what they can do with the beer or wine.

The ability to transfer wine and cider in bond means that production can begin in one facility and end in another.  So let’s say Jack’s Cidery is planning to collaborate with Jill’s Orchards to make a barrel aged cider.  Jack has good facilities for pressing and fermenting, but no room to store barrels.  Jill, on the other hand, has less fermentation capacity but plenty of room for barrel aging.  Clearly, it would be most efficient if Jack handled the pressing and fermentation, and then transferred the bulk cider in bond to Jill for barrel aging. Once the cider is ready for packing, Jill bottles some of it, then transfers the rest back to Jack because he has a canning line.

Rumor has it that similar transactions occur often among breweries in Europe, but here in the USA, when Congress wrote the laws after prohibition they didn’t provide for similar movement of beer between American breweries.  Breweries of the same ownership can transfer beer in bond between facilities (if state law allows), but that is the only legal circumstance when this movement can happen.  In order for a brewery to receive and store beer produced by another brewery:

• The beer must be received taxpaid;
• The beer must be packaged (a requirement to tax pay beer);
• The taxpaid beer can only be stored on the receiving brewery’s premises if:
  • It is in the brewery’s pub (if they have one) or
  • The brewery must hold a wholesale permit and store the beer in a segregated area (which may need to be designated on the Brewer’s Notice);
• The state law must allow this transaction, and proper state licensing must be in place.

What About A Similar Collaboration Between Breweries?

If you don’t currently make cider, but you do barrel age beers, how does our example affect you and a similar collaboration? What if Joe’s Brewpub wants to handle brewing and fermentation, then send it to Ben’s Brewery for barrel ageing and packaging?  With beer collaborations, all aspects of production must occur at the same brewery, except the production of wort.  (Because wort does not contain alcohol, TTB allows it to be moved freely between breweries.)  This means collaborators generally decide which brewery has to do all the work and which one will only contribute recipes or expertise. This affects the cost structures for both breweries, something CAS Guest Expert Dr. Andre Sammartino discusses in his blog on Crafty Collaborations. Alternatively, each brewing partner can make their own batch using a shared recipe, or they can share a single batch of wort.

In my 11 years as Regulatory Manager for Craft Brew Alliance and as a TTB compliance officer, the arrangement I most often oversaw had one partner in the collaboration make all the beer, so let’s take a look at the regulatory logistics of this arrangement.  First, labeling:  Ben’s Brewery is going the make the collaboration beer, but Joe’s Brewpub designed the label – who must secure the TTB Certificate of Label Approval, the COLA?  That would be Ben.  Why?  Because the COLA must always be secured by the entity that puts the beer in the bottle, can or keg.  Which brewery’s name goes on the label?  Well, that depends on the part of the label we are looking at.  All breweries participating in the collaboration get to have their name/logo on the label, but they must be shown in conjunction with each other and be of similar prominence.  But for the mandatory name and address statement, this must be the name and address of the bottler.  So while Joe and Ben both have their logos front and center on the label, somewhere else the label must say “Ben’s Brewery, Portland, OR”.

State label approvals may be handled differently, depending on the state and which brewery is shipping the beer to that state.  This is a bit more complicated that I want to address here, but if you have questions about this, visit http://www.graceregconsult.com or email me at janene@graceregconsult.com. 

Since collaboration brews often contain unusual ingredients, they most likely also need formula approval.  This is less of an issue since TTB exempted a number of ingredients from formula approval with Ruling 2014-4, but brewers are far more creative than the government so don’t be surprised if you need formula approval.  Like the label, formulas must be secured by the brewer who is brewing the beer – in our example this would be Ben’s Brewery.  If there is any possibility that the other breweries in the collaboration may make the beer at some point, they should get the formula approved for themselves as well.  Remember:  formulas must be approved before you begin making the beer; and unlike COLAS, formulas are required whether the beer is crossing state lines or not.

Now that Ben’s Brewery has gotten the formula and COLA approved, and has made the beer, how does Joe’s Brewpub get some?  If Joe’s Brewpub is also located in Oregon this isn’t a problem – Ben can just give/sell Joe his share of the beer.  Ben will pay the taxes on it (both TTB and OR taxes, in this case) and Joe will have to store the beer in the portion of his brewpub that was designated as the pub on his Brewer’s Notice.  Easy.

Interstate Collaborations

But what if Joe’s Brewpub is in another state?  This raises a few issues.  First is licensing.  As in normal interstate distribution, in order for Ben to ship beer to another state his brewery (usually) must hold a license, such as a certificate of approval or importer license, in that state.   Another issue is label approval or brand registration, which is required in America by more than half of the states.  Typically the producing brewer secures this, but as I mentioned above, this may not always be the case.  Label approvals may cause timing issues, because even if Ben’s Brewery already holds the proper state license, label approvals in some states can take 2 or more months.  This needs to be accounted for early in order for Joe’s Brewpub to have any chance of getting fresh beer.

Getting the beer to Joe can be another problem.  Aside from the logistics of shipping the beer, there are regulatory issues inherent in interstate commerce.  Although TTB doesn’t care about breweries moving taxpaid beer to other brewers across state lines, most states have a different opinion.  Our good friend, the three-tiered system, makes this more difficult because beer normally has to be imported into a state by a wholesaler.  More industry friendly states will allow a brewery to import beer from another state, but in some cases the beer must be sold to a distributor in the receiving state, who will in turn sell it to the collaborating brewery.  If wholesalers are allowed to sell to manufacturers in that state, and Ben’s Brewery has a wholesaler there, and the stars are properly aligned, and the month has an “r” in it….  OK – this is another issue beyond the scope of this article, but definitely something to look into in the early stages of an interstate collaboration.

Then there are the tax issues.  As always, the brewery that removes the beer “for sale or consumption” must pay the federal excise tax.  In this case, that would be Ben’s Brewery.  But the state taxes will be reported and paid according to the receiving state’s rules.  If you are new to the state in question, be sure to confirm how taxes and reporting are handled.

International Collaborations

Collaborating with a foreign brewery creates a whole different set of issues.  While you get to avoid our three-tiered system, you add customs, foreign liquor laws, international trade issues, language barriers and a host of other red tape.  This doesn’t mean international collaborations can’t be done; they just take additional advanced planning.  Assuming a US brewery is producing the beer, matters are greatly simplified if you are collaborating with a brewery in a country that you already export to.  In this case, you can work within your existing framework to get beer to your partner.  If you don’t already do business in that country, then you will need to contact trade experts in advance.  A good place to start is the US Export Assistance Center; the local Portland office’s website is: http://export.gov/oregon/index.asp.  You can also find information on foreign alcohol import requirements on TTB’s website at: http://www.ttb.gov/itd/interre1.shtml. Last, CAS members have direct access to an award winning beer exporter, Craftport Exports. Founders Andy Kalamaris and Nate Webb are very active CAS members and can answer questions directly or via the CAS member forum.

What if the foreign brewery is producing the beer and you want to import it?  In this case you will either need an Import Permit from TTB, or work with someone who has one.  The importer will need to secure a COLA for the beer before it enters the US, and will have to pay the excise tax and any duties due.  For more information, check here: http://www.ttb.gov/itd/importing_alcohol.shtml. 

Speaking of TTB, what role do they play in exported beer?  They do not require label approval if the beer is not sold in interstate commerce; so if your collaboration beer is only sold in your home state and Canada then you don’t need a COLA.  But you still need a formula if the beer contains ingredients that are not on the exempted ingredients list.  No state or federal excise taxes are due on exported beer, but the transaction has to be properly documented and reported.

I hope I haven’t scared you away from collaborations!  Complying with regulatory requirements on collaborations isn’t as complex as it is time consuming.  In other words, if there is one thing I want you to take away from this blog, it is: please involve your regulatory compliance person as soon as possible in the planning process.  This will keep the regulators happy, and prevent watching beer age in your cooler because you don’t have approval to send it to your partner. 

Feel free to let me know if you have any questions or comments.  Thanks!

Janene Grace, CEO

Grace Regulatory Consultants, LLC

janene@graceregconsult.com