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Navigating Hemp THC Beverages

Nonalcoholic beverages infused with delta-9 tetrahydrocannabinol (THC) derived from hemp (aka intoxicating hemp beverages) are becoming increasingly popular for consumers looking for an alternative to alcohol.

With major alcohol retailers like Total Wine entering the cannabis space, alcohol beverage producers may be looking for opportunities to leverage their existing experience in manufacturing, marketing and distributing alcohol beverages towards the emerging intoxicating hemp beverage market. While intoxicating hemp beverages are arguably legal pursuant to the Agriculture Improvement Act of 2018 (2018 Farm Bill), risks remain under federal and state food and drug laws. Accordingly, beverage producers looking to enter this emerging market should become familiar with the ambiguities involved.

Federal Treatment of Intoxicating Hemp Beverages

The 2018 Farm Bill removed hemp, defined as cannabis (Cannabis sativa L.) and derivatives of cannabis with extremely low concentrations of delta-9 THC (specifically, no more than 0.3 percent THC on a dry weight basis), from the definition of “marijuana” in the Controlled Substances Act. The federal government defines hemp as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Accordingly, products that meet the definition of “hemp” may be marketed and sold in the United States and are no longer classified under federal law as illegal drugs.

How Is Hemp Regulated?

Under the 2018 Farm Bill, the US Department of Agriculture (USDA) has been assigned to regulate hemp production.

However, any hemp-derived foods, including beverages, are subject to regulation by the US Food & Drug Administration (FDA) under the Food, Drug, and Cosmetics Act (FDCA). While the FDA has largely avoided enforcement actions against such products, focusing most of its efforts on products making unsubstantiated medical and therapeutic claims, it has clearly concluded that it is a prohibited act under federal law to introduce any food in the market to which THC or cannabidiol (CBD) has been added. Therefore, the risk of federal enforcement remains until the agency changes its stance towards THC as a beverage additive.

State Regulation

While the federal government has been inactive in this space, the legal status of intoxicating hemp beverage products varies significantly by state. On the one hand, several states, including Minnesota, have expressly legalized the inclusion of hemp-derived cannabinoids in beverage products, with clear regulations regarding testing, labeling, advertising and more. On the other hand, some states have legalized hemp beverage products but lack a robust regulatory framework – leading to a mostly unregulated, laissez-faire market.

Further, many states fall into a grey area when it comes to the legality of such products. Some of these states have legalized hemp along the lines of the 2018 Farm Bill but have not officially opined on whether it can be added to beverage products, while others do not mention hemp products at all. A subset of states has expressly legalized hemp in beverages, as long as it complies with federal guidance, which currently does not affirmatively allow hemp to be used as a beverage additive.

One of the most extreme measures taken by state officials to ban hemp from beverage products is currently underway in South Carolina. The state’s Department of Health and Environmental Control (DHEC) recently issued a letter to the hemp industry warning that certain hemp products are not approved to be added to beverage products, including delta-9 THC.

In its letter, the DHEC also ruled that labels and packaging may not contain references to “THC,” “CBD” or “delta-9” products, or isolates, as this implies the product is no longer a food item but is a drug and is unlawful.

This new guidance is far from outlawing cannabinoids in beverages, but it affects a growing industry that has already been promoting intoxicating hemp beverages in the state. Indeed, some beverage manufacturers in South Carolina have been forced to halt production, citing confusion over the new labeling and packaging requirements. This demonstrates how the legal landscape around intoxicating hemp beverages can change rapidly.

Finally, it is important to note that even states that expressly allow and regulate THC-infused beverage products fall into a grey area when we consider the current state of federal regulations. Until Congress acts or the FDA changes its stance towards THC as a beverage additive, we will continue seeing a patchwork of different approaches.

Legal Considerations for Ready-to-Drink Cocktails

The ready-to-drink cocktail or “RTD” category has exploded in recent years, and it’s occupied by more than merely craft distillers familiar with a carefully made cocktail. Brewers, distillers and even vintners have joined in, capitalizing on consumers’ desires for pre-made, no-fuss beverages. The most unexpected development to emerge with RTDs, however, is the legal complexity surrounding these products—something the industry is only beginning to understand.

Many of these legal issues stem from the fact that the legal regulatory landscape in most states has not caught up with the rapidly evolving alcohol industry. That leaves ready-to-drink cocktails, much like hard seltzers, as not having a specific class or type in certain states. Suppliers looking to enter the space have plentiful options when creating a new product, subject to what licenses the manufacturer holds and what those licenses allow them to produce.

Ready-to-drink cocktails can be spirits, malt, sugar, cider or wine-based. The base of the RTD product, nonetheless, is the key federal factor. It is also an important factor in most states when determining how the product will be treated from a legal perspective in the following areas:

Licensing needed to manufacture, distribute and sell the product;
Applicable franchise law (Do beer franchise laws apply to low-proof spirits?);
Available channels of distribution (Can you sell this product in grocery or convenience store?);
Excise tax rate charged to the manufacturer (Does state law have a lower excise tax rate for low ABV products?);
Labeling and advertising considerations (Is your product a modified traditional product?); and
Trade practice considerations/promotions (Do spirits laws apply?).

Industry members dabbling in a sphere that is relatively new to the market, state regulators and legislatures should be mindful of the patchwork of emerging regulations. Like hard seltzer, ready-to-drink cocktails are not a clearly defined category under existing alcohol law. Meanwhile, states are working quickly to legislate in this domain. New Jersey is considering a reduced alcoholic beverage tax rate on low-ABV liquors to align with the beer tax rate (NJ SB 701), Vermont is considering legislation to define “low alcohol spirits beverage” and treat it as a “vinous beverage” (VT HB 590) and the Washington State Senate has a bill pending that would establish a tax on low-proof beverages (WA SB 5049).

From franchise issues to excise tax, the issues discussed here are only a glimpse of the nuanced and complicated legal landscape that governs the distribution of RTDs and alcoholic beverages across all categories.

Article By Nichole D. Shustack and Isabelle R. Cunningham of McDermott Will & Emery

For more food and beverage legal news, click here to visit the National Law Review.

Pandemic-Driven Amendments to Liquor Code Truly Novel

On Nov. 5, 2021, Governor Tom Wolf signed into law House Bill 425, which became effective immediately. Inspired by the restaurant industry’s struggle to recover from the pandemic and related shifts in operations, the bill presents new opportunities for licensees by eliminating a major hurdle for licensing premises under a licensee’s control. In addition, it loosens many other limitations in the Liquor Code regarding catering permits and other provisions.

House Bill 425 Amendments to Liquor Code

This bill presents a unique licensing strategy that comes in the form of a temporary pandemic-related law. The Pennsylvania Liquor Control Board (the “Board”) may now temporarily extend the licensed premises of a licensed club, catering club, restaurant, retail dispenser, hotel, limited distillery, distillery, brewery, or limited winery to include any outside serving area that is immediately adjacent to the existing licensed area or within one thousand feet of the main licensed premises (even if the area to be temporarily licensed and the main licensed building are separated by a thoroughfare).

For decades, the Pennsylvania Liquor Control Board has “licensed” only premises contiguous or connected to each other. This rule has confounded new license applicants for decades, and operators that controlled both sides of a private driveway or public alleyway could not utilize their license for both sides of the thoroughfare. Any questions as to how the Pennsylvania Liquor Control Board would interpret these new provisions ended with the release of the Nov. 15, 2021 Summary of Act 81 of 2021 (House Bill 425).

In the Summary, the Board confirmed that separate premises across a public thoroughfare and within 1,000 feet of the licensed premises did not have to have their own service facilities, and a server could take food and drinks out of the original licensed premises and across the street to the new proposed licensed premises and serve patrons there. This is a remarkable change in the law; however, these provisions of Act 81 are due to sunset Dec. 31, 2024, which may affect the amounts a licensee may invest in temporary structures on premises that are not immediately connected or contiguous to the licensed premises.

Pandemic-Driven Amendments to Liquor Code

Another change in the law relates to off-premises catering permits. Restaurant licensees, hotel licensees, and eating place retail dispenser licensees that want to sell liquor away from their licensed premises can apply for and obtain an off-premises catering permit to hold a catered function on otherwise unlicensed premises. A catered function is defined as “the furnishing of food prepared on the premises or brought onto the premises already prepared in conjunction with alcoholic beverages for the accommodation of a person or an identifiable group of people, not the general public, who made arrangements for the function at least thirty days in advance.”

The limit for these permits was previously capped at 52 per year. Act 81 now allows the Board to issue an unlimited number of permits for off-premises catered functions to licensees that qualify. Catering permits are also no longer limited to the five-hour time restriction that was previously mandated.

The next amendment to the law pursuant to this bill applies to what happens when a licensee goes out of business. Now, liquor and wine in the possession of a licensee at the time the licensed business closes permanently may be sold to another licensee qualified to sell such products. The licensee selling the products is required to advise the Board in writing of the name of the licensee buying them, identifying any product sold, and describing the liquor, including brand names, sizes, and numbers of containers sold.

More in the House Bill 425

Lastly, Act 81 provides for an additional year of safekeeping for the following class of licensees that was in safekeeping during the proclamation of the 2020 disaster emergency related to the pandemic: club, catering club, restaurant, eating place retail dispenser, hotel, importing distributor, and distributor. A licensee in one of those classes cannot be subject to a renewal, validation, or safekeeping fee that would be due during the additional year. But the licensee must file a renewal or validation that does come due. The additional year of safekeeping commences on the renewal or validation date of a license that occurs after Dec. 31, 2021. This means any extension of the safekeeping period due before Dec. 31, 2021, must be paid, but that license would qualify for the one-year extension from 2022 to 2023.

The novel coronavirus has forced many businesses to change the way they operate, so it is gratifying to see the Pennsylvania Legislature create more flexibility in the Pennsylvania Liquor Code, one of the more confusing and rigid sets of laws in the United States.

Article By Theodore J. Zeller III of Norris McLaughlin P.A.

TTB and FDA Relax Restrictions on the Production of Hand Sanitizers by Alcohol Manufacturers

With the increasing pace of the spread of the Coronavirus (COVID-19) and the related emergent need to increase the available supply for hand sanitizer products across the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB), followed by the Federal Drug Administration (FDA), have relaxed requirements for certain alcohol producers to produce these products without first amending their existing permits or obtaining prior formula approval.

On March 18, 2020, TTB came forward advising industry members that it has found it necessary and desirable to waive provisions of the internal revenue law to provide certain exemptions and authorizations for distilled spirits permittees to produce ethanol-based hand sanitizers to address the demand for such products during this time of national emergency. More specifically, TTB’s guidance provides:

The exemptions are in effect through June 30, 2020.
Alcohol fuel plants (AFPs) and beverage distilled spirits plants (DSPs) are exempted from the need to obtain additional permits or bonds to manufacture hand sanitizer or to supply ethanol to other TTB-authorized permit holders.
All TTB-permitted DSPs are authorized to manufacture hand sanitizer without prior formula approval if the formula is consistent with the World Health Organization (WHO) guidance.
Industrial alcohol user permittees may also use denatured ethanol to manufacture hand sanitizer consistent with the WHO guidance, and these permit holders are further exempted from the need to request approval to increase the quantities of ethanol they may procure.
Hand sanitizers made with denatured alcohol are not subject to federal excise tax, but federal excise taxes will apply to hand sanitizer made with undenatured alcohol.

On March 20, 2020, the FDA—which also has jurisdiction over the production of hand sanitizing products—issued revised guidance that specifies that the FDA does not intend to take action against firms that prepare alcohol-based hand sanitizers for consumer use and for use as healthcare personnel hand rubs for the duration of the public health emergency declared by the Secretary of Health and Human Services on January 31, 2020. More importantly, to be compliant with FDA’s guidance, the alcohol at issued must be denatured (not undenatured) and the packaging must be consistent with FDA’s Labeling for Ethyl Alcohol Formulation Consumer Use found at Appendix A to the guidance.

Finally, for those alcohol manufacturers (or others) that are not currently licensed DSPs or related permit holders, TTB is also expediting its processing and approval of these applications (in some instances within days) to allow for greater production and access to these vital products in our time of national need.

ARTICLE BY Alva C. Mather of McDermott Will & Emery.

For more COVID-19 considerations see the dedicated Coronavirus News Section of the National Law Review.

Pennsylvania Liquor Control Board Tackles Wine Slushie Sales by Restaurant Licensees

Ever since beer distributors in Pennsylvania were permitted to sell growlers for off-premises consumption, which is loosely interpreted as a closed container by the Pa.L.C.B., there has been an influx of beer distributors installing slushie machines and selling malt beverage slushies. Now, are wine slushies fair game?

In a recent Legal Advisory Opinion from the Pa.L.C.B., a question was presented as to whether Pennsylvania restaurant licensees that hold an additional Wine Expanded Permit (“WEP”) can sell wine to go in a container with a sealed lid.

Specifically, the question related to whether a WEP permits the sale of wine slushies to go in a sealed container.

As a bit of background, a WEP can be obtained by any restaurant licensee in Pennsylvania and permits the sale of wine, or wine-based drinks, for off-premises consumption. The sales of wine cannot exceed 3,000 milliliters in a single transaction (typically 4 bottles of wine), similar to the 192-fluid ounce (two six-packs) limitation for off-premises beer sales by a restaurant licensee. The sale of wine and beer can occur during the same transaction so long as the respective volume limitations are met for each product. Interestingly, the statute authorizing the issuance of the WEP to restaurant licensees does not have any limitations on the sale of wine to go, other than that the sale prices must not be less than what the licensee paid for the product from the Pa.L.C.B.

Now that we have covered the law related to a WEP, what was the Pa.L.C.B.’s response to the question in the Legal Advisory Opinion?

The Pa.L.C.B. stated that, because there are no other limitations for a WEP other than selling 3,000 milliliters or less in a single transaction, a WEP holder can sell wine slushies to go in any container, and are not limited to sales of wine in the container it was purchased by the WEP holder. This would permit wine, or any other wine-based drinks without any other alcohol mixed in, to be poured in a cup with or without a lid and sold for off-premises consumption as long as the volume does not surpass 3,000 milliliters in a single transaction.

It is important to note, however, that your local municipality may have open container rules that the licensee or its consumers must follow. With the proliferation of malt beverage slushie sales at beer distributors, I have to imagine this is something the municipalities have dealt with and are aware of. As far as Pennsylvania state law, this legal opinion clearly permits WEP holders to serve wine or wine cocktails (without liquor) in “to go” containers.

Additionally, the Pennsylvania Liquor Code generally prohibits the fortification or adulteration of any liquor, which includes wine.

The Pa.L.C.B. will permit the mixing or infusing of liquor or wine, but such mixtures or infusions, which are mixed in large volumes, must be discarded at the end of the business day. The Pa.L.C.B. has issued numerous advisory opinions stating that adding ice or water to create malt beverage slushies in the slushie machine would be adulterating the original product, but it appears this Legal Advisory Opinion permits WEP holders to serve wine-based drinks for off-premises consumption. In fact, there have been previous opinions that Distributor licensees were not permitted to mix because they are not permitted to have on-premises sales, which restaurant licensees are permitted to do. Therefore, if a WEP holder must add ice or water to the slushie machine to freeze the wine to make wine slushies, it must be discarded daily at the end of the business day (11 p.m. for WEP sales). To the extent that the slushie, or wine cocktail, is a single-serve preparation, those products can be sold in any container for off-premises consumption to the extent permitted by local ordinance.

Finally, because slushie machines have been determined to be “dispensing systems” (like a malt beverage draft system) they must be cleaned in conformance with the Pennsylvania Liquor Code, which requires weekly cleaning depending on the system you are operating.

ARTICLE BY Matthew B. Andersen of Norris McLaughlin P.A.

For more liquor licensing updates, see the National Law Review Biotech, Food & Drug law page.

Does Asking About Employee’s Alcohol Use Violate the ADA?

In Lansdale v. UPS Supply Chain Solutions, Inc., No. 16-4106 (July 23, 2019), the United States District Court for the District of Minnesota concluded that a jury had sufficient evidence to find that an employer’s discharge of an employee for suspected corporate credit card abuse following an investigation in which the employee was asked about his alcohol use and drinking habits did not constitute disability discrimination in violation of the Americans with Disabilities Act (ADA) or corresponding state law.

Background

The employer had a policy prohibiting employees from using corporate credit cards for personal purchases and providing inaccurate expense reports. Following an audit that revealed discrepancies between the employee’s corporate credit card expenses and expense reports, the employer conducted an investigation. During the investigation, the employer interviewed the employee, who indicated that he had used his corporate card for personal charges in order to hide his alcohol consumption from his wife. During the interview, the employer asked the employee several questions about his drinking habits and how his drinking affected his health and family. The following morning, the employer discharged the employee.

The employee contended that he had been asked impermissible disability-related questions and that his employment had been terminated based on his responses. Under the ADA, an employer “shall not make inquiries of an employee as to whether such employee is an individual with a disability or as to the nature or severity of the disability, unless such examination or inquiry is shown to be job-related and consistent with business necessity.”

Analysis

The court found that the jury had been provided sufficient evidence to find that, even if the questions posed to the employee had been disability-related inquiries, the inquiries had not caused the termination of his employment; rather, the employee’s acknowledgement that he had used his corporate credit card for personal use was a sufficient evidentiary basis for a jury to find that this admission by itself was the reason for the termination.

Additionally, while alcoholism may constitute a disability under the ADA and corresponding state laws, this case confirms that an employee so claiming must still establish that he or she had an impairment that substantially limited one or more major life activities, or that the employer regarded him or her as having such an impairment, and that it was a motivating factor in the termination decision.

Conclusion

Here, the court found that a reasonable jury, weighing the credibility of the witnesses—in particular, the employee’s own testimony about his alcohol consumption and how it impacted him, his wife’s testimony that he drank nightly, and his doctor’s testimony that he drank more than what was recommended (though the doctor never applied any diagnostic criteria or noted any serious concerns)—could have found that the employee failed to prove that he suffered from an impairment that substantially limited one or more of his major life activities, that the employer regarded him as having such an impairment, and that it was a motivating factor in the termination decision. In the end, the employee’s belated attempts to claim a disability to excuse his corporate credit card and expense report abuses were insufficient to establish a disability discrimination claim.

By Natalie M. Stevens of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more ADA questions see the Labor & Employment Law page on the National Law Review.

California Redefines “Beer” to Align with Federal Definition

On July 9, 2019, California Governor Gavin Newsom signed into law Assembly Bill (AB) 205, which redefines beer under California’s Alcohol Beverage Control Act. AB 205 allows for beer to be produced with honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials. Under the prior California law, “beer” was defined as “any alcoholic beverage obtained by the fermentation of any infusion or decoction of barley, malt, hops, or any other similar product, or any combination thereof in water.” Prior to AB 205, use of fruit in the fermentation process required a wine license.

Notably, federal law already permits the use of these additional ingredients. As per 26 U.S.C. § 5052(a), federal law defines beer as “beer, ale, porter, stout, and other similar fermented beverages (including sake or similar products) of any name or description containing one-half of 1 percent or more of alcohol by volume, brewed or produced from malt, wholly or in part, or from any substitute therefor.” Federal regulations at 27 CFR 25.15 identify the materials that may be used in the production of beer: “Beer must be brewed from malt or from substitutes for malt. Only rice, grain of any kind, bran, glucose, sugar, and molasses are substitutes for malt. In addition, you may also use the following materials may be used as adjuncts in fermenting beer: honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials.”

Thus, the passage of AB 205 is a seemingly long-overdue update and will likely have little effect on the market as California’s legal system has likely deferred to the federal definition. Indeed, California Craft Brewers Association Executive Director Tom McCormick described AB 205 as a “clean-up bill” that aligns California with federal law. Nonetheless, Assemblyman Tom Daly (D-Anaheim), who introduced the bill, stated that “[t]his measure modifies the definition of beer in a way that will allow California breweries to expand their market, satisfying the consumer’s desire for more varied and unique styles of beer.”

Article by Food and Drug Law at Keller and Heckman LLP.

For more on alcohol regulation, please see the National Law Review page on Biotech, Food & Drug law.

Federal Alcohol Regulator follows FDA, No CBD in Beer, Wine and Liquor

While hemp is now legal under state and federal law, the Alcohol and Tobacco Tax and Trade Bureau (TTB) has made clear that cannabidiol (CBD), a product derived from hemp, is not a permitted ingredient in alcohol beverages quite yet.

The use of hemp and CBD in various products has proliferated in recent months, and the public and stakeholders have looked to the Food and Drug Administration’s (FDA) and TTB for guidance.

On April 26, 2019, the TTB issued an industry circular¹, making clear the TTB will look to the FDA for determinations on whether hemp ingredients such as CBD may be included in food or alcohol. The FDA recently has reiterated that CBD is not a permitted ingredient in food or dietary supplements under federal law. The FDA is, however, beginning the process of reevaluating this position which could lead to an administrative rulemaking.

Following the approach of the FDA, the TTB has stated it will not approve alcohol beverage formulas including certain hemp ingredients, including CBD. However, hemp seeds and hemp seed oil are approved ingredients as they comply with FDA regulations.

There are a couple key points to consider following the statement by the TTB:

All alcohol beverages sold in the United States require formula approval by the TTB, even if the alcohol is sold exclusively within a single state. In comparison, the FDA regulates interstate commerce, therefore, food, beverages and dietary supplements produced and marketed exclusively in a single state may be beyond the scope of FDA regulation (but may subject to state-specific regulations).
Certain alcohol beverages may still be legally marketed as containing hemp. However, those products may only contain hemp seeds or hemp seed oil. Both the TTB and the FDA have approved hemp seeds and hemp seed oil as permitted food additives or ingredients. The TTB also left open the possibility of approving other parts of the hemp plant that don’t include CBD or THC.
The FDA is holding a public hearing on May 31, 2019, where it is seeking data and information regarding the safety of products containing CBD. The TTB appears likely to follow the lead of whatever decision is ultimately reached by the FDA. The TTB stated it will be issuing more detailed guidance regarding CBD and hemp as well.
The TTB further reiterated it will not approve formulas containing marijuana, or other controlled substances.

The 2018 Farm Bill made hemp a legitimate commercial crop and removed hemp from the Controlled Substances Act. Similar legislation in Wisconsin also legalized hemp at the state level. However, hemp and its derivatives, including CBD, remain regulated products. The FDA regulates hemp and CBD as ingredients in food, dietary supplements and cosmetics. The TTB regulates alcohol beverage formulas and ingredients.

This post was written by Zachary Bemis of Godfrey & Kahn S.C.

Read more on TTB & FDA Hemp Regulation on the National Law Review Biotech, Food, Drug page.

Cheers! Brewers Will Have Reason to Toast if Proposed Tax Changes Become Law

Much press has been given to recent efforts in Congress to reform the federal tax code. The House and the Senate have each proposed their own bills to amend the tax laws, and congressional leaders are fervently trying to reconcile the two. Amid all of this attention to tax changes, a rarely mentioned provision in the Senate bill currently under consideration grants temporary relief to brewers by reducing the federal excise tax on beer.

Beer is heavily taxed. Whether the historical policy rationale for beer’s steep taxation remains relevant today can be debated, but there is no debate that beer is currently one of the most heavily taxed industries in the United States. However, brewers might feel some financial relief if the current congressional proposal to lower the federal excise tax on beer becomes law.

All beer sold in the United States is subject to federal excise tax which is calculated on a per-barrel basis. Currently, the excise tax is assessed at a rate of $18 per barrel of beer. However, small domestic brewers, those who produce less than 2,000,000 barrels per year, enjoy a lower tax rate of only $7 per barrel for the first 60,000 barrels sold and $18 per barrel for any sales in excess of the 60,000 barrels.

Although the excise tax on beer is paid by the brewer, in reality the tax is passed on to the consumer in the form of a higher price for the product. Because a barrel contains 31 gallons, and each gallon is 128 fluid ounces, a barrel holds about 330 twelve ounce bottles or cans of beer. This means the tax on a barrel could be passed on to as many as 330 beer drinkers!

The Senate bill, as written on November 28, 2018, would reduce the excise tax on beer in two ways. First, the excise tax for all brewers would be reduced from $18 per barrel to $16 per barrel on the first 6,000,000 barrels sold each year. Every brewer, even the largest ones, would benefit from this reduced tax rate. Second, domestic brewers producing less than 2,000,000 barrels per year would experience a reduction in the excise tax on the first 60,000 of barrels sold from the current rate of $7 per barrel to $3.50 per barrel. These two changes to the tax law would apply only for years 2018 through 2020. In 2021, the tax rates would return to their current levels. Because the tax reduction is only temporary, consumers should not expect to see an immediate corresponding drop in beer prices.

The table below illustrates the tax savings various sized brewers would realize if the Senate proposal becomes law.

The proffered policy rationale for temporarily reducing the excise tax on beer is to encourage brewers to create jobs and make capital investment. The theory behind this policy is that if the tax burden on brewers is temporarily reduced, brewers could invest the savings into growing their operations and boosting the economy.

No new law is ever certain until it has been passed by both houses of Congress and signed by the President. Nonetheless, brewers should keep an eye on the ultimate fate of the Senate proposal and have a plan for how they will deploy the resulting tax savings if the bill ultimately becomes law.

This post was written by Zachary F. Lamb and Hayley R. Wells of Ward and Smith PA.

Getting Serious about Palcohol: Powdered Alcohol

“Imagine a Margarita on a counter. And then imagine if you could snap your fingers and it would turn into powder. That’s Palcohol….without the magic.”

So says Mark Phillips, the creator of Palcohol. Phillips created Palcohol, a witty play on “Powdered Alcohol,” so that he could have a drink while “hiking, biking, camping and kayaking” without carrying a heavy bottle around. According to the product’s website, “Palcohol is just a powder version of vodka, rum and three cocktails….with the same alcoholic content.” The powder is available in vodka, rum, cosmopolitan, “powderita” and lemon drop flavors. The site discusses applications in medicine, energy, hospitality, the military, and manufacturing. Phillips’ company, Lipsmark, says the product is expected to hit store shelves later this summer.

Palcohol is sold in a flat 1-ounce pouch measuring approximately 4 inches by 6 inches. Consumers would mix this powder into a glass of water, soda or juice to create an instant mixed drink. Critics warn that the product’s main feature — how easy it is to store and carry — is also its biggest flaw. For example, Dr. Pat Charles, the Superintendent of Middletown, CT Schools stated, in support of a Connecticut ban of the product, “[t]he ability to conceal powdered alcohol is problematic for schools and law enforcement. The ease of transporting it and the flavors proposed also make me concerned that it would lead to abuse, not just by young people but even for those of age. This product must not be allowed to come into our state.”

After federal regulators approved Palcohol nationally in March, a number of states also moved to regulate Palcohol. According to the National Conference of State Legislatures, 39 states and Washington, D.C. have either passed bills or have bills under debate to restrict powdered alcohol.

“With packets small enough to fit into a child’s pocket, it will be harder for schools and parents to identify and confiscate this substance from our youth,” said Grace Barnett, spokeswoman for Texans Standing Tall, at a House Licensing and Administrative Procedures Committee hearing in March. Texans Standing Tall is a nonprofit that advocates against youth drug and alcohol use. Educators are fearful that youth may abuse powdered alcohol. For example, NASPA, Student Affairs Administrators in Higher Education, recently hosted a series of seminars titled, “Addressing Palcohol: Comprehensive Prevention Tactics for Novel Alcohol and Substance Abuse Concern.”

State regulators have voiced concerns over the ease in which Palcohol can be inconspicuously sprinkled onto food or snuck into venues such as concert halls and stadiums. Vermont Liquor Control director Bill Goggins recently expressed this in an interview with a New York news station, adding that this feature adds to the appeal of powdered alcohol to underage individuals.

Senator Chuck Schumer (D, N.Y.) has even asked the Food and Drug Administration for an outright ban on the substance, calling it “the Kool-Aid of teenage binge drinking,” and said the product “is nearly guaranteed to promote unsafe drinking among teenagers and young adults, among others.”

Concertgoers, underage students, spiking drinks, snorting powder – can somebody please tell me what does any of that has to do with insurance?

In a post-palcohol world, consider whether any of the following are far-fetched:

What coverage exists for a concert venue when a concertgoer is injured by someone who ingested Palcohol that security did not confiscate, and sues the arena. Does it matter that it is nearly impossible to control covert smuggling?
What claims will arise if a school finds that teens bring Palcohol to school to get intoxicated in class? Are any of them covered?

Palcohol may be a paradigm shifting product. Society is all too aware of the methods and problems of underage drinking and excessive drinking among adults. All these current problems with alcohol are based upon a highly regulated liquid that is also hard to conceal in any material quantity. Palcohol, and certainly additional products that will mimic Palcohol’s design, disrupts that model. With this disruption arrives new realities of unexpected liability for companies, municipalities, schools and others. We all know where they will turn next.

Article By Patrick M. Harrington & Sandra K. Jones of Drinker Biddle & Reath LLP

Tag: Alcohol

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