TTB Announces Major Rulemaking for Labelling and Advertising Regulations
TTB Proposes to Overhaul Labeling and Advertising Regulations
On November 26, 2018, the Tobacco Tax and Trade Bureau (TTB) issued a major proposed rule to overhaul and “modernize” the federal regulations that govern the labeling and advertising of beer, wine, and distilled spirits. The proposed rule would, among other things, (1) integrate certain Industry Circulars and TTB rulings into the base level regulations on labeling and advertising; (2) re-organize the current labeling regulations for beer, wine, and spirits to create more uniform/understandable language and structure across all classes of alcohol and separate out the advertising regulations into a new standalone part; and (3) introduce certain substantive changes as required by international agreements, case law, and the legislative mandate of the TTB. The proposed rule is currently under a 90 day Notice and Comment period that was extended until June 26th, due to the federal shutdown. Interested parties can submit their comments by going to the following Regulations.gov link. Public comments are essential for a federal agency and often help to inform the choices it makes regarding new regulations. Furthermore, submitting comments about the proposed rule creates certain legal requirements for the TTB that may allow parties to challenge a Final Rule.
The below parts summarize the most important proposed changes for domestic manufacturers across all alcohol categories, and then those that specifically apply to beer. However, it is not an exhaustive review of every change. Proposed regulatory amendments that are not likely to substantively impact a business have been excluded.
GENERAL:
1) The proposed rule would change or eliminate a number of definitions (“container,” “interstate commerce,” and “person”), and update several references to terms used in the Internal Revenue Code (IRC) to match the contemporary use of those terms in the IRC. The new definition for container will be “any can, bottle, box with an internal bladder, cask, keg, barrel, or other closed receptacle, in any size or material, that is for use in the sale of[…].” This will clarify that every vessel, regardless of type, that contains an alcoholic beverage has to meet the labeling requirements. Additionally, “person,” will now include LLCs. The change would clarify that both natural and corporate persons are subject to the labeling requirements.
2) Any “adulterated alcoholic beverage,” as determined by the Food and Drug administration (FDA), would be considered automatically mislabeled, even if the brand owner had obtained a COLA, and such a product would be banned from sale in any instance in which the TTB has jurisdiction. In relevant part, the Federal Food, Drug, and Cosmetic Act, defines an adulterated alcoholic beverage as anything that contains, a substance (in sufficient quantity) to be poisonous or detrimental to health or otherwise “unsafe,” or any food additive that is “unsafe.” For example, in 2010, both the TTB and FDA determined that adding caffeine directly to an alcoholic product (as opposed to coffee being used in the manufacturing process), rendered that product adulterated. It is unclear what the full scope of such a change could be. The proposed rule does not make reference to certain relevant TTB circulars and rulings. For example, would any ingredient or process that is currently considered traditional and therefore exempt from recipe approval, still be allowed? Would a wine or spirit that complies with the formula guidelines in TTB Rulings 2016-2 and 2016-3, respectively, also remain permitted?
3) The proposed rule would allow wine, spirits, and beer that are directly sold into export by a winery, distillery, or brewery to be exempt from domestic labeling requirements, however; products that are first sold onto another party, prior to export, will be subject to domestic labeling requirements.
4) The proposed rule would expand the applicability of FDA regulations on alcohol manufacturers, and authorize the TTB to require that companies provide evidence that they are complying with FDA rules related to the safety of food ingredients and additives, as well as, the safety of any packaging materials and processes. The rules would also make clear that complying with TTB requirements for label and formula approval doesn’t relieve a manufacturer from its obligations under FDA regulations.
5) Regulations governing Certificates of Exemption for label approval, which are granted to wine and spirit bottlers, would require the bottler to demonstrate that (A) the product is not being sold outside the State that in which it is produced and (B) require “For sale in [name of State] solely,” be added to any label for a product covered under the certificate of exemption. It essentially just codifies the current requirements under Form 5100.31
6) The proposed rule would allow a TTB officer to require that a distiller, vintner, or brewer to submit a formula for review either prior to the or after the issuance of a COLA. It also simplifies and standardizes the process for submission across all alcohol types and provides that a regulated party may submit formula information via Formulas Online.
7) A new set of rules governing relabeling would permit all classes of manufacturer to re-label products, after they have left the bonded premises, without obtaining additional permission from the TTB to do so, as long as the new label has a COLA. This would allow a manufacturer to replace damaged labels on products that are already at a wholesaler or retailer or “fix” labels that are not consistent with new branding.
8) With exception to brand names and certain optional phrases (ex. Premium malt beverage, proudly brewed by, etc.), the proposed changes will require that any additional descriptive or explanatory information on a label be kept “separate and apart” from mandatory information, such as the health warning statement or disclosure of specified ingredients. Additionally, the TTB proposes to expand on requirements that mandatory information appear on a contrasting background.
9) The proposed rule would make it clear that any statement or representations that are currently prohibited to appear on the label of a container may not appear on any other packaging that accompanies the product for sale at retail. Additionally, any closed packaging that accompanies the product for sale at retail will be required to bear all the same mandatory information required on the label for the product itself. For example, any box, carton, case, or carrier (excluding something like a standard 6-pack holder where the container can be lifted out) would now need to feature all the same mandatory label information as the bottle or can have.
10) The proposed rule would explicitly allow certain statements related to the sustainable environmental or agricultural practices, social justice principles, and similar sentiments of a manufacturer to appear on a label, as long as those statements are truthful, specific, and not misleading. Additionally, manufacturers may feature statements or logos of any certifications they obtain from an organization that reflect adherence to the aforementioned principles.
11) The TTB proposes to add a new requirement that would prohibit statements on labels that are “misleading” as to the age, origin, identity, or other characteristics, even if the content of the statement is technically true. As an example, the TTB describes a statement that is true, but which lacks material information, in a way that hides the complete truth from a consumer. This proposed rule is vague, and it is unclear whether using a term such as “oak aged” for a process that involves the addition of oak chips, as opposed to aging in a barrel, would be considered to violate such a provision.
12) The rule would amend the current regulations that prohibit the use of the American flag, or other symbols tied to the United States or the American armed forces, as long as the use of these symbols does not mislead consumers that the product in question is somehow endorsed by or affiliated with the United States government or its armed forces. Furthermore, the proposed regulations would allow use of the American flag to indicate country of origin. Alcohol manufacturers in the DMV area may be particularly interested in this provision, as it opens up all sorts of possibilities for labeling that are currently prohibited.
13) The TTB has expressed concern in the notice regarding the use of terms in regards to an alcohol product, that is commonly associated with another type of alcohol, i.e. the use of terms such as bourbon on labels associated with beer products, or sherry on labels associated with a distilled spirit. The proposed rule would clarify when such terminology could and could not be used. As a general rule, true statements of process or ingredients would not be prohibited, so long as they do not tend to mislead customers as to the contents of a product. For example, a whiskey label could say “sherry cask aged,” but not, “sherry flavored.”
BEER:
1) The TTB is soliciting comments on whether they should implement any minimum quantity requirements for the amount malted barley and hops that have to be used in order for a beverage to be defined as a “malted beverage.” This could impact which types of beer are subject to regulations that govern malted beverages under the TTB guidelines, i.e. beers made with very high quantities of wheat or other specialty grains.
2) The TTB proposes to create a new section that would clarify the regulation for brewery products that do not meet the definition of “malted beverage” under TTB Ruling 2008-3, and make those products subject to either the wine regulations (if it is sake) or the ingredient and labeling requirements of the FDA. In other words, if a brewery makes a product that doesn’t include both malted barley and hops, but is still considered beer for tax purposes, it would no longer be subject to the labeling regulations for malted beverages under Part 7.
3) The TTB proposes to create a new regulation that would clarify when a COLA is necessary. Specifically, the rule would limit the requirement for a COLA to those instances where a beer is being shipped into a State, that has either adopted the federal labeling requirements in Part 7 in their entirety, or whose laws have essentially copied over all the federal labeling requirements for malt beverages. Malted beverages that are shipped into a State that has not adopted identical labeling requirements to the federal government, may still need to abide by federal labeling rules, but they would no longer need to obtain a COLA prior to shipment as a matter of federal law. Additionally, the proposed rule would codify existing law and practice, to make it clear that a COLA is not needed for sales within the State that the malted beverage is produced. This could alleviate some of the pressure that brewers felt when the TTB recently shutdown for five weeks time, depending on which states they sell into.
4) The TTB proposes to amend labeling requirements so that kegs with a capacity above 10 gallons no longer need to have keg collars or tap covers that firmly affix to the keg, although the brewer would still need to use a collar or tap cover on such kegs. This should make it easier for brewers to swap out labels on kegs and save them production time.
5) The TTB proposed to introduce a rule that would clarify when and in what manner alcohol percentages may be put on a label, and also allows a brewery a tolerance of up to 1% between the stated alcohol percentage on the label and what the actual percentage of alcohol may be.
6) The TTB is proposing to codify into the regulations the current exemptions that exist for both formula approval and the need to specifically label beer as including any ingredients on the traditional ingredient exemption list. This would explicitly incorporate the list of traditional ingredients and processes , into the regulation, making it more difficult to reverse in the future.
By way of disclaimer, the above summary only looked at how the proposed rule would change requirements relative to current regulations. However, it did not analyze all the proposed changes against existing TTB and federal court rulings, or TTB industry circulars, to determine if the legal effects are indeed the same as claimed in the Notice of Proposed Rulemaking. Furthermore, there may be state level definitions and requirements that are tied to changes in federal law. A proposed rule of this magnitude involves a lot of nuance and complexity. If you have any specific questions about how a proposed change will affect your business, please consult with an attorney.
Gregory Parnas is an alcoholic beverage attorney based in Washington, DC. His practice focuses on craft alcohol producers in the DC Metro area. If you have any further questions, please feel free to contact him at Greg.Parnas@DCBeveragelaw.com