Category: Legal

Did Home Distilling Get Legalized?

Cyndi

It Depends on Who You Ask

distillery equipment on a table outside a home

By Kris Bohm, Distillery Now Consulting

Every distiller got their start distilling somewhere even if it was not necessarily legal. Many American distillers did not make their first batch of spirits in compliance with the laws of the United States. If you ask most professional distillers and distillery owners where they got their start, these people are not always open to discussing this topic. The reason for the hushed tones or outright silence when discussing learning distilling is that many distillers made their first batches of distilled spirits illegally. United States laws spell out that it is illegal to distill at home. If you were to hypothetically set up a little 5 gallon still at home and distill a few bottles of moonshine you have committed a criminal activity that warrants a felony in the United States. Because many distillers got their start in this exact way, the topic of the roots for distillers is not a vocal discussion. Hobbyists and professional distillers alike both tend to agree that home distillation should be legal and better regulated, but the battle to change the laws has not been an easy one.

  It is not common knowledge among the public of the antiquated laws regarding home distilling. The TTB, which is the government organization that regulates distilling states the following. Within title 26 of the United States Code, section 5601 sets out the following criminal penalties for producing distilled spirits at home. Offenses under this section are felonies that are punishable for up to 5 years in prison, a fine of up to $10,000, or both, for each offense. Some of these offenses include owning an unregistered still and possessing distilled spirits that have not been paid tax. While it is perfectly legal for an individual to produce their own beer or wine at home without any consequences (nor any taxes due) the production of distilled spirits at home is wholly illegal. It is quite absurd at first glance to understand why some homemade alcohol is legal (beer and wine) and others (distilled spirits) are not. This difference has helped to form the argument and a legal case to change laws related to home distilling.

  There are many books on the topic of home distilling and vendors all over the United States who can and will legally sell distilling equipment and materials for distillation. It is legal to sell distilling equipment of all sizes and the responsibility of the still purchaser to register the equipment with TTB. The Federal Government does not allow home distilling and so small stills fit for a hobby size scale are inherently illegal to own as you cannot register them with the TTB. Home distilling is a perfect platform to perfect the art of science and distilling. In fact, many professional distillers made spirits illegally at home prior to growing their hobby into a commercial distillery. While there are many new craft distilleries emerging, if home distillation was made legal it would likely contribute to more commercial craft distilleries opening their doors. The boom and growth of craft breweries is partially attributed to the legalization of homebrewing which was allowed in 1978.

  In 2024 the ridiculous restrictions regarding home distilling are finally getting their day in court. A home distilling group known as the Hobby Distillers Association (HDA) which represents over 1300 home distillers, is a group based in North Texas. One member of this organization had received a letter from the TTB notifying the individual that the TTB was aware that this individual purchased a small still and the still was not registered with the TTB. The letter further went on to cover the penalties for home distillation which can include jail time and large monetary fines. The individual who received this letter not only felt threatened by the TTB but felt action was needed to protect other hobby distillers. The HDA decided it was time to take action to change the laws that prohibit their hobby and work to protect its members from criminalization. Thus, the Hobby Distillers Association filed a case with the United States Court of North Texas that in essence stated the laws regarding home distilling were unconstitutional for a slew of reasons. The HDA contested that laws prohibiting home distillation did not accomplish the intent of the law to protect tax revenue. As part of this case the goal for the Hobby Distillers was to get the court to rule in their favor so that participating in the hobby of home distilling would no longer put hobby distillers at risk of severe criminal penalties.

  District Judge Mark Pittman who sat on the case found himself ruling in favor of the distillers on a rather interesting angle regarding the law. Pittman found that while the laws regarding distilling are intended to protect federal tax revenue they do not actually accomplish their intent. Because the original intent is not accomplished the laws are an over extension of the power of Congress. While the TTB outright bans the use of distilling equipment at one’s home, there is no space within this ban to regulate taxation. Further, the limited amounts produced in home distillation as demonstrated by the HDA does in no way jeopardize the revenue collected by the government from the taxation of spirits produced by legal commercial distilleries. In the opinion written by Judge Pittman he stated Congress did nothing more than statutorily ferment a crime— without any reference to taxation, exaction, protection of revenue, or sums owed to the government. With humor the judge has in essence ruled in favor of the hobby distillers to carry on with their hobby at home without fear or risk of prosecution.

This ruling is a positive change for home distillers and hobbyists, but it is not certain just yet. There are still bigger changes that need to be made to truly legalize home and hobby distilling. The opinion as put out by the judge does not change the laws. It merely protects the individuals from a law that is unjust. Currently the federal government and TTB still can seek changes to the judge’s ruling. It is important to note that some states have specific laws regarding home distilling. If you are considering practicing home distilling or distilling without a permit, I would recommend you research laws regarding the hobby and learn safe distilling practices as well.

  Written by Kris Bohm of Distillery Now Consulting. When Bohm is not busy distilling he can be found cracking lame dad jokes and riding bikes.

  The Decision regarding this case is Hobby Distillers Association et al. v. Alcohol and Tobacco Tax and Trade Bureau et al., Case No. 4:23-cv-01221, in the U.S. District Court for the Northern District of Texas

  TTB rules on Illegal Distilling can be found here.

https://www.ttb.gov/distilled-spirits/penalties-for-illegal-distilling

Hiring the Right Distillery Consultant

Cyndi
Kindred Spirits Consulting: Stephen Tomori
Kindred Spirits Consulting: Stephen Tomori

By: Gerald Dlubala

Distillery consultants aim to help their clients make smarter decisions and save money while assisting them to get their distillery operational. But how do you find the correct distillery consultant for your needs?

  Referrals and research are highly recommended but may not tell the whole story. Hiring a distillery consultant means bringing in someone who will sometimes become a business partner for up to three years. So, in addition to having the experience and history to help with your distillery, it is essential to hire a consultant who you are comfortable working with on a personality level. The following are some helpful tips from experienced distillery consultants on hiring the correct consultant and turning your distilling dream into reality.

Kindred Spirits Consulting: Stephen Tomori (Lead Photo)

  Kindred Spirits Consulting works with distilleries of all sizes, from nano-distilleries with 50-gallon stills to large, full-scale production facilities with continuous or multi-large batch capabilities. Owner and lead consultant Stephen Tomori got his start as a mechanical engineer, telling Beverage Master Magazine that he has always been intrigued by how and why things worked and how they could work better.

  Years of fitting large mechanical systems into residential and commercial buildings, including ducting and piping, made distillery consulting a natural transition. Tomori’s natural curiosity, distilling experience and drive to improve things helped him win over 30 awards in his first distillery build with spirits he developed and personally distilled. He has designed over 40 distilleries, with more coming nationally and internationally. As a master distiller, Tomori’s unique skill base has led him to help his clients win 108 awards, including golds, double golds, and platinum.

  “No project is too small or too large,” said Tomori. “We’ve done a good job getting our clients recognition, and that happens because we help them put out the best product possible.”

  Tomori encourages potential clients to contact a consultant as early in the process as possible because although starting any new business is an expensive endeavor, doing things yourself and spending upfront money unnecessarily within a distillery can be disastrous to the prosperity of the business.

A Consultant That Fills Your Needs

  “We understand that each distillery project is different,” said Tomori. “Each distillery has a different location, budget and goals, so whatever the client’s needs are, our consultation is adjusted to match those needs. If you need us every step of the way, we can meet multiple times a week and be on call to get you from the initial idea to the finished product. If you want to do some things on your own but want assurances that you’re taking the right steps, we can set up those communications as needed.”

  Kindred Spirits Consulting works on an hourly or retainer basis. There is a minimum point of engagement of 15 hours and a 30 percent rate reduction over other flat-rate project prices. Other services are priced on a case-by-case basis.

  “It wouldn’t be fair to charge a small distillery the same price for a layout in a building five times its size, so each design, product development trial or hands-on training trip is customized to the client’s specific needs,” said Tomori. “Having us on retainer is a big advantage because typically when something goes wrong or needs attention in a distillery, the problems, troubleshooting and decisions can’t wait. You need someone to pick up the phone and be there for help right now. Sometimes, that’s through a phone or Zoom call, while other things regarding installation demand in-person assistance. That’s all decided on a case-by-case basis.”

  “Since I’m a mechanical engineer, we can generate an AutoCAD drawing for the layout of your distillery accurate to within an inch, showing the location of all equipment, things like fermenters, tanks and ancillary equipment, including water treatment and empty bottles,” he continued. “Everything gets a place to keep your distillery running efficiently and safely while prioritizing aesthetics and impressing your visitors.”

Find Your Consultant

  Tomori urges those seeking help to question potential consultants to determine their qualifications and get a feel for their personality. Qualified consultants may not know how to do everything, but they should be able to point you to competent and vetted partners.

  Ask about their overall background and experience and delve into specifics. What is their design mentality? Do they cater to specific needs and goals or offer flat, cookie-cutter options? Do they answer questions confidently and knowledgeably about specifics like proofing, fermentation, and recipe development? Can they take your goals and the spirits you want to produce and recommend the right-sized equipment to match those specifics? Has their design and recipe development experience produced award-winning spirits? Quality consultants will use your questions, budget, and goals to formulate a unique distillery plan for you.

  As an engineer and fabricator, Tomori always ensures his equipment recommendations are constructed and assembled using the correct copper and quality stainless steel thickness. The fit and finish have to be perfect to get his recommendation.

  “A lot of our work involves distillery audits, expansions and working with existing equipment,” said Tomori. “Regarding audits, we can perform a start-to-finish assessment of your process. Unfortunately, just because you’ve been open for a long time doesn’t mean you’re doing things the best way. We can almost always pick up a percentage point or two within a specific process that can help increase yield. By doing that in several processes, we’ve increased a distillery’s yield by five, 10 and even 25 percent in some cases. Over the course of a year, that’s saving our clients a lot of money. Likewise, we get upgrades, expansions or new spirit lines operational to meet the client’s goals.”

Working with Kindred Spirits Consulting

  Tomori said it starts with a call or contact form submission that identifies the client, their background, goals versus budget and three-to-five-year projections. An initial call also determines if both parties are a good fit for each other.

  “Sometimes we’re not,” said Tomori. “We want you to succeed, so we must be able to communicate comfortably. If we decide to work together, we’ll determine the level of involvement and services you expect and whether it’ll be on an hourly basis, a retainer or just a one-off trip or trial. Clients’ needs differ wildly, so flexibility in handling things is good.”

  “Suppose you’re coming from a non-distillery-related industry,” he said. “In that case, you’ll need a distillery plan to submit to your jurisdiction authority and the TTB, which has its own requirements. We can also help find suppliers, such as bottles, caps, closures, sourced spirits, or raw materials. We collaborate with local architects and engineers, ensure you’re okay with local authorities and help with equipment and setup. Once approved, we provide onsite, hands-on training for safely operating your equipment to produce your spirits. We can help with test runs and more, down to the recommendation of quality marketing and branding companies to help your product stand out.”

  To learn more about Kindred Spirits Consulting visit their website: www.KindredSpiritsCSG.com

Distillery Now Consulting: Kris Bohm (Photo on Page 39)

Distillery Now Consulting photo of Kris Bohm
Distillery Now Consulting: Kris Bohm

  Distillery Now Consulting owner Kris Bohm is an award-winning distiller who has built and managed multiple distilleries across the world. Through his consulting services, he helps future distillers clear hurdles quicker to get their distillery operational in less time.

  “Hiring a consultant can be expensive,” said Bohm. “So, I first like to ask potential clients if they feel they need a consultant. I can always make a case for hiring a consultant, but are you, as the owner, able to recognize the value a consultant brings to the table? Are you comfortable listening to and implementing a consultant’s suggestions and recommendations? You have to be real about your confidence level and expertise in the industry and then recognize that there are things you don’t know. Of course, you want to ensure you’re doing things right and as efficiently as possible, but you can have the best consultant in the world, and if you’re not willing to implement at least some of their suggestions, you’re throwing good money at bad. That may sound harsh, but you have to be willing to be guided, and that can be hard for someone with an entrepreneurial mindset.”

The Unintentional Distillery Consultant

  Bohm started consulting full-time by chance after overseeing the construction of a distillery in Austin, Texas.

  “We were installing a high volume, high-throughput continuous column still, which was relatively new technology in the craft spirits world,” said Bohm. “After that project, people came to me for my expertise and opinion on these types of stills. For about a year and a half, I voluntarily helped a handful of craft distilleries with continuous column installations. I approached it as being an open source and helping other distillers. My partner gave me a kick in the pants when she explained that if I was going to be away so much doing what I love, I might at least consider charging for my time. I did that, and my consulting evolved to the point where I was making more consulting than my job as vice president of another Texas distillery. I had to make a choice, so consulting was the way to go for me.”

  The bulk of Bohm’s expertise is within the first five years of the lifecycle of a distillery, meaning design, operation, and optimization. He helps design and outfit a facility with the proper equipment to get them to the point of having a well-running distillery that meets their expectations. Bohm also works in expansions, having been involved in adding continuous column stills or larger pot stills to distilleries that needed to expand their operation or production.

  “I also broker the sale of businesses and help sell, remove or relocate used equipment,” said Bohm. “I’ll also perform business valuations for those who genuinely need to know how much their distillery or business is worth and want a fair, non-emotionally attached valuation.”

Working with Distillery Now

  Bohm prefers to be less structured than other, larger consulting companies. He builds his approach using information from his clients while ensuring that their personalities are compatible to build a trusting, prosperous relationship.

  “I need to understand my client’s budget and goals,” said Bohm. “Through an informal discussion, I’ll build a program that works for them and share how I work and what they can expect from me. I have clients I meet twice a week and others that touch base once a month to ensure things are going in the right direction. Most work, sometimes up to 80 percent, can be done remotely, keeping costs down while allowing me to work quickly and on time. I don’t want customers’ projects mired up in lost or unavailable information.”

  Bohm continued, “In most projects I am involved with, clients start with an idea, some goals, and a rough budget, and they want to see what they can achieve with that. Under those circumstances, I may work as a consultant for them for two to three years, from the idea to filling their first barrels of whiskey and bottled vodka. That’s when they typically have a running program and no longer need someone like me.”

  Bohm said that he has been able to help start some great distilleries, and no two have been the same. Each distiller has different consulting needs. While some want guidance that they are making proper choices, others want a more hand-in-hand approach to getting their distillery up and running. Bohm is typically compensated for his time on an hourly basis. However, specific tasks, such as getting a Federal Distiller’s License, have specified rates because he knows what it takes to get that completed.

Distillery Now Brings Value and Experience

  “The value I bring as a consultant over more specialized consulting firms is 10+ years of experience as a distiller and distillery manager in some great distilleries, along with overseeing the buildout of over 20 successful distilleries from idea to an operating business,” said Bohm. “I can’t say I’ve seen everything, but I’ve seen more than most. I’ve been in most distillery situations and have seen things handled the hard way, as most first-time distillers would do. To have my resources a phone call away expedites all processes and decisions. It saves a client several months and sometimes thousands of dollars in savings, and it gets their distillery open and operational sooner.”

  To work with Kris Bohm and Distillery Now Consulting, head to the website or send Bohm an email. Bohm offers a free initial consultation by phone or Zoom to see if he is the best consultant to bring the most value to your project.

  “I help people get their business operating quicker while spending less money,” said Bohm. “It’s about setting them up for success – even down to picking out the perfect distillery cat for them if they want.”

For more information about Kris visit: www.distillery-now.com

  

Whiskey Investing

Cyndi

Considerations in Creating the Proper Legal “Mash Bill” to Protect Your Collateral

In 2024, the global whiskey market’s worth has swelled to around $70 billion and is forecast to hit $125 billion by 2032. https://www.gminsights.com/industry-analysis/whiskey-market. This has made some look to whiskey as an attractive target for private investment.

  Often, such investments are secured by the whiskey and related assets, as collateral. Here are tips on at least some of the considerations in creating the right recipe for such an endeavor.

Secure Your Interest in the Collateral

  The investor should ensure that it accurately secures its interest in the collateral by entering a written security agreement with the whiskey producer. A security interest attaches to the collateral and is enforceable against the debtor and third parties if: (1) value is given; (2) the debtor has rights to the collateral (i.e., the owner of the collateral or the right to transfer the collateral to the secured party); and (3) the debtor executes a security agreement. See UCC § 9.203(a).

Common Considerations in Entering a Security Agreement

Collateral Owner Identification: You will typically want the security agreement to correctly name the owner of the collateral. Among other things, confirm the name of the legal entity on the applicable secretary of state’s website; request and verify documentary proof that that party actually owns the collateral; include recitals of ownership in the security agreement; define the owner (once identified) in the agreement to include parents, subsidiaries, related companies, companies under common ownership, and the like; and take similar steps.

Non-Transfer:  It can also be helpful for the security agreement to include language that prohibits the owner of the collateral from conveying, transferring, or assigning the collateral without your written consent, and affirmatively states that the owner will not do so.

Successor Liability:  Consider including a successor liability clause that extends the security interest in the collateral to any subsequent owners in the event of an unauthorized conveyance, transfer, or assignment of the collateral. George W. Kuney, A Taxonomy and Evaluation of Successor Liability, 6 FLA. ST. U. BUS. L. REV. 9, 11 (2007) (“Successor liability is an exception to the general rule that, when one corporate or other juridical person sells assets to another entity, the assets are transferred free and clear of all but valid liens and security interests.”). Such a clause may also affirmatively require the named owner to take all affirmative steps reasonably necessary to cooperate with you (including, but not limited to, providing and signing any and all requested documentation) in recouping the collateral, should such an unauthorized transfer occur.

Describe the Collateral Correctly:  The collateral needs to be described such that a third party can reasonably identify it. What that means is the subject of a lot of law and “magic words.”

  As of July 1, 2001, all 50 states had adopted Article 9 of the Uniform Commercial Code, which governs secured transactions. While each state may differ in its interpretation and application of its implementation of Article 9, all will typically require that the description of the collateral be sufficient so that it reasonably identifies what is described. See UCC § 9.108(a). Particularly, a description of the collateral will reasonably identify the collateral and be sufficient if it identifies the collateral by specific listing, category, a type of collateral identified by UCC Article 9 as enacted by the state in question (such as inventory, equipment, deposit accounts, etc.), quantity, formula, or the catchall—any other method, if the identity of the collateral is “objectively determinable.” See UCC § 9.108(b). A general description of the collateral as “all the debtor’s assets” or “all the debtor’s personal property” is not (alone) typically sufficient. See UCC § 9.108(c). It may also help to include in the description that the collateral is “investment property,” “inventory,” “accounts,” “contracts,” “proceeds,” if those descriptions are accurate, and always include certain “after-acquired property” language. See, e.g., UCC §§ 9.108(d), 9.204.

  So, what does all that mean? It depends on the circumstances, and this is especially an area where pennywise legal advice in the drafting stage can have tremendous value down the line.

Perfect Your Security Interest:  “Perfection” of a security interest is the process of publicly establishing a security interest in collateral for purposes of gaining priority among other interest holders. https://www.law.cornell.edu/wex/perfection. Among competing security interests, one that is perfected will prevail over those that are unperfected. See UCC § 9.301.

  Perfection typically requires filing a UCC financing statement with the appliable secretary of state. A UCC financing statement is a document that includes basic information regarding your security interest, including the debtor’s name and mailing address, the secured party’s name and mailing address and that key description of the collateral. A primary purpose of all of this is to give the world notice of your security interest in the collateral you hope to lock down to protect your investment. You’ll want to file the UCC financing statement as soon as possible, and keep it current.

Other Typical Considerations

  Beyond the security agreement, there are many other considerations to take into account. A couple common ones are interest and warehouseman relations.

Interest—Hogs Get Slaughtered:  Of course, you may wish to charge interest on your investment. It is imperative that you be precise and conservative about the interest rate and the terms of the interest calculation to avoid committing usury, which carries severe penalties.

  Make sure that you know the maximum pre-judgment interest rate allowed by your state. Any percentage above that percentage, whether as stated or as calculated based on the agreement’s terms, can be usurious. And fixing an error there is often not as simple as correcting it after it has been called out—that is often too late.

  When calculating interest, good practices include always rounding down, never up; excluding the start and end days of interest; and being careful about including and wording compounding provisions, as the law around those can vary widely.

Make Friends with the Warehouseman:  In the craft whiskey space, it is likely that the barrels will be stored in a bonded warehouse, or else the distiller may be losing money by having to pay the taxes off the still, rather than after absorption and evaporation has occurred.

  Bonded warehouses were first created by Federal law passed on Aug. 1, 1862; were taken advantage of to create Bottled-in-Bond spirits with the passage of the Bottled-in-Bond Act of 1897; and had their current bonding period structure set by the passage of the Forand Act of September 2, 1958.

  In addition to the primary tax concerns addressed by all of these laws, the Bottled-in-Bond Act was passed to help ensure the authenticity and quality of the whiskey that the customers were drinking, in a time when many whiskeys and spirits contained unhealthy additives used by certain unscrupulous “Rectifiers.” Bonded warehouses are registered with, regulated and controlled by the federal government and their gaugers and provide a government-backed storage space for producers of craft whiskey to store their products.

  Whether the storage facility of the collateral is a bonded warehouse or not, it is important for the investor to maintain a good working relationship and a steady stream of communication with the individuals who run the particular warehouse. Having this rapport with the warehouseman will be important to help monitor the collateral to ensure that (when the collateral is whiskey), it is kept properly, doesn’t “walk out the door” randomly, and can be reliably held if there is a default or dispute that may implicate the investor’s rights in the collateral.

Summary

  In sum, if you are looking to invest in the craft whiskey industry, remember these tips to ensure that your investment is secured:

•   Make sure the owner of the collateral is properly identified in the security agreement;

•   Prohibit unauthorized transfers of the collateral and include a successor liability clause and/or a clause that requires your signature to authorize a transfer of the collateral in the security agreement;

•   Be thoughtful, careful and precise in your description of the collateral, taking into account the legal requirements and legal meaning of the language you use (or don’t use);

•   Perfect your security interest in the collateral by filing a UCC financing statement with the secretary of state as soon as possible to have priority over other creditors;

•   Don’t be greedy when it comes to providing for and calculating interest;

•   Build and maintain good relationships with the warehousemen where the collateral whiskey is stored for aging so that you can make sure that the whiskey is properly maintained, remains in good condition and is there when you need to foreclose on it.

  Ross Williams (rwilliams@bellnunnally.com) and Ty Johnson (tjohnson@bellnunnally.com) are partners, and Catherine Baldo (cbaldo@bellnunnally.com) is an associate, at Bell Nunnally & Martin LLP, a full-service business law firm based in Dallas, Texas. This article is for informational purposes only, and neither constitutes, nor should be taken as, legal advice or legal opinion.

Event-Season Tips for Restaurateurs & Vendors

Cyndi
man and women with beer glasses sitting outside with other people

By: David DeLorenzo

Summertime often equates to weddings, events, festivals, outdoor concerts and more where a variety of vendors converge to serve food, drinks and more. Establishments and vendors have a unique opportunity through these events to promote their businesses to a whole new demographic. However, these types of events come with their own set of specific circumstances in which restaurants and vendors need to be prepared for — and that they need to protect themselves from.

  First off, the more you know about the situation you’re going into or the event you’re scheduled to participate in, the better. This is key because your extended coverage for these events will depend on exactly what is going on during the event. You’ll want to make sure that you have your own insurance and understand exactly what that insurance will cover and what it won’t for any off-premises event.

  This will depend on not only your carrier but also on whether your current coverage will extend to the event. The extension of the premise may not. Some carriers have a designated premise of the endorsement, which will not allow their policy to cover the business at an event.

  It also depends on the role your business is playing at the event. For example, if you are a vendor of the event and not the host, the coverage requirements needed will be up to the host of that specific event and the city in which the event is being held, if it is held on city property.

  If the host has insurance for their event, it doesn’t necessarily mean that if a vendor shows up there they would have coverage if they were pulled into a lawsuit. So before committing to an event, check with your broker or insurance company to see if that coverage extends.

  Additional event coverage may require an added fee and your carrier will probably want to know the exposure basis of the event. This can include the size of the event and how many people are expected. This includes not only the total attendance count but also what percentage of those ticket sales include alcohol sales.

  The carrier will likely specifically want to know the event’s estimated attendance count of people consuming liquor. That number will be taken into account differently than the total attendance count.

  The carrier will also want to know what exactly is taking place at the event because anything from bouncy houses to ax throwing can become liabilities. It’s important to note that 99% of the time, these types of things are automatically excluded from a policy anyway.

  For example, consider if you’re a vendor participating in an event and you have your own insurance coverage that protects you from liquor liability for serving people at the event. If there happened to be an accident due to ax throwing and they were to get sued based on the ax injury because of alcohol, there would be an exclusion altogether.

  It is highly unlikely that a carrier will cover a vendor for those instances. That’s why it’s essential to recognize that in many cases, events with dangerous activities should be approached with a “buyer beware” attitude. You need to be cognizant that at these types of events, your company could be pulled into a claim or lawsuit that you may not have coverage for.

  Major events and festivals are often seen as opportunities to make more money, get additional exposure and get your name out there. However, if you aren’t fully aware of all the details of the event and all the things happening during it, you could be putting yourself at risk.

  It’s also important to recognize that with proper coverage, your carrier should cover your business for the normal instances of serving alcohol at the event. But with exclusions for things like the examples of a bouncy house or ax throwing, you would not be covered. If there was a claim due to an accident that was excluded on the premises policy, then anyone and everyone participating in the event would be on their own to defend themselves in the case of a lawsuit.

  However, if a person who consumed too much alcohol then decided to get into the bouncy house and broke both their legs may try to go after the vendors that served alcohol at the event, that would likely come out of their pocket, as an insurance would likely automatically decline it. On the other hand, if a patron drinks too much at the event and gets into a car accident, the vendor’s liquor liability coverage would likely protect them in that instance.

  It’s also wise to look for assault and battery exclusions on event coverage policies. Many of these events have assault and battery exclusions, meaning that if someone gets beat up at the event and wants to sue the host or a vendor, they will not have coverage for that.

  While event season is heating up, we’ve continued to see pretty steady and fair market premiums for event and off-premises coverage. This is highly situational and also depends greatly on what the host city or venue requires in terms of coverage.

  In many instances, two different coverages may be required — one from the city and one from the venue. Some cities may require coverages that are through the roof while others may only require a minimum limit. It is vital to understand what the municipality where the event is taking place is asking for in terms of limits on insurance.

  For example, they may ask for $1 million or they may ask for $5 million. However, if they ask for the latter, this can be discouraging for vendors to participate. At that point, it becomes very difficult for a company to see the value in signing a piece of paper for $1,500 for one day of $5M worth of coverage. It’s overkill, quite honestly because you already have all these participants carrying their own insurance, plus the venue, the event promoter and the city, which all have their own insurance as well.

  To foster and encourage a sense of community through local festivals and events, the municipalities really have to keep it reasonable. On the flip side, the insured parties have to understand exactly what it is they are being insured for — and even more importantly, what they are not insured for. That will be determined on a situation-by-situation basis by the carrier.

  Weddings can also create unique circumstances in terms of coverage. What falls on the venue and what falls on the vendor may depend on the venue and the situation as well. In many cases, we recommend that the client gets coverage for general liability and liquor liability. However, liability will likely fall on the venue itself if they are the ones serving alcohol.

  It all comes down to making sure that whoever is serving the alcohol, whether the venue or the vendor, is well-trained and certified in liquor training. This is a key way to protect your business while also keeping staff and patrons safe throughout event season.

  Out of his passion for serving the restaurant and hospitality industry, David DeLorenzo created the Bar and Restaurant Insurance niche division of his father’s company The Ambassador Group, which he purchased in 2009. For more than 20 years, he has been dedicated to helping protect and connect the hospitality industry in Arizona. For more information visit barandrestaurantinsurance.com.

Liquor Licensing & Insurance 101

Cyndi

What Establishments Selling Liquor Need to Know

By: David DeLorenzo

When you’re operating an establishment that serves food and alcohol, being properly licensed and insured is crucial to the safety and the success of your business. Even if you’ve been in business for some time, it’s vital to stay abreast of ever-changing laws as they apply to serving liquor, specifically. Read on for some liquor licensing and insurance tips to keep your business running strong, while you protect yourself and your staff.

  First of all, it’s important to consider the type of license that you have and the insurance that will cover it. A lot of people may have a misconception about the type of license they have and the dictation for what type of insurance that is needed. For example, a No. 6 license (subject to Arizona law), which is generally a bar license that is 100 percent liquor that will have some dictation on the type of insurance that you will need. You will have to go to markets that are fully vested in the ability to write 100 percent liquor or 50 percent or more liquor, because of that No. 6 license.

  However, the license itself is not as important as the percentage. It only matters that you have a license when it comes to insurance. For example, consider a No. 12 license, which is a restaurant license that allows you to serve 60 percent of your sales in alcohol and at least 40 percent of your sales in food. The insurance agency will look at that No. 12 license, but what they really want to know is how much you are actually serving in alcohol and how much you are serving in food.

  The reality is that most No. 12 businesses may serve 30 percent alcohol or five percent — a lot less than that 50 percent (which is generally what a No. 12 license allows for). All the insurance company really cares about or looks at is the actual percentage of liquor to food. However, if you served 60 percent alcohol and 40 percent food, the insurance company may still classify you as a bar and you will likely have a higher rate even though you have a restaurant license. It’s the percentage of food to alcohol sales that really matters when it comes to your insurance coverage and rates, not necessarily the license itself.

  In the insurance world, if you serve 30 percent alcohol and 70 percent food, for example, that is generally the threshold and the maximum for you to get the most positive and beneficial insurance rate in Arizona because your liquor is 30 percent or lower. Once you exceed that 30 percent threshold, it puts your business in another category of insurance that basically does not allow you to go to those direct markets for your coverage.

  You will need to go to a secondary market, generally a more expensive market, because your liquor liability is increased when you have more people drinking liquor. You have to be insured differently the more liquor you serve and typically those direct markets don’t want to take on that risk. However, there are other markets for that.

  If at least 30 percent of your sales are attributed to liquor, you should look into an umbrella to go over your primary coverage. This umbrella will give you another layer of protection over what you’ve already purchased in terms of your insurance.

  It’s also important to carefully analyze the amount of entertainment your establishment provides and the hours of operation if you’re getting into heavy liquor service. Those two factors will impact on your rate just as much as serving more alcohol than a standard restaurant would.

  There is nothing wrong with entertainment or later hours, but you do need to understand that those factors put you in a different classification at that point. Based on that you will need to adhere to higher rates. This is because the companies that write these have actuaries that have determined what they need to charge in order to create an actual rate that makes sense for the carrier to write the business.

  When it comes to selling to-go alcohol, it hasn’t really come to full fruition as many thought it would after COVID. There are insurance companies that write liquor stores, convenience stores or even grocery stores, which is basically to-go alcohol. When you look at those types of establishments, to-go alcohol is already being sold. It hasn’t really changed the stance from an insurance perspective when restaurants are selling to-to alcohol. They just look at the total amount of alcohol sales coming out of that establishment. For example, if a restaurant is selling only three percent alcohol and the rest is food, the insurance company won’t really look at whether that three percent is from to-go liquor sales or not.

  Ultimately, it is up to the establishment to perform in the act of not overserving a customer and not serving a customer that is already noticeably intoxicated. That is regardless of whether the alcohol is served at their establishment or purchased to-go. While selling to-go liquor as a restaurant or bar is legal, is it important to be properly licensed for that.

  For any business selling liquor, it is important to review your policies once a year with your insurance agent to ensure there aren’t any changes that would necessitate an adjustment to your coverage. It is also vital to adequately train your staff, particularly in the awareness of not overserving or not serving a customer that appears to be already intoxicated.

  Documentation of this training is also extremely important. Keeping that and all other documentation in a place that is safe and yet accessible can help protect your business if something were to go awry. If you hear of an incident, even if you don’t

know whether that person was at your establishment, collect your camera footage from that evening and save it in the event of a law suit. You may or may not be liable, but it is good to have, particularly if there was a wreck or even a death near your business. It’s a good idea to collect that data just in case. Security cameras with time-stamped data can be a lifesaver to your business and your staff.

  It’s always important to work with an insurance agent that specializes in the bar and restaurant industry. They will have the knowledge to support your needs and also ensure that you have the coverage you need to protect your business, your staff

and your clientele.

  Out of his passion to serve the restaurant and hospitality industry, David DeLorenzo created the Bar and Restaurant Insurance niche division of his father’s company The Ambassador Group, which he purchased in 2009. For more than 20 years, he has been dedicated to helping protect and connect the hospitality industry in Arizona. For more information visit our website: www.barandrestaurantinsurance.com.

Uncorking Accessibility:  Ensuring Your Website Complies with the ADA

Cyndi

By: Vanessa Ing, Farella Braun + Martel

In today’s digital age, having an online presence is crucial for businesses, including wineries, breweries, and other beverage companies. Accordingly, it’s essential to ensure that your beverage website meets federal standards for accessibility to avoid lawsuits and fines. In this article, we will help beverage companies understand how to comply with federal law and implement accessible features on their websites.

Why is web accessibility important?

In 1990, Congress enacted the Americans with Disabilities Act (ADA). It prohibits businesses open to the public (otherwise known as “public accommodations”) from discriminating against people with disabilities in everyday activities. These everyday activities can include purchasing goods and services, or offering employment opportunities. 

In March 2022, the U.S. Department of Justice issued web accessibility guidance, reiterating that ensuring web accessibility for people with disabilities is a priority for the Department. Relying on the ADA’s prohibition against discrimination and its mandate to provide equal access, Department of Justice emphasized that the ADA’s requirements apply to all the goods, services, privileges, or activities offered by public accommodations, including those offered on the web. The Department of Justice’s guidance was particularly timely given that many services moved online during the pandemic. 

In its guidance, the Department of Justice explained that people with disabilities navigate the web in different ways: for example, those with visual impairments might require a screen reader that reads aloud text to the audience.  Those with auditory impairments might require closed-captioning software, while those with impaired motor skills might require voice recognition software.  A website, therefore, should be compatible with the full range of such software. 

Is your beverage company a “public accommodation” business?

Public accommodations include businesses that sell goods and services, establishments serving food and drink, and places of recreation or public gathering.  Companies that sell drinks, wineries that offer a tasting room, or breweries that host events are all considered public accommodations.  Thus, those businesses’ websites must comply with the ADA by being accessible to people with disabilities.  

It is an open question whether beverage companies without a physical location open to the public must still have ADA-compliant websites. Some jurisdictions, like the Ninth Circuit (which has jurisdiction over Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington), have tied the necessity of ADA-compliant websites to the existence of a brick-and-mortar location (Robles v. Domino’s Pizza, LLC). However, the Department of Justice, along with several federal circuit courts of appeals, has taken the position that even a public accommodation business without a physical location must have an ADA-compliant website.  

Given the increased prevalence of online-only services open to the public, it is very likely that litigation over the next few years may resolve this open question.  In the meantime, it is wise for beverage companies to take preventative caution and ensure that their websites are accessible.  

What are some website accessibility barriers?

To ensure ADA compliance, beverage companies must be aware of common website accessibility barriers.  These include poor color contrast, lack of descriptive text on images and videos, mouse-only navigation, and more.  By addressing these barriers, beverage companies can enhance the user experience for people with disabilities.

Six examples of website accessibility barriers highlighted in the DOJ’s accessibility guidance include:

  • Poor Color Contrast: Ensure sufficient color contrast between text and background to aid individuals with visual impairments or color blindness. Use color combinations that are easy to distinguish.
Low/High Color Contrast
  • Use of Color Alone to Give Information:  Avoid using color alone to provide information.  Using color alone can be very disorienting for someone who is visually impaired or colorblind.  Someone who is colorblind might not be able to distinguish between shades of gray.  One solution might be to ensure that symbols conveying information are differently shaped.  
Graph showing the use of color alone
  • Lack of Descriptive Alternative Text for Images and Videos: Provide descriptive text (alt text) for images and videos, allowing screen readers to convey the information to visually impaired users. This makes your content more accessible and inclusive.
  • No Closed Captions on Videos: Include closed captions for videos to accommodate individuals with hearing impairments. Utilize manual or automatic captioning options and review the captions for accuracy.  Free options are available on the web.
  • Inaccessible Online Forms: Make online forms user-friendly for people with disabilities. Provide clear instructions before the form, ensure that a screen reader could recognize required fields and fields with special formatting, ensure keyboard-only navigation, use accessible labels for inputs, and display clear error messages.  Note that an image-based CAPTCHA is not a fully accessible way to secure your form; your CAPTCHA should offer users who are visually impaired an audio alternative.
  • Mouse-Only Navigation: Enable keyboard-only navigation on your website to assist individuals with motor skill impairments or those who cannot use a mouse or see a mouse pointer on the screen.  Make sure all interactive elements can be accessed using the tab, enter, spacebar, or arrow keys.  Use a “Skip to Main Content” link to ensure that users employing only a keyboard can easily navigate the website’s primary content. 

To implement these features, beverage companies should discuss accessibility concerns upfront with the web developer.  Beverage companies should keep in mind that posting a phone number on a website to call for assistance, as commonly utilized by businesses, does not sufficiently provide equal access to the website and the services or goods provided.

Who can sue beverage companies?

Non-compliance with ADA standards can lead to potential lawsuits.  Although some courts have held that a nexus must exist between a private plaintiff’s disability and the web accessibility barrier claimed, a private plaintiff may easily surf the web for websites that are inaccessible.  A private plaintiff may then file a lawsuit in federal court without first notifying the business.  Further, liability under the ADA is strict, which means that the intent of the business to comply is immaterial.  Thus, it is prudent for beverage companies to proactively address accessibility issues to avoid potential legal troubles.  

Private lawsuits under the ADA can result in injunctive relief (a court order to comply with the ADA) and attorney fees.  And in some states, like California, the state law version of the ADA may enable plaintiffs to demand monetary damages ($4,000 per violation of the ADA). 

Government involvement, while less frequent, is possible in cases involving national retailers.  If the Department of Justice observes a pattern or practice of discrimination, the Department will attempt to negotiate a settlement, and may bring suit on behalf of the United States. At stake are fines of up to $75,000 for the first ADA violation, and up to $150,000 for each subsequent violation.

What are the rules for website accessibility?

Although the ADA itself does not spell out the rules for website accessibility, several sources provide detailed rules that can aid beverage companies in building accessible websites. 

First, the ADA authorizes the Department of Justice to enforce the statute.  Accordingly, the Department develops and issues regulations explaining how businesses must comply.  Specifically, § 36.303 of the Electronic Code of Federal Regulations specifies that a public accommodation shall provide auxiliary aids and services when necessary to ensure effective communication with people with disabilities, and that a public accommodation should consult with people with disabilities whenever possible.  The Department also issues administrative guidance, such as its March 2022 guidance described above.  

Second, Section 508 of the Rehabilitation Act of 1973, which requires federal agencies to make their electronic and information technology accessible to people with disabilities, provides detailed guidance concerning the display screen ratios, status indicators, audio signals, and other accessibility features. 

Third, the Web Content Accessibility Guidelines 2.1 (WCAG 2.1), which were originally designed by a consortium of four universities, provide highly specific web accessibility guidelines grounded on the idea that information on the web must be perceivable, operable, understandable, and robust.  These guidelines are widely referenced in court cases and settlements with the Department of Justice, as the guidelines address numerous aspects of web accessibility and offer three different levels of conformance (A, AA, AAA). Beverage companies can consult the WCAG 2.1 guidelines (including a customizable quick reference guide, at https://www.w3.org/WAI/WCAG21/quickref/) to ensure their websites meet ADA compliance. 

Looking Ahead

Web accessibility standards evolve over time, with updates being released periodically. Beverage companies should stay informed about changes and updates to ADA compliance regulations. For example, the WCAG 3.0 is scheduled for release in the latter half of 2023, further refining accessibility guidelines.

In sum, by understanding and identifying web accessibility barriers, and implementing necessary accessibility features, beverage companies can enhance user experiences and minimize the risk of legal repercussions. Embracing web accessibility is not only legally required but economically prudent in the long run, as it enables beverage companies to cater to a broad and varied audience, and demonstrates a commitment to inclusivity in the digital realm.

Vannesa Ing headshot

Vanessa Ing is a litigation associate with Farella Braun + Martel and can be reached at ving@fbm.com. Farella is a Northern California law firm representing corporate and private clients in sophisticated business and real estate transactions and complex commercial, civil and criminal litigation. The firm is headquartered in San Francisco with an office in the Napa Valley that is focused on the wine industry.

Flavored Malt Beverages: Origins and Applicable Federal Regulations

Cyndi
6 bottles of different beers lined up on a table

By: Brad Berkman and Louis Terminello, Greenspoon Marder

There is a strange concoction that lurks within the bowels of the brewer’s tank. It is formed with malt, but is not beer, it is something other whose mere mention may frighten beer aficionados to the essence of their being. This mysterious liquid soon slithers through tubes and to the bottling line where 12oz bottles are filled with this ethereal liquid. The bottles make their way to the grocery shelf where it is soon removed from its cold box perch to the refrigerators of eager consumers. There the potion rests until its top is popped and it’s brought to the lips of the drinker. A first sip and this bottled creature metamorphizes to a glorious nectar, causing a love affair that is reflected in astounding Nielsen numbers. To the disappointment of any beer geeks, the flavored malt beverage or FMB is a darling of the brewing industry, not for its purist nature but for the sound of jingling coin that comes from the brewer’s pocketbook after each batch is made and sold and drank and asked for more of. The FMB is a clear consumer favorite.

  The FMB as a category, has an Alcohol and Tobacco Tax and Trade Bureau (TTB), codified definition. Before we get there, however, the reader should be aware that the style of drink isn’t a new phenomenon. The drink made its way first on to the shelves of certain European countries in the late 1990’s, among other places, and caused quite a bit of controversy for its generally sweet flavor profile, small bottle size, and perceived target audience.

Of course, it bears refreshing the memory that these drinks were and are offered as beer alternatives. They are meant to be, in most iterations, a light, flavorful alternative to traditional beers. Initially, they were referred to as alcopops, and now are more commonly called Ready-to Drinks or RTD’s (there are many drinks formulas that fall into the RTD category, including spirits based and non-malt based (see hard seltzer), but certainly FMB’s are a leader in that general category. Another publication reports that beer RTD’s “make up the vast majority of overall RTD’s sales with 42.7% of RTD dollar sales coming from FMB’s.  

  Some early precursors to contemporary FMB’s, the reader may recall, were Smirnoff Ice, WKD and Hoopers Hooch. In fact, this writer recalls from his prior career in “the industry”, travelling to the UK and witnessing the small cold-boxes stationed below virtually every back bar and thinking that the English will drink anything and wondering how long it will take before these drinks make their way across the Atlantic to the shores of the United Sates. Woe is me, if I only had bought stock.

  Well, the answer to the above question is, arguably 1993 with the introduction of Zima by the Coors Brewing Company. Buffs of the history of the drink will clearly remember Zima, (and the pun is intended), as the first clear, citrus-like malt-based beverage to make its way onto the beer shelf. Offered as a light alternative to beer, it had a modicum of success at introduction, but its popularity faded quickly (it was in fact re-introduced in 2017 but sales quickly sputtered out).

  The origins of RTD’s likely stemmed from restrictions on the activities permitted on the brewing premises by federal law. Creative brewers looked to unique formulations using permitted brewers’ ingredients only. A driving force behind limiting ingredients and production processes at a brewery is to ensure that tax revenue generation is not jeopardized. As the reader likely knows, malt is taxed at a different rate than wine which is taxed at a different rate than spirits and never shall the thrice be combined.  I point the reader to the following section of the Internal Revenue Code (the IRC):

26 USC 5411:

  The brewery shall be used under regulations prescribed… for the purpose of producing, packaging, and storing beer, cereal beverages containing less than one-half of 1 percent of alcohol by volume, vitamins, ice, malt, malt sirup, and other byproducts and of soft drinks; for the purpose of processing spent grain, carbon dioxide, and yeast… and for such other purposes as the Secretary by regulation may find will not jeopardize the revenue.

  As we see from the above the purpose of the brewery premises is limited to the production of beer and storing certain brewing materials. Also, the code section below has arguably a more profound limiting effect on the materials permitted on the premises. But here, I caution the reader to pay careful attention to subpart (b) of the following and different code section. It is here that lays the codified origin of the FMB.

 § 25.15 Materials for the Production of Beer

(a) 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 as adjuncts in fermenting beer: honey, fruit, fruit juice, fruit concentrate, herbs, spices, and other food materials.

(b) You may use flavors and other nonbeverage ingredients containing alcohol in producing beer. Flavors and other nonbeverage ingredients containing alcohol may contribute no more than 49% of the overall alcohol content of the finished beer. For example, a finished beer that contains 5.0% alcohol by volume must derive a minimum of 2.55% alcohol by volume from the fermentation of ingredients at the brewery and may derive not more than 2.45% alcohol by volume from the addition of flavors and other nonbeverage ingredients containing alcohol. In the case of beer with an alcohol content of more than 6% by volume, no more than 1.5% of the volume of the beer may consist of alcohol derived from added flavors and other nonbeverage ingredients containing alcohol.

  The above code section limited the amount of alcohol from flavors and nonbeverage ingredients containing alcohol to 49% but that didn’t stop brewers and drinks makers from creating unique products with malt base and taxed at the beer rate, making for a competitively priced product on the beer shelf. In fact, TTB permits the use of mixed cocktail names such as Margarita or Moscow Mule on malt-based products that resemble these cocktails. Many brewers have done a fine job of emulating these mixed drinks flavors under the FMB rubric. Of course, that hasn’t stopped consumers from bringing civil actions against producers arguing that these drinks have been mislabeled and are untruthful but that is a topic for another days.

  I’m sure it’s obvious to the reader that the hard seltzer craze finds its origins in the FMB category, many of which, but not all are malt based. The bottom line here is that this category of malt beverage finds its roots in three factors; consumer demand for variety of taste profiles, the brewer’s ability to create these brews within the confines of government tax revenue regulations and using ingredients that do not jeopardize revenue collection w maintaining the desired shelf price. This writer for one looks forward to watching how consumer demand for unique flavors pushes brewers to come up with creative FMB formulas which surely will lead to greater excitement in the category.

How Bars & Restaurants Can Protect Themselves Amid Heightened Violence

Cyndi
photo of man in bar holding down another man on a table getting ready to punch that man and a women is trying to stop that man from punching

By: David DeLorenzo

Rising violence is an unfortunate reality around the world. It’s happening close to home, too. Bar and restaurant owners are experiencing incidences involving weapons or shootings in and around their establishments on a more regular basis. This is a sad situation and a dangerous one. Bar and restaurant owners need to know what to do in the aftermath of a weapons incident. Even more importantly, they need to know how to protect themselves and help prevent incidences from happening in the first place.

  Unfortunately, many people don’t realize that it’s becoming more common for firearms exclusions to be included in insurance policies. These prevent an insurance company from having to pay out any monetary compensation to not only the insured but also victims of an incident. That means beyond any monetary compensation, these exclusions ensure the insurance company would also not have to cover other items such as risk assessment, business income lost if the establishment had to temporarily close or was hit with a lawsuit or post-counseling services for those involved. Just one incident could put a bar or restaurant right out of business. It’s important that they are aware of what their policies do and do not cover — and to protect themselves from scenarios like this.

  In the current state of the industry, and at any time, being informed is essential. Bar and restaurant owners should check their policies to see if weapons are excluded from their commercial general liability coverage. If these exclusions exist in their current policies, bar and restaurant owners should add stand-alone coverage to their policies (or purchase them separately). These will protect them in the case of active shooter and deadly weapons incidents.

  As with being educated, being proactive in preventing an incident is key. Bar and restaurant owners need to protect their businesses, their livelihoods, their staff and their patrons. That’s a heavy responsibility — one that should not be taken lightly, especially amid heightened violence situations. There are a few steps owners can take.

  First, simply posting “no weapons” signs at the entries of the establishment, on the building and around the premises (such in the parking lot) can help. If the bar or restaurant owner suspects a violent incident could occur or has noticed aggressive behavior, they could heighten security measures by hiring a door person as well as additional security personnel, preferably those who have previous law enforcement or nightclub experience.

  Proper staff training is another factor that can help bar and restaurant owners in the case of an incident (or hopefully in the instance of preventing one). It’s important for employees to receive on-going training for security as well as preventing overserving that could lead to aggressive behavior, a fight or a shooting. Servers should know how to spot an “obviously intoxicated” person and understand the establishment’s policies on how to address refusing to serve or no longer serving alcohol to an obviously intoxicated person.

  The California Department of Alcoholic Beverage Control notes: “The law states that no person may sell or give alcohol to anyone who is obviously intoxicated. Therefore, every person who sells, furnishes, gives, or causes to be sold, furnished, or given any alcoholic beverage to any OBVIOUSLY intoxicated person is guilty of a misdemeanor. A person is obviously intoxicated when the average person can plainly see that the person is intoxicated. In other words, the person looks or acts drunk.”

  Because weapons incidences are often a result of too much alcohol, staff should be trained on how to spot the signs of intoxication so they feel confident in assessing whether or not they should serve that patron. Restaurants can actually be slapped with a lawsuit if a fight breaks out on their premise. In today’s world where people become easily triggered and too much alcohol, a recipe for an incident is brewing.

  Ideally, an intoxicated person (or a person carrying a weapon) shouldn’t make it past door security — another reason to create a position for that very important role if the restaurant doesn’t already. If a staff member notices that a person is becoming intoxicated, they need to halt their alcohol service immediately.

  In addition to door security, security cameras are an excellent resource to help protect bar and restaurant owners in the case of a weapons incident. Good quality security video footage with timestamps can help catch the details of an incident, limit liability and hopefully absolve the bar or restaurant of any fault in the case of a weapons or shooting incident at their establishment.

  Keeping weapons out of the establishment is crucial, but oftentimes these acts of violence are happening around the establishments or in their parking lots, not actually inside. This is where the addition of cameras and security around the perimeters and in their parking lots can also prove helpful.

  Weapons exclusions are becoming mainstay on policies with carriers not wanting to cover violent acts with a weapon that happen on the premises of bars, restaurants and other businesses in the hospitality industry. However, with these types of instances on the rise, businesses need to ensure they are protected — as well as their employees and their patrons.

  In addition to weapons exclusions becoming more common, assault and battery exclusions as well as sub-limits on policies stating carriers don’t want as much liability on violent acts between partners and or employees are becoming more frequent. Liquor liabilities are also an issue. Liquor liability sub-limits no longer cover the full limit of an establishment’s lease.

  I was recently part of a team that worked to change the law when it comes to establishments that serve alcohol in Arizona. While it’s legal to serve alcohol to adults, establishments can literally get a claim filed on their record and get a letter from an attorney if they so much as think a person stepped foot onto their premises and had a sip of one drink. 

  The burden has been for the establishment and their insurance carrier to prove that they didn’t do something negligent. The problem with this is a combination of many things — one of them being that wording of “obviously intoxicated” mentioned earlier. This phrase has taken on whatever meaning it needs to in order for whatever party suing the establishment to make their case.

  Together with some very influential people in the Arizona hospitality along with the Arizona Licensed Beverage Association (ALBA), which was a major player in this effort, an Amicus Curiae brief was formed. With this decision by the Supreme Court being held, there should be some changes to the way establishments are sued and how insurance companies underwrite risks. This is new to everyone involved and it will take some time to see changes occur, but overall this is a win for the Arizona hospitality industry.

  Finally, it’s important that bar and restaurant owners stay in communication with their insurance agents and up to date on any changing policies. Spending some time ensuring an establishment is properly covered provides safety and peace of mind for all.

  Out of his passion to serve the restaurant and hospitality industry, David DeLorenzo created the Bar and Restaurant Insurance niche division of his father’s company The Ambassador Group, which he purchased in 2009. For more than 20 years, he has been dedicated to helping protect and connect the hospitality industry in Arizona.

For more visit: barandrestaurantinsurance.com

Is Your Tweet an Advertisement?

Cyndi
photo of someone holding a cell phone up to a glass of beer to take a photo

By: Brian D. Kaider, Esq.

Members of the alcoholic beverage industry should be aware that TTB regulations require certain mandatory information and prohibit some practices and statements in all advertising of alcoholic products and brands.  But, what constitutes advertising may be broader than some members realize.  Specifically, how the rules apply to the expanding realm of social media may be a bit of a surprise.

What is an Advertisement?

  “Advertisement,” as defined in 27 CFR Parts 4, 5, and 7, for wine, spirits, and malt beverages, respectively, includes any verbal statement, illustration, or depiction that is in, or calculated to induce sales in, interstate or foreign commerce, or is disseminated by mail.  The regulations further provide that the requirements for such advertisements apply regardless of the means of dissemination.  Some of the specific examples listed in the regulations include: radio or television broadcast, newspaper, periodical, publication, sign, menu, book insert, or by electronic or internet media.  The TTB considers “electronic or internet media” to include all forms of social media.

Required Information

  All advertisements must include the responsible advertiser’s name and either its city and state or other contact information, such as a telephone number, website, or email address.  If the advertisement refers to a general line of products (beer, wine, or spirits) or all of the products by the company or brand name, then no more information is required.  If the advertisement refers to a specific product, however, then it must also include a conspicuous statement of the class, type, or distinctive designation to which the product belongs.  This statement must match what is on the product label.  For example, if the product is labeled as a “Rum with natural flavors,” an ad that identifies the product only as “Rum” would be non-compliant.  Further, in the case of distilled spirits, the ad must also include a statement of alcohol content and, if applicable, the percentage of neutral spirits and the name of the commodity from which such spirits were distilled.

Prohibited Practices

  The list of prohibited practices in the advertising of alcoholic products is too long to be inclusively presented here.  However, as a generalization, an advertisement cannot: be false or misleading in any respect; be inconsistent with the product label; contain inappropriate health-related statements; or contain representations, flags, or symbols that give the impression of endorsement or sponsorship of the armed forces or any government.

Applicability to Online Media

  Most breweries, wineries, and distilleries have a website to advertise their products and/or overall brand.  The TTB views a website and all of its subpages collectively as a single advertisement.  The required information, therefore, only has to appear in one part of the website to be compliant.  The information, however, cannot be hidden; it must be conspicuous, readily legible, and apparent to persons viewing the advertisement.  While the TTB does not require a specific location on the website, it recommends that information be presented in the place consumers would typically expect.  For example, name and contact information is typically found in the “about,” “profile,” or “contact us” section.  Class, type, and alcohol content for specific products would be expected to be found on the “shop” or “products” page.  One potential problem occurs with mobile versions of websites.  They are often structured differently from their desktop counterparts and are, therefore, considered a separate advertisement and must independently be compliant with the regulations.

Social Networks and Media Sharing Sites

  Social Network Services, such as Facebook and LinkedIn are treated very similarly to websites.  Viewed as a whole, they commonly contain required name and contact information on a main page or “about” section.  In that case, individual posts may not have to contain the mandatory information.  There are exceptions for shareable content, however, as discussed below for Media Sharing Sites.

  Media Sharing Sites, such as Instagram, YouTube, Pinterest, Instagram, etc., allow companies to share photographs, videos, gifs.  As with websites and social network services, the TTB views a company’s media sharing site as a single advertisement. So, if the profile or about section of the site contains the required information, the company is generally compliant.  However, if the posted media content can be downloaded or shared by viewers, it is considered to have been disseminated by the advertiser and the content stands on its own as a separate advertisement.  So, for example, if a brewery posts a video introducing a new product and that video can be downloaded or shared by viewers, the video itself must contain all of the mandatory information.

Blogs and Microblogs

  Blogs allow a company to post stories, commentaries, images, videos and other content.  They are commonly included in a section of the company’s website and, if so, may rely on the mandatory information presented elsewhere on the website.  If the blog stands alone, separate from the website, or is electronically disseminated, then it is a separate advertisement and must independently be compliant.  Microblogs, such as Twitter and Tumblr, are different because they have a maximum character number that makes each post very short.  Because of these limitations, the TTB recognizes that the mandatory information cannot be included in each post.   Instead, to be compliant, the advertiser must provide the information either on their microblog profile page or use a descriptive link that directs the viewer to a separate webpage containing the information.

  Outside Links

  Advertisers will often include links and QR codes that direct viewers to sites outside of the original advertisement.  Similarly, a product label may allow viewers to access an augmented reality video or image.  So long as such outside content is only accessible using the product label or other advertisement that already contains the mandatory information, nothing else is required.  Otherwise, the content would have to be independently compliant.

Social Media Influencers

  Building a large following on social media can be difficult, especially for small, local businesses.  To broaden the scope of brand awareness, some turn to others who already have a large following to help promote their products.  These social media influencers may post content created by the company or may create their own content on the company’s behalf.  If the TTB determines that the post was published or caused to be published by the company or that the company compensated the influencer for publishing the content, it will be treated as an advertisement by the company and it must be compliant with TTB regulations.  The mandatory information may be provided through a clearly marked link to the company’s website, for example.

Beware the “Like” Button

  One of the benefits of social media is that the user does not have to create all its own content.  Posts created by others can be shared or “liked” by a company, which allows that content to be viewed on the company’s own page.  Doing so helps to build a following as a third-party whose content is shared is more likely to reciprocate, broadening the reach of company’s own content.  However, because shared or liked content then appears in the company’s feed, it becomes a part of the company’s advertisement and must, therefore, be compliant.  This is typically not a problem with regard to the mandatory information, because that is already included in the company’s profile.  However, the shared content must also not include any prohibited practices.  For example, if a distillery comes out with a new product that is a “rum with natural flavors,” and they share or like a user’s post in which they refer to the product only as a “rum,” they could be viewed as being noncompliant, because the ad is inconsistent with the product label. 

Conclusion

  The rules for advertising an alcoholic product or brand on social media really are not any different from the rules for advertising in more traditional media.  Issues may arise, however, because social media enables new and different ways of presenting information and it may not always be obvious that they are advertisements.  Further, because of the ease of disseminating content, it can become detached from its original source, which would take it out of compliance if it does not contain the mandatory information.  Having an attorney periodically review social media content and/or train marketing staff may help to avoid compliance issues. 

The information presented in this article is based upon TTB Industry Circular 2022-2 and the regulations contained in 27 CFR §§4.60-65, 5.231-236, and 7.231-236.  Review of those materials is recommended.

  Brian Kaider is the principal of KaiderLaw, a law firm with extensive experience in the craft beverage industry. He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of licensing and regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation.

New(ish) TTB Guidance on Transfer of Beer Between Breweries

Cyndi
Warehouse showing beer and beer bottle storage.

By: Brian D. Kaider, Esq., KaiderLaw

There are many reasons why beer might be transferred from one brewery to another.  Some common examples include; beer transferred between two locations of the same brewer, beer contract brewed by one brewery for another, and beer to be blended as part of a collaboration.  How these transfers are handled and, more importantly, how taxes are applied varies according to the circumstances.

Breweries of Common Ownership

  Since at least 1954, federal law has allowed the transfer of beer, without payment of tax (i.e., “in bond”) between breweries of common ownership.  Title 26 of the U.S. Code §5414, as written in 1954 simply stated “[b]eer may be removed from one brewery to another brewery belonging to the same brewer, without payment of tax, and may be mingled with the beer of the second brewery, subject to such conditions, including payment of tax, and in such containers, as the Secretary or his delegate by regulations shall prescribe.”

  Some terminology here may be helpful.  When the President signs a law passed by Congress, the provisions of the law are broken up into subjects and listed in the U.S. Code (U.S.C.).  For example, laws relating to federal taxes are listed in Title 26 of the U.S.C. (the “Internal Revenue Code”) and those taxes that apply to alcoholic products are listed in Title 26, Subtitle E, Chapter 51.  But, it is up to the applicable government agency in charge of enforcing the law to determine how to put the law into practice.  So, it creates “implementing regulations” that are categorized and listed in the Code of Federal Regulations (“C.F.R.”).  In this case, C.F.R. Title 27, Chapter I, Subchapter A, Part 25, Subpart L, sections 25.181-186 were created by the TTB to deal with the transfer of beer to another brewery of the same ownership.

  In 1958, Congress amended 26 U.S.C. §5414 to further allow transfer in bond between breweries owned by different corporations, if either (A) one corporation owns a controlling interest in the other, or (B) the controlling interest in both corporations is owned by the same “person,” which may be a third corporate entity.  Breweries in one of these arrangements are said to be in a “controlled group.”  As most small breweries are aware, in 2017, the Craft Beer Modernization Act (“CBMA”) provided for a reduced tax rate of $3.50 per barrel on the first 60,000 barrels per year, a level the vast majority of U.S. breweries will never exceed.  This reduced tax rate applies to the first 60,000 barrels of beer removed for consumption by members of a controlled group, collectively.  So, if there are two members of the controlled group, each of which produces 35,000 barrels of beer that are removed for consumption in a given year, the last 10,000 of those barrels will be subjected to the higher tax rate of $16.00 per barrel.

Contract Brewing

  Until 2017, beer could only be transferred in bond between breweries under common ownership or control, as described above.  The CBMA, however, added section (a)(3) to 26 U.S.C. §5414, which authorizes the transfer in bond between breweries of different ownership, provided that the transferor divests itself of all interest in the transferred beer and the transferee accepts responsibility for the payment of tax.  Thus, a brewery that contract brews a beer for another brewery can transfer that beer in bond to the contracting brewery.  The tax that will apply to that beer when removed for consumption, however, is not so clear-cut.

  The reduced tax rate of $3.50 per barrel applies only to beer produced by the brewery paying the tax.  So, if Brewery A pays Brewery B to manufacture “Hypothetic Ale,” and Brewery B brews the beer, bottles it, labels it, and sends it back to Brewery A, in bond, when Brewery A removes that beer for consumption, it will have to pay the full $18.00/barrel tax rate.  The question, then, is what activity by the receiving brewery counts as “production?”

  When Congress first passed the CBMA, it was initially set to expire after two years.  So, rather than go through the lengthy process to issue implementing regulations for this temporary law, the TTB instead issued Procedure 2018-1, which explained how it would address the changes in the law.  In 2020, Congress passed the Taxpayer Certainty and Disaster Tax Relief Act, which among other things made the CBMA changes permanent.  As it works through the process of drafting and approving implementing regulations, TTB on July 13, 2023 issued Procedure 2023-1, which contains the guidance of 2018-1 with some minor updates.

  According to Procedure 2023-1, a brewery receiving beer in bulk that only carbonates the beer or transfers it into consumer packaging is only making de minimus changes to the beer and is not eligible for the reduced tax rate.  A beer is considered to be “produced” if it is brewed by fermentation or “produced by the addition of water or other liquids during any stage of production.”  Thus, if a brewery receives bulk beer concentrate and adds water to it before packaging, they will be considered the producing brewery and will be eligible for the $3.50 tax rate. 

  The TTB guidance does not indicate how much water must be added in order to be considered production.  Here, reasonableness should be the guiding principle.  Receiving a ten barrel batch of bulk beer and adding a gallon of water would certainly not be viewed as “producing” the beer.  If, on the other hand, the transferred beer is sufficiently concentrated to enable it to be shipped in one container instead of two, adding an equal amount of water upon receipt would likely be viewed as production. If in doubt, contacting the TTB or a knowledgeable attorney in advance to get guidance on a specific situation is a good approach.

Blending/Collaboration

  Collaboration beers are becoming more common and can be a great way for new breweries to gain market recognition by collaborating with a more established brewery.  In some cases, the two breweries design a recipe together and then one brewery does all of the actual production.  In other cases, each brewery may produce a beer and then the two beers are blended together into a single product. 

  According to Procedure 2023-1, however, the TTB does not consider “blending” to be production for the purpose of taking the lower tax rate.  That does not mean, however, that the entire blended product is subject to the higher tax rate.  Rather, if a brewery blends a beer of its own production with a beer produced by another brewery not of the same ownership (or control group), it may take the $3.50/barrel tax rate on the portion of beer it produced, but must pay the $18.00 rate on the portion produced by the other brewery.  Of course, if the other brewery’s beer is delivered as a concentrate to which water is added in addition to the blending, then the beer would be considered to be produced by the receiving brewery and the lower tax rate would apply to the entire batch.

Records

  Whether breweries are commonly owned, part of a controlled group, or completely independent, when transferring beer in bond, proper records must be maintained by both the sender and the recipient. 

  The shipping brewer should prepare an invoice that includes: a statement that the beer is transferred in bond, the name and address of the shipping brewer, the date of shipment, name and address of receiving brewer, the number and size of cases and/or kegs and total barrels or the size and type of bulk container and total barrels. The original invoice should be sent to the receiving brewer with a copy kept by the shipping brewer. 

  Beer may be reconsigned to another brewery or returned to the shipping brewery while in transit.  In such cases, either a new invoice should be created and all copies of the original voided or the original invoice can be marked with “Reconsigned to:” followed by the name and address of the brewery to which the beer is reconsigned.  When the shipment is received, the receiving brewery must verify the information on the invoice, note any discrepancies, and maintain the invoice in the brewery records.  The brewery to which the beer is reconsigned or returned is responsible for tax on any beer lost in transit.  However, if the loss is not greater than two percent of the quantity shipped, the receiving brewer is not required to file a report of loss or a claim for allowance of the loss if there are no circumstances indicating that any portion of the beer lost was stolen or otherwise diverted to an unlawful purpose.

  The information on the invoice, including any discrepancies, should be used by both the shipper and receiver in their Brewery Report of Operations (TTB F 5130.9) or Quarterly Brewery Report of Operations (TTB F 5130.26).  Whether the entities are commonly owned, part of a control group, or separate entities, the shipper notes the beer transferred in bond on line 19 of F 5130.9 or line 11 of 5130.26.  The receiving brewer notes the received beer on line 5 of 5130.9 or line 3 of F 5130.26.  When the receiving brewery removes the beer for consumption, it should be reported on line 14 of 5130.9 or line 10 of 5130.26.

Conclusion

  Any brewery that is contemplating transferring beer to another brewery, regardless of ownership, would be well-advised to thoroughly review TTB Procedure 2023-1.  Further, these issues should be considered when expanding to a second location or entering into a contract brewing or collaboration arrangement.  Creating the appropriate corporate structure for common ownership or a controlled group for the expanded business may prevent application of a higher tax rate.  Similarly, ensuring that both parties to a collaboration do enough work on the finished product to be considered a “producer” for the resulting beer may prevent a portion of the product from being assessed at the full tax rate.  As always, consultation with an experienced attorney on these issues is a best practice.

  Brian Kaider is the principal of KaiderLaw, a law firm with extensive experience in the craft beverage industry. He has represented clients from the smallest of start-up breweries to Fortune 500 corporations in the navigation of licensing and regulatory requirements, drafting and negotiating contracts, prosecuting trademark and patent applications, and complex commercial litigation.