Craft Brewers Should Prepare for FDA Inspections

“Whoa, hold on,” you say, “I’m a craft brewer. What does the FDA have to do with me?” Well, that’s a good question. As a brewer you are already familiar with your state liquor agency and the Tobacco, Tax and Trade Bureau (TTB), but what you probably don’t realize is that the Food and Drug Administration (FDA) also regulates your operations. With the increased focus on food safety, and additional regulations under the Food Safety Modernization Act (FSMA), it is only a matter of time until FDA comes knocking on your door.

“Okay, you’ve got my attention,” you respond. “So what part of my business does the FDA regulate?” Glad you asked. The FDA has jurisdiction over many aspects of your business, including both the inputs to and outputs of your operation. Below are just some examples:

Registration:

Just like food manufacturers, breweries are required to register as a food facility with the FDA and renew their registration every two years. This registration requirement applies regardless of whether you brew domestically or overseas (i.e., import beer into U.S.A.).

Labeling Requirements: 

Beer that contains both malted barley and hops are subject to TTB labeling regulations; however, beer that doesn’t contain both malted barley and hops (i.e., rice or wheat beer) are subject to FDA labeling regulations. These regulations require additional disclosures, including: ingredients (such as spices, flavorings, colorings, chemical preservatives); allergens, such as wheat; and nutritional facts (think of that dreaded word “calories”), of course unless it meets certain exemptions.

Good Manufacturing Practices (GMPs):

Federal regulations have established GMPs for the manufacturing, packing or holding of human food, which includes several of the steps in the beer-making process. Storing and holding grains and other food products for processing and beer for shipment is also subject to regulation. In order to comply with these regulations your operations need to be sanitary, you must perform an analysis of your operations to address any potential hazards, and implement GMPs to minimize such hazards.

Reporting and Record-keeping:

Food safety continues to be a primary concern of FDA and new regulations under FSMA. To ensure your brewery remains compliant you must keep records of the immediate sources of food and the immediate recipients of products you sell. In the event of food safety incident, such as the release of an adulterated product from a production, bottling or manufacturing facility, FDA may require the release be reported. These record will assist brewers and FDA in identifying the sources and recipients of the adulterated products.

Bulk Sales:

Bulk sales of foods and processing byproducts, such as spent grain for animal feed, are subject to FDA regulation. Brewers already implementing human food safety requirements would not need to implement additional preventive controls or GMPs for animal food, except to prevent physical and chemical contamination. This requirement applies even if you’re donating the byproducts for use in animal food.

Food Service and Sales:

In addition to selling beer, do you serve food or sell packaged food products, such as olive oils, cheese, meats or other snacks, in your tasting room or brewpub? Food products served or sold on premise may be subject to federal, as well as state or local, regulations. While exemptions that may apply, you should make sure you stay in compliance with the law.

Inspections:

Under the rules promulgated under FSMA, the FDA is obligated to inspect every brewery in this country over the next several years. This means the FDA can observe your manufacturing processes, inspect your facilities and every aspect of your operation. They also can review your records and take photograph your operations. You should be prepared for any kind of surprise inspection. Also, if the facility fails to meet compliance standards on the first visit to your brewery, FDA will reinspect at a later date and you will be charged at a rate of $221/hour.

As you can see, the FDA has quite a bit of regulatory oversight over your brewery. But it’s not too late to take action to ensure your brewery is compliance, as many of the food safety rules under FSMA have yet to take effect. If your brewery is unsure whether it is in compliance with, or need assistance in adapting your brewery to meet, FDA regulations please contact our attorneys at Morsel Law.

Alcohol Beverage Labels: The Importance of Each Word

Let’s be honest, most of us as consumers don’t read each and every word on a food and beverage labels, especially that fine print way down at the bottom. Sure, we check the ingredients, maybe even the calorie count, but for the most part that’s about it. But when it comes down to it, everything on the label matters. Not necessarily to the majority of consumers, only those trying to squeeze money out of the pockets of businesses. And, as demonstrated below, it only takes one person to notice something questionable to cause major headaches.

Just ask Diageo PLC. They were recently sued over the labeling of their Red Stripe beer. Although marketed as a “Jamaican-style lager” and the logo of a Jamaican brewery is displayed on the bottle, the beer is brewed and bottled in Latrobe, PA. This isn’t something Diageo is trying to hide, they disclose it directly on the label. However, the complaint claims that the label falsely misrepresented the country of origin of the beer which resulted in consumers paying higher costs for an imported beer. I guess the plaintiffs haven’t purchased domestic craft beers lately, which can be some of the most expensive items in the beer cooler.

Another recent proposed settlement with “mislead” consumers came from the owners of Templeton Rye, an Iowa-based whiskey maker. According to the complaint, the whiskey company conducted deceptive marketing practices for failing to disclose its product’s origins, and further suggesting that it was made in small batches of a “Prohibition-era recipe.” In fact Templeton Rye doesn’t even distill their own product. Instead, it buys the rye from MPG Ingredients in Lawrenceburg, IN, and passes it off as their own distillate. The rye whiskey that Templeton Rye purchases isn’t even made in small batches, but in large quantities which Templeton Rye purchases in small amounts, the remaining whiskey is sold to other distillers which is then bottled under different brand names.

Although Templeton Rye does blend the whiskey at their facilities with an alcohol flavoring formulation which they purchase from yet another vendor to achieve their own flavor profile. Of course, all of this is disclosed on the company website, but that didn’t matter to the plaintiffs. Templeton Rye’s co-founder, Keith Kerkhoff, is livid, stating: “It’s all about greedy people…if people didn’t like our product, they wouldn’t have bought a second bottle.” The parties have reached a settlement where the company has agreed to reimburse consumers who purchased their product in the amount of $3-6 per bottle, up to 6 bottles.

Last year, Fifth Generation Inc., the marker of Tito’s Homemade Vodka, was sued in California for false and deceptive marketing, and in Florida for unfair and deceptive practices. The vodka maker touts that its product is “handmade”, however, this apparently isn’t the case anymore. Originally, the vodka was made by its founder, Tito Beveridge, in pot stills just outside of Austin, TX. But now, the company produces over 850,000 case per year out of an industrial facility. The company has stated in its own defense that their labels were signed off by the Alcohol and Tobacco Tax and Trade Bureau (TTB), so if putting “handmade” on their label is “false advertising” then the TTB wouldn’t have approved the labels in the first place. Apparently, this logic wasn’t enough for the courts to dismiss the lawsuit.

As you can see above, each word really does matter. Similar lawsuits against alcohol beverage makers are being filed more and more frequently. Whether on a beverage label or marketing campaign or website, it is important to review and analyze all materials prior to releasing them into the marketplace. If a company doesn’t have internal staff qualified to complete this type of regulatory review, they should locate and hire a specialist. Think of this as buying an insurance policy. You spend a small amount of money to get it right the first time to mitigate risk, instead of going without and hoping for the best. But if something is incorrect, one of two scenarios happen: regulators come knocking on your door or you’re served with a civil complaint by affected “consumers.” Either way, the company is faced with the high cost of defending themselves and possible damage to their reputation, which will most likely result in loss of customers.

If your business is unsure whether a label or marketing materials are in compliance with, or need assistance in adapting your label or materials to meet, TTB or FTC regulations please contact our attorneys at Morsel Law.

So You Want to Start a Brewery in Michigan?

How many times have you spent sipping on a cold pint of the dark stuff with your friends when one of them, after finishing his third beer, has an epiphany: “Dude, we should totally start our own brewery…I mean how hard can it be?” Although your kind-hearted friend’s idea sounds good at the time, what he doesn’t know is that starting a brewery is no easy task. Navigating the laws and regulations alone would send most people running for the hills. However, there are some of you out there with the drive and passion for good beer and a determination to bring these tasty suds to the masses. So for those who’ve made it this far into my article, below I’ll outline the different types of licenses need to start a brewery in Michigan.

While breweries are regulated under both state and federal laws, for the purposes of this article I’ll just touch in the Michigan specific requirements. Michigan law allows a brewer to operate under either a brewer’s, brewpub or micro-brewery license.

Brewery License

A brewery license permits manufacturing an unlimited quantity of beer. Brewers may sell the beer they produce to licensed wholesalers, but many not sell directly to retailers. A brewer may also sell the beer it produces to consumers for on-premise consumption at only one brewing facility in Michigan, but it may sell beer that it produces at all of its facilities for off-premises consumption. Sampling of beer in a hospitality room located on the brewery premises is also permitted.

Micro-Brewery License

A micro-brewery license permits manufacturing of up to 60,000 barrels of beer annually (which includes any out-of-state production). Micro-brewers may sell beer to licensed wholesalers, but not directly to retailers. Micro-breweries that produce 30,000 barrels or less per year may sell directly to consumers for on and off-premise consumption without an additional license. Sampling of beer on the brewery premises is permitted.

Brewpub License

A brewpub license permits manufacturing up to 18,000 barrels of beer annually. In addition to a brewpub license, a brewpub must also hold an on-premise license (Class C, Tavern, A-Hotel, B-Hotel or Resort). The brewpub must operate a full service restaurant with at least 25% of gross sales coming from non-alcoholic items. Brewpubs may not sell their beer to wholesalers or retailers, but may sell their beer to consumers for on or off-premises consumption.

Key Differences between Licenses

The key differences between a brewer’s, micro-brewery and brewpub license are the amount of beer the establishment can produce, restaurant requirements and restrictions, and limitations on to whom you can sell.

Specifically, whereas a brewer’s license authorizes the production of an infinite amount of beer, a micro-brewery license restricts production to 60,000 barrels per year and a brewpub license restricts production to 18,000 barrels per year. While a brewery or micro-brewery may be allowed to have a restaurant on its premises, a brewpub license requires the brewer to operate a restaurant on its premises. No license permits the sale of beer directly to retailers and only breweries and micro-breweries may sell to wholesalers.

It is important to note that local regulations may further restrict your operations, such as stricter closing hours than state requirements. Thus, it is critical to research and understand the local ordinances prior to choosing a location. If you need assistance in establishing or navigating the laws and regulations that effect your brewery, please contact us at Morsel Law.

Michigan Craft Brewers Beware: FDA Labeling Rule May Impact Your Business

Over the past two years Michigan business owners spent considerable time implementing procedures to comply with the health care requirements under the Affordable Care Act (the Act). Just when business owners thought they could turn their attention back to doing what they do best (i.e., running their business), regulators issue new requirements, this time targeting the food and beverage industry.

The FDA’s final rule on food labeling (the Rule), as required under the Act, provides for nutrition labeling of “standard” menu items for chain restaurants with 20 or more locations and “similar retail food establishments.” Unlike earlier drafts, the final Rule requires chains to also issue caloric information for alcoholic beverages. While the Rule does not specifically apply to breweries, there may be unintended consequences that impact craft brewers, especially those brewers that sell to chain restaurants. Michigan craft breweries should take notice.

Michigan, ranked fifth in the nation, is home to more than 150 craft breweries. Consumer demand for craft brews continues to grow and many national chain restaurants operating in Michigan already carry local craft beers on their menus. Many restaurants rotate their offerings regularly and list the current beer selection on menu boards. While restaurants are ultimately responsible to collect nutritional information on the items they serve, it is unclear whether restaurants would instead place this burden on brewers.

The FDA has noted that restaurants can utilize nutritional databases in order to determine calorie content on the beers they offer, such as the USDA National Nutrient Database for Standard Reference.  According to the database, the calorie count for a “typical beer” is 153 calories per 12 oz. serving. But the problem is craft beers are not “typical”.  They are full-flavored concoctions which ingredients vary greatly from one brewery to another. Thus, labeling all craft beers 153-calories would clearly be inaccurate.

Under the Rule, businesses must provide an inspector with information substantiating nutrient values, including the method and data used to derive these nutrient levels. A “responsible individual” for the business must certify that the information contained in the nutrient analysis is complete and accurate.  So if a restaurant lists a 350 calorie beer as having that 153-calorie count, they run the risk of violating the Rule, especially if they cannot demonstrate they took reasonable steps to ensure the brewery adhered to the 153-calorie count. Failure to comply with the Rule, or if you don’t get it right, the menu item will be deemed “misbranded” which is a misdemeanor under the Food Drug and Cosmetic Act. The FDA retains the discretion to hold those “responsible individuals” who certify the menu labeling, criminally liable for a misbranding violation.

Knowing the risk of a potential misbranding violation could lead to restaurants not accepting the standard reference calorie count, forcing brewers to supply nutritional information. Thus, craft brewers may be faced with a choice: either supply calorie counts or take their products elsewhere. But with rumors circulating that the Alcohol Tax & Trade Bureau (the TTB) — which is responsible for approving alcohol labels — could look at its own labeling policies and enforce stricter regulations in the near future, even possibly requiring nutritional information on beer labels, craft brewers may need to consider analyzing their beers now. So in the event the TTB follows the FDA’s lead and implements new labeling requirements, brewers will be prepared and know the caloric content of their products.

Craft brewers have long stressed a “drink better, not more” philosophy, unlike the mass-produced beers who have offered low-calorie light brews for decades, so hopefully consumers won’t be deterred by the calorie counts. It may slow cross-over growth, but it won’t stop the momentum. My prediction: calories or not, craft beers are here to stay.

How Beverage Companies Can Avoid Unnecessary Lawsuits

In a recent suit filed in California, Millennium Products, Inc., the maker of GT’s Kombucha and Synergy drinks, was challenged on claims that its drinks contain “powerful antioxidants”, which plaintiffs claim is in violation of the Food, Drug and Cosmetics Act because the antioxidant statements it makes are misleading and unauthorized nutrient content claims as proscribed by the FDA.

Pursuant to federal regulations, a nutrient content claim is a claim on a food product that directly or by implication characterizes the level of a nutrient in the food (e.g., “low fat,” “high in oat bran,” or “contains 100 calories”). Only those claims that are specifically defined in the regulations may be used, all other claims are prohibited. Previously approved nutrient content claims characterize the level of a particular nutrient (e.g., ‘low sodium’), whereas a term such as ‘high in antioxidants’ ties a claim (i.e., ‘high’) to a class of nutrients that share a specific characteristic (i.e., they are antioxidants).

GT’s label use lists “EGCG 100mg” (a polyphenol found in tea with recognized antioxidant properties) in order to substantiate their antioxidant claim. However, for claims characterizing the level of antioxidant nutrients in a food, a reference daily intake (RDI) must be established for each of the nutrients that are the subject of the claim, but in this case there is no established RDI for EGCG. Moreover, since GT’s product is a type of tea, and the FDA considers tea a food with no nutritional significance, the plaintiffs claim the drinks do not contain “even a single antioxidant nutrient with an established RDI.”

It is important to note that Millennium Products, Inc. isn’t the only company to face legal action in recent years from consumers making false labeling claims. Recently, Twinings North America, Inc. was sued for allegedly deceiving consumers by mislabeling its teas as a “natural source of antioxidants”, however, in this case the judge dismissed the lawsuit stating that a “natural source of antioxidants” is not a nutrient content claim because it did not state or imply the level of antioxidants. However, in warning letter sent in 2012 the FDA noted that the statement “very powerful antioxidant” is an unauthorized nutrient content claim because “very powerful” characterize the level of antioxidants in the product. Other tea producers were also sent warning letters by the FDA over their green teas because they were improperly labeled with the term “antioxidant” (see Unilever, Inc. maker of Lipton Tea and Dr Pepper Snapple Group).

As lawsuits are increasingly targeting food and beverage makers challenging their labeling claims, it is more important than ever to make sure your labels are thoroughly reviewed prior to introducing the products into the marketplace. If your business is unsure whether a product label is in compliance with, or need assistance in adapting your label to meet, FDA regulations please contact our attorneys at Morsel Law.

FDA Releases Menu Labeling Guide for Small Businesses

On December 1, 2014, the Food and Drug Administration (FDA) issued a final rule on food labeling, as required under the Affordable Care Act, which provides for nutrition labeling of “standard” menu items for chain restaurants with 20 or more locations and “similar retail food establishments.” If you are a restaurant owner the menu labeling rule will most certainly impact on your bottom line. The rule is expected to cost the food industry some $315 million to implement and about $44 million per year after that, according to the FDA’s original cost-benefit analysis. In addition to restaurants, the rule applies to food facilities in entertainment venues, such as movie theaters and amusement parks, take-out food establishments, bakeries, convenience stores, grocery stores and supermarkets.

Several months have now past since the rule was finalized and business owners continue to show frustration with the hundreds of pages of legalese they are forced to navigate in order to prepare their companies for its implementation. Thus, in response to this frustration, the FDA has released a Small Entity Compliance Guide, which is intended to restate the rule’s requirements in plain language.

The guide provides detailed guidance on many topics, including: types of establishments covered; how to label menus with nutritional information; how to determine calorie content of foods; and the consequences of misbranding. Most importantly, the guide provides visual examples on how to calculate calories when to toppings change on particular menu items, such as ice cream sundaes and pizza. The guide also discusses the food labeling requirements in great detail, including: labeling requirements for standard menu items; formatting requirements for declaring calories; nutritional information; and requirements for food that is self-service or on display.

The rule is scheduled to go into effect on December 1, 2015, therefore it’s important for businesses to start planning for the implementation. Although the guide was meant to make it easier for small businesses to comply, the rule’s requirements for determining caloric content and labeling menus are highly detailed and complicated. Therefore, if your small businesses needs assistance in complying with the rule, please contact us at Morsel Law.

When Does the Court of Public Opinion Count More Than A Court of Law?

Recently, Bell’s Brewery of Kalamazoo, Michigan filed a complaint in federal court against tiny upstart brewer Innovation Brewing of Sylva, North Carolina. Innovation Brewing filed a trademark application for their name and Bell’s claims that if such a trademark was granted it would create confusion in the marketplace since they use two phrases in their advertising: “Inspired Brewing” and “Bottling Innovation Since 1985”. Whether Bell’s is successful or not in this dispute it may not matter as much as how their customers perceive their actions.

The complaint has created a negative social media storm where many fans and customers of both breweries view these actions as contradictory to what makes the craft beer industry so special. The craft brewery revolution is about collaboration not competition. The people who truly care about beer and bring passion to the craft band together to share ideas and their love of quality ales and lagers. But when breweries instead choose to duke it out, who are the real winners and losers? Bell’s, which made more than 310,000 barrels last year in contrast to Innovation which makes only about 500 barrels a year and sells exclusively in North Carolina, is being perceived as a “bully”.

Although Bell’s is one of craft beer’s greatest independent success stories, this isn’t the first time they’ve used courts to settle their affairs. In 2011, Bell’s filed a challenge against a California-based brewer for its Copper Bell beer, but the matter was settled and the brand later withdrawn.

But Bell’s isn’t the only one using legal means to protect their brand. Recently, Lagunitas Brewing sued rival Sierra Nevada Brewing over its Hop Hunter IPA label. However, within a few days after filing the complaint, amid the firestorm reaction from angry customers using social media to voice their disappointment, Lagunitas founder Tony Magee quickly dropped the suit. Currently, New Belgium Brewing Co., the third largest craft brewer in the country, and Oasis Texas Brewing Co., a relatively new upstart, are slugging it out in court over the use of the name “Slow Ride” IPA. Just as in the other disputes above, fans are turning to social media to voice their concerns, but time will only tell the effect it will have on the outcome of this dispute.

Regardless of which brewery is right in the eyes of the law in these types of disputes, it only brings temporary relief. What matters most in the long run is how customers view their actions. In the case of Bell’s, several bar owners have pulled Bell’s from their menus until further notice and several brewing associations have signed petitions voicing their support of Innovation. In the spirit of the industry, it would be nice to see them resolve it amicably. Considering the cost of litigation, which in the case of a trademark defense can be between $40,000-50,000, wouldn’t the money be better spent on expanding their businesses? I hope other craft brewers will learn from these lessons and consider collaboration before litigation.