Stuff You Didn’t Know about Being a Craft Brewer (Part 2)

In the last post, I ran through some of the things you need to be think about as a brewery expanding into new markets. Let’s review:

I want to pause at this last point. Breweries need to be especially concerned with entering into agreements with new distributors because there is so much at stake. Franchise laws are known to be stricter for beer than they are for wine and spirits. In an extreme case, a brewery might even pull out of a state for a year or more and then, if it’s possible, re-enter in order to move away from an underperforming distributor. Ideally, you not only want to find a distributor that will take your brand, but also one that focuses on craft beer or beer imports and will actively market and sell your product. Check out an interesting NYT article recently published on how franchise laws affect small craft beer businesses.

Here’s a brief list of issues to keep in mind regarding your ongoing wholesale operations:

  • Periodic registrations – Several states require that you submit brand or label renewals to keep tabs on actively distributed products.
  • Tax and shipment reporting – On a state-by-state basis you will be required to file excise tax, wholesale gallonage or shipper reports. These forms can vary widely – some states don’t require them, others ask you to break your sales down by package type, and still others want to know the quantity of cans and bottles instead of in cases.
  • Growing your sales in out-of-state markets – from managing the relationship with your distributor (especially in states where you rely on them to do the heavy lifting) to deciding when its time to place a sales rep in a market to exclusively sell your portfolio, growing sales requires active oversight and management.

ShipCompliant now offers a package specifically for breweries that is designed to simplify compliance. ShipCompliant will automatically pre-populate your registration packets and monthly state reports, help you submit COLA applications right the first time and identify brands that might be confusingly similar to your own.  To learn more, check out the press release on the launch of the new ShipCompliant Beer Edition.

Stuff You Didn’t Know about Being a Craft Brewer (Part 1)

The craft brewing industry has seen tremendous growth in the past few years. In 2012, there were 1292 craft breweries in the US and 1,124 brewpubs, a growth rate of more than 20% over the previous year. More and more people are getting into the business of craft beer, but how many really understand what’s involved? There’s more to successfully thriving in the industry than brewing your product.

Let’s start with a few points you need to consider when launching a new brand or starting to distribute in a new state. Once, your growth was only limited by tank sizes and capacity and the time it takes to brew a certain beer. Suddenly, it’s also limited by the time it takes to process paperwork. It’s incredibly important that when launching new products, everyone is aware of the regulatory hurdles and timelines.

  • Trademark issues – As the number of breweries increases, these type of issues are coming up more frequently. It’s even appearing in the mainstream press; listen to Public Radio’s Here and Now show on this topic. You may think your new beer’s name is totally unique, but chances are if it’s a pun on the word Hops or Rye, someone else is already selling it.
  • Pre-COLA Product Evaluation and Certification of Label Approval (COLA) submission – Formulation can be the most difficult part for new breweries as it can be difficult to know what is and isn’t exempt. This first step in the COLA process can take months of back and forth, and be a real bottleneck, but you can’t net a single sale until you get your COLA approved by TTB.
  • State brand and label registrations – These can be time consuming, especially because each state requires different forms and supplemental information. For example, in Texas they even require a chemical analysis to accompany any new registrations.
  • State permitting – This can include getting an alcohol supplier permit with the state ABC, getting licensed with the Secretary of State, or registering for payroll/unemployment taxes and income tax/gross receipts taxes.
  • Entering into trade agreements with distributors  – With exceptions, to get your product to market in other states you must sell to distributors within that state. Franchise laws within the various states can range from no issues for using different distributors to very strict about who you use, what territories they have, and what brands they sell.

ShipCompliant now offers a package specifically for breweries that is designed to simplify compliance. ShipCompliant will automatically pre-populate your registration packets and monthly state reports, help you submit COLA applications right the first time and identify brands that might be confusingly similar to your own.  To learn more, check out the press release on the launch of the new ShipCompliant Beer Edition.

Study on Efforts to Prevent Marketing to Minors Gives Alcohol Industry High Marks

The Federal Trade Commission (FTC) recently released their fourth study on efforts to prevent marketing to minors, and the results are positive. The study shows the self-policing efforts by members of the wine, beer, and spirits industries continue to demonstrate responsible advertising. The 2014 FTC Study found a more than 93% compliance rate with industry guidelines for advertising placement, a 1% increase from the 2008 Study. The other three studies were conducted in 1999, 2003, and 2008.

The most notable difference of the latest study from past studies is the considerable increase in information gathered on digital and online marketing efforts and expenditures. Online social media usage, a new and common platform for information distribution, adds data that keeps the study contemporary with today’s current marketing field. The study focuses on:

  • Advertising placements
  • Online and other digital marketing
  • Product placement in entertainment media
  • External reviews of complaints regarding code compliance
  • Alcohol marketing expenditures

The FTC study delivered a number of conclusions for alcohol marketers to keep in mind:

  • Adherence to Industry marketing codes are encouraged
  • Advocated use of “age-gating” technology (requiring the user/consumer to enter a birth date, rather than simply acknowledging they are over 21 before entering a producer’s website or social media site.
  • Producers should be pro-active in removing code violations that are user-generated on producer websites or social media sites.
  • Participation in industries’ external compliant review systems is necessary to continue to improve voluntary advertising and marketing standards

A summary of the 2014 FTC study can be read in this press release, or in full here. You may also review the respective codes of advertising and marketing developed by each of the following industries, as well as the previous three studies:

What Is A “Wine Growler”? TTB Weighs In

You may not have heard much about the subject of “Growlers” in association with wine in the past. While beer lovers are far more commonly attracted to these types of containers and their purchase, it’s just not yet that common with wine. However, with a recent ruling by TTB, “Wine Growlers” will likely be a subject of conversation among wine lovers, wineries and wine retailers.

First, what is a “Growler? According to the TTB definition a Wine Growler “is any container that is designed to be securely covered and is intended to be filled (or refilled) with wine for purposes of off-premises consumption, as well as any similar container designed to facilitate the secure transportation of the wine for later consumption off of the premises.” In other words, imagine a consumer coming to your winery and rather than buying a few bottles of wine, they bring a three liter container, have it filled from a barrel of your tax-paid wine, and then take it home to enjoy.

Many years ago the concept of the “wine growler” was not uncommon. Consumers would often bring large containers to wineries or retailers, have them filled up with their favorite wine, which they would then bring home and use as their source of wine. Both before Prohibition and after its repeal, it was not uncommon for consumers living in wine country to obtain their supply of wine in this way. Today, however, this practice has been largely a relic of the past.

Now, in response to a few inquiries from wineries and retailers as to the legality under federal law of filling up wine growlers for consumers, TTB issued a ruling that this practice is in fact legal under certain specific circumstances. According to TTB, federal law allows the filling of growlers with wine under the following conditions for wineries or retailers:

1. Receive a permit from TTB to operate as a “taxpaid wine bottling house”
2. The Growler to be filled may be no larger in capacity than four liters
3. The Growler may be brought by the customer or purchased on-premise before filling
4. The filling of the Growler must be for the purpose of off-premise consumption.
5. The winery or retailer must keep specific records concerning tax paid wine, received, dispensed and removed from the premises.

Currently, only Washington (assuming Governor Inslee signs the bill today to allow growler refills by wineries only) and Oregon allow the sale of wine in growlers in one form or another. However, with this ruling, the attention it brings to the idea of selling wine in growlers and given the entrepreneurial times in which we live, we expect to see wineries and retailers in other states begin to explore the idea of selling wine in growlers.

It’s worth noting that while wineries are required to hold a “basic permit” with TTB and obtain Certificates of Label Approval (COLAs) for labels that they produce, retailers are not required to hold a TTB license. A retailer that applies to be a taxpaid bottling house would then be subject to TTB jurisdiction and record-keeping requirements. It appears that wineries or retailers that obtain the additional TTB permit would not need to obtain COLAs for growlers that are filled, at least as long as they are not pre-packaged for the consumers.

Here is a link to the recent TTB ruling on Wine Growlers: http://www.ttb.gov/rulings/2014-3.pdf

Don’t Fall Behind With Your Fortified Wine

Maine, New Mexico, and Washington are the only states that have separate excise tax rates for wine and wine fortified with spirits (Edit: Some states consider a product to be fortified if it is over a certain ABV, regardless of the addition of spirits). To date, we’ve accommodated wineries that shipped fortified products to consumers by having two separate versions of the report or used calculations based on product ABV in each state. Based on user feedback, we wanted to make this process easier and more accurate, so we recently added the ability to specify that a product is fortified in ShipCompliant. With this change, we updated the Maine, New Mexico, and Washington returns listed below so that any orders containing “fortified” products will be taxed at the corresponding rate, beginning with returns that are due on or after March 20.

  • Maine Direct Shipper Excise Tax and Premium Report of Table Wine, Sparkling and Fortified Wine
  • New Mexico Liquor Excise Tax Return for Direct Shippers
  • Washington LIQ-318 Wine Authorized Representative Certificate of Approval Holder Summary Tax Report
  • Washington Liquor Shipment and Tax Report (LIQ-778 Distributor)
  • Washington Liquor Shipment and Tax Report (LIQ-870 Wine Shipper)

If you are subscribed to one of the returns listed above, we will automatically update your return to tax products based on the new “fortified” product settings starting Friday, February 28 – you do not have to take any action in your ShipCompliant account unless you have fortified products.

To mark products as fortified, select the “Fortified” checkbox when adding or editing products in your account. Please note: Any orders entered prior to specifying that a product is fortified will not be retroactively updated. To learn more, read our client Knowledge Base article.

Everything is bigger in Texas, including 4 month quarters and 13 month years

Texas sent out notices to all permitted out-of-state wine direct shippers that as of January 1, 2014, the Texas Alcoholic Beverage Commission (TABC) is updating the filing periods for the C-240, Shippers Excise Tax Return. The notice states that permittees shipping less than 4,000 gallons annually to consumers in Texas may begin filing this return on an annual calendar basis, beginning with the 2014 year. Permittees shipping more than 4,000 gallons of wine annually must continue to file this return on a quarterly basis, however the return will reset as a standard quarterly filing, as opposed to the unusual offset quarterly schedule. In other words:

* Qualified annual filers will file their first annual return due January 15, 2015
* Quarterly filers will file their first calendar quarter return due April 15, 2014

For the first filing period on this new schedule, rather than file a monthly return for December 2013, TABC instructs all permittees to include December 2013 in their first filing period of the new filing structure. ShipCompliant users need not worry calculating this extra month into their new filing periods; this month will already be included in the new filing periods by the time these filing periods need to be submitted to the state. Permittees that are ShipCompliant users and allowed to switch to annual filing should keep an eye out for an alert notifying you when the annual frequency is available for selection in your ShipCompliant account. Please note that you should only switch to the annual frequency if the state has indicated they qualify, and those that are qualified must file annually.