The Alcohol and Tobacco Tax and Trade Bureau (known as the TTB) is the federal agency charged with enforcing the Federal Alcohol Administration Act and enacting regulations governing the alcoholic beverage industry.  This includes everything from the federal tied-house restrictions (27 U.S.C. § 205(b)) to the propriety of the labels you see on your craft beers.  Oh, it also collects the taxes.  The TTB has authority over beer shipped interstate.

Under the federal tied-house law, it is illegal for a brewery to directly or indirectly induce a retailer engaged in the sale of alcoholic beverages to purchase beer from the brewery to the exclusion, in whole or in part, of other breweries.  Stated less technically, a beer manufacturer can’t induce a retailer to favor its beer over others.  See 27 U.S.C. § 205(b).  Inducements include such items as “furnishing, giving, renting, lending, or selling to the retailer any equipment, fixtures, signs, supplies, money, services or other thing of value” and by “extending to the retailer credit for a period in excess of the credit period usual and customary to the industry for the particular class of transactions.”  27 U.S.C. § 205(b)(3); see 27 CFR 6.21(c).  In other words, a manufacturer can’t pay to play.  Commercial bribery is illegal (I see you industry folks smirking).

A common violation that many are not aware of is that the sale of alcohol with the privilege of return is prohibited with some exceptions.  In other words, a brewery (or wholesaler) cannot sell its beer to a retailer and then accept a return if the beer fails to move off the shelves (known charmingly in the industry as a “shelf turd”).

The TTB is attempting to extend a helping hand to retailers (and thus breweries by extension) during the COVID crisis by relaxing some of these restrictions.  Specifically, as mentioned above, extensions of credit to retailers beyond 30 days is considered an inducement.  However, the TTB’s latest industry circular (available here:  https://www.ttb.gov/industry-circulars/ttb-industry-circular-2020-3) states that it will not enforce this restriction for extensions of credit for up to 120 days.  But this does not allow a brewery to extend credit to a retailer until the product is sold—that would still be an inducement.  Returns are now allowable if the beer was purchased for an event that was cancelled due to COIVD-19.

In addition, to help retailers in need, the TTB is allowing manufacturers to purchase prepaid gift cards to consumers as long as they are not “tied to an alcoholic beverage retailer, retailer group, or restaurant.”  It is up to the consumer to determine where to spend the gift card, but the manufacturer can encourage consumers to spend them to support retailers or restaurants of the consumer’s choice.  The gift card has to be a generic one, like a Visa gift card, and cannot be a gift card to a particular retailer.  Further, the TTB has stated that it will not investigate donations to charities that support retailers and their employees.  And of course, manufacturers can provide consumers with hand sanitizer.  These would all be considered inducements pre-COVID.

Sigh.  Thanks for the effort.  While these things might provide some relief to a limited number of retailers, there is so much more the government could be doing to help craft breweries.  How about passing the Craft Beverage Modernization and Tax Reform Act that is about to expire?  See prior post.  How about not shutting down outdoor dining when there is no evidence that it contributes to the spread of COVID-19 (state and local issue, I know)?  The bottom line is that big crises require big ideas.  Extensions of credit and hand sanitzer are but a blip on the screen.  Let’s think bigger, government, unless we don’t want craft breweries and the vibrant culture they bring to communities.  This is not hyperbole.

 

Leave a Reply

Your email address will not be published. Required fields are marked *