If you are considering venturing into the distillery business, in New Jersey, Pennsylvania, or any other state, it is important to know what the Federal Government’s rules, regulated through the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), provide for the location, use of plants and production of distilled spirits.  The following article highlight’s the TTB’s rules and regulations:

1.)   Home Production Barred. To start, producing distilled spirits is not something that can take place in someone’s basement. A person may not produce distilled spirits at home for personal use. Distilled spirits must be produced by a business registered with the TTB and a plant approved by the TTB.

2.)   Location of Plant. The following locations are expressly prohibited: 

  • Any residence, shed, yard, or enclosure connected to a residence;
  • A vessel or boat;
  • A place where beer or wine is produced;
  • A location where liquors are sold at retail; or
  • A place where any other business is conducted, subject to certain exceptions.

3.)   Premises Should be Adjoined. Generally, the premises of a plan must be continuous, i.e., located in the same vicinity. However, the TTB may approve the registration of the plant where there are separations of the premises if there is no jeopardy to revenue caused by the separation of premises and separation does not create administrative problems for the TTB.

4.)   Use of Plant Premises. The plant must be authorized through the filing of a notice of registration or as otherwise approved by the TTB. The premises must also be used for storage of the distilled spirits, unless the TTB approves another method of storage.

5.)   Other Business Use on Premises. The premises may only be used to conduct another business operation if the TTB authorizes the conduct. The person seeking permission to use the premises for something other than distilling spirits must apply pursuant to TTB regulations and receive approval.

6.)   Alternative Storage. The TTB requires the filing of an application for registration if a distillery needs to utilize a warehouse for storage. After submitting the appropriate application, the TTD may approve registration if the proposed location will not jeopardize revenue and there is evidence sufficient to establish the need for the warehouse.  The TTB may impose special use restrictions on the warehouse as a precondition to storing distilled spirits.

These restrictions only include the Federal Government’s limitations on the production, location and use of plants for the production of distilled spirits. Significantly, there are various state law, local law and practical considerations that also impact the potential locations. Due to the complexity of these issues, counsel should be consulted before finalizing a location for the production of distilled spirits.

In a prior post, the Restricted Brewery License was reviewed.  This license permits the operation of a “brew pub” on the licensed premises.  In this respect, the brew pub may supply malt alcoholic beverages that it brews on premises for consumption in an adjoining restaurant that is operated regularly and principally for the purpose of providing meals to its customers and having kitchen and dining facilities.  As previously discussed, the holder of a Restricted Brewery License may only produce up to 10,000 barrels for on-premises consumption or sale to licensed wholesalers, and this license may only be granted to a party that also owns a Plenary Retail Consumption License that is operated in conjunction with the above-referenced restaurant.

With regard to winemaking in New Jersey, there are also two restricted licenses applicable to wine:  the Instructional Winemaking Facility License and the Out-of-State Winery License.

The Instructional Winemaking License permits its holder, subject to rules and regulations, to instruct persons in and provide them with an opportunity to participate directly in the process of winemaking and to directly assist them in the process of winemaking on the premises of the licensed facility.  While this license generally does not permit the manufacture of wine on premises, the license permits the wine made during the instructional process to be used or consumed on the licensed premises or distributed from the facility’s premises to a person who has participated directly in the process of winemaking for such person’s personal use or consumption.  The holder of this license is also permitted to sell mercantile items traditionally associated with winemaking and novelty apparel identified with the name of the licensed establishment.  In addition, this license also permits sampling on premises and the maintenance of a warehouse.  The fee for this license is $1,000.

For wineries located outside New Jersey that produce not more than 250,000 gallons of wine per year that hold a valid winery license issued in another state, the Out-of-State Winery License permits such wineries to sell and distribute its products to licensed wholesalers and sell such wine at retail in original packages in 16 salesrooms apart from the winery premises for on or off premises consumption at a fee of $250 per salesroom (such salesrooms shall not be jointly controlled or operated by the licensee).  Provided that no common carrier is used in transportation, the winery may also sell to licensed retailers in varying quantities based on the payment of additional graduated fees ranging from $1,000 to $100.  Additionally, the holder of this license may also ship not more than 12 cases of wine to any person over the age of 21 located within or outside the State for personal consumption and not for resale.  It is important to note that the license holder may not also own an interest in a winery that produces more than 250,000 gallons of wine each year.  The base annual fee for this license is $938.

In an effort to level the playing field with winemakers and craft brewers, new legislation was proposed in the House of Representatives on February 25, 2014 that would greatly reduce the federal excise tax rate on craft distillers. Congressman Chris Gibson filed the bill. HR 4083, which is named the “Distillery Excise Tax Reform Act of 2014”.

Under the bill the excise tax rate of $13.50 per proof gallon would be reduced to $2.70 for the first 100,000 proof gallons produced annually. After 100,000 proof gallons are produced in a year, the rate for subsequent production would increase to $13.50.

Passage of this legislation should help spur economic growth for craft distillers. With additional money available, distillers will be able to expand operations, invest in development of their product, improve their premises and hire additional workers. Furthermore, passage of the legislation should promote additional individuals and companies to begin craft distillery production.

The Distillery Excise Tax Reform Act of 2014’s progress can be monitored at the govtrac.us website. For more information on Stark & Stark’s Beer & Spirits group, please click here.

In an earlier entry, the new Craft Distillery License was reviewed, which became effective for issuance December 1, 2013.  Generally, this license presents a cost-effective option for artisan distillers to establish operations within the State.  It also provides distillers the opportunity to generate revenues at their licensed premises by permitting them to offer their products for retail sale direct to consumers for on or off premises consumption.  However, in making the determination to apply for this license, there are important considerations that the prospective licensee should take into account before establishing operations.

At the outset, a distiller looking to apply for this license needs to have a good sense of the regulatory environment at the municipal level where the licensed premises is planned to be located.  Ultimately, the distillery will be subject to local ordinances, laws and zoning restrictions separate and apart from state regulation.  Depending on how the planned location is zoned, a use variance may need to be applied for and a site plan would need to be approved by the local zoning board.

Once the prospective licensee has approval for the planned distillery at the local level, attention can then turn to the application to apply for a Craft Distillery License with the Division of Alcoholic Beverage Control.  The application process can be complex and requires the submission of supporting documentation and follow-up with other governmental agencies.  First and foremost, the applicant is required to submit the organizational and formation documents of its operating entity for review, as well as financial records, the past two years’ business and personal tax returns and any acquisition or financing documents pertaining to the proposed licensed premises.  It is therefore essential to have the business entity organized and in place prior to the application being made.

Beyond the documents that are required to be submitted along with the application, the State Police and FBI require a fingerprint submission, a Beverage Tax Bond must be posted with the State Division of Taxation, and insurance documents must be submitted to the State Division of Revenue.  All of these submissions and funds must be provided according to governmental requirements.  In addition, each individual on the license must submit a notarized Affidavit of Qualification and the applicant must submit a notarized Statement of Business Intention.  Also, public notice of the application must be posted.  With regard to the planned licensed premises, a basic site plan must be submitted along with the application (which presumably would have been prepared during the zoning process).  The site plan will form the basis of a site visit by the ABC, at which time the prospective licensed premises should be outfitted with equipment and fixtures.

At the Federal level, the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau requires application to be made for issuance of a Federal Basic Permit prior to operation.  This would also need to be submitted to the ABC during the application process.  All holders of this Permit are required to file a Special Tax Registration and Return prior to commencing business and on or before July 1 each year thereafter.

At the State level, the Craft Distillery licensing process can take upwards of 6 months.  Therefore, it is important to have all required preliminary work completed and documentation in place before lodging the application with the ABC, as organized applications will typically be processed more expeditiously then incomplete ones.

For more information on Stark & Stark’s Beer & Spirits group, please click here.

The Intoxicating Liquors title of the New Jersey statutes provides licensing options for the smaller scale producer interested in producing malt alcoholic beverages, wine or distilled spirits.  Prior posts explored the Limited Brewery License and the Craft Distillery License, both of which are limited licenses available in the State.  Additionally, smaller scale producers or bottlers also have the option of applying for a Farm Winery License, a Limited Distillery License and a Supplementary Limited Distillery License.

The Farm Winery License permits its holder to manufacture, subject to applicable rules and regulations, fermented wines and fruit juices in a quantity not to exceed 50,000 gallons per year for sale and distribution to licensed wholesalers and retailers, churches for religious purposes and retail consumers on the licensed premises for consumption on or off premises.  In addition, the license permits offering samples for sampling purposes only.  This license may be issued only when the winery is located and constructed on a tract of land exclusively under the control of the licensee.  Further, the licensee must also be actively engaged in growing and cultivating in an area of at least 3 acres on or adjacent to the winery premises and on which are grape growing vines or fruit to be processed into wine or fruit juice.  In addition, the license requires that for the first 5 years of operation of the winery, the winery must produce fermented wines and fruit juices manufactured from at least 51% grapes or fruit grown in the State and thereafter from at least such percentage of fruit or grapes to permit the license holder to label the product as “New Jersey Wine” under Federal rules and regulations.  The fee for this license is graduated based on the total amount of production, ranging from $63 to $375.

The Limited Distillery License is available to those manufacturing and bottling any alcoholic beverages distilled from fruit juices.  The holder of this license may also rectify, blend, treat, mix and compound such spirits with wine or sweeten or flavor them to produce a cordial or liqueur.  The beverages produced under this license may only be sold to licensed wholesalers and retailers.  However, the cost of this license is only $3,750, significantly less than the license cost for a Plenary Distillery.

The holder of a Supplementary Limited Distillery License may, subject to applicable rules and regulations, bottle and rebottle, alcoholic beverages distilled from fruit juices by a holder of a prior Plenary or Limited Distillery License and sell and distribute such products to licensed wholesalers and retailers, and to maintain a warehouse.  The fees for this license are dependent on the quantity bottled and range from $313 to $1,250.

The above licenses are also further subject to State regulations and rules of the Division of Alcoholic Beverage Control as well as federal laws and regulations.

For more information on Stark & Stark’s Beer & Spirits group, please click here.

Two new types of licenses for wineries and breweries in New Jersey have been introduced in the state assembly. The details of the proposed legislation are highlighted, below.

Farm Brewery License

The proposed legislation would create a “farm brewery license” allowing a licensee to brew up to 2,000 barrels of malt alcoholic beverages a year for retail sale for consumption off premises and to offer samples on the premises.  Issuance of the license requires that the brewery be located and constructed upon a tract of land exclusively under the control of the license holder; that the licensee be actively engaged in farming on or adjacent to the brewery premises; and that the license holder is growing or cultivating hops or another product used in the production of the malt alcoholic beverage. The cost of the license varies based upon the quantity of malt alcohol that the holder manufactures. The cost range for the license is between $100 to $300.

Winery-Brewery Sublicense 

The proposed legislation also institutes a “winery-brewery sublicense” that would permit wineries to produce up to 3,000 barrels of malt alcoholic beverages for retail sale to consumers for consumption off the licensed premises and to offer samples on the premises. To receive this sublicense, the licensee must be the holder of a plenary winery license or farm winery license; the licensee must be engaged in farming on or adjacent to the winery premises; and must be growing and cultivating hops or another product used in the production of malt alcoholic beverage. The fee for the sublicense is $750.

The full language of the proposed legislation can be viewed here. For more information on Stark & Stark’s Beer & Spirits group, please click here.

Next fall, Auburn University in Alabama will become only the second university in the country to offer a degree in brewing beer. With this new degree, the University is attempting to tap into the booming craft brew industry. Auburn’s Department of Nutrition, Dietetics, and Hospitality Management has worked closely with the business and engineering schools to create a comprehensive curriculum for the new graduate certification in brewing science.

The new beer brewing program will offer six courses covering a mixture of science, engineering and facilities, brewing materials, and the business of brewing. The program will become available to a limited number of applicants in fall 2014.

For more information on Auburn’s new degree, please click here. For more information on Stark & Stark’s Beer & Spirits group, please click here.

Within the Intoxicating Liquors title of the New Jersey statutes, there are three plenary licenses that are available for manufacturers located within the State:  the Plenary Brewery license, the Plenary Distillery license and the Plenary Winery license.  These licenses are intended for the largest producers of alcoholic beverages, permitting the largest production of all manufacturers’ licenses. They are also the most costly licenses to obtain.

The Plenary Brewery license permits the holder to brew any malt alcoholic beverage and sell and distribute to licensed wholesalers and retailers.  This license also permits the brewer to maintain a warehouse.  However, the brewer must only ship from that warehouse, which must be located in the State.  While this license has no production limits, it does not permit any direct consumer sales and contemplates sales solely through a licensed distribution or retail network, consistent with large scale production.  The fee for this license is $10,625.00.

The Plenary Distillery license permits its holder to manufacture any distilled alcoholic beverages and rectify, blend, treat and mix distilled alcoholic beverages.  The holder then may sell such beverages only to licensed wholesalers and retailers, and it also obtains the right to maintain a warehouse.  Production under this license is in unlimited quantities and the fee is $12,500.00.

The Plenary Winery license is reserved for those engaged in growing and cultivating grapes used in the production of wine on at least 3 acres on, or adjacent to, the winery premises.  The license permits its holder to produce any fermented wines and blend, fortify and treat wines, and the holder is further permitted to sell and distribute such products to licensed wholesalers, churches for religious purposes and retail consumers on the licensed premises for consumption on or off premises.  In addition, the license permits offering samples for sampling purposes only.  Additionally, based on the level of production, this license, upon payment of additional fees, permits wineries to engage in additional retail sales either to licensed retailers or through salesrooms not jointly controlled or operated by it.  This license also contains restrictions on the amount of wine that it may ship to individual retail consumers.  The initial fee for this license is $938.00.

The above is meant to only be a brief overview of the plenary licenses that are available in New Jersey.  These licenses are also further subject to State regulations and rules of the Division of Alcoholic Beverage Control.

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Your company’s recipes, methodologies and customer base are what distinguish it from the competition. If this information is disclosed to third parties, it could detrimentally hurt your business because a competitor could seemingly replicate the same or similar beverage. It is important that you protect your company’s trade secrets, customer relationship and other confidential information from employees, especially the brew master or distiller, in the event the employment relationship ends.

The good news is that New Jersey, like many other states, has recognized three categories of interests that may be legitimately protected:  (1) employer’s trade secrets, (2) employer’s confidential information, and (3) protection of customer relationships. However, the general rule is that a former employee may utilize information from a prior employer with a new employer or new business after his term of service has expired. That could lead to the dissemination of your trade secrets to a competitor or a new company formed by the former employee to directly compete with your business. In order to protect your businesses’ trade secrets, confidential information and customer relationships it is critical that proper employment planning is takes place.  Before or during the course of employment, the employee must agree to be restricted from competing with your business through a covenant not to compete, i.e., a restrictive covenant or non-compete agreement.

In most cases, a non-compete agreement can effectively limit the specified geographic area where a former employee can work, the type of job that the former employee can engage in, and the duration of the restricted type of work. The terms of the non-compete agreement must be “reasonable” in scope, location and duration in order to protect the interests of the employer. The timing of entry into the non-compete agreement is also important. Generally, entry into the agreement must take place at the inception of the employment relationship or when the employee receives a raise or promotion.

These are only a few examples of the issues that your business must consider in connection with its employees, especially the brew master or distiller, who knows your company’s trade secrets, confidential information and customers. Due to the importance of these issues, counsel should be consulted to help protect your brewery, brew pub or distillery’strade secrets, confidential information and customer relationships. 

For more information on Stark & Stark’s Beer & Spirits Group, please click here.

Stark & Stark attorney Marshall T. Kizner, member of the firm’s Beer & Spirits Group, was featured in the New Jersey Law Journal article, “Wine, Beer and Spirits Effervesces As a New Law Firm Practice Area,” published on February 3, 2014.

The article discusses the growing wine, beer, and spirits industry and the creation of Stark & Stark’s new Beer & Spirits practice group, which will “assist clients in licensing, land use, trademark, financing, employment and related issues.” Mr. Kizner was quoted in the article saying, “Growth in the industry is fueled by a trend on the federal and state level to lower barriers to entry, particularly for microbreweries.” He also said, “A new state law that took effect last year lowered the permit cost [and] two pending federal bills would lessen the tax bite.”

To read the full article, click here.