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Sunday, 24 May 2015 22:00

Craft beverage producers wrestle with federal product definitions, labeling requirements

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Arktos Meadery founder Maciej Halaczkiewicz said federal labeling regulations prevented him from calling his Cricket Song product a coffee-based mead, which could cause confusion among consumers. Many mead and cider producers are calling for updates to the Alcohol and Tobacco Tax and Trade Bureau’s guidelines so they can better market their products to customers. Arktos Meadery founder Maciej Halaczkiewicz said federal labeling regulations prevented him from calling his Cricket Song product a coffee-based mead, which could cause confusion among consumers. Many mead and cider producers are calling for updates to the Alcohol and Tobacco Tax and Trade Bureau’s guidelines so they can better market their products to customers. COURTESY PHOTO

Imagine spending time and resources to develop a product only to find out that you won’t be able to describe it on the label in a way you think best resonates with consumers.

That happened recently for Maciej Halaczkiewicz, president of Grand Rapids-based Arktos Meadery LLC, a startup producer of fermented honey-based craft beverages.

When he submitted a proposed label for Arktos’ Cricket Song mead to the Alcohol and Tobacco Tax and Trade Bureau (TTB), a division of the U.S. Department of the Treasury that governs the labeling of many alcoholic beverages, the agency told him he could not describe it as a “coffee-based mead” because of the way it was produced.

“Now when someone looks at my bottle they’re not going to have any idea they’re looking at a coffee mead,” Halaczkiewicz said.

The label for Cricket Song could only mention coffee in the product description. The product is labeled as a metheglin, an archaic term for meads that contain herbs, and is described as a “honey lemon strawberry wine with coffee added [and] aged in oak barrels for 3 months.”

To Halaczkiewicz, the TTB’s outdated labeling rules limit Arktos Meadery’s ability to market its products in a way that would clearly describe them to consumers.

“Taking an extra week to go through to make sure my labels say what they need to say hasn’t stopped me from getting my product out there, but it has stopped me from correctly labeling it,” he said.

Having a product labeled in an ambiguous category such as specialty wine could alienate new customers specifically looking for a product such as cider or mead, said Joe Infante, a Grand Rapids-based attorney who leads the alcoholic beverage regulation team at Miller, Canfield, Paddock and Stone PLC.

“It’s something on the consumer side because they don’t know what they’re getting,” Infante said. “If you’re labeling as mead, they know what it is. But if you label it as a specialty honey wine, your branding is off and you’re probably losing customers.”

Arktos’ Cricket Song mead is just one example of how uncertainty in TTB regulations poses challenges for emerging craft beverage segments. Cider producers, whose product is also classified as a wine under TTB regulations, often find themselves in a similar situation.

Federal legal definitions also limit the amount of alcohol meads and ciders can contain. Meads are allowed up to 14 percent alcohol by volume, while ciders are limited to 7 percent alcohol by volume before requiring a different classification as a specialty wine, which is taxed at a higher rate. That’s problematic for producers since both types of products can naturally ferment to alcohol concentrations that exceed those thresholds, sources said.

AVOIDING THE ‘BUBBLE TAX’

Craft cider producers have another threshold to consider: They must keep their products to a relatively low level of carbonation before they are taxed at the much higher rate with champagne, said Paul Vander Heide, owner of Spring Lake-based Vander Mill LLC and president of the newly formed Michigan Cider Association.

The added challenge with the so-called “bubble tax” is that carbonation is difficult to measure for producers who lack sophisticated equipment, he said. On top of that, the TTB hasn’t released a proper procedure for testing carbonation in cider.

“The federal definition (of cider) is problematic for the industry,” Vander Heide said.

There’s also been some confusion among craft beverage makers when it comes to the requirement for incorporating nutritional labels onto their products, Vander Heide said.

Because mead and cider are considered agricultural products, the U.S. Food and Drug Administration (FDA) maintains jurisdiction for labeling both types of products, as long as they contain less than 7 percent alcohol by volume.

Under the current law, the FDA mandates that if a cider or mead maker produces over 100,000 units per year of a certain brand, then the brand needs to include a full nutritional label. But sending a product out for chemical analysis and redoing product labels can add up to significant costs for producers, said Infante of Miller Canfield. If a company does not produce more than 100,000 units annually, it still must submit a waiver to the FDA for an exemption to the labeling requirement.

“These regulations are causing a lot of of discomfort for companies that want to maintain compliance with the law,” Vander Heide said. “It’s just not easy to do.”

INDUSTRY PUSH BACK

The push to revamp TTB regulations from cider and mead producers led a bipartisan group of federal lawmakers to create legislation that better defines these emerging beverage categories.

This year, the Cider Industry Deserves Equal Regulation (CIDER) Act was reintroduced by U.S. Rep. Earl Blumenauer, D-Oregon, and U.S. Rep. Chris Collins, R-New York. The CIDER Act would raise the maximum alcohol content of hard cider from 7 percent to 8.5 percent, and the legislation nearly doubles the allowable carbonation content before the beverage is taxed as champagne. The bill would also incorporate pear-based products, known as perry, under the cider category.

“Hopefully, the best thing for the industry is that we’re seeking clarification,” Vander Heide said. “The hope is that with everyone in the industry seeking clarification from the government, no one ends up getting into trouble because the definitions aren’t clear.”

Proponents for the mead industry have also rallied in support of a revised definition for the product category. Ken Schramm, owner of Ferndale-based Schramm’s Mead, initially sent a letter to the TTB advocating to change the definition of mead to include any beverage that uses 50 percent or more of its extract from honey and produces 50 percent or more of its alcohol from the fermentation of honey. After gaining traction on social media, the initial letter grew into a petition,

Schramm told MiBiz in an email. More than 1,100 people have signed the petition on Moveon.org at the time this story went to press.

“The TTB needs to redo their laws and separate these products into different categories,” Halaczkiewicz said. “Mead, beer, cider and wine should all have their certain categories and have their own regulations based on how’re they’re produced.”

Infante sees both mead and cider makers gradually influencing regulations as the industries gain steam and grow — a path similar to that of wine and craft beer.

“They’re growing industries and as those industries mature, they’ll have a more prominent voice,” Infante said. “With that voice, they can get the changes they want similar to how craft beer got the changes they wanted.”

Beyond pushing for new regulations, Vander Heide advocates for companies and industry groups to work closely with state and federal regulators to establish more clarification in the industry.

“The best thing to happen is if we have a regulatory environment where regulators work with the industry to clarify how to work with these things rather than taking a ‘penalize first, ask questions later’ approach,” Vander Heide said. “That’s obviously the most collaborative way to handle it.”

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