There's a Need for Change and the TTB Knows It
While the spirits industry has greatly evolved in recent years, directives which govern how liquor is labeled have been far more static. And generally, consumers can't voice concerns to the TTB.
"I wouldn't say it's a once in a lifetime opportunity, but it is once in a very long period," says Paul Hletko, president of the American Craft Spirits Association (ACSA), and founder and distiller of FEW Spirits, of the TTB's forthcoming open commenting period. The golden opportunity here is to, "really work with the TTB to help modernize, and work with a lot of labeling regulations so that they really represent the business as it is, and not as it was."
According to Matt Hofmann, co-founder and master distiller of Westland Distillery, and an ACSA board of directors member, the TTB has been planning this commenting period for six years. He adds, "For us, this is pretty critical, and we don't know when the next time is going to happen."
Consider how much the industry has changed in the past six years alone, when this particular commenting period was first proposed. As one measure, the ACSA indicates that 897 Distilled Spirits Plant (DSPs) permits were issued by the TTB in 2010, and that by February of 2016, that was up to 1859. DSPs aren't an exact match for distilleries because those who "produce, bottle, rectify, process or store beverage spirits," beyond actual distilleries, must obtain one, but it's an indicator of growth nonetheless. Meanwhile, the Distilled Spirits Council of the United States (DISCUS) indicates that by their count, there were 92 micro-distilleries in 2010, and over 750 in 2015.
The spirits industry has evolved, but directives which govern how liquor is labeled have remained static.
"When [the TTB started this process], they wanted to get some things changed, but by the time they got to this point, a lot of them were outdated already, by their own admission," says Hofmann.
In other words, things have grown monumentally in the past five years, and bear little, if any, resemblance to where the industry was a decade before that, and beyond. That's crucial, as that's where many of today's regulations were born.
While many people may view the TTB as the "bad guy" in the equation, Hofmann stresses both that they are quite aware of some of the problems which currently exist, and also that they want to work together with the industry to fix them. "I think the way they're going about it is a pretty smart way of doing it," he says. "The TTB recognizes that [there are problems] and they want to address it. But also they don't want to make a unilateral decision, which is also great. They don't want to come down from on high and proclaim things."
What's Eligible to be Changed?
The requirements for spirit labeling, acceptable ingredients in particular spirits, advertising, the process of submitting labels to approval for the TTB and how they are approved or not, and much more, are all included within the codes which will be open for possible revision. The section being discussed in more detail here, Part 5 on distilled spirits, is alone over 21,000 words, with dozens of sub-sections. Per Hofmann, "almost everything is up for grabs. I don't think people understand the gravity of that yet."
The codes up for discussion:
- 27 CFR Part 4, Labeling and Advertising of Wine
- 27 CFR Part 5, Labeling and advertising of Distilled Spirits
- 27 CFR Part 7, Labeling and Advertising of Malt Beverages
The amendment Process
While Eater contacted the TTB for specific details on how this commenting period and revision process will work, the organizaion did not respond to any inquiries. So, one way to get a glimpse at the process is to look at another TTB commenting period that's currently open. For instance, the TTB posts an official notice on its website explaining all topics that are eligible for a given issue, then opens up public commenting, online, as in the setup seen here. Then, anyone can share their two cents.
"That's done online so everybody has an opportunity to write letters and comments," says Hletko. "That includes folks like the ACSA, but certainly [you are] welcome to comment as well. So everyone gets a chance to comment. At least in theory the word of the ACSA will have more sway than the word of [an individual], but that is what it is."
Suggestions are kept public, and the commenting period will last for 120 days. "It's longer than normal, and that reflects the magnitude of changes and the fact that there can be so many," explains Hofmann.
As for how things actually get changed, one hopes that it's a fairly straightforward read and react process. "I think they read the comments and take the comments under advisement, and then they make their decision," says Hletko.
"I don't think people understand the gravity of that yet."
Of course, it's never that easy, and it's actually a multi-layered process. "Obviously, you never know what they're going to do, or how they're going to do things," says Hletko with a beleaguered chuckle, referring to the sometimes veiled world of government bureaucracy. Indeed, it's important to remember the TTB is the enforcement agency, not a one stop shop for creating legislature and seeing it put into action.
"But I do think they are really, truly listening to us," says Hletko. "And I do think that they are taking our word very seriously ... They may not give us everything that we want, but they will listen, and if they don't take it to heart, there will be a reason for it."
After the commenting period, the TTB will then make their own official recommendations before they get passed to federal legislation. What will constitute enough backing of support or proper foundation for a regulation change to be recommended by the TTB? Well ... that's not entirely clear either.
Hofmann reveals though that he at least has derived a directive of sorts from his conversations with the TTB. "The consumer protection and education part is key," he says. "And you can tell that they're placing a big emphasis on that."
8 Major Issues to Tackle
- Issue: Who's actually distilling the whiskey or spirits which goes into that bottle? Does anybody know?
1) A "Distilled By" Requirement
A possible solution to the woes of mysterious whiskey sourcing would be to add a "Distilled By" requirement to every spirit's label. It immediately resolves whether the company selling the product actually distilled it.
"I'm almost certain that's going to happen," says Hofmann. "That's getting a huge amount of support, one from the ACSA, and there's a number of consumer advocacy groups who are going to bring that to the table. The TTB knows that."
Hletko also cites ongoing education for both the industry and the consumer as a need of paramount importance. "The consumer is entitled to know what he's buying," says Hletko. "So what's the difference between distilled and produced? Does the consumer realize what produced means versus distilled? I have to think that they do not."
As has been re-hashed hundreds of times, there's nothing wrong with sourcing whiskey, as long as producers are not lying to consumers in the process. That's been a thorn in everyone's side, from small distilleries losing ground, to other brands who claim to be distilling but aren't, to consumers forking over cash based upon fancy—but false—label storytelling.
2) Figuring Out This Whole "Craft" Thing
- Issue: "Craft" is one hell of a confusing word.
What does "craft" mean? What is a "craft" distillery? What is a "craft" spirit? Who knows.
"It is an ugly, confusing word, and I say that as somebody who sits on the board of the American Craft Spirits Association," says a laughing Hofmann. "I think everybody recognizes that that's a mess."
Worse than a lack of a definition may be the inability to agree on what the definition should be, or what should be used in its place. "The term 'craft' or not, if you're just trying to come up with a word for small distilleries ... it's messy," he says. "The problem is there isn't one perfect term."
Even if one was to set a sheer production or sales level boundary to separate craft spirits from those that are not craft, who's to say that the larger companies aren't craft as well? "At least we recognize that the big producers are making really good whiskeys, so it's a little bit different from the battle that craft beer had with big beer," offers Hofmann.
"The big problem that I have with some of those terms is that, who's to say that the giant whiskey makers at Suntory for instance, are not craft," he continues. "Or Jim Beam is not craft. Because I can guarantee that they put a lot of heart and soul and knowledge and professionalism into every product that they make. In many cases, more than the 'craft' producers ... if you're going to say that one is craft and one is not, that implies that they don't care, which isn't true. Let's have some real talk and actually acknowledge that they're really good at what they do, and there's nothing wrong with that. There really isn't."
An interim solution may be simply striking the ability to use "craft" anywhere on a label, allowing trade associations and the like to classify their own members based on size or age as they'd prefer. Of course, if anybody has a better idea, bring it to the commenting period.
3) "Small Batch," "Handmade," "Handcrafted"
- Issue: These words, and similar ones, are thrown around haphazardly, and are essentially meaningless.
Moving beyond craft, there are plenty of other words and phrases which bear no meaning, but may be used in an attempt to falsely convey quality level to a consumer.
"I get that there's an attractiveness to 'small batch' and 'handcrafted' but ..." Hoffmann pauses for a moment. "It's funny because I never would have pegged myself as this person, but I'm very much in favor of not saying ridiculous nonsense, you know what I mean?" he asks with a resounding laugh. "Sounds pretty straightforward right?"
While lawsuits continue to fly over such terms and their validity, how about just striking them from label existence entirely? They can't be defined to any reliable or consistent measure, and they inundate the consumer with more unnecessary information and mixed messages.
"Certainly maintaining or increasing clarity in labeling is a goal," says Hletko. "And making sure that the consumer is getting what they think they're getting. And try to help bring a little bit of substance to the marketing of spirits that can only help the consumer, and realistically can help the producer as well."
4) American Single Malts
- Issue: There's no defined American single malt category, and therefore producers can't label their products in that fashion. American single malts are lumped into a generic malt whisky definition, which doesn't neatly fit what's actually in the bottle.
A single malt is a whiskey that's produced at a single distillery, using malted barley as the only grain in the mash bill. And although single malts are distilled throughout the world, from Japan to Taiwan, they're most associated with Scotland.
Per Hofmann, "The idea of American single malt whiskey isn't broadly known because it didn't exist 10 years ago." Now that there are dozens of distilleries producing it, they need a defined category to indicate what it actually is or isn't. In this way, retail stores know where to put bottles on the shelf, consumers know what they're looking at, bar owners can display accurate whiskey lists, and the whiskeys can be compared fairly to one another as members of the same category.
"That's why we want to have more people know that American single malt whiskey is out there, that it exists, and that there's all these differences involved," says Hofmann. "And how big it's going to be one day."
Hofmann and a group of other single malt producers were already working on a way to get the category created, when they more or less happened upon this commenting period, providing them with a ready-made path.
5) Barrel Aged Gin
- Issue: Producers starting to make barrel aged gin cannot label it as such.
Another category in need of a facelift is barrel aged gin—gins that are distilled the traditional way, then aged in oak barrels. This spirit group has proliferated, while still remaining an unofficial spirit section.
"With barrel aged gin, for example, you're not allowed to write that on the label because [the TTB] had so many people submitting that to the online label approval that they saw a pseudo category developing that they weren't privy to because it was happening in the market," says Hofmann. "So they shut it down. Now, unless somebody was grandfathered in, if you're producing barrel aged gin, you can't write that on the label, you have to write something ridiculous."
Back to American single malts, Hofmann uses the saga of barrel aged gin as one he hopes to avoid. "What we want to do is get out ahead of it and say look, there's enough of us here," he says. "But it's about getting the TTB to understand what we're trying to do and getting it to the consumer and protecting the category as it grows."
6) Tax Rates
- Issue: Distilled spirits are taxed at substantially higher rates than beer and wine, and producers are looking for some hard-earned equity there.
Distillers are looking to obtain a tax rate cutoff, whereby producers of less than 100,000 proof galloons are taxed at a lower rate, and all production above that is taxed at a higher rate.
As for how many distilleries would fall under that threshold? Well, almost all of them. "Everybody would be taxed for those first 100,000 proof gallons, then if we were to grow beyond that, we would get that tax rate for the first 100,000, then the rest would have the higher rate, just like what happened in the beer and wine industries," he says. "This is exactly what they did with wine and beer. Those two things are in place already, so this is just getting parity."
While he doesn't expect to get equal terms to wine, which are seen as quite favorable, he at least hopes to reach beer's realm. "If we can get closer to beer...," he says, wistfully trailing off, "wine's got it pretty good, they do."
He also urges legislators to remember that an upfront reduction in tax revenue is paid back in multiples down the road. "There's so much economic impact that's being brought to the table," explains Hofmann.
"The excise tax savings, we would put all of that money back into the business," he continues. "Every other small distiller would as well. Make more barrels, hire more people ... recognition for the impact that the distilled spirits industry is having on the economy, that's important. It's not just about, yeah, we can make good whiskey, good spirits, but also the fact that we are contributing actively to America the country."
Hofmann notes that DISCUS is involved on this particular front. "They're attached to the push for a fair, comparable excise tax," he says. DISCUS though declined to comment on any official, public position for this story. As direct representatives of 138 small distillery members across 36 states, along with over a dozen big boy member companies, they intend to respond with what they feel would be in the industry's best interests and has the potential for positive change once the TTB officially sends notice of this commenting period.
7) Label Approval Speed & Process
- Issue: There's a massive backlog of labels, slowing down the approval process, keeping TTB employees tied up from handling other matters, and potentially allowing more rogue labels to squeak through.
The TTB has 470 employees, a sizable sum, but a figure which is less than it used to be, and all the while, distilleries, breweries, and all of their products are skyrocketing ahead. "They went from 540 staff members five years ago, and now they're at 470, and in that time the number of distilleries has more than doubled," says Hofmann. "Thus, the number of products is going up exponentially as well."
One problem is that a lack of clear regulations, or a misunderstanding of those in place, which leads to direct denials and re-submittals, adding a huge influx of additional labels to sort through.
"I think there were 140,000 label submittals last year, original label submittals," says Hofmann. "But half of them were wrong on the first go. That means they had 200,000 effectively, because they had to send half back to redo it. Things like that, they know there are some fundamental issues of communication, people need to make sure they know the rules before they submit."
Further, many brands submit labels far in advance to try to beat the backlog. "There are a lot of producers who are submitting if they have any idea that they might use a certain label or a certain brand, they submit it," says Hofmann. "Even if they don't know the product is going to be a real thing. And that floods the system."
Producers do that to get ahead of the lengthy wait, so that when their product is ready, they can run with it. But by doing so, they're actually adding to that wait.
- Issue: If producers take the rules were meant to be broken approach and nothing comes of it, what's the point?
New categorization, improved labeling processes, better tax rates for distilleries, an end to fancy marketing jargon ... these are all great, in theory. But if there's a lack of compliance, and missteps either go unpunished, or punished in a minor way comparative to benefits already reaped, then all the regulations in the world don't mean a thing.
"I think those are all things that we have in mind," says Hletko, in reference to topics such as "Distilled By" requirements and terms such as "craft." But he knows a written rule only goes so far. "Also better compliance as well," he says. "I think there are rules that are pretty fully ignored by many people."
Editor: Kat Odell