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When “Beer” isn’t a “Malt Beverage”

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Jeanne Grace

 

​Here in the US our alcohol regulatory scheme was created in the mid 1930’s when Prohibition ended.  Back then very little wine was made in the US and most beer was German style lager.  The industry has changed dramatically since then, but the regulations haven’t.  Every time someone dreams up a new type of alcoholic beverage the regulators must figure out what to do with it.  Flavored malt beverages, like Mike’s Hard Lemonade, were on the market for about 10 years before the federal government figured out how to regulate them!  Now we are seeing an increase in products like alcoholic kombucha, hard seltzer, hard sodas and similar beverages that are generally sold like beer but don’t fit what most people think of as beer.  So, what do the regulators do with these?
 
First, let me clarify what type of products I’m talking about.  The classification of alcoholic beverages relies largely on the raw materials used so I’m talking about products where the main fermentable ingredient is sugar.  Not the sugar naturally found in grape juice, or the sugars in sprouted grains – the sort of sugar that is likely sitting in your kitchen right now.  You will soon see why this matters.
 
As you may know, TTB and most states divide alcoholic beverages into three commodities:  beer, wine and spirits.  Pale Ale, Pinot Noir and Whiskey fit neatly into these categories; hard kombucha, seltzer and soda don’t.  First, we will look at TTB, then take a very general look at state issues since there are too many states to deal with.
 
Federal Rules
 
TTB has the pleasure of enforcing regulations based on two different laws, each with their own set of definitions.  This is what happens when Congress writes a new law without looking at what they said last time.  The first law is the Internal Revenue Code (IRC) which impacts things like taxes and whether you need to be registered as a brewery, winery or distillery.  The other law, the Federal Alcohol Administration Act (FAA) covers things like labeling and advertising.  The IRC definitions of “beer”, “wine” and “spirits” can be found in 27 CFR 25.11, 24.10 and 19.1, but here is the abridged version:
 

  • Beer is made from malt or malt substitutes, which includes sugar.

  • Wine is made from fruit or other agricultural products, not including grains.

  • Spirits is ethyl alcohol, or any alcoholic beverage that isn’t “beer” or “wine”.

 
This means that if you were to ferment sugar-water, then add flavorings and CO2 you would be creating “beer”.  This applies whether yeast or another microorganism was used for fermentation, which is why most kombucha with 0.5% ABV or more is classified as “beer”.   On the other hand, if you were to ferment juice, add flavor and CO2, and call it “Janene’s Hard Seltzer” you would be dealing with wine.  Regardless of what you call your products (hard seltzer, hard root beer, spritzer, etc.), the classification is based on the materials used.
 
Since brewers are creative people, we need to drill down a little further to see what happens when you use some combination of grains, sugar and/or juice.  Sometime back in the 1800’s the government decided that “beer” has to must be fermented from at least 51% malt or malt substitute.   This is why things like raspberry ale are classified as “beer” – because they generally contain much more than 51% grains and a little raspberry.
 
On the other hand, “wine” cannot contain any grains, which oddly includes molasses, but sugar can be added before and after fermentation.  As you can see, fermenting sugar and juice together can be either beer or wine, depending on the ratio: 51% sugar and 49% juice is “beer” while 51% juice and 49% sugar is “wine”.  But for today’s discussion we are going to stick with the products that meet the definition of “beer”.  That is: fermented from at least 51% sugar, with or without grains or juice added.
 
Now that we have that cleared up, let’s move on to the second set of TTB definitions.  The FAA Act doesn’t use the term “beer”, instead it uses “malt beverage”.  The full definition can be found at 27 CFR 7.10, but the short version is a fermented beverage that must contain malt and hops.  This is a much narrower definition than “beer”, but for beverages like ale, lager, stout, IPA, etc. it doesn’t make a difference – these are both “beers” and “malt beverages”.  But lately there have been a variety of products that are classified as “beer” but not “malt beverage”, such as gluten free beers made from alternative grains, many kombuchas, hard seltzers and similar beverages.
 
So, what does it mean to have a beer that isn’t a malt beverage?  Well, since malt beverage is the definition that is used in the labeling and advertising law and regulations, the main impact is that these beverages are not labeled the same way ale and lager is.  The federal malt beverage labeling and advertising rules, in 27 CFR Part 7, do not apply to beers without malt and/or hops.  This means no COLAS are required!  I’m sure this is a relief to many, but there is a catch – whenever the FAA Act labeling requirements don’t apply the FDA rules do.  This includes having things like ingredients and nutrition facts on the labels.
 
Nothing in alcohol regulations is simple, so before we look at the FDA requirements, I need to remind you that TTB has some labeling requirements that are not based on the FAA Act, and therefore still apply.  These are known as the mandatory labeling requirements because, well, they are always required for beer.  This includes a few things that are based on the IRC, and are found in 27 CFR 25.142, including the name and address of the packager, net contents and “nature of the product” (i.e. “beer”).  Also required is the government health warning statement (27 CFR Part 16).  In fact, this could be considered the most important part of any alcohol beverage label because the mandatory fine for non-compliance is over $20,000 for each time the faulty label is used in a packaging run.  Eek!
 
In addition to these TTB requirements, beers that are not malt beverages must be labeled like foods, per FDA regulations.  The FDA has put together some guidance that you might find helpful:
 

 
In summary:
 

  • A fermented beverage that is made from at least 51% sugar, with or without added grains or fruit/juice, is classified by TTB as “beer”.

  • “Beer” that doesn’t contain malted barley and/or hops is not a “malt beverage” and therefore does not need to be labeled according to the federal labeling regulations based found in 27 CFR Part 7, including not needing a COLA.

  • Beer that is not a malt beverage must be labeled with the TTB mandatory items, including the government warning statement, and in compliance with the FDA labeling regulations.

  • Note:  any beverage classified as beer must be made in a facility covered by a Brewer’s Notice, and the federal beer excise taxes apply.  Formula approval may also be required.  See 27 CFR Part 25 and www.ttb.gov for full details.

  • TTB has a Kombucha page:  https://www.ttb.gov/kombucha/index.shtml.  Most of this also applies to hard seltzers and sodas.

 
 
State Issues
 
Where to begin with the state issues?  With the fact that 50+ different state and local regulatory systems keeps people like me gainfully employed?  That’s probably not what you want to know…
 
Here’s the problem – each state has its own set of definitions so how products like hard seltzer and alcoholic kombucha are handled depends on the state.  Some have a definition like the one TTB has for “beer”, while others are more like TTB’s definition of “malt beverage”.  The net result is that in some locations these products are treated like beer while in others they fall into “wine”.  And some states have never heard of kombucha and don’t know how to classify it.
 
Let me give you two examples:  Washington and Oregon.  Washington statute has the following definition: 
 
RCW 66.04.010   (26) "Malt beverage" or "malt liquor" means any beverage such as beer, ale, lager beer, stout, and porter obtained by the alcoholic fermentation of an infusion or decoction of pure hops, or pure extract of hops and pure barley malt or other wholesome grain or cereal in pure water containing not more than eight percent of alcohol by weight, and not less than one-half of one percent of alcohol by volume. For the purposes of this title, any such beverage containing more than eight percent of alcohol by weight shall be referred to as "strong beer."
 
The WSLCB has interpreted “other wholesome grain or cereal” to essentially mean the same thing as TTB’s “malt or malt substitute”.  In other words, sugar counts as a grain or cereal so the products we are talking about are treated as beer in WA.
 
Oregon, on the other hand, has the following definition:
 
ORS 471.001 (6)(a) “Malt beverage” means an alcoholic beverage obtained by the fermentation of grain that contains not more than 14 percent alcohol by volume.
 
Notice that it mentions grain, but only grain.  No substitutes, no other cereals or materials.  This means that the OLCC considers the products in question to be wine.   Unless your products contain some type of grain, like barley, wheat, millet, etc. your hard seltzer, kombucha or soda will be wine in OR.  If you are making it in OR then you need to have an OLCC Winery license, even if have a TTB Brewer’s Notice rather than a Wine Basic Permit.  The wine privilege taxes also apply, rather than the malt beverage taxes, which may or may not be an advantage.  Small wineries in OR are exempt from the privilege tax, while no similar small brewer advantage exists.
 
If you are going to make or sell products like these in other states, you will have to contact the state to determine how they will classify them.  Be prepared to explain the materials used and them method of production.  In some cases, I have seen states ask for a copy of the TTB approved formula.  Most states require label approval or brand registration, regardless of whether or not TTB requires a COLA.  Pretty much all states understand this situation now because of the popularity of hard cider.
 
Whether the state considers your products to be beer or wine is going to impact things like:

  • What license you need (both for in-state production and sales from out-of-state) and what type of license your distributors need.

  • Whether or not you can self-distribute.

  • Whether you need to sell through the state’s control system (this also depends on the alcohol content).

  • Tax rates.

  • Label registration and price posting requirements.

  • Franchise law restrictions.

 
I strongly suggest giving yourself extra time to work through the issues before you develop or expand distribution of a “beer but not malt beverage product”.  And don’t be surprised if you need to hold the hands of the regulators in places that aren’t familiar with the type of beverages you are making.
 
Feel free to reach out to me if you need additional information.  And if you are looking at making a fruit/juice-based seltzer, spritzer or whatever, the rules for wine and hard cider will apply.
     

What is Hard Seltzer
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