Licensing Question

[Cavallo]

I'm relaying this from an associate who wants to get into a private-label partnership with a contract distiller. He's being told that he cannot receive product samples without certain licensing. Of course, he's not going to just charge ahead without knowing what will be inside the bottle.

Could someone help clarify this? What licensing is needed for a contract/private label arrangement?

Thanks in advance.

[bluestar]

Depends. What is he going to do with the product? Either he is licensed to received the product as a liquor wholesaler, distributor, or retailer, in which case he needs licenses for that. Or he is purchasing the product at retail for private use (not resale or public distribution). Which is it? Also, depending on which it is affects what the distiller can do and how the product can be labeled. There are tighter controls on spirits than there on wine, for example.

[Cavallo]

Excellent. These are the sorts of questions that I didn't even know to ask.

Wholesaler/distributor. I think the idea is to tweak and re-brand a bulk quantity of base spirit. Definitely not for private use.

[bluestar]

Well, in most states you can't both be a general wholesaler and a manufacturer. In other words, if you are going to own the brand (not the distillery), then you can't tie your manufacture to the wholesaling activities of other manufacturers's products. So, in fact, you might not be licensed as a wholesaler, you might be licensed as the distiller, contracting with a distillery to produce your product. For example, HUM is done that way. But I now take it to mean your client intends to own a brand, sell the brand at wholesale (that means in most 3 tier systems, sell to a distributor), and have it manufactured for him by another distiller. OK, then he is a manufacturer in many states, and needs a manufacturer's license. I know it can be done other ways, but the law is complicated and varies from state to state. We are in discussions with someone to do something similar, but likely the brand will be owned and licensed by us, so it will be a product of our distillery. So now I would advise your client to get a liquor lawyer for their state before pursuing further. Because whichever way they go, they need sound, detailed, specific, legal counsel, IMHO.

[Cavallo]

I knew it would be fantastically more complex than I could have imagined. Wonderful info, thanks.

[Kristian]

Is the distillery able to do a DBA for the brand and add it to their Basic Permit? In most cases the brand owner will give permission to the distillery to use the brand's name as a DBA (for production purposes only). The the brand owner gets a wholesalers license in their state. This gives them the ability to receive product. The reason for this is that the TTB does not allow transfer in bond of non bulk spirit between distilleries. The option of getting your own DSP would be a poor choice unless you plan on doing the bottling and just having the other distillery do the making of the contents.

There is no reason the DSP can't send you a sample of the product prior to production for your evaluation, they just need to remove it from bond and pay the tax. We have several contracts built this way with customers in multiple states. The TTB made a visit and we are compliant the way we have it set up.

I hope this helps.

[bluestar]

What Kristian says is doable, and essentially the same as my suggestion of having the distillery make the product for you under their permit, just adding the DBA. BUT there sometimes are limitations regarding tie-in provisions with things like cross-licensing brands, etc. Again, check with legal counsel.