Spent Grains: FDA Proposed Rule May Cause Concern for Brewers

There has long existed a symbiotic relationship between brewers and farmers in which spent grains, a byproduct of the brewing process, are given or sold to farmers for use as food for livestock. A proposed rule regarding preventive controls for pet and animal food as required under the Food Safety Modernization Act (FSMA) is causing a commotion among brewers over the effect it may have on this relationship.

In late October, the Food and Drug Administration (FDA) issued a proposed rule that would require facilities producing animal food to have written plans that identify hazards, specify the steps that will be put in place to minimize or prevent those hazards, identify monitoring procedures and record monitoring results, and specify what actions would be taken to correct problems that arise. The proposed rule also would establish certain Current Good Manufacturing Practices (CGMPs) that specifically address animal food. According to the proposed rule, brewery operations that sell their spent grain as animal feed could fall within the scope of the rule requirements. Accordingly, this rule could potentially have a significant impact on operations, handling procedures, record keeping and other food safety processes within the brewery setting.

According to an April 17 Food Safety News article, the major concern among brewers, as well as some members of Congress, is that the additional regulations on the spent grain, which would require that it be treated in the same way as commercial animal feed, would make it cost-prohibitive for brewers to continue to supply spent grain to farmers. In addition, brewers argue that the rule would offer no further safety assurances. The brewing industry submitted extensive comments to the proposed rulemaking during the extended comment period which ended in March 2014.

The FDA is currently revising the proposed rule to clarify exactly what will be expected of the byproducts of brewing. The agency intends to issue a re-release of the revised proposed rule some time during the summer.

I will continue to following the proposed rule change and  report on FSMA developments as they relate to the alcoholic beverages industry.

WSLCB Approves Lottery to Rank Marijuana Retail License Applicants

The Washington State Liquor Control Board (WSLCB) has approved the use of a lottery system to select the apparent successful applicants for marijuana retail licenses. WSLCB staff recommended the independent, double-blind process in order to limit the number marijuana retail stores per county as directed by Initiative 502, the measure legalizing the recreational use of marijuana in Washington state.

The lottery will take place on April 21-25, 2014, and will produce an ordered list of applicants for each jurisdiction that the agency will use to continue its retail licensing process. The WSLCB is expected to post that ordered list of applicants for each jurisdiction in the public records section of the agency website on May 2, 2014.

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Why California Breweries, Distilleries, and Wineries Need to Know About California's New Industrial Storm Water Permit

My colleagues Ryan Waterman and Parissa Ebrahimzadeh have evaluated the potential impacts of the new California industrial storm water permit on breweries, distilleries, and wineries in the state.  See below for their report.

On April 1, 2014, the California State Water Resources Control Board (“State Board”) unanimously adopted a new Industrial Storm Water permit (2014 Permit). You can find the new Industrial Storm Water permit and supporting documents here, along with a change sheet also adopted by the State Board.

By way of background, the federal Clean Water Act prohibits certain discharges of storm water containing pollutants except in compliance with a permit. The 2014 Permit is a state-wide permit (called a “general” permit) for all covered industrial facilities in California. Covered industrial facilities must comply with the 2014 Permit when it comes into force in order to be in compliance with the Clean Water Act. 

The 2014 Permit completely re-writes the prior 1997 Industrial Storm Water permit (1997 Permit), and includes many substantive changes. In particular, the 2014 Permit will vastly increase the number of industries affected and impose new and increased compliance requirements.

That is one reason why California breweries, distilleries, and wineries need to know about the 2014 Permit.

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SB 1335 and What it Means for Idaho Distilleries

Beginning July 1, 2014, Idaho distilleries will be allowed to provide samples of their products at their manufacturing facilities, as has been permitted at breweries and wineries throughout the state of Idaho for quite some time. There are some conditions on the samples offered by a manufacturer: (1) the samples must be free; (2) samples must be offered on the premises of the manufacturer’s distillery site; (3) samples are limited to one-quarter of one ounce; (4) a person can only receive up to 3 samples in a 24-hour period; (5) samples must be served by a person over the age of 21. In addition, the manufacturer must purchase the distilled spirits from the Idaho State Liquor Division, and pay all appropriate taxes on the purchased samples.

The change in the law, which passed through the Idaho legislature on March 13, is prompted by the opportunities for state and agricultural suppliers to increase revenue and employment opportunities in Idaho.

Prior to the legislative change, visitors of Idaho distilleries could view the distilling process, but they could not taste or consume any of the spirits. As a result, Idaho distilleries lost the opportunity sales from the potential customers who toured their facilities, and there was likely a reduced interest in distillery tours without the opportunity to sample the product on the tour. Product samples are expected to boost product sales from those who embark on the distillery tours, as well as make the tour a more compelling marketing tool for the distilleries.

The new law impacts not only the current eight Idaho distilleries, but the future of the Idaho distillery market. Idaho’s willingness to respond legislatively to the distilleries business needs is a positive sign of support from an otherwise conservative state.

The Idaho State Liquor Division controls the importation, distribution, sale and consumption of distilled spirits in Idaho. The ISLD is responsible for balancing the curtailment of excessive use of alcohol while maximizing the revenues to the citizens of Idaho. Manufacturers of distilled spirits must be licensed in Idaho, which is overseen by the ISLD and licensed by the alcohol and Tobacco Tax and Trade Bureau (TTB).

Colorado Amends Ethics Rules to Provide Safe Harbor for Lawyers Advising Marijuana Businesses

According to a new comment adopted by Colorado’s Supreme Court last week, Colorado lawyers who provide legal services to state-regulated medical and recreational marijuana businesses will not violate the state’s Rules of Professional Conduct.

The rule change added the following comment to Rule 1.2 regarding the scope of representation and allocation of authority between the client and the lawyer:

A lawyer may counsel a client regarding the validity, scope, and meaning of Colorado constitution article XVIII, secs. 14 & 16, and may assist a client in conduct that the lawyer reasonably believes is permitted by these constitutional provisions and the statutes, regulations, orders, and other state or local provisions implementing them. In these circumstances, the lawyer shall also advise the client regarding related federal law and policy.

Previously, Colorado Rules of Professional Conduct had prohibited attorneys from aiding clients “in conduct that the lawyer knows is criminal.” Despite the fact that medical and recreational use of marijuana is legal within the state, lawyers were left at an impasse because the production, use, sale, and distribution of the drug is still illegal under federal law. Based on this prior rule, a Colorado lawyer providing anything more than basic legal advice to marijuana businesses could run afoul of his or her ethical obligations and faced disciplinary action.

The newly adopted comment provides a safe harbor for lawyers seeking to represent those engaged in the legal marijuana industry within Colorado. On March 24, 2014, the comment was signed by Chief Justice Nancy Rice and became effective immediately. Justices Nathan Coats and Allison Eid would not approve the comment.

Lawyers in Washington state also are in the process of navigating the ethical dilemmas presented by the potential representation of the emerging statewide legal marijuana industry; a similar dilemma is presented to those lawyers in other states seeking to represent clients in the medical marijuana industry (in those states where it is legal). With the passage of Initiative 502, Washington became the second state in the nation to legalize the production and sale of marijuana for recreational use. However, as Washington’s ethics rules currently stand, lawyers could face discipline, such as disbarment, for advising marijuana business clients.

For the past few months, the Washington State Supreme Court Rules Committee has been considering proposals from both the King County Bar Association and the Washington Bar Association as to how lawyers can advise clients on issues where state and federal law conflict, specifically in response to Washington Initiative 502. Lawyers in Washington state are still awaiting the Rules Committee’s decision.

What Distillers Can Expect From the Passage of SB 6226

Content authored by Susan Johnson, Stephanie Meier and Claire Mitchell:

Over the last decade the number of micro or craft distillers in the U.S. has gone up by almost 30 percent a year, going from just 50 in 2005 to more than 600 in 2013, according to the industry group the American Distilling Institute (ADI). Washington is a leader in this growing industry. The state boasts 83 distillers, more than any other state in the nation. Yet despite this remarkable growth, it is difficult for distilleries, especially small ones, to survive. Startup costs are often extremely high and zoning regulations can be cumbersome to navigate. In addition, most state laws restrict craft distilleries from selling spirits directly to retailers and consumers, and from charging for on-premises samples.

However, the Washington legislature recently passed a bill--SB 6226--that seeks to help distillers overcome some of these hurdles. The bill, originally sponsored by Senators Holmquist Newbry, King, Conway, Hewitt, and Kohl-Welles aims at removing burdensome restrictions on distillery operations and supporting the state’s emerging craft-distillery industry by accomplishing the following:

  • Increasing the annual spirits production limit for craft distillers from 60,000 gallons to 150,000 gallons.
  • Eliminating the 3 liter per day per person limit on the sale of spirits by a craft distiller for off-premises consumption.
  • Authorizing a craft distillery to charge customers a fee for spirits samples of 0.5 ounce or less served to them on-premises.
  • Authorizing any licensed distillery to: 1.) sell spirits of its own production for consumption off the premises; 2.) contract with, and sell spirits to, other licensed distillers and manufacturers; and, 3.) provide for free, or for a charge, spirits samples of 0.5 ounce or less to customers on the premises, subject to a daily maximum of 2 ounces per person per day.
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Conditions For Using Multi-state AVAs On Wine Labels

By Chris Hermann and Bernie Kipp:

The recent notice of the proposed new AVA “The Rocks” in northeast Oregon has kicked off a round of questions about what Northwest wineries may use as an appellation of origin on their labels when grapes are grown in multi-state AVAs such as the Columbia Valley, Walla Walla Valley, Columbia Gorge, Snake River Valley, or the newly proposed “The Rocks” AVA. What all of these viticultural areas, except The Rocks, have in common is boundaries that cross state lines.

The use of AVA references on wine labels trigger specific requirements per federal regulations that sometimes can be confusing. First, it is important to remember that American Viticultural Areas are delimited grape-growing regions having distinguishing features which have been accepted and approved by TTB by name and a delineated boundary as established and published in federal regulations. In other words, there are unique features about the AVA that transcend political boundaries.

So…what are the three requirements for use of an AVA as an appellation of origin on a wine label?

First, the named appellation must have been approved by TTB and published in 27 CFR Part 9.

Next, not less than 85 percent of the wine is derived from grapes grown within the boundaries of the named viticultural area. Finally, in the case of American wine, it has been fully finished within the State, or one of the States, within which the labeled viticultural area is located (except for cellar treatment pursuant to §4.22(c), and blending which does not result in an alteration of class and type under §4.22(b)).

This last condition can get a little tricky so here is some clarification:

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First Recreational Marijuana Licenses Issued in Washington

The Washington State Liquor Control Board (WSLCB) issued the state’s first licenses to produce and process recreational marijuana today. According to news reports, the licenses were issued to Spokane’s Sean Green who will operate his business under the trade name Kouchlock Productions.

The WSLCB began processing applications for all three license types (producer, processor and retailer) on November 20, 2013. The window for accepting license applications remained open for a period of 30 days. Although the WSLCB explained that it did not intend to limit the amount of producer or processor licenses to be issued, the agency will only be issuing 334 retail licenses.

Despite the issuance of the first licenses under Initiative 502, the marijuana industry continues to face challenges as marijuana remains an illegal substance under federal law.

New California General Industrial Storm Water Permit Slated For Adoption on April 1, 2014 May Hold Surprises for California's Wineries, Breweries and Distilleries

Today, the State Water Resources Control Board (State Board) released for public comment its Draft Industrial Storm Water Permit and supporting documents. This is the fourth (and likely final) version of the Draft Industrial Storm Water Permit, which is designed to replace the existing Industrial Storm Water Permit issued in 1997.

The Draft Industrial Storm Water permit is relevant to the beverage industry because it will affect currently regulated California based breweries, wineries and distilleries, and also will require previously unregulated breweries, wineries and distilleries to either comply with the permit or show that storm water does not come into contact with their industrial activities and materials.

The public comment period on the Draft permit runs until Tuesday, March 4, 2014, at 12:00 noon. The State Board will only accept and consider “written and oral comments that are limited to the identified proposed revisions to the Final Draft Industrial General Permit made since July 19, 2013.” (Notice of Adoption Meeting and Notice of Availability of Draft Documents (Feb. 19, 2014).)

The Draft Industrial Storm Water permit is slated for adoption at the April 1, 2014, State Board hearing. If adopted on April 1st, the Draft Industrial Storm Water permit will be effective on July 1, 2015, giving all California wineries, breweries and distilleries a little over a year to come into compliance.

Stoel Rives attorneys are analyzing the Draft Industrial Storm Water permit, and future posts will report on the public comments submitted as well as discuss potential problems or concerns with the draft permit.

For more information, please contact Missy Foster at mafoster@stoel.com or (916) 319-4673 or Ryan Waterman at rrwaterman@stoel.com or (858) 794-4114, or your Stoel Rives relationship partner.

OLCC Proposes New Rules for Food Carts

The Oregon Liquor Control Commission (OLCC) is undertaking rulemaking that would impose new regulations on the service of alcohol at food carts and other outdoor areas throughout the state. The rules would distinguish between outdoor areas not abutting a licensed building (e.g., areas associated with food carts and food cart pods) and outdoor areas connected to a brick-and-mortar licensed premise.

Overall, the proposed rules would establish a clear licensing pathway for food cart applicants. OAR 845-005-0329 outlines the basis upon which the OLCC may refuse to issue a license, and OAR 845-006-0309 establishes the requirements a licensee must meet for alcohol service. While the proposed rules are fairly straightforward, some may criticize the rules for being too restrictive.

For example:

  • The outdoor area must qualify for a Number III minor posting. This posting requires that the designated drinking area not constitute a “drinking environment and drinking alcohol will never predominate.” This would be a more stringent minor posting than that required for outdoor areas adjacent to a physical licensed building. Food carts would not be allowed to have outdoor beer garden areas or environments similar to a winery tasting room. A solution to this issue would be to revise the proposed rule to allow a Number IV minor posting (“Minors Allowed During These Hours ___ to ___”) or a Number V minor posting (“Minors Allowed Only with Their Parent, Spouse or Domestic Partner Age 21 or over”) when authorized by the OLCC on a case-by-case basis.
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Oregon Liquor Privatization Rejected in 2014 Legislature

Late last week, Oregon lawmakers shot down SB 1559, a bill that proposed what some called a compromise on liquor privatization in Oregon. It would have allowed grocery stores 10,000 square feet or more to sell liquor from their shelves, while keeping the Oregon Liquor Control Commission in control of the supply. Lawmakers sent the issue to a state task force for further consideration. We likely will not have to wait until the 2015 legislature, however, to continue the privatization debate. A coalition of grocery outlets filed initiative petitions seeking to privatize sales and allow stores over 10,000 square feet to stock liquor. In total, five petitions were filed, all with different language (here, here, here, here and here). It is anticipated that the grocery backers will select one version of the initiative to qualify for the fall ballot. The initiatives look similar to measures private sector retailers backed in Washington in 2010 and 2011.


Another Great Year at Unified Wine & Grape Symposium

Stoel Rives LLP lawyers from the firm’s Beverage & Hospitality Group attended the 2014 Unified Wine & Grape Symposium last week in Sacramento, where they connected with new contacts, old friends, and current clients.

On Tuesday, Colin Hunter, Chris Hermann and Elaine Albrich visited winegrape growers, industry contacts and production facilities in Clarksburg, Lodi and Modesto. In the evening, Stoel’s in-house Alcohol Compliance Advisor Bernie Kipp joined the group for Zepponi & Company’s impressive wine reception, which extended onto the Hyatt’s 12th-story deck, providing an amazing view of the State Capitol.

At the symposium, Stoel attorneys caught up with growers and winemakers at the firm’s booth and showed off the firm’s new e-based Law of Wine book. Among many visitors was Kipp’s former colleague, Theresa McCarthy, Assistant Administrator for Headquarters Operations, at the Alcohol and Tobacco Tax and Trade Bureau (TTB). Stoel concluded the first day of the symposium by hosting its annual industry dinner at Ella Dining Room and Bar for clients and friends of the firm. No one was disappointed with the wine selection, as Chris Hermann chose Fiddlehead Sauv Blanc, Arnot Roberts Chardonnay and Syrah, ’09 Caillou CDP Quartz, ’09 Mortet Gervrey Chambertin, ’10 Ramonet Chassagne Montrachet Boudriotte, ’76 Lopez Bosconia and ’90 Chapouter Hermitage to accompany dinner.

Legal Marijuana Business Faces Increased Local Resistance in Wake of Recent Washington State AG Opinion

Despite the fact that implementation of Initiative 502 (I-502), a measure legalizing the recreational use of marijuana that was approved by Washington voters in 2012, is in full swing, and other states such as Florida and New York are loosening their laws on the use of medical marijuana, there is growing resistance to legal marijuana as local municipalities across the country seek to ban legal sales of the controlled substance.

According to a New York Times article this week:

In Washington, the Yakima County Commission has already said that it plans to ban marijuana businesses in the unincorporated areas outside Yakima city. Clark County, Washington, is considering a ban on recreational sales that would affect the huge marijuana market in Portland, Ore., just across the Columbia River. And the state’s second most populous county, Pierce, just south of Seattle, said last month it would bar recreational businesses from opening.

In fact, the Center for the Study of Cannabis and Social Policy, a pro-legalization research group in Seattle, reported this month that 36 cities in Washington covering more than 1.5 million people have passed local moratoriums putting a hold on the acceptance of marijuana licenses. Three cities have banned marijuana businesses entirely until use of the drug is approved federally.

Opposition to legalized marijuana has been seen outside of Washington State as well. In California, for instance, Fresno County recently became the first county in the state to ban all marijuana cultivation. In addition, several local governments throughout Colorado have taken steps to prohibit marijuana businesses in their respective cities.

These local efforts appear to be spurred by “the opening, or imminent opening, of retail marijuana stores [in Washington] and in Colorado,” as the New York Times reports, as well as anxiety over how the production and sale of marijuana may impact neighborhoods and communities. In Washington, the Liquor Control Board opened the application process in late November for individuals and businesses to apply for marijuana licenses within a 30-day window. Although there is no set timeline for issuing these licenses to qualified applicants, it is expected that the Washington recreational marijuana industry will open for business beginning in spring 2014. In Colorado, 37 new dispensaries opened their doors on January 1, 2014 and commenced legal sales of marijuana for recreational use in the state.

In addition to the looming legal marijuana business in Washington and Colorado, and the fear expressed by some residents over the effect marijuana sales may have on communities and youth, another factor fueling the opposition of local municipalities to marijuana businesses setting up shop in their towns is simply their legal right to issue local bans against legal marijuana sellers and growers. A January 16, 2014 legal opinion issued by Washington State Attorney General Bob Ferguson appears to support this position. According to the nonbinding opinion, under Washington law, local governments have broad authority to regulate within their jurisdictions, and nothing in I-502 limits that authority with respect to licensed marijuana businesses. In fact, in Washington, there is a strong presumption against finding that state law preempts local ordinances.

Ferguson further explains that “[a]lthough Initiative 502 (I-502) establishes a licensing and regulatory system for marijuana producers, processors, and retailers in Washington State, it includes no clear indication that it was intended to preempt local authority to regulate such businesses.” Ferguson concluded that I-502 left in place the normal powers of local governments to regulate within their jurisdictions. As a result, many local governments have seen this opinion as a green light to move forward with local ordinances banning marijuana production and sale.

The fight over legalized marijuana is expected to continue into the foreseeable future. However, the debate involves more than tax revenues and community values. As New York Times reporter Kirk Johnson puts it, “the fight also signals a larger battle over the future of legal marijuana: whether it will be a national industry providing near-universal access, or a patchwork system with isolated islands of mainly urban sales.” Only time will tell.

Initiative 522 Defeated in Washington

Based on preliminary results from Tuesday’s election, it appears that Washington State’s hotly debated Initiative 522 (I-522) concerning the labeling of genetically-engineered foods has gone the way of California’s Proposition 37. Washington officials reported on Wednesday, November 6, 2013 that voters had rejected the measure, 54% to 46%. California’s similar labeling measure, Proposition 37, was rejected by California voters in November 2012.

County by county results show that certain counties in Washington including, King, Whatcom, and Jefferson, were largely in favor of passing I-522. However, the measure lost heavily in the southwest, central and eastern regions of the state.

If it had passed, I-522 would have required that any food offered for retail sale in Washington that was or may have been entirely or partly produced with genetic engineering to be labeled as follows:

  • In the case of a raw agricultural commodity, the package offered for retail sale must clearly and conspicuously display the words “genetically engineered” on the front of the package, or where such a commodity is not separately packaged or labeled, the label appearing on the retail store shelf or bin where such a commodity is displayed for sale must display the words “genetically engineered;”
  • In the case of any processed food, the front of the package of such food must clearly and conspicuously bear the words “partially produced with genetic engineering” or “may be partially produced with genetic engineering;” and
  • In the case of any seed or seed stock, the seed or seed stock container, sales receipt or any other reference to identification, ownership, or possession, must state clearly and conspicuously that the seed is “genetically engineered” or “produced with genetic engineering.”

Importantly, I-522 would have exempted certain foods from the genetically engineered labeling requirements. In particular, the measure carved out an exemption for alcoholic beverages as well as other food products such as certified organic products, medical foods, food sold for immediate consumption such as in a restaurant, products unintentionally produced with genetically engineered material, food made from animals fed or injected with genetically engineered material but not genetically engineered themselves, food processed with or containing only small amounts of genetically engineered ingredients, and any processed food that would be subject to the labeling requirement solely because one or more processing aids or enzymes were produced or derived with genetic engineering.

Several other states currently have pending GMO labeling legislation that will be addressed during the next legislative session for those respective states. Stoel Rives attorneys will continue to track these state GMO labeling measure as developments occur. Check back here for updates.

Oregon Liquor Control Commission Rulemaking Updates

The Oregon Liquor Control Commission (“OLCC”) is initiating rulemaking that would amend licensing requirements for outdoor areas and distilled liquor tasting.

Outdoor Areas
The OLCC has proposed two new rules to address the licensing qualifications and operating requirements for “exclusively outdoor areas,” or areas that do not abut a licensed building. The rule would apply to the areas around food carts, for example. The proposed measures, for the most part, implement best management practices the OLCC currently requires of food cart licensees. The rule would require an applicant to demonstrate that the outdoor area (1) allows the OLCC to legally access it, (2) qualifies for a Number III minor posting, (3) has defined physical boundaries, and (4) has a designated area for alcohol consumption. With respect to operations, the rule would prohibit a patron from having more than two containers at a time or bringing alcohol into, or removing alcohol from, the designated alcohol consumption area. Alcohol service and amplified entertainment would also not be allowed after 10 pm.

Food cart licensees (and prospective licensees) most likely will want to ensure that the hours of service meet business needs and, notwithstanding the prohibition of removing alcohol from designated consumption areas, that a patron can remove beer or wine from the premises if it is in a packaged container or growler. The OLCC advisory committee meeting is scheduled for December 10, 2013 and a rulemaking hearing likely will be scheduled in February 2014. More information to follow.

Distilled Liquor Tastings
Effective January 1, 2014, Oregon House Bill 3435 amends ORS 471.230 to allow a distillery licensee to conduct tastings at its annually licensed premises as well as up to five other premises it owns or leases. The OLCC is in the process of amending OAR 845-005-0431 to reflect this new privilege. A licensee will need to provide the OLCC with written proof of its “exclusive use and possession” of the other locations.