Is Your Craft Brewery Expanding? Don’t Forget to Tell TTB
February 11, 2016
It’s a scenario we hear often – your craft brewery or distillery has had a phenomenal year and is looking to expand to keep up with rising demands. Regardless of your changes, you will likely be required to contact the Alcohol & Tobacco Tax and Trade Bureau (or “TTB”) and notify them of the changes. Common changes and procedures are listed below:
1) Increasing Production – This is usually a straight-forward change in operations; you simply need to make more product to keep up with growing demand. If this happens, be sure to check whether your current bond covers the new production numbers. Remember, your TTB bond covers the amount of product you make and store at your facility, so it’s important to consider when significantly increasing production. A good practice would be to call your bond surety and ask about the implications of your new production figures – they will likely be best suited to tell you if you need to increase your bond amount.
2) Moving to a New Location – Another common problem arises when a craft brewery becomes so successful, its current location can no longer support its needs (e.g. more storage space or larger equipment is needed). Often times the brewery moves to a new location without thinking twice about notifying the TTB, however this can be asking for trouble. Any time you move to a new location, you must notify TTB and amend your current permit or brewer’s notice with a Change in Location amendment. This will also entail providing a new diagram and possibly notifying state and local officials of the change, depending on your location.
3) Ownership Changes – Ownership changes can be the most confusing and most problematic of all issues that arise when a brewery or distillery grows. This issue is very commonly overlooked and the consequences in such cases can be very significant. The common scenario goes like this: Al and Bob each own ABC Brewery, LLC as 50/50 owners. After an incredibly successful year, an investor (we’ll call him Clark) contacts Al and Bob and informs them that he would like to invest a substantial sum of money into their business. Note that Clark will not be involved in the management and operations of the brewery (he’ll leave that up Al and Bob), but he agrees to invest enough money to now own 20% of ABC Brewery, meaning that Al and Bob split the remaining 80%. Al and Bob never think to notify TTB that Clark is a minority owner of the brewery (especially since he is only a “silent partner”), however their failure to do so means that they are not in compliance with federal law, as Clark is required to provide a lengthy disclosure of his finances and his personal information.
This problem can be further compounded if in the same scenario as above, Clark acquires 51% or more of the brewery. Although it may seem like a simple change on paper, this would mean that a whole new individual has control of the brewery. Without notifying TTB and filing the proper paperwork, ABC Brewery will technically be operating without a valid permit or brewer’s notice and could be subject to administrative action, including revocation of their license.
So what is the takeaway? Always be on the lookout for these types of issues when your brewery or distillery is looking to expand. It’s easy to get caught up in the excitement (and stress) of your business rapidly growing, but it is very important to consult with your attorney or compliance consultant before you pull the trigger on any of your expansion plans.
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