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Volume XII, Number 148

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Legal Considerations for Ready-to-Drink Cocktails

The ready-to-drink cocktail or “RTD” category has exploded in recent years, and it’s occupied by more than merely craft distillers familiar with a carefully made cocktail. Brewers, distillers and even vintners have joined in, capitalizing on consumers’ desires for pre-made, no-fuss beverages. The most unexpected development to emerge with RTDs, however, is the legal complexity surrounding these products—something the industry is only beginning to understand.

Many of these legal issues stem from the fact that the legal regulatory landscape in most states has not caught up with the rapidly evolving alcohol industry. That leaves ready-to-drink cocktails, much like hard seltzers, as not having a specific class or type in certain states. Suppliers looking to enter the space have plentiful options when creating a new product, subject to what licenses the manufacturer holds and what those licenses allow them to produce.

Ready-to-drink cocktails can be spirits, malt, sugar, cider or wine-based. The base of the RTD product, nonetheless, is the key federal factor. It is also an important factor in most states when determining how the product will be treated from a legal perspective in the following areas:

  • Licensing needed to manufacture, distribute and sell the product;

  • Applicable franchise law (Do beer franchise laws apply to low-proof spirits?);

  • Available channels of distribution (Can you sell this product in grocery or convenience store?);

  • Excise tax rate charged to the manufacturer (Does state law have a lower excise tax rate for low ABV products?);

  • Labeling and advertising considerations (Is your product a modified traditional product?); and

  • Trade practice considerations/promotions (Do spirits laws apply?).

Industry members dabbling in a sphere that is relatively new to the market, state regulators and legislatures should be mindful of the patchwork of emerging regulations. Like hard seltzer, ready-to-drink cocktails are not a clearly defined category under existing alcohol law. Meanwhile, states are working quickly to legislate in this domain. New Jersey is considering a reduced alcoholic beverage tax rate on low-ABV liquors to align with the beer tax rate (NJ SB 701), Vermont is considering legislation to define “low alcohol spirits beverage” and treat it as a “vinous beverage” (VT HB 590) and the Washington State Senate has a bill pending that would establish a tax on low-proof beverages (WA SB 5049).

From franchise issues to excise tax, the issues discussed here are only a glimpse of the nuanced and complicated legal landscape that governs the distribution of RTDs and alcoholic beverages across all categories. 

© 2022 McDermott Will & EmeryNational Law Review, Volume XII, Number 21
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About this Author

Nichole D. Shustack Alcohol Industry Attorney McDermott Will & Emery Washington, DC
Counsel

Nichole D. Shustack* focuses her practice on alcohol trade practice, regulatory, commercial agreements and distribution matters. She represents companies in the alcohol beverage industry, including brewers, distillers and wineries and has in-depth knowledge of the legal, regulatory and distribution issues facing the industry.

*Not admitted to practice in the District of Columbia; admitted only in New Jersey and Pennsylvania. Supervised by principals of the Firm who are members of the District of Columbia Bar.

202-756-8023
Staff Attorney

Isabelle R. Cunningham* focuses her practice on regulatory matters, particularly in the area of alcohol and distribution.

Isabelle concentrates her work on franchise law related to new product launches, transfers of brand rights, supplier rights in a distributor transaction and has experience drafting, reviewing and negotiating contracts. Additionally, Isabelle advises in-house teams on general contract risks and risk mitigation as well as providing legal support on trade practice issues and wholesaler relations. As an in-house attorney, Isabelle advised senior leadership on...

617-535-4415
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