For many, venturing into the wine business is a dream come true. However, aspiring vintners often find themselves facing a significant obstacle: the high cost of entry. Establishing a winery demands substantial capital for land, cellar equipment, refrigeration facilities, vineyards, storage, labor, and more. Additionally, there’s the patience required as it can take several years before the first harvestable vintage yields returns on investment.
Fortunately, there are alternative routes for those eager to enter the wine business without the need for substantial upfront capital. Two distinct models deviate from the traditional winery setup: the custom crush facility and the alternating proprietorship. These innovative approaches allow individuals to create their wine brand without investing in the conventional essentials, such as equipment and dedicated space, required for a full-fledged winery. These models cater to new winemakers who wish to elevate their passion without the complications of securing their space and equipment.
Custom Crush Facility: A Collaborative Approach
The custom crush facility model involves partnering with an existing winery to produce wine. In this arrangement, a company wanting to create a wine brand– typically called a brand owner or custom crush client — can establish a contract or agreement with the custom crush facility to produce wine for the brand owner. This arrangement eliminates the need for you to invest in equipment, labor, space, and time. The existing winery, operating under its federal permit and state license, streamlines the regulatory and financial aspects that usually burden a traditional winery startup. Given that obtaining a federal basic permit can take months and individual state licenses are often necessary, collaborating with a custom crush facility can save several months or even years.
Under this partnership, the custom crush facility handles formula approvals (if required), label approvals, and maintains the necessary records and reports with respect to the production and bottling of the wine. They also manage federal excise taxes, unless the wine is transferred in bond to another bonded premises for further processing. Despite these regulatory responsibilities, and absent any contractual provisions to the contrary, the custom crush client retains control over its brand, intellectual property, business decisions, marketing, production style, label design, and more.
Please note that specific state licensing requirements may vary. We recommend checking with your state agency for details, or contacting Lindsey Zahn P.C. at info@zahnlawpc.com or 929-ZAHNLAW for guidance and to determine what permits or licenses may be required for your company.
Alternating Proprietorship: Sharing Space and Expertise
The alternating proprietorship model entails more formal compliance work but offers unique benefits. In this setup, the federal government recognizes a permitted premise that can be shared between multiple owners. Often, more than one winery is licensed at the same physical location but under separate ownership (and separate permits). Each company take turns using the same space and equipment for wine production. In this collaborative arrangement, multiple wineries may be able to share some staff, provided each owner demonstrates independent decision-making authority and control.
In the alternating proprietorship relationship, there is usually an existing winery who rents or leases space and equipment to a new proprietor. This approach allows newcomers to the wine industry to start without investing in machinery or equipment while still maintaining jurisdiction and management over wine production. Furthermore, if the new proprietor later decides to establish an independent winery, they will already possess a federal (and likely state) permit, which may require amendments.
The alternating proprietorship model involves record-keeping requirements and may necessitate formula submissions (if applicable) and label approvals with the Alcohol and Tobacco Tax and Trade Bureau (“TTB“), along with adherence to individual state regulations. It is ideal to work with an alcohol beverage attorney for tailored guidance about your specific circumstance. However, this model offers significant advantages, such as the rights of a winery, including direct shipping to consumers, operating a tasting room, and eligibility for the small producer tax credit.
Reach out to Lindsey Zahn P.C. at info@zahnlawpc.com or 929-ZAHNLAW for more information about how the firm can help. For more information about applying for a federal winery permit, see our posts TTB Federal Basic Permit Checklist: The Items Needed to Apply for a Permit and TTB Federal Basic Permit Checklist: The Items Needed to Apply for a Permit.
Lindsey Zahn P.C.: Your Guide to TTB Permit Applications
Lindsey Zahn P.C. focuses on assisting wine and alcohol beverage companies with permit issues for distilleries, breweries, and wineries. Our team helps you identify specific state and federal licensing requirements based on your business model, whether it’s a traditional winery, custom crush relationship, alternating proprietorship, or other variations. We conduct comprehensive compliance research to address potential concerns or questions and maintain regular correspondence with federal agencies like the FDA and TTB.
The firm’s experience covers label and labeling requirements, licensing processes, and advertising considerations affecting the alcohol beverage and food industries. If needed, we can assist you in applying for a federal permit through the TTB, often a prerequisite before obtaining a state license.
For more information about how Lindsey Zahn P.C. can support your wine or alcohol business, please contact us at info@zahnlawpc.com or 929-ZAHNLAW.