It is increasingly common for beer companies to engage a contract brewer for brewing, bottling, and labeling a beer product. While beneficial, several critical considerations arise when starting a contract brewing or co-packing relationship. For businesses aiming to enter the beer industry without bearing the upfront costs of equipment, obtaining a physical production space, and related administration, partnering with a contract brewer is an excellent solution. While this arrangement certainly suits some companies, there are essential considerations. Explore the key questions you must address before entering into this collaboration.
What is a Contract Brewer?
Contract brewing is a business arrangement where one company (the “brand owner”) engages another to brew or produce beer . The producing entity, often termed the “contract brewer,” is tasked with brewing beer, usually from raw ingredients, and bottling it on its premises. The contract brewer assumes various regulatory responsibilities, including submitting label and formula applications to TTB.
The contract brewer retains ownership of the raw materials and ingredients used in brewing, as well as the final beer product. Title to the beer typically transfers to the contracting client after production, tax payments, and removal from the bonded area of the contract brewer’s facility.
The brand owner company does not necessarily need its own brewery, equipment, or facility but it is possible that it may also be an existing brewery. Some companies, even with their brewery, opt for external contract brewing when facing space constraints, relocation, license application processes, or other production outsourcing needs.
While this setup is popular, especially for smaller or rapidly expanding businesses struggling to meet demand, it is crucial to evaluate certain aspects before committing to this collaboration.
What Questions Should be Asked When Entering a Contract Brewing Arrangement?
Before entering a contract brewing arrangement with an existing brewery, it is important to think about what your company wants out of the relationship. Here are some key questions to consider before engaging in a formal relationship:
- Does your company require licensure? While the contract brewery must secure federal and state permits, your company’s need for a TTB permit and state liquor license depends on whether you’re purchasing the final product for distribution. If involved in marketing or negotiation, a TTB federal wholesaler permit is generally required. The mere fact that the beer is brewed and/or bottled by a properly permitted third party does not necessarily foreclose your company from needing a permit and/or license.
- Who is responsible for obtaining COLAs and/or formulas? The entity bottling the product generally handles TTB label and formula approvals. These applications should align with the contract brewer’s permit.
- Do you have a contract on file with the contract brewer and does it sufficiently protect your company? Ensure your contract safeguards your brand. Clarify ownership of intellectual property, brand, and artwork. Specify responsibilities for record-keeping, tax reporting, and payment — typically the brewing company’s domain.
- Does the contract brewery have the required permits, licenses, and registrations on file? Verify that the contract brewer holds the proper federal TTB permit, state license, and FDA facility registration and ensure that the brewery complies with state or local health and safety licenses.
- How flexible is the contract brewer’s production capability? Is the contract brewer equipped for both small and large-scale production? Assess the facility’s flexibility to accommodate your production needs.
- Is there a DBA or trade name that can be used? Check if the contract brewer has filed a DBA/trade name with TTB. This registration is crucial for featuring your company name in the “Bottled by:” or “Canned by:” section of the label. Unregistered names may require use of the brewery’s TTB permit details or other DBA names on file.
This overview covers essential considerations for companies collaborating with a contract brewer. For detailed insights tailored to your unique partnership and product, reach out to us at info@zahnlawpc.com. Our experience extends to aiding in permit and license applications, offering guidance aligned with your business model.