It is very common for wine companies to contract with an existing winery — often referred to as a custom crush facility, contract producer, or co-packer — to handle the fermentation, bottling, blending, and bottling of their wine products. This arrangement proves beneficial for companies aspiring to enter the wine industry without investing upfront in equipment, (significant) licensing, a physical production site, and other administrative costs. While working with a contract producer can be an appealing option, several crucial considerations demand attention.
What is a Contract Winery/Co-Packer/Custom Crush Facility?
A custom crush relationship is an arrangement where one business hires another — an existing winery — to produce wine. Generally speaking, the company hiring the winery typically owns the brand of wine that will be producer (such as the brand name, logos, artwork, and similar). The hiring company is typically called the custom crush client or the brand owner, while the company producing the wine is the custom crush winery, the co-packer, or the contract winery. This relationship may involve the custom crush winery sourcing bulk wine from other companies, blending it, and bottling the final product. Alternatively, it could entail the winery crushing grapes into juice and fermenting the juice for the brand owner. The winery is generally responsible for regulatory requirements, such the Alcohol and Tobacco Tax and Trade Bureau (“TTB“) label and formula applications and reporting and paying federal excise taxes.
In most custom crush relationships, the winery usually retains ownership of raw materials until the wine is produced, taxes are paid, and the final bottled product is removed from its premises. While many folks engage in contract production relationship to avoid investing in equipment, a facility, and related assets, some existing wineries are attracted to custom crush relationships when facing space constraints, limitations in equipment, or similar.
Questions to Ask When Entering a Custom Crush or Co-Packer Relationship
For companies considering a custom crush relationship with an existing winery, there are many questions that should be addresses. Here are a few questions the custom crush client should think about before starting a relationship with a custom crush facility:
- Does my company need a license? A brand owner company might need a TTB permit and state liquor license. This can depend on the business model of the custom crush client. It is best to discuss this with counsel before proceeding.
- Who is responsible for obtaining label and/or formula approvals from TTB? Generally, the company bottling the finished product is responsible for obtaining label and/or formula approvals from TTB.
- Do you have a contract, and does it protect your brand sufficiently? The contract should clarify ownership of intellectual property, brand, artwork, and specify responsibilities for record-keeping, tax reporting, and payment, among other things.
- Is the custom crush host or co-packer registered with the FDA for food facility registration purposes, and does it have all the required state or local licenses with respect to health and safety?
- Is the custom crush host or co-packer facility flexible to handle either small or large-scale production? Assess the facility’s adaptability to accommodate your production needs.
- Has the custom crush host or co-packer filed a trade name with TTB? The label cannot use your company’s name as the trade name unless a trade name is on file with the TTB under the custom crush host’s permit. Note that the trade name typically must be registered at the state level before it can be added to a federal TTB basic permit.
How Can Lindsey Zahn P.C. Help Brand Owners or Co-Packers?
While this provides a summary of general considerations, the specifics depend on a company’s relationship with a custom crush facility as well as the product. For tailored insights and assistance with permits, licenses, and regulatory compliance, contact Lindsey Zahn P.C. at info@zahnlawpc.com. We guide you from the beginning of your relationship with a custom crush host or co-packer, helping you complete necessary permit or license applications and providing advice aligned with your business model.