January 10, 2005

Flavored Malt Beverages – When is a Beer Not a Beer?

Michael Brill Newman

One of the industry’s newer product categories is the one defined as “flavored malt beverages” (FMB’s) but also known as “malternatives” or “ready-to-drink” (RTD’s) and pejoratively, because of their sometimes perceived appeal to younger consumers, as “alcopops.” This category includes brands such as Smirnoff Ice and Bacardi O. FMB’s differ from traditional malt beverages in that many derive their taste and alcohol primarily from flavorings that contain distilled spirits. FMB’s have come under increased regulatory scrutiny in the past few years, after showing up in grocery and convenience stores and in national TV advertising under the names of popular spirits brands.

After pressure from state regulators who were unhappy seeing these products in stores that could not sell spirits, the federal government reacted. First, in a 2002 ruling, the Bureau of Alcohol, Tobacco & Firearms set out guidelines for labeling and advertising FMB’s to discourage any misleading impression that such products are or contain distilled spirits. The new federal agency, the Alcohol & Tobacco Tax & Trade Bureau, in 2003 followed up ATF’s ruling with a rulemaking proposal that alcohol beverages be taxed and regulated as malt beverages only if less than ½% of the content of the product is from alcohol from distilled spirits. After receiving about 16,000 public comments, TTB is still deliberating with a final rule anticipated early in 2005.

TTB’s efforts have, for the time being, appeased most concerned state regulators. Oregon, however, is one state that has elected not to wait for TTB action. In October, 2004, the Oregon Liquor Control Commission, because of legislation passed the previous year, notified licensees that they had to remove from their shelves all FMB’s containing more than ½% of distilled spirits by the end of 2004. In response to this notice, Diageo, the maker of Smirnoff Ice, filed a petition for judicial review with the Oregon State Court of Appeals seeking to invalidate the rule. 

So, for now, the fate of the FMB’s remains up in the air as regulators and industry hope to find resolution of these issues in the new year upon us.

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