Editor’s Note: Alex Koral is a regulatory general counsel at Sovos ShipCompliant.
In recent years, we have seen increasing demand from consumers in the non-alcoholic (NA) beer market. Although NA beer was once a minuscule piece of the beer category, the Brewers Association projects that in coming years that NA beer will make up more than 5% of the market. With the global NA beer market growing to $22 billion in 2022, brewers are looking to expand their market presence and enhance the quality of their beverages, meeting increasing consumer demand.
As the market continues to grow – potentially to $40 billion by the end of 2023 – it is imperative that brewers are aware of any regulatory guidelines associated with the production and sale of these beverages. Although NA beers contain little to no alcohol, they are still “like” beer, and since they’re “like” beer, they can be subject to laws “like” those for beer.
The Non-Alcoholic Beer Regulatory Landscape
Much like their alcoholic counterparts, the production, distribution and sale of NA beer are subject to both state and federal regulations. To understand these regulations, the first piece is to determine whether a NA beer is subject to either of the two federal statutory codes governing the production and distribution of alcohol: the Federal Alcohol Administration Act (FAAA) (Part 7 of CFR) and the Internal Revenue Code (IRC). If a product does not meet the definitions outlined in either statute, that may alleviate compliance burdens for the producer.
The FAAA classifies “malt beverages” as fermented beverages made from an infusion or decoction of malted barley and hops in potable water. “Cereal beverages,” on the other hand, are a class of “malt beverages” that contain less than 0.5% alcohol by volume (ABV) – traditional NA beers typically fall under this classification. But for a “cereal beverage” or NA beer to be subject to the FAAA, it must first be considered a “malt beverage.” Therefore, any malt beverage made without hops would not be subject to these regulations.
The IRC defines “beer” as a fermented beverage brewed from malt or malt substitute, containing 0.5% ABV or higher. “Cereal beverages,” although the same term used by the FAAA, are an entirely distinct classification by the IRC, as a non-fermented or partially fermented beverage derived from malt or its substitute, with an ABV of less than 0.5%. According to the IRC, most NA beers are categorized as “cereal beverages” and would thus be subject to applicable laws concerning such beverages.
While the IRC sets taxes on “beers,” which contain an ABV of over 0.5%, all “cereal beverages” with an ABV of less than 0.5% are exempt from taxes under the statute. Alternatively, neither “malt beverages” nor “cereal beverages” are subject to taxes under the FAAA.
Non-Alcoholic Beer Licensing Requirements
Producers of NA beer may need to obtain licenses at the federal level, as mandated by the IRC and FAAA. Under the FAAA, if an NA beer is classified as a “malt beverage,” the producer must obtain a Brewer’s Notice. On the other hand, the IRC does not require a specific license for its class of “cereal beverages;” however, these products may be produced at a brewery holding an existing Basic Permit.
However, if specific alcohol removal techniques based on distillation, such as reverse osmosis, are employed during production, producers may also need to acquire a Distilled Spirits Basic Permit – although this permit is not required if the NA beer is produced using non-fermenting yeasts or other methods that do not involve distillation.
Non-Alcoholic Beer Labeling Requirements
Both the FAAA and IRC stipulate labeling requirements for NA beer. Generally, the standard labeling requirements for full-strength beer also apply to NA beer, including information about the producer, type and volume. Unlike traditional beers, NA beer labels must prominently display the statement “Nontaxable under section 5051 I.R.C.” Certificates of Label Approval (COLAs) are only required if the product falls under the FAAA and is sold interstate. Moreover, the Government Health Warning is only mandatory for products with an ABV exceeding 0.5%.
When considering labeling requirements, it is important to distinguish between when to use ”Non-Alcoholic” or “Alcohol Free.” Although these designations are optional, producers must be mindful of the requirements when choosing to include them. The term “Non-Alcoholic” can be used for any NA beer with an ABV above 0.0%, but it must be accompanied by the statement “contains less than 0.5% ABV.” This requirement is similar to the phrase “Alcohol Free,” which can only be used if a product does not contain any amount of alcohol. But, if used on the label, this phrase must be accompanied by the statement “contains 0.0% ABV.”
Selling Non-Alcoholic Beer: State Regulations
When planning to sell NA beer, it’s key to consider franchise laws and how states define and regulate the product, as there is no consensus among the 50 states on how to define or sell NA beer.
While many states align with federal definitions, some exceptions exist. For example, Kentucky and Vermont permit NA beers to contain up to 1.00% ABV, while Arizona, Georgia, Idaho, New York and Tennessee do not impose a minimum ABV threshold governed by state laws. Additionally, certain states have specific laws addressing NA beers.
Conventional beer distributors are available to facilitate NA beer sales, but when setting up a business relationship with a distributor, it is imperative to go over every contract with legal advice. It is noteworthy that Texas and Illinois consider NA beer to be bound by their franchise laws, which can have a considerable influence on the capability to modify or end a distributor contract in those states.
In cases where NA beer does not meet the state’s definition of “beer” or other alcoholic beverages, those products would be allowed to be shipped direct-to-customer (DTC). If the NA trend continues to grow, further regulation is likely to follow. As NA three-tier and DTC laws evolve, to avoid any costly missteps, producers would be wise to keep a close eye on any updates, or consider working with a compliance partner.