It is not uncommon these days for wine companies to work with a contract winery (commonly called a “custom crush host”) who will ferment, bottle, and label the actual wine product. This is a great arrangement for companies that want to get into the wine industry but do not want to front some of the equipment, licensing, or administrative costs. Working with a contract winery to produce wine can be a good option for certain companies, but there are still some important considerations companies should take into account. Here are some of the top questions you should make sure you have the answers to.
What is a Contract Winery/Co-Packer/Custom Crush Host?
A custom crush relationship is a type of relationship where one business hires another to produce wine. This relationship is commonly called a custom crush relationship and the company that is hiring another company to produce wine is called the custom crush client; the company that will actually be producing the wine is called the custom crush host. In some instances, the custom crush host may source bulk wine from another company or companies and simply blend the wine at its facility and then bottle the final product. The company that is producing the wine or blending and bottling the wine is generally referred to as the “Custom Crush Host.” This company will be responsible for producing wine (generally from raw ingredients, e.g., grapes) and bottling the wine on its premise. Again, the alternative is that the custom crush host may source bulk wine from another winery and blend the bulk wine and bottle a final product. The custom crush host is also responsible for many regulatory requirements, such as submitting label and formula applications to TTB.
The custom crush host will have title to the raw materials or ingredients used to make the spirits as well as the spirits product itself. Title to the wine products generally only passes to the custom crush client after the wine is produced, taxes are paid, and the final, bottled product is removed from the bonded area of the custom crush host’s premise.
The actual company that hires the custom crush host does not necessarily need to have its own winery or equipment or facility (although it can, but in this type of relationship, the custom crush host that is hired will produce the wine product; sometimes companies that have their own winery license hire outside companies to contract produce their wine if they’ve run out of space at their own facility, are in the middle of relocating, are in the process of applying for a winery license, or otherwise have need to outsource production).
While this arrangement is popular and favorable for many smaller companies or rapidly expanding companies that can no longer keep up with demand, it’s important to consider a few things before entering into this type of relationship.
Questions to Ask When Entering a Custom Crush or Co-Packer Relationship
- Does my company need a license? Even though the custom crush host is required to obtain a federal permit and state license, your company may need to obtain a permit with the TTB and a license with your state liquor agency. For federal purposes, this will ultimately depend on whether or not your company is purchasing the final product (i.e., the bottled product) from the custom crush host. Generally, if your company is purchasing the product and plans to either distribute the product or sell the product to wholesalers and/or retailers, your company will need a federal wholesaler permit with the TTB (in addition to state licenses). The fact that the wine is produced or bottled by a custom crush host that has its necessary permits and licenses does not necessarily foreclose your company from need its own permit and license.
- Who is responsible for obtaining label and/or formula approvals from TTB? Generally, the company that is bottling the finished product is responsible for obtaining label and/or formula approvals from TTB. The label and formula applications will need to be submitted on the permit of the ccustom crush host.
- Do you have a contract and does it protect your brand sufficiently? Does your contract clearly state that your company owns the intellectual property, the brand, the artwork, etc.? Does the contract mention who is responsible for keeping records and reporting excise taxes and any state or sales tax? The company actually producing and bottling the wine is responsible for all production, record keeping, reports, labeling, formulations, and payment of taxes.
- Is the custom crush host or co-packer registered with the FDA for food facility registration purposes and does the custom crush host or co-packer have all the required state or local licenses with respect to health and safety? The facility should, at minimum, be registered with FDA and will also likely need to be registered on the state or local level.
- Is the ccustom crush host or co-packer facility flexible to handle either small or large scale production?
- Has the custom crush host or co-packer filed a DBA/trade name with TTB? Often, companies like to have their name in the “Bottled by:” section of the label. Unless a trade name or DBA name is on file with the TTB under the custom crush host’s permit, the label cannot use your company’s name as the trade name or DBA. The label will need to state the actual name that appears on the custom crush host’s TTB permit or other DBA names on file (if applicable).
The above is just a summary of the general things a company working with a custom crush client should consider. There are, of course, more specific details depending on the exact relationship with the custom crush host as well as the product. E-mail us at [email protected] to find out more about how we can help you from the outset of your relationship with a custom crush host or co-packer. We can also help guide you with respect to completing the necessary permit or license applications, as well as advise you on any requirements that may be important or necessary depending on your business model.
This post first appeared on Alcohol Beverage And Food Legal Compliance Blog, Hops & Vine Consultants | Hops & Vine Consultants, please read the originial post: here