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General Category => Going Pro => Topic started by: nateo on March 07, 2012, 10:46:30 PM

Title: Looking into starting a meadery
Post by: nateo on March 07, 2012, 10:46:30 PM
I've been reading statutes until my head hurts (doesn't take long). Anyway, here are some of the things I've come up against. I'll update this as I make any progress.

In my state (Missouri), there is no mention of "honey" in any statutes or definitions for any type of alcohol. I talked to my local state Alcohol agent, who informed me he "thinks" using honey would require a generic "Alcohol Manufacturer's" license.

I also asked him about specific requirements for the facility (drains, sinks, etc) and he said the state would license whatever the TTB approves. When I asked who is responsible for verifying compliance, he said both the TTB and the state Alcohol and Tobacco Control agency are responsible. The TTB guidelines just say the facility must be "appropriate" for whatever type of brewery/winery/distiller you're running, but don't have any specific guidelines.

The TTB says that "Honey wine" falls under the category of "wine from other agricultural products." So I'm not sure how it'll work if I get TTB approval for a winery, but then have to get a non-winery state license. There are a number of benefits to being licensed as a winery in Missouri, including direct-to-consumer sales and lower licensing fees.

I've contacted the TTB directly about who decides if a facility is "appropriate" and what criteria they use. After that, I guess I'll contact the head office for the state Alcohol control agency re: honey in wine.

The applicable statute I found for Missouri wine: "Domestic wine is wine containing not in excess of fourteen percent (14%) of alcohol by weight and manufactured exclusively from grapes, berries and other fruits and vegetables grown in Missouri."

Apiaries in this state are regulated by the department of agriculture, so I don't understand where honey fits in, if not with fruits and vegetables. I know there are a wineries here that make mead, and I have a hard time believing the alcohol agent who inspects those wineries doesn't know if honey-wine requires a different license than a winery.
Title: Re: Looking into starting a meadery
Post by: Thirsty_Monk on March 08, 2012, 03:38:14 AM
A few years ago a gentleman from New England run for AHA governing committee. I forgot his name (Mike someone). He later open a meadery. He might be a good person to start with.

I think it is this guy:
http://www.nhbrewers.com/mdf/

He talks about winery license.
Title: Re: Looking into starting a meadery
Post by: tschmidlin on March 08, 2012, 06:56:08 AM
Yes, Michael opened Moonlight Meadery and served some at the conference in SD.  He will also be at the conference in Seattle, so if you wanted to pick his brain that would be a good chance.  You could also check with Redstone.  The state specific problems they probably won't be able to help you with, but they could probably be helpful in other ways.
Title: Re: Looking into starting a meadery
Post by: Jimmy K on March 08, 2012, 01:34:40 PM
Someone in Delaware has been trying to open a meadery. They had to get honey added to the wine definition so that they could be considered a winery (and had Dogfish's help doing that, which greased the legislative wheels). Since then, they've run into another problem - In Delaware, a winery must be on agriculture zoned land, which requires a minimum 5 acres. 5 acres is reasonable for a grape winery, but not necessary for a meadery, where all the hives you want could be kept on an acre. (His property is under 5 acres).
 
Just an anecdote for you.
Title: Re: Looking into starting a meadery
Post by: nateo on March 08, 2012, 02:40:30 PM
Thanks for the responses. This morning I received a detailed and helpful response from a technical advisor at the TTB, who was much more helpful than my state agent. I'll repost the response below, in case anyone else might need to go through the TTB and isn't sure where to start:

"Requirements regarding plumbing, sinks and drains will be established by your state or local building and health codes. You have found the relevant federal regulation and it is saying that you must have suitable premises.  Suitable means the premises are secure enough to protect the wine on premises and that you have the space and equipment necessary to conduct your intended operations.  I will also mention that if intending to operate a winery in a building also used as a residence the residential area and business area need to be segregated, generally by walls and lockable doors, and each area must be directly accessible from the outside.  You can't have a situation where you need to go through the residence to reach the winery area or through the winery to reach a residential area.  They must be totally separate areas.

"Decisions regarding approval are made based on the information in the submitted application filed with the TTB National Revenue Center and any subsequent information found in the processing of that application.  Ultimately the "appropriate TTB Official" is the Director of the TTB National Revenue Center.  The specialist and supervisor processing and reviewing the application are delegated authority by the Director to request additional information or changes as determined to be necessary and in some relatively rare situations an Investigator or District Director can also request additional information or changes.  This sounds much more difficult than it really is.  If you have reasonable wine premises secured by lockable doors and windows you should have no problem with the premises being approvable at the federal level.  Your operations must be in compliance with federal state and local law so you also need to verify the state and local requirements."

My current business is on unincorporated county land, and as far as I've been able to determine, there are no building or zoning codes for my county. When we put in the coffee shop at our tackle store, the local health inspectors were really helpful, and seemed thrilled that we were trying to comply with the law before we started remodeling.

The two local health inspectors I talked to also knew quite a bit about running a small business, start-ups, and compliance on-the-cheap. My next step will be to talk to them and see what they think.

I've been trying to find wine-industry resources like the BA, but I can't find anything comparable. There are state, local and national wine-industry organizations, but it doesn't seem like any of them provide help like the BA does for aspiring owners. 
Title: Re: Looking into starting a meadery
Post by: Jimmy K on March 08, 2012, 04:17:55 PM
...thrilled that we were trying to comply with the law before we started remodeling.

It's definately cheaper to build it right then fix it later. Inspectors who are knowledgeable and practical are great too.
Title: Re: Looking into starting a meadery
Post by: nateo on March 08, 2012, 04:30:12 PM
It's definately cheaper to build it right then fix it later. Inspectors who are knowledgeable and practical are great too.

I don't know if my local inspectors are typical. I had sort of a bad impression of health inspectors in general before working with them. YMMV and so on, but don't be afraid to bug them.

I did some more digging and came across some "statutes" from 2011 that use different definitions from the "regulations" listed on the Alcohol and Tobacco Control Agency website. It's my understanding that regulations are written based on statutes, but I'm not sure what happens when the statutes are changed but the regulations aren't. Does anyone know? Is this something I should talk to a lawyer about?

2011 Statute:
"For the privilege of manufacturing wine or brandy. . . from grapes, berries, other fruits, fruit products, honey, and vegetables produced or grown in the state of Missouri, exclusive of sugar, water and spirits"

2008 Regulation:
"Domestic wine is wine containing not in excess of fourteen percent (14%) of alcohol by weight and manufactured exclusively from grapes, berries and other fruits and vegetables grown in Missouri."
Title: Re: Looking into starting a meadery
Post by: Jimmy K on March 08, 2012, 04:47:49 PM
Generally, statutes are passed by a legislative body and authorize WHAT an agency is to regulate. Regulations are written by the agency and outline HOW that agency will enforce the statute. The good news is that regulations can be easier to change than statutes, but it all moves at the speed of government.
Title: Re: Looking into starting a meadery
Post by: nateo on March 08, 2012, 06:48:51 PM
Generally, statutes are passed by a legislative body and authorize WHAT an agency is to regulate. Regulations are written by the agency and outline HOW that agency will enforce the statute. The good news is that regulations can be easier to change than statutes, but it all moves at the speed of government.

I'm not even sure if the regulations need to be changed. I kind of suspect the state agent I talked to just didn't want to help me or commit to anything. I know of several wineries with vineyards in the state that currently make mead. There are two ways to license a winery in this state, one as an alcohol manufacturer (no limit on type of liquor or quantity, no limit on out-of-state ingredients), one as a winery (85% of the ingredients must from in-state, 500,000 gallon annual limit).

I haven't contacted those wineries yet to ask them directly what kind of licensing they have, but that's another step to take.
Title: Re: Looking into starting a meadery
Post by: Jimmy K on March 09, 2012, 01:23:58 PM
Is there a tax or other benefit to being a winery vs an alcohol manufacturer?
Title: Re: Looking into starting a meadery
Post by: nateo on March 09, 2012, 02:45:42 PM
Is there a tax or other benefit to being a winery vs an alcohol manufacturer?

Winery advantages -> For $5/500gal, it allows you to manufacture, wholesale, and retail your own and other Missouri-produced wine. You also don't have to price post if you sell wholesale. Must use 85% Missouri-sourced ingredients. Can do free tastings, but cannot sell by-the-glass without additional $300 retail-by-drink license.

22% Manufacturer/Solicitor license -> $200/year. Can manufacture any alcohol containing less than 22% ABW. No restrictions on out-of-state ingredients. Need to obtain a 22% Wholesale/Solicitor license for another $200/year to sell wholesale. Must pay taxes on transfers from the Manufacturer to Wholesaler license, and then you need a separate retail license ($100) to sell to consumers. Must price post under these regulations, and must sell to retailers and yourself at the price posted. Cannot offer tasting without a $300 retail-by-drink license, and additional $200 fee to do tastings on Sunday.

So the 22% M/S license requires you to basically set up 3 different "entities", the manufacturer, the wholesaler, and the retailer, and you must pay to license all three of them. While I think you can set up all three under the same LLC, you have to treat them like three difference companies in terms of taxation. So you're taxed on every step of production. You also have 3x the paperwork to fill out for every step.

The total state cost of licensing the 22%M/S route would be about $1000/year. I haven't calculated the additional tax burden. It might not be much, or it might be a lot. The state cost for licensing the winery would be about $25 for my target production (2500 gallons/year). Once the winery was established, the fee difference wouldn't be that big, but in the first few years the licensing fees would really eat into whatever profits I might make.

The location I have is in a pretty high-traffic vacation area. I think I could sell most of my production on-premises and by mail order, which would mean much greater profits than trying to sell wholesale. I would need a much larger production to make wholesale production worth my time and effort.

I also have a bunch of Mennonite farms right around me that sell fruit and berries really cheaply, and a number of apiaries and honey wholesalers within an hour or so. I don't think I'll need to use more than 15% out-of-state ingredients for doing mead and fruit wine.
Title: Re: Looking into starting a meadery
Post by: nateo on March 09, 2012, 03:45:20 PM
Something I didn't really think about before looking into this was excise taxes. For small beer producers, the federal excise tax is equivalent to $0.22/gallon ($7/bbl), while the excise tax on low-volume production wine is $0.17/gallon. Missouri state excise taxes are $0.42/gallon for wine, and $0.06/gallon for beer.

So the tax liability can really add up quickly if you're doing any volume at all. I'm still having a hard time figuring out taxes for selling wholesale. Maybe there aren't any? I found retail sales taxes, but no manufacturer or wholesaler taxes, other than the initial excise tax.
Title: Re: Looking into starting a meadery
Post by: deepsouth on March 09, 2012, 04:41:54 PM
don't know anything about opening a meadery, but mmmmmmmmmmm redstone!
Title: Re: Looking into starting a meadery
Post by: anthony on March 09, 2012, 05:11:10 PM
Something I didn't really think about before looking into this was excise taxes. For small beer producers, the federal excise tax is equivalent to $0.22/gallon ($7/bbl), while the excise tax on low-volume production wine is $0.17/gallon. Missouri state excise taxes are $0.42/gallon for wine, and $0.06/gallon for beer.

So the tax liability can really add up quickly if you're doing any volume at all. I'm still having a hard time figuring out taxes for selling wholesale. Maybe there aren't any? I found retail sales taxes, but no manufacturer or wholesaler taxes, other than the initial excise tax.

If you're selling to another company wholesale, retail tax typically passes through to the last entity that is actually selling the goods to the consumer. Otherwise you would have more instances of goods being double, triple, or even quadruple taxed before consumers got their hands on them.

You usually avoid paying the sales tax by acquiring a state sales tax number. Then when you buy something like honey or bottles, you won't have to pay tax. But if you bought something where you were considered a consumer, like a tank, then most likely you have to pay the tax... unless you were buying the tank for resale (there are certain exemptions in certain states under economic development acts, etc.).
Title: Re: Looking into starting a meadery
Post by: anthony on March 09, 2012, 05:14:46 PM
Also, with regards to the tax liability....

When you set up your meadery you will have designations in the production area that will classify the area and consequently the mead in that area as pre-tax or post-tax. Mead is post-tax after it has been measured in a tax determination tank/keg/bottles. So if you have a bunch of mead sitting around in barrels or tanks just maturing, you actually don't have any tax liability on it.

I don't know the exact format of winery logs, but on the brewery side, you keep detail brewer's logs that track a batch from ingredients all the way to keg/bottle. This process accommodates beer you lose to various production processes (dry hopping, sampling, etc.) and also takes into account any product you may end up destroying if it doesn't turn out or doesn't meet your standards for retail.
Title: Re: Looking into starting a meadery
Post by: Thirsty_Monk on March 10, 2012, 01:09:28 AM
At least in my state.
Any equipment that you buy for manufacturing (and brewing is manufacturing) is tax free.
On the other side we have here lovely "personal property tax" that is tax on whatever business owns.
So you purchase a delivery vehicle.
Business pays a sales tax and every year you pay a personal property tax.
Check if this apply it your state.
This is one of unwelcome surprises.
Title: Re: Looking into starting a meadery
Post by: nateo on March 10, 2012, 02:37:11 AM
At least in my state.
Any equipment that you buy for manufacturing (and brewing is manufacturing) is tax free.
On the other side we have here lovely "personal property tax" that is tax on whatever business owns.
So you purchase a delivery vehicle.
Business pays a sales tax and every year you pay a personal property tax.
Check if this apply it your state.
This is one of unwelcome surprises.

Hmm I'll look into that. I know we have a personal property tax here. I'm surprised WI has a personal property tax, since the land values seem a lot higher there. I don't have any problem with that tax here, because real estate and land are basically worthless here. Everyone (at least here in rural MO) lives in a $5000 trailer and drives a $60,000 truck. So just a real estate property tax wouldn't really raise any revenue.

In any case, the tax burden I've found so far has been much lower than I thought it would be, given the sort of general discourse about taxes in this country. The federal excise taxes are heavily weighted to favor small businesses. Small wineries get a $0.90/gallon discount off the $1.07/gallon excise tax, making it the same tax rate wineries paid in 1991. I don't have any particular problem taxing the high-volume, low-quality macrowineries/macrobreweries at much higher rates. Microwbreweries get similar discounts, though not quite as good. I think it's $7/bbl instead of $18/bbl. IIRC John Kerry introduced a bill to cut that to $3.5/bbl for micros, but I don't think it got anywhere.
Title: Re: Looking into starting a meadery
Post by: Thirsty_Monk on March 10, 2012, 03:39:24 AM
That is correct. It is still $7 a BBL for me.
Title: Re: Looking into starting a meadery
Post by: nateo on March 12, 2012, 10:17:39 PM
I contacted the Missouri Wine Advisory Board. They weren't helpful. I got ahold of someone at the main office for the state Alcohol Control division, and he was really helpful. That guy said that it's the position of his agency that statutes take precedent over regulations, and that if state law says I can use honey in my winery, then it doesn't matter if the regulations don't specifically state that I can.

He also told me that my county health inspector is the one who will actually be inspecting the facility, and as long as they're happy with the facility, the state is happy. It seems like the state doesn't particularly care about regulating. Yay, Missouri!
Title: Re: Looking into starting a meadery
Post by: Thirsty_Monk on March 13, 2012, 02:51:31 AM
Every state is different.
Because I am not serving food I am govern by agg department (I have nothing to do with local health department).
Check with them.
You are in essence food manufacturer.
There is a license fee for me to be an food manufacturer.
Title: Re: Looking into starting a meadery
Post by: punatic on March 14, 2012, 08:41:20 AM
Business-wise contact your local Small Business Administration (SBA) office.  They are a HUGE help dealing with the business environment in your area.

Alcoholic beverage production facility (ABPF)-wise – talk with other ABPF operators in your neck of the woods.  They have been down the road you have set your feet upon.  Chances are they can recommend an attorney who knows, and can help you navigate the local laws that you need to comply with.  It may seem counter-intuitive, but other ABPF operators in your area will be pleased to help newbies succeed.  Strength in numbers.

It is WELL worth the investment to hire someone who knows the local ropes.  The TTB can be very helpful.  The local bureaucracy, often times, not so much - especially with an alcoholic beverage that they know little about.  Alcoholic beverage laws are VERY local.

Just my 2₵ worth, - from someone who is pursuing a similar path on Hawaii Island.
Title: Re: Looking into starting a meadery
Post by: nateo on March 20, 2012, 06:46:58 PM
Nothing new to report, except more run-around, more people saying "oh, I don't do that, you want this guy." But I think I've found the person I need to talk to. I'll try calling them tomorrow.

I didn't plan on it being this difficult to determine who is actually in charge of regulating wineries.
Title: Re: Looking into starting a meadery
Post by: nateo on March 25, 2012, 07:14:56 PM
Last night I ran out of homebrew. I've spent every free day over the last few months working on business plans and doing research, and haven't had any time to brew. It occurred to me that if I did get the meadery off  the ground, I probably wouldn't be able to brew recreationally more than a few times a year, if at all. It also occurred to me that I don't really want to spend the next decade in Missouri, and if we have kids, I really don't want to raise them here.

At this point I'm putting the meadery project on the back burner, and I'll revisit it later if my life situation changes.
Title: Re: Looking into starting a meadery
Post by: denny on March 25, 2012, 07:40:10 PM
Last night I ran out of homebrew. I've spent every free day over the last few months working on business plans and doing research, and haven't had any time to brew. It occurred to me that if I did get the meadery off  the ground, I probably wouldn't be able to brew recreationally more than a few times a year, if at all. It also occurred to me that I don't really want to spend the next decade in Missouri, and if we have kids, I really don't want to raise them here.

At this point I'm putting the meadery project on the back burner, and I'll revisit it later if my life situation changes.

It's good to have a dream, and it's better to be realistic about it.
Title: Re: Looking into starting a meadery
Post by: Thirsty_Monk on March 25, 2012, 08:34:32 PM
Since I started to brew commercially I do not brew at home at all.
If I do not have underfilled bottles I do not drink anything.
It is fun job but it is not hobby anymore.