Over the past several years, a new category of alcoholic beverage has emerged known as “hard seltzer.” The original hard seltzer (or alcoholic sparking water) brand SpikedSeltzer was founded in about 2012 as a light and refreshing alternative to the traditional alcohol categories of beer, wine and cocktails. Riding the overall growth of the seltzer or sparkling water category generally, numerous brands of hard seltzer have emerged over the past half-decade with an increasing backing by some of the world's largest alcohol beverage companies. Examples of current brands include:

• Truly Spiked & Sparkling (Boston Beer).
• White Claw (Mark Anthony Brands).
• SpikedSeltzer (purchased by Anheuser-Busch InBev).
• Smirnoff Spike Sparking Seltzer (Diageo).
• Nauti Seltzer (Wachusett Brewing Co.).
• Henry's Hard Sparkling Seltzer (Blitz-Weinhard Brewing Co.).

Because the category of hard seltzer is very young, there is no specific definition, legal or otherwise, for what constitutes “hard seltzer.” As a result there is no consistent legal treatment of hard seltzer either with regard to how it is produced or how it fits into existing alcohol beverage categories.

Beer Versus Malted Beverage

A review of the current brands noted above reveals that hard seltzers fall into two basic categories as far as their composition. The first are brands whose base is derived from the fermentation of sugar cane such as Truly, White Claw, SpikedSeltzer (or a FSB). The second are brands such as Nauti Seltzer and Henry's Hard Sparking Seltzer whose base is derived from the fermentation of malt (a FMB). Accordingly, as further detailed below, hard seltzers are “beer” rather than spirits-based, which may come as a surprise to some.

While there are spirits-based beverages with flavor profiles similar to hard seltzer, or FMBs with spirits mixed in for flavor, the key driver for producing a product that qualifies as beer is financial. Under federal tax law, for a small brewer as defined by a brewer who brews 2 million barrels or less per calendar year, the federal excise tax for the first 60,000 barrels produced per year is $3.50 as opposed to distilled spirits which are taxed at $2.70 for the first 100,000 proof gallons produced per calendar year. To give some perspective on these numbers, the federal excise tax on a 12 oz can of beer is $0.01 with spirits taxed at nearly four times that rate at approximately $0.43 for a 750 ml bottle.

Turning to the legal treatment of hard seltzer, it is key to understand that at the most basic level from the standpoint of federal law, all malt beverages are beer, but not all beer is a malt beverage. This distinction impacts a number of considerations for alcohol producers including tax considerations as well advertising and labeling concerns.

Distinguishing beer from a malt beverage rests on the interplay between two federal statutes: the Federal Alcohol Administration Act (FAA Act) and the Internal Revenue Code of 1986 (IRC). Administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB), the FAA Act governs the basic permitting, as well the labeling and advertising of alcoholic beverages. Under Section 117(a)(7) of the FAA (27 U.S.C. Section 211(a)(7)) the term “malt beverage” is defined as “a beverage made by the alcoholic fermentation of an infusion or decoction, or combination of both, in potable brewing water, of malted barley with hops, or their parts, or their products, and with or without other malted cereals, and with or without the addition of unmalted or prepared cereals, other carbohydrates or products prepared therefrom, and with or without the addition of carbon dioxide, and with or without other wholesome products suitable for human consumption.” In other words, an alcoholic product made from the fermentation of malted barley with hops.

In contrast, Section 5052(a) of the IRC (26 U.S.C. Section 5052(a)) defines “beer” much more broadly—“beer ale, porter, stout, and other similar fermented beverages (including saké or similar products) of any name or description containing one-half of 1 percent or more of alcohol by volume, brewed or produced from malt, wholly in part, or from any substitute therefor.” TTB's regulations have further clarified that the only allowable substitutes for malt under the definition of beer are “rice, grain of any kind, bran, glucose, sugar and molasses.”

Returning to the category of hard seltzer, those products produced from a base of fermented sugar cane, or FSBs, are legally defined as “beer” for tax purposes, but do not constitute a “malt beverage” for labeling and advertising oversight by the TTB. In contrast, the products produced from a base of fermented malt, or FMBs, are both “beer” and a “malt beverage” with the caveat that they must separately meet the legal definition of a “flavored malt beverage.”

Flavored Malt Beverage

While the category of hard seltzer is new, the concept of a flavored malt beverage is not. Originating primarily in the 1990s, alcohol producers began producing alcoholic beverages made from an original base of fermented malt which was then stripped of all its malt character, flavored and at times mixed with spirits. Given the rise in popularity of FMBs as well as questions concerning whether they should be classified as beer or spirits, the TTB in 2005 issued a final rule amending its regulations to be clear that malt beverages that contain not more than 6 percent alcohol by volume may derive no more than 49 percent of their alcohol content from flavors and other nonbeverage materials to remain classified as a “malt beverage.” Further, if a malt beverage contains more than 6 percent alcohol by volume, to meet the definition not more than 1.5 percent of the volume of the finished product may consist of alcohol derived from flavors and other nonbeverage ingredients containing alcohol.

Advertising and Labeling

As noted above, if the hard seltzer is a FMB (i.e., contains malted barley) then the TTB has primary jurisdiction to regulate the labeling and advertising of the product. However, if the hard seltzer is a FSB and does not contain malted barley then product labeling and advertising falls under the jurisdiction of the U.S. Food and Drug Administration (or FDA).

To flesh out some differences, a FMB hard seltzer has to apply for and receive a Certificate of Label Approval (or COLA) from the TTB while a FSB hard seltzer does not. Further, while the TTB and the FDA each have standards for mandatory labeling which have some similarities they are not identical. For example, pursuant to 21 C.F.R. Section 101.5 the FDA requires that the label identify the actual name of the manufacturer of the product, while the TTB allows the identification of the actual producer or an associated trade name as set forth 27 C.F.R. Section 7.25. Hard seltzers which are FSBs must also disclose their ingredients and nutritional facts pursuant to FDA regulations whereas malt based hard seltzers do not. Given the rise of focus by the public as well as class action plaintiff attorneys on concerns of truthful labeling and nutritional disclosure, FSB hard seltzers may be more vulnerable to attack given their higher degree to labeling disclosures.

In conclusion, while hard seltzer products are growing and likely a new mainstay of the alcohol beverage market, their legal treatment and related compliance with federal (not to mention state) law is by no means straightforward.

Alva C. Mather, a partner at DLA Piper, is a business lawyer, litigator and first-chair trial attorney. Her areas of concentration include complex commercial litigation and regulatory counseling of clients in the food and beverage, particularly alcoholic beverages, and franchise and distribution industries.