By: Louis J. Terminello, Esq. and Brad Berkman, Esq.
While foreign hospitality companies and alcoholic beverage suppliers are no strangers to adhering to the laws and statutes that govern the industry overseas, they are almost always surprised by the complex framework that governs the industry in the U.S. Without a clear understanding of these requirements, companies may encounter costly errors and delays when entering the market.
What follows is a brief primer outlining the key regulatory considerations for foreign market entrants, including the U.S. three-tier system, licensing and compliance requirements, and the jurisdictional layers that impact both suppliers and retail operators at the local, state, and federal levels.
U.S. Regulatory Environment for Manufacturers, Distributors, and Brand Owners of Alcohol Beverages
The U.S. hospitality and alcohol paradigm is based on what is referred to as the three-tier system, codified in federal and state law. The three tiers are:
- Suppliers (both foreign and domestic producers of alcoholic beverages)
- Distributors that purchase alcoholic beverages from producers or importers and sell them to licensed retailers
- Retailers, including bars, restaurants, hotels, and grocery stores that sell alcohol directly to consumers.
The three-tier system was designed to ensure that, with certain exceptions, each tier has no direct or indirect interest in any other tier. With limited variations by state, the three-tier system is virtually consistent nationwide, with specific regulatory requirements, such as licensing, taxation, and trade practices, varying markedly by jurisdiction..
Foreign suppliers, which include international producers such as wineries, distilleries, and breweries, as well as their importers, are typically categorized as “upper-tier” industry members. This group is heavily regulated at the federal level by the Alcohol Tax and Trade Bureau of the U.S. Treasury Department (“TTB”), and to a lesser extent, by state agency equivalents.
Non-compliance with federal law and regulations can have myriad consequences, including administrative action that can lead to substantial fines and penalties, loss of licensure, and criminal charges in certain instances. Thus, key regulatory issues upper-tier industry members confront include licensure, production and reporting requirements, product approvals (such as formulas and labeling), FDA considerations, and excise tax obligations.
For Retail Operators
Foreign operators at the retail level must also contend with an unfamiliar and often surprising legal landscape. First, retailers—which include businesses such as restaurants, hotels, bars, and grocery stores that sell alcohol directly to consumers—must buy alcoholic beverages from licensed distributors. They are prohibited from buying directly from the manufacturer, and their relationships are strictly regulated by specific statutory mandates.
A Note on Jurisdictional Issues
Regardless of whether the foreign operator occupies upper-tier or retail space, federal, state, and municipal governments will be involved at various stages in the commencement of U.S. operations. Licenses and permits from federal and state agencies will be required (such as departments of health or hotels and restaurants). Local governments exert tremendous influence over hospitality actors, including adherence to local zoning regulations, administrative processes, and related areas. Foreign operators may also be required to participate in local administrative processes, including zoning approvals and public hearings before municipal boards or commissions.
Foreign hospitality actors and alcohol beverage suppliers are often confronted with complex and surprising laws, regulations, procedures (and other legal issues) that must be complied with before commencing business in the U.S. These interconnecting regulatory requirements can create a complex and sometimes unexpected compliance landscape for new market entrants.
For global law firms advising clients across the supplier, distributor, and retailer tiers, this complex regulatory environment often necessitates collaboration with experienced U.S. counsel to ensure consistent, cross-jurisdictional compliance. The Hospitality, Alcohol and Leisure Industry Group at Greenspoon Marder LLP comprises highly experienced attorneys and staff who can streamline the process and facilitate a more efficient market entry for international clients.