Alaska’s state alcohol regulator is declining to stop distilleries from selling kegs of premixed cocktails despite a warning by federal regulators, who have concluded that the process is illegal.
Last week, the Alaska Alcohol Control Board rescinded an advisory notice that had cautioned distilleries against selling kegs to bars and other places with alcohol licenses. The board also voted unanimously to create a working group to consider the topic further.
“In the meantime, I’m not going to go after a guy who has been doing something, allegedly lawfully for (four) years under our nose,” said Joan Wilson, director of the Alaska Alcohol and Marijuana Control Office.
Sassan Mossanen is the CEO of Denali Brewing and Spirits in Talkeetna and has been selling cocktails by the keg for four years.
State law forbids distilleries from selling a keg to an individual — Alaska has strict limits on serving sizes — but there are no state laws that forbid a distillery from selling a keg to a bar or restaurant that has a liquor license.
In April, following a question from a Denali Spirits sales agent, AMCO began investigating whether federal regulations might bar the practice.
Alcohol sales practices are controlled by the Alcohol and Tobacco Tax and Trade Bureau, a section of the U.S. Department of the Treasury.
The bureau has a section of regulations called “standards of fill,” which dictate the size of bottles that a distillery, winery or brewery can sell.
“It sounds like the activity you described would not be allowed by federal regulations,” a TTB investigator told AMCO’s lead enforcement officer, after he asked about keg sales.
After that message, AMCO sent a warning notice.
“The thought at that time was, ‘Of course, we’re going to enforce the TTB standards,’ and we sent out an advisory to people to let them know that,” Wilson said.
Tom Hogue, a spokesperson for the Tax and Trade Bureau, confirmed the regulations.
“In terms of making a premixed product, like a margarita, or piña colada, somebody who’s properly permitted as a distiller can go ahead and produce a product like that, as long as it’s properly labeled and everything else. The thing is, they’ll have to remove it from their premises in a container that meets one of the standards of fill requirements. There are certain container sizes that are allowable, and the largest container size that they could use would be 1.8 liters,” he said. That equals a half-gallon.
Most cocktail kegs are one-sixth of a barrel, or just over 5 gallons.
Mossanen and Lee Ellis, board president of the Brewers Guild of Alaska, testified in front of the alcohol board in late June, urging the five-member body to disregard the federal guidance and continue keg sales.
“For us, this is a very, very big deal. There are significant financial consequences,” Mossanen said.
Ellis’ employer, Midnight Sun Brewing in Anchorage, also holds a distillery license.
“I would say we have already lost business opportunities because of (the uncertainty),” Ellis told the alcohol board.
Nationally, and within Alaska, the trend in alcohol sales has been toward “premiumization” — smaller volumes of higher-quality alcohol instead of bigger amounts of cheap products.
Alcoholic and nonalcoholic cocktails represent a larger part of the alcohol industry than they did a few years ago, and so-called “ready to drink” cocktails, which don’t require a bartender’s intervention, are a particularly fast-growing niche.
Mossanen said it’s common for distilleries to sell cocktails as a way to demonstrate to bartenders and the public how their liquor can be used.
Denali Spirits and many other distilleries in the state sell ready-to-drink cocktails by the can, but selling by the keg is more efficient and allows Mossanen’s company to better compete with other kinds of alcohol, he said.
He acknowledged the federal regulation but said that because Alaska doesn’t have a similar state law, it’s unenforceable. He compared the situation to the way Alaska handles marijuana, which is federally illegal but legal within the state.
Mossanen also noted that the Tax and Trade Bureau is considering whether to eliminate its “standards of fill” regulations.
In February, the Treasury Department released a report saying in part that those regulations are “no longer necessary” to ensure tax compliance, and a rulemaking process underway now could eliminate the idea of regulated container sizes in favor of a minimum size and a maximum size.
Even if adopted, the current wording of that proposal appears to fall short of allowing kegs.
At AMCO, Wilson said one of her primary concerns is to maintain fairness, and if there’s no clear state law, she will follow the direction of the alcohol board.
“I implement the board’s will. I’m not always going to wait, but we’ve got someone selling a product — we believe lawfully — and not getting our attention for (four) years. And I’ve also got an entire industry of breweries supporting his interpretation of this. And I’ve got a board asking for additional advice on it,” Wilson said.
“I’m not going to start enforcing until those pieces come together.”
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