Update June 16: This advisory has been updated to include the latest TTB and FDA guidance on distillery-produced hand sanitizer, including the impact of the CARES Act on ethanol used in the production of hand sanitizer.
In response to the nationwide hand sanitizer shortage in the wake of COVID-19, many distilleries have rallied to help through the production of ethanol-based hand sanitizers. Hand sanitizer produced by distilleries is subject to state and federal regulation, including conformance with Alcohol and Tobacco Tax and Trade Bureau (TTB) and Food and Drug Administration (FDA) guidance, discussed in greater detail below.
Likewise, the Oregon Liquor Control Commission (OLCC) and Washington State Liquor and Cannabis Board (WSLCB) have given approval for state licensed distilleries to produce hand sanitizers subject to additional state requirements. In response, many Northwest DSPs and DSPs across the country have been quick to ramp up hand sanitizer production during this shortage.
FDA Hand Sanitizer Production Guidelines
The FDA has published a temporary emergency policy for production of hand sanitizer during COVID-19. This policy was updated on June 1, 2020, and requires that hand sanitizer products and producers of hand sanitizer meet certain requirements:
Hand sanitizer must be produced according to FDA formula, which requires use of denatured ethanol. The FDA has received numerous requests to waive the denaturation requirement, but for consumer safety reasons the FDA has affirmed such requirement in a recent announcement.
FDA Registration and Product Listing
Hand sanitizer should be appropriately labeled per FDA labeling guidelines, which includes:
- A Drug Facts Label;
- Warnings to keep the product out of reach of children;
- Information to get medical help or call a poison control center immediately if swallowed, and to supervise use with children under six years of age to prevent accidental swallowing; and
- Prominent disclosures on labels that hand sanitizer products are "for external use only" and should not be consumed.
This is particularly important where hand sanitizer products are being marketed and sold under brand names most often associated with consumable distilled spirts, to avoid misleading consumers regarding the nature of the product.
The TTB has reiterated that any DSP wishing to produce hand sanitizer must follow FDA production requirements. Discussed in greater detail below, the TTB has provided guidance on the two distinct avenues for a DSP to produce hand sanitizer with tax-exempt spirits: (1) TTB-created exception to certain Internal Revenue Code provisions; and/or (2) use of tax exempt spirits pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
On April 20, 2020, the TTB published updated guidance document 2020-1a, which details the TTB’s COVID-19 relief from the Internal Revenue Code (IRC Exception). Per the IRC Exception, DSPs are temporarily relieved of the usual additional TTB permitting requirements to become a producer of hand sanitizer if the DSP follows FDA hand sanitizer production guidance.
Additionally, DSPs are temporarily exempt from the requirements to request pre-approval from TTB to receive denatured or un-denatured distilled spirits in bond from another DSP, and to obtain additional bond coverage for such transfers and production. As a result, DSPs may transfer ethanol in bond to a second DSP for the second DSP’s production of hand sanitizer.
Alcohol, whether or not denatured, may be delivered tax-free under TTB’s IRC exception to state and local governments, hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions for making hand-sanitizer pursuant to a TTB Industrial Alcohol User permit, if that alcohol is not for resale or use in the manufacture of any product for sale.
Under the IRC Exception, such hospital, clinic, laboratory, or governmental recipient must obtain a TTB Industrial Alcohol User permit to receive the ethanol from DSPs and use it to produce hand sanitizer. TTB has assigned personnel to work seven days a week to temporarily expedite approval of TTB Industrial Alcohol User permits for these purposes.
CARES Act Exemption
On May 18, 2020, the TTB released guidance document 2020-4 that did two main things. First, the TTB extended until January 1, 2021 the above-mentioned IRC Exception for hand sanitizer production. Second, the TTB provided guidance regarding production and tax exemption of ethanol-based hand sanitizers pursuant to the CARES Act.
Production of hand sanitizer with tax-free spirits subject to the CARES Act is a separate but similar process to the IRC Exception created by the TTB. Per the CARES Act, any alcohol removed in 2020 to produce hand sanitizer according to FDA formula is also exempt from TTB excise tax, whether denatured or not.
DSPs do not have to obtain additional TTB permits or bonds to produce hand sanitizer, so long as those operations are consistent with applicable FDA guidance. Producers of hand sanitizer under the CARES Act can be any entity, not just a DSP, hospital, pharmacist or state or local government entity as TTB’s IRC Exception requires, and do not have to register as an alcohol dealer with the TTB.
Any operations involving tax-free distilled spirits outside of the CARES Act would be subject to TTB regulation. The CARES Act allows any entity, whether permitted by the TTB or not, to receive tax-free withdrawals of spirits for purposes of producing hand sanitizer. A DSP must account for and keep ethanol that is withdrawn tax-free under CARES Act exemption separate and distinct from ethanol withdrawn tax-free under the IRC Exception.
Whether produced pursuant to the IRC Exception or the CARES Act, DSPs must continue to keep full records of their operations, including any transfers in bond between DSPs or removals of spirits for transfer to other entities for production of non-beverage products.
Davis Wright Tremaine’s beverage practice group advises DSPs on all areas of spirits law and is here to help you in any way we can during this time.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.