FDA Declares CABs Unsafe - So What's Next?


Dear Client:

It's official. The FDA has declared caffeinated alcohol unsafe. According to a statement on their website, the FDA today warned Charge Beverages Corp (producers of Core High Gravity HG, Core High Gravity HG Orange, and Lemon Lime Core Spiked), New Century Brewing (Moonshot), Phusion Projects (Four Loko) and United Brands Co (Joose and Max) that "the caffeine added to their malt alcoholic beverages is an 'unsafe food additive' and said that further action, including seizure of their products, is possible under federal law." No mention of caffeinated spirits was made.

Following a scientific review conducted by the agency, they did not "find support for the claim that the addition of caffeine to these alcoholic beverages is 'generally recognized as safe,' which is the legal standard," said Dr. Joshua M. Sharfstein, Principal Deputy Commissioner. "To the contrary, there is evidence that the combinations of caffeine and alcohol in these products pose a public health concern."

The FDA said the products named in the warning letters "are being marketed in violation of the Federal Food, Drug, and Cosmetic Act (the FFDCA)." Each letter requests that the recipient inform the FDA in writing within 15 days of the specific steps they are taking "to remedy the violation and prevent its recurrence." These companies also have the option to present reasoning and supporting information if they do not believe their products are in violation of the FFDCA.

And if the FDA believes the violation continues to exist, they "may pursue an enforcement action that could include seizure of the products or an injunction to prevent the firm from continuing to produce the product until the violation has been corrected."

MORE DETAILS FROM CONFERENCE CALL. The investigation is "ongoing" and may extend to "other similar products," said Joshua Sharfstein, M.D., principal deputy commissioner, FDA, during a conference call today.

The FDA confirmed there is "not a plan on the FDA's part" to issue a recall. Currently they are "waiting to hear back" from the four companies they sent a letter to, but there is a chance a recall "could happen" in the future. Right now it sounds like the FDA is giving these companies a chance to respond. When asked how long a company has to reformulate its product, FDA leaders said they don't "want to get into hypotheticals," but "it is a very serious letter that the companies got." The agency will give them a chance to tell them how they are going to remedy the situation, and "take it as it comes and decide from there."

FOUR LOKO GOES CAFFEINE FREE. Four Loko said yesterday they are going caffeine-free. Following an announcement from New York Senator Charles Schumer that the FDA will rule caffeinated alcohol is "unsafe," along with the FTC set to declare that the companies producing the drinks may have engaged in potentially illegal marketing practices, Phusion Projects announced last night to distributors that it has instructed its contract producers to take all of the stimulants out of the drink.

Phusion Projects, owners of Four Loko, said it has taken the necessary steps to reformulate its products to remove caffeine, guarana and taurine nationwide, and is informing its employees and distributors of the plans. "Going forward," said the company in a statement, "Phusion will produce only non-caffeinated versions of Four Loko."

Phusion's three co-founders, Chris Hunter, Jeff Wright and Jaisen Freeman, reiterated their belief "that the combination of alcohol and caffeine is safe." Then they pulled spirits into the mix, saying: "If it were unsafe, popular drinks like rum and colas or Irish coffees that have been consumed safely and responsibly for years would face the same scrutiny that our products have recently faced."

They also stated that "if our products were unsafe, we would not have expected the federal agency responsible for approving alcoholic beverage formulas - the Tobacco Tax and Trade Bureau (TTB) - to have approved them. Yet, all of our product formulas and packaging were reviewed and approved by the TTB before being offered to consumers."

But "we are taking this step after trying - unsuccessfully - to navigate a difficult and politically-charged regulatory environment at both the state and federal levels."

"In an open letter to regulators this month, Phusion said it would welcome the opportunity to work together to create uniform standards for all liquor and malt-based caffeinated alcoholic beverages. The company also stated that uniformity means uniformity in how the laws are written, applied and enforced. The company, unfortunately, was not given that opportunity."

The FDA today commended Phusion, saying they view this "announcement as a positive step," but have "not yet heard officially from the company about this announcement, including how quickly it will remove present product from circulation and how quickly it will reformulate its product." And finally, "FDA intends to work with Phusion Projects, LLC and the other manufacturers to assure their products meet safety standards."

WHAT'S NEXT? Now it's expected that the FTC will send a letter to manufacturers, notifying them "that they are engaged in the potential illegal marketing of unsafe alcoholic drinks," according to New York Senator Charles Schumer announcement yesterday.

Meanwhile, lots of people of legal drinking age are saying on Facebook that they are going to load up on Four Loko before it leaves shelves.

SO WHAT DOES THIS MEAN FOR CAF SPIRITS? The question on many minds is: How wide a net will the FDA and/or the FTC cast? There are a number of craft beers and spirits products that contain coffee or tea, which means they contain caffeine. There are also spirits, mainly vodka brands, with added caffeine, guarana and/or taurine. In fact the FDA targeted a number of these products, along with caffeinated malt beverages, in 2009.

Recall this all started when the FDA sent a letter to 30 caffeinated alcohol producers in November 2009. Although the list was dominated by malt beverages, there were a few caffeinated spirits: P.i.n.k. Vodka, Lotus Vodka, 3am Vodka, Belvedere IX, Gravity Vodka and V2 Vodka with Caffeine.

But what about products like Kahlua? Back in 2009 the FDA said coffee drinks were in the clear: "This FDA action is not directed at products that are flavored with coffee," said the FDA. Instead, it's "focusing its attention on products in which caffeine has been intentionally added to alcoholic beverages by the manufacturers. Other products containing added caffeine may be subject to agency review if the available scientific data and information indicate that added caffeine may pose a safety concern, or is being unlawfully used, under the conditions of its use in other products."

Conventional wisdom says caffeinated spirits could be targeted next - but not so fast. If the FDA planned to targeted caf spirits, why wait? Why wouldn't the FDA include them from here on out? Good question. So we wait.

NABCA WEIGHS IN. NABCA said today it "commends" the action taken today by the FDA, in cooperation with the FTC, TTB and Centers for Disease Control. They also recognized "the leadership of several State Attorneys General around the country who had requested action by the FDA," and commended "the states who have taken action to limit the sale of these products."

"We have long been concerned that these products may have a detrimental impact on public safety," said Dan Gwadosky, NABCA chairman and Director of the Maine State Liquor and Lottery Commission.

Then NABCA directly called out energy drink cocktails: "Our work, however, is not done. We must educate the public, especially our youth, to the dangerous practice of mixing alcohol and energy drinks and the dangers of over-consumption," Gwadosky said.


HOLIDAY PRICING LOOKS SOLID so far, said Morgan Stanley in a note to clients. So far Diageo "is maintaining higher pricing in the US." Although some investors fear a return to a highly promotional environment, "aside from normal seasonal step up in promotions, so far that does not appear to be the case." Let's hope that continues as we go further into the holiday season.

SOBIESKI VODKA VOLUMES grew 41% (or 243,000 cases) in the US in the third quarter ended September 30, according to parent company Belevedere SA. Its US subsidiary is Imperial Brands. Total sales in the US for the whole company rose by almost 58%. For the fiscal year, they expect Sobieski's growth to continue and reach its target of 1 million cases in annual sales.

MOLSON COORS CHIEF Peter Swinburn confirmed that the company is already part-way through plans to completely offload its minority stake of 5% in Foster's Group by the first quarter of 2011, suggesting that the company may no longer be interested in acquiring Carlton & United Breweries (CUB), the beer arm of Foster's.

CALLING ALL HANDS. How are the holidays going so far? Please take our short, anonymous survey and help us gauge what the industry is currently facing: https://www.surveymonkey.com/s/TBZTTDQ

Until tomorrow, Megan

"I don't generally feel anything until noon; then it's time for my nap."
Bob Hope

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