FDA Issues $20K in Fines to Distilleries that Stepped Up to Produce Hand Sanitizer During Shortage

Just when you think there isn’t any red tape to trip over, the bureaucratic tentacles of the U.S. government grabs you by the leg and reminds you that very little can be done in the “land of the free” without its permission.

In a prime example of this, the Food and Drug Administration is handing large fines to distilleries that stepped up during the height of the COVID hysteria to make hand sanitizer when little was available on the shelves for the American people and as their normal operations were halted due to lockdown measures.

According to the Distilled Spirits Council of the United States, a group that describes itself as the leading national trade association for distilled spirits producers, importers, and marketers, distilleries are being slammed with a $14,060 Monograph Drug Facility Fee and  $9,373 Contract Manufacturing Organization Facility Fee.

“This incredibly frustrating news comes as a complete shock to the more than 800 distilleries across the country that came to the aid of their local communities and first responders,” a statement from the Council reads.

“This unexpected fee serves to punish already struggling distilleries who jumped in at a time of need to do the right thing,” said Distilled Spirits Council President and CEO Chris Swonger. “While this fee may be a rounding error to a large pharmaceutical company, this will be disastrous to small distilleries who stepped up to help produce this critical product – it will quite literally bankrupt some struggling businesses. We are urging FDA to immediately waive the fees for distillers who are producing hand sanitizer on a temporary basis to help combat the pandemic, pursuant to the FDA’s temporary policy.”

The FDA is taking issue with a provision of the CARES Act that reformed regulation of non-prescription drugs. As Jacob Grier of Reason explains, under the revised law, distilleries that produced sanitizer have been classified as “over-the-counter drug monograph facilities.” The CARES Act enacted user fees on these facilities to fund the FDA’s regulatory activities.

The Distilled Spirits Council further explains:

These fees are being levied under a newly established “OTC monograph drug user fee program,” which has established fees on OTC monograph drug facilities, as well as OTC Monograph Order Requests (OMORs) for FY 2021.  The FDA has stated that these fees also apply to facilities, including distilleries, that produced hand sanitizer under the temporary policy during Covid-19.

“I was in literal disbelief when I read it yesterday,” said Aaron Bergh, president and distiller at Calwise Spirits in Paso Robles, California. “I had to confirm with my attorney this morning that it’s true.”

“Some of my hand sanitizer was donated,” Bergh mentioned, adding:

“The rest was sold at a fraction of the market price. My goal was to get as much out as I could, at as low of a price as I could, while being able to bring my furloughed employees back to work. The hand sanitizer business saved me from bankruptcy—but I didn’t make an enormous profit.”

Becky Harris, president of the American Craft Spirits Association and of Catoctin Creek Distilling in Purcellville, Virginia, says she has been fielding calls from anxious distillers who are faced with the fine as they struggle with the financial consequences of the virus and government shutdowns.

“People are incredibly anxious,” Harris said. “We have been dealing with tons of phone calls talking to individual members and state guilds to tell them what we know and what we don’t know.”

“The problem that we have right now is that [the fine] is going out to a whole lot of small businesses who are struggling in the pandemic,” she aded.

In order to avoid the fees compounding, the distilleries need to act today (Dec. 31), and cease producing and selling the hand sanitizer and de-register in the FDA eDRLS system, according to the Distillers council. If they fail to so they will be liable for an additional fee in 2022 as well.

While the pandemic may have been good for drinking, it was terrible for the distillery business that relies heavily on tasting rooms, cocktail bars, and tourism for revenue.

Despite off premise sales of liquor in the US being up 30 percent year-over-year for the pandemic period, craft distilleries sale are expected to decline by more than $700 million in 2020, representing about 40% of sales in that sector, according to the market research firm Nielsen.

“We want to push back on this,” Becky Harris said as she is advising members of the American Craft Spirits Association to not pay the fee right away.

The ruthless nature of bureaucracy is on full display in this situation. It’s as if the government has a target directly on the back of the middle class.

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