Legislative efforts to change how spirits-based ready-to-drink (RTD) beverages are categorized gathered momentum this week, as lawmakers in Texas introduced a new bill that would give greater market access to packaged spirits-based cocktails under 17% ABV, allowing them to be sold in grocery and convenience stores, while a Washington State Senate committee passed a bill to adjust how the products are taxed.
Introduced by Rep. Justin Holland on February 13, the proposed Texas law (H.B. 2200) could widen access to what it defines as spirit coolers, with no specifications for can or package size. Only beer and wine-based RTDs are currently allowed in Texas grocery and convenience channels, limiting their spirit counterparts to 3,200 outlets versus 30,000, according to a press release from the Distilled Spirits Council of the United States (DISCUS).
“Consumers simply don’t understand why they can come into our stores and pick up malt-based seltzers but can’t do the same with their favorite spirits-based canned cocktails,” said Paul Hardin, president and CEO of Texas Food & Fuel Association, in a statement. “Allowing our members to sell these lower-ABV products would not only support their growth, but the growth of many Texas-owned businesses looking to get into the RTD market.”
Meanwhile, in Washington, a Senate bill aimed at changing the tax rates for spirits-based RTDs is now headed to the Ways and Means Committee after passing the Labor and Commerce Committee. Those RTDs are defined as low-proof beverages that are not malt- or wine-based, and in containers of 16 oz or less and lower than 7% ABV. The new law would impose a $2.50 per gallon tax on the distribution and sale of low-proof beverages in lieu of certain spirits sales taxes, while still collecting other spirits liter and retail sales taxes. Currently the tax rate is 55 times higher than malt- or sugar-based seltzers, and this bill’s rate is still 10 times higher than tax rates for its counterparts.
Both the Texas and Washington bills will need to proceed through committees before being considered by the full house or senate.
The bills echo other new state-level efforts to lower taxes or increase channels for the trending category. California also introduced a bill this month that would allow wine and beer retailers to sell spirits-based RTDs, offerings that are lower than 10% ABV and in containers no larger than 16 oz. Across the border in Arizona, lawmakers followed with a new bill (H.B. 2769) last week, which proposes a tax rate reduction from $3.00 per gallon to $1.25 per gallon for spirits-based RTDs. While more focused on local production, a bill in New York also seeks to provide parity with a beer tax credit for cider, wine and liquor made in the state that’s under 24% ABV.
But it’s not all smooth sailing for spirit advocates: Last week, the North Dakota Legislature rejected a bill (H.B. 1303) to tax certain RTDs at the same rate of wine.
“We are pleased the North Dakota House rejected H.B. 1303, which would have arbitrarily reclassified liquor products as wine to reduce their tax rate – blurring the lines between distinctly different alcohol categories,” said Brian Crawford, president and CEO of the Beer Institute, in a statement.
Since the growth of RTDs began heating up the battle for the coldbox, similar bills have been introduced across the country in the past two years. RTD category value is expected to increase by an additional $11.6 billion over the next five years, and the number of spirit-based SKUs on the market in the U.S. has risen by approximately 70% from 2020 to 2022, according to drinks data company IWSR.
Expanding market access for spirits-based RTDs is a top legislative priority for DISCUS, representatives from the trade association made clear in its annual economic briefing last week. Data from the briefing revealed that RTDs remain the fastest growing spirits segments in both volume (+37.4%) and revenue (+35.8%). Malt-based RTDs still dominate the category, but spirits-based RTDs now account for 13% of market volume compared to 8% in 2021.
“There are many states that have reduced the taxes on spirits-based RTDs, so we’re not breaking new territory, but there are probably 10 to 15 states that are going to be moving on this and obviously the Distilled Spirits Council is going to be very, very aggressive in our advocacy efforts,” said Chris Swonger, DISCUS president and CEO, during the briefing.
The results of past legislative efforts have been mixed. In 2022, similar bills were defeated or stalled in Alabama, Arizona, Hawaii, Kentucky, Maryland, Washington and West Virginia. In 2021, tax reductions for spirits-based RTDS were signed into law in Michigan and Nebraska.
Last year, a new Vermont law also lowered state excise tax on spirits-based RTDs and allowed for wider distribution. Cocktails less than 12% ABV and in containers smaller than 24 oz. can also now be sold at Vermont beer and wine stores, in contrast to full spirit bottles, which can only be sold in state-run liquor stores.