As more brands enter the spirits marketplace, many are turning to contract producers—also known as co-packers or co-manufacturers—to help manufacture their products. Co-packing can be an efficient and cost-effective way to get a distilled spirits product to market without building a facility or investing in your own equipment.
But this increasingly popular model also involves complex regulatory and legal considerations. At Lindsey Zahn P.C., we regularly advise clients on structuring distilled spirits co-packing relationships in a way that is legally compliant and protects the brand owner’s interests.
Here’s a guide to help new and emerging spirits brands understand the basics of co-packing in the distilled spirits space.
What Is Co-Packing or Contract Production?
Distilled spirits co-packing, also referred to as contract production, is when one licensed distilled spirits plant (“DSP”) manufactures, blends, and bottles or packages a spirits product on behalf of another party—typically a brand owner who does not have their own DSP permit (or may have limited production capacity at their current DSP).
The brand owner may provide the formulation, branding, packaging specs, and even ingredients, but the actual distillation, rectification, and/or bottling or packing occurs at the co-packer’s facility. In return, the co-packer charges the brand owner for production services.
This model is common in craft spirits and ready-to-drink (“RTD”) categories, where brands often start with a lean team and limited infrastructure.
What Does the Co-Packer Provide?
Co-packers may offer a wide range of services, including:
- Distillation or proofing of the spirit
- Blending and batching
- Bottling, labeling, and packaging
- Ingredient or raw material sourcing
- Regulatory support, including TTB formula or COLA applications
Some co-packers offer turnkey solutions—handling almost every aspect of production—while others provide only bottling or packaging services. The scope should be clearly defined in a written agreement.
What Federal Compliance Considerations Apply?
Here’s where things get more complex. Under federal law, the actual production of spirits must be done at a facility with an approved DSP permit issued by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”). The TTB also regulates how products are transferred, bottled, and labeled.
Key compliance issues include:
- Who holds the TTB COLA and formula approval? The co-packer or the brand owner can submit COLA and formula applications, but only entities with a TTB permit may do so.
- Whose permit covers the bottling activities? Bottling must occur on the DSP’s bonded premises.
- How are transfers of spirits handled? If spirits are transferred in bulk (e.g., from one DSP to another), TTB requires proper documentation and recordkeeping.
- Who reports production and pays federal excise tax? Typically, the co-packer files TTB operational reports and pays the excise tax unless the brand has its own DSP permit.
What Should Be in a Co-Packing Agreement?
Co-packing relationships should be governed by a clear, written contract production agreement. This protects both parties and outlines key terms, which may include:
- Ownership of the formula and finished product
- Scope of services to be performed
- Production timelines and quality standards
- Label approval and regulatory responsibilities
- Payment terms and pricing
- Confidentiality and IP protection
- Termination rights and liability limits
Each of these terms should be tailored to reflect the nature of the brand’s product and the services offered by the DSP.
How Lindsey Zahn P.C. Can Help With Contract Production Arrangements
Whether you’re a brand owner seeking a co-packer or a DSP looking to offer contract services, Lindsey Zahn P.C. can help structure your relationships and promote regulatory compliance.
We assist clients with:
- Drafting and reviewing contract production agreements
- Advising on TTB compliance and production permits
- Evaluating formula ownership clauses
- Supporting label and formula approvals
📧 Ready to get started? Email us at info@zahnlawpc.com or visit our Contact Page to schedule your introductory call.