The KOMBUCHA Act (‘Keeping Our Manufacturers from Being Unfairly taxed while Championing Health Act’ H.R. 2124 / S. 892), which would amend the internal revenue code to ensure kombucha is exempt from excise taxes and other regulations imposed on alcoholic beverages, has been reintroduced to Congress by Rep. Earl Blumenauer (D-OR-3) and Sen. Ron Wyden (D-OR).
GT explained: “I have spoken with legislators and this act has been received incredibly well; they understand the logic behind updating the law to allow businesses and a health product to continue to thrive.
“It’s a slow and steady journey, and there’s more than one way to get this passed, so you can piggyback it onto something else or make it independent, but I don’t know that at this stage we’ve exactly identified the path of least resistance, so we’re staying open minded.”
He added: “This act [which includes a definition of kombucha – see below] will eliminate some of the fear and uncertainty, particularly for small kombucha brewers, because when something is not defined in law it creates opportunities for plaintiff’s counsel to come in and start suing everyone.”
GT’s Classic Kombucha: ‘Right now, a product like Classic can only be distributed by beer distributors’
GT’s Living Foods offers three kombucha product lines:
- GT’s Synergy Raw Kombucha: Under 0.5%ABV
- GT’s Classic Kombucha: 0.5%+ABV (marketed to over 21s)
- GT’s Hard Kombucha: 3%ABV (marketed to over 21s)
GT’s Classic Kombucha is the original brew GT began bottling in the 1990s, which like many traditional kombucha products skirts the 0.5% threshold and can contain up to around 1.25%. If the KOMBUCHA Act passes, it would no longer have to be marketed effectively as an alcoholic product, and would not be subject to excise taxes, he said.
“We would probably reassess the brand and product positioning as it would not have to have this age restriction. One of the main reasons we want this act to pass is that right now, a product like Classic can only be distributed by beer distributors, who rarely have refrigeration.”
If GT’s Classic Kombucha is no longer effectively classified as beer, he said, “it could have a much broader distribution opportunity.”
As the Classic line skirted the 0.5% threshold, he added: “We had to become a licensed brewer and pay tax not only to the feds but also state tax. It also means that we can only sell to distributors that are licensed to sell beer, and they can’t sell across state lines.”
Preserving the integrity of the kombucha category
However, the bigger issue for GT’s is preserving the integrity of the kombucha category, which he argues has been compromised in part by pressure to keep alcohol levels consistently below 0.5% throughout the shelf-life, prompting firms to deploy a variety of techniques from heat pasteurization to kill off residual yeast, to micro-filtration to remove yeast and prevent secondary fermentation in the bottle, to spinning cone technology to remove alcohol.
“If you take away the things that make kombucha special – its rawness, its vinegary flavor, its natural effervescence, its visible strands of the culture, the way it’s made with an authentic kombucha SCOBY [symbiotic culture of bacteria and yeast] – then we have to ask ourselves, what are you actually making?” added GT, who started his company, now the market leader in a multi-million dollar category, in his mother’s kitchen as a teenager in the 1990s.
He also welcomed the long-awaited code of practice from trade association Kombucha Brewers International (KBI), which defines what kombucha is and how it is made, and encourages the use of on-pack terminology it claims provides consumers with more clarity about ingredients or manufacturing processes, such as ‘added probiotics,’ ‘pasteurized,’ ‘sterile filtered’ [if the filter is less than .45 microns], ‘carbonated,’ or ‘dealcoholized’ (although it allows flexibility in the exact wording used).
“The most important thing to me is to present this information to consumers about all the different kombuchas that are out there and let them decide which version they want,” he said.
What is kombucha and why does it contain alcohol?
To make traditional kombucha, firms typically brew tea, add sugar, and then ferment the mixture with a kombucha culture or ‘SCOBY’ (symbiotic culture of bacteria and yeast). The yeast converts some of the sugars to alcohol, most of which is consumed by the bacteria and converted into acetic acid (explaining the slightly vinegary taste) and other organic acids.
Keeping the alcohol level under 0.5% throughout the shelf-life has been a challenge for the industry from its inception, with firms using a variety of techniques such as heat pasteurization; micro-filtration; spinning cone technology to remove alcohol; or other approaches such as altering the shape of fermentation vessels.
However, some purists take issue with some of these approaches, arguing that ‘authentic’ kombucha is a raw, ‘living’ product that should be manufactured in a particular way, prompting a protracted debate over standards of identity in the category.
The TTB (Alcohol and Tobacco Tax and Trade Bureau) took a close interest in the alcohol levels in kombucha in 2010, prompting a high-profile withdrawal of products in Whole Foods. However, since then the pressure to address the alcohol compliance issue has been driven by lawsuits, with multiple brands in the space being sued by competitors or by consumers.
‘Kombucha is not a new age soda’
The overall kombucha category, which was experiencing pretty meteoric growth for a number of years, has matured and started to slow down in recent years, with SPINS data for the 52 weeks to April 18, 2021, showing dollar sales of refrigerated kombucha and fermented beverages up +3.93%, driven by +7% growth in the conventional channel (MULO) partially offset by a -7% decline in the natural enhanced channel.
For GT’s, 2020 was a “mixed bag,” said GT, who said the incursion of shelf-stable functional beverages into the kombucha category has confused consumers and disrupted pricing architectures.
“We want to elevate the conversation about what makes kombucha special. It’s not a new age soda.”
He added: “We continue to be the kombucha category leader, and as such we’re not immune to some of the category headwinds, and so we continued to grow but it wasn’t as unobstructed as it’s been in recent years.”
KBI: ‘Summer 2021 is a critical period for the kombucha industry’
According to KBI president Hannah Crum (who argues that the 0.5%ABV threshold is “not based on any scientific study or process”), raising the threshold to 1.25% would make it a lot easier to make authentic raw kombucha using traditional methods, with alcohol levels that are still low and would “not get people intoxicated.”
In a recent blog post, the KBI added: “KBI is gaining in its efforts to increase the ABV for kombucha and bring the IRS code into alignment with natural fermentation… Summer 2021 is a critical period for the kombucha industry, as there are some umbrella bills in active discussion that have a strong possibility of housing The KOMBUCHA Act. This is the number one hurdle that has prevented its passage in past years.”
The KOMBUCHA Act (‘Keeping Our Manufacturers from Being Unfairly taxed while Championing Health Act’) would amend the internal revenue code to ensure kombucha is exempt from excise taxes and other regulations imposed on alcoholic beverages.
It defines kombucha as: “(A) fermented solely by a symbiotic culture of bacteria and yeast, (B) contains not more than 1.25% abv, (C) is sold or offered for sale as kombucha, and (D) is derived from—(i) sugar, malt or malt substitute, tea, or coffee, and (ii) not more than 20% other wholesome ingredients.”
In a press release, Rep. Earl Blumenauer, D-Ore., notes: “Because of the natural process of fermentation, the alcohol content [in kombucha] may occasionally increase slightly [taking it over 0.5%], especially during transport or handling by third parties.”
But no one is drinking kombucha “because of its insignificant alcohol content,” claimed Blumenauer. “A person would have to consume between five and 10 bottles of kombucha to equal the alcohol in just one beer.”
To place this in context, popular light lager beers typically contain about 3.2%ABV, while many craft beers can be 5%ABV+. ‘Hard’ kombucha brands such as Flying Embers and JuneShine – which are marketed to adults 21-years and older and sold as alcoholic beverages – typically contain between 4-7% abv.