NC distilleries that made hand sanitizer stunned by proposed $14,060 federal fee

Jonathan Blitz was shocked when he learned Thursday that the Durham distillery he co-owns, Mystic Farm and Distillery, would have to pay a $14,060 fee to the Food and Drug Administration.

The FDA was assessing the fee to hundreds of distilleries like his that pivoted from producing spirits to hand sanitizer to make up for the shortage when the coronavirus pandemic swept across the country in March and April.

In a notice published this week, the FDA said it was authorized to collect the fees under the Coronavirus Aid, Relief, and Economic Security or CARES Act that provided help to businesses, governments and individuals hurt by the pandemic. Distillers like Blitz never saw it coming.

“As soon as I saw that number, it was shock first. Second was panic. How are we going to pay it?” Blitz said in an interview. “How much sanitizer do you have to be selling a month to make it worth paying $14,000 plus dollars every year?”

An outcry from distillers and their trade organizations reached leaders of the Department of Health and Human Services, which includes the FDA. They issued a statement late Thursday saying the fee would not have to be paid.

“This action was not cleared by HHS leadership, who only learned of it through media reports late yesterday,” the statement said.

The statement said the department had ordered the Federal Register notice to be withdrawn, “meaning these surprise user fees will not need to be paid.”

“Small businesses who stepped up to fight COVID-19 should be applauded by their government, not taxed for doing so,” Brian Harrison, HHS chief of staff, said in the statement. “I’m pleased to announce we have directed FDA to cease enforcement of these arbitrary, surprise user fees. Happy New Year, distilleries, and cheers to you for helping keep us safe!”

That announcement was hailed by the American Craft Spirits Association and its president, Becky Harris of the Catoctin Creek Distilling Company in Virginia.

“We are incredibly grateful to HHS for opening a dialogue with us, and look forward to working more collaboratively together in 2021 with FDA to ensure our members are treated fairly for the challenges they face to support their hometowns via hand sanitizer production in the wake of COVID-19,” Harris said in a written statement.

Cost of producing hand sanitizer

In April, at least 35 distilleries in North Carolina were making hand sanitizer, said Carol Shaw, the executive director of Distillers Association of North Carolina.

Many of the distilleries that pivoted to producing hand sanitizer have struggled, Shaw said, including Dock Porters Distillery in Charlotte, which has since closed and lost its lease.

For Mystic, hand sanitizer production took over the entire facility, Blitz said. All the tanks were used to produce hand sanitizer, forcing the company to stop making its usual product, whiskey, for five months. The business will feel the impact of the pivot in 2023 or 2024 when it would be selling that whiskey, Blitz said.

The company has started producing whiskey again. Blitz said had the FDA told him about the fee before it started making hand sanitizer, he would have set aside the money to pay it or “not entered the business in the first place.”

Pete Barger, owner of Southern Distilling Company in Statesville, said he spent a lot of money to produce hand sanitizer, including hiring waiters and waitresses who had been laid off. He invested in capital and worked to meet FDA requirements for hand sanitizer, he said.

When he first saw the fee, he thought to himself, “Thank God it’s not $100,000,” he said. “But at the same time, that’s a lot of money for a small company where that (hand sanitizer production) is not the focus of what they do day in and day out.”

‘These fees came out of nowhere’

Durham Distillery began producing hand sanitizer in April, said its president and CEO Melissa Katrincic. She was “incredulous” when she first heard about the fee, she said.

Distilleries were in a unique position to produce hand sanitizer because of their equipment and alcohol, Katrincic said. Durham Distillery donated hand sanitizer to local restaurants, bars, first responders, health care workers and shelters, she said.

Not only did distilleries have to halt production of spirits, they also had to follow FDA guidelines and get approval, as well as source the plastic containers to hold the hand sanitizer.

Katrincic sat on the national task force for hand sanitizers for the American Craft Spirits Association, the industry trade group. They worked with businesses across the industry to make sure they were putting out met FDA requirements and kept people safe, she said.

“These fees came out of nowhere,” Katrincic said. She said if she knew about the fee, she would have informed distillers about it through the task force.

“They shouldn’t be charging this in the first place,” she said. “If we’re called to the carpet again … we have to start making hand sanitizer again, why would we?”