Bob Uphues

In March, as state shutdown orders closed local retail businesses and a panic-buying public emptied shelves of disinfecting products, some resourceful business owners, like liquor distillers, retooled production to make hand sanitizer.

Places like Quincy Street Distillery in Riverside made the decision not only as a way to keep afloat at a time when bars and restaurants were prohibited from operating but to provide local healthcare facilities, first responders and residents with what had become a scarce commodity.

And for a few days last week, many of the smaller operations, like Quincy Street Distillery, had regretted that decision after the U.S. Food and Drug Administration sent them notice on Dec. 29 that they owed the federal government a fee of $14,060, due by Feb. 11.

“We’ve suffered a lot of things, because of this pandemic,” said Derrick Mancini, the distillery’s owner. on Dec. 31, when he still believed he’d have to pay it. “We were already most likely looking at shutting down production temporarily in January, but this could be the thing that puts us out of business.”

But after the outcry from craft distillers and industry lobbyists, the U.S. Department of Health and Human Services relented later on Dec. 31, stating the feds wouldn’t be collecting the fee after all and blaming the fee notices on internal miscommunication.

According to the Dec. 31 statement from Health and Human Services, which was shared with the Landmark, “This action was not cleared by HHS leadership, who only learned of it through media reports late [on Dec. 30]. HHS leadership convened an emergency meeting late last night to discuss the matter and requested an immediate legal review. …

“Because HHS Office of General Counsel has determined the notice is really a legislative rule and that no one at FDA has been delegated authority to issue such a rule, the notice is void. HHS leadership, based on this legal opinion, has ordered the Federal Register Notice to be withdrawn from the Federal Register, meaning these surprise user fees will not need to be paid.”

Mancini said he believes the huge fee resulted from the federal agency rushing to find a solution to a problem they failed to address earlier. With the end of the year approaching, their backs were against the wall, and they made the simplest calculation possible.

“My suspicion is that we were hitting the end of the year and they didn’t have anything ready to go, so at the last minute they dropped this on us without an industry input or public discussion,” Mancini said.

The fee was imposed equally on any business that applied to become “over-the-counter drug monograph facilities” capable of producing hand sanitizer for wholesale and retail distribution.

The fee, which was always part of the equation but never described in any detail and for which guidance was never issued, would be collected to offset the cost of the FDA’s regulatory role in approving the licenses.

Mancini said he believes a decision on the fee was put off because federal officials didn’t know at the outset what the cost was going to be to administer the program.

The whole registration process was in flux for months as federal officials scrambled to write the rules to allow distillers to produce what was considered an over-the-counter medical product.

When the FDA finally determined the cost to register businesses for the program, they simply added up the number of businesses participating and divided the cost equally.

And with the renewal period to register for the program next year coming just two days from that Dec. 29 notice, small distillers like Quincy Street had scrambled to de-list from the program for fear of getting hit again next year.

With the future of the fee unclear, Mancini said Quincy Street Distillery has shut down its manufacture of hand sanitizer.

“We still don’t know about next year,” said Mancini in a follow-up email. “HHS will have to decide going forward, so all of us have had to deregister and stop manufacture. … The negative for us is that we are still sitting on supplies (chemicals and bottles) purchased specifically to produce the hand sanitizer.”

Mancini said Quincy Street Distillery never intended hand sanitizer sales to be a profit center, just a way to keep staff employed and provide a service to the community. They didn’t make anywhere close to $14,000 in profit from those sales, Mancini said.

The proposed fee for the privilege of making hand sanitizer far outstripped the amount Quincy Street Distillery pays annually to produce hard liquor, Mancini added, and ironically came at a time when the federal government finally made permanent a reduction in liquor excise taxes for craft distilleries.

“This [fee] is far larger than what we pay for the alcohol we produce,” Mancini said.

Contact:

Email: buphues@wjinc.com Twitter: @RBLandmark

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