In the early days of the COVID-19 pandemic, many distillers shifted their production from spirits to hand sanitizer, complying with emergency guidance from the FDA. Much of this sanitizer was donated or sold at a low margin, helping to alleviate a dire shortage. These same distilleries were surprised this week by a notice from the FDA informing them that they were required to pay a fee of more than $14,000 as over-the-counter drug production facilities to cover the costs of FDA regulation.
It’s been a whirlwind 24 hours for American craft distillers, but 2020 is ending with some good news: Thanks to media coverage, including here at Reason, of an unexpected and substantial fee imposed by the Food and Drug Administration (FDA) on distillers who pivoted to produce much-needed hand sanitizer, the federal government has reversed course on what would have been a devastating blow to small businesses.
Late today, however, the Department of Health and Human Services (HHS) reversed the policy. In a statement posted to Twitter, HHS Chief of Staff Brian Harrison said, “Small businesses who stepped up to fight COVID-19 should be applauded by their government, not taxed for doing so. 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!”
In a longer statement, HHS leadership distanced itself from the initial policy: “This action was not cleared by HHS leadership, who only learned of it through media reports late yesterday. HHS leadership convened an emergency meeting late last night to discuss the matter and requested an immediate legal review. The HHS Office of the General Counsel (OGC) has reviewed the matter and determined that the manner in which the fees were announced and issued has the force and effect of a legislative rule. Only the HHS Secretary has the authority to issue legislative rules, and he would never have authorized such an action during a time in which the Department is maximizing its regulatory flexibility to empower Americans to confront and defeat COVID-19.”
The statement continued: “Because HHS OGC 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 HHS leadership, based on this legal opinion, has ordered the Federal Register Notice to be withdrawn from the Federal Register, meaning these surprise user fees will not need to be paid.”
The news was greeted with relief by the craft distilling community. “I am immensely appreciative of the outreach and quick action of HHS leadership, especially Chief of Staff Brian Harrison,” says Becky Harris, president of the American Craft Spirits Association (ACSA) and of Catoctin Creek Distilling Company in Purcellville, Virginia. “The American Craft Spirits Association team and distillers around the country have been immensely helped by the outreach from the media, legislators, and our customers expressing their shock and disappointment at this notice, and helping us get the ear of people within the federal government in a position to help. This New Year’s Eve I am raising a glass in gratitude, relief, and toasting the prospect of a better 2021.”