Farm winery licensees and winery licensees can manufacture wine that contains not more than 21% alcohol by volume. Both may add spirits to wine, but only winery licensees may distill the spirits to be added to their wines, as described above in the Licensing section; farm wineries must purchase it in bond. Both farm winery licensees and winery licensees may buy bulk wine from or sell bulk wine to another winery or farm winery licensee. Bear in mind that bulk wine purchased by a farm winery is considered when determining whether the farm winery meets is 51% fruit sourcing requirement, and that the no more than 25% of the fruit used in the annual production can come from outside the Commonwealth.
Farm winery licensees may trade or exchange fruits or other agricultural products grown or produced on their farms with other farm winery licensees. The fruits traded or exchanged between farm winery licensees shall be considered grown or produced on the receiving farm for purposes meeting the fruit sourcing requirements required of farm winery licensees provided verification is given to the receiving farm winery that the fruits were produced in the Commonwealth by the farm winery engaging in such exchange. Both the licensees shall maintain complete and accurate records of the quantity of and source of any fruit or agricultural products traded or exchanged. Such exchanges or trades shall be based on the fair market value of the fruits or agricultural products exchanged.
GRAPE PURCHASE AGREEMENTS V. LEASING FOR PURPOSES OF FARM WINERY LICENSURE: As noted above, a Farm Winery Class A must grow at least 51% of the fruit used to make the wine on land either owned or leased by the licensee, and no more than 25% of the fruit used in the wine can come from outside the Commonwealth of Virginia. If at least 51% of the fruit used to make the wine is not grown on site, a farm winery needs to have written leases on file at the licensed premises establishing that the 51% fruit sourcing requirement has been met. These leases need to be for the land itself (although it can be referred to as “the real property identified as Chardonnay Rows 1-5 in Lot 8 of XYZ Vineyard”), not for the fruit borne from that property. Beyond that 51%, the rest of the fruit may be purchased under a Grape Purchase Agreement. A Grape Purchase Agreement is indicated by a price per ton rather than the price per acre/row format of a Lease, regardless of the title of the document. Samples of a Grape Purchase Agreement and a Vineyard Lease can be found in the Appendix here: Sample Grape Purchase Agreement.
CONTRACT WINEMAKING: As of July 1, 2013, contract winemaking is permitted in Virginia. This change makes legal the concept often known as custom crush, where one winery takes another winery’s fruit, turns it into a finished product, and returns it to the contracting winery in bond. The full definition of a contract winemaking facility is as follows:
- “Contract winemaking facility” means the premises of a licensed winery or farm winery that obtains grapes, fruits, and other agricultural products from a person holding a farm winery license and crushes, processes, ferments, bottles, or provides any combination of such services pursuant to a written agreement with the farm winery licensee. For all purposes of this title, wine produced by a contract winemaking facility for a farm winery shall be considered to be wine owned and produced by the farm winery that supplied the grapes, fruits, or other agricultural products used in the production of the wine. The contract winemaking facility shall have no right to sell the wine so produced, unless the terms of payment have not been fulfilled in accordance with the contract. The contract winemaking facility may charge the farm winery for its services
What does that mean in real language? (1) Only a farm winery can (2) hire another winery or farm winery to make wine for it; (3) there has to be a written contract between the parties detailing the agreement for contract winemaking services, and (4) within that contract, there has to be an attestation by the hiring farm winery that the fruit or juice used in the wine is provided by the hiring farm winery.
Some other things to know and consider about these types of relationships are:
- Contract winemaking provisions only deal with finished (bottled and labeled) wine. It is still permissible to purchase wine from another winery in bond and bottle or label that wine on your site after receipt.
- Only finished wine produced after July 1, 2013 and under a contract meeting the conditions above can be transferred in bond. ALL OTHER SALES OF FINISHED WINE, INCLUDING ANY WINE PRODUCED PRIOR TO JULY 1 OR OUTSIDE THE SCOPE OF THE PROVISIONS ABOVE, MUST BE PURCHASED THROUGH A WHOLESALER. This makes getting set up with VWDC (see Distribution section, below) much more important if you’re planning to do any contract winemaking for VA farm wineries.
- All fruit in the wine produced through a contract winemaking facility must be provided by the hiring farm winery.
- Your fruit sourcing requirements for a farm winery (51% of production comes from fruit off land owned or leased by the farm winery, AND no more than 25% of the production from fruit from outside VA for Class A; no more than 25% from fruit from outside VA for Class B) remain in effect, even though the wine is being made at another winery’s location.
- The farm winery license is still a manufacturing license, and by definition the hiring farm winery does still have to manufacture some wine on their licensed premises. “Some” is not defined, but will likely be defined in regulations being drafted.
- The federal label approval (COLA) must be obtained by the bottling winery, meaning that if you’re a Middleburg farm winery, and you contract with a Charlottesville winery to make your wine, the back of the label will have to read “Bottled by (Charlottesville Winery) Charlottesville, VA.” It’s possible for the bottling winery to add a trade name similar to the hiring farm winery’s name to their basic permit for bottling purposes, but the location (city, state) will always be the bottling winery’s, not the hiring farm winery’s. For example, let’s say Mary Beth’s Winery is in Beaverdam, VA, and I contracted with Cardinal Point in Afton, VA to make my wine. The front label could have my brand name and graphics, but the back of the label would have to state “Bottled by Cardinal Point Winery, Afton, VA.” If I gave them license to add a trade name to their license of Mary Beth’s Cellars, that statement might change to “Bottled by Mary Beth’s Cellars, Afton, VA” but cannot state Beaverdam, VA.
- The appellation of the wine is based on where the fruit was sourced, not where the wine was produced, so having the wine produced by a winery in the Monticello AVA doesn’t allow you to use that appellation on your wine.
- Since the wine will transfer in bond, the hiring farm winery will have to register those products with ABC. In order to do that, you’ll need a letter from the bottling winery stating that they were hired to make the wine for you, and they allow you to use their COLAs for registration of the products. See the Sample Bottler’s Statement in the Appendix and here: Sample Bottlers Statement.
To summarize, if the wine at issue is finished (bottled and labeled) product, and it is not being made under the provisions of the contract winemaking law, it must go through a wholesaler to a retail licensee or Farm Winery licensee; the products must be registered with ABC prior to selling them through VWDC or a traditional wholesaler. Once the wine goes through a wholesaler, it can’t go through a wholesaler AGAIN, which means that wine moved through a wholesaler can only be sold by the receiving winery at retail, through its tasting room, remote retail locations, and via direct to consumer shipping, if the receiving winery has the necessary Wine Shippers Permit. If the wine is not bottled and labeled, it is not considered finished wine, and can be sold to the receiving winery in bond, and would not be considered a contract winemaking transaction.
Wine cannot be sold via wholesaler for less than the cost of producing that wine, and all other pricing requirements associated with wholesale transactions apply to these situations as well. See Distribution section, below, for more details.
It is permissible for a winery or farm winery to produce custom-labeled wine for sale to a licensed retailer (or licensed farm winery) through a wholesaler. In this situation, the producing winery could take a deposit for the wine to be sold in the manner, and then the remainder of the cost of the wine can be the price paid through VWDC. The primary source of revenue from these transactions should be the sale through VWDC, with the deposit being a means to ensure that the sale is ultimately finalized and the producing winery does not end up with wine labeled for a specific retailer and difficult to re-sell to another licensee.
IMPORTANT NOTE: You CANNOT contract to make wine for someone who is not currently licensed as a winery, farm winery or retail licensee. Sales for resale can only be made to licensed entities. Also, selling bulk wine (whether part of contract winemaking or not) is not permitted except to another licensee. Do not enter into any agreements for sales of wine until the recipient’s license is issued by ABC. This is an illegal sale of wine, and subjects your license to forfeiture and possible criminal sanctions.
Private labeling for an individual (i.e. for a special event) which is NOT for resale is not implicated by the contract winemaking provisions. This would be a retail sale. Pursuant to 3 VAC 5-20-40(A), all wine sold at retail must be sold in the original containers which have both a COLA and VA product registration prior to sale.
BOND TO BOND TRANSFERS: All wine made under the provisions of the contract winemaking statute can be transferred from the producing winery’s bond to the contracting winery’s bond without payment of federal or state excise tax. These types of transactions need to be documented, and records of these transactions must be kept for 2 years. A copy of the bond to bond documentation should travel with the wine while in transit from the producing winery to the contracting winery’s licensed premise after it is finished. A sample bond to bond transfer document is included in the Appendix and here: Transfer in bond documentation.