Palcohol has its label approval revoked: Here's a fine grain analysis of what that means

By Dan Raile , written on April 22, 2014

From The News Desk

This morning the Alcohol and Tobacco Tax and Trade Bureau reversed its April 8th approval of labels for powdered alcohol product Palcohol, saying “Those label approvals were issued in error and have since been surrendered.”

Most of the press around Palcohol has lazily stated that the government had approved of the product, and this has resulted in both mockery and outrage. Presumedly this backlash had a lot to do with the TTB’s sudden reversal. But to say the “federal government approved Palcohol” is to commit a dramatic oversimplification.

According to Lipsmark, the company that makes Palcohol, “there seemed to be a discrepancy on our fill level, how much powder is in the bag.” Lipsmark’s statement today went on to reassure prospective customers that this is not the end for the company.

Skeptics, and there are many, will surely see this as a desperate PR smoothover. And while they’re right, Lipsmark’s comments about fill-level reveal a dangling thread in the issue that few have attempted to pull.

The issue around fill levels is an interesting one that points up the oddities of alcohol regulation.

In the manufacture of food products, FDA regulations prohibit under-filling – it’s illegal to provide less than weights stated on the packaging. For the alcohol industry this situation is flipped – the TTB discourages overfilling. One might expect that this is a posture rooted in public safety concerns, since putting more booze in a bottle might result in people getting drunker than they had expected.

But the TTB’s primary concern in regulating the sale of alcohol is not public safety. Rather, it is the collection of excise taxes. Therefore, any alcohol in excess of amount stated on the label is lost tax revenue.

“The Bureau is obsessive about collecting every tax dollar due to them, including spillage, leakage...strictly from a financial standpoint,” says J. Peter Clark, a food engineering expert and who has consulted for companies dealing with the TTB.

So the rash of news about Palcohol having passed TTB muster, and the subsequent revocation of that approval has exactly nothing to do with the powdered alcohol being declared safe. It was only deemed taxable. Essentially TTB approval means that the agency has side “sure, we’ll tax this, and here’s how.”

The Bureau is simply not set up to address the safety issues arising from Palcohol’s dubious marketing and user cases. It exists to make sure not a drop (or flake) of alcohol is delivered without being properly taxed. And this doesn’t just go for Palcohol. It applies to the industry entire.

Have you ever wondered why products containing alcohol and tobacco are the only consumables without ingredients lists on their labels? The industry response is that the ingredients of that 15 year single malt are proprietary secrets. But this would seem at odds with ordinary people’s experience with food and beverage labels: you can’t reverse-engineer the recipe for Coke using just the ingredients list on its packaging. You’re going to get stuck somewhere around “natural flavors”, nevermind the fact that you could spend a lifetime tweaking the proportions. So why are the only two industries that manufacture potentially lethal stuff for you to consume also the only two that don’t have to tell you what’s in their products?

In the absence of compelling reasons – and given the presence of the powerful lobbies at the disposal of the alcohol and tobacco industries and the significant revenue the government collects from these industries – the most likely reason is that there are political factors contributing to the undeveloped real-estate on those alcohol labels.

Besides the presence of alcohol, Palcohol’s proprietary powdering process is most likely similar to that responsible for other flavored, water-soluble powders.

In fact, Clark says that General Foods Corporation, the company behind Tang, Sanka, and Kool-Aid (since acquired by Philip Morris and part of the Kraft empire) developed a patent for a powdered alcohol product decades ago, but never did anything with it. That patent has since expired. He notes that similar products are already on the market in Europe.

The hubbub around Palcohol this week may well spell its doom. Indeed there are many who would like to see it go away, chief among them are the major beer, wine and spirits manufacturers. It’s not that they fear the disruptive underdog cutting into their market share. The familiar “drink responsibly” tagline is a voluntary posture the industry has unanimously agreed on, and if Palcohol doesn’t manage to fold under the weight of its own absurdity, the heavy-hitters won’t take kindly to the scrappy underdog subverting their already loose rules.

If the tobacco industry’s response to the ‘vapor pen’ market disruption is any guide, the response of alcohol's industry leaders may just be to join in on the powder party.

[image adapted from Michael Bentley on flickr by Brad Jonas for Pando]