News & Updates
Whisky Sector to be Served by New Team at WJM
As Wright, Johnston & Mackenzie LLP announces the launch of its new drinks industry specialist team, Angus MacLeod, Partner and Head of Inverness office, looks at start-ups in the whisky sector and the importance of seeking legal counsel for those looking to move into the market.
Food and drink is Scotland’s largest manufacturing sector, with a turnover of £10.4bn annually, and whisky is one of Scotland’s most popular exports, generating £5.5billion towards the nation’s economy every year. With the total number of distilleries currently standing at over 130 and more springing up regularly, it’s easy to see why.
This surge in distillery ownership is great news for Scotland’s tourism and food and drink sectors, but this well-regulated industry can be a minefield without the correct legal advice.
From the moment the decision is made to start a distillery, there are several legal factors to consider, including planning, HMRC regulations, health and safety, and crucially - what defines a whisky.
Starting any kind of business can be a daunting process and the regulations that come with whisky distilling in Scotland - and the three-years-and-a-day wait before you are able to sell the product as whisky - makes starting a distillery all the more complex and bound in red tape.
Ensuring a steady cash flow is also crucial and being able to keep the stills going in the long term is an expensive process.
This is why many distilleries turn to gin production, visitor centres, and blends using mature spirit from elsewhere to provide a steady income while the new make spirit is maturing.
Before even thinking about beginning the distillation process, there are factors that must be considered such as location, as planning issues must be combatted first, along with health and safety and the purchasing of specialist equipment and how this will be installed.
Employing an architect for a new-build to make sure the building is safe and conforms to regulations along with considering your nearest water source is also crucial. The water source goes to the provenance of the product which also feeds into the brand, so having the rights to draw water, and in the volume required, is another important consideration.
The next legal step is creating the brand and protecting it with trademarks. It’s not just the name that has to be protected. It’s also important to consider geographical indications (GIs) which signify geographical origin.
The term Scotch Whisky is a GI, meaning products which call themselves this must meet strict production and labelling requirements. There are very detailed regulations governing how Scotch whisky and its many variants is produced and described that need to be navigated.
Used correctly, it has potential to enhance brand reputation, but if a distiller is not entitled to use the GI or doesn’t accurately describe their product, they could find themselves in legal hot water.
The Scotch whisky market has some key players who have been involved in the industry since before the 1960s. This gives them an advantage over new, start-up distillers, as they already have the capital to wait out the maturation process.
New distillers, however, generally require help with investment and structure. There is usually a mix of funding from different sources, from a syndicate of investors who are putting money in from their own pockets, to crowdfunding and advance sales of casks, which are other popular ways to get the public involved and to boost funding.
Barrel-loads of regulations
Recent changes to legislation in the USA concerning the number of times a barrel can be used within the bourbon industry has had an impact on Scotch whisky. Not only does this have financial ramifications on the industry but it can also affect regulations in terms of cask and barrel use.
The Scotch Whisky Association (SWA) has strict rules that must be adhered to and there are a select group of casks that can be used: rum, bourbon and sherry.
Beer barrels cannot be used to mature whisky in Scotland (this is not the case in any other whisky producing nation) however, with fewer bourbon barrels being available to be purchased from the States, there could be a change in legislation in future allowing more flexibility in terms of type of cask.
A passion for whisky
My colleagues and I are very proud to have worked with many clients in the industry, including a range of distilleries, for many years. We’ve helped our clients navigate a wide variety of challenges over the years, so it made sense for us to bring together our experience to create a specialist offering.
The food and drink sector has been particularly affected by many challenges in recent years such as Brexit, supply-chain issues, inflation and cost increases as well as the potential impact of Government interventions such as the deposit return scheme.
By launching our new specialist team, we aim to work closely with clients who may be facing these kinds of issues, to ensure they are fully informed of any developments in the industry and that they can navigate matters as smoothly as possible.
The team will be advising clients on a wide variety of areas, from contracts to compliance requirements, labelling to advertising, to funding and development of new capital projects such as distilleries.
This article first appeared in The Herald
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