Distilleries Made Hand Sanitizer To Help. Now They're Hit With $14,000 Fees A government fee for drug manufacturers has surprised and alarmed the spirits industry.

Update: On December 31, 2020, shortly after this story was published, the Federal Department of Health and Human Services announced it had directed the FDA not to enforce its fee on distilleries. It stated that businesses that stepped up to help fight COVID-19 should be applauded, not taxed.

In the early days of the pandemic, more than 800 distilleries stopped making their usual whiskey, gin, vodka, and other alcoholic beverages. They instead started making hand sanitizer, which at the time was in short supply. This often required retrofitting their equipment and halting production of their core products, but they said they were happy to help their communities.

Now they're getting an unpleasant reward for their trouble: The FDA is charging them a fee of $14,060 or more.

"This has been a nasty surprise for our community of small distillers," says Becky Harris, co-owner of Catoctin Creek Distilling in Virginia, and president of the American Craft Spirits Association.

The fee is the result of these distilleries being temporarily classified as a non-prescription drug manufacturer. In normal times, the FDA charges this fee to offset the cost of inspecting and regulating over-the-counter drug manufacturers, in order to ensure public health and safety. But it has blindsided many of the small, often family-owned distilleries that are already struggling to manage the economic impact of 2020.

When distilleries began producing hand sanitizer in the spring, their effort was highly organized. As the head of her industry's association, Harris held near-daily meetings for weeks to ensure that distilleries' sanitizers met strict guidelines for safety and efficacy.

This also meant working with the federal government, because many of the laws regulating the beverage alcohol industry had to be temporarily set aside. Prior to the pandemic, it would have been illegal for these facilities to manufacture sanitizers. "We worked with the FDA to get companies registered and to make the rules clear to them," Harris says. "At no point was the specter of an upcoming fee highlighted in their guidance, especially one of the scale announced."

Now the industry is asking the FDA to waive the fees.

"This unexpected fee serves to punish already struggling distilleries who jumped in at a time of need to do the right thing," says Chris Swonger, president and CEO of the Distilled Spirits Council of the United States, who released a statement on December 31st, 2020. "While this fee may be a rounding error to a large pharmaceutical company, this will be disastrous to small distilleries who stepped up to help produce this critical product."

Meanwhile, the recipients of that hand sanitizer are showing their appreciation. Back in March and April, as many distilleries shifted their production, medical facilities were running dangerously low of the life-saving gel.

"When our hospital ran out of hand sanitizer, we were thankful to the distilleries," says a nurse in Southern Indiana, who spoke to Entrepreneur but asked to remain anonymous because her hospital hadn't authorized her to speak to the press. "Starlight [Distillery] donated individual bottles to us as well and even set up a station where we could bring our own container from home and fill it up. We were so thankful."

But it wasn't just hospitals who benefitted from the efforts of distilleries. Businesses were also required to have hand sanitizer and other cleaning solutions on hand as a condition of reopening their businesses.

"When we were told we could finally reopen during phase one, we were given new cleaning and sanitizing guidelines and had to come up with PPE and supplies to ensure the safety of both staff and our patients," says Dr. Andrew Harvey, owner of Harvey Eye Optometry in Kentucky. "We actually spent an extra week closed because masks, thermometers, and cleaning supplies were sold out everywhere at that time. The one thing we were able to find easily, and in ample supply, was sanitizer made by the local distilleries. I feel very fortunate to live in an area with so many wonderful distilleries, like Jeptha Creed, who really stepped up to meet the pandemic's new demand."

Now that distilleries know about the fees, they must act fast. Distilleries had to register with the FDA to make the hand sanitizer, and if they don't rescind their registration with the FDA by the end of 2020, they are told they'll be on the hook for this fee again in 2021.

"I am sure that the FDA is inundated with pleas from small companies right now with tons of questions," says Harris. "We would love to help them by working with them to create a solution to this issue, and then working to get this information out into the community."