Move by AGs Could Force Changes From A-B, Others as High Tax Threat Is Raised

By Jeremy Mullman
AdAge
August 27, 2007

There's a key difference between last week's move by state attorneys general to go after purveyors of alcoholic energy drinks and the move by the same group earlier this year to take Anheuser-Busch to task over age verification on its online TV network: This one has teeth.

While the Attorneys General's quixotic-to-date campaign against Bud.TV's age verification (the most stringent on any alcohol website) hasn't led to the slightest change there, a letter the AG's sent to the Alcohol and Tobacco Tax and Trade Bureau could wind up making a much greater impact by walloping alcoholic energy-drink makers right in the pocketbook.

The AGs not only asked the agency to investigate misleading marketing claims that alcoholic energy drinks boost stamina or energy, but -- in a largely overlooked aside -- the AGs also asked the bureau to explore whether the beverages ought to be taxed as distilled spirits and not malt-based beverages. Typically, malt beverages are taxed at less than half the rate of distilled spirits, and in some states the spread is considerably wider. In California, for instance, the excise tax on malt beverages is about 20¢ a gallon; the same tax on liquor is $3.30 a gallon.

Repercussions
Because most alcoholic energy drinks and other flavored-malt beverages are generally sold at convenience and grocery stores, the price increase associated with that sort of taxation shift could be catastrophic to sales of the products, which is, of course, what the AGs and alcohol-industry watchdogs are hoping for.

"There are two things that drive underage drinking: price and accessibility," said Michele Simon, research and policy director at the Marin Institute, a watchdog group that has long lobbied for a crackdown on flavored malt beverages, which it derisively dubs "alcopops." "This is a way to address both." Groups like Marin and the AGs argue that all flavored malt beverages, but alcoholic energy drinks in particular, target youth by mimicking the flavors and characteristics of nonalcoholic drinks that have become increasingly popular with teens.

The AGs, in their letter, singled out Miller Brewing's Sparks and A-B's Bud Extra, as well as a third company, Charge Beverages, for having "taken advantage of the youth appeal by engaging in aggressive marketing campaigns ... [that] claim that such beverages increase a person's stamina or energy level. However, they do not mention the potentially severe, adverse consequences of mixing caffeine with alcohol."

Sparks, the AGs argued, employs an "advertising scheme" focused on "providing energy," including cans designed to resemble batteries. And Bud Extra, the letter said, used slogans such as "Who's up for staying out all night?"

In statements, both A-B and Miller denied that their alcoholic energy beverages are marketed to youth, and said that both meet the current standard to be taxed as a malt beverage.