The RTD Riddle: Unraveling the Beverage Categorization Conundrum

In the bustling world of beverages, there's a category that's been stirring up quite the storm: Ready-to-Drink (RTD) beverages. These convenient, pre-mixed drinks have seen a meteoric rise in popularity, but with this surge comes a perplexing challenge: How do we categorize each unique RTD?

The Mixed-Up World of RTDs

At a glance, RTDs seem straightforward. They're beverages that are manufactured and packaged for immediate consumption, often consisting of two or more ingredients, including alcohol1. But delve a little deeper, and you'll find a world rife with inconsistencies and ambiguities. Different states have their own definitions and tax regulations for RTDs, leading to a patchwork of classifications that can leave producers and consumers scratching their heads1.

For instance, while Arkansas defines an RTD as a product containing spirituous liquor with no more than 15% alcohol by weight, Michigan's definition varies based on packaging and alcohol by volume1. And then there's the matter of taxation. Distilled spirits generally face higher taxes compared to malt-based and wine-based RTDs. Yet, in states like West Virginia, spirit-based RTDs can be taxed significantly higher than their malt or sugar-based counterparts1.

Why Does Classification Matter?

The way RTDs are classified has massive implications for the industry. For one, it affects taxation, which in turn impacts pricing and sales. But more than that, it speaks to a broader issue of how we understand and categorize alcoholic beverages in a rapidly evolving market.

The growth of RTDs has been nothing short of explosive. According to NielsenIQ, the consumption of RTDs has grown by over 104% in the past two years1. This growth, combined with the complexities of classification, has prompted many states to reconsider their stance on RTDs. Between 2021 and 2022, at least 12 states attempted to establish lower tax rates for low-proof spirit-based RTDs, with three successfully enacting new laws1.

Charting a Clearer Course

The industry recognizes the need for clarity. Efforts are underway to develop more consistent definitions and tax policies for RTDs. Such moves are not just about simplifying a complex system; they're about recognizing and adapting to the changing landscape of alcoholic beverages.

As consumers, we play a role too. By understanding the intricacies of RTDs and the challenges they present, we can make informed choices and support the industry's move towards a more transparent and consistent future.