Flipping the Switch

By Justin Prochnow

Energy drinks marketed as dietary supplements have received their share of negative news stories over the past eighteen months. Attention from regulators, politicians, prosecutors, and class action litigators has only fueled the negative publicity and contributed to many sleepless nights for executives responsible for such products. This intense scrutiny of energy drinks and dietary supplements does not appear to be subsiding any time soon. Accordingly, many companies are weighing various options to find relief from the mounting concerns surrounding these products. One option that is being explored by many companies is the reclassification of liquid dietary supplements as beverages. However, making this switch is not as easy as just changing the name on the front of the can. The differences between liquid supplements and beverages must be carefully evaluated before opting to change direction. Only after weighing the pros and cons of selling a product as a beverage or supplement can a company make an informed decision about the right road to take.

Ingredients

No evaluation is more important to the decision of supplement or beverage than the evaluation of the ingredients comprising the product. One ingredient could be the difference in determining the viability of a switch from reclassifying a supplement to a beverage. Essentially, ingredients in a dietary supplement must be dietary ingredients; the categories of legally permissible dietary ingredients are set forth in the definition of “dietary supplement” found in the Federal Food, Drug and Cosmetic Act.  If an ingredient meets one of the definitions of dietary ingredient and was used as a dietary ingredient prior to October 1994, no proof of safety is required.

On the flip side, ingredients in a beverage must be approved food additives or ingredients that are considered GRAS, which stands for Generally Recognized as Safe. Approved food additives are identified in regulations set forth in the Code of Federal Regulations.  If an ingredient is not an approved food additive, a company must establish that an ingredient is GRAS to legally use it in a beverage. Some ingredients have been designated GRAS by FDA in regulations for limited purposes; caffeine is one of those ingredients. Pursuant to a specific regulation, caffeine is GRAS for use in “cola-like beverages” at a tolerance of .02 percent, which is the equivalent of about 71mg in a 12 oz. product.  The misconception is that this tolerance level represents a limitation or a restriction on caffeine; it does not. To the contrary, caffeine is specifically approved for use in “cola-type beverages” at that amount. There is no prohibition against using caffeine at a higher amount; it simply means that the regulation does not provide an approved GRAS status for other uses.

If an ingredient is not GRAS pursuant to a particular regulation or if the amount or use of an ingredient is outside the scope of a GRAS regulation, an ingredient still may be legally used in a food or beverage product. However, in such situations, a company must make a “self-affirmed” GRAS determination for the ingredient that is specific to the amount used and for the specific purposes intended. While it is not mandatory for a company to submit a “self-affirmed” GRAS report to the FDA, a company must be ready to provide sufficient evidence to the FDA of the safety of the ingredient. Companies that specialize in assembling a detailed “self-affirmed” GRAS report usually start fees around $40,000 per ingredient and the costs can run upwards of $75,000-$80,000 per ingredient. Thus, if a product contains multiple ingredients that are not approved food additives or GRAS by regulation, the costs of assembling “self-affirmed” GRAS reports for each of those ingredients may make the switch to a beverage cost prohibitive.

Manufacturing

While the cost associated with assembling “self-affirmed” GRAS reports may be one of the biggest roadblocks to a company looking to flip a product from a liquid supplement to a beverage, the differences in manufacturing requirements may make a change more palatable. The Current Good Manufacturing Practice in Manufacturing, Packaging, Labeling, or Holding Operations for Dietary Supplements (“DS GMPs”), instituted in a three-year staggered process based on company size, were finalized in June 2010.  The DS GMPs are substantially more detailed than the GMPs for conventional foods and beverages and place a large responsibility on manufacturers, packagers, labelers, and distributors of dietary supplements to ensure compliance. Compliance with the DS GMPs has become an area of primary focus for the FDA, which has been reinforced repeatedly by Dr. Daniel Fabricant, Director of the FDA’s Division of Dietary Supplement Programs. As the costs of testing and compliance with the DS GMPs increase for manufacturers, those costs are being passed along to distributors and marketers of dietary supplement products. A switch to beverages will likely result in a decrease in costs for companies that don’t need to meet the more onerous DS GMPs.

Serious Adverse Event Reporting

Dietary supplement companies are required to report and keep records of serious adverse events pursuant to the Dietary Supplement and Nonprescription Drug Consumer Protection Act of 2006.  The requirement exists regardless of whether any actual link between the serious adverse event and the product is made and certain adverse event reports have recently received a lot of media attention. Those requirements for serious adverse event reporting and record keeping are extinguished in the switch from liquid supplements to beverages. While the serious adverse event obligations do not apply to beverage manufacturers or distributors, beverage companies do have an obligation to make a report to the FDA’s Reportable Food Registry when there is a reasonable probability that that the use of, or exposure to, a beverage will result in serious adverse health consequences.  Companies must stay aware of reporting obligations, depending on the types of products they sell.

Claims

Structure-function claims are one of the staples of dietary supplement labels and marketing. Certain statements such as “green tea provides energy” or “calcium helps build strong bones” are allowed pursuant to Section 6 of the Dietary Supplement Health and Education Act (“DSHEA”). While structure-function statements are also permitted for beverages, the FDA has indicated that such statements for conventional foods and beverages must be limited to statements regarding taste, aroma, or nutritive value. Historically, this distinction has not been aggressively enforced by the FDA when reviewing structure-function statements made for foods and beverages. However, during a recent webinar talking about structure-function claims, Dr. Corey Hilmas, team leader of the FDA’s Dietary Supplement Regulation Implementation Team, indicated that the broader range of structure-function claims is something that a company may be giving up in a switch from supplement to beverage. As more companies make the switch from supplement to beverage, structure-function claims may receive greater attention from FDA.

Labeling

A switch from supplement to beverage also mandates changes to the label of the product. While many aspects of the labels are similar, there are some big differences. For example, the Supplement Facts Panel must be replaced with a Nutrition Facts Panel. On a beverage label, the Nutrition Facts Panel must list certain nutrients, regardless of the amounts. On a Supplement Facts Panel, nutrients in zero amounts are not to be listed on the label. Only nutrients, vitamins and minerals are listed in a Nutrition Facts Panel; on a Supplement Facts Panel, all ingredients with nutritive value must be listed in the Supplement Facts Panel. The dietary supplement disclaimer that must appear on any dietary supplement label on which structure-functions claims are made is not required on foods and beverages and should be omitted. As label claims are now the gateway to class action lawsuits in California and other states, labels must be carefully reviewed and revised.

Wrap–Up

As the public debate of supplements vs. beverages continues, the FDA has finally decided to get more involved as well. While the FDA expressed concern over the issue by releasing a guidance document in December 2009 , the FDA has been slow to actually implement the principles set forth in the guidance. The FDA finally issued several warning letters to companies in 2012 in which it determined that products labeled as supplements were really being represented as beverages. Recently, FDA has indicated that it intends to issue a final version of the guidance very soon.

With the national attention now directed towards dietary supplements and energy drinks, and more specifically, the impact of these products on children, many companies are assessing whether a switch from supplements to beverages is in order. The ultimate decision of whether a switch should be made is not always clear. What is clear is that the decision is one that should not be entered into lightly and not without a careful evaluation of the many factors at play.

Justin J. Prochnow is an attorney and Share-holder in the Denver office of the international law firm of Greenberg Traurig LLP. His practice concentrates on legal issues affecting the food & beverage, dietary supplement and cosmetic
industries. He can be reached at (303) 572-6562 or prochnowjj@gtlaw.com and he can be followed on Twitter at @LawguyJP.

This article is issued for informational purposes only and is not intended to be construed or used as general legal advice. The opinions expressed are those of the author exclusively.