Ohio entrepreneurs Brian Pearson and Nick Costanzo saw a niche,
created a product to fill it, and saw it become a success. But all
was not well. They had created something that didn't fit any
legal category.
It all started when Pearson's mother asked him and his
friend Costanzo to stop at a grocery store to pick up some gelatin
shots for his sister's 21st birthday party. They told his
mother there was no such thing as pre-made gelatin shots. That gave
them an idea: In 1998, the two friends formed BPNC Inc., created
four flavors, arranged for manufacture and colorful packaging, and
prepared to market Zippers, The Original Gelatin Shot.
Pearson checked with the chief of the Beer & Wine section of
the State of Ohio's Division of Liquor Control to see if they
needed a license. No, he was told, this was a food product, and no
license was required to sell it. But after they began selling it,
the state declared they did indeed need a license. Getting one
normally takes six to eight weeks, but for them, it took 13
months.
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Before long, Zippers were selling in 26 states, each with its
own licensing requirements. BPNC filled out state paperwork and
forwarded it to its manufacturer for signature. But the better the
product sold, the more legal trouble the company faced. Ohio
rescinded BPNC's license to sell alcoholic beverages and
waffled on what requirements it would have to meet. In June 2002,
soon after BPNC had taken over manufacturing its own products,
state agents raided the company's Toledo, Ohio, facility and
seized all its equipment and records. They claimed the company was
selling liquor without a license. For more than a year, the company
was in limbo as Pearson and Costanzo negotiated with the state,
demanded clarity, and sought help from everyone they could think
of.
It didn't help that watchdog groups were worried the product
might be marketed to teens or might tempt children. Indeed, in its
initial package, it looked a great deal like lunchbox gelatin.
After considerable outcry in the press, BPNC changed the packaging
to a stacked format that fit better on store liquor shelves, with
the contents hidden in a cardboard sleeve designed to appeal to
young adults.
In December 2002, an Ohio grand jury decided not to indict the
company. BPNC has since brought back employees it laid off during
the flap, introduced new flavors and enjoyed steady growth,
projecting $6 million to $8 million in gross sales for 2004. But
the price was two years of expensive legal maneuvering since there
were no laws to govern alcoholic food.
The whole affair might serve as a lesson for entrepreneurs. Is
it clear what laws regulate your product? Does the product fit
clearly into a particular category governed by particular laws? If
not, seek help from an attorney as early as possible to navigate
the regulatory waters. Don't rely on an offhand opinion from a
single bureaucrat. Get your questions answered in writing, and make
sure the relevant agencies are in agreement.
Jane Easter bahls is a writer in Rock Island, Illinois,
specializing in business and legal topics.