Coke Gets a Pass in Bottle Bill

NEW YORK ( TheStreet) -- An "essence water" company in San Francisco is furious about additions to the New York bottle bill, complaining that it gives an unfair advantage to large companies such as Coca-Cola ( KO).

At issue is the Returnable Container Act of 1982, which was recently expanded to require a five-cent deposit on bottled water, in addition to the carbonated soft drinks already included in the bill. The expansion, which went into effect at the end of October, also includes a measure allowing the state to keep 80% of unclaimed deposits. Here's the sticky part: The bill defines "water" as any beverage identified through the use of letters, words or symbols on its product label as a type of water, including any flavored water or nutritionally enhanced water, provided, however, that water does not include any beverage identified as a type of water to which a sugar has been added." (Italics added for emphasis.)

That clause exempts products such as Vitamin Water, a so-called "functional water" product owned by Coca-Cola, which bought the company for $4.1 billion in 2007. Each bottle of Vitamin Water contains 32.5 grams of sugar. (In fact, the British Advertising Standards Authority last month banned three ads touting the health benefits of the drink.) Hint Inc., a 25-person company that sells naturally flavored essence waters in specialty markets as well as upscale grocery chains such as Whole Foods Market ( WFMI), says the exemption gives sugary water an unfair price advantage, if only by the price of a nickel deposit.

"As far as bottled water as a replacement for tap water, we are 100% against that," says Theo Goldin, Hint's chief operating officer. The small business declines to release financial figures, though annual retail sales amount to less than $10 million, Goldin says. "Our product is a replacement for sugary beverages and beverages that contain artificial crap," he says. "Unlike the healthy-perception beverages like Vitamin Water, this is actually good for you." Hint offers highbrow essences such as hibiscus vanilla, blackberry, pear and cucumber. But the product contains no calories or sugar. The company's slogan is "drink water, not sugar." And so it must comply with New York's bottle bill. (Bottles of Hint retail for $1.99 in New York, but the deposit will push the price over the $2 price point.)

Asked why beverages like Vitamin Water receive a pass, the New York Department of Environmental Conservation referred TheStreet.com to a footnote in a summary of the bill, which reads: "This exemption was created to mitigate impacts from vermin which are attracted to sugar residues in returned beverage containers while such containers are stored at retail businesses and elsewhere." The summary makes no mention of the fact that many carbonated soft drink bottles, which already have been included in the bottle bill for decades, also contain vermin-attracting sugar.

Morgan Hook, a spokesman for the governor's office, says the governor's original proposal called for inclusion of all types of flavored water -- including sugary waters. Regarding why those products were eventually excluded, "it's part of the natural course of negotiation of legislature," he says. "The law is better now than before the governor signed it, and the sides of the roads are going to be cleaner."

Initially, the water bottle expansion was due to go into effect last spring. But in June, a U.S. District Court judge issued an injunction delaying expansion of the bottle bill, following a lawsuit by a coalition that included Nestle Waters North America ( NESN), the International Bottled Water Association and the small bottler Keeper Springs, owned by renowned environmental advocate Robert Kennedy Jr. The injunction delayed implementation until April 2010, meaning bottled water wouldn't be included in the law until then.

However, on Oct. 23, the court lifted the injunction, saying the state would start implementing the water bottle rules Oct. 31. In doing so, the court removed an earlier requirement that bottlers include a Universal Product Code requirement specific to the state of New York, a rule that would have made interstate commerce a particular pain in the neck. That UPC requirement was a main beef of the lawsuit. But the rule still requires that bottles include a label embossed with New York state deposit information, and that retailers adjust their cash registers accordingly.

"All of a sudden we were hit in the side of the head with this announcement that if we don't comply in, like, a week, they'll pull our inventory from the shelves," Goldin says. "We've spent tens of thousands of dollars modifying our inventory because if we don't comply, we face fines of up to $500 a day."

State officials point out that dealers were given an extra week to comply with the rules before the state started levying fines. "We did meet with the industry representatives and agreed to a grace period," says Maureen Wren, a spokeswoman for the New York Department of Environmental Conservation in Albany. Official enforcement began this week.

But Goldin maintains that the law is still creating undue stress on his company, which has been busy pulling bottles off store shelves and relabeling them so retailers can avoid a fine.

"We're spending a lot of money on fuel and, by the way, creating carbon emissions, to pick up perfectly good product and add the labels," Goldin says. "And it's crazy to have my head of sales sitting there applying labels to bottles when he could be selling."

-- Reported by Carmen Nobel in Boston.

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