Functional Food

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For consumer packaged goods (“CPG”) founders, understanding the complexities of business structures and tax consequences is essential to maximize growth and attract investors. The Qualified Small Business Stock (“QSBS”) exclusion provides considerable tax advantages when structuring a corporate entity. For example, founders and early investors may be eligible to exclude up to 100% of capital gains on qualifying startup stock from federal income tax—up to $15 million or ten times their investment—which can result in substantial tax savings.

the whey protein

With the rise of “Protein Maxing” among biohackers, fitness influencers, and health-conscious consumers, a major controversy has emerged that could seriously impact both consumers and protein supplement brands. A recent Consumer Reports article revealed that many popular protein supplement brands contain dangerous ingredients—most notably, lead—at levels that can pose serious health risks with regular consumption. As awareness grows, lawsuits, legal fees, and liabilities for supplement brands are becoming increasingly likely.

Silver Spring, MD, USA - June 25, 2022: The FDA White Oak Campus

On June 2, 2025, the U.S. Food and Drug Administration (FDA) announced the deployment of its own artificial intelligence system, “Elsa.” The large language model-powered system was scheduled for full-scale implementation across the agency by June 30, 2025. Initially piloted for FDA scientific reviewers, Elsa is intended to streamline internal processes and increase operational efficiency within the agency.

Vegan dark chocolate with cannabis leaves. Desert with CBD butter. Medicinal marijuana in food, vegan, supplements consept

Functional foods designed to promote relaxation, better sleep, and improved mood have exploded in popularity, and chocolate is increasingly the delivery method of choice. Calming confections featuring ingredients like melatonin, L-theanine, magnesium, adaptogens, or CBD are marketed as “natural” stress-relievers or sleep aids. But as consumer demand rises, so too does regulatory scrutiny. Federal and state regulators, along with the plaintiffs’ bar, are watching closely as food companies make increasingly bold wellness claims about everyday indulgences.

Silver Spring, MD, USA - June 25, 2022: The FDA White Oak Campus

On March 10, 2025, the U.S. Department of Health and Human Services (HHS) announced that U.S. Secretary of HHS Robert F. Kennedy Jr. directed the U.S. Food and Drug Administration (FDA) to explore closing the GRAS self-affirmation “loophole” for additives in food products.

In the statement issued by HSS, Secretary Kennedy claimed that “[i]ngredient manufacturers and sponsors have exploited a loophole that has allowed new ingredients and chemicals—often with unknown safety data—to be introduced into the US food supply without notification to the FDA or the public.”

To succeed in the growing functional beverage industry, understanding key legal issues is crucial. As new functional beverage brands continue to emerge, business owners need to consider a variety of legal issues, including (1) proper product categorization, (2) appropriate advertising and marketing claims, (3) engaging with influencers, (4) working with contract manufacturers, (5) ensuring adequate IP protections, and (6) selecting the appropriate corporate entity structure.

Whether at 7-11 or at your local grocery chain, functional beverages line the aisles, touting their nutritional and health benefits. The functional beverage industry is becoming big business, but as this industry bubbles up, emerging brands need to think about the best corporate structure to hold their product.

Below, we have provided some pros and cons of three (3) standard corporate structures often considered by early-stage businesses: limited liability companies, S corporations, and C corporations.

In an industry full of buzzwords, “adaptogens” and “nootropics” are current standouts within the beverage industry.

The beverage industry experienced a significant shift in consumer preference following the COVID-19 pandemic, as consumers’ proclivity for nutrient-rich foods stimulated a rise in beverages designed to provide added health benefits, such as increasing energy, decreasing stress, and improving overall mental health. The increased popularity of these “functional beverages” (i.e., beverages that provide added health benefits) is more than a fleeting trend, as the industry is projected to reach $62 billion by 2027.

In the bustling landscape of consumer goods, caffeinated beverages stand out as a daily staple for millions of Americans. A recent shift towards “clean caffeine” and caffeine alternatives has further energized consumer demand for ready-to-drink caffeinated beverages.

Recently, however, the spotlight has turned to the highly caffeinated beverage industry for far less stimulating reasons, as cases of alleged caffeine overconsumption have led to severe health repercussions. As highly caffeinated beverages continue to expand their market share, it is crucial for ready-to-drink beverage brands to carefully consider their product’s caffeination levels and the way those products are labeled and/or marketed.

In May 2022, when the Federal Trade Commission (FTC) proposed updates to its Guides Concerning Use of Endorsements and Testimonials in Advertising (Guides), it had been 13 years since the Guides were updated. Much has changed in the way that businesses marketed and sold their brands, products, and services over that period. While the use of social media marketing has been well established for the better part of the last decade, the use of social media influencers—that is, people who use their expertise, knowledge, and/or celebrity to promote ideas, products, services, and brands via the internet—has seen a dramatic uptick since the period preceding the COVID pandemic and is now estimated to be a $21 billion industry in its own right. The rise of this marketing approach—and the increasingly prevalent lawsuits against influencers and the companies they promote—played no small part in the FTC’s reconsideration of previous guidance, as evident from the finalized guidelines which were released June 29, 2023.

The question going forward is to what degree the new guidelines will change the way marketers approach the use of social media influencers. To get at the issue, it is helpful to review the substance of the FTC’s revisions.