What is a Cottage Food Industry in Arizona?

When we first started out we didn’t have the funds to go to a commercial kitchen or to open up our own shop right away. We were baking and packaging everything right out of our own kitchen and we wanted to know if we could continue to do that legally while at the same time growing our business. This is when we heard about Cottage Industries.

A cottage industry is a small business that is usually home-based and family-owned and operated.  According to Investopedia, it is:
“a small-scale, decentralized manufacturing business operated out of a home… [they] are defined by the amount of investment required to start, as well as the number of people employed.”
Cottage industries are companies with limited production abilities and equipment and employ mostly family members to produce a product on a small scale. This is a broad definition and has deep roots way in history to before the Industrial Revolution, so let’s look at what a cottage industry is like today, how they are started and why to open one. 
Cottage Industries today in Arizona?
 
In general, cottage industries today have narrowed their scope to producing food items. In Arizona, cottage industries are available for Home Baked and Confectionery Goods.
“In 2011, the Arizona State Legislature changed the law, A.R.S 36-136 (H)(4)(g) and A.R.S. 36-136(H)13 to allow residents to produce non-potentially hazardous baked and confectionery products in their homes and to offer them for commercial sale within the state.”
Included in the law are lists of what the state considers potentially hazardous foods that cannot be sold under this type of production. You can find the approved foods list, which is not all-inclusive, as well as what the state considers potentially hazardous here on the Arizona Department of Health Services (ADHS) website.
This program of cottage industries in Arizona uses an individual’s private home and kitchen to produce the material to be sold for their small business. They are not required to use a commercial kitchen or obtain further certification other than a food handler’s permit and registration with the state before starting.
Since May of 2017, Arizona’s cottage food industry program has over 6,100 business registered and has been praised as a success in promoting small businesses across the state. By lowering the entry barrier, more entrepreneurs are able to obtain the certification needed to start their business and grow the state’s economy.
Why start a cottage industry? 

If you are wanting to start a business on the side, like us, this is the perfect opportunity to test the waters before investing a lot of money. It won’t require you to quit your day job or to take out a loan to get registered and all set-up. Or, if you want to keep it as a hobby or a side hustle, this program isn’t necessarily a pathway to scaling your business. You can either look at this program as a launching pad or as a way to affordably continue your hobby or side jobs.

A Simple Cookie started out as just a small stand at a monthly antique fair and grew from there. There was plenty of followers but not enough capital yet to be able to invest in the equipment for a brick and mortar storefront. We were also experimenting in the beginning. It has always been a dream of my mom’s to open up a coffee shop with an emphasis on cookies- not a full out bakery, but a cookie and coffee store. This program was a perfect way to get all the kinks out of our production process before we were ready to grow as a company.
How do you start a cottage industry?
 
It is actually a pretty painless process of getting started. There are three steps for starting a cottage industry. First, you and anyone that will be cooking and packaging with you need to obtain a food handler card or training certificate as required by the county in Arizona that you live in. Second, register for the Home Baked and Confectionery Goods Program on the ADHS website.  Third, in 2-3 business days, a certificate of registration will arrive by email which needs to be printed off and brought to every market or place of sale.
ADHS Road Map
The cons of starting a cottage industry?
Since a cottage industry is defined by the limited scaling ability of both production and employment, it will be hard to compete with companies within your industry that have fully functioning factories or larger labor forces. If you are wanting to keep your small business as just a hobby this won’t be a problem. However, if you are wanting to compete with bigger businesses, the cottage industry will only be a good fit for so long. In other words, this program won’t be the solution for the long run.
If you operate under the cottage food industry in Arizona you are not permitted to sell outside of the state line. Therefore, if you have an online business to promote the foods you are selling you must notate that all items for sale from your cottage industry are only to be bought and sold within Arizona. The Food and Drug Administration regulates interstate commerce, and they do not allow a home kitchen to be used to manufacture food products.
The state law limits what is and isn’t allowed to be sold by a cottage industry means of production. Therefore if you are wanting to start a business that is included on the list of potentially hazardous foods such as salsa, jerky, jams, jellies, pickles, etc. then you will not qualify and must go through the more rigorous process of working in a commercial kitchen or starting your own brick and mortar type store.
The law stipulates that you must use your own personal, private kitchen. You cannot register and then use someone else’s kitchen or use a commercial kitchen. There is no official that comes out to inspect your home kitchen or to watch your process of packaging and cooking. This can be a positive of the law, but it makes an area of risk for the consumer. The only thing that ADHS publishes is a guideline for producing and preparing (wash your hands, wash the dishes, wash the surfaces, etc.). Everything else is expected to be learned from the food handlers permit course and then implemented on the honor system.
What else do I need to know before I start selling?
The cottage industry certificate is not a business license. It does not certify that you can sell immediately. You must verify the zoning restrictions with local city or county officials and obtain a business license from the state. You can read more about obtaining a small-business license in my post about TPT Licenses in Arizona. 
There are labeling requirements for your food if participating in the program. If giving away samples, they must also adhere to the following requirements. The label must include:
  • The address and contact information of the individual registered with ADHS
  • The ingredients list which must be in the highest weight to lowest
  • A statement that the food was prepared in a private home
Even though there is no inspection of your process of cooking and packaging, children are not allowed in the kitchen while you are making your products. This also goes for pets. Pets are not allowed in the area while making or preparing your products. Like I mentioned earlier, this is, unfortunately, enforced purely on the honor system.
It is very important to keep the certificate that you receive after registration with you when selling your goods. Health inspectors regularly visit farmers’ markets and other places of sale to ensure that the rules of the program are being followed. You will be forced to pack up and leave if you are not following the rules.