In a letter explaining its decision, the agency, which regulates the brewing industry, said the wording could "mislead consumers about the characteristics of the alcoholic beverage."
Dillmann scoffs at the notion that his label has anything to do with smoking pot.
"I've never tried marijuana in my life," he told The Associated Press on Wednesday. "I don't advocate that. It's just our town's name."
The town of 3,000, sitting beneath Mount Shasta about 230 miles north of the state capital, takes its name from Abner Weed, a timber baron who opened a lumber mill there in 1901 and eventually was elected to the state Senate.
SACRAMENTO, Calif. - Vaune Dillmann thought the wording on his bottle caps was just a clever play on the name of the Northern California town where he brews his beer - Weed.
Federal alcohol regulators thought differently. They have ordered Dillmann to stop selling beer bottles with caps that say "Try Legal Weed."
While reviewing the proposed label for Dillmann's latest beer, Lemurian Lager, the Alcohol and Tobacco Tax and Trade Bureau said the message on the caps he has been using for his five current beers amounts to a drug reference.
Dillmann, 61, started the Mount Shasta Brewing Co. in 2004. He said he has always used the town's name on his beers and named the company's first official brew Abner Weed's Pale Ale.
His bottle labels follow a long tradition of exploiting the town's name. Even city officials do it.
A sign posted on the way out of town reads, "Temporarily Out of Weed," while another says "100 Percent Pure Weed." Dillmann noted those examples in an appeal letter he sent to the alcohol bureau.
Once, Dillmann said, his wife, a former teacher, was delayed on a field trip to San Francisco as tourists clamored to pose next to the school bus, which said "Weed High."
But illegal drugs are no joke to the federal agency, which maintains meticulous rules about labeling. Drug references on alcoholic beverages were banned in 1994, agency spokesman Art Resnick said.
"We protect consumers of alcohol beverages against misleading advertising and labeling," he said.
He said the agency is reviewing Dillmann's appeal.
The Boulder, Colo.-based Brewers Association, which represents 1,100 craft brewers nationwide, said the Tax and Trade Bureau seems to have become more aggressive in recent years. It has gone after brewers for seemingly innocuous claims, such as descriptions that say one beer is stronger than another, said association director Paul Gatza.
"We're seeing the TTB starting to poke around at breweries' Web sites and issuing letters," he said. "Our trade association is feeling like TTB is overstretching a little bit."
Gatza said a U.S. Supreme Court ruling in the 1980s protected truthful speech on beer labels.
Meanwhile, Dillmann has placed a rush order on unmarked bottle caps so he can keep bottling while he awaits word from the federal agency on his appeal. He has enlisted the help of his congressman, Republican Rep. Wally Herger, who has asked the agency to explain why it rejected Dillmann's bottle cap labels.
The decision banning the "Try Legal Weed" caps came just after Dillmann had placed an order for 400,000 of them, at a cost of about $10,000. It took him four years to go through the first batch of bottle caps, but Dillmann said his sales have been increasing steadily.
Still, the native of Milwaukee said he wonders how some other brewers have gotten away with the names for their products, such as Hemp Ale or Dead Guy Ale. And he can't understand how his label has run afoul of federal alcohol regulators who must surely be aware of one of the most famous advertising slogans in American marketing: "This Bud's for you."