Yes, it is legal to sell something that uses another product as one of its ingredients. And yes, you can include the name of the product in the ingredients list. That said, if you do it and are successful enough you will probably get a cease and desist letter!
The Supreme Court held a long time ago in Prestonettes, Inc. v. Coty that a buyer can purchase a trademarked good, repackage it, and then resell it.
The defendant of course by virtue of its ownership had a right to
compound or change what it bought, to divide either the original or
the modified product, and to sell it so divided.
The court reminds us that trademarks are not copyrights; they not confer a right to prohibit the use of a word or words.
...unquestionably the defendant has a right to communicate... that the
trade-marked product is a constituent in the article now offered as
new and changed.
In this case the name of the original product was included on the package in non-distinct lettering; stating that the original product was contained in the new product. I mention this because the ultimate decision is fact-specific.*
So the Supreme Court tells us that we can repackage trademarked goods. The court also tells us a bit about the label - we cannot call out the trademarked name as this might confuse consumers:
If the [trademarked name] were allowed to be printed in different
letters from the rest of the inscription dictated by the District
Court a casual purchaser might look no further and might be deceived.
So, what about that FDA, what do we need on the label?
You find this answer in 21 CFR 101.4(b)(2).
(b) The name of an ingredient shall be a specific name and not a
collective (generic) name, except that:
(1) Spices, flavorings, colorings and chemical preservatives shall be
declared according to the provisions of §101.22.
(2) An ingredient which itself contains two or more ingredients and
which has an established common or usual name, conforms to a
standard established pursuant to the Meat Inspection or Poultry
Products Inspection Acts by the U.S. Department of Agriculture, or
conforms to a definition and standard of identity established pursuant
to section 401 of the Federal Food, Drug, and Cosmetic Act, shall be
designated in the statement of ingredients on the label of such food
by either of the following alternatives:
(i) By declaring the
established common or usual name of the ingredient followed by a
parenthetical listing of all ingredients contained therein in
descending order of predominance except that, if the ingredient is a
food subject to a definition and standard of identity established in
subchapter B of this chapter that has specific labeling provisions for
optional ingredients, optional ingredients may be declared within the
parenthetical listing in accordance with those provisions.
(ii) By
incorporating into the statement of ingredients in descending order of
predominance in the finished food, the common or usual name of every
component of the ingredient without listing the ingredient itself.
Here is an example of (i):
But also note the picture of the box. That Hershey's Kisses trademarked image indicates that there is an agreement between the companies. So only use this image as an example of 21 CFR 101.4(b)(2)(i) ingredients labeling - the box cover is not an example of nominative use.
*This is nominative fair use and has been discussed in other questions on this site.
Court of Appeals for the Ninth Circuit in New Kids on the Block v. News America Publishing, Inc.: one party may use or refer to the trademark of another if
1) The product or service cannot be readily identified without using the trademark;
2) The user only uses as much of the mark as is necessary for the identification;
3) The user does nothing to suggest sponsorship or endorsement by the trademark holder.
