RE- FM sauces-
Aunt Mable's Jams and Jellies are a low risk food and can be made in home kitchens, with proper permitting per local regulations, under the Pickle Bill or Cottage Industry Bill. Those bills allow making and selling of low risk foods like high sugar jams, jellies, baked goods, bread, cookies, fruit pies (NO CREAM PIES OR MERENGUES), pickles and other low risk foods. Hot sauces, acidified foods, anything that requires pressure canning are always NOT allowed to be made in home kitchens.
In most states, sauces can be made in commercial kitchens (I don't know of any state that allows commercial sales of sauces made in a home kitchen), and sales can be within the state where they are made with minimal regulation and such. The sauces still have to be tested and approved by a PA for pH and such, the sauce can only be sold within the state (not across state lines).
Said commercial kitchen can be anything from a community kitchen to grange hall, church kitchen, restaurant after hours.....
Even with those above listed commercial kitchens, processors can get licensed to make their sauce in those kitchens and also get licensed to sell across state lines and on the internet. Just because they are a small sauce maker at a FM does not mean they are making the sauce in their home kitchen. Most FM's are in sync with food processing regulations regarding shelf stable processed foods like hot sauces and the corresponding regulations.
Another aspect of the Mom-n-Pop place is...if it's a restaurant/Fruit stand or other that is selling their own salad dressing/sauce/whatever....they are a licensed kitchen already. Regulations differ as to what is required for them to sell their own house-made sauce in-house depending on where they are, it's up to the AHJ (authority having jurisdiction). It's different for someone else to use their facilities to make a non-house sauce.
And it comes back to ...yes...there are a bunch of small kitchen processors out there making their own stuff in their own kitchen. Most of them don't even know what a copacker is, let alone want to be one. Those commercial kitchens that are commercial copackers are not interested in dealing with a 2 gallon batch. Not gonna happen.
Regulations are definitley different for CA and other countries -v- US.
If you know of a local restaurant that is making and selling their own house-made sauces, I'd cultivate a relationship with them and maybe at some point in the future, ask them to work with you to make a sauce, offer to compensate them for their kitchen time and expertice. See where it goes from there...