Importers in the DtC Landscape: It’s Complicated

Alex Koral
November 8, 2019

To paraphrase, all of the beverage alcohol industry has to deal with complicated regulations; each member of the beverage alcohol market has to deal with regulations that are complicated in their own way. That is a long-winded way of saying that you may face unique restrictions and complications that other, seemingly similarly placed (i.e., same products, same relative tier) can avoid.

This is particularly true of importers, who generally seem to be on the same footing as other members of the “supplier” tier (like wineries and breweries), but in fact are often treated quite distinctly in federal and state regulations. 

Now, there is a lot that goes into being an importer, which will not be discussed here. (For more background, we recommend this recent article detailing the complications of bringing in new brands to the U.S.) Instead, this post will focus on the direct-to-consumer (DtC) wine shipping market, and whether and where importers can directly engage in that space.

Where Can Importers Ship Wine Direct?

When it comes to businesses licensed solely as importers (so holding only an Importer’s Basic Permit from the TTB, and no state-issued production/manufacturing licenses), the map for DtC shipping of wine is rather small. This is all due to how DtC shipping laws are written. 

Let’s look at Colorado’s law for wine shipments (C.R.S. 44-3-104, for those following along at home), which readily demonstrates the two key barriers standing in the way of importers shipping wine DtC. 

As enacted, the law provides that holders of a “winery direct shipper’s permit may sell and deliver wine that is produced or bottled by the permittee.” Further, the law states that the permit is only available to persons who “operate…a winery located in the United States and holds all state and federal licenses, permits, or both, necessary to operate the winery, including the federal winemaker’s and blender’s basic permit.”

A plain reading of the statute shows the problem and why importers cannot ship wine DtC to Colorado. They (generally) would not operate a winery in the U.S. nor hold the federal and state licenses needed to operate a winery—and so right off the bat would be unable to get the necessary license. However, even if they were able to get a DtC shipping license (perhaps they are a U.S. winery that doubly operates as an importer; they might even be part of a wine conglomerate and are importing their sister winery’s products), those imported wines would not be “produced or bottled” by them, but by the foreign winery who, again, cannot themselves hold the permit (lacking the necessary U.S. licenses). These laws effectively shut off Colorado residents from receiving foreign wine through a DtC shipment. 

This is as compared to New Hampshire’s law (NHRS 178:27), which reads, “any person currently licensed in its state of domicile as a wine manufacturer, beverage manufacturer, importer, wholesaler, or retailer shall apply for a direct shipper permit” (emphasis added). That little additional word makes a world of difference, as it clearly states that importers can also apply for the necessary license to ship wine DtC to New Hampshire residents. New Hampshire also does not have the same kind of “produced or bottled” law, meaning a DtC shipper can ship DtC any wines they are otherwise authorized to sell.

Unfortunately for importers, though, only New Hampshire and Wyoming have this explicit allowance for licensed importers to get the necessary DtC shipping license. Without other states changing their DtC shipping laws in a similar manner, importers face an extremely truncated map.

Is There Any Other Way?

One possible workaround for importers is to work in conjunction with a licensed wine producer. As alluded to above, production wineries can often also get licenses to act as importers of foreign wine. Under that arrangement, they can receive DtC licenses from the broadest swath of states (as licensed wine producers) and then DtC ship the wines that they personally import and distribute in the United States. 

However, also as noted above, they will have to contend with various states’ prohibitions on shipping wine DtC that they do not bottle or produce. Not all states have these laws, and even some states that do have those rules allow the DtC shipper to ship wines “they own” (i.e., have a COLA for); but they will still be an impediment to shipping to all 45 states that currently allow DtC shipping of wine.

The other solution available to importers is to also become licensed as retailers in the state they operate in and ship DtC to the states that permit it for retailers. For more information on where retailers are currently permitted to ship wine DtC, read this post.

However, trade practice restrictions make this unavailable in all states. For instance, importers in New York are required to be licensed as in-state wholesalers; however, the state’s trade practice laws prohibit holders of wholesale licenses from also being licensed as retailers. This is as opposed to California where holders of the Type 9 Importer license are able to also hold the Type 20 Retail license, and therefore can get the appropriate DtC shipping licenses in the 15 states that permit it.

Operating as a retailer is not just a matter of getting a license—in most states you are required to actually open a physical shop and offer all of your inventory to walk-in customers. Therefore relying on the retail DtC shipping model may be more burdensome than it’s worth, though it is an option for importers to explore.

As DtC shipping of wine has blossomed over the years, many various parties have looked to join the market. In recent years, retailers and distillers have made increasing efforts to gain the  same permissions that wine producers have been enjoying. Importers may also look to expand their ability to ship wine DtC across the country. But until the laws are amended, importers will face a severely truncated DtC shipping map and will need to find alternative arrangements where available.

 Request a demo of ShipCompliant today. 

 

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Author

Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
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