It’s no secret that direct-to-consumer (DtC) shipping of alcohol is a valuable and growing market. Wineries, breweries, distilleries, and retailers alike have benefited from having direct access to consumers across the country. With consumer demand at an all-time high, it is understandable more alcohol sellers want to get into the DtC game as soon as possible.
But DtC shipping can be complicated. Understanding, following and keeping up with the myriad rules is difficult, so it’s no wonder that some businesses will look for ways to reduce those barriers, including seeking out third-party services that promise to them go away entirely. While there certainly are services that can ease the pains of managing a DtC shipping program, it’s always necessary to look before leaping at something that sounds too good to be true.
We’ve compiled some of the key practices that are offered to DtC alcohol shippers to minimize their compliance burdens but that might be leaving them at risk of possible enforcement actions from state regulators.
Don’t go in for contract gimmicks
Some DtC programs out there have adopted a neat solution to managing regulatory compliance: foist it on their customers. In this type of arrangement, the seller will set out in their terms and conditions that all sales are deemed to occur at their business location, and that the customer is responsible for any subsequent shipping back to their home or office.
On the one hand, this might seem perfectly legitimate. The vendor is licensed to sell alcohol, and anyone of age could go to their shop, buy some beer, wine, or spirits and take it home to consume, even in a different state. However, this becomes questionable—and possibly illegal—when it involves using a third-party carrier to bring the alcohol purchased to the consumer’s home.
Under the 21st Amendment, states have clear authority to control the transportation of alcohol into and within their borders, and they have all adopted laws that either prohibit the shipping of alcohol directly to consumers or limit it to specific situations, such as only from licensed wine producers. There is no state where consumers can ship alcohol to themselves through a third-party carrier. While many states do provide for consumers to personally import alcohol that they have bought out-of-state, they require that the consumer personally import it, for example in their checked luggage or car.
Even if an alcohol vendor could contractually declaim liability for following state laws (and that is not an argument that’s likely to win in court), they will still, be enabling their customers to break the law. Suppliers looking to remove their compliance burdens should therefore avoid working with any service that offers this type of arrangement and should never adopt these terms and conditions themselves either.
When looking at possible third-party partners, keep an eye out for clauses that state:
- Title of the alcoholic beverages passes to the consumer in the state where the service operates.
- The consumer is responsible for abiding by all state and local laws, including ensuring that they can receive an alcohol shipment to begin with.
Can I sell under someone else’s license?
Many prospective shippers balk at the idea of applying for and managing the dozens of licenses required to establish a national DtC shipping program. Third-party services that offer the use of their licenses, therefore, may seem like a godsend. How these services work, and how legitimate they actually are, though, can be unclear.
The concern here is that legal DtC shipments generally require a license, and state regulators expect the name on the storefront to match the name on that license. If a supplier is marketing and selling from their tasting room or website, but conducting their shipping under someone else’s license, regulators may have some serious questions about what’s going on that can quickly lead to robust enforcement action.
The best way for a third-party to legally DtC ship a supplier’s products for them, is for that third-party service to either be assigned as an authorized brand dealer or be a retailer licensed to make DtC shipments. Either way the supplier will need to sign away their ownership of the product and any involvement in the sale, and the latter will also require they properly distribute their products to the retailer, likely through a wholesaler. This could be the best way for some suppliers to go, but it would mean not being able to sell or ship directly to consumers themselves.
Ultimately, suppliers looking at one of these services should make sure to thoroughly understand how they work, and what kind of risk they may be assuming.
What about ‘three-tier DtC’?
A novel service that has been gaining attention recently aims at a “best of both worlds” approach by combining the perceived legitimacy of the three-tier system with the prospect of shipping to consumers wherever they are (even claiming access to consumers in all 50 states). In this Frankenstein’s monster of a service, a supplier will market and sell their products directly to consumers, but the actual order fulfillment will then run through a partner retailer who in turn received possession of the alcohol being sold from a wholesaler.
Central to “three-tier DtC” is that a supplier will work with a specific retailer that can fulfill deliveries across the country. However, this brings up two huge, unresolved questions. First, it would appear to violate tied-house rules for a supplier to direct sales to a specific retailer. Second, it is unclear how retailers can ship alcohol to consumers everywhere (currently, only 14 states and D.C. permit retailers to ship alcohol across borders). Even relying on retailers making local deliveries themselves would leave out some consumers, as no retailer operates in every state and many delivery permissions restrict the retailer to operate only in the city or county where they are licensed.
While the idea of making DtC sales under the auspices of the three-tier system has gained a lot of attention, suppliers may want to remain skeptical for now.
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