Out-of-State Breweries Gain Self Distribution, DtC Rights in Oregon

Under a settlement agreement, breweries located outside of Oregon now have more options for selling into the Beaver State, including direct-to-consumer (DtC) shipping and self-distribution to retailers.

The settlement arose out of a lawsuit filed by a group of Washington breweries last year challenging Oregon laws that limited beer self-distribution to in-state breweries and DtC shipping to breweries located in states that themselves would give Oregon breweries DtC shipping permissions. The argument presented by the Washington breweries was that these laws were unconstitutionally discriminatory, in that they restricted out-of-state businesses from enjoying the same access to Oregon’s beer market that in-state breweries had. Rather than go through the expense and time of litigation, the state of Oregon and the Oregon Liquor and Cannabis Commission (OLCC) agreed to remove the discriminatory provisions from these laws and grant all domestic breweries the same privileges in the state.

Going forward, regardless of where they are located, out-of-state breweries will be able to DtC ship to Oregon residents and self-distribute to Oregon retailers.

What are the rules for DtC shipping?

DtC shipping, like pretty much all other forms of selling beverage alcohol, is a highly regulated market with numerous rules and regulations that breweries must comply with to remain in good standing with the state.

Out-of-state breweries (now located in any state) must agree to abide by Oregon law when shipping into the state, including:

• Hold a Direct Shipper license issued by the OLCC.
• Remit the state’s excise tax on their shipments.
• Ship no more than 18 liters of beer per customer per month.
• File a quarterly report detailing their shipments.

Further, DtC shippers must take steps to restrict sales to minors. At a minimum this means working with carriers that will check IDs and get a signature from the recipient at the time of purchase, and properly labeling their packages to indicate that they contain alcohol. While Oregon does not specifically require the use of age verification services at the time of purchase, this is still a best practice for everyone involved in the DtC shipping of alcohol. Age gates on websites are also best practice.

What are the rules for self-distribution of beer?

To self-distribute to Oregon retailers, out-of-state breweries will need to receive prior authorization from the OLCC. The application for this authority has been made available by the OLCC. However, breweries will also need to have, or be in the process of applying for, a Certificate of Approval from the OLCC.

When self-distributing, a brewery must assume responsibility for the obligations that would normally be handled by their wholesaler. These include remitting to the OLCC all excise taxes due on their self-distributions and complying with the state’s bottle bill (more information on this can be found on the application form linked above).

Oregon’s distribution territory restrictions will also apply to self-distributions. Under this rule, a brand of beer may only be assigned to a single distributor in a designated territory. As such, if a brewery already has a territory agreement with an Oregon distributor, they will not be permitted to self-distribute any brands governed by that agreement in the designated territory. This restriction does not apply to brands not covered by the agreement or parts of the state outside of the designated territory, nor does it apply to direct-to-consumer shipments.

Advancing beer self-distribution and DtC shipping

It is important to note that Oregon must still enact legislation to amend its self-distribution and DtC shipping statutes so that they clearly apply to out-of-state breweries located in any state. In the meantime, though, the OLCC has agreed to not enforce the prohibitions on out-of-state breweries and has begun to issue preliminary Direct Shipper and self-distribution licenses in anticipation of the law changes. Legislation is a complicated beast, however, and it is possible that the Oregon legislature will make broader changes to its laws in response to the legal settlement (for instance, perhaps removing DtC shipping or self-distribution permissions even from in-state breweries, “resolving” any issues around discrimination of out-of-state businesses).

While it’s heartening to see Oregon take the steps, it’s too bad that it had to come through the threat of litigation and not organically by the state on its own. Self-distribution and DtC shipping can be invaluable lifelines to craft breweries that struggle to get the attention of distributors and therefore fail to ever gain purchase in retail markets.

States often want to support their local small businesses, and so it is little wonder that Oregon would have wanted to grant those permissions to in-state breweries. The problem, then, is that the state assumed it could rely on the 21st Amendment (which grants states broad authority in setting up their local alcohol laws) to enforce rules that discriminate against breweries based on where they are based in the country.

Oregon’s decision to settle the lawsuit then demonstrates a remarkable moment of clarity on the part of the state in recognizing that its arguments in favor of discriminating against out-of-state breweries were likely to fail if heard on their merits. In the 2005 Granholm v Heald and 2019 Tennessee Wine and Spirits cases, the Supreme Court clearly noted that states are on shaky ground when claiming that privileges granted to in-state businesses can be denied to out-of-state business purely because of where those businesses are located.

However, there has been a spate of court rulings that have seemed to not follow that ruling. And so, perhaps the only issue with the results here is that the anti-discrimination argument was not heard at trial and put on record for other courts to follow.