It takes a village to ship wine direct-to-consumer (DtC), as they say. From setting up an online marketplace to tracking and complying with the various state regulations and filing required tax payments, there is a lot that goes into getting wine to consumers across the country. 

One of the most important support systems for many wineries is fulfillment houses, the third-party logistics services that facilitate the actual process of getting wine into packages and brought to carriers. In recent years, however, fulfillment houses have come under increased scrutiny, with several states adopting laws that regulate their activity. Further, these states have made it a violation of a DtC wine shipping license to work with a non-compliant fulfillment house, meaning a winery can get in trouble for failures by their partners. 

While the impact of these laws has so far been mostly manageable, the DtC wine shipping industry must still recognize both what regulatory burdens fulfillment houses now face and why states are adopting these rules. 

What are fulfillment houses and why are they regulated?

Fulfillment houses have been supporting the wine industry for decades, beginning as storage facilities for wine still in bond. This proved to be an invaluable service as many wineries—especially the small and family wineries that make up the bulk of the industry—lack the space on their licensed premises to store all of the wine they produce. 

As the DtC wine shipping market grew, fulfillment houses expanded the services they offered by adding packaging and shipping operations. Today, roughly a third of DtC wine shipments are run through a fulfillment house.

For regulators monitoring the DtC market, however, shipments from fulfillment houses can look a little suspicious. This is because, at a glance, the fulfillment house may seem like the source of the shipment. That is, when a regulator looks at the return address on a package shipped from a fulfillment house’s warehouse, or if they review a winery’s shipping report listing out ship-from addresses, they are likely going to see the warehouse’s address and not the licensed winery’s premises address as they might expect. That can make it seem like the fulfillment house is the source of the shipment, that they were the wine seller. Since the fulfillment house would not hold a license to sell and ship wine DtC, that would look like a textbook violation to the regulator even though the fulfillment house is simply acting as an agent of a licensed shipper. As such, a lot of the compliance burdens placed on fulfillment houses are designed to better explain who is the licensee behind a given DtC wine shipment.

However, while relieving regulatory confusion is a worthy goal, many parties that, for whatever reasons, oppose DtC wine shipping have latched onto regulating fulfillment houses as a backdoor way to restrict the DtC market (as they have not been able to convince states to revoke hard-fought DtC shipping permissions). Indeed, third-party support services for DtC shipping have long been seen as a potential weak point, with common carriers having faced their own round of intensified scrutiny years ago. Fulfillment houses then are seen as another domino that, if removed, could cause the whole system to collapse.

Regardless of why, or how valid that reason is, several states have adopted compliance requirements for fulfillment houses in recent years and there is every reason to expect other states to at least consider these rules themselves.

Where are fulfillment houses regulated and how?

Currently, nine states have regulatory burdens specifically addressing when and how fulfillment houses can be used to facilitate DtC shipments within their borders. Generally, these burdens require some notice to the state agency that a fulfillment house will be operating in the state and follow-up reporting by the fulfillment house on their shipping activity. As ever with DtC wine shipping laws, however, the details of how to meet these burdens vary state by state.

Illinois and Louisiana place the burden of identifying active fulfillment houses on wineries applying for a new or renewed DtC shipping license, requiring the wineries to list any fulfillment house(s) they will use to ship into the state on their application. Alabama, Kansas, New Hampshire, North Dakota, Tennessee, and Virginia instead shift the burden, requiring the fulfillment houses themselves to apply for approval from the state alcohol agencies before they can be active in the state. Oklahoma, notably, prohibits all use of fulfillment houses for DtC shipping, severely limiting the ability of smaller wineries to ship into the state.

Fulfillment houses are also required to file regular reports on their shipping activity to these states. Those reports generally need to include detailed data on the shipments they’ve facilitated, including dates and destination address of the shipment, package tracking numbers, and often the name and license number of the wineries the shipments were made for. States compare these data against the other DtC-related reports they get from wineries and carriers to check that no DtC laws were violated.

Wineries then need to ensure that the fulfillment houses they use are meeting the registration and reporting obligations in these states, as shipping through a non-compliant fulfillment house is often itself a violation of the law, subjecting the winery to enforcement action such as fines or loss of their DtC license.

The future of fulfillment house regulation

For many years, only Virginia and North Dakota had any kind of laws on their books regarding fulfillment houses, which made them something of an exception. Even when Illinois adopted its registration rules in 2016, it was a little anomalous. 

But then in 2020 and 2021, the other states adopted their own regulations around fulfillment houses, making it seem like a shift had occurred and that there would soon be a wave of similar legislation across the country. The Uniform Law Commission (ULC) even weighed in on this when it included fulfillment house registration and reporting as a central pillar of its 2022 model DtC alcohol shipping bill.

However, such predictions have not borne out so far. In 2022, only Louisiana added fulfillment house regulations, and even that was just a corrective response to its rash attempt in 2021 to prohibit all use of fulfillment houses. So far in 2023, only Illinois has any active legislation affecting fulfillment houses, and even that is a bill to adopt the ULC’s model shipping law and so would more just shift existing burdens rather than add anything radically new—and it doesn’t seem to have much support at that.

As such, it may appear that interest in regulating fulfillment houses has fizzled out. But assuming so would be even more foolhardy than expecting every state to adopt fulfillment house laws. Indeed, there is no reason to believe that the issues regulators claim to have with fulfillment houses have worked themselves out. If that is the case, then 2023 may end up being simply a lull for fulfillment house legislation. 

However things turn out, wineries that ship DtC and the fulfillment houses they use need to understand the regulatory burdens placed on them by states. Meeting those burdens and remaining compliant with DtC wine shipping laws is central to the ongoing success of the market, and so should not be ignored.