The Louisiana Office of Alcohol and Tobacco Control (ATC) recently adopted new regulations governing the use of fulfillment houses by licensed direct-to-consumer (DtC) shippers of wine.
Fulfillment houses have become a central, and invaluable, part of the DtC wine shipping market by offering wineries with critical storage and logistical services. They provide climate-controlled warehouses to store wine until it is ready to be sold and have established packing and shipping facilities that many wineries, particularly smaller ones, may lack.
Fulfillment houses have become something of a bugbear for regulators of the DtC wine shipping channel. Because their address may be used as the deliver-from address on a packing label, it may appear as if they are they are the seller of record for the package, despite lacking the necessary licenses to ship into a state. This misapprehension (as fulfillment houses do not ever own or sell wine, they merely facilitate the shipping process for parties who are licensed to sell and ship wine DtC) has led several states to adopt restrictive licensing and reporting rules on fulfillment houses.
Louisiana, then, is merely the latest to adopt such regulations. Going forward, DtC wine shippers active in Louisiana will need to abide by these rules or face severe penalties.
What are the new rules adopted by the ATC?
The rules—as adopted into Louisiana Administrative Code, title 55, part VII, section 335—establish new notice and reporting requirements for DtC wine shippers and their fulfillment house partners.
Specifically, all new and renewing applicants for a Direct Ship Permit issued by the ATC will now be required to disclose all fulfillment houses they have authorized to handle shipments going to Louisiana.
This disclosure will occur during the application process using a specific form set out in the regulations. The applicant will need to list the name and address of any fulfillment houses that will ship wine on their behalf and swear under penalty of perjury that all of their shipments of wine to Louisiana will be done either in-house or by the appointed fulfillment house(s).
In addition, the applicant must provide a copy of a written appointment letter providing authorization for the fulfillment house(s) they have appointed to service shipments to Louisiana.
Louisiana has moved most of its licensing services online, and it is expected that this new form will be added to that platform in time for the annual renewal period for Direct Ship Permits, which expire annually on December 31.
The regulations also add a new reporting requirement for the fulfillment houses themselves. Each quarter, by the 15th of the month, every fulfillment house engaging in the shipping of wine to Louisiana will need to file a report to DTCReports@atc.la.gov detailing each shipment they have made in the previous quarter. As of this writing, the ATC has not yet published this report or otherwise provided information on what data the fulfillment houses will need to submit.
Importantly, the regulations set out that fulfillment houses will be deemed as agents acting on behalf of the DtC shippers they service. This means that any failures on the part of a fulfillment house (including failure to file the quarterly report) will be imputed onto the licensed DtC shipper. As with any violation of a state’s alcohol laws, that can lead to severe fines and penalties, including loss of license.
What does this mean for regulation of fulfillment houses broadly?
In 2021, several states adopted licensing and reporting requirements related to the use of fulfillment houses by DtC wine shippers. It was expected that many states would follow suit as opponents of DtC shipping continued to spread allegations about the role of fulfillment houses to state legislators. 2022, however, turned out to be quiet, with relatively little motion on DtC shipping laws either for establishing new permissions or adding new restrictions.
For its part, Louisiana had earlier this year attempted to prohibit all use of fulfillment houses in an effort that was, thankfully, defeated through the quick efforts of DtC shipping proponents. As such, these new rules may not necessarily be a revival of the broader effort to regulate fulfillment houses, but rather the conclusion of negotiations between the state and industry that arose from that earlier regulatory effort.
Unlike most of the rules on fulfillment houses adopted in 2021, Louisiana’s new regulations place most of the burden on the licensed wine shippers but do not require the fulfillment houses to be licensed themselves. Instead, they more resemble rules adopted by Illinois back in 2017, perhaps signaling multiple paths for possible future regulation of fulfillment houses by other states.
What this all means for the broad trend among regulators to more closely monitor and control the DtC wine shippers operating in their states remains to be seen. As a central part of the DtC wine shipping process, fulfillment houses are seen as a ripe target for regulation, but it is unclear how effective these rules are at combating the alleged concerns certain parties have with the DtC shipping market. Nevertheless, DtC wine shippers and fulfillment houses alike need to remain vigilant about any future rules and regulations adopted by states, and ready to meet the compliance challenges they represent.
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