By Cary M. Greene
Back in 2009, we wrote about several investigations by state alcohol beverage regulators questioning the use of third parties in facilitating direct to consumer shipping—marketing portals, online retailers, pick and pack warehouses, and similar businesses. While the situation has improved substantially in a number of ways since then—there are now a variety of companies with interesting business models that try to ensure wineries can remain compliant with state licensing laws—you still need to be careful.
Regulators generally want some measure of market transparency—clear and simple transactions they can follow from beginning to end. Because it’s axiomatic in alcohol beverage law that if a transaction is not permitted, it’s prohibited, regulators in an alcohol beverage context have the power to turn a desire for market transparency into enforceable rules. As a result, non-conforming transactions that don’t fit within a proscribed regulatory scheme are not simply suspect, they’re potentially illegal.
It’s understandable that wineries would turn to third party solutions to make wine direct shipping simpler and more profitable. After all, in most business contexts, if a business model isn’t working, you try another. But alcohol beverage law isn’t generally oriented toward allowing businesses to develop market solutions for their problems. Wineries and other businesses may only ship wine direct to consumers within the confines of the complex system as it exists, even where that system is expensive and difficult to manage.
Wineries, in other words, must carefully examine the business practices of potential outside service provider partners. If a business is pitching you to provide logistical or other support in your direct shipping operations, there are at least three rules you should follow:
First, most states that allow direct shipping require each direct shipper to be licensed separately. The idea of businesses pooling together to get a joint license isn’t really contemplated by most state direct shipping laws, nor do most state laws account for wineries shipping their products through the license of an outside service provider. Generally speaking, these practices are seen by most state regulators as trying to get around inconvenient local law.
Second, a transaction involving an outside service provider may affect laws in your state in ways you have not anticipated. Make certain whomever you sell the wine to, that the sale is legitimate and within the contemplation of your winery license.
Third, transactions involving an outside service provider may affect the laws of the delivery state. Even if a practice is legal back home, it doesn’t mean the practice is legal everywhere. We live in a weird world, and definitions for the simplest concepts, like, what constitutes a “sale,” are endlessly sticky. Take the time to ensure the business you’re working with has done their homework reputable, and that you are complying with the terms of your out-of-state shippers’ permits.
There are a variety of reputable shipping businesses that take compliance with respect to direct shipping transactions seriously, but this isn’t universally true. WineAmerica will continue working with our friends at the state and federal level to try to simplify and reduce the cost of direct shipping. Until the law changes, however, we urge you to make sure you are shipping in ways that protect your hard earned business reputation. It is simply not worth the consequences to get out too far ahead of the law.