Wine Industry Advisor asked Regulatory General Counsel of Sovos ShipCompliant’s Alex Koral, about his biggest 2021 DtC lessons and what the industry could expect for the upcoming year.
His analysis is as follows,
Expanding DtC Shipping Permits to other Product Types
Despite many unsuccessful attempts to amend the country’s laws by 2021, it is still impossible for beer and spirit producers to send DtC because of restrictions that ban their existence. These efforts are likely to continue in 2022 as customers expect everything to be delivered at their door. The success of DtC vessels is well known by the producers of beer and spirit. They always wanted to be part of that market.
States Continue to Press for Controlling and Regulating Existing DtC Markets.
State regulators are apparently increasing their oversight of DtC shipping as the present market has grown. The common concerns are Rumours of shipping by unlicensed persons, missed taxes, and sales made to minors. The regulators are very much concerned about the potential for fraud in this sector
Two states changed their fulfillment house regulations in May to affect DtC wine shipping. Tennessee Governor Bill Lee signed HB742. This included new restrictions regarding the wines licensed DtC shippers may sell to Tennessee residents and ship DtC.
The bill provision also discussed new requirements for quarterly reporting and record retention for winery direct shipper licensees. This pressure will further be increased by lawmakers in 2022 and beyond, with additional audits and reviews for licensed shippers as well as imposing additional regulations and limitations on third-party services such as fulfillment houses.
The USPS Shipping Equity Bill
In May a bipartisan bill was introduced to lift a prohibition-era ban, that prevented the USPS from shipping wine or other alcohol directly from consumers.
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The USPS Shipping Equity Act is aimed to increase service to areas that are not served by the Postal Service, such as remote or rural areas. Producers will have much more options to ship alcohol, which in turn could lower the costs and help them meet the current demand.
Now, It is not clear whether the bill will pass in 2022 and if there is a chance for the USPS to establish an alcohol shipping service. Even though the new law is in effect, USPS and alcohol shippers will have to comply with the present local and state laws.
Retailer DtC Shipping Lawsuits:
The biggest dilemma in beverage alcohol jurisprudence is whether or not the 2005 Granholm ruling which opened up the national market to DtC shipping by producers applies also to other levels, especially retailers.
The Idaho Alcohol Beverage Control (ABC division) reviewed Idaho’s DtC laws. They determined that outside retailers are not permitted to ship DtC products in Idaho. The laws of Idaho were previously interpreted to create a reciprocal retail DtC relationship. This allowed retailers to ship DtC in Idaho to Idaho residents provided they were located in the same state like Idaho.
Granholm’s anti-discriminatory principles should be applied equally to retailers. This would prevent the states from establishing DtC shipping permits for only in-state retailers. However, no appellate court has yet heard this case. It remains to be seen if future courts will reach a different conclusion or if the Supreme Court will intervene and make a national ruling.
Shipping to Third-Party Marketplaces or DtC:
In the past few years, a sharp slew of new marketplaces and third-party services have been created to allow suppliers and retailers to sell remotely to consumers. It is not at all clear how these services are allowed to legally operate. To address these issues, many states have created new laws and licenses for certain services. Anyway, Drizzly has been the focus of attention for services that allow local retail delivery.
There are many legal restrictions that can limit DtC shippers’ marketing and sales platforms. These include the tied house restrictions on paid advertising and electronic shelf placements and the collection of money related to the sale of alcohol. This has many interesting and complicated knock-on effects for sales tax collection.
