Wine Industry Advisor asked Alex Koral, Sovos ShipCompliant's Regulatory General Counsel, about his biggest 2021 DtC lessons and what the industry can expect for the new year.
Here is his analysis.
Expanding DtC shipping permits to other product types
While there were many unsuccessful attempts to amend state laws in 2021 it is still impossible for beer and spirits producers to ship DtC because of laws that ban their presence. These efforts will likely continue into 2022 as customers expect everything to be delivered right at their doorstep. The success of DtC shipping is well known by beer and spirits producers. They want to be part of that market.
States continue to press for regulation and control of existing DtC markets.
State regulators are increasing their oversight of DtC shipping as the market has grown. Rumours of shipping by unlicensed persons, missed taxes, and sales made to minors are common concerns. The regulators are also concerned about the potential for fraud.
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. A bill provision also discussed new requirements for quarterly reporting and record retention for winery direct shipper licensees. This pressure will 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 fulfillment houses.
The USPS Shipping Equity bill
A bipartisan bill was introduced in May to lift a prohibition-era ban that prevented the USPS shipping wine or other alcohol directly from consumers. The USPS Shipping Equity Act will expand service to areas that are not served by the Postal Service, such as remote or rural areas. Producers will have more options to ship alcohol, which could lower costs and help them meet the demand. It is not clear if the bill will pass in 2022 and if the USPS will establish an alcohol shipping service. Even though the new law is in effect, USPS and alcohol shippers will still need to adhere to local and state laws.
Retailer DtC shipping lawsuits:
The biggest question 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 as Idaho.
Granholm's antidiscriminatory principles should be applied equally to retailers. This would prevent 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 slew new marketplaces and third-party services have been created to allow suppliers and retailers to sell remote to consumers. It is not clear how these services are allowed to legally operate. To address these issues, many states have created new laws and licenses for certain services. However, 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 tied house restrictions on paid advertising and electronic shelf placements. The collection of money related the sale of alcohol. This has interesting and complicated knock-on effects for sales tax collection.