A Bordeaux Too Far—Importers Still Face Barriers in the Direct Market

Ten years ago, the United States Supreme Court blew open the doors for direct-to-consumer (DtC) wine shipping. Since then, the DtC market now reaches into 42 states (43 when South Dakota’s DtC rules come into effect in January), and is inching closer and closer to the $2 billion mark. However, these sales have so far been limited to US-based wineries. It is no surprise, then, that many importers have sought to enter the DtC market.

As foreign wineries and their importers look to enter the DtC market, though, it becomes increasingly important to ensure that they remain compliant within the law. The most important compliance question, though, is the most basic one–are they in fact permitted to make DtC sales?

boxingFederal law imposes two key barriers on importers looking to enter the DtC market. The first, which should be no surprise, is the need to receive a Federal Basic Permit to import wine. Second, and more at issue, the US Code strictly requires that all sales and distributions of wine into a state must comply with the local rules of that state. Merely holding an importer’s Basic Permit is not enough—an importer must also make sure that it is compliant with all local state rules.

Currently, 42 (again, soon to be 43) states permit DtC sales. These states all have codified rules on who can make DtC sales and how. These include shipping label requirements and age restrictions. But almost every state also requires a business to register with the state and receive a permit for direct shipping. Often, but not always, this is a special permit specifically for direct shipping.

Unfortunately, the amount and breadth of all of the various states’ rules on DtC sales makes it impossible to easily summarize here. ShipCompliant maintains records of each state’s DtC rules, which appear in the “State Details” section of your account. Our partner, the Wine Institute, also posts a state-by-state breakdown of DtC rules, which can be found here.

However, there is one very common (but not universal–see Alaska) impediment to importers looking to enter the DtC market. Most states will restrict the types of businesses that can properly receive a permit to make DtC sales in those states. Generally, only properly registered wineries can receive a permit for DtC sales. That is, only businesses that actively practice winemaking may make DtC sales in these states. Even if an importer has a winemaking operation, states may limit the wines it sells to the wines it actually produces in the United States.

This impediments is not universal, and even where it exists importers can find work arounds. Some states will include bottlers in their list of permitted entities. And 14 states allow retailers to make DtC sales. California, notably, has a Limited Off-Sale Retail License (type 85), which permits DtC sales from warehouses–a possible entry point for importers. However, this only provides for sales to California residents–deliveries to other states will require compliance with those states’ rules.

If an importer can properly set itself up in one of these businesses–which still requires proper licensing and may require evidence being actively engaged in that kind of operation–then it could enter the DtC market. However, other barriers, such as tied-house rules, could prevent an importer from registering as a retailer.

These restrictions on the types of businesses that can conduct DtC sales are a large barrier to importers entering the DtC market. Importers that cannot receive a permit from a state will not be compliant in that state if it attempts to make DtC sales.

Non-compliance is NOT advisable. There are many possible consequences that any business can face if it is not compliant with a state’s rules. Civil and even criminal liability are common for breaking a state’s rules. There is also a risk that a business will have its existing licenses revoked, even those from other states and its Federal Basic Permit. Thus the importer would be prohibited from continuing even its otherwise compliant operations. This could also affect future applications for permits, as many states justify rejecting applications based on past compliance violations.

Moving Forward
Except for the one big push by the Supreme Court ten years ago, almost every change in DtC rules has come as a result of public advocacy and pressure on state legislatures. Businesses, members of the wine community, and (perhaps most important) the wine-loving public at large, who want to spur an opening in rules to permit DtC of foreign wine should consider joining an advocacy group or writing their state legislators.

For several decades now, the Wine Institute has proposed a model DtC bill, which would permit most parties in the beverage alcohol industry, from wineries to bottlers to importers, to engage in DtC sales. Free the Grapes is a grassroots organization for wineries and wine-lovers seeking to expand DtC sales. The National Association of Beverage Importers is the leading trade association representing importers, representing their interests and advocating on their behalf. Also, never forget the impact that a letter or message to your local representative can have.

For now, though, importers seeking to enter the DtC market should remain aware of the barriers in their way. While workarounds may exist in some states, the risks of non-compliance should serve as a warning. A thorough investigation of a state’s DtC rules should be done early on to ensure that it’s even possible.

If you have questions about this or want to learn how ShipCompliant can help your importer business in other ways, let us know by requesting a demo. One of our delightful team members will reach out to you shortly.

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2 Comments

  1. AJO Imports, LLC

    Hello,

    Wondering if you have any updates to this article concerning DTC regulations for foreign wineries?

    Anthony O’Haire

    Reply
    • Alex Koral - Industry Relations Advisor

      Hi Anthony,

      Thanks for the question. Unfortunately, we don’t have any updates to report regarding DtC permissions for foreign wineries. Since this post was published there have been some states — South Dakota, Pennsylvania, Arizona, and Oklahoma — have opened up more broadly to the DtC market. However, these states will only grant a DtC license to domestic wine producers, and all prohibit DtC licensees from selling wines DtC that they do not produce. Foreign wineries are still required to work with a US-based importer to bring their wines into the country; the restrictions described in this post are still in effect. But keep checking this blog for updates; you can be assured that we will be there to report any news regarding DtC regulations.

      Reply

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