Among the ranks of beverage alcohol attorneys, there are few with the experience and depth of knowledge of John Hinman, founding partner of Hinman & Carmichael based in San Francisco. (Read their Booze Rules blog here.) So it was to our great pleasure that John recently joined us at ShipCompliant by Sovos to give a webinar presentation on navigating regulatory restraints when bringing products to market.
Beverage alcohol is a notoriously highly-regulated industry, and there are restrictions and limits on what suppliers can do to sell their products. These restrictions include licensing requirements, the need to register labels, and tax payments — but they often get even more nuanced and particular.
In an increasingly crowded market, where any room for suppliers to expand their presence is precious, these restrictions only add to the pain. And so it becomes invaluable to get ahead of the regulations and know what you are permitted — or prohibited — from doing.
This makes John’s presentation invaluable, as a resource cataloging the basic roadblocks that you will need to navigate on your way to market. If you missed the original presentation, we have posted it online available for you to watch here.
Highlights From the Presentation
There are so many particularities and nuances when it comes to legally distributing alcohol that it would be impossible to even brush the surface in a single webinar. However, John pointed out some key aspects to be aware of:
- Understand the Three-Tier system: Beverage alcohol is not like any other commercial product, even if it acts like it. Many other industries break down into different producers, distributors, and retailers of goods — but few have legal mandates that require these to be separate entities. Know that, when entering the industry, you may not engage in all the normal business activities you think you should.
- 50 States Means 50 Different Sets of Rules: The 21st Amendment not only revoked the rule of Prohibition, it also granted broad power to each state to regulate and control the beverage alcohol market in its borders. While there are general patterns, each state is unique and has to be looked at freshly each time. You might know how to sell wine in California with your eyes closed, but New York is a whole different animal.
- Recognize the Different Routes to Market: As with the broader retail market, consumers are increasingly looking for ways to purchase alcohol outside of traditional stores, and laws are changing to accommodate this. Currently, 45 states and D.C. permit wineries to sell and ship directly to their residents. And every state grants at least some right for manufacturers to sell directly to consumers at their production facilities. While the rules can still seem hidebound (for instance, while wineries have a large map at play for direct-to-consumer shipping, retailers, breweries, distilleries, and importers are much more limited), the general trend has been to remove barriers. It is critical for alcohol producers to be aware of these alternative paths for selling their products going forward, while also being aware of the limits that restrict them.
- Know the Gotchas: While the prospect of getting a product to market may seem rosy, there are still several ways for things to go sour. A major area of concern for producers are states with franchise laws in place. These laws delimit how producers and wholesalers can set up distribution agreements — and more critically, how these agreements can be renegotiated or terminated. A producer cavalier about setting up a distribution agreement could find itself stuck in a rotten deal with no prospect for escape. Another area of concern are restrictions on advertisements by producers, with especial importance in the world of social media. Producers must know of state and federal laws that restrict how they talk about their products and where they are available for sale. A stray tweet that unfairly singles out a particular liquor store, or a Facebook post about an upcoming wine-and-food pairing, could get a producer in trouble. To prevent this, anyone engaging in the beverage alcohol industry must stay vigilant with their messaging.
We again want to thank John Hinman for his wonderful presentation, and all the work he has done to make the beverage alcohol industry thrive.