What’s Next in the DtC Shipping of Alcohol?

When Oklahoma began permitting direct-to-consumer (DtC) shipping of wine last October, it became the 45th state to do so. But getting to 45 states that permit DtC shipping of wine did not happen overnight. Indeed, it was a long and intensive effort of campaigning and lobbying state-by-state to get to where we are today. 

With only a few holdouts left, it seems like there might be an end to that journey in sight. And so we are inevitably asked, what next? When will the DtC shipping map be entirely filled in? In this post, we will look at the remaining states and assess their chances of changing anytime soon, along with examining some of the other issues affecting the DtC shipping of alcohol, including the question of whether retailers will ever enjoy similar rights as wineries, and what about beer and spirits. 

Map courtesy of Wine Institute     

What Is Direct to Consumer Shipping of Wine, and How Did We Get to Where We Are?

As ever, it helps to begin with definitions. When we talk about DtC shipping of wine, we are referring to a specific type of sale where a consumer reaches out to a wine seller (for our purposes, this is most often the actual producer of the wine, but increasingly it can include licensed wine retailers) to make a purchase of wine, and then has that seller ship the wine through a common carrier (like FedEx or UPS) directly to the consumer. This sale can be done in person (“on-site”) or remotely (“off-site”), but the critical condition is that the consumer does not take possession of the product until it is brought to them by the carrier. 

When it comes to the sale of alcohol, states have tremendous power to regulate this market, including by outright prohibiting it, even if it represents a business practice that is increasingly ubiquitous in other markets.

Currently 45 states permit DtC shipping of wine (see map). Most of these states only moved to enable DtC shipping after the 2005 Supreme Court case Granholm v. Heald, with the hardscrabble efforts by organizations like Wine Institute and Free the Grapes! to lobby state legislators to create laws for the DtC shipping of wine. Because of those efforts, nearly every American can receive shipments of wine from their favorite domestic wineries. But this is not (yet) a universal right.

Where is DtC Shipping of Wine Not Allowed (or Severely Restricted)?

The DtC shipping map is almost entirely open, but there are still a few holdouts. This is not for a lack of trying, but more because these states—for a variety of reasons—have determined that DtC shipping of wine is not suited for their populations. In addition, there are the few states that are ostensibly open to DtC shipping of wine, but still limit it such that we can’t really talk about them like we do with the other open states.

The Holdouts

  • Alabama: Over the past couple years, Alabama has at times come achingly close to permitting DtC shipping of wine. The latest effort was House Bill 350, which passed the state House of Representatives in May. It had positive support in the Senate, but ended up dying there when the legislature adjourned for the year. This was a heartbreaking end to a bill that seemed to have all the necessary momentum. Nevertheless, another DtC bill is planned for introduction in the next session, which we will wish greater success.
  • Delaware: Like Alabama, Delaware has recently seemed like it would soon open to DtC shipping. Unlike in Alabama, where conservative mores are used to argue against allowing DtC shipping of wine, Delaware instead faces the problem of corporate capture, as local wholesalers vehemently oppose any attempts to permit DtC shipping there. Still, efforts are underway to open Delaware up, with Senate Bill 49 currently before a Senate Committee. Committees are a graveyard of legislation, though, so we will have to wait and see whether this bill has the legs to make it all the way.
  • Mississippi: It is little wonder that Mississippi prohibits the DtC shipping of wine—after all, Mississippi retained Prohibition for decades after the rest of the country had gone wet. Again, conservative anti-alcohol sentiments in the state are brought up to block attempts to open the state to DtC shipping of wine. Undaunted, several bills to permit DtC shipping of wine have been introduced into the state legislature over the years, including House Bill 708 this last January. But they have not received much traction; it is likely that Alabama and Delaware will open well before Mississippi.
  • Utah: As difficult as it may be to conceive of DtC shipping of wine in Mississippi, Utah presents a whole other challenge. The state is steeped in abstinence from intoxication, and it seemingly has never met a restriction on the sale of alcohol that it didn’t like. As such, even just broaching the idea of DtC shipping of wine in the state could be laughable. But hope springs eternal, and so we should never fully discount that Utah will open to DtC shipping. Indeed, we have heard of plans to at least introduce DtC legislation sometime in the next year or two. If it then takes several more years to actually open up, in many ways that would be standard for DtC lobbying efforts. So we’ll also keep our fingers crossed for the Beehive State.

The Almost-but-not-Quites

  • Kentucky: There are in fact rules in Kentucky’s statutes that enable DtC shipping of wine. The problem is that it is unclear how these rules actually work out: it is not apparent that the license the state requires is available to out-of-state businesses; it is uncertain how, or even if, a DtC wine shipper would need to remit taxes to the state; and most of all, the DtC statutes impose criminal penalties on any party who causes a shipment of wine to go to an address located in a dry region in the state (and even the Kentucky ABC admits that a clear map of all dry regions in the state is impossible to produce). The state did pass a law in April 2018, which seemed to address some of these concerns, but this set out new conditions (like an on-site order requirement) that did not set out the type of system that properly sets out what a DtC wine shipper needs to do to get into and remain in compliance.
  • Arkansas/Rhode Island: Both Arkansas and Rhode Island permit DtC shipping of wine, and have worked to set out clear and effective rules for how market participants should behave. However, these rules only provide for DtC shipping for on-site orders. That is, a winery may fulfill a DtC shipment of wine to residents of these states only when they were physically present at the winery’s premises at the time of purchase. While better than nothing, this prevents those consumers from ordering online or by phone, or from joining a wine club, all critical sales systems used by successful DtC wine shippers in other states.

Efforts are ongoing in these states to introduce or further enable DtC shipping of wine. The best way to improve a state’s DtC shipping laws is through concerted grassroots efforts by residents of these states contacting their state legislators directly. It is one thing for a winery in California to ask for DtC permission in Alabama, but much different for an Alabama resident to petition their representatives for the right to receive wine from California. Free the Grapes! provides wine lovers in these states with pre-drafted letters they can send to their legislators stating their desire to have greater right to buy the wine they want how they want. If you have customers in any of these states who want the right to receive wine shipped from you, direct them to Free the Grapes! so they can join their voices to the cause.

The DtC Market and Compliance

In addition to opening (or better enabling) these states to DtC shipping of wine, there are a number of other ongoing efforts aimed at improving how this market operates and manages its compliance needs.

A big concern for the states right now is ensuring that participants in the DtC wine shipping market are properly compliant with the state’s rules. One way that states are moving to improve this is by adding additional reporting requirements on wineries and common carriers. By receiving more order data—in particular shipment tracking numbers—states are looking to  more thoroughly police the market, and ensure that orders are indeed coming from properly licensed entities. In addition to these reports, states are asking for more information about third-party services wineries use to enable their DtC shipments, such as fulfillment houses. Again, the purpose behind these rules (which several states are looking to add) is to allow them to recognize which licensees are behind each order of wine.

Similarly, proponents of DtC wine shipping are actively working to eliminate many of the restrictions on DtC shipping that have little to do with a state’s interest in promoting public health and safety. These include laws in Ohio and New Jersey that prevent wineries producing more than 250,000 gallons annually from receiving a DtC license. Same for laws in Indiana and Louisiana that restrict a winery’s ability to engage in both the DtC and three tier (i.e., wholesale) markets. There seems to be little justification for these type of rules, besides protectionism for local businesses (which after the ruling in Tennessee Wines may be harder for a state to justify, though these battles are happening in the legislatures not courts), and so it is hoped they will soon be removed from the DtC shipping statutes.

Following the Tennessee Wines ruling, a great deal of talk has gone on regarding the right of retailers to enter the DtC wine shipping market. Currently, only about a dozen states will permit out-of-state retailers to ship wine DtC. However, lawsuits in Michigan and Illinois, which were stayed pending the Supreme Court’s ruling, have reopened with the retailer litigants now having much firmer ground from which to argue. In addition, retailers and their advocates have initiated lawsuits in many more states in the last few weeks in an attempt to force them open to retailer DtC shipping as soon as possible. How successful these lawsuits will be remains to be seen (in many of these states the claim of discrimination against out-of-state interests, which underpinned the Tennesse Wines ruling, is not readily apparent). But it is clear that there is a lot of interest and support to expand the right to ship wine DtC to even more parties.

In the discussion of DtC shipping of wine, beer and spirits are often overlooked. Indeed, the right of brewers and distillers (and retailers) to ship these products is vastly more constrained than for wine. This is the case for a number of reasons—wine is more expensive than beer, so the cost of shipping a case or two at a time is more justifiable; and wine is seen as less socially problematic than spirits, so regulators are willing to be more relaxed with it. Nevertheless, the success of the DtC wine shipping market (now a $3 billion market!) has lead to envy from other product lines. The Kentucky bourbon industry has been very active in recent years trying to expand DtC shipping of spirits—though their work has largely been focussed locally on the Bluegrass State, and not yet in opening other states to receiving Kentucky bourbon. As more effort is put into expanding and better enabling the DtC wine shipping market, it should be expected that other beverage alcohol producers and sellers will look to join the market.

In many ways 2019 seems like it may prove to be a crucial moment for the DtC wine shipping market. This was the first year that the $3 billion mark was hit, and the Tennessee Wines ruling has brought the debate about interstate shipping and regulation of alcohol back to national attention. As we’ve described here, there are still a number of ways that the DtC wine shipping market can be improved, both by opening up the remaining states and removing some of the less-justifiable restrictions. At the same time the efforts by states to better their tracking of the market—which should aim to enable greater compliance with clear and attainable requirements and not snuffing out a still developing market—is an important part of this evolution. With other entities, like retailers, distillers, brewers, and importers looking to expand their DtC shipping of alcohol, there are a lot of lessons to be taken from past decades on what works and what good compliance looks like. We at ShipCompliant aim to enable that market as it continues to grow.

 

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