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Work to Open More States to DTC Wine Shipments Continues

State Regulators Zero in on Illegal Shipments
by Kerana Todorov
June 04, 2018

Bills to allow out-of-state wineries to ship wine directly to customers were considered in Alabama, Mississippi, Kentucky and Delaware, according to the Wine Institute. The states – along with Utah – are the last states in the Union to prohibit out-of-state direct-to-consumer wine shipments.

On another front, states regulators have stepped up enforcement on illegal wine shipments. Arizona, Illinois, Rhode Island, Michigan and New York in 2017 sent “various forms of ‘stop that’ letters,” said Steve Gross, vice president of state relations at the Wine Institute recently. “Most of them were cease-and-desist. Some of them got a little more serious than that.” These were among the updates on wine shipping laws and regulations Gross discussed May 31 at the 2018 ShipCompliant Wine Summit in Napa.

Regulators are most concerned with illegal retailer shipping, Gross said. “Nonetheless when they start doing enforcement actions, all of you can get swept up in that,” he told wineries’ representatives.

Most states still ban out-of-state retailers’ direct-to-consumers wine shipments. A bill to overturn these prohibitions failed to pass in Connecticut in the past year. Similar bills are pending in Massachusetts and New York states, according to the Wine Institute. In yet a new development, Missouri no longer allows out-of-state retailers from shipping wine directly to consumers.

The 14 states that allow retailers to ship wine include California, Oregon, Nevada and Virginia. Suits focusing on retailers’ DtC shipping rules are pending in Indiana, Illinois, Michigan and Missouri.

Rules differ from state to state. South Dakota, for example, now requires common carrier tracking numbers for each DtC order. Other states are looking at this, Gross said. Requiring tracking numbers allows states regulators to compare shipping information from wineries with information from common carriers, he and others explained. Winery representatives present were urged to carefully dot their i’s and cross their t’s to comply with all existing laws and to never ignore enforcement letters.

Arizona

Arizona regulators sent more than 100 violation letters to wineries over its six case per person limit, according to the Wine Institute. The Wine Institute also wants to discuss with Arizona regulators its rule that prohibits the placement of a wine order via an app between 2 a.m. and 6 a.m. Arizona time., according to the Wine Institute.

Matt Botting, general counsel at the California Department of Alcoholic Beverage Control, noted his office receives copies of these cease-and-desist letters from out-of-state regulators.
Gross reported regulators also have started focusing in on common carriers and fulfillment houses in the last year, possibly affecting wineries’ ability to ship wine.

Progress continues to be made in allowing more out-of-state wineries to ship wine directly to consumers over the past year. A bill to allow direct-to-consumer in Delaware is pending, Gross said. The Wine Institute and Free the Grapes!, an advocacy group that promoted DtC, want to amend the bill to remove a provision that bans shipments of wine already in distribution.

In the South

In Kentucky, Gov. Matt Bevin signed in April a DtC bill into law which the Wine Institute considered flawed because it left key issues unresolved. The law is unclear on how excise, wholesale and/or sales taxes will be collected on the wine sold. The bill also included a provision that consumers order their wine in person even though the U.S. Circuit Court of Appeal has found “on-site” rules unconstitutional.

The new Kentucky law includes a requirement that the consumer declare in writing that their delivery address is in a “wet” area where alcohol sales are allowed.

Alabama and Mississippi failed to pass DtC bills this year. However, progress was made in both states, Gross said. In Alabama, evangelical Christians continued to oppose opening the state to DtC wine shipments. However, their opposition was not at the same level as before, Gross said.
“For the very first time, we actually moved a bill out of committee in Alabama,” Gross said. (A state Senate committee approved the legislation before it died in the state Senate, according to news reports.)

Other developments included Oklahoma passing a bill to amend its shipping law. Oklahoma consumers will be able to have wine shipped to them beginning Oct. 1. Gov. Mary Fallin signed a state bill in April that addressed concerns from common carriers. The “fix-it” bill also removed the requirement that consumer obtain a consumer permit and a prohibition on DTC sales of wines in wholesale distribution channels. Fallin signed the bill after Free the Grapes! consumers sent more than 550 letters from consumers urging her not to veto the legislation, according to Wine Institute. Under the new law, a winery can ship up to six cases of wine annually to consumers 21 years old or older.

Wineries have increasingly turned to direct-to-consumer sales as a business strategy as retailers and distributors continue consolidate. Direct-to-consumer wine sales grew by more than 15 percent in 2017 in volume and value, according to ShipCompliant, a division of Sovos. DtC sales totaled nearly 5.8 million cases worth about $2.7 billion.

The U.S. Supreme Court decision of Granholm v. Heald opened the door to direct-to-consumer wine shipping. States that allowed in-state direct-to-consumer wine shipments could not prohibit direct-to-consumer wine shipments from out-of-state wineries.


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