THE GIST
A model direct-to-consumer (DTC) alcohol shipping law that was originally designed to expand shipping permissions for beer has, years later, left beer in the dust. It’s another setback for DTC beer shipping which, despite its popularity among consumers and its pandemic-era boost, has struggled to make legal gains.
On July 13, an influential legislative advisory board known as the Uniform Law Commission (ULC) approved the Uniform Alcohol Direct-Shipping Compliance Act, essentially a template that individual state legislatures can use to draft their own DTC alcohol bills. The ULC itself does not have the power to ratify laws, but it was founded in 1892 to promote uniformity among states’ laws. Its drafts are widely influential: its Uniform Commercial Code, for example, was adopted by all 50 states and governs every commercial transaction in the U.S.
When the ULC first got to work on the alcohol shipping bill in 2019, its goal was specifically to create a standardized set of regulations to expand DTC shipping of beer and spirits, which don’t enjoy the same privileges as wine. Currently, 45 states allow DTC shipping of wine, but just 12 allow DTC shipping of beer and seven allow shipments of spirits. (Non-alcoholic beer can be shipped DTC nationally, as these products are not considered alcohol under the federal definition.)
Yet the draft bill that the ULC approved on July 13 doesn’t address beer (or spirits) specifically. Instead, it focuses on correcting perceived problems with DTC wine shipments in ways that have the potential to stifle DTC shipping permissions for alcohol across the board.
WHY IT MATTERS
Beer has long lagged behind wine and even spirits when it comes to direct-to-consumer and e-commerce sales, and the ULC’s DTC act represents a missed opportunity to catch up. Beer—including hard seltzer—accounted for about 20% of Drizly sales in 2019 and 2020, with wine and liquor splitting the remaining share roughly equally.
Jeff Carroll, general manager of Avalara for Beverage Alcohol, a compliance consultancy for the beverage alcohol industry, told the Brewbound podcast in December that wineries have access to 97% of the U.S. population via online sales, while breweries have access to just 17% of the population. The ULC’s initial goal was to level that playing field—something breweries and retailers have long sought.
“Ultimately, the beer space has been so restrictive of e-commerce relative to wine and even spirits that even the smallest improvement would be welcome,” says Jason Sherman, founder and CEO of TapRm, a beer e-commerce site and New York State beer wholesaler.
The ULC’s initial goal with its bill was to focus on those improvements—a goal that was swiftly abandoned.
Aaron Gary, the Wisconsin attorney who drafted the ULC’s bill, told Wine-Searcher that in 2019, when the group began investigating DTC spirits shipping—he made no mention of beer—the ULC found the issue “too controversial.” Instead, it decided to turn its attention to standardizing wine shipping laws.
“[The ULC] starts off with this plan to expand beer and spirits shipping and then is immediately sidetracked by this claim of ‘because wine shipping is not 100% perfect, we cannot expand it,’” says Alex Koral, senior regulatory counsel at Sovos ShipCompliant, a compliance support company.
While Koral acknowledges that wine shipping regulations aren’t perfect, he says the provisions the ULC drafted to “fix” them aren’t fixes at all. Instead, he says they were drafted by industry groups who “have a lot of interest in trying to make DTC shipping hard if not downright impossible.” Such groups likely include some public health organizations that oppose expansion of alcohol-related permissions, as well as alcohol wholesalers who benefit from the three-tier status quo. (DTC shipments by nature bypass distributors, who generally lobby against such sales.)
“It doesn’t appear that the committee’s intent was to broaden the availability of DTC products through this draft language,” says Tony Glover, an attorney and regulatory consultant for Florida’s hospitality, alcohol, and casino industries.
The ULC may have been swayed by anti-shipping arguments because of its members’ general unfamiliarity with the alcohol regulatory landscape. Koral, who was asked to participate in some of the ULC’s research into the topic, says it was notable how often its members had to be instructed on “basic beverage alcohol rules and what the three-tier system is, or even learning that DTC is illegal to begin with.”
The omission of beer from the ULC’s proposed Uniform Alcohol Direct-Shipping Compliance Act is a blow to efforts to widen beer’s shipping permissions, but what is contained in the draft legislation also has the potential to discourage DTC alcohol more broadly.
Advocates for DTC shipping of alcohol have taken issue with two distinct aspects of the ULC’s draft bill:
Licensing for fulfillment centers: Fulfillment centers are third-party warehouses and logistics centers that store alcohol after it’s left the manufacturer. They do not own or sell the alcohol, but merely facilitate orders placed through the manufacturer. Six states require them to be licensed with state alcohol regulators; the ULC’s bill would require this in any state that passes it. Koral calls the licensing requirement “a bit unnecessary” and says this additional regulatory hurdle could discourage the establishment and use of fulfillment centers in the future.
States enforcing other states’ laws: The ULC’s bill includes a provision to allow individual states to prosecute businesses based in other states that improperly ship alcohol to addresses within their borders. Currently, if a distillery in California, for example, improperly ships spirits to a customer in South Dakota where it isn’t legal, South Dakota regulators can’t do much more than send that distillery a cease-and-desist letter, or ask regulators in California to penalize the distillery. The ULC’s draft bill would allow South Dakota regulators to prosecute the California distillery for violation of South Dakota laws, with potential consequences including suspension or revocation of a liquor license. “In other words, a direct shipper could risk losing its home state license for a violation of a second state’s laws,” Glover says. “To put it mildly, this structure would make it much more risky for licensees to disregard the laws of other states.”Koral says this tenet of the ULC’s bill raises “very complex potential questions about federalism,” and notes that the idea of states enforcing each other’s laws seems to violate basic Constitutional tenets. It would also require that every state’s regulators be deeply familiar with the particular DTC laws of other states.
“When we’re talking about the causes of action to remove or revoke a license, it kind of reads like any violation [could result in that],” Koral says. “And there are a lot of ticky-tack rules in DTC shipping. For example, if an [out-of-state] winery accidentally ships a customer in Texas 10 liters of wine per month instead of the cap of 9 liters per month, would they not be able to produce wine anymore?”
The overall result of the model bill’s provisions, Koral says, would likely be a chilling effect on DTC alcohol shipping through increased regulation and red tape. If states adopt this legislation and add their own, even more onerous provisions, he predicts “the restrictions could make DTC shipping difficult enough that people just don’t want to engage in it.”
The question now is whether state legislatures will adopt the ULC’s model legislation, and if they do, what modifications they may make to its template. So far, several industry groups have stated that any state bills would face at least some opposition: Wine Institute, WineAmerica, National Association of Wine Retailers, and even the Wine & Spirits Wholesalers Association have all been critical of the ULC’s bill.
“However well-intentioned this effort is, we expect the Act will become a Trojan horse that will serve to curtail existing wine shipping privileges," Wine Institute and WineAmerica wrote in a joint statement.
Marc Sorini, general counsel for the Brewers Association (BA), a trade group that represents what it defines as small and independent breweries, says the BA anticipated opposition from other industry groups to the ULC’s bill, and therefore “decided that we would minimize our engagement with the [ULC] process.” He says the BA will be watching DTC shipping legislation on a state-by-state basis and is prepared to advocate for greater permissions for beer should the opportunity arise. Koral agrees that proponents of DTC beer shipping should now turn their attention to what happens in statehouses across the country in response to the ULC’s model bill. He doesn’t seem as certain as Sorini, though, that states won’t take up this legislation.
“I think we shouldn’t sleep on this, though it’s not necessarily a moment of panic where the sky will fall,” Koral says.
Words by Kate Bernot