Update, May 1, 2023: On April 28, 2023, the The Oregon Liquor & Cannabis Commission (OLCC) agreed to a settlement with the three Washington breweries that sued the state last August over Oregon’s beer shipping law. As part of the settlement, the OLCC agrees to allow out-of-state breweries to self-distribute beer to Oregon retailers, and agrees not to enforce the Oregon law that limits direct-to-consumer shipping privileges to breweries that hold a license in states that make similar privileges to OLCC licensees (an idea known as reciprocity).
“This settlement is a critical step in a growing movement to increase social and economic equity in the beer industry, not simply by broadening consumer access to beer, but likewise increasing the ability for out-of-state breweries to more easily access new markets,” Justin Leigh, co-owner of Dwinell Country Ales in Goldendale, Washington, wrote in a press release. (Leigh is a licensed attorney who helped to organize the lawsuit and served as an expert witness for the plaintiffs.)
Prior to the settlement, Oregon allowed self-distribution for in-state breweries but not out-of-state breweries. It also allowed in-state breweries to ship beer directly to Oregon consumers, but prohibited breweries from “non-reciprocal” states to do the same.
THE GIST
Small breweries with a niche stylistic focus have undertaken what is likely to be a years-long effort to create more direct-to-consumer (DTC) shipping permissions for beer makers, similar to laws that already apply to wine. A victory would mean expanded sales opportunities for breweries and a long-term potential to sell to new customers across the country. With a lawsuit filed against the state of Oregon, three Washington State breweries hope to show a courtroom can be more effective than legislators to even the playing field for beer producers.
The three breweries—Garden Path Fermentation, Fortside Brewing Company, and Mirage Beer—have sued the state of Oregon in the U.S. District Court in Portland, alleging that the state’s beer shipping law discriminates against out-of-state breweries and is therefore unconstitutional. (Oregon only permits shipping from out-of-state breweries if those breweries’ home states allow DTC shipping from Oregon breweries, an idea known as reciprocity.)
Specialty, higher-priced beer producers would generally stand to gain the most from DTC beer shipping. Because of that, the three breweries leading this lawsuit feel their DTC efforts haven’t been viewed as a major priority for other, larger breweries or the wider beer industry.
However, a 2021 poll by alcohol compliance software company Sovos ShipCompliant and the national trade group Brewers Association (BA) found broad interest: 70% of BA member breweries surveyed said they would consider using direct-to-consumer shipping to go to market if it were legal. (Most BA member breweries are quite small, with the majority producing fewer than 1,000 barrels annually.)
A poll by the BA released earlier this year showed that regular craft beer drinkers would also welcome expansion of DTC delivery.
The BA this year has also lobbied for the USPS Shipping Equity Act, which would allow the postal service to deliver beer, but would not expand the states in which it is legal.
Lacking a broader legislative coalition, lawsuits allow individual breweries to take the issue into their own hands.
“A guild like Washington, even for as powerful as our guild might be relative to other states, we only have so much political capital to expend on issues. This is not a priority for our membership,” says Justin Leigh, a lawyer and expert witness in the Washington State lawsuit who helped draft its language. Leigh is also co-founder of Dwinell Country Ales in Goldendale, Washington, which is not a plaintiff in the lawsuit.
“I just ruled out [legislation] as a viable possibility for achieving the desired end,” Leigh says. “There is a lot of case law supporting what we’re doing, so that also made the likelihood of success greater with the lawsuit approach.”
WHY IT MATTERS
Here’s a rundown of some of the most-recent legislative action around DTC beer shipments:
In 2021, no states added DTC beer shipping permissions.
This summer, a DTC beer sales bill in California (SB 1198) was denied a hearing in the state assembly, casting doubts about its viability.
Another DTC alcohol bill (SB 620) also floated in California this year was amended in May to remove beer from its language altogether. The bill died in June.
In Hawaii, at least two bills allowing DTC beer shipping (SB 65, SB 2289) failed to progress in the legislature this year.
A piece of legislation in Delaware (SB 285) that would allow licensed distributors to apply for a direct shipping license of beer, wine, and spirits has been in limbo since early May.
A model DTC alcohol shipping law that was originally designed to expand shipping permissions for beer was amended and, in its final form unveiled in July, left beer in the dust.
Each bill is distinct, but in general, opposition from wholesalers—most of whom view DTC sales as a threat to their business of moving and placing beer in a variety of stores—has been a barrier to passage of these laws, as has a lack of unity and force behind proponents of DTC beer shipping.
The long-game approach of filing state-by-state lawsuits is a specific strategy designed to expand DTC shipping for beer, a strategy the wine industry used to expand shipping permissions for its products. From 1995 to 2014, the wine-centric nonprofit Coalition for Free Trade existed entirely to “seek judicial relief from laws prohibiting direct-to-consumer shipments” of wine, and was successful in bringing seven lawsuits, two of which went before the U.S. Supreme Court.
In those two cases, the Supreme Court ruled that the New York and Michigan laws allowing in-state wineries to sell DTC but barring out-of-state wineries from doing so were unconstitutional. Coalition for Free Trade lauded this as “a turning point” for the broader DTC wine shipping campaign, in that it spurred legislative changes in other states.
The principle behind this legal approach is that incremental progress makes it easier for each successive state to change its laws, like dominos falling in a line.
“A state is a state, regardless of how you get there. That’s what it’s all about, is going state by state and doing battle by whatever means,” says Jeff Carroll, general manager of Avalara for Beverage Alcohol, which provides alcohol tax compliance software and services.
In a 2021 guest editorial for Wine Industry Network’s Advisor, Sovos ShipCompliant’s regulatory general counsel Alex Koral wrote that breweries have “a clear case” for applying DTC wine permissions to beer, and that “breweries and distilleries should readily prevail if they were to bring legal challenges in states with discriminatory beer and shipping laws.”
Leigh says Oregon’s reciprocity clause (the idea that to ship beer into Oregon, a brewery must be located in a state that allows Oregon breweries to ship there) is a violation of the so-called “dormant” Commerce Clause, which was also the principle at issue in the two wine cases that went before the Supreme Court.
That clause has been legally interpreted to mean that no state can create laws that excessively burden interstate commerce, or that discriminate against out-of-state businesses.
If a state’s law does place restrictions on out-of-state companies, the state must show it has no other way to advance a critical interest such as the health and safety of its residents.
This is what opponents to DTC shipping have generally argued: that DTC shipping of alcohol is a threat to consumers’ health and safety because it bypasses the three-tier system’s safeguards. In a statement opposing DTC alcohol shipping generally, the Wine and Spirits Wholesalers of America says alcohol shipping “undermines states’ rights, endangers consumers, and dismantles effective regulatory oversight.”
The National Beer Wholesalers Association (NBWA) did not respond to a request for comment for this story. In the past, NBWA has been skeptical of DTC expansion for beer and has for more than a decade praised “state-based alcohol regulation” that upholds the three-tier system of producers, wholesalers, and retailers. In 2010, the NBWA issued a statement expressing “disappointment” in a circuit court’s rejection of a Massachusetts law that had offered DTC permissions for in-state wineries but not out-of-state wineries. (That’s a similar issue to the one currently being litigated in Oregon.)
Some retailers have also come out against DTC permissions.
“We’re not thrilled to have to compete with our suppliers,” Jonathan Blue, chairman and managing director at Blue Equity LLC, which operated the Kentucky chain Liquor Barn, told Market Watch last year. (Liquor Barn has since been acquired by delivery company Gopuff.) “While out-of-state beer shipments haven’t been a big factor, DTC shipments by Bluegrass State breweries have been very challenging. It’s taking a direct hit to our bottom line.”
No matter the state, the push for greater beer shipping permissions is likely to come from specialty, small breweries like the three that filed suit against Oregon. Part of the reason DTC beer shipping expansion efforts haven’t gained significant traction in recent years is because most large breweries don’t need to ship beer directly: Their products are widely available and aren’t high-priced enough to justify shipping costs.
For a brewery like Garden Path Fermentation, which makes mixed-culture beers, cider, and wine packaged in large-format bottles costing $15-$25, DTC shipping represents an opportunity. The BA reported that Garden Path made 125 BBLs of beer in 2021, putting it in the bottom-third of beer makers in the country in terms of volume.
“We’re a niche producer located in a somewhat remote area and our customer base is really going to be spread throughout the world,” says Garden Path’s co-creator Ron Extract. Extract cites two recent beer festivals he attended as an example: At Pittsburgh’s Mixed Culture Festival and North Carolina’s State of Origin Festival this August, Garden Path poured its beer for customers who deliberately seek out farmhouse and mixed-culture beers. Some of those drinkers expressed interest in buying Garden Path beers, but unless they live in or visit Washington, there’s no way to legally purchase them. These drinkers are exactly who Garden Path would like to sell beer to: consumers who have enough interest in mixed-culture beers to pay $60-$115 to attend a festival focused on those niche styles, and who then spend similar amounts to have those beers shipped around the U.S.
Meanwhile, Extract says, major retailers and even specialty bottle shops in Washington State have shrunk the amount of space they dedicate to mixed-fermentation, Farmhouse, and Saison-style beers in recent years. While chain grocery stores were likely never going to stock Garden Path, declining interest from craft-focused bottle shops—the retailers that should be a small brewery’s biggest advocates—is a significant blow to sales opportunities.
“Grocery stores are always going to go with what’s most in demand, but even a lot of the beer stores and specialty bottle shops, we’re seeing the type of products we make somewhat sidelined as well,” Extract says. “They’re now being dominated as well by what’s trendy … a huge selection of IPAs, Hazies, and fruited Kettle Sours.”
Of course, retailers do have an incentive to stock the most in-demand beer styles, and lately, large-format, mixed-fermentation beers have struggled to find mass appeal. But that’s exactly where the advantage of DTC shipping comes in: There are still fans of such beers, but they’re not necessarily geographically concentrated near the breweries that make them. And as beer has gained more drinkers around the country who show interest, that kind of geographical spread is likely to continue.
“DTC is not for everyone. In fact it’s not for most, which is why it’s hard for us to move this through the legislature or even with the blessing of our guild,” Leigh says. “It really only works for higher-margin products.”
If DTC beer shipping were legalized nationally, Extract says, it could become the majority of Garden Path’s sales. But in the short term, he estimates that if the lawsuit against the state of Oregon was successful in opening up DTC sales to residents there, Garden Path might take in just a few extra orders per month.
“I doubt that the volumes would be huge,” he says. “But Oregon being our neighbor state and being a place where a lot of people are interested in where their food and drink come from … I can see us gaining more of an audience there.”
Extract emphasizes that his motivations with the lawsuit are not purely related to the few cases of beer that Garden Path might ship to Oregon every month. He views it as an issue of consumer choice and regulatory fairness, and hopes that it could create momentum for DTC beer shipments from out-of-state producers elsewhere, including in the state of Washington. The BA has stated that simply changing laws to put beer on even footing with DTC wine would grow the potential DTC consumer market for beer by 6.5 times. Wineries can currently ship up to five cases of wine monthly to consumers in Oregon; out-of-state spirits producers cannot ship directly to Oregon residents, according to Sovos ShipCompliant.
“Government regulation should be in place to serve the interests of the people and I don’t see how preventing people from buying things that they want to purchase is in their best interests,” Extract says. “If it’s safe to ship wine to consumers, then why would that not be the case for beer?”
Avalara reports that through DTC sales, wineries have access to about 97% of legal-drinking-age Americans. Just 17% of Americans have access to DTC beer shipments. Carroll predicts it will take at least 15 years for beer to achieve parity with wine when it comes to DTC shipping. Both routes for changing those laws—lawsuits and legislation—take years, and take place on a state-by-state basis.
“However, gaining access to the bigger population states of California, Texas, Florida, and New York would significantly change the landscape,” he adds.
Averie Swanson, founder and beermaker at Keeping Together Brewery (which is currently transitioning its base from Chicago to Sante Fe, New Mexico), says the Washington breweries’ lawsuit is heartening. Keeping Together makes mixed-culture and Saison-style beers that retail for $14-$20 per bottle, and DTC shipping is an option Swanson would like to explore for her own business. She credits the Washington breweries for trying to push DTC permissions for beer using new strategies.
“It doesn’t surprise me that people are thinking about how they can tackle this in a way that’s different from how we’ve gone about it. That is the archetypal craft brewer thing,” Swanson says. “It’s inspiring to me.”
While Leigh and the lawsuit’s plaintiffs focus on Oregon, they hope to see similar efforts in other states, granting DTC permissions to not only breweries but beer retailers, too. Because lawsuits rely on precedent, they’re hopeful that winning their lawsuit could bolster others.
“We can rely on 20 to 25 years of political history and case law that has developed around this,” Leigh says. “That’s why we chose a lawsuit as the way to do it.”
There is a downside to the legal angle, however: time. Leigh anticipates this case won’t be decided for three to five years.
Words by Kate Bernot