Today, wineries are able to legally ship directly to consumers in 38 of the United States. However, it was not always this way. In fact, regulation of the direct to consumer shipping movement only started about seven years ago. But why was it so difficult for so long to ship to wineries? How did the systems evolve to allow for these changes to take place? It all started with Prohibition…
In 1919, Prohibition was implemented in the form of the18th amendment to the U.S. Constitution. Absolutely no Alcoholic beverages were able to be shipped legally (with the exception of sacramental wine between religious entities and some other very low alcohol products). 14 years later, in 1933, the repeal of Prohibition (the 21st amendment) gave power to regulate alcoholic beverages back to the states which opened them up to make their own decisions on how best to hand this (at the time) delicate matter.
The Gatekeepers of Wine Distribution
Fortunately for consumers, large and well-funded wholesalers were able to institute a three-tier system for alcoholic beverage distribution. They way this system worked was that, in order to sell California wine in Massachusetts, the wine was sold to a wholesaler (for a profit), who in-turn sold it to a retailer (for more profit), who then passed that down and sold it to customers (for their profit). This skirted the laws in place at the time, since there were no direct sales or shipments to consumers from outside the state in which they were purchasing the wine. This really opened up the opportunities for the wine market by allowing their brand to stretch beyond the restrictions of state borders and to continue the growth that would build some of the largest wine corporations in the world.
That is all well and good; however, because the new laws being created were the responsibility of the states to control, many differences arose. Some states let wineries within the state ship wine to customers within the state but prohibited shipments from outside the state directly to customers within the state. Some states didn’t (and some still don’t) allow shipments at all.
So did this really solve the problem of shipping to consumers? No. As time went on, consumer advocacy organizations like Free the Grapes formed, and began to petition and challenge the laws drafted. This led to reform and greater market accessibility for wineries to reach consumers directly. It also led to a disparate range of confusing laws that wineries must follow as they try to reach more consumers.
Compare states like California and Arizona, for example. Direct shipments of wine are allowed in California 100% (with the right permits in place), but a resident of Arizona can only receive direct to consumer wine shipments if they have physically visited the shipping winery. There are also various volume limitations based on the states individual laws. Smaller wineries (less than 20,000 gallon production annually) can apply for a direct-to-consumer permit allowing unlimited shipments in Arizona but are still required to pay sales and excise taxes.
Laws vary greatly between states
In order to get a permit in the state of Massachusetts, wineries have to supply the Massachusetts Alcoholic Beverage Control Commission with a detailed floor plan of their facility, but neither FedEx or UPS will deliver product in Massachusetts.
In New York, wineries have to register with the New York State Liquor Authority as well as the New York State Department of Taxation and Finance and then send documentation received from one agency onto the other as these two entities don’t communicate on their own.
Montana will not grant a direct to consumer shipping permit to a winery, but residents of the state can apply for a “Connoisseur’s License” which allows them to buy wine from out of state for direct shipping, but neither FedEx or UPS holds state approval to deliver wine within the state.
Indiana and Ohio both allow direct to consumer shipping, but only to wineries that don’t also have relationships with wholesalers inside these states.
It is still a felony to ship wine directly to consumers living in Utah.
Although there are certain counties in Kentucky that are “wet” meaning the sale of alcohol is permitted, it is near impossible to track this accurately even by zip code so neither FexEd or UPS will risk delivery since felony statues apply to deliveries made to “dry” counties or addresses.
Small wineries struggle to keep up
These are just a small sample of the many laws awaiting compliance professionals and wineries when they decide to start shipping across the US. As many people in the compliance industry can attest to, managing the various laws and requirements in each of the 38 states to which California wineries can ship is a full time job. That said, there are tools that make shipping compliance easier such as ShipCompliant and eCompli. However, even they will tell you that if you are compliant with all rules and regulations in all states, it is not always worth the investment. To help demonstrate that, ShipCompliant has implemented a tool allowing users to estimate the cost of opening up different direct to consumer markets and evaluate whether or not it is worth pursuing depending on the amount of business wineries plan to conduct in each state.
The D2C (Direct to Consumer) sales channel is one that wineries are smart to expand upon, and small wineries especially need to grow this source of profit. Big wineries have the resources to comply with all the different regulations, but small wineries who are just finding their footing definitely do not. The compliance hurdles can be confusing and expensive, but with the emergence of new and evolving ecommerce and shipping compliance tools, it’s getting smoother and more streamlined every day.
- Free the Grapes - Learn how you can help more consumers exercise their free rights to buy wine direct from their favorite producers.
- ShipCompliant - Get a better understanding of the state-by-state laws and compliance issues that wineries and wine retailers need to be aware of, and solutions to help expand consumer direct sales.