Artisan Spirit: Spring 2016

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any distillers are not prepared for success when it arrives in the form of interstate sales. Selling across state lines is very different than selling within your home state because permits, regulations, and reporting requirements all vary. This article will cover the requirements for interstate sales and how to prepare for expansion.

BACKGROUND Following Prohibition, the U.S. government enacted two policies that structured how alcoholic beverages could be sold. The first established a threetiered supply chain: supplier, wholesaler, and retailer. Companies can conduct business in only one tier (although limited exceptions exist), so if you are a distillery then you cannot act as a wholesaler or retailer. The second policy ceded control of distribution—the middle tier—to state governance. Each state regulates what alcohol products can be sold within its


borders, how those alcohol beverages are distributed, and the conditions for advertising and selling to consumers. The outcome of these policies is a national market for alcoholic beverages that is uniquely American. While federal approval is a mandatory requirement, alone it is insufficient because a product must also be approved by the state in which it is to be offered for sale, and the regulations are strictly enforced across state lines. However, the distilling industry’s lobbying efforts have focused on relaxing the three-tier requirement within distilleries’ parent states, and many efforts have been successful, as evidenced by the rise of tasting rooms and consumer sales therein. Each state has its own product evaluation criteria, transportation regulations, advertising limitations, and taxation schedules. Consequently, the application process and its cost, product restrictions, and state excise tax levels vary widely. Each state is a distinct entity and developing a national sales footprint is equivalent to

entering 50, or more, separate countries. Practically, this means that there is no true “national” wholesaler. Instead, multistate wholesalers are really a federation of independent, state-level companies.

REQUIREMENTS States follow a two-stage approval process that mirrors the federal requirements. A company that wants to offer spirits for sale must be licensed by the state and obtain an out-of-state shipper permit. Some states, such as Georgia, require bonding, others request owner fingerprinting, and a small number necessitate in-state representation. Therefore, distilleries that want to sell in new states must either obtain a permit for each state or utilize a licensed, third-party company as their agent. Following company approval, each brand must be registered and approved by the state. The process requires an approved COLA, often a processing fee (which ranges from $0 to $200 per brand), and,