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are made by a third party common carrier (e.g., FedEx), and state laws authorizing DTC interstate sales and shipments generally impose requirements on the shipping supplier (e.g., monthly quantity limitations) and on the common carrier making the actual shipment (e.g., require a signature from an adult recipient upon delivery). Today, direct interstate sale and shipment is typically limited to shipments of wine only to consumers by U.S. wineries and, in some states, retailers. Only a few states currently allow DTC sales and shipments of spirits:

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Alaska D.C. Hawaii Nebraska Nevada New Hampshire North Dakota

Moreover, most of these states limit DTC shipments of spirits in some way. For example, some states require A the shipper to hold a permit, while others LEGAL limit the amount of CHALLENGE spirits shipped TO THE STATUS to a consumer, QUO COULD BE etc. As occurred in VIABLE WHERE the midA STATE PERMITS 2 0 0 0 s DISTILLERS with wine, a legal TO SHIP DIRECTLY challenge TO CONSUMERS, BUT to the PROHIBITS s t a t u s quo could DISTILLERS be viable FROM EXERCISING where a state THE SAME permits in-state PRIVILEGE. distillers to ship directly to consumers, but prohibits out-of-state distillers from exercising the same privilege.

IN-STATE

STATE

OUT-OF-

2. INTERSTATE “SPRAY AND PRAY” Like the direct interstate sale and

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shipment option, this approach also involves interstate shipping, but it is much riskier from a legal perspective. Interstate “spray and pray” refers to direct sales and shipments by a company, typically a single (i.e., non-chain) retailer with little interstate presence, with little regard to the consumers’ state laws. Many nationally known specialty retailers and beer and wine clubs appear to ship directly to consumers nationwide. Such companies typically obtain products through customary (generally three-tier) channels in their home state, then sell products DTC nationally. Because such companies usually operate within the retail tier, this approach fails to eliminate distributor and retailer margins. Quantity discounts, though (where permitted by law), often allow favorable pricing by such operations. While most states allow direct delivery by in-state retailers, so far the federal courts have mostly upheld laws discriminating against out-of-state retailers (as opposed to producers), suggesting that a state may deny direct-shipping privileges to out-ofstate retailers as a means of protecting the three-tier system. In Granholm, the Supreme Court labeled the three-tier system “unquestionably legitimate.” As permitting direct interstate shipping would undermine a state’s ability to maintain an orderly three-tier system within the state, several courts have reasoned that to apply non-discrimination principles to retailers would be contrary to the Supreme Court’s endorsement of the three-tier system. The Supreme Court has not yet clarified this point. So, in the absence of statutory authorization to interstate ship (i.e., the current status in most states), and having no success yet challenging bans on interstate shipping by retailers in the courts, single-location (or few-location) interstate shipping retailers essentially choose to ignore the law, apparently as a result of weighing their business upside against the risks of enforcement. The legal justification offered is that the sale occurs in the shipping retailers’ state and the consumer

causes t h e interstate s h i p m e n t of wine. This argument, however, has failed to win the day in any case where it was challenged in court. States have few enforcement tools and resources to bring cases against out-of-state retailers, so a retailer with a single-state presence rarely faces consequences if a remote state deems it in violation of the law. For distillers, there is not much upside to pursuing the interstate “spray and pray” strategy. Distillers having—or aspiring to have—personnel and holding alcohol licenses in multiple states would offer state alcohol regulators clear and easily-exercised jurisdiction, making an enforcement action more likely. An enforcement action could lead to loss or suspension of a distiller’s license, and/or an injunction against sales, any of which could have a devastating financial impact on a distiller’s business (particularly a newly established craft distiller). Undermining three-tier structures also could alienate the distributors and retailers that most distillers must rely upon.

3. INTRASTATE “BRICKS AND CLICKS” SYSTEM Because most—although not quite all— states allow in-state retailers to deliver alcohol beverages to consumers within the retailer’s state, delivery of spirits to consumers could be accomplished through a network of retailers in each state (or in

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Profile for Artisan Spirit Magazine

Artisan Spirit: Summer 2017  

The magazine for craft distillers and their fans.

Artisan Spirit: Summer 2017  

The magazine for craft distillers and their fans.