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f you haven’t considered starting a distillery club (or if you’re a consumer, joining one) now’s the time to add it to your to-do list. With COVID-19 impacting distillery sales, and an extension of the federal excise tax cut far from certain, having a distillery club offers many benefits. As we’ve previously written, distillery clubs are “a great way to increase brand engagement, improve sales forecasting, and incentivize repeat visits” (See Artisan Spirit Magazine Winter 2020 Issue). That middle point is key. As you grow your distillery club, having a regular, guaranteed (subject to cancellation/attrition) income stream may be just what you need to make it through the remainder of the pandemic. There are a number of facets to consider in your distillery club’s membership, ranging from the number of bottles in each installment, whether there are additional non-alcoholic items included, the amount of the member’s discount, access to exclusive events, and first crack at new offerings. Depending on your state’s particular laws and regulations, you may have limitations on what you can include with membership. So for our purposes, we’ll focus on a barebones model: Each quarter, the member receives a bottle of spirit of the distiller’s choosing at a 10 percent discount. While certainly not a requirement, having your distillery club members agree to regular credit card payments as a condition of membership is useful from an ease
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of administration perspective and helps ensure recurring income. That said, if you want to require recurring payments, there are certain legal requirements that you need to consider and comply with. Failure to do so can result in government enforcement actions and potentially consumer lawsuits. So, pay attention to the details.
Federal Law First Under the Restore Online Shoppers’ Confidence Act (“ROSCA”), 15 U.S.C. §§ 8401-8405, any business offering “negative option marketing” (an oddly phrased term which includes recurring club payments) must:
explain to the customer, in writing and before they give you their billing information, that they will be getting one bottle of spirit of the distiller’s choosing, each quarter, that the bottle will be 10 percent off the regular price, and how they can cancel their membership. Then you need their express consent to charge their credit card each quarter until they cancel. It would be wise to get specific on when their card will be charged and to provide a range of possible prices based on your bottle offerings.
State Law Second
consumer to stop recurring charges from occurring.
The ROSCA is a floor and not a ceiling. So your state, and — if you’re lucky enough to be in a direct-to-consumer shipping state — to a certain extent the states you have DTC sales into, can impose more stringent requirements. By our last count there were ten additional states (Connecticut, Hawaii, Illinois, Louisiana, New York, North Carolina, North Dakota, Oregon, Vermont, and Virginia) and the District of Columbia with laws regulating recurring payments that could be applied in the distillery club context. To be expected, California has the most stringent limitations. By way of example, under California’s Automatic Renewal Law (“ARL”), located at California Business and Professions Code § 17602, businesses must:
This means that under our bare-bones example, at a minimum you’ll need to
the terms in “visual proximity” to the
• Clearly and conspicuously disclose
the material terms of the transaction before obtaining the consumer’s billing information including, a description of the goods or services being offered, information on the post-transaction third party sellers (if any), and the cost of the goods or services.
• Obtain
the consumer’s express informed consent before charging the consumer.
• Provide a simple mechanism(s) for a
• Clearly and conspicuously set forth
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