Compliance Options for Craft Producers
The events of 2020 have given rise to embracing all things digital, especially online shopping. As the pandemic hit and became more formidable every day, consumers started buying—or hoarding, often online, from groceries to alcoholic beverages, kiddy pools, exercise equipment, and more. Those who had already built online communities and welcomed online transactions were several steps ahead, and those who hadn’t found themselves rushing to catch up.
For tips on how to launch an online store, read How to Start an Online Store and Club to Sell During COVID-19.
Tasting rooms and restaurants closed their doors, and people were told not to leave their homes. Overnight craft producers had to rely on DTC shipping and other creative tactics to stay afloat during the pandemic. With different rules and regulations for each state, and for each beverage category, many found it challenging to navigate compliance issues.
Even as things return to a “new normal,” many of the effects of the pandemic will stick. Consumers have become more comfortable purchasing online and love the convenience of home delivery. Craft producers need to look at compliance as an ongoing process and find a solution that meets their needs if they want to become and maintain a compliant DTC program.
The History of Shipping in the Beverage Alcohol Industry
The 2005 Granholm v Heald Supreme Court case was a turning point for DTC wine. The court decision ended discrimination in shipping between in-state and out-of-state wineries. Despite the authority granted to states under the 21st amendment, the out-of-state wineries were no longer prohibited from shipping directly to consumers. Many states have changed their DTC laws since this ruling.
In 2019, another landmark case took place; Tennessee Wine & Spirits Retailers Association v. Thomas. In this ruling, the court struck down Tennessee’s requirement that alcohol retail owners must be state residents for at least two years. Many think that this ruling will lead to the expansion of direct shipping for retailers.
Beer, cider, and spirits are more restricted than wine at the moment, but some states have been making moves that make it easier for producers to sell DTC. The pandemic also brought new rules and loosed restrictions in some areas. Without a doubt, both state and federal laws are still evolving. With constant changes and tasked with following the different rules in every state, craft producers have a lot on their plates.
Difference Between DTC for Different Types of Craft Producers
Not only do DTC compliance rules differ in each state, but they also vary drastically between wineries, breweries, cideries, and distilleries.
Wine
Wineries are leading the pack when it comes to DTC. It helps that they have a long history of wine clubs—dedicated fans who invest in regular shipments or pickups of new bottles at regular intervals. If you’re looking to launch or grow your wine club, enroll in our education series Secrets of Successful Wine Clubs.
It’s been a long battle, but since the Granholm v Heald decisions, wineries can now ship to 46 states plus the District of Columbia. Arkansas, Delaware, and Rhode Island offer restricted shipments and Alabama, Kentucky, Mississippi, and Utah still do not allow DTC shipping.
Beer
DTC shipping for beer is much more limited than wine. Today, ten states plus the District of Columbia allow DTC shipping, including Alaska, Florida, Nebraska, Nevada, New Hampshire, North Dakota, Ohio, Oregon, Vermont, and Virginia. Most often, beer is sold to licensed wholesalers to distribute the beer, and licensed retailers sell directly to consumers.
Cider
Cider gets even more confusing. Some states classify it as wine, others as beer, and some have made cider it’s own category. Laws can also vary depending on the ABV. For more details on cider, read our article on hard cider DTC shipping.
Spirits
There are now eight states—Alaska, Arizona, Florida, Kentucky, Nebraska, Nevada, New Hampshire, and North Dakota, plus the District of Columbia, that allow DTC spirits shipping. Historically, spirits have been sold through the three-tier system—through distributors who sell to retailers.
Retailers
With the proper license, retailers can sell to 15 states plus the District of Columbia. As mentioned earlier, retailers hope that the decisions in Tennessee Wine & Spirits Retailers Association v. Thomas will help open up more DTC opportunities for them.
How to Approach DTC Compliance
If you want to sell your craft beverage DTC, there is a list of requirements that change depending on the state you want to ship to. There are also several options to help manage your compliance. In general, here are some steps to get you started:
Step One
Apply with the Department of Alcoholic Beverage Control in each of the states you plan to ship to obtain licenses for those states. We recommend that you start by shipping to the states where you have the most customers and expand from there. You can also take a look at the best-performing states for DTC shipments. In 2019, the top ten states were California, Texas, Washington, New York, Florida, Oregon, Illinois, Pennsylvania, Colorado, and Virginia.
Step Two
Pay a registration fee for each license in each state. Licensing fees vary by state and can be found on the Wine Institute’s Wine Compliance Rules along with other critical resources for demystifying compliance. Click on the USA map, then the state you are interested in for more information.
Step Three
Determine how you will manage sales and excise tax collection and reporting for each state. VineSpring does include a tax rate calculator, and there are also options for compliance technology partners and services.
You’ll need to decide your process for managing compliance as it is not a one-time thing, but something craft producers need to keep an eye on constantly. Here are a few options that we recommend:
Manage Compliance In-House
If you’re ready to roll up your sleeves and get serious about compliance, it is possible to do it in-house. This is a good option for craft producers that don’t ship a large volume and deliver in fewer than five states. Be sure to choose a person who is super organized, operationally-minded, and has a solid understanding of tax rates and reporting.
Invest in a Software Solutions
Craft producers can face heavy fines, losses, and scrutiny if they slip up. Investing in compliance software helps safeguard against those mistakes. Sovos ShipCompliant offers compliance and management software to help navigate DTC laws and regulations. They offer alert-based license management, compliance checks, address and age checks, and more. You’ll still need someone to manage your compliance, but the software helps keep you on track.
For another option, you can opt to use Avalara’s software solution with or without an Avalara compliance expert. More about Avalara below.
Both of these software platforms integrate with VineSpring.
Hire a Compliance Expert
Some craft producers want an expert to take care of all of their compliance needs. If you want to enlist the help of an expert without bringing on a new employee, along with the added power of compliance software, Avalara is a good option. They can augment the work you’re doing in-house or they can do it all. Their experts are top-notch and their software calculates tax rates, helps obtain and renew licenses, register products, and generate shipments.
Step Four
Decide how you will fulfill orders and which fulfillment partners you will work with.
To stay compliant, you’ll need to maintain licenses and registrations, make updates as each state changes their laws, stay up-to-date on federal and state taxes, and establish an age verification process. For more details on maintaining compliance, check out Avalara’s DTC 101 guide.
Make DTC a reliable revenue-driver
Opening up your business to DTC shipments is an investment in the future. Not only does it allow you to expand your audience and grow your business, but it also gives consumers the digital experience they’ve grown accustomed to. 2020 has seen a significant increase in DTC shipments and we expect the trend to continue.
A DTC shipping program requires an investment and a bit of grit and determination, but there are compliance and management partners, like Sovos ShipCompliant or Avalara, that are willing to roll up their sleeves and help carry the burden. VineSpring integrates with these compliance partners and helps you manage the club and eCommerce side of your DTC business.
If you’re interested in seeing how you can connect VineSpring with top compliance solutions, schedule a demo, and we’d be happy to show you.
