ARTICLE

Published in Vineyard & Winery Management, Mar/Apr 1998

Life used to be so simple. In the "good old days," wineries were ready to make a sale to any willing customer, anywhere, any time. As far as we were concerned, selling to a wine lover was not just a transaction between consenting adults—it was a match made in heaven. Only five years ago, it never would have occurred to anyone in the wine industry that sales could be dangerous to the winery's health—and even threaten its future existence. Now, all that has changed...

The compliance risk factor in wine sales has never been higher—at least, not since Prohibition was repealed. Not only have several states made a felony of the simple, natural act of interstate wine sales to consumers, but many states have also beefed up enforcement activities intrastate as well. Here in California, the Business Practice Section of our ABC has gone from a tiny staff whose activities were necessarily mostly administrative, to a whole enforcement branch operating two field offices and several active investigators.

How's an innocent winery to stay that way? Here are some helpful tips for making safe sales.

Safe sales to out of state consumers

Most states still prohibit personal transportation or direct shipment in ALL forms—and of course, a few states have made direct shipment a felony. Enforcement activity in this area is growing and restrictions are tightening. States have so far failed to make their enforcement actions stick in the courts, but they have not given up hope that a new approach (or a new law such as HR 1063, a federal bill proposing to make Webb-Kenyon enforceable by the states) will turn the tide in their favor. For this reason, all wineries should arm themselves with a bit of sales education.

The hidden speed traps of reciprocal shipping. Wineries may believe that sales to consumers in reciprocal states are always safe. If you've been proceeding without caution, it's time to put on the brakes. The reciprocal shipment privilege is very restricted. Each state has its own limitations on quantity, and some also prohibit advertising or impose other requirements. Learn the laws of each state to stay in full compliance. (Note: The advertising restriction generally focuses on print or direct mail advertising sent right to residents of the state, but at least one state—Minnesota—has specifically outlawed Internet solicitations.)

Unexpected speed bumps on the superhighway. A few non-reciprocal states allow shipments of small quantities under certain circumstances. Louisiana is currently leading the pack in permissiveness—limited shipments are allowed as long as the shipper registers with the State ABC, reports shipments annually, and pays state and local taxes. Wineries across the country hope that other states will follow Louisiana's example in this regard, and California will most likely enact a similar law this year.

But there are still risks, even in this widest open of all states. Like many states in our country, Louisiana has "dry" areas—local jurisdictions as small as single voting precincts where residents have elected to opt for total or partial prohibition in their area. In Louisiana, some areas are totally dry, while others allow sales of beer but not stronger alcoholic beverages, and still others allow sales of low alcohol 3.2% beer only. The Louisiana ABC has done its best to compile a list of dry areas, but to date has not been able to provide complete information—it's just too complicated!

This uncertainty exposes wineries to the possibility of inadvertently soliciting in a dry area. Beware: state and local laws in Louisiana provide for penalties of up to $100, six months in prison, or both, for solicitations or sales of alcoholic beverages into dry areas. And although administrative and criminal actions against violators in other states have been thrown out of court due to insufficient jurisdiction, the Louisiana shipper's registration may create a nexus (legal connection) sufficient to establish jurisdiction.

Minimizing the risks of illicit sales. Most wineries are abstaining from sales among high risk groups (residents of the felony states), but many wine sellers (retailers as well as some wineries) are continuing to be hotly pursued by customers from the rest of the country who have a passion for fine wine. If you want to play the field in other states, proceed with these cautions:

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Safe sales within your own state

The risks of intrastate sales are entirely different, and more complex, than the risks involved with direct interstate shipping. In this regard, state laws vary from state to state, but there are overall patterns. In general:

With these generalizations in mind, here are a few tips based on California law that will give wineries in other states a feel for when they may be at risk:

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Often, exceptions to general prohibitions are allowed, but very strict restrictions apply. When exercising this type of privileges, learn the limits and drive between the lines! For example:

California wineries and importers are allowed to participate in winemaker's dinners, but must be careful how they advertise such events. Also, under no circumstances may wine be provided for free to the retailer!

California wineries may donate wine to non-profit organizations and assist at organization sponsored tastings, even when covered by a one-day license. But beware of participating in events in which permanent retailers are involved. If a caterer is coordinating the event, or if the hotel or restaurant where the event is held is operating a no-host bar in the same room, stay away!

Sometimes an illegal promotion can be restructured to make it legal. Sometimes a change in semantics is all it takes. For example, it is illegal to make an offer like the following: "Get a free corkscrew with every purchase of a case." However, it is legal to make the identical offer if you explain it as follows: "A corkscrew is included in the price when you purchase a case."

A famous talk show host in the Bay Area closes his broadcast each day with the statement, "It's better to ask forgiveness than permission." That may sometimes be true, but in a regulated industry like ours, it's always best to know and minimize the risks ahead of time, before you decide your course of action.