Virginia’s state Court of Appeals has ruled that a wine shipping merchant that facilitates sales between wineries and consumers is violating state law and must either obtain licenses for each winery it orders from or cease selling wine in the commonwealth. The ruling comes after Virginia’s Alcoholic Beverage Control Authority (ABC) challenged California company Vinoshipper’s mode of business and it could make it harder for small wineries who rely on middlemen like Vinoshipper to sell their wines direct to consumers in Virginia. It’s also part of a wave of state legislatures and regulators cracking down on wine shipping in multiple states.
A stricter interpretation of the law
Under current law, Virginia is one of the few states that permits direct wine shipments from both out-of-state wineries and retailers, with restrictions: A business may only send two cases of wine per month to an individual Virginia consumer. The Alcoholic Beverage Control Act requires a “‘separate license … for each separate place of business … at which the manufacture, bottling, distribution, use of sale of alcoholic beverages shall be performed.’”
Vinoshipper is not quite a wine merchant in the conventional sense, but what some refer to as a “’drop-shipment delivery’” business, a growing force in web-based retail. In short, Vinoshipper ships wine directly from wineries to consumers via UPS, without going through a wholesaler. (For more on buying wine online, check out this Wine Spectator primer.)
In 2020, the Virginia ABC requested a hearing on the grounds that Vinoshipper was shipping without licenses for all facilities it used to fulfill deliveries. Vinoshipper’s state license was suspended. A Richmond Circuit Court judge found that the company only needed a state license for its home office. The ABC appealed, and the Virginia Wine Wholesalers Association joined the case with an amicus brief.
As appeals court judge Stuart A. Raphael notes in his opinion, the Vinoshipper team argues that it isn’t necessary for the firm to have multiple licenses because shipping wine is a “process” and the “only legally significant step in that process” is when it asks UPS to fulfill orders. If that interpretation were correct, it would mean Vinoshipper only needs one license for its main facility in Windsor, Calif., where it oversees that process.
Not so, according to Raphael, who asserts that Vinoshipper violated Virginia law: While the company might fulfill steps of the shipping process through wineries, that “does not mean that Vinoshipper does not perform those essential selling and shipping functions; it just does them through entities without their own Virginia license, using those entities’ employees.” Reversing the earlier decision on the case, the appeals court revived the license suspension.
“This case reminds us that wine shippers cannot simply say they are compliant with a state’s laws—they must prove they are compliant,” Alex Koral, regulatory general counsel for shipping compliance company Sovos ShipCompliant, told Wine Spectator via email. “As someone invested in compliance and the health of the direct-to-consumer shipping channel, I would say this [decision] is a critical message for wine shippers to pay attention to.”
A nationwide crackdown?
Notably, this ruling comes during a period when several other states—including Alaska, Idaho and Nevada—are restricting wine shipping after previously allowing deliveries from out-of-state retailers. Some that do not allow retailer shipping, such as Tennessee, are cracking down on merchants trying to skirt those bans. “A few states have utilized the 21st Amendment Enforcement Act against shippers,” said Tom Wark, executive director for the National Association of Wine Retailers (NAWR) trade organization. “And many state legislatures block progress by not passing laws pertaining to shipping and reform of the three-tier system.”
Supporters of allowing consumers to buy wine from out-of-state retailers have filed multiple challenges in federal court, including in New Jersey, Ohio and elsewhere, but have made little headway. (The state of Ohio is now petitioning to move that case to the U.S. Supreme Court.)
There are signs that within the past five years state authorities have been looking more closely at shipping reports and licensee details to fully enforce shipping laws on the books. “This case does represent a noteworthy win for a state in enforcing its law against a party located across the country,” said Koral, “And with the media attention being paid to it, other state regulators may be motivated to review their own laws for possible violations and emboldened to take action against suspected improper shippers.”
Shrinking shipping opportunities
Whether or not this decision impacts shipping in other states, it is likely to upset some within the alcohol industry. Many smaller wineries that struggle to find a spot with large wholesalers have come to rely on direct shipping to mailing list consumers. Because every state has different rules and licensing requirements, many rely on third-party facilitators like Vinoshipper.
The crackdown does have its defenders, including the Wine Wholesalers of America (WSWA) trade organization, which has opposed efforts to ease restrictions on direct shipping. “WSWA supports a state’s authority to regulate the sale of alcohol within its borders, including the licensing and regulatory requirements for products entering the state as was at issue in the Vinoshipper case,” said chief WSWA spokesperson Michael Bilello, adding that WSWA agrees with the court’s decision.
It’s possible that consumers, wineries and other shippers won’t see much change following this decision, though shippers may now become more careful. Koral notes that the court is “applying existing law” and the decision’s “immediate effect” will be on Vinoshipper and not on the wider direct-to-consumer market in Virginia. “Virginia consumers who purchase from other, properly licensed wine shippers that are acting in compliance with state law should continue to enjoy broad access to the wines they love,” he explained. “Fortunately, that represents the majority of wine producers shipping into the state.”
Vinoshipper’s attorneys have pledged to appeal the decision. Wark notes that Virginia consumers may end up with less access to wine in the short term, and things may become trickier for wineries too. “It depends on the final outcome of an appeal,” he said. “But I believe if the decision stands it will make market access harder for producers.”
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