Think selling wine online is just like any other eCommerce business? Think again. America’s post-Prohibition regulatory framework is colliding with the digital age, creating a complex maze where each state has its own recipe for compliance, says Kelly Martin, chief compliance officer of DRINKS, an alcohol eCommerce platform.
The alcohol industry stands at a digital crossroads. With eCommerce revenue projected to reach $67 billion by 2028, the sector is experiencing unprecedented growth in online sales. But this digital transformation faces a unique challenge: reconciling modern commerce with one of America’s most strictly regulated industries.
The regulatory framework governing alcohol sales in the United States represents a complex legacy of post-Prohibition governance, state-specific legislation and evolving laws. The 2005 Granholm Supreme Court decision marked a pivotal shift, opening new pathways for direct-to-consumer (DTC) sales across state lines while simultaneously introducing novel regulatory challenges. Today’s alcohol retailers and producers must navigate a maze of compliance requirements spanning multiple jurisdictions, each with its own specific mandates and restrictions.
The three-tiered system & online sales
The traditional alcohol hierarchy separates the alcohol industry into three distinct levels: producers, distributors and retailers. This structure was designed to prevent any single entity from controlling the entire supply chain, theoretically promoting competition and preventing the monopolistic practices that were common before Prohibition.
In the context of eCommerce, understanding the three-tier system is crucial. Retailers must purchase from wholesalers or producers (where allowed) and navigate varying state regulations for DTC sales. These may include shipping permissions, permits, taxes and volume limits. Producers face potential DTC restrictions in states where they have existing distributor relationships.
State-level regulation complexities
While federal laws provide an overarching framework, the bulk of alcohol regulation occurs at the state level, creating a patchwork of laws that vary from one state to another. eCommerce operators must comply with the rules of each state they ship to, which can include differences in:
- Licensing requirements
- Permitted product types
- Shipping volume limits
- Tax rates and collection methods
- Age verification processes
Adding to this intricacy is the challenge of accessing comprehensive, up-to-date information on state laws. Many state law databases require paid memberships or are difficult to navigate, making it arduous for businesses to ensure they’re operating in compliance across all jurisdictions. This information gap creates a barrier for new entrants to the market and poses ongoing challenges for established players seeking to expand their operations.
Recent regulatory changes & emerging trends
The alcohol eCommerce regulatory landscape is in constant flux, with states adopting diverse, often disparate approaches.
New York recently expanded DTC rights for craft beverage producers, allowing small manufacturers of spirits, cider and mead to ship directly to consumers both within the state and across state lines. This change mirrors rights previously granted to wineries, opening new opportunities for eCommerce while requiring businesses to adapt their operations to maintain multi-jurisdictional compliance. Conversely, Wisconsin’s Public Act 73, introduced significant changes to alcohol regulation, initially threatening to halt DTC wine shipments in the state. Industry stakeholders’ collaboration led to amendments, set to take effect in January 2025, ensuring the continuation of legal DTC wine shipments. These contrasting examples highlight the complex interplay between regulation, industry stakeholders and eCommerce operations, underscoring the need for businesses to remain informed and adaptable in this evolving regulatory environment.
Key compliance challenges in alcohol eCommerce
Age verification remains a critical component of alcohol eCommerce compliance, and compliance is a shared responsibility. Licensed carriers, such as UPS and FedEx, often play a crucial role in this process, being required by many states to obtain adult signatures upon delivery and submit reporting. This multi-layered approach to age verification, involving both online checks and delivery confirmation, helps ensure that alcohol doesn’t reach underage individuals while maintaining the convenience of eCommerce.
As the industry evolves, balancing consumer protection with the unique opportunities presented by eCommerce remains a key challenge. Ongoing discussions about regulatory approaches should focus on maintaining market integrity and consumer safety while fostering innovation in the digital marketplace.
Kelly Martin is chief compliance officer and head of enterprise at DRINKS, a beverage alcohol technology company. She oversees beverage alcohol compliance, regulatory affairs and strategic partnerships. She is a beverage alcohol industry veteran, with more than 25 years of experience spanning all three tiers of the industry.
