Regulators and Lawmakers Across the Country Sound the Alarm on DTC Spirits Shipping

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Wine & Spirits Wholesalers of America

Mar 12, 2024, 10:00 ET

State's sting operations reveal startling data on the extent of illegal alcohol shipments.

WASHINGTON, March 12, 2024 /PRNewswire/ -- Wine & Spirits Wholesalers of America finds that across the country, lawmakers and regulators are sounding the alarm about the dangers of direct-to-consumer (DTC) alcohol shipping. Since the advent of DTC wine shipping over a decade ago, states have lost millions in tax revenue, underage consumers have gained greater access to alcoholic products, and the risk of adulterated products entering the marketplace has skyrocketed – and lawmakers are taking both notice and action.

Recently, South Carolina State Representative Weston Newton spoke on the house floor while displaying a bourbon shipment he had received from an online retailer. Representative Newton stated that all he "had to do was type in his credit card number" and that the delivery driver never asked for the recipient's proof of age before leaving the bottles, highlighting the lack of legal parameters in state law for home delivery of beer, wine, and liquor.

Last year, after passing common carrier reporting enhancements, Oklahoma State Senator Bill Coleman advocated that these changes were "vital to combat the dangers associated with direct-to-consumer shipments", while State Representative T.J. Marti offered that the newly enacted language ensures that "Oklahoma can identify and pursue enforcement actions against unlicensed, unscrupulous actors who ship illegally to consumers, harming public safety."

Oklahoma is one of eighteen states whereby common carriers (i.e., FedEx, UPS) are required to report each online alcohol order shipped directly to a consumer to state regulators. These common carrier reports grant regulators the ability to differentiate between legal and illegal shipments by identifying the originating shipper. In doing so, shipments can be identified that undercut the state's law-abiding industry members and compromise public safety, while regulators can ensure that shippers are remitting applicable state taxes. Tracking illegal shipments is nearly impossible without common carrier reports.

To see the importance of common carrier reporting, recent data found by state alcoholic beverage commissions, is shining a lot on major infractions. The Texas Alcohol Beverage Commission (ABC), after examining carrier reporting data from the 4^th quarter of 2022, found a total of 304,481 unreported or illegal wine shipments into Texas for the quarter – which would equate to 1,217,924 annually (57% of all wine shipments into Texas).

In 2020, the Tennessee ABC sent numerous cease and desist letters to unlicensed businesses shipping to consumers and had to request FedEx and UPS to stop illegal alcohol shipments to Tennessee residents from an online retailer after discovering it was responsible for 240 separate illegal shipments in one year.

State ABC's have also gone so far as conducting their own sting operations to examine the extent of illegal alcohol shipments in their state. In 2023, Massachusetts ABC chief investigator reported on the results of compliance checks his organization conducted on beverage alcohol shipments, with startling results:

96% of the e-commerce platforms accepted the DTC order and payment from a 15-year old consumer.
43% of the beverage alcohol shipments did not obtain adult signatures.
26% of the shipments were left at the consumer's doorstep.
Zero shipments verified the age of the recipient by checking an ID upon delivery.

Mahoney stated, "The bottom line is that we have alcohol coming into our state from unlicensed entities and individuals throughout the country and the world… We have to get back to the basic understanding that this can be a dangerous product and the principle that alcohol should be sold and delivered by responsible entities and individuals that are properly licensed and trained. This should be the highest priority for state alcohol regulators."

Most recently, the Vermont Department of Liquor and Lottery (DLL) conducted a DTC Shipping Pilot Compliance Program, ultimately releasing a groundbreaking compliance report that shed light on significant hazards and regulatory shortcomings within DTC alcohol shipping channels.

The DLL concludes: "[L]awful direct-to-consumer shipping in Vermont is significantly underregulated and would take a significant investment to properly regulate and ensure public safety." These alarming findings stress the urgent necessity for strengthened regulation, rigorous oversight, and a bolstered enforcement budget to supervise DTC shipments and shield consumers from associated public health and safety concerns.

The Vermont data further echoes the results of a recent Morning Consult survey conducted in collaboration with WSWA, showing that an overwhelming 76% of American adults express concerns with the age verification process when using online vendors or delivery platforms for alcohol purchases. The survey also showed that one in four adults purchasing alcohol through DTC vendors do not undergo ID checks upon receiving their purchases.

On October 28, 2000, Congress passed the 21st Amendment Enforcement Act allowing state attorneys general to bring civil action in federal court against out-of-state entities to enforce violations of their state laws relating to the importation or transportation of alcohol. WSWA supported the Act's passage twenty years ago and actively encourages its use as an enforcement tool today because the illegal shipment of alcohol across state lines creates a wide range of transparency, accountability, health and safety problems for regulators and consumers.

Ohio Attorney General Dave Yost was the first to use the Act in 2020, when he sought to enjoin multiple out-of-state retailers including Wine.com, Winc, and others from making illegal shipments into the state.

Michigan Attorney General Dana Nessel has also used the Act on several occasions to go after out-of-state shippers, including Wine.com, who illegally operated in Michigan. Cases in Ohio and Michigan were settled with defendants being ordered to cease all illegal shipments into the states and payment of fines totaling nearly $140,000.

In 2023, Tennessee Attorney General Skrmetti filed a lawsuit against six out-of-state retailers using the 21st Amendment Enforcement Act after undercover Tennessee ABC agents purchased and received spirits from the defendants during six separate investigators. Defendants were ordered to cease illegal shipments into the state and to provide AG Skrmetti and Tennessee ABC access to records for five years.

As state's lawmakers look for solutions to the growing problems associated with DTC shipping of alcohol, there are legitimate concerns that these practices are not having a positive impact on advancing alcohol responsibility while circumventing regulators and the health and safety of the public.

MEDIA CONTACT
Michael Bilello
Executive Vice President, Strategic Communications & Marketing
[email protected] | (202) 716-4805

SOURCE Wine & Spirits Wholesalers of America