Direct-to-consumer (DTC) shipping for craft breweries has rightly become a hot issue and is gaining momentum. With the COVID-19 pandemic wiping out two of craft beer’s main sources of income, taproom sales and keg beer sales for restaurants and bars, the only main income stream that breweries had during the pandemic was DTC sales. They simply weren’t enough for many breweries.
The laws surrounding DTC are a mess and differ from state to state. Some states allow out-of-state alcohol manufacturers to ship to customers within the state, some prohibit it entirely, and some allow in-state breweries to ship within the state but not out-of-state breweries. This raises an interesting and tumultuous relationship between the dormant commerce clause’s anti-discrimination principle and the Twenty-First Amendment’s relegation of alcohol control to the states. It’s complicated and the subject matter of my summer law review article that I am working on now.
An interesting wrinkle in this arena is that due to the wine lobby’s national strength, wineries have enjoyed more permissive DTC laws across the country—think wine clubs. Everyone wants Napa wine, right? So someone in Michigan could order a fine Napa vintage from California directly from the winery, but that same person couldn’t order a Pliny the Elder or an El Segundo Brewing Company Mayberry IPA from the same state. It makes no sense and likely raises equal protection issues as well.
California, to its credit, is trying to rectify this problem through legislation instead of courts. Current California law, like many other states, allows a winegrower who holds a direct shipper permit to ship directly to a California consumer. Notably, California allows in-state breweries to ship to in-state consumers. A new bill, SB 517 (2021) seeks to allow “a person licensed in this state or any other state as a beer manufacturer who obtains a beer direct shipper permit to sell and ship beer directly to a resident of California….” If SB 517 passes, craft beer fans will be able to point and click and have that Heady Topper or latest Tree House Brewing Company IPA delivered directly to their doors.
This bill is smart. With mounting pressure and legal challenges to DTC restrictions across the country, SB 517 seeks to head off the litigation morass. In my opinion, the days of DTC prohibitions are coming to a close primarily due to the economic protectionism that such prohibitions encourage—namely, favoring in-state breweries over out-of-state breweries. The Supreme Court has yet to weigh in and recently denied certiorari in a case that would have addressed this issue for reasons not relevant here. And while several web-based ordering platforms exist out there, they operate in a regulatory gray area that could pose a risk to breweries.
DTC is overall a good and healthy thing for independent beer. It’s not without its headaches, like permitting and making sure taxes are properly paid. But as we saw with the pandemic, independent beer needs new markets. And while relying on the local community will and should continue to be the main source of income for most independent breweries, the opportunity to reach new consumers over the internet can only be helpful.
Here’s to ordering those hard-to-find unicorns and having them show up at your front door. Let’s hope SB 517 passes. Don’t be surprised if Big Beer is in the background opposing it.
Here’s a link to the bill: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB517