California Loosens Internet Wine Sales

Marketers and wineries hail announcement by state ABC board

by Paul Franson

San Francisco -- In a refreshing process rarely seen in the Byzantine world of alcoholic beverage regulations, California’s Alcoholic Beverage Control board today announced new regulations about third-party marketing and advertising agents crafted with the aid of the industry.

The ABC ruled that Internet sites are advertising, not sales, but set stringent controls on their use. The announcement was made at a meeting of the National Conference of State Liquor Administrators in San Francisco this morning.

It was little more than two years ago that the ABC issued guidance that implied that companies involved in marketing wine had to be licensed – but no appropriate license existed.

Since then, the ABC acquired a new head, Director Jacob Appelsmith. He formed a task force consisting of industry members and other experts to evaluate the situation, then the task force made recommendations and a compromise was reached.

Working with industry
Jeff Carroll, vice president of compliance for ShipCompliant, Boulder, Colo., was on the task force. “The ABC came up with a reasonable result working with industry experts,” he said. “The guidelines for licensed suppliers and third party providers relationships, while seemingly complex, will in fact help wineries, third party providers, and consumers alike. This is a progressive move by the CA ABC that we and every member of the wine industry ought to applaud.”

The ABC claimed in a release that it will allow California businesses—including hundreds of family-owned wineries—to use the Internet to improve consumer choice and reach new markets.

“This is part of a continuing effort to make California a better place to do business by making rules clear to businesses that operate here,” said Appelsmith. “We understand that private industry needs to make swift decisions and have confidence they are compliant with the law. Less complicated language is an essential tool to help alcoholic beverage licensees achieve this.”

The ABC took action to help California businesses after receiving requests from the alcoholic beverage industry. These businesses sought more clarity on how “third party providers” can assist California businesses with online sales and marketing.

Amazon.com, for one, decided not to sell wine after the earlier ruling, and there’s speculation by Carroll and others that it may revisit the issue now that firm guidelines exist.

No license needed
The ABC's new Industry Advisory clarifies that advertisers and other third party providers generally do not need a state license so long as a licensed California business controls the selection, pricing and sales transactions.

The advisory clarifies that Internet advertising is akin to print, radio and television advertising, which are not considered "sales," and therefore do not require a state alcoholic beverage license.

Peter Granoff of Ferry Plaza Wine Merchant in San Francisco and Napa praised the new guidelines, saying, “Clarity on the third party provider issue is much needed because companies are trying to grow successful businesses. This is a positive move that will help them with that effort.” 

Chris Edwards, general manager, Winetasting.com, Napa, said, “As one of the few licensed operators that also has a history of conducting marketing agent activities as well as direct retail activities, winetasting.com is thrilled the CA ABC has taken a pro-business stance to bring more clarity to this issue.”

Paul Mabray, chief strategy officer, VinTank, Napa, found positive and negative things to add: “This ruling is a great step forward to further clarifying the confusion about third party providers. However, for those of us who have been working within this arena for years, there is nothing exceptional about the clarifications and only reinforces that many of the established third party providers have been operating correctly for some time.  My greatest concern is the way the CA ABC continues to enforce practices that make it exceptionally hard to build efficient operations to build a successful third party provider.”

Wineries’ view
On the winery side of the equation, Paul Kronenberg, president of Family Winemakers of California, said, “Small wineries will embrace the opportunity to expand their sales and brand awareness through the marketing power and reach of the web. This is a positive action by the ABC because the struggle has always been to reach consumers. Virtual stores on the Internet will improve consumer choice and bolster the economic viability of small producers.”

The new ABC Industry Advisory explains when third party providers do not need to obtain an alcoholic beverage license. The advisory also helps businesses by:

•    Defining that licensees working with a third party provider are ultimately responsible for any activities undertaken by a provider on the licensee’s behalf
•    Clarifying that California licensees ultimately control all sales transactions involving third party providers
•    Explaining how licensees can compensate third party providers

Carroll at ShipCompliant said that some third-party providers will have to change their procedures, and wineries will have to also adopt new ways to handle cash.

At Lot18, a popular flash sales site based in New York, vice president of product Dini Rao said that the company already established a program designed to comply with the guidelines. “We’ve done it right from the start. It wasn’t easy, and took a lot of time, but we’re glad we did.” She added, “We’re thrilled with the ruling and applaud the ABC. We’ve been waiting for this a long time.”

“Today’s guidance removes much uncertainty from an area of growing importance to the wine industry,” said co-chairs of the industry working group, Mort Siegel of Siegel, Moses and Schonestadt and James M. Seff of Pillsbury, Winthrop Shaw and Pittman. “The results of this endeavor will help licensees reach new consumers on the Internet, often at attractive prices, and provide greater consumer selection, all of which are especially important in today's challenging economy. The laws that govern wine sales were written in the 20th century and do not always comfortably accommodate 21st century technology and business practices. We also believe this guidance helps strengthen California’s position as a leader in both wine and technology and, by providing additional clarity, might also boost compliance with laws pertaining to the sale and advertisement of wine.”

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