Home Sales & Marketing DTC ULC’s Draft Shipping Changes Face Intense Industry Backlash

ULC’s Draft Shipping Changes Face Intense Industry Backlash

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Will proposed standardization of shipping laws be an
unintentional setback?

By Jeff Siegel

This month, the Uniform Law Commission (ULC; an attorney committee otherwise best known for promulgating the Uniform Commercial Code, required reading for every first-year law student and MBA candidate) sent shock waves through the wine business. The bipartisan commission released two draft proposals that require licensing for fulfillment houses and focus on increased access to information about DtC shipments.  Analysts, lawyers and pundits quickly predicted that, if adopted, the model direct shipping law offered by the ULC would torpedo 16 years of legal direct shipping.

But not to worry — at least not yet, anyway — it’s still just a proposal. There’s no requirement that states adopt the proposal, and the usual sort of state-by-state infighting that comes with any piece of direct shipping legislation will make it difficult for the ULC proposals to become much more than what they are now, say attorneys and industry officials.

Opposition from Advocacy Groups

“Nothing is going to happen for a long time, because that’s how the legislative process works in this country." —Jay Hack, Gallet Dreyer & Berkey
“Nothing is going to happen for a long time, because that’s how the legislative process works in this country.” —Jay Hack, Gallet Dreyer & Berkey

“If I were a winery in California, I wouldn’t necessarily be upset,” says attorney Jay Hack, a senior partner at Gallet Dreyer & Berkey in New York City and chair of the wine, spirits and beer law committee for the New York State Bar Association. “Nothing is going to happen for a long time, because that’s how the legislative process works in this country. But that said, I wouldn’t sit around and wait for something to happen, either. You need to keep an eye on this. If you don’t, it could come back to bite you.”

That scrutiny, says Michael Kaiser, vice president of government affairs for industry advocacy group WineAmerica, is  exactly what’s happening. WineAmerica, he says, as well as the Wine Institute, both oppose the ULC recommendation and have been encouraging their members to monitor their state legislatures to see if the commission’s proposal is introduced as possible legislation.

"A lot of states are happy with the way alcohol and direct shipping are regulated now, so why would they want to change anything?” —Michael Kaiser, WineAmerica
“A lot of states are happy with the way alcohol and direct shipping are regulated now, so why would they want to change anything?” —Michael Kaiser, WineAmerica

The two trade groups are also watching state legislatures to see if anything happens. In early July, they issued a joint comment to the ULC criticizing the proposal: “We wryly observe that the 21st Amendment was ratified by states precisely to prevent national uniformity of laws governing the sale and transportation of alcohol across state lines. In fact, this effort has caught the ULC up in ongoing state-by-state, intra-industry political fights over progress made toward lawful alcohol shipping.”

The controversy revolves around increased scrutiny of fulfillment houses as well as  giving state alcohol regulators more power to investigate sales by out-of-state wineries as part of the licensing process. Fulfillment houses are third party businesses that handle storage and packing for clients, usually out of state wineries that are legally allowed to sell wine in that state.

Quickly losing support

Meanwhile, the Wine & Spirits Wholesalers Association (WSWA), which initially supported the ULC’s work, has said it will not support the final proposal. It issued a statement at the end of the month, which explained the proposal didn’t include enough of what it considered necessary safeguards: “Many public health and safety problems exist in an interstate DTC marketplace, as those shipments are essentially hidden from regulatory management. While not the most effective solution, tools such as common carrier reporting and fulfillment provider reporting help provide some transparency for regulators seeking to enforce their laws and keep citizens safe.”

The fulfillment house debate, says Kaiser, is not new: it’s been at the forefront  of DTC discussion for several years. The ULC proposal, though, seems to go a step farther, by requiring fulfillment house licensing — even though licensing remains a constitutional muddle that takes in the 21st Amendment and the Commerce Clause. Hence, the outraged reaction.

Still, says Kaiser,  “a lot of [the uproar] was a knee jerk reaction to the ULC proposal. It’s just a proposal, and nothing has changed. A lot of states are happy with the way alcohol and direct shipping are regulated now, so why would they want to change anything?”

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Jeff Siegel

Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”

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