For our last column this year, WineAmerica is pleased that the esteemed law firm of Hinman and Carmichael could share its legal expertise on such an important topic. —Michael Kaiser, WineAmerica
Old Rules, New Marketplace: Alcohol’s Digital Revolution
In many ways, the digital alcohol marketplace exists precisely because regulators
have not yet attempted to tightly control it.
By Zachary Reeves and John Hinman
Despite the constant negative headlines about slowing alcohol sales, the U.S. market remains enormous. Statistical forecasts are that the total U.S. alcoholic-drinks market will generate nearly $300 billion in revenue in 2025 (compared to roughly $200 billion for the U.S. soft drinks market). Alcohol is still one of the largest consumer-goods sectors in the country, and it will remain so for the foreseeable future.
Thanks to the rapid rise of online commerce across all industries, innovative alcohol businesses are finding ways to grow by leveraging regulatory frameworks written for a brick-and-mortar world. Those antiquated rules, originally designed to separate alcohol suppliers from alcohol retailers, have created opportunities for modern companies to expand online in ways that would never have been possible with a storefront alone.
When Congress passed the Federal Alcohol Administration Act (“FAA Act”) in 1935, the goals were clear: dismantle the vertical integration that had fueled the abusive “tied-house” practices that existed before Prohibition and protect consumers from unsafe production practices (such as “bathtub gin”) that came about during Prohibition. Suppliers (manufacturers, principally brewers and distillers) had once owned saloons outright, controlled what was poured and encouraged excessive consumption as a business model. The FAA Act codified the separation of suppliers and wholesalers (considered “industry members”) from retailers, which included prohibitions against industry members from furnishing “things of value” to — or exerting “undue influence” on — retailers.
Side note: The federal framework never actually mandated a three-tier system, only separation between the “industry members” and the retailer tier. This is why the direct to retail supplier privileges permitted by many states are possible. Broadening these direct-to-retail permissions, whether through new legislation or court decisions, to the full extent permitted under federal law would be a meaningful benefit to the industry, particularly smaller suppliers struggling to find wholesale support.
Nearly 100 years later, the basic regulatory framework remains largely unchanged. Although many state systems still impose a mandatory (and expensive) middle tier, the disconnect between old rules and the modern digital economy has created room for innovation. Because federal and state governments have not imposed heavy digital restrictions, companies across the supply chain have been able to test new ideas and build consumer-friendly online experiences that would have been impossible under the 1935 model.
Under growing consumer pressure, even the most restrictive three-tier states are beginning to recognize the value of embracing technologies that serve their citizens (and are net positive for business) without reintroducing the tied-house abuses that prompted regulation a century ago.
A regulatory scheme built for a bygone world
The TTB’s tied-house rules assume a traditional marketplace with physical separation and clear licensing boundaries. Yet today’s digital ecosystem, where a consumer moves from an Instagram ad to a checkout page in seconds, operates on entirely different principles. And the lack of detailed digital restrictions has been, and will continue to be, an asset.
In the absence of strict federal prescriptions, innovation has flourished. Producers can use modern advertising tools, marketing platforms can algorithmically optimize placement and third-party e-commerce facilitators can connect brand demand with retailer supply at scale and seamlessly manage transportation fulfillment.
Because most statutes, rules and guidance predate these innovations, companies have enjoyed wide latitude in creating online pathways that better serve consumers. Traditional tied house enforcement concepts, such as “slotting fees” and “point-of-sale materials,” simply don’t map cleanly onto digital equivalents, leaving open space for experimentation rather than overregulation.
It is not a tied house violation to know who your customer is, find a way to reach them and arrange for scarce (and often expensive and allocated) alcohol products to be available in the chain of commerce.
“Thing of value” in the digital age
Under 27 C.F.R. § 6.41, giving a retailer a prohibited “thing of value” can be an inducement. Historically, that meant tangible benefits such as money, refrigerators, operating equipment, branded glassware or other valuable items useful to a retailer’s business.
Today, value is data, insights and targeted reach. Because the existing rules do not explicitly address digital assets, companies have significant freedom to:
- Share analytics;
- Run online product campaigns;
- Invest in optimized retailer listings; and
- Deploy consumer-acquisition tools that benefit everyone in the chain of commerce.
Rather than constraining these tools, the regulatory lag has created room for creative, consumer-driven strategies, especially for smaller brands that can now compete through targeted digital marketing rather than relying on the increasingly overwhelmed (or unwilling) wholesaler tier and difficult to achieve in-store visibility.
The rise of unlicensed intermediaries
A major source of new opportunity for suppliers comes from unlicensed digital intermediaries. Online marketplaces, affiliate platforms and e-commerce SaaS providers sit outside TTB’s direct jurisdiction because they are neither suppliers nor retailers.
This creates a zone where:
- New business models can develop rapidly;
- Technology companies can build solutions without needing alcohol licenses; and
- Producers and retailers can connect more efficiently through compliant third-party frameworks.
Practices that might look like “inducements” in a brick-and-mortar setting can operate within lawful structures when coordinated independently through unlicensed intermediaries. The TTB’s choice (followed by many, if not most, states) to limit its authority here has effectively enabled the emergence of a robust national digital marketplace.
These third-party intermediaries are essential for brands that struggle to secure fair or adequate wholesale representation. Smaller brands that lack the leverage to negotiate favorable terms with wholesalers can derive significant value from the exposure and support these platforms provide.
Operating in the new landscape
Although TTB continues to focus on its core objectives of ensuring tax compliance, protecting consumers and preventing coercive influence by industry members, its regulatory framework has not kept pace with current market realities. This regulatory lag has, in turn, created space for a dynamic ecosystem of online commerce, marketing and fulfillment models.
Rather than suppressing innovation, the absence of granular digital regulation has allowed companies to build consumer-friendly online purchasing experiences and nationwide compliance solutions. This has benefited larger brands and created competition that benefits small brands.
In many ways, the digital alcohol marketplace exists precisely because regulators have not yet attempted to tightly control it. Companies aren’t operating in a free-for-all; they’re operating in a flexible environment where legacy rules leave space for creativity. And that freedom has driven the industry forward faster than any top-down regulatory overhaul ever could. Perhaps proponents of a strict three-tier system can learn from this, and states will continue to open up their marketplaces by letting suppliers sell directly to consumers or retailers or by permitting broader use of digital marketing and fulfillment tools.
From our perspective as alcohol regulation specialists, we understand the challenges facing regulators who are now confronting routes to market and digital marketing technologies that simply didn’t exist when these rules were designed. Our role is to serve as translators, helping integrate these innovations with the FAA and the 50 independent state systems established under the 21st Amendment. In doing so, we hope to support producers, retailers, and the innovators who work alongside them so that the industry can grow and thrive in the new landscape we all share.
(Copyright 2025: You can view this blog on our website here.)
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This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice, please consult with your counsel.
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Zachary Reeves
Zachary is an associate representing alcoholic beverage suppliers and retailers, as well as their investors and service providers, in all phases of industry regulation. His practice includes advising on trade practice compliance, licensing, administrative hearings, route-to-market strategy, online sales and e-commerce compliance, and marketing practices, as well as drafting and negotiating distribution agreements and assisting with mergers and acquisitions.
Prior to Hinman & Carmichael, Zachary was an associate at Baker McKenzie LLP, where he worked on global corporate employment matters. Zachary twice served as a judicial extern at the United States District Court for the Northern District of California, working in the chambers of the Honorable Judge Charles R. Breyer and the Honorable Judge James Donato.
John A. Hinman
John is a founding partner (1991) of Hinman & Carmichael, LLP. John has been advising and representing alcoholic beverage industry clients (producer, importer, wholesaler, and retail) since 1984 in all phases of industry regulation, including trade practice, distribution and importation, product fulfillment, retail licensing and production. Prior to that (and after his graduation from Columbia Law School in 1974) John was the General Counsel of Sonoma Vineyards, a publicly traded winery with multiple production facilities and over 2,000 acres of vineyards operating in three states. John is a specialist in alcohol regulation in California, and throughout the United States, is a regular speaker and panelist at alcoholic beverage industry conferences throughout the US and the world (John is a member of the Board of Directors of AIDV, the international wine lawyer’s association) and has provided testimony in legislative and administrative proceedings in California, New York, New Jersey, and Tennessee. John represents clients before the TTB, the California ABC and the counterpart agencies of other states.
John is also a seasoned administrative hearing practitioner who has defended over 200 administrative accusations and hearings (both TTB and ABC) during the last 25 plus years and has taken industry cases as far as the California Supreme Court and the Ninth Circuit Court of Appeal. The subject matter of the cases includes sales to minors (including aggravated cases, and second and third strike cases), disorderly houses and law enforcement problem premises, entertainment violations and First Amendment cases, tied house violations, protests of new on-sale and off-sale licenses and violation of condition cases. John, through a network of co-counsel, also manages distributor and other industry litigation (including direct to consumer challenges) throughout the US for clients of the firm.
