Achieving comprehensive entity and product compliance requires
qualifying with multiple regulatory agencies.
By Cheryl Tittle
The 3-tier distribution system for beverage alcohol is the most widely used route to market option for U.S. beverage alcohol suppliers — and the most complex. Suppliers who have not yet established a corporate entity and without beverage alcohol product compliance experience should retain a beverage alcohol compliance expert for, at minimum, the initial compliance set up of federal and state operations.
Achieving comprehensive entity and product compliance requires qualifying with multiple regulatory agencies. For example, being compliant with the state’s alcohol beverage control division and not the tax division may leave the entity open to an audit and subsequent penalty. Outsourcing a compliance expert will ensure you are qualified with all required agencies.
If you choose to maintain these qualifications in-house, once established, as a cost control measure, you can do so with confidence. However, even many well-established brands do not have the internal resources or year-round workload to support full-time internal compliance management, which is why expert service providers can be a beneficial and cost-effective partner.
Certificates and distributors
If you are a company launching a new beverage alcohol brand in the United States, to enter into wholesale distribution compliantly, you must first apply for Alcohol and Tobacco Tax and Trade Bureau (TTB) Permits and Certificate of Label Approvals (COLAs), two federal-level licensing approvals required to support your U.S. operations.
You must also establish or partner with licensees in the states in which you wish to sell. You can either become or partner with a licensed state supplier who is authorized to sell product to licensed in-state wholesalers. In-state wholesalers, often known in the trade as “distributors,” can legally distribute your product to on-premise and off-premise retail licensees.
Contracting with distributors is not only a compliance necessity but will also chart the commercial future of your brand. Some licensed in-state wholesalers employ in-market field sales teams that you must use; others do not. Which option you select depends on your company structure, goals, investment levels and expected return, among other considerations.
If you are new to the market, you will have to secure meetings with and pitch those distributors with sales teams on why your brand will succeed and what resources you have to employ. If you are unfamiliar with the process, I highly recommend retaining an experienced broker or market expert sales partner to help you select the right wholesaler(s) in your markets to achieve your in-market sales goals long-term.
Consider your markets
Finally, licensing and product compliance are essential to all commercial activities. This includes supplier licensing if you choose to become a state supplier or out-of-state shipper. Product registration and price posting also vary in protocol and procedure state-by-state. Monthly reporting and tax filings may be applicable depending on your preferred markets. Missing or being inaccurate with any of these reports or filings can result in major fines and being commercially unavailable for sale for months at a time.
Take this “finally” with a mound of salt — these are the basics. The U.S. compliance landscape is mired and complex. There are hundreds of scenarios in which your brand will have to comply with further state and/or federal regulations, depending on your sales and marketing strategy.
Take direct-to-consumer beverage alcohol shipping, for example. There are several key compliance steps to consider when exploring options for direct-to-consumer beverage alcohol shipments:
DTC Markets: There are certain markets which allow for direct-to-consumer shipments for your beverage type;
Direct to Consumer Licensee: There are certain types of licensees who are authorized for direct-to-consumer sales in your desired market (typically wineries and certain types of retailers);
Select Your Marketer/Advertiser: Select the platform where consumers can order your product. You are equally responsible for ensuring this vendor acts compliantly with your product;
Compliance and Regulatory Support: Compliance solution support is responsible for ensuring shipments adhere to state direct-to-consumer regulations including, but not limited to, tax compliance and household delivery minimums; and
Fulfillment / Pick and Pack facility: This is your licensed warehouse and fulfillment partner responsible for storage, order fulfillment, delivery and the like.
The DTC puzzle
Many beverage alcohol brands cannot compliantly ship direct-to-consumer. Therefore, you might instead consider an e-commerce strategy as you plan your launch alongside traditional distribution. E-commerce websites directly partner with networks of retailers to facilitate online sales to consumers. Your brand needs to compliantly have a wholesaler in place first in order to have ordering availability from these retailers.
Ultimately, there has never been a better time to launch a new beverage alcohol brand, given the experimentation and demand of a shifting consumer. While U.S. beverage alcohol compliance can be a burden on new and evolving beverage alcohol brands, it does not have to be.
Over the last 20 years, I have worked with thousands of brands of various types and sizes. The ones that excel empower and partner with their compliance and tax partners, which leaves them the appropriate time and focus internally for their commercial strategy and scaling their brand in-market.
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Cheryl Tittle
Cheryl Tittle joined MHW, LTD, a nationally licensed wine, spirits, liquor importer, distributor and service provider for developing and established brands in the alcohol industry, in 2002. In her current role as director of compliance, she manages a team of 20 regulatory professionals. The compliance team provides beverage suppliers with the opportunity to realize market strategies and sales goals by delivering comprehensive regulatory support and solutions across a wide range of beverage alcoholic types and routes to market.
Tittle is proficient in corporate beverage alcohol licensing for wine, spirit and malt beverage in the importer and wholesaler distribution tiers. She has developed an aptitude for understanding marketing strategies and framing regulatory requirements in terms of the impact on business. Tittle is a stakeholder in developing internal compliance systems, data management processes and product compliance status reporting. The achievement she’s most proud of is her training and development of several managers and many team members in a vital component of this very impressive beverage alcohol ecosystem that is regulatory compliance.
