With the pandemic-induced rise of ready-to-drink cocktails and e-commerce, BevAlc federal agencies and state legislators have been catching up to an industry with increasingly blurred category lines and tiers. As 2024 revs up we chatted with BevAlc lawyers about what regulations have been hot topics amongst suppliers in the last year and what updates the industry is anxiously awaiting.
Update to Federal Trade Practices
Following President Biden’s 2021 executive order requesting for the heads of several federal agencies to study the competitive landscape of the alcohol industry, the industry is still awaiting updated trade practice guidance from the Alcohol and Tobacco Tax and Trade Bureau (TTB).
There’s been some news since then: In February 2022 the Treasury, in conjunction with the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC), issued a report with recommendations that it said would “better level the playing field for small businesses and new marketplace entrants by enforcing existing laws that promote competition and modernizing outdated alcohol regulations.”
The recent antitrust probe into Southern Glazer’s could be one example of the administration acting on the report’s requests for tougher oversight, more enforcement of existing rules and the development of new laws. With an uptick in other cases in recent years, enforcement seems to be here to stay, said Veteran BevAlc lawyer Alison Herman, Of Counsel at Malkin Law. But lawyers and their clients are still awaiting updates.
“Many of the existing rules are vague and do not provide sufficient guidance for the industry to understand what’s expected of them, and oftentimes industry members believe it’s a gray area that the rules do not address, so they proceed to do things only to learn the activity is not permissible leading to significant six or seven-figure settlement agreements with the TTB,” she said.
An update on proposed regulation showing where the agencies are headed could help companies try to stay out of trouble in the meantime, she said.
RTD Legislation
The state-level battle for lower taxes and more channel access for spirit-based RTDs is likely to continue into 2024. In 2023, bills were introduced in Arizona, Washington, North Carolina, California, Texas, Alabama, North Dakota, Ohio and Pennsylvania, with some still floating in committee but none yet passed into law. Lobbying by spirits advocates for canned cocktails to have the same retail channels or tax rates as malt or wine-based RTDs is not likely to slow down. State-level victories for canned cocktails in 2022 could continue to impact public opinion elsewhere, said Sean O’Leary, a Chicago-based liquor lawyer.
“One of the things I’m seeing is people are getting less spooked about spirits because the whole thing was spirits are more potent than beer or wine and we have to implement more controls over it,” he said. “Well, that argument starts to fall apart when the ABVs are the same.”
But even if state laws change, and malt and spirit-based RTDs with low ABVs can be sold by grocery and convenience stores, the merchandising and trade practice rules are often significantly different, said Herman. Activities like stocking the cold box are off limits to spirits suppliers in some states, for example.
“Spirit-based RTDs are subject to state-specific liquor rules which are generally more restrictive on the types of services industry members can provide to retail licensees,” said Herman.
As a result we may continue to see challenges and proposed rules for merchandising services to be the same between the two.
“In the meantime, industry members will still be subject to enforcement and fines for providing the same services permitted for malt based RTDs,” she said.
Direct-To-Consumer Shipping and Advertising Laws
While direct-to-consumer shipping laws are facing legal challenges in some states, others like California have extended direct-to-consumer shipping privileges for craft distillers this year, and lawyers expect distilleries will continue fighting for some of the same shipping privileges as the wine industry. But e-commerce also brings advertising laws into the spotlight.
“In addition to the DTC issues, the other really big issue e-commerce states are grappling with is what is going on with the advertising and promotion of alcohol beverage products on the various third party platforms, and how existing rules apply, if they do,” said Herman.
For example, state rules prevent brick-and-mortar suppliers from giving anything of value to retailers in exchange for advertisement or premium placement, but how that applies to e-commerce platforms is still hazy (especially as suppliers may provide advertising dollars to a marketing firm or third party which may place ads on e-commerce sites). Texas was one of the first states to weigh in, but has yet to finalize any rules.