California Warns Internet Wine Sellers

Recent ABC advisory says 'third parties' need a liquor license

by Paul Franson
Sacramento, Calif.--The Internet has spawned a myriad of sites selling and marketing wine, most unlicensed and depending on others for fulfillment and licensing, but California's Alcohol Beverage Control department warns both the licensed and unlicensed partners that this practice is illegal.

The advisory issued June 5 has sent a quiet shudder through the world of wine social networking, where many sites sell wine to be delivered by others, as well as among brokers and even the popular wine clubs sponsored by publications such as the Wall Street Journal, Sunset and the San Francisco Chronicle, which are no different from Internet sites for the purposes of these laws.

Reports persist that Amazon.com, the Internet's 800-lb gorilla, plans to sell wine, though it ran into a hiccup when its chosen partner, New Vine Logistics of Napa, Calif., temporarily ceased operations earlier this month. New Vine's potential new owner, Inertia Beverage Group, hasn't completed its purchase.

These new outlets have arisen partly because of the new technology, but also because of the difficulty of finding distribution as distributors consolidate and focus on their strongest brands.

Matthew Seck, chief of the ABC's Trade Enforcement Unit, issued the advisory because the department has received numerous inquiries from license holders about working with unlicensed Web sites and others.

The memo appears to outlaw many common practices, and the ABC warns licensees (wineries, distributors and retailers) that they--as well as the unlicensed service providers--could be cited for the efforts.

Sara Schneider, wine editor at Sunset magazine, says its popular wine club has always used a third party fulfillment partner with an ABC license. Attorneys have looked into every aspect to assure legality.
The ABC emphasizes that it has not judged any of these programs, but wants to provide guidance under existing law regarding some of the most common issues that typically present themselves, to aid licensees in evaluating whether to participate in such programs.

The agency refers to the companies in question as "Third Party Service Providers" and defines them as persons or businesses operating Internet websites for the purpose of promoting, marketing or selling alcoholic beverages. Such persons or businesses are often referred to as "marketing agents," "compliance agents," "agents of the consumer," "agents of the winery," "agents of the retailer," "fulfillment operators," "logistics providers," "affiliate marketers," or similar descriptors.

The department highlights the applicable provisions:
  • Business and Professions Code section 23300 prohibits the exercising of license privileges without holding a license authorizing such privileges.
  • Business and Professions Code section 23355 authorizes the exercising of license privileges only by the person to whom the license is issued at the premises licensed by the department.
  • Business and Professions Code section 23025 defines the "sale" of alcoholic beverages to include any of the following:  
  1. Any transaction whereby title to alcoholic beverages is transferred from one person to another for consideration; or
  2. The solicitation or receiving of orders for alcoholic beverages; or
  3. The delivery of alcoholic beverages pursuant to an order therefore.
The ABC's position is that any Third Party Service Provider soliciting orders of alcoholic beverages for or on behalf of licensees is engaged in the "sale" of alcoholic beverages and must hold a license issued by the agency. "Solicitation" includes transactions often described as an "offer to purchase" by the consumer.

It makes clear that many Third Party Service Providers engage in activities that do not require licenses--such as simply producing and maintaining a website operated by or for a licensee, or providing back-office compliance services. But many do engage in activities for which a license is required. The agency also says it does not consider independent delivery services to be engaged in the "sale" of alcoholic beverages.

It also reminds licensees that consignment sales are illegal, as is selling alcoholic beverages they don't own; i.e., haven't paid for.

The ABC might be warning those operating illegally--and some observers suspect even that it might be nudging the California legislature to deal with issues that have arisen with the Internet.

Many of the third parties operating this way have taken the position that they're covered by their licensed partner.

One of the few who responded by deadline was Sara Schneider, who runs Sunset's popular wine club. She says, "No, we aren't licensed, and never want to be. That's why we've always had a licensed fulfillment partner, who buys and sells the wine. In fact, we're just changing partners. As of July 1, Windsor (now Vintage Wine Estates) is going to be handling our wine club. And I can tell you that our lawyers and Pat Roney's lawyers have weighed in on every tiny detail imaginable--and a lot I would never have imagined at all! They're leaving no stone unturned."

Ashley Huston from the Wall Street Journal stated, "We work with a third party and strictly abide by all laws and licensing requirements."

The new advisory from the ABC certainly raises the issue. Sunset is a California-based magazine and highly visible, of course, but most of those in question are out of state, and small. A winery head who wants to remain anonymous, says, "It's almost impossible for the ABC to enforce this."

Matthew Seck admitted to Wines & Vines that there is little the ABC can do to out-of-state companies--much less out of the country--but said wineries can be held responsible. "If we do an investigation and find that someone is doing something illegal, we'll track it back to the winery or other licensee involved."

Of course, the department only has jurisdiction over licensed parties and he noted, "Though it's illegal to sell alcohol without a permit, you'd find that few District Attorneys would take such a case when they've got more serious issues to deal with." 

The memo is at abc.ca.gov/trade/Advisory-Third%20Party.pdf. The ABC's Trade Enforcement Unit is at (916) 419-2500
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