California lawmakers ponder freeing up direct shipping of beer, spirits

Recent changes to a pending bill allowing distilleries and breweries to ship products to consumers are viewed as a temporary setback for brewers and a partial victory for some distilleries.

In January, the California Senate Committee on Government Organization heard SB 620. If passed, it would have allowed distilleries and breweries within and outside the state to ship directly to consumers. California does not currently allow for direct-to-consumer interstate shipping of beer or distilled products or for direct shipments to consumers within the state.

Beer DTC interstate shipping is currently only available to 14.8% of the over-21 U.S. population, versus 96.7% of the legal-age population for wine. Simple parity in shipping availability would grow the potential consumer market 6.5 times for beer, according to a survey by Sovos ShipCompliant.

But on May 2, the bill was amended. Any reference to shipping beer to consumers in state was taken out, according to Gail Cole, a researcher, senior writer and guest blogger for Perficient, a digital consultancy, on behalf of Avalara, a software and business tax compliance company.

Why breweries were cut from SB 620

This removal of brewers from the current SB 620 revision was not an oversight by Sacramento lawmakers but one requested by the California Craft Brewers Association. That organization is supporting new legislation (SB 1198), introduced by Sen. Mike McGuire, D-Healdsburg, and amended in the Senate on March 16 and again on April 19.

Lori Ajax, association executive director, said that this bill focuses on craft brewers.

“We asked that breweries be removed from SB 620 in late January so it could be addressed separately by the legislature to establish procedures, controls and a fair process for brewers as well as to combine provisions of SB 1198 with another brewery-related bill, SB 517, also introduced by Senator McGuire, focused on beer manufacturers direct-shipper permits,” Ajax said.

As of March, brewers may ship beer directly to consumers in 12 U.S. jurisdictions that permit it, according to rules compiled by Sovos ShipCompliant. The states are Alaska, Kentucky, Nebraska, New Hampshire, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Vermont and Virginia, as well as the District of Columbia.

Under a provision in SB 1198 (proposed Section 23661.4 for the state Business and Professions Code), licensed brewers or companies could sell or ship beer directly to a California resident who is 21 years of age or older for the resident’s personal use and not for resale.

Distiller Limitations

The primary focus of the May 2 update to SB 620 was limited to distillery DTC shipping rights that would be granted to small craft distillers but not to large spirits distilleries.

The key revision limits DTC shipping to smaller craft distillers making less than 150,000 gallons per fiscal year and would only allow them to ship from “a premise at which the permit holder is issued a license by the California Department of Alcohol Beverage Control (ABC) or by another state to manufacture or produce distilled spirits.”

The amended bill also says sales of DTC spirits cannot be higher than wholesale sales. “Any amount of distilled spirits sold and shipped directly to residents of the state (California) in excess of 100,000 liters shall not exceed the volume of distilled spirits shipped or sold to wholesalers in this state.”

Pandemic provision for direct shipping

As the COVID-19 pandemic was spreading, DTC shipping of spirits was temporarily allowed by emergency regulations. Prior to March 2020, craft distilleries were not allowed to ship vodka, gin, rum and whiskey directly to consumers, and customers had to physically visit a distillery to purchase spirits straight from the producer.

The emergency provision was set to expire on Dec. 31, 2021, but was temporarily extended by the governor and the ABC until March 31 of this year.

Many believe such California alcohol laws are antiquated.

While strong safeguards were in place during this temporary period that required shipping company drivers to check the ID of the recipient before letting recipients take packages containing alcohol, ABC sting operations in April 2020 found that over 79% of drivers delivered packages to undercover agents without checking for a valid ID, according to the California Artisanal Distillers Guild.

Those violations led to a new SB 620 requirement in the May 2 amendment that prohibits distillers from using fulfillment houses to store and ship orders for spirits. Another change in this proposed legislation only allows common carriers to use employees, not contract employees or independent contractors, to deliver alcohol.

The guild continues to advocate for permanent DTC shipping by supporting SB 620, co-sponsored by Sens. Ben Allen, D-Santa Monica, and Bill Dodd, D-Napa.

‘It is clear who needs DTC assistance’

Chris Steller, executive director of the distiller’s guild and owner of Amador Distillery & Dry Diggings Distillery in El Dorado Hills east of Sacramento, said the revised SB 620 is good because small craft distillers would be allowed to ship.

“We knew back in March that this bill would run into headwinds involving ways to support small producers when it comes to distribution,” Steller said.

He said a Type 74 state alcohol license (under The Craft Distillers Act of 2015) allows the production of no more than 100,000 gallons of liquid volume, so at the 150,000-gallon level it could be more difficult to for small craft distillers to get spirits distributed.

Steller noted that his operations produce only 10,000 gallons a year, but some others, like St. George Spirits in Alameda, manufactures 100,000 gallons annually.

He noted that 85%–95% of total distilled spirits produced and stored by craft distilleries that produce less than 100,000 gallons annually. The remaining 15% is produced by large distilleries.

“So, it is clear who needs DTC assistance,” Steller said.

While craft distillers support the post-Prohibition three-tier distribution system (distiller to wholesaler to retailer), Steller said this industry must work closely with distributors to get their products recognized and marketed.

“The Guild is working with craft distillers to get their name and brand out there, put on shelves and gain awareness,” he said. “We all have to pull demand for our own products.”

Steller asserted that most of the ABC violations involving ID-checking rules came from the use of on-demand-driver delivery services used by retailers and not from Type 74 licensees using common couriers such as UPS or FedEx.

“We only ship about 50 to 100 bottles per month from our own facility,” Steller said.

North Coast distiller: ‘This will certainly be welcomed’

David McClusky, marketing manager with Spirit Works in The Barlow industrial-retail complex in Sebastopol, has been following the progress of DTC legislation that would open the door for craft distillers to ship directly to California consumers.

“We along with every other craft distillery in the state would like to have the rights already given to wineries when it comes to being able to legally ship distilled spirits to customer’s homes,” McClusky said. “Any bill that advances this will certainly be welcomed by our industry.”

He said it is frustrating not to be able to have the same level playing field granted to other alcohol beverage producers in the state while having to operate under different, and more restrictive rules.