Consumers have changed how they purchase alcohol in 2020, skyrocketing home delivery demand. In response to changing retail demand, alcohol sellers have been pivoting from the on-premises environment to expand their direct to consumer delivery and shipping offerings and turning to third-party providers (TPPs) to facilitate logistics and delivery. But this shift to home alcohol delivery hasn’t exactly been totally seamless, much like all things during this difficult time. Alcohol regulators are paying much closer attention to alcohol delivery and have ramped up enforcement. The regulatory landscape is changing quickly for licensees and unlicensed third-party providers alike, so in this post, we’ll highlight some of the trending legal issues for alcohol delivery.
1. California Implements Rulemaking to Prevent Sales to Minors – Comment Period Ending Soon
One of the biggest enforcement priorities for alcohol regulators has been preventing online sales and deliveries to minors. Consumers are demanding contact-less delivery and delivery personnel are happy to oblige, as it means streamlined delivery and lower personal risk (especially when many are independent contractors lacking health insurance and PPE). This means a lower incidence of face-to-face ID checks and, in some cases, alcohol getting in the hands of underage consumers. Alcohol beverage control agencies have taken notice across the country, finding very high incidences of no ID checks, despite many alcohol sellers and third-party delivery companies having official policies to check IDs at the door.
California has implemented emergency rulemaking to add ABC Rule 141.1 “Minor Decoy Requirements for Delivery Enforcement,” which, significantly, allows minor decoys to lie about their age online to complete e-commerce purchases, making delivery personnel the only line of defense to a sale to minor violation. With California's three-strikes rule for sales to minors, delivering alcohol presents a serious business risk for any alcohol licensee.
The industry can submit written comments until noon on September 23, 2020 before this emergency regulation becomes permanent regulation by emailing RPU@abc.ca.gov and including “Delivery Minor Decoy Requirements” in the subject line (see full rulemaking package here). Alcohol retailers and third-party delivery companies should submit comments if they haven’t already done so and get serious about implementing policies to avoid deliveries to minors (more on this below).
And if you thought it couldn’t get any worse... (this is 2020, so of course it can!), there’s also been an uptick in the use of fake IDs, which have gotten more sophisticated over the years, can be easily ordered online, and are challenging to detect, even with training and scanners. We’ve defended retailers in fake ID cases over the years and have worked with Susan Dworak at Real Identities, which has just released ID.Training, an app we’ve been anxiously awaiting for years. Real Identities also has additional resources on effective contactless delivery with ID verification that all alcohol delivery providers should implement immediately. Check them out and start thinking about how to get more serious about fake ID training.
2. California Clarifies Marketplace Facilitator Act on Alcohol Transactions
In July, after releasing various regulatory relief provisions related to alcohol delivery, the California ABC came out with guidance for third-party marketplaces marketing alcohol in response to the Marketplace Facilitator Act, which the California legislature passed last year to get platforms like Amazon to collect taxes rather than pushing compliance off onto their sellers. This caused confusion for alcohol licensees, who had been told for years by ABC that the entire amount from the sale of alcohol on TPP sites must be directed to an account controlled by the licensee who is the seller of record. But under the Marketplace Facilitator Act, unlicensed TPP marketplaces are responsible for collecting the sales tax from a transaction for alcohol they cannot technically sell, making the flow of funds more complicated.
In short, TPPs still cannot sell alcohol or exercise license privileges, but should comply with the Marketplace Facilitator Act and collect sales tax, directing the remainder of the alcohol sales revenue to the alcohol licensee. Expect to see more on the topic of the flow of funds – ABC leaves us with an ominous warning that it “intends to make further inquiries into such relationships [where the TPP controls revenue from the alcohol buyer to the licensee] and may issue additional guidance in the future.”
3. New License in Texas, Caps on Fees in New York, Chicago, Bay Area
At the end of 2019, the Texas Alcohol Beverage Commission created a consumer delivery license, which seriously streamlines the patchwork quilt of Texas delivery options. With the onset of Covid-19, Texas has also expedited the processing of these delivery licenses. More info on TABC’s website here.
About a year ago now, the New York State Liquor Authority released a proposed advisory regarding third party agreements that still hasn’t been released as a final advisory, but has served to chill the marketplace, perhaps as intended. The NYSLA’s proposed advisory that suggests having the NYSLA review and approve agreements and caps the percentage that TPPs can collect at 10%, or risk a license availing charge. San Francisco, Berkeley and Oakland have all implemented a cap of 15% fees for delivery services.
Many other markets have issued Covid regulatory relief and guidance on delivery, including Tennessee and the City of Chicago.
4. A Compliance Checklist for Alcohol Licensees Working with TPPs
If you’re an alcohol licensee and you’re not doing delivery yourself, but are outsourcing it to a TPP, remember that you’re ultimately responsible for the agents you hire. Here’s our checklist for reducing risk and protecting your license:
· Review the state ABC regulatory guidance for third party providers and delivery restrictions;
· Pay attention to additional local restrictions and don’t go into too many markets at once;
· Read contracts with TPPs, don’t assume that they have compliance dialed in – they may have you indemnify them and ultimately cannot take the license suspension for you if you get a violation;
· Ask about flow of funds and payment processing and understand how the accounting and taxes will be accounted for – don't assume because they work with other licensees they are fully compliant;
· Ask for training materials, policies and protocols to prevent sales to minors – if they don’t have plans in place, that puts your license at risk; and
· Ask about how they are protecting their delivery drivers and encouraging them to comply with the law by making driver safety a priority – this makes it more likely IDs will be checked.
Lastly, as always, get your own legal advice! This blog is not a substitute for your own counsel, and alcohol delivery is getting more complex (and necessary) all the time.
This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that 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.