NO THANK YOU WEST VIRGINIA
There is a trend occurring in the liquor world, where states introduce legislation that looks like states are opening up markets and expanding consumer access to products, but when the layers of the opinion become peeled away, the legislation fails to serve its purpose.
Recently, a bill (HB 2025) was signed into law in West Virginia that would allow distilleries to direct ship to consumers. On the surface it sounds great, but when one reads the language of the proposed bill, one must ask whether the change is worse than the status quo.
The legislation, under the guise of opening up markets and allowing in and out-of-state distillers to ship directly to consumers, puts so many ridiculous conditions on distillers that entering the West Virginia market does not become worthwhile.
Under the legislation, a distillery is required to ship to an in-state retailer and is not allowed to ship directly to a consumer. Further, to make matters worse, the legislation allows a retailer to add an additional 10% fee to the purchase. Since the distillers are required to utilize a West Virginia retailer to access the market, they have no choose but to helplessly watch their product become more expensive and less attractive to purchase.
The legislation also requires the distillery who direct ships to remit the entire wholesale markup percentage. In essence, the distiller can direct ship supposedly, as long as it goes through the three-tier system.
DTC shipping is about providing consumers access to products that can’t be obtain in the state market. Although I can applaud West Virginia for expanding consumer choice, their DTC legislation is nothing more than a Potemkin Village.
The bill which started out as a straight DTC bill, which intended to open consumers markets and expand choice, has turned into an unpalatable bill for distillers. Shipping a bottle of spirits is expensive, often times it is cost prohibitive for many small distillers. But add on the expenses for a wholesale markup and a 10% markup at the retail level, then one begins to see a product that is too expensive to ship for the producer and too expensive to purchase for the consumer.
Granholm’s (the U.S. Supreme Court case which opened up markets for wineries to ship DTC across the country) positive impact can never be underestimated. Granholm provide greater access to markets and greater consumer choice. The liquor industry has benefited by an immense growth in wineries, which allowed people to enter the industry and make money. For many spirits producers, the barriers to entry for other state markets is hurting their prospects for growth. Unlike wineries, there is no way for a distiller to reach many out-of-state consumers directly. The explosive growth of wineries, will not happen not for distillers, unless laws are changed.
If we want to see the spirts industry grow and expand, the status quo cannot be maintained. But change in the way West Virginia envisions it, cannot occur either. Expanding DTC is about opening up markets and providing greater consumer access, which in turn leads to growth in the industry as proven by Granholm. West Virginia attempts to pass into a law a bill that allows DTC shipping, but at the same time makes it so unattractive for consumers and producers that it will guarantee growth in the spirits industry will remain chilled.
In conclusion, we should all applaud growth and the expansion of business, but we shouldn’t applaud using the guise of growth, expanding DTC, as a means for guaranteeing accelerated growth will not occur in the future.