By: Louis J. Terminello, Esq., and Bradley S. Berkman, Esq.
That is the Question (with many more questions that need to be asked and answered, prior to spending and executing on a sampling program). The purpose of this article is to make brand owners – of all sorts – and wine marketers aware that each state has its own trade practice regulations that, if not adhered to, may portend the death knell of a costly marketing campaign, and expose violators and parties in privity to administrative action and civil fines. Specifically, this article with focus on tasting and sampling regulations as applied to manufacturers, brand owner, and third-party marketing companies.
The above said, it seems fitting to briefly discuss how the alcohol regulatory framework came to exist, given that we recently celebrated the 89th anniversary of the end of prohibition (December 5, 1933), and one of the laws undergirding principles, that of Tied-House Evil.
On December 3, 1933, Congress took action to alleviate the well-known social ills that came along with prohibition and the thirsty palates of Americans, with the introduction of the 21st amendment. The U.S. Congress repealed the 18th amendment and turned much of the manufacture, distribution, and sale of alcoholic beverages over to the individual states. The amendment states:
Section 1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.
Section 2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.
Section 3. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by conventions in the several States, as provided in the Constitution, within seven years from the date of the submission hereof to the States by the Congress.
Although seemingly uncomplicated in language, the 21st amendment laid the groundwork for the current state of the alcohol beverage bureaucracy and existing regulatory scheme. Section 2 granted the right for states to regulate alcohol beverage squarely within the confines of their borders. Much of the beverage alcohol bureaucracy is controlled by the 50 states with limited authority resting in the hands of the federal government. In addition to federal laws and regulations, each state has developed its own set of myriad laws and regulations that stakeholders in the industry must adhere to, in order to remain in compliance.
Much of these state regulations, particularly as applied to manufacturers and distributors, concern tied-house issues. Tied house can best be described, again in a general way, as the rules, regulations, and laws that govern the relationship between manufacturers, distributors, referred to as upper tier industry members, and retailers of beverage alcohol. One of the core concerns of tied house is addressing “things of value,” provided by upper tier industry members to retailers. Once again, in a general way, beverage laws often explicitly state what is permitted under tied house as an exception to it. All other activities, unless stated otherwise, are almost always prohibited. Sampling and tasting events by industry members at retail venues are considered a “thing of value,” and as such, the beverage laws of virtually every state have codified permissible activities; and in particular the who, what, and where of sampling and tasting events.
The Who, the What and the Where
The who, what, and to a lesser extent, the where, for the purposes of the article, is to make the brand owner aware that not all upper tier industry members can willy-nilly conduct tastings of beer, wine, and spirits. One must analyze first the commodity type involved (wine, beer, and/or spirt) and determine, based on each states laws, which industry member is permitted to conduct the tasting or sampling event in conjunction with that commodity type. It’s worth noting here that many states treat third-party marketers as industry members requiring them to adhere to tied house regulations, including tasting and sampling events. Importantly, many brand owners often hire third-party marketing and sampling companies to carry out the tasting programs. A violation by a third-party marketer is certainly problematic for that marketing company and could be interpreted as an imputed violation to the brand owner that hired them.
To illustrate the above, and since the authors of this article reside in the Sunshine State (Florida), what follows are the statatory exceptions to tied house as it relates to tasting and samplings by commodity type (wine, beer, and spirits). Florida very much relies on the plain or explicit language of the exceptions, and to stray outside the exception would be a violation of the Beverage Law.
As to spirits brands, Florida Statute 565.17 governs tastings and limits spirit tasting and sampling events to distributors, craft distilleries, and vendors. The applicable section state:
A licensed distributor of spirituous beverages, a craft distillery as defined in 565.03 and any vendor is authorized to conduct spirituous beverage tastings upon any licensed premises authorized to sell spirituous beverages by package or for consumption on premises without being in violation of 561.42 [561.42 is the Florida Tied House Statute], provided that the conduct of the spirituous beverage tasting shall be limited to and directed toward the general public of the age of legal consumption.
Craft distilleries may conduct tastings and sales of distilled spirits produced by the craft distilleries at Florida fairs, trade shows, farmers markets, expositions, and festivals…”
Florida Statute 564.08 governs tastings of wine, and limits such tasting and sampling events to distributors and vendors only. The statute states:
A licensed distributor of vinous beverages, or any vendor, is authorized to conduct wine tastings upon any licensed premises authorized to sell vinous or spirituous beverages by package, or for consumption on premises without being in violation of 561.42 [once again, the tied house statute) provided that the conduct of the wine tasting shall be limited to and directed toward the general public of the age of legal consumption.
Malt Beverage (Beer)
Florida Statute 563.09 governs tastings of malt beverage and limits such tasting and sampling events to allows manufacturers, distributors, importers and contracted third-party agents. The statute states:
A manufacturer, distributor, or importer of malt beverages, or any contracted third-party agent thereof, may conduct sampling activities that include the tasting of malt beverage products…
For illustration purpose only, the Sunshine state only allows licensed-Florida distributors and vendors to conduct tasting and sampling events for wine and spirits (with an exception granted to Florida licensed craft distillers). Manufacturers, importers, and third-party marketing companies may not conduct these types of events – malt beverage tasting on the other hand may be conducted by those industry participants.
In addition, some states limit the types of venues where sampling and tastings may occur. Some states allow tastings on both on and off premise venues while others limit the allowable venue types. Other regulated matters may include the frequency of tastings, the permitted days of week and/or hours for sampling and tastings, and some states even require that tasting personnel be trained or hold licenses. The rules vary in every market and a knowledge of them is essential.
Tasting and sampling programs are expensive undertakings for any brand owner of wine, beer, and spirts. The costs of goods, contractors, and brand swag ad up fast. If not properly planned and executed in accordance with the tasting and sampling laws of each state, the brand owner can also add the costs of violations – and depending on the severity – the costs of attorney’s fees. Regardless of which industry member you are, manufacturer, importer, distributor, or third-party marketer, it is imperative that a well thought out, compliant and effective sampling program(s) be put in place. Otherwise, the violating party will indeed be left with a bad taste in his or her mouth.