Navigating Legal and Regulatory Constraints for Beverage Retailers

2. Navigating Legal and Regulatory Constraints:The Top Legal Issues Facing Beverage Retailers Hannah Becker Associate Attorney

3. Hannah Becker Associate Attorney • Member of GrayRobinson P.A.’s Nationwide Alcohol Beverage and Food Department. • Practice concentrates on advising businesses on regulatory matters relating to the commercialization of alcohol beverages. • Previously served as a Legal and Regulatory Affairs Intern for the Wine and Spirits Wholesalers of America and a Legal Analyst for Ultra Music Festival.

4. Today’s Goal Gain insights into the hot topics around the off-premise retail industry.

5. Topics Topics • Third Party Providers • E-Commerce • Cooperative Advertising • Texas Big Box Ruling

6. 1 Direct Shipping & Delivery Partnerships

7. Third Party Providers are CONNECTORS.

8. Why Should Retailers be Concerned with a TPP’s Business Model? Licensed RETAILERS are ultimately RESPONSIBLE for all activities performed on their behalf. • Your license is at RISK. • Enforcement activities relating to TPPs and retail delivery continues to increase in many states.

9. Review State and Local Laws and Regulations  Status as Agent, Independent Contractor, or Employee  Carefully Evaluate the TPP Service Agreement  Services Provided and Business Model  Payment Structure  Flow of Funds  Proper Licensing and Permitting Delivery Vehicle, Person, and Other Restrictions  Age and Non-Intoxication Verification  Involvement of Other Industry Members; Advertisements

10. Payment Structure • TPP should be paid a flat fee. • Payment must be reasonable.

11. Flow of Funds • TPP cannot exercise any control over the retailer’s operations. • All funds from the DtC sale must go directly to the retailer. • TPP should pass all funds collected from the consumer to the retailer, and that retailer should thereafter pay the TPP for services rendered. • Other permitted collection of fund methods vary by state.

12. Colorado Liquor Bulletin 17-05 – Third Party Ordering - Delivery Services • Must hold one of the three required retail licenses. • Delivery pursuant to a written agreement between third party company and retailer. • Retailer must provide a copy of the agreement to LED prior to accepting any orders for delivery.

13. Colorado Liquor Bulletin 17-05 – Third Party Ordering - Delivery Services • Delivery person must log, at the time of delivery: the name, address, date of birth and the valid form of identification, including the identification number, of the person receiving the alcohol beverages. • Retailer must maintain all delivery agreements, delivery orders, receipt logs and journals for the current and three prior calendar years.

14. Colorado Liquor Bulletin 17-05 – Third Party Ordering - Delivery Services • Agency relationship between the retailer and TPP is required. • The agency relationship CANNOT be disclaimed on the agreement. • TPPs cannot charge consumers for the ordering and/or delivery services provided. • Separate delivery trips required.

15. Involvement of Other Industry Members; Advertisements • Tied-House Evil Prohibitions. • Is TPP offering advertisement services to manufacturers and other industry members? • Any fee for advertising paid by a manufacturer cannot subsidize any of the retailer’s expenses. • Retailer cannot receive any portion of the manufacturer's payment to TPP.

16. 2 E-Commerce Sales

17. Two Distinct Concepts Central to the Alcohol E-Commerce Industry • 1. Every state, and often localities, regulate alcohol beverages differently. • 2. The legal authority to transport alcohol beverages in the context of their sale and delivery is related to, but distinct from, the legal authority to sell those beverages.

18. Retailer DtC Sales

19. Retailer DtC Restrictions • State-by-State Variations in Regulations • Beverage Types • Quantity Limitations Per Consumer • Dry Areas

20. Retailer DtC Requirements • Licenses and Permits • Common Carrier Shipment/Delivery • Specific Tax Rules • Reporting • Packaging • Age Verification

21. Common Carrier Policies FedEx FedEx will not accept distilled spirits or beer shipments from licensed entities directly to consumers.  FedEx will only accept wine shipments from licensed entities directly to consumers.  SeeFedEx Terms & Conditions (updated on January 1, 2018). UPS UPS does not accept packages containing distilled spirits or beer for delivery to a consumer.  See UPS Terms & Conditions (updated on December 24, 2017). USPS USPS is prohibited from shipping any alcohol beverages.See 18 U.S.C. § 1716.

22. Lawsuits & Declaratory Statements • Three court cases challenging retailer direct-shipping restrictions are in various stages of maturity.  • The plaintiffs in each case are out-of-state wine retailers and in-state potential customers. Each of the suits argues that prohibitions on out-of-state retailer shipping violate the Dormant Commerce Clause and Privileges and Immunities Clause. • Epstein submitted a Request for Declaratory Statement to Florida DABT in January 2018, but DABT rejected the request in April 2018. Retailers Fight for a Granholm Decision

23. 3 Cooperative Advertising

24. What is Cooperative Advertising? • “Cooperative Advertising” means supplier(s) and retailer(s) share in the cost and production of advertising, no matter how small or indirect the contribution. • Under Federal Regulations, “cooperative advertising” is defined as “an arrangement in which an industry member participates with a retailer in paying for an advertisement placed by the retailer”. 27 C.F.R. § 6.52. “Cooperative advertising” constitutes an unlawful “means to induce.” • Cooperative advertising is generally prohibited under federal and state law.  What is Cooperative Advertising?

25. Can a Manufacturer or Wholesaler Pay for Your Advertisements? No, but Exceptions Exist. Need to consult state laws and regulations. What is Cooperative Advertising?

26. Can a Manufacturer or Wholesaler Advertise the Retail Locations Where Their Product May be Purchased? Generally, YES. Need to consult state laws and regulations. What is Cooperative Advertising?

27. Can Point of Sale Advertising Mention a Retailer’s Name? Varies by State. Need to consult state laws and regulations. What is Cooperative Advertising?

28. Are there Any State-Specific Exceptions that Permit Joint Marketing Efforts? Yes, but Exceptions VARY. Need to consult state laws and regulations. What is Cooperative Advertising?

29. 4 Texas Big Box Ruling Wal–Mart Stores, Inc. v. Texas Alcoholic Beverage Commission, 2018 WL 1404409 (5th Cir., April 16, 2018.

30. Laws at Issue The “public corporation ban” forbids “any entity which is directly or indirectly owned or controlled, in whole or in part, by a public corporation” from holding a package store permit. See Tex. Alco. Bev. Code § 22.16(a). A public corporation is defined as a corporation “whose shares ... are listed on a public stock exchange” or “in which more than 35 persons hold an ownership interest.”See id. § 22.16(b).

31. Laws at Issue The “five-permit limit” nominally limits a package store permittee to holding no more than five permits. See Tex. Alco. Bev. Code § 22.04. However, this permit cap is subject to a significant exception referred to as the “consanguinity exception”: If “two or more persons related within the first degree of consanguinity have a majority of the ownership in two or more legal entities holding package store permits, they may consolidate the package store businesses into a single legal entity.” The consolidated entity “may then be issued permits for all the package stores, notwithstanding any other provision of this code.” See Tex. Alco. Bev. Code § 22.05.

32. Unconstitutional

33. What does this Mean? • Texas is the only state that prohibits public corporations from selling distilled spirits solely because of their status as public corporations. • Highlights how rules written in a simpler time have failed to keep up with the complexities of modern business. • Importance of lobbying and participating in a national and/or local trade association. • Make sure you are prepared for fast-changing technologies and new competitors and business models.

34. A Look Back Third Party Providers E-Commerce Cooperative Advertising Texas Big Box Ruling

35. Today’s Goal: How’d We Do? Gain insights into the hot topics around the off-premise retail industry. Gain insights into Cooperative Advertising regulations and opportunities. Gain insights into Cooperative Advertising regulations and opportunities. Gain insights into Cooperative Advertising regulations and opportunities.

36. Questions? Hannah Becker 813-273-5216 hannah.becker@gray-robinson.com