The Puzzling World of DTC Volume Limits

The archaic laws that are costing states money and consumers choice.

Chances are that your state has limitations on the amount of beverage alcohol products you can buy online and have shipped to your home and there is no clear reason why.

• It’s not for consumer protection as ecommerce alcohol sales are more closely monitored than in-person sales, where you can buy unlimited volumes of alcohol products.

• It's not about tax collection, as most state tax rates remain the same whether you buy your bottle online or in person.

• It must not be for competition reasons, because that goes against the core principles of what America was founded on – competition and free trade.

So why do these shipping limits exist? I wish I could tell you. Perhaps we should ask our lawmakers, or better yet, the wholesalers who persistently lobby for such restrictions. Fortunately for producers and consumers, the Craft Wine Association has taken a step in the right direction and published the National Direct Shipping Bill of Rights. The new initiative is based on the 1997 Model Direct Shipping Bill and aims to correct antiquated ideas and bring a modern perspective to the rules around direct shipping of beverage alcohol. I will delve into that in another article. Back to volume limits.

What is a volume limit?

Under the authority of the 21^st Amendment, states have control over their instate liquor laws (subject to Dormant Commerce Clause restrictions). When the DTC sales channel was created, states introduced volume limits on the sellers, again, for an unknown reason. They are usually based on the total number of bottles or liters of product that can be sold to a customer within a specified time frame. Let’s take a look at a few examples:

• Virginia: 2 cases per person per calendar month

• Maine: 12 cases per household per year

• Arkansas: 1 case of wine per individual every three months

• Connecticut: 5 gallons of wine per person every 60 days

• Hawaii: 6 cases per household per year

• Tennessee: 1 case per month, but no more than 3 cases per year

• Texas: A shipper cannot sell more than 35,000 gallons per year to consumers

• Michigan: A producer cannot ship more than 1,500 cases in total per year

To add to the confusion, if you have a 2-case limit per month, it is per producer. The state prevents you from buying 25 bottles from one producer, but you can buy 264,000 bottles in a month, as long as you don’t exceed 24 bottles from any one of the 11,000 producers.

It's enough to make your head spin, right? And amongst all this, there are absolutely no limits on what the consumer can buy in person. Want to buy 30 cases of your favorite wine from a brick and mortar? No problem. No volume limits. Load them up in your car, and off you go. Excellent. 

A closer look at household limits

Do you see how I highlighted per household above? This is the most damaging, restricting, and unjustifiable of all the rules. A household limit restricts the number of products that can be shipped to a single household address, not just received by a single individual. Here are the states that have implemented household limits:

• Hawaii: 6 cases per household per year

• Maine: 12 cases per household per year

• Maryland: 18 cases per household per year

• Ohio: 24 cases per household per year

• Wyoming: 12 cases per household in a 12-month period 

How does a household limit work in the real world?

Imagine three adults rent a house together in Hawaii. They each receive their first case of wine as part of a quarterly club shipment, then a second, and when the third is processed, they're suddenly blocked from the shipment. They think to themselves, “Surely, I can’t be over the limit, I’ve only had two cases.” Then they see their housemates have also received two cases each from the producer. They must now either all wait another six months to renew their limits, be forced to find a new producer to buy from, or get their wine from a retail store, who likely doesn’t carry more than 500 SKUs (DTC offers hundreds of thousands). Who does it sound like this policy is protecting?

Here’s another situation we have seen. A producer runs a club in July, they process and prepare the shipments, but it is 120 °F in a customers’ city so a customer request that the shipment is held until the temperatures drop. A month later, the producer releases a new product, and the same customer orders a case as a special occasion. When the temperatures drop, the producer ships the customer both previously purchased orders. While the state received its sales tax when the orders were paid for, thus marking the orders as compliant, a separate agency accuses the producer of exceeding monthly volume limits based on the ship date. What is the correct protocol?

The unnecessary cost to the states

Throughout the years we’ve observed this confusion across intrastate agencies due to differing enforcement on buy dates, ship dates, and/or delivery dates when it comes to limits. The states’ concern is around tax collection so all they need is the sale date for tax purposes.

State alcohol commissions routinely spend millions of dollars annually, enforcing shipping quantities because of legislation that was written nearly 30 years ago. This takes away resources from preventing sales to minors, combatting DUIs, and cracking down on those who are illegally shipping without paying taxes or checking IDs to ensure minors aren’t making purchases.

Critics of direct-to-consumer (DTC) shipping often highlight this financial burden on states for enforcing these shipping regulations. However, the critics tend to overlook the potential benefits of lifting these restrictive restrictions. If these limits were lifted, states could potentially increase their tax revenue, reduce enforcement expenses, expand consumer choice, and promote the growth of small businesses nationwide.

What’s next for beverage alcohol shipping?

As the beverage alcohol industry moves forward, we need to modernize, change the existing structure, and stop penalizing the producer and the consumer to the benefit of one sales channel over another. A volume limit structure like the ones explained above does not exist anywhere else in the market today and is creating an unnecessary economic burden on state agencies and American businesses alike.

We’ve already seen support building for the National Direct Shipping Bill of Rights, which places no volume limits on shipments of any type.

If you were there in 1997 when the Model Direct Ship Bill was created and can explain why volume limits were added in, then I would love to hear from you. Please comment below or share and tag me in your post with your perspective.