Booze Delivery Apps Drawing Attention of Regulators

In a world where it seems every other startup wants to be known as the “Uber for _______,” call these companies the “Ubers for booze.”  Tap an app on your phone, and have beer, wine or liquor delivered to your door by the likes of Ultra, Klink, and new entrant BrewDrop, which just launched in Austin.

And just as Uber drew government scrutiny as it moved from startup to industry upstart, it should not be surprising that some of these companies now being targeted by alcohol regulators. The first casualty is Ultra, whose operations have been shut down in Washington, DC, by the city’s Alcoholic Beverage Regulation Administration [ABRA].

The crux of the DC regulator’s argument against Ultra is that, while the booze orders are actually fulfilled by Ultra’s partners, which are licensed to sell liquor in DC, Ultra itself is also required to have a license because it is the one that processes and accepts the payments. ABRA set forth this position in an advisory opinion handed down in March in reference to another would-be competitor, BeerRightNow.com. Klink, for its part, notes that it does not actually involve itself in the transaction and remains in operation in Washington, DC.

So, for now, Ultra’s deliveries are grounded in DC, but remain ongoing in at least one DC suburb as well as several other cities including Chicago and New York. The company’s website indicates it also intends to expand soon to Boston and Los Angeles.  Expect regulators to pay attention when they do.

It’s Whiskey. But is it Tennessee Whiskey?

My wife and I were eating crabs on the Eastern Shore of Maryland this past weekend and the conversation turned to foods that were — like crabs are to Maryland — inextricably linked with a particular state.  We considered lobster (Maine), crawfish (Louisiana), barbecue brisket (Texas), and the like.  Upon further thought on the topic later, I expanded the exercise to include beverages as well as food and immediately thought of Bourbon whiskey, of which approximately 95% is made in the state of Kentucky.  There are federal and state laws, furthermore, that govern what can be called “Bourbon Whiskey” or “Kentucky Whiskey.”

Kentucky is apparently not the only state seeking to protect its brand when it comes to whiskey, as evidenced by recent legal battles over what can be considered “Tennessee Whiskey.”  The main industry combatants here are Kentucky-based Brown-Forman Group, which owns the Jack Daniel’s brand, and British liquor giant Diageo, which sells “Tennessee whiskey” under the smaller George Dickel label.  The primary point of contention is that Diageo, though it distills its George Dickel whiskey in Tennessee, ages at least some of it in barrels across the border in Kentucky.  Under a newly enacted Tennessee law, that Dickel is not aged in Tennessee would foreclose it from being marketed as “Tennessee whiskey.”  For its part, Jack Daniel’s is both distilled and aged within Tennessee’s borders and supported the enactment of the law, arguing it was consistent with other laws around the world that protect regional designations of alcoholic beverages — with the protection of the term “Champagne” for sparkling wines made in that region of France being perhaps the most famous.

Diageo’s efforts to rewrite the law to be less restrictive failed in the 2014 Tennessee legislative session.  Diageo has also challenged the law in the law in federal court, arguing it violated the U.S. Constitution’s Commerce Clause, which has been consistently interpreted to prohibit state laws that unduly inhibit or restrict the free flow of commerce between the states.   In another twist, state regulators recently, and somewhat abruptly, dropped their investigation of Diageo over whether it violated the storage law as it related to its Dickel Tennessee whiskey

Lawmakers plan to review the issue this summer, and the issue of what can be called “Tennessee Whiskey” will likely be back before the Tennessee legislature in 2015.

Uncertainty in Choice of Law Provisions Leads to Appeal in Bacardi v. Wholesaler Dispute

Here’s an update from St. Louis on the ongoing legal battle over Bacardi’s termination of its distribution deal with local wholesaler, Major Brands, who has now appealed an unfavorable decision by a Florida federal court.  The case implicates a number of interesting issues related to distribution contracts, a couple of which are particularly important in the context of alcoholic beverages.

First, when and under what circumstances can a party terminate a distribution agreement?  This is especially important where such deals are exclusive between the producer and distributor and the distributor has relied on that exclusivity to build a market for that product.  This will be an important area of law to monitor as small craft producers outgrow the smaller, perhaps state-specific wholesalers they used to get their boots on the ground in a given state.

Second, where such questions are a function of state law, which state’s laws control?  Where a producer is based in one state — let’s say California — and is using a wholesaler based in New Jersey to distribute its product to retailers in New York City, there could be confusion and uncertainty in the event of a dispute just which laws apply.  As alcoholic beverage laws are very much a creature of state law, and often specific state statutes, it is important to know from the outset — and to set forth clearly in the distribution agreement — just which laws apply, and in which state’s courts any dispute will be resolved.

Where these two questions intersected in the Bacardi case, it appears that whether Missouri law or Florida law applied would lead to a much different answer to the question of whether Bacardi was within its rights to terminate the distribution contract.  Even though Major Brands was based in Missouri and only distributed Bacardi’s products in that state, the court found that the parties intended for Florida law to apply in the interpretation of the contract.  Under Florida law, the court found, Bacardi’s unilateral termination was valid regardless of whether Missouri law would have prohibited such termination under the circumstances.

This case will bear watching, but regardless of the outcome it carries important lessons for everyone, particularly smaller distributors, when it comes to ensuring their distribution agreements are clear and their interests protected.

 

Corpse Revival

Starting today, I plan to bring this blog back from the dead.  In honor of that effort, here’s a recipe for that famous hair o’ the dog, day-after remedy, the Corpse Reviver #2:

1 oz. gin
1 oz. Cointreau
1 oz. Lillet Blanc
1 oz. fresh lemon juice
1 dash absinthe
Ice cubes
Tools: shaker, strainer
Glass: cocktail
Garnish: orange peel

Shake all ingredients in a shaker, strain into a chilled glass and garnish.

[Recipe courtesy of imbibemagazine.com.]

New posts starting tomorrow.  Until then, Cheers.

 

 

 

 

Launch of New Maryland Distillery Highlights Regulatory Hurdles

The Baltimore Sun had a great feature this weekend on the launch by two native Marylanders of the state’s first distillery in decades.   Blackwater Distilling, and its initial offering Sloop Betty hand-crafted vodka, aims to revive the Old Line State’s long dormant, but once proud, liquor industry.

I stumbled upon Blackwater’s website one evening back in the fall while researching whether anyone was still making Maryland Rye.  I was spurred by rye whiskey’s increasing popularity (dare I say trendiness?) and my memory of this scene from that great American novel, All the King’s Men:

The first afternoon I walked down the beach, past the Stanton place, which was cold and hollow-looking beyond the dripping leaves, and on out to the Irwin place, where Judge Irwin put me in a chair with my heels to the fire and opened a bottle of his choice old Maryland rye to give me a drink, and invited me to dinner the next night.

So it was with great pleasure that I learned someone was actually trying to bring distilling back to Maryland.  I managed to connect with Chris Cook and we had a great conversation about their vision, which involved starting with clear spirits like vodka and gin (which do not require aging) and ultimately offering a rye whiskey made right here in Maryland.

It is great to see that their vision is now becoming a reality, especially considering the regulatory hurdles described in the Sun article.  The story describes the “seemingly endless negotiations with federal and state regulators” the Blackwater guys had to endure and the fact that no one in recent memory had even applied for a Maryland distiller’s license, let alone get approved for one.  But Blackwater navigated these uncharted waters with apparent aplomb, and their license is now hanging on the wall of their Kent Island distillery, and at least one of the regulators responsible for issuing such licenses (and who has a memory of actually doing so) appears to be rooting for them (again, from the Sun article):

“No one can compete with the big boys,” [Lou] Berman [who started with the state’s alcohol and tobacco regulatory division in 1976] says. “They have to make a product with a local hook — they have to make something that’s excellent. And if it’s good, it will become part of my bar. Here in Maryland we don’t eat Virginia crab. We don’t eat Philippine crab. We try to drink local beer. Those of us that want to support the home team will be no small part of their market.”

Count me in as well.  I’ll buy Sloop Betty when it is ready, but I really can’t wait to offer my guests some Maryland Rye.

 

Friday Eye Opener

Here’s a taste of the news we’ve been following this week:

Recognizing the wave of local breweries breaking in Washington D.C., giving life to a long barren craft brew landscape, Councilmember Harry Thomas Jr. has introduced a bill that would allow production breweries to operate tasting rooms at their facilities.  DC Brau Brewing Company is given credit for providing much of the impetus for the bill.

The Virginia legislature passed legislation changing the state’s labeling laws to permit apple-based alcoholic beverages with greater than 7% alcohol content to be sold as “hard cider.”  Apparently, many varietals of Virginia apple naturally ferment to 10% abv.  The current law, which will change upon the Governor’s signature, requires would-be cider with greater than 7% alcohol content to be labeled as wine.

Virginia also lifted regulations this week that banned alcohol ads on billboards throughout the state.  The move was in response to a free speech lawsuit.

In other labeling law news, here’s a good story from the Pittsburgh Post-Gazette on how the liquor industry is resisting efforts to require calories counts and other nutritional information to be included on their products.

Corkage (or as I like to call them, BYOW) laws have been big stories in Maryland and Virginia this legislative session, with Virginia moving with much greater haste than Maryland.  Here, the Wine Spectator turns its attention to the subject.

Finally, a story out of Cumberland, Maryland, illustrating the hoops one must jump through to get a temporary liquor license.

Cheers!

It seems every day I read another news story about the law and regulation of alcoholic beverages, both in my home state of Maryland and elsewhere.  In the past week we’ve all witnessed the brouhaha over caffeinated malt beverages like Four Loko and how states and, more recently, the federal government have acted to ban their sales.  Here in Maryland, the state legislature will consider one piece of legislation this session that will raise the tax on alcoholic beverages by the equivalent of a dime a drink and another that will permit the direct shipment of wine and other alcoholic beverages to consumers in Maryland, something that is currently illegal.  The U.S. House of Representatives will also consider legislation that could greatly restrict the ability of small producers (particularly wine producers) to get their product to consumers.

The regulation of alcoholic beverages is a fascinating area of the law as it implicates taxation, commerce, public health, and safety.  Further, the 21st Amendment, which repealed Prohibition, reserves to the States important rights concerning the sale of alcohol, while the Commerce Clause specifically gives the federal government the rights to regulate interstate commerce.  This duality creates not only tension but an array of constitutionally important issues concerning the sale and distribution of beer, wine and liquor.

This blog will be dedicated to exploring the Lex Aqua Vitae — the Law of the Water of Life (we lawyers can’t resist our latin).  From distillation to consumption and from local regulations to the federal constitution, I hope to cover the field.  I hope you find it interesting.

Cheers.