Challenger Wine Brand Licensing: State-by-State Direct Shipping Compliance Explained

DTC wine shipping permits for direct to consumer shipments to states can be one of the most operationally complex document-intensive tasks a wine brand has to manage as it grows – stay on track to compliance.

Why multi-state DTC shipping compliance trips up challenger wine brands

Compliance with laws and regulations is often incorrectly viewed as a purely legal matter. It is in fact primarily an information problem.

Each state with DTC shipping laws has its own permit application, renewal dates, reporting and often other requirements based on sales volume. A wine brand shipping to 12 states would have to manage 12 permit applications, 12 renewal periods, 12 reports in 12 different formats, all on 12 separate timelines with 12 sets of paperwork and documents.

A large established winery with a full compliance department can manage the complexities of state alcohol codes. With a growing distribution list and very close cash flow tracking, a challenger brand will transfer that complexity to whoever has bandwidth to deal with it on a given month. That person could be the owner, the operations manager or a sales lead. They were hired to sell wine, not to read the state alcohol code.

Several predictable failure modes emerge when compliance rules aren't visible to the right person at the right time. First, a permit expires and is not renewed on time. Second, a state hits its volume cap for tax free purchases without anyone aware that it has done so. Third, required disclosure to consumers is not made in a shipping confirmation email. Note that none of these scenarios amount to a “violation” of a rule in the sense that someone violated the terms of a rule in order to do something they were not supposed to do. Rather, in each of these instances, an information failure has occurred where the appropriate person or group did not receive knowledge of the correct rule at the appropriate time.

What the current DTC wine shipping landscape looks like for challenger brands

The legal path exists in most of the country. 48 states and the District of Columbia now have laws governing DTC wine shipping, according to Sovos ShipCompliant. That represents meaningful progress from where the industry was a decade ago.

Adding to the disadvantage of Challenger brands in a declining market with open access to the Channel, is the negative impact of their past rough compliance posture when the Channel was growing. For years, as the Channel increased in size, more states and cases were added by all players. While a focus on compliance was acknowledged to be important, a degree of non-compliance was perceived to be acceptable. However, as Channel size decreases, the brands that are able to protect their existing state licenses and have a clean compliance record, will have a significant operating advantage over their competitors who are struggling to sort out a variety of violations or are permitted to operate with holes in their permits.

Do not treat compliance as a secondary task.

How state-by-state permit requirements actually work for wine brands

Each of the permitting states have different rules and conditions governing DTC shipping and currently there is no federal license that would allow DTC shipping. As a result, a company could be required to provide different information and comply with different conditions and requirements to ship a single case of wine to a consumer in Virginia compared to Texas compared to Colorado and none of the information would be useful in the other states.

It is also worth noting that the majority of states that have moved to adult use marijuana have followed a similar framework to what is outlined above. Having a general knowledge of the common frameworks found in states that have progressed to adult use can be very beneficial in the future.

App Licensing Must Precede Shipments. Most states require a Direct Shipper License or Permit prior to the initial shipment of bottles to consumers in that state. These licenses and permits can be easily completed online by filling out an application, while others are paper-based applications that require notarization of one or more documents. Many states also require customized state-approved labels to be used prior to shipment, as well as documentation that establishes a direct relationship with a licensed retailer from the Direct Shipper’s home state.

Annual Renewals While reviewing the process of permit renewal for annual permits, LemonLime has found that the majority of states renew their permits on a fixed date on the state's calendar as opposed to the anniversary of the approval date of the permit holder's permit. Remember to mark your calendar and remember to renew your permit(s) prior to the expiration date. Remember that a permit that expires while in transit or otherwise, the shipper is considered to be operating without a valid permit. The consequences of operating without a valid permit can result in significant fines and/or the loss of permit privileges for a period of time. Some states may even seize the shipment while in transit.

Ongoing Volume Reporting Requirements. Many states require on an ongoing basis a monthly or monthly report of cases shipped to their customers, as well as the sales and use tax collected on those cases. The frequency, format, and due date for such reports varies by state. Some states are able to accept such reports on-line while others require a paper report form to be mailed to them.

Sales thresholds cap your access. In several states there are cases where “per year” sales thresholds exist that set the cap on access to consumers in that state. Once sales exceed such a threshold, no higher license tier is required, but rather the activity simply becomes subject to a different set of regulatory rules once the sales threshold is exceeded.

Sales tax collection is now the norm. After the South Dakota v. Wayfair case, collecting and remitting sales and use tax on shipments to consumers has become the norm for all states where a permit is required for DTC wine shippers. Many states also have an excise tax which can vary by state and by remittance schedule.

Everything can be managed in different ways, but nothing is simple and few things are managed the same way in different states.

The states that demand the most attention from challenger wine brands

Not every state is equal effort. A few states are far more difficult than others.

Texas: DTC allowed, but subject to 35,000 gallons per year limit for sales into Texas consumers. A very real boundary to a growing brand! A very detailed application required, including registration of a Texas registered agent.

Florida: Florida’s annual report for DTC license holders in addition to specific labeling required for wines imported into Florida. And while many states accept the out-of-state DTC license holder’s license to ship into that state, Florida requires a separate license to ship DTC in the state.

Virginia: The permit process in Virginia is very clean. However, Virginia is extremely strict in regards to verifying a consumer’s age with proper documentation. Also Virginia requires special wording on all consumer facing shipping confirmations.

New York: This state allows DTC, but puts a 36 case per year limit on producers who sell directly to customers. In addition to reporting all sales made by mail, phone or internet, great detail must be recorded and such records are subject to state inspection at any time.

Pennsylvania – a very complicated market. Pennsylvania is one of the state controlled states for liquor, so if you want to do DTC wine shipments you’ll need a direct wine shipper’s license and report in a schedule as set by the Pennsylvania Liquor Control Board.

Knowing which states you are trying to grow in will help with prioritizing the compliance work that needs to take place as well. So for example, if a brand was planning to launch in to Texas and Pennsylvania in the next 6 months it would be smart to start processing the permit applications instead of waiting until the week before the first shipment of product to arrive.

How challenger wine brands can keep compliance knowledge current

The permit application is the tip of the iceberg. Then it is a matter of trying to keep track of when you need to renew a permit, how much volume you are allowed to ship, when you need to remit taxes, etc. Every state will have its own rules to follow and will require updates at different times with little to no notice.

Challenger brands typically rely on spreadsheets, email reminders, a single compliance attorney for the more complex states, and the corporate memory of the longest member of staff at the company. This fragile system typically falls apart quickly when the single person at the company longest leaves the company, the spreadsheets become quickly out of date, or the critical date falls in the week that the team is off at a trade show.

For the best small producers, compliance data is more than just a set of documents kept on a computer. In fact, such data can be turned into living operational knowledge. This means current permits, permits’ expiry dates, volume-to-capacity ratios, tax payments and tax remittances can be updated business information, viewed by the appropriate person at the appropriate time and from within the application where such information has been stored.

For the challenger wine brands we’ve profiled so far – operating across multiple states and looking to scale Direct to Consumer (DTC) LemonLime fills a significant information gap that currently exists above and beyond the existing tools that power a DTC business (customer and order data in Salesforce, financials in QuickBooks, and files, calendars, etc. in Google Workspace where compliance filing deadlines reside). On top of that stack LemonLime builds a structured knowledge layer around all of the various permits, licenses and other compliance requirements of the business. And then on top of that AI stack the AI can automatically surface information such as the date that a permit needs to be renewed, alert the business when it is about to hit a volume threshold in a state that requires an additional permit, or even pull the correct format for the required monthly filing that is due in a few weeks for the team to complete. No more digging around for lost documents or old spreadsheets with outdated cap figures.

The knowledge layer is kept current as the business evolves. When you add a new state the knowledge layer evolves with it. And as you hit new volume milestones, the relevant thresholds for that are always in the layer.

LemonLime is on waitlist now. The place to start is lemonlime.ai.

Frequently Asked Questions

Do I need a separate license for every state I want to ship wine to directly?

With few exceptions, almost every state requires a permit or license to DTC ship wine within that state. Many states require an application to be completed and permit to be issued prior to the first shipment into that state. There is no national permit issued that would allow DTC wine shipments in all states. Instead, each state where you plan to DTC ship wine within that state requires a separate application for a license or permit. Each state has its own requirements, costs and processing time frame goals. Some states can process an application within a few weeks, others take 2-3 months. Build lead time into any new-state expansion plan.

What happens if my DTC wine permit lapses in a state?

What is considered an “Unauthorized Shipment” under an alcohol code? An unauthorized Shipment of alcohol is considered to be a shipment of alcoholic products that have been sent without having been granted a permit for such shipment by the relevant authority in the state where the Shipment is being sent. Penalties for sending out Unauthorized Shipments can be very costly and in many cases result in the permit holder(s) having their permit(s) revoked for an indefinite period of time and, in some cases, the in-transit product(s) may even be seized by the authorities. Most states permit reinstatement of a permit that has been revoked for sending out Unauthorized Shipment(s), but this typically requires the permit holder to go through the process of a new application and in many cases there is a waiting period for being granted of a new permit. To avoid having your permit revoked for sending out any Unauthorized Shipment(s) it is recommended that you keep track of when your various permit(s) are set to expire, ideally 30 days prior to the expiration date of the permit(s).

How do I track which states I'm approaching my volume cap in?

Most brands start with a spreadsheet mapped to their order management system. At first this seems to work perfectly for most brands with a small volume of orders, however as they continue to grow rapidly this becomes increasingly unreliable, only updating the cap tracking as and when someone updates the very spreadsheet it is attempting to draw data from. A far better way to track cap at volume would be to enable the order data to automatically sync into your knowledge layer, allowing it to track the total volume of orders in each state. Also, automatically alerting you to the moment you are approaching the specific thresholds for each. LemonLime connects to tools like Salesforce and Stripe where DTC order data lives, so the volume tracking stays current without a manual update cycle.

Which states are currently closed to DTC wine shipping?

As of the most recent data from Sovos ShipCompliant, two states and some territories still prohibit or have no clear legal framework for DTC wine shipping. While there have been some huge changes to access to climbing over the last decade or so, there are bound to be further changes afoot. So while states are either open to climbing or closed, it’s always worth checking before assuming the position of a state at any given time. Access to climbing can change very quickly at a state level and then also down at the legislative process to pass the laws in the first place. Just 18 months ago, for example, California was closed to climbing, but now has a system of permits in place.

How do I handle sales tax for DTC wine shipments across multiple states?

Each permitting state sets its own sales tax rates and rules. Some states also levy excise tax on wine. DTC wine shippers are required to collect and remit sales tax in most states, even in the absence of physical presence in the state. The frequency of remitting tax and payment dates vary by state (e.g. monthly, every other month, annually). Rather than dealing with this in a spreadsheet as the number of states to which you ship wine grows, better to manage your wine sales taxes using your Stripe or QuickBooks data in a knowledge layer that understands wine sales taxes on a per-state basis and their remit dates.

Is my compliance and customer data secure if I connect it to LemonLime?

Security details matter when you're connecting order, customer, and financial data. The current and authoritative information on how LemonLime handles your data is published at lemonlime.ai/security. Can you please review the page and let me know if it meets your needs before you begin searching for tools to help. This page best represents the current posture of LemonLime, and the author doesn't want readers to get their heart set on something that LemonLime may change down the road.

Time and risk associated with compliance for DTC operations are increasing. Create a list of all states that you are shipping to and for each state note down the date of next renewal. This simple list will help to highlight the areas of problem and determine whether the current system for tracking compliance is adequate or not.