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Q & A

Q: Why are craft-distilleries unable to ship direct-to-consumer like wineries are?

A: Craft-distilleries still fall under Tied House Laws which were laws created after prohibition (in 1933) to set up a 3-tier distribution system.
    Tier 1: Alcohol producers sells to distributors
    Tier 2: Distributors sell to retailers/restaurants
    Tier 3: Retailers/restaurants sell to consumers
Wineries have been successfully modifying these laws over the past several decades and now have the ability to sell direct to distributors, retailers, restaurants, AND consumers. Since wineries do not have to rely solely on the distribution model (which takes ½ of their profit), they can keep their businesses small with a direct-to-consumer model.

Q: How many California craft-distilleries are poised to lose the ability to ship direct-to-consumer come March 31, 2022?

A: 153 craft distilleries in the state of California will be severely impacted if they lose access to sell their legally permitted spirits direct-to-consumer. DtC sales for California craft distilleries currently represents on average 20%-30% of a distillery's total sales. This is a large percentage of our business that will evaporate.
Craft distilleries are defined as distilleries producing no more than 41,000 cases of spirits annually. An overwhelming majority of the distilleries in California produce a tiny fraction of this amount.

Q: Why don’t craft-distilleries just sell to distributors?

A: Small distilleries do not have the marketing budgets to create and produce point-of-purchase displays, fund sales incentive programs, to advertise, or employ “brand ambassadors,” or in-house mixologists to help distributors place their brands. The small guys are unable to compete against the marketing purse and name recognition of the national brands, therefore distributors choose not to add craft brands to their portfolios. If they do, they often don’t put much energy behind selling the smaller brands so the product just sits in the distributor’s warehouse.
It is extremely hard for small distilleries to make their businesses pencil out on the distribution model because the middle man takes ½ the profit right off the bat. On top of the 50% discount on goods, it requires the marketing budget (mentioned above) to be successful. When running a small business, costs are too high to compete because the craft-distilleries are not buying their goods (glass, labels, corks, etc.) in bulk like the international brands.

Q: If a craft-distillery doesn’t have a distributor, how can they sell their spirits?

A: Prior to March 2020 and starting again in 2022, they will only be allowed to sell their spirits to people who are physically present in their tasting rooms. And, even then, they are limited to selling 2.25 liters (3 – 750ml bottles) to any one person in a given day. So, if you are buying spirits for a wedding, you will need to visit that distillery multiple times in order to purchase enough for your celebration. Or, if you visited a distillery and would like to replace that bottle of [name the spirit] you bought, you would not be able to do so without another visit to the distillery.

Q: Why haven’t the Tied House laws been modified for distilleries like they have been for wineries?

A: In 1986, the California legislature made direct-to-consumer shipping legal for California wineries. At that time there were approximately 700 wineries in the state of California, now there are over 4,000. Sales have grown from $5 billion to $35 billion as consumers have access to purchase unknown gems and have them shipped directly to their door. This direct access has allowed many wineries to grow to the point where they could secure distribution and succeed with sell-through thus gaining more consumer access.

Q: Who is against giving craft-distilleries the ability to ship direct-to-consumer?

A: Big business. However, distributors and labor have recently signed onto SB620 because they understand how critical DTC is for small distilleries in their efforts to become medium-large distilleries with name recognition. They realize the DTC will build brands that will eventually funnel new spirit brands that are financially viable into their portfolios. They don't have the time or resources to help build a sales channel for brands that do not have big marketing budgets or name recognition. These big businesses need craft-distilleries to grow and the only way they can do this is through DTC.
Ironically, big, out-of-state distilleries are now opposing SB620. They were intentionally left out of the bill by the California legislature and are now directly opposing the ability of small, CA distilleries to grow and thrive in the state of California.
Direct to Consumer Shipping is the key element that will allow distilleries to grow - creating new jobs. As distilleries grow, they will secure distribution creating new jobs for distributors and retailers. Shipping more means more jobs for UPS, FedEx, and manufacturers shipping materials. And, as distilleries grow they will buy more raw materials and equipment creating more jobs for truckers and California farmers.