2022 brought some great legislative breakthroughs for the craft spirits industry, including expanded direct-to-consumer (DTC) shipping access for distillers and progress on achieving parity with other alcohol products. Unlike our wine brethren, the spirits industry is severely restricted from engaging in DTC shipping, and spirits producers pay higher tax rates than wine and beer producers. 2022 marked steps in the right direction, as certain spirits products achieved lower tax rates and DTC shipping markets opened up.

California DTC Shipping Law Passes

California signed legislation into law (AB 920), which allows for craft distillers to engage in DTC shipping. As California is the country’s largest market, this represents a great victory for the spirits industry.

However, there are significant limitations in this bill. DTC shipping is limited to California distilleries that produce less than 150,000 gallons annually. The law limits shipping to not more than 2.25 liters of spirits per day per customer. Additionally, the shipper is required to mandate that the common carrier obtain an adult signature, and the shipper must maintain adequate shipping records. Finally, the bill expires on January 1, 2024, which means it only lasts through this year.

Although this law does not extend the same privileges to distilleries as wineries enjoy — winery shipping is not subject to production limits, nor is there an expiration date on wine shipping laws —  it does represent positive shifts for spirits producers.

Residual Effects

Although achieving parity with the wine industry will be difficult, expanding markets for DTC spirits shipping is gaining momentum. With the success in California, expect an increase in DTC shipping bills introduced nationwide — and unlike previous years, the bills will not be dismissed out-of-hand. There is currently a bill in New York State (A 10573), and other state bills will be introduced. Three states — Maine, Maryland, and West Virginia — directed that legislative studies be undertaken on DTC spirits shipping. The success achieved in California, especially if the bill is extended or made permanent, will plant the seeds for greater growth across the nation.

Major Victory for RTDs

Vermont signed into law legislation (H 730) that expands markets for ready-to-drink spirits beverages (RTDs), lowers tax rates significantly, and allows producers to ship RTDs directly to consumers.

Under the law, an RTD is classified as an alcohol beverage containing not more than 12% alcohol by volume. The RTD’s container size shall not be greater than 24 ounces. The tax rate for RTDs falls from the spirits tax rate of $7.68 per gallon to $1.10 per gallon. Under the previous law, RTD sales were limited to stores authorized to sell spirits; the new law expands RTD access to grocery stores, convenience stores, and gas stations. Further, RTDs will share the same DTC shipping privileges that beer and wine enjoy. Producers, including out-of-state producers, are limited to shipping not more than 29 gallons per customer in any calendar year.

Cutwater Spirits’ ready to drinks earned the Bronze Medal for Packaging Brand Identity in the American Distilling Institute’s 2018 Judging of Craft Spirits.

Cocktails-To-Go Gaining Momentum

Two states, Rhode Island and Delaware, made cocktails-to-go permanent. That increases the number of states making cocktails-to-go permanent to 18.

Temporary but important successes

Some important successes in 2022 were temporary in nature but nevertheless significant.

Maryland extended in-state spirits shipping for another year. (H.B. 550/S.B. 476 and S.B 821)

New York signed its budget law, which allows a three-year extension for cocktails-to-go. Previously, Governor Cuomo let the temporary privilege expire and it was not legal until the extension was included in the budget.

Maine (three years), Massachusetts (through April 1, 2023), and Virginia (July 1, 2024) signed into law an extension of cocktails-to-go.

More Privileges for Distilleries

2022 saw positive developments for distilleries across the nation as states expanded distilleries’ rights to sell products and provided distilleries, in some instances, parity with breweries and wineries.

In Iowa, on-premise sales for distilleries were increased to nine liters per day, and breweries are now allowed to sell spirits (SF 2374). In Minnesota, retail privileges were extended for a distilled spirits manufacturer, which refers to an entity producing above 40,000 proof gallons, and allows for on-premise consumption (SF 3008). These businesses can now sell cocktails at their facilities. Previously, only entities selling below 40,000 proof gallons could sell at retail.

New Hampshire will allow distilleries to sell their products at a farmer’s market and allows the serving of cocktails on premise using the liquor produced by the distillery, as long as food is served in conjunction (SB212). Distilleries producing less than 1,000 cases of liquor per year will be permitted to sell liquor at retail from the distillery for off-premise consumption. Sales shall be limited to 12 9-liter cases per person per year. (HB 1613)

A New York law now allows distilleries to conduct tastings and sell, on- or off-premise, liquor they manufacture. The specific stated purpose of the bill is to provide “distillers with the same privileges currently enjoyed by other New York manufacturers.” (AB 6233)

Legislation That Didn’t Pass

Also important was the legislation that did not pass. Tax increases were defeated in Colorado, Hawaii, Massachusetts, Mississippi, New Jersey, and New York. In Nebraska, legislation to limit the container size of RTDs and reduce their rate was defeated.

In Conclusion

2022 demonstrated that efforts for enhanced market access for distilleries can succeed.

Previous to the pandemic, DTC spirits bills were dead on arrival. Now, they are being seriously considered. California and Maryland extended DTC shipping, and Vermont allowed direct-to-consumer RTD shipping.

The industry’s goal is to achieve parity with wine. Although that may be difficult, progress is happening, giving cause for optimism. However, the industry must remain vigilant, as many temporary extensions for cocktails-to-go and spirits shipping expire in the near future. Yet overall, the trends are positive, and I expect more legislation in 2023 to enhance distilleries’ market access.