The wholesale market remains an effective way for craft beer professionals to get their products into the hands of consumers. In many cases, selling wholesale through the three-tier system is the only way for a brewery to enter a state’s marketplaces.

As with all aspects of the beverage alcohol industry, three-tier distribution requires complying with a wide array of laws and regulations, all of which vary state-to-state. To help demystify things, here is a breakdown of the main regulatory requirements that craft beer suppliers need to keep on top of to succeed at selling wholesale.

Licensing

Perhaps the most basic rule in the beverage alcohol industry is that only authorized parties may participate in the beverage alcohol industry. Production licenses generally grant the holder permission to sell to local distributors, but when a supplier wants to sell in another state, they will need a separate license for each state they will sell into.

These licenses are unique to each state, varying in their name, price, permissions and which products they apply to. When applying for a supplier license, ensure that it applies to your specific product offerings.

Product management

When selling a new craft beer across state lines, it is necessary to register it with the relevant regulatory agencies.

Initially, this means getting a Certificate of Label Approval (COLA) from the federal Tax and Trade Bureau (TTB), demonstrating that the product has been vetted by the TTB to ensure that its label conforms with the federal rules around alcohol labeling.

Beyond this federal registration, most states have their own brand/label registration requirements that suppliers will need to manage when selling there.

Distribution agreements

Under the three-tier system, suppliers must work with licensed wholesalers to distribute their products to retailers. Furthermore, many states restrict how suppliers can work with wholesalers, limiting a supplier to only one wholesaler per territory or allowing only one wholesaler to handle a particular brand across the entire state. Beer suppliers must also be very aware of states’ franchise laws, which
restrict a supplier’s ability to terminate or renegotiate contracts with wholesalers, making it difficult to cancel an ineffective relationship.

As such, suppliers must take the time to ensure they have a good and effective agreement with all their distributors across the country to avoid damaging outcomes.

Taxes and reporting

After all the setup has been complete and products have been sold, craft beer suppliers need to contend with taxes. While in most states the wholesaler will handle remittance of excise taxes, beer suppliers often at least have to report their three-tier distributions to the state agency on a regular basis, and in some cases the entire tax burden is put on the supplier.

It is no secret that the craft beer market is heavily regulated. Each state having its own set of regulations only makes it more confusing for a supplier trying to establish a wider presence. Recognizing what laws are out there and how they vary is the best way for craft beer professionals to avoid regulatory pitfalls and achieve success in the market.

Based in Boulder, Colorado, Alex Koral is Regulatory General Counsel for Sovos ShipCompliant, where he
serves as lead legal researcher for beverage alcohol regulation and has become a leading expert on
interstate distribution of alcohol. He has spoken on the topic at many industry events including the Craft
Beer Professionals Virtual Conferences, Craft Brewers Conference, American Craft Spirits Association
Convention, as well as meetings for the National Council of State Liquor Administrators and the National
Liquor Law Enforcement Association. Alex has been in the beverage alcohol arena since 2015, after
receiving his J.D. from the University of Colorado Law School.