Regulatory Hurdles for DTC Social Media and Third

Regulatory Hurdles for DTC, Social Media and Third Party Sales Channels q Panelists: q Moderator: q John Trinidad, Dickenson, Peatman & Fogarty q Theresa Mc. Carthy, TTB q Kristen Techel, Strike & Techel q Jeff Carroll, Ship. Compliant

Disclaimer This memorandum is provided by Dickenson, Peatman & Fogarty for educational and informational purposes only and is not intended and should not be construed as legal advice.

Agenda 1. Introduction & Overview 2. Social Media Marketing a. TTB Social Media Guidelines b. Other Regulations and Guidelines 3. Direct to Consumer Sales a. Overview b. Third Party Providers / What’s Next 4. Hot Topics

Disruptive Technologies o Innovations that disrupt a market’s “value network. ” n Can alter relationship between existing players in the market. n Allows for new entrants that market may not have expected. o Impact of disruptive technologies may be muted (or delayed) in highly regulated industries.

Internet as Disruptive Technology INTERNET SALES MARKETING

Sales: Three Tier System Winery Wholesaler Retailer Consumer “It is tougher than ever in the 3 -tier channel. We have a hard time getting distributor attention as they have way too many brands, not enough people and we are just too small to matter. ”

Sales: Distributor Consolidation Winery Wholesaler Retailer Consumer

Sales: DTC Shipping Barriers xxx

Sales: Granholm and E-Commerce

Sales: The Granholm Effect (2004 -2014) Wineries can ship directly to 83% of adult Americans… … but production caps, onsite requirements, and other impediments still remain.

Sales: Uncertainty re “New Players” Winery Fulfillment Shipping Wholesaler Retailer Order Processing Compliance TPP / TPM Consumer

Marketing: Social Media Ability to interact with customers instantly & consistently. No need to wait for them to walk into tasting room. Build “relationship” with customers, build brand loyalty.

Marketing: Social Media Hurdles 1. Application of advertising restrictions to winery’s usage of social media. 2. Move from uni-directional advertising to “conversation” creates issues (third party content). 3. Other laws (including tied house laws) may also apply to winery’s usage of social media.

Marketing: Third Party Content • Winery maintains an official Facebook fan page. • Winery “fan” posts a link on Winery’s FB page to an article praising it’s newest Chardonnay release. • Same article also calls competitor’s latest Chardonnay “disappointing” and “flawed. ” • If winery doesn’t take down the link, is this a violation against TTB social media guidelines, prohibition against disparaging statements?

Marketing: Tied House John Doe Winery @JDwines Excited for our Winemaker Dinner @SF_restaurant - a James Beard Award nominee!!! John Doe Winemaker @John. Doe. Wines Congratulations to @SF_restaurant for their James Beard Award nomination! Well deserved!

On-Demand Commerce

Regulatory Uncertainty 1. How will regulatory agencies deal with these new players / business models? 2. Will any of these players need to get their own alcohol beverage license?

Empire Wine: Background o NY Retailer accused of shipping wine to states where Retail DTC shipping prohibited. o NYSLA claims this is grounds for suspension, revocation, or cancellation of Empire’s License, relies on regulation that allows disciplinary action for licensee’s “improper conduct. ” o Nothing in NY statute or regulation that expressly prohibits licensed retailer from shipping to customers in other states.

Empire Wine: Legal Questions o Beyond NYSLA’s statutory authority? n ABC Law Sec. 2: NYSLA has power “to regulate and control the manufacture, sale and distribution within the state of alcoholic beverages for the purpose of fostering and promoting temperance in their consumption and respect for and obedience to law. ” o Unconstitutional? n Interference with Interstate commerce. o Due Process Concerns? n Vagueness of “improper conduct” provision

Empire Wine: Potential Fallout o CA Winery holds NY Direct Shipper’s License o CA Winery ships to consumers in Utah (where DTC Prohibited or to Texas w/o license. o Will NYSLA view shipment to Utah or Texas as grounds for suspension, revocation, suspension of CA Winery’s NY Direct Shipper’s License?

For any additional information, please contact John Trinidad. o. Email – jtrinidad@dpf-law. com o. Linkedin - www. linkedin. com/in/johntrinidad/