Under ordinary circumstances, federal and state beverage laws strictly prohibit or restrict credit extensions and product returns, with extremely narrow exceptions. As the COVID-19 pandemic spreads, a growing number of jurisdictions are allowing on-premise operators to return alcoholic beverage inventories to licensed wholesale distributors and/or wholesale distributors to extend credit to on-premise clients for a longer period of time.
That means you may be able to return beverage alcohol products that you don’t think you can sell to wholesale distributors, or you may be able to sell your alcohol beverage inventory to licensed off-premise retailers. Prior to the coronavirus outbreak, the aforementioned cost-cutting options would be prohibited under federal and state beverage laws as illegal gifts or consignment sales. But if your governing state and local governments have passed emergency regulations or enforcement policies, some or all of these actions may be temporarily lawful.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) on March 18, 2020, published a guidance document addressing returns. TTB recognized that many large-scale events, such as parades, festivals, fairs, concerts and sporting events have been canceled after wholesale distributors and retailers purchased alcohol for such events. Accordingly, the TTB allowed products purchased for those events to be returned without violating federal law. But this TTB guidance document does not address returns for any reason other than cancelled events.
Some states, including Colorado and Texas, have adopted TTB’s event product return position, while other states, including California, New Jersey and New York, have allowed more broad product returns to provide additional regulatory relief to on-premise retailers. Before requesting wholesale distributors to accept product returns, confirm whether your state alcohol beverage agency has broadened product return regulations. Determine the applicable restrictions, which may limit returns for credit or only allow returns for product purchased or delivered during a specific period of time.
Another form of regulatory relief that some states, like California, have temporarily adopted allows on-premise retailers to sell its alcohol beverage products to licensed off-premise retailers. But you can’t assume that all states allow such retailer-to-retailer sales, so consult the appropriate laws and regulations.
Under federal law, the extension of credit to a retailer for a period of more than 30 days is prohibited. State beverage laws vary on its regulation of credit extensions; some states prohibit credit extensions, some states adopt federal law, and other states allow credit extensions for less than 30 days. To provide regulatory relief to the on-premise industry, an increasing number of states, including California, Louisiana and New Jersey, have extended the state’s credit period.
Again, you must confirm that the governing state alcohol beverage agency has enacted a credit extension emergency regulation or policy and conform with all applicable restrictions and requirements.
COVID-19-related rules and enforcement policies are ever-evolving, but are state-specific and temporary. To ensure utmost compliance with beverage-alcohol control laws and determine whether any of the aforementioned regulatory relaxation opportunities are available, regularly monitor state and local rules and policies and track expiration dates.
You might also consider working with fellow industry members through a trade association or separately to present current and new regulatory concerns to state alcohol beverage agencies. The vast majority of state alcohol beverage agencies welcome industry members to express concerns and submit requests for consideration of emergency rulemaking or policies related to the COVID-19 pandemic.