Tennessee Set to Impose Regulations on Fulfillment Houses in DtC Wine Shipments

Alex Koral | May 12, 2021

On May 6, 2021, Tennessee Governor Bill Lee signed HB 742 into law, establishing a slew of new provisions affecting the direct-to-consumer (DtC) shipping of wine in the state. These provisions, however, will not become effective until January 1, 2022.

While the bill does impose several new restrictions and requirements on businesses involved in DtC wine shipping in the state, particularly fulfillment houses, the most harrowing elements of the bill as originally drafted were removed.

What is Included in HB 742?

As originally drafted, HB 742 was focused solely on prohibiting DtC wine shippers from using fulfillment houses when making shipments to Tennessee residents. Such a restriction would have severely impacted the ability of wineries to fulfill orders to consumers in the state. As such, it is extremely welcome that an outright ban was not part of the final bill signed into law.

However, the amendments that did happen to HB 742 through its passage included several additional provisions that will apply to both licensed DtC shippers and the fulfillment houses they utilize. These additional provisions include:

State regulators are increasingly concerned about perceptions of illegal DtC wine shipments, and they see fulfillment houses as an unregulated part of the DtC wine shipping market upon which they can impose new regulations. This view does overlook the fact that fulfillment houses are required to hold licenses in the state where they are located in order to store and hold wine on behalf of wineries (so they are actually not “unregulated” entities), and that they only make shipments under the explicit direction of wineries and make no sales themselves. Fulfillment houses by and large respect the central role they provide in enabling the legal DtC wine shipping market and already do much to ensure they only fulfill shipments on behalf of parties licensed to make those shipments.

Nevertheless, because of the critical role that fulfillment houses play in the DtC wine shipping market, they are apt to abide by the regulations that a state may impose on them, especially as directly challenging them would likely be a long and difficult fight, where compliance might just be the easier path. It is likely, though, that following Tennessee’s success in passing these provisions, other states will look to establish their own requirements on fulfillment houses.

All of these provisions will not become effective until January 1, 2022, so there will be plenty of time to further parse what is provided for in HB 742 and prepare to comply with the new restrictions and requirements.

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