Distributor of Record

[navenjohnson]

Our distributor recently asked us to contact the state of Colorado and submit to them a "Distributor of Record"?

Our previous distributor and no other states we are in distributors has asked us to do this. 

Couldn't find anything in a google search for it. 

Can anyone shed some light on this for us here in Colorado?

THX, 

NJ

[dhdunbar]

No, I can't tell you about Colorado, and the "distributor of record" language may be unique to that state, but a number of  states require that you appoint distributors.  For example, Washington requires it, but does not require exclusive territories, so you can appoint more than one.  A 2013 article in Artisan Spirits discusses the issue.  I cannot vouch for it, because it is an area of which I am largely ignorant.  See https://issuu.com/artisanspiritmag/docs/artisanspirit_issue005_web/15.

You also want to be informed about franchise laws and how they work.  Can you cancel?  What do you need to show to cancel?  etc.  Divorce is not always easy or possible.

[bluestar]

13 hours ago, dhdunbar said:

No, I can't tell you about Colorado, and the "distributor of record" language may be unique to that state, but a number of  states require that you appoint distributors.  For example, Washington requires it, but does not require exclusive territories, so you can appoint more than one.  A 2013 article in Artisan Spirits discusses the issue.  I cannot vouch for it, because it is an area of which I am largely ignorant.  See https://issuu.com/artisanspiritmag/docs/artisanspirit_issue005_web/15.

You also want to be informed about franchise laws and how they work.  Can you cancel?  What do you need to show to cancel?  etc.  Divorce is not always easy or possible.

Washington, if you mean the state, allows various forms of self-distribution where no distributor has to be appointed.

[dhdunbar]

Yes, Washington is a state about which I happen to know something.  Perhaps I should have stated the rules in a less abbreviated form, but they are a little complicated.  Washington's rules are illustrative of why you need to look carefully into what you must do. 

Craft distillers in Washington have the privilege of selling spirits of their own production directly to retailers.  They may do so without additional licenses.  That is a part of their craft distiller's license and I'll not address that here. 

Out of state distillers wishing to ship into Washington do not have a Washington craft distillery license and so must qualify to make shipments.  Washington regulations accommodate certain direct to retailer sales by out of state distillers.    Here are the rules:

• Any out of state distiller, who has a federal basic permit and is properly licensed by the state in which it operates the distillery, can apply to sell directly, to certain retailers, without going through a distributor.
• If approved, they may only ship spirits of their "own production," which, as far a I know, is not a defined term within the authorizing statute.
• However, the out of state distiller must first get an out of state distillery certificate of approval.
• The certificate must include a WSLCB endorsement that allows direct shipments to retailers who themselves have an endorsement to their retail licenses that allows the retailer to receive shipments from out of the state.  
• To  get the WCLCB certificate and endorsement, the out of state distiller must first register with the secretary of state as an out of state business that will be doing business in Washington, even if the distiller has no place of business in the state and no employees in the state. 
• Once it has registered with the SOS, it then applies for a business license from the Department of Revenue, submitting the DOR fees and the WSLCB fees in the same package. 
• The DOR processes the application and sends it to the WSLCB, which then contacts the out of state distiller and tells the out of state distiller what additional information it requires.  That includes things like disclosures of interests in retail licensee operating in Washington, a copies of federal labels, etc. 
• Once approved to ship spirits directly to retailers who are authorized to receive them directly from out of state suppliers - most are not - the distiller can ship into the state and must submit monthly reports of what and to whom it ships.

However, if either and in-state or out of state distiller elects to use a distributor, then the distiller must submit, to the WSLCB, a letter appointing that distributor as a distributor of the distiller's products.  This need not be an exclusive authorization and it need not specify territories in which the appointment is valid.  Whether the appointment letter establishes franchise rights I do not know.  That is something you should know before making an appointment and that is a question appropriate for any attorney who is familiar with the franchise provisions of the laws of the state that apply to the agreement into which the parties enter. 

Because the 21st Amendment gave states the right to regulate commerce in alcoholic beverages within their states, the rules vary from state to state.  But in every case there will be rules.  No state that I know of allows anyone to ship spirits into the state without some form of license, permit, authorization.  The road map to approval is going to be different in every state.   

[bluestar]

1 hour ago, dhdunbar said:

Yes, Washington is a state I happen to know something about.  And it is perhaps illustrative of why you need to look carefully into what you must do.  Craft distillers in Washington have the privilege of selling spirits of their own production directly to retailers.  "Own production" is not a defined term.  Any out of state distiller can sell directly to certain retailers, without going through a distributor, but the out of state distiller must first get an out of state distilled certificate of aspprovaL, 

Yes, correct. As a born Washingtonian, I made the effort to get the out-of-state shippers certificate so that I can place some product at retailers there. But it is a challenging market, given the large number of craft distillers in the state able to sell directly to retailers, and outside of greater Seattle area, not that large a market. It was also confusing over the past few years as the rules changed rapidly following the major change in their liquor laws.

[dhdunbar]

Bluestar:  I hit the submit button by mistake and sent it off without expanded comments.  Your post came in while I was typing those.

if you have distribution with a large retailer in your area, you might be able to piggy-back that distribution into direct to retailer deliveries to those retailers in Washington.  The fee for the endorsement is only $110, but ...  

 

[bluestar]

On 2/23/2019 at 1:03 PM, dhdunbar said:

Bluestar:  I hit the submit button by mistake and sent it off without expanded comments.  Your post came in while I was typing those.

if you have distribution with a large retailer in your area, you might be able to piggy-back that distribution into direct to retailer deliveries to those retailers in Washington.  The fee for the endorsement is only $110, but ...  

 

No prob. Yes, your long description matches the process we underwent. Not sure what you are referring to, however, in this follow up post.

[dhdunbar]

Okay - you can easily qualify, if you do not mind a few bureaucratic headwinds, to get a certificate of approval to ship into Washington.  That lets you ship to distributors and only to distributors.  To ship directly to a retail, you need a direct to retail endorsement, which  cost $110 more.  Now, with the direct to retail endorsement in hand, you can ship directly to those retailers who are qualified to receive spirits directly from out of state sources.  Generally, that is large retailers.  Your task is then to get the large retailer to carry your product.  My reference to piggy-backing was meant to say, if a large retailer carries your product in a state other than Washington, and had good pull through the system there, then that success might open the door to distribution of the product in the retailer's outlet in other states.  "Might" is an important word.  I can't imagine that a Washington retailer would take on an out of state product that had not been proven in another market first.  But they might take on one with a track record.  That's all I was saying.  To which I might add that demonstrated success in a large retailer in Washington might go a ways toward getting a distribution agreement with a wholesaler as well.