COVID-19: Can You Return Unsold Alcohol Inventory?

Under ordinary circumstances, federal and state beverage laws strictly prohibit or restrict credit extensions and product returns, with extremely narrow exceptions. As the COVD-19 pandemic spreads, a growing number of jurisdictions are allowing on-premise operators to return alcoholic beverage inventories to licensed wholesale distributors and/or licensed wholesale distributors to extend credit to on-premise clients.

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.

Hannah Becker is an associate in GrayRobinson’s Tampa, FL, law office and a member of the firm’s Nationwide Alcohol Beverage & Food Law Department.

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Author: Hannah Becker {authorlink}