The system refers to the 3 tiers involved in the supply chain for alcoholic beverages:
Manufacturer – Wholesaler – Retailer
The member in each tier needs to sell the alcoholic beverage to a member of another tier. The 3 tier system is not mandated on the federal level but only on the state level.
Of course, similar supply chain systems are used in many countries for many types of products sold in retail stores. In that sense, there is nothing particularly unique about this system.
What makes the 3-tier system for wine in the US somewhat different is the fact that individual companies can only have ownership within one of the tiers. For example, a winery as a member of the manufacturer level tier is not allowed to have ownership in a wholesale company for wine.
For beer, on the other hand, in some states, the original 2-tier post-Prohibition architecture remains, allowing brewers to either sell directly to retailers or to own or establish their own affiliated distribution operation. Large breweries often own beer distributorships in these states.
Any winery in the world is already a part of the 3-tier system as the ‘manufacturer’ of wine. Therefore, any winery can sell directly to wholesalers in the United States under the three-tier system.
One common misconception is that the 3-tier system consists of importers, wholesalers, and retailers. That is not correct. Importers can be part of the supply chain but they don’t have to be under the rules of the three-tier system. For example, if an importer also acts as a wholesaler, they are part of the wholesale tier. If an importer only imports the wine they are part of the manufacturing tier.
There are various exceptions to the 3-tier system for wine. For example, in so-called control states, the state government may act as a wholesaler and/or retailer of alcoholic beverages.
Over the last few years, the 3-tier system for wine has been loosened. For example, many states now allow in-state or out-of-state wineries to sell directly to consumers without the involvement of wholesalers or retailers. While that only applies to wineries located within the United States, foreign wineries could obtain a winery permit in the United States as well.
Wineries located outside the United States need to engage the services of an importer who is licensed by the Alcohol and Tobacco Tax and Trade Bureau (TTB) – which is part of the U.S. Department of the Treasury – to import the wine into the United States.
The primary duties of a TTB import license holder
- Obtain a TTB basic import permit.
- Obtain label approval for alcoholic beverages (COLA) from the TTB for sales in the United States.
- Import of alcoholic beverages into the United States.
The import is handled by a customs broker. They will facilitate the import clearance.
Only companies located in the United States can obtain an import permit. Obtaining a federal import permit is free of charge.
The TTB also regulates various aspects of advertising for alcoholic beverages in the United States.
Importers located in the US can act on behalf of wineries abroad as manufacturing tier members to market and sell their wines to wholesalers in the United States.
However, wineries located outside the US can choose to only engage the federal importer for the tasks required under TTB regulations and sell their wines in many states directly to US-based wholesalers.
3-Tier System on the State Level
Once the wine has been imported into the United States, the rules of the 3-tier system in each individual US state apply.
On the state level, the wholesale permit holder ‘imports’ wine into each individual state by purchasing it from a manufacturer tier member located either in the US or abroad.
Once a label for an alcoholic beverage has been approved by the TTB, the label also has to be approved by some state alcohol boards. If that is the case, the state alcohol boards will generally approve the labels already approved by the TTB.
In some states like Texas, wineries located outside of the state need to obtain a permit to allow them to sell their products to eligible permit holders in the state.
It is important to understand the rules and regulations for sales of alcohol in each state, not in the United States as a whole. The rules vary greatly from state to state.
The alcohol industry as a whole is highly regulated in the United States. However, do keep in mind that many of the rules may not pertain to wine sales and may not be relevant to wineries abroad.
All things considered, the 3-tier system as it pertains to wine sales in many states is pretty straightforward. It allows wineries inside and outside the US to market their products directly to end consumers and retailers in the United States. The wine has to be imported into the United States by a TTB-permitted importer. It has to be sold to the retailers via a state-licensed wholesaler and to consumers via a state-licensed (online) retailer.
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