On August 13th the District of Columbia ABC Board issued an Advisory Opinion directed at third party marketers who develop websites and apps that allow consumers to purchase alcoholic beverages from brick and mortar retailers and have them delivered. The DC Advisory is not directed at any particular company, but there are a number of such third party providers (“TPPs”) opening up in various cities throughout the U.S. this year and the service they are providing is a fairly new one. No state regulators have weighed in on this particular model, other than the New York State Liquor Authority in its declaratory ruling last fall on Drizly.
The DC ABC Board does allow TPPs to “connect customers through the internet to a licensed off-premise retailer, as long as the transaction to purchase alcoholic beverages occurs between the consumer and the licensed retailer.” The retailer must retain control over the transaction funds, and must be the one who makes the decision whether to fill the order or not; the retailer also must be the one who stores, packages, fills, and ships the orders.
The DC Advisory cites three other jurisdictions that have issued advisories on TPPs in general – California, New York, and Texas – but ends up going beyond them all in restricting the permissible activities of TPPs. The following guidelines illustrate this narrow scope:
- The TPP cannot charge consumers’ credits cards or directly or indirectly collect or receive funds from the consumer. The Advisory explicitly says it disagrees with the portion of the CA Advisory that allows TPPs to charge the credit card (and pass the full amount of funds to the retailer).
- The delivery person must be either the retailer, an employee of the retailer, or a “contractor of” the retailer.
- The sales transaction must occur directly between the consumer and retailer “through a separate written agreement.”
- The TPP fee cannot “stem from the transaction between the consumer and licensee” – that is, it must either be a flat fee, or else bear no relation to the transactions. It cannot be based on a percentage of the sale price.
The DC ABC Board appears to consider noncompliance with any of the foregoing to constitute (a) a violation by the retailer of the terms of its license (i.e. acting as an agent for a third party who is not a licensee); and (b) a violation by the TPP of DC’s statute prohibiting alcohol sales without a license.
One variation of the TPP delivery models that appears to comply with the DC guidelines is the Drizly model, which received a positive declaratory ruling from the NY SLA last fall. Drizly is a TPP that markets retailers’ products on its app, and provides the technology necessary for the interface between retailer and consumer via the app, but the consumer’s funds are received directly by the retailer; the retailer or its employees deliver the products; and Drizly’s fees are flat fees rather than a percentage of the sales.
Though not mentioned in the DC Advisory, there is a 1995 Florida regulation that allows certain delivery service providers to act as agents of the consumer and may be helpful to today’s high tech service providers. The California and Texas advisories were directed at TPP models in general, not specifically to smartphone app delivery models, but they provide good guidance for all TPP providers who plan to operate in those markets. For those looking to service the DC market, the safe harbor just got significantly narrower.