Pernicious Practices (stuff we see that will get folks in trouble!) Today’s Rant – Bill & Hold

The current intense TTB and ABC enforcement climate is grabbing the attention of the wine, spirits and beer industries. We are seeing regulatory attacks on allegedly unlawful promotions to the trade and to consumers, illegal consignment sales and other allegedly unlawful distribution and business practices involving retailers and suppliers engaging in what would be normal commercial practices for any industry other than alcohol. Discipline for bad acts ranges from million-dollar-plus fines to actual license suspensions. Not good for the balance sheet or employee morale.

The regulators for their part are not helping because (at least with the California ABC) there is no ability to obtain reliable pre-enforcement rulings on any specific practice or program. The best that can be done is an email from the Trade Enforcement Unit to the effect they don’t offer advisory opinions and the industry member inquiring is running the program at their own risk.

Further, the ABC Act is so riddled with poorly drafted exceptions that even the ABC doesn’t always understand what is, and what isn’t, allowed. This makes the ABC’s reticence to advise understandable.

Some states (such as New York) provide a protocol for obtaining a declaratory ruling on the legality of proposed programs. The NYSLA rulings are published and provide industry guidance. We would love to see a declaratory approval (or disapproval) procedure available in California and encourage our friends and colleagues to lobby their elected officials to pass a statute requiring the ABC to provide guidance binding on the agency.

Meanwhile, we will engage in occasional rants about business practices we see that, if they are brought to the attention of the agencies, will result in administrative sanctions. The reason for the “pernicious practices” rants is those engaging in the practice are generally blithely unaware of the danger that the practice creates for them. No one likes to be told that a practice “everyone is doing” is unlawful.

Today’s rant is about “Bill & Hold.”

Bill & Hold is a child of the cumulative quantity discount program approval that the ABC blessed back in 1997 (we saved the letter) when the Trade Enforcement Unit was identified by the more industry friendly title – Business Practices Unit. We miss the BPU because it would approve or disapprove programs submitted to it for consideration.

The ABC Act prohibits a supplier from providing “anything of value” to a retailer unless specifically permitted by the Act. Things of value include “free storage” of already purchased inventory. There is no specific statutory period within which goods purchased must be picked up (or delivered) but advance purchasing practices that incorporate multiple unit discounts (such as CQD programs that run over several months) for goods not delivered within the month of ordering result in providing the retail purchaser with both a lower price and free storage (free storage frees up the retailers warehouse space, a clear benefit to the retailer at the expense of the supplier). This is called “Bill & Hold.” We have advised our clients it is not a permitted practice and they undertake it at their peril.

This is conceptually different from “futures” purchases where the buyer is making an advance payment (or deposit) to reserve the right to finalize the purchase of goods not yet imported or have not yet been produced.

Bill & Hold is exactly the sort of practice that could (and should) be addressed (up or down) by a declaratory ruling statute. Some are now engaging in this practice, but effective compliance counseling requires an ABC that understands how business works, and that will adopt consistent policies that can be relied upon.

If our readers have other “pernicious practices” of concern, please let us know and we will do the analysis and publish the results.

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