By Zachary Reeves and John Hinman, Hinman & Carmichael LLP
Despite the constant negative headlines about slowing alcohol sales, the U.S. market remains enormous. Statistical forecasts are that the total U.S. alcoholic-drinks market will generate nearly $300 billion in revenue in 2025 (compared to roughly $200 billion for the U.S. soft-drinks market). Alcohol is still one of the largest consumer-goods sectors in the country, and it will remain so for the foreseeable future.
Thanks to the rapid rise of online commerce across all industries, innovative alcohol businesses are finding ways to grow by leveraging regulatory frameworks written for a brick-and-mortar world. Those antiquated rules, originally designed to separate alcohol suppliers from alcohol retailers, have created opportunities for modern companies to expand online in ways that would never have been possible with a storefront alone.
When Congress passed the Federal Alcohol Administration Act (“FAA Act”) in 1935, the goals were clear: dismantle the vertical integration that fueled the abusive “tied-house” practices existing before Prohibition and protecting consumers from unsafe production practices (such as “bathtub gin”) that came about during Prohibition. Suppliers (manufacturers, principally brewers and distillers) had once owned saloons outright, controlled what was poured, and encouraged excessive consumption as a business model. So, the FAA Act codified the separation of suppliers and wholesalers (considered “industry members”) from retailers, which included prohibitions against industry members from furnishing “things of value” to, or exerting “undue influence” on, retailers.
Side note: the federal framework never actually mandated a three-tier system, only separation between the “industry members” and the retailer tier. This is why the direct to retail supplier privileges permitted by many states are possible. Broadening these direct-to-retail permissions, whether through new legislation or court decisions, to the full extent permitted under federal law would be a meaningful benefit to the industry, particularly smaller suppliers struggling to find wholesale support.
Nearly a hundred years later, the basic regulatory framework remains largely unchanged. Although many state systems still impose a mandatory (and expensive) middle tier, the disconnect between old rules and the modern digital economy has created room for innovation. Because federal and state governments have not imposed heavy digital restrictions, companies across the supply chain have been able to test new ideas and build consumer-friendly online experiences that would have been impossible under the 1935 model. Under growing consumer pressure, even the most restrictive three-tier states are beginning to recognize the value of embracing technologies that serve their citizens (and are net positive for business) without reintroducing the tied-house abuses that prompted regulation a century ago.
1. A Regulatory Scheme Built for a Brick-and-Mortar Three-Tier World
The TTB’s tied-house rules assume a traditional marketplace with physical separation and clear licensing boundaries. Yet today’s digital ecosystem, where a consumer moves from an Instagram ad to a checkout page in seconds, operates on entirely different principles. And the lack of detailed digital restrictions has been, and will continue to be, an asset.
In the absence of strict federal prescriptions, innovation has flourished. Producers can use modern advertising tools, marketing platforms can algorithmically optimize placement, and third-party e-commerce facilitators can connect brand demand with retailer supply at scale and seamlessly manage transportation fulfillment.
Because most statutes, rules, and guidance predate these innovations, companies have enjoyed wide latitude in creating online pathways that serve consumers better. Traditional tied house enforcement concepts like “slotting fees” and “point-of-sale materials” simply don’t map cleanly onto digital equivalents, leaving open space for experimentation rather than overregulation.
It is not a tied house violation to know who your customer is, find a way to reach them, and arrange for scarce (and often expensive and allocated) alcohol products to be available in the chain of commerce.
2. “Thing of Value” in the Digital Age
Under 27 C.F.R. § 6.41, giving a retailer a prohibited “thing of value” can be an inducement. Historically, that meant tangible benefits like money, refrigerators, operating equipment, branded glassware or other valuable items useful to a retailer’s business.
Today, value is data, insights, and targeted reach. Because the existing rules do not explicitly address digital assets, companies have significant freedom to:
Share analytics,
Run online product campaigns,
Invest in optimized retailer listings, and
Deploy consumer-acquisition tools that benefit everyone in the chain of commerce.
Rather than constraining these tools, the regulatory lag has created room for creative, consumer-driven strategies, especially for smaller brands that can now compete through targeted digital marketing rather than relying on the increasingly overwhelmed (or unwilling) wholesaler tier and difficult to achieve in-store visibility.
3. The Rise of Unlicensed Intermediaries
A major source of new opportunities for suppliers comes from unlicensed digital intermediaries. Online marketplaces, affiliate platforms, and e-commerce SaaS providers sit outside TTB’s direct jurisdiction because they are neither suppliers nor retailers.
This creates a zone where:
New business models can develop rapidly,
Technology companies can build solutions without needing alcohol licenses, and
Producers and retailers can connect more efficiently through compliant third-party frameworks.
Practices that might look like “inducements” in a brick-and-mortar setting, can operate within lawful structures when coordinated independently through unlicensed intermediaries. The TTB’s choice (followed by many, if not most, states) to limit its authority here has effectively enabled the emergence of a robust national digital marketplace.
These third-party intermediaries are essential for brands that struggle to secure fair or adequate wholesale representation. Smaller brands that lack the leverage to negotiate favorable terms with wholesalers can derive significant value from the exposure and support these platforms provide.
Conclusion
Although TTB continues to focus on its core objectives of ensuring tax compliance, protecting consumers, and preventing coercive influence by industry members, its regulatory framework has not kept pace with current market realities. This regulatory lag has, in turn, created space for a dynamic ecosystem of online commerce, marketing, and fulfillment models.
Rather than suppressing innovation, the absence of granular digital regulation has allowed companies to build consumer-friendly online purchasing experiences and nationwide compliance solutions. This has benefited larger brands and created competition that benefits small brands.
In many ways, the digital alcohol marketplace exists precisely because regulators have not yet attempted to tightly control it. Companies aren’t operating in a free-for-all; they’re operating in a flexible environment where legacy rules leave space for creativity. And that freedom has driven the industry forward faster than any top-down regulatory overhaul ever could. Perhaps proponents of a strict three-tier system can learn from this, and states will continue to open up their marketplaces by allowing suppliers to sell directly to consumer or retailers or by permitting broader use of digital marketing and fulfillment tools.
From our perspective as alcohol regulation specialists, we understand the challenges facing regulators who are now confronting routes to market and digital marketing technologies that simply didn’t exist when these rules were designed. Our role today is to serve as translators, helping integrate these innovations with the FAA and the fifty independent state systems established under the 21st Amendment. In doing so, we hope to support producers, retailers, and the innovators who work alongside them so that the industry can grow and thrive in the new landscape we all share.
Copyright 2025
This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice please consult with your counsel.