Federal and state agents visited more than 30 wine-related businesses in Napa and Sonoma counties last week as part of a probe into consignment sales, in which a winery or wholesaler buys back bottles that don’t sell at the retail level.
Officials from the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) and the state Department of Alcoholic Beverage Control visited the wineries and distributors as part of an investigation into illegal trade practices. The businesses were not named, said TTB spokesman Tom Hogue.
The probe is part of national $5 million campaign by the TTB to crack down on unlawful trade practices in the alcoholic beverage sector. Last year, federal agents conducted similar investigations in the Miami and Chicago areas as part of “pay-to-play” schemes where a supplier or a wholesaler offers inducements to a retailer to stock a particular wine, spirit or beer. Local brewers contend such practices also occur in California.
“This is the tip of the iceberg,” said John Hinman, a San Francisco lawyer who represents local wineries and breweries.
His firm provides guidance and education on how producers can adhere to federal and state law.
While permitted in other industries, consignment sales are illegal in the alcohol beverage sector as a result of post-Prohibition laws.
Federal law has not been enforced on a wide-scale basis until recently, Hinman said.
There have been past cases of abuse in the beer sector. MillerCoors paid a $450,000 fine in 2015 for guaranteeing wholesalers that it would buy back its Miller Fortune beer that did not sell. Anheuser-Busch paid a $300,000 fine for a similar violation in 2016.
State and federal regulators are likely focusing on consignment sales because they are easy to prosecute, Hinman said. Details of the violation are typically found in emails, contracts or invoices of the parties, he said.
“This is an easy one,” Hinman said. “It doesn’t take a lot of brain power to figure it out.”
The cases are typically settled administratively through fines, though certain egregious violations can result in a suspension or even a loss of license to produce alcohol, Hinman said.
The businesses, including retailers, also could be liable at the state level for violating a law that prohibits suppliers extending credit to a retailer for a period beyond 30 days, he added.
While not commenting on the specifics of the probe, Napa Valley Vintners said in a statement that the winery trade group “has a long track record of educating and encouraging our members to follow all local, state and federal laws related to the sale and consumption of wine.”