ALCOHOL MARKETPLACES 2.0 PART 4: WHO’S RESPONSIBLE FOR ENSURING LEGAL DRINKING AGE?
By Rebecca Stamey-White and Jeff Carroll
April 27, 2021
Only businesses holding a license to sell alcohol at retail can sell alcohol to consumers. That simple fact complicates matters for unlicensed entities such as online marketplaces, delivery apps, and delivery services that would like to create or enhance platforms to facilitate alcohol sales. Marketplace platform providers, alcohol licensees, and alcohol and tax regulatory agencies all have different goals and concerns when it comes to the sale of beverage alcohol products.
In this Alcohol Marketplaces blog series, Rebecca Stamey-White, partner at Hinman & Carmichael LLP, and Jeff Carroll, general manager of Avalara for Beverage Alcohol, will explore the multiple issues surrounding alcohol marketplaces and propose a compliance framework to meet the goals and concerns of the different stakeholders.
Disclaimer: This post may constitute attorney advertising and is not intended to provide or be relied on as legal advice. Perform independent legal research and consult your lawyer.
One of the central challenges facing regulators regarding beverage alcohol marketplaces is ensuring alcohol is not sold or delivered to people that are not of legal drinking age (LDA). Because third-party providers (TPPs) do not hold licenses themselves, in most scenarios, the TPPs do not hold the legal obligation to verify the age of the consumer; the licensee remains responsible for verifying LDA. And yet, the TPP is often the one delivering the alcohol to the consumer or coordinating its shipment on behalf of the licensee. Because of this, coordination on age verification requirements and responsibilities is essential for operating compliantly. Before we dig deeper into best practices for TPPs, let’s begin by reviewing the requirements for licensees that sell to consumers.
For direct-to-consumer (DTC) shipping, licensees employ multiple strategies to ensure age verification, as outlined in Avalara’s whitepaper Getting it right: The 4 steps to age verification for direct shippers. The four steps are:
Age affirmation: Customers visiting an ecommerce website are required to affirm they’re of legal drinking age prior to entering the shopping area
Date of birth (DOB) collection: A few states require direct shipper licensees to list the DOB of the purchaser and/or recipient on shipping reports.
Age verification: Many states require formal age verification of the purchaser, either through inspecting and maintaining a copy of government-issued identification or by using an online age verification service such as IDology.
Adult signature required (ASR): All DTC alcohol shipments should use the common carrier (FedEx and UPS) ASR requirement, ensuring the recipient signs for the package at the time of delivery and a copy of the signature is archived.
For TPPs or delivery apps that solicit orders on behalf of licensees for local delivery of beverage alcohol products from restaurants or off-premises alcohol stores (not through common carriers), the process has fewer explicit requirements. When an order is received, delivery is made by either an employee of the licensee or by a third-party delivery service. In either case, the licensee is responsible for ensuring the delivery driver verifies the age of the recipient. The California Department of Alcoholic Beverage Control (ABC) clarified this last year in their Industry Advisory on Delivery of Alcoholic Beverages (April 30, 2020).
“For example, if a licensee relies on a third-party online service to pick up and deliver an alcoholic beverage to a customer, and that third-party service delivers the beverage to a minor, the licensee has violated section 25658, is subject to discipline against its license, and its employees may be subject to arrest and criminal prosecution. This is so no matter what assurances the delivery service may have provided to the licensee.”
Shortly after the COVID-19 pandemic started, the California ABC issued its First Notice of Regulatory Relief, which included allowances for off-sale licensees to accept payment away from the licensed premises and for curbside delivery of beverage alcohol products. In the period that followed, ABC found both a substantial increase in the delivery of alcoholic beverages and an “alarmingly high” incidence of delivery to minors. According to comments on the proposed emergency regulations outlined in the ABC Industry Advisory on Delivery Minor Decoy Requirements, noncompliance may have been as high as 70%.
Although the responsibility for ensuring age verification in TPP transactions ultimately falls on the licensee, it’s key for TPPs and licensees to work hand in hand to create an airtight process. Given the nature of the online ordering workflow, some responsibilities are better handled by the TPP, and others by the licensee. Using the four steps for age verification above, we’ve outline a sample flow:
Age affirmation: Since the TPP maintains the website or app, they should require an age gate before consumers can shop. Note that in California (other states may follow), ABC can use minor decoys who can lie about their age at this point in the transaction in order to complete the sale. See ABC Rule 141.1, which does not require the decoy to truthfully answer any questions about their age at the time the alcoholic beverages are ordered (e.g., on the website). Regardless, age affirmation is still a best practice and recommended by industry trade associations.
Date of birth collection: Especially in the states that require licensees to report the age verification of the purchaser or recipient, TPPs should collect this information from the customer and pass it through (securely) to the licensee.
Age verification: TPPs should use an electronic age verification service to confirm the purchaser is of legal drinking age. The resulting confirmation should then be passed securely to the licensee so they can maintain the information for audit purposes.
Adult signature requirement: For DTC shipments, this falls on the licensee because the licensee must control the fulfillment process. TPPs pass order information through to the licensee who then accepts the order and takes it through their normal fulfillment process, ensuring the package is properly labeled and common carriers are notified that an adult signature is required. In the case of local delivery, the licensee should ensure their employees or contracted delivery services are trained on how to verify ID at the time of delivery.
Unfortunately, age verification mistakes are hard to avoid entirely, even with the best training and procedures. Licensees that sell alcohol to minors through marketplaces may feel they have little to no control over preventing the delivery of alcohol to minors and that they shouldn’t be penalized for the acts of a third-party delivery driver. But alcohol regulators will hold the licensee responsible for the entire transaction, including delivery to the consumer. The license consequences may involve probation, a fine, license suspension, or even revocation, depending on prior history and whether there is a defense available. That’s why it’s essential for the licensee to ask the TPP hard questions about compliance protocols and training and work closely with the TPP to set each delivery person up for success.
Have tax or compliance questions? Contact Avalara’s Beverage Alcohol team.
Have legal or compliance questions? Contact Hinman & Carmichael LLP.
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.