On Friday, March 13, 2019, in the wake of growing concerns and related mass cancellations of large events all across the United States, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) announced that it is relaxing federal restrictions on alcoholic beverage returns that might otherwise violate prohibitions associated with consignment sales.
As a refresher, the Federal Alcohol Administration (FAA) Act 27 C.F.R., Part 11, Subpart D, and more specifically 27 C.F.R. § 11.31, provides that “it is unlawful to sell, offer to sell, or contract to sell products with the privilege of return for any reason, other than those considered to be ‘ordinary and usual commercial reasons’ arising after the product has been sold.” Sections 11.32 through 11.39 provide those circumstances that are considered “ordinary and usual commercial reasons” under the FAA, including:
- Defective products
- Discrepancies between the products ordered and delivered
- Products that may no longer be lawfully sold due to change in regulation or administrative proceeding
- Circumstances where a trade buyer terminates operations
- Termination of a wholesaler
- Changes in product formula, proof, label or container
- Discontinued products
- Returns from seasonal retail dealers
More importantly are those circumstances that traditionally do not constitute “ordinary and usual” reasons for return, which include products that are “overstocked or slow-moving” or products for which “there is only a limited or seasonal demand.” See 27 C.F.R. §§ 11.45-11.46.
Noting the mass cancellations of widely attended events—such as parades, festivals, fairs, concerts and sporting-based events due to concerns about COVID-19 and the implications regarding Section 11.45 governing “overstocked or slow-moving” products—TTB announced that “Given the unexpected and widespread nature of the concerns involving COVID-19, TTB will not consider returns of alcohol beverage products purchased to sell during such cancelled events to violate federal consignment sales rules provided the products were not initially purchased or sold with the privilege of return” [emphasis in original].
In making this announcement, TTB put no specific time-frame on its intended allowance for these returns, likely in light of the ongoing uncertainty regarding the long-term impact of the coronavirus. Further, this flexibility should allow producers and others a sigh of relief as TTB has stepped up enforcement in recent years, particularly on those circumstances TTB designated as violations of the consignment sales provisions.
Finally, it is worth noting that while TTB has relaxed or, more arguably, expanded what can be considered “ordinary and usual” returns in light of today’s environment, it is important to note that even though such returns are lawful, neither a producer nor wholesaler are required to accept returns of such products.