Can California’s new spirits shipping law reshape the national landscape?

California is preparing to test a new era in direct-to-consumer spirits sales.

A program created under Assembly Bill 1246, signed Oct. 4 and set to begin Jan. 1, 2026, will allow licensed out-of-state craft distillers to ship spirits directly to California consumers under some of the same tightly regulated conditions Golden State producers have benefitted from since the pandemic.

Industry observers say this pilot program in the nation’s biggest market could become a turning point, triggering similar moves across the country parallel to what happened with interstate wine shipping two decades ago.

Before the new law, “in-state distilleries were able to ship to consumers as a sort of a fallout from COVID, but interstate shipments were not allowed,” said Michael Walker, state policy adviser for the American Craft Spirits Association, during a Nov. 19 webinar hosted by dominant compliance software provider Sovos ShipCompliant.

“This is a big step,” said Alex Koral, regulatory general counsel for Sovos ShipCompliant.

Only nine states currently allow any form of direct-to-consumer spirits shipping, so California’s move because of the size of the market is significant, Koral said.

Strong consumer support

Survey data included in a recent Sovos report suggests California consumers may meet the new shipping channel enthusiastically. The survey by Sovos ShipCompliant and American Craft Spirits Association found that roughly 85% of regular craft spirits drinkers want to see expanded access for direct-to-con

sumer shipping.

That thirst extends beyond heavy spirits consumers.

“Sixty-seven percent of Americans over the age of 21, including non-drinkers, occasional drinkers, non-craft spirits drinkers and moms alike agree that there should be more access to this market,” Walker said.

One particularly notable finding is how DTC shipping appears to influence retail behavior.

“Ninety-two percent (of consumers) said if they get something via direct to consumer shipping and try something, they’re more apt to look for it at retail,” he said.

Rather than undermining the traditional three-tier distribution system, the data suggests to Walker that DTC shipping might help amplify demand through retail channels.

Compliance hurdles remain steep

Compliance, particularly licensing, will determine how many distillers can actually participate.

Under the new law, in-state and out-of-state distillers shipping into California must obtain a Type 94 Craft Distiller Direct Shipper permit, agree to annual reporting requirements, verify customer age at delivery through a common carrier and ship only so much.

The requirement to report how much is sent to California addresses and the shipping limit of up to 2.25 liters per consumer per day — equivalent to three standard 750-milliliter bottles, or “fifths” — mirror the state’s current but temporary pandemic-era permissions, set to expire on New Year’s Day.

To get this new permit, out-of-state producers must meet California’s definition of a craft distiller. That includes a maximum annual production of 150,000 gallons and at least 65% of spirits sold are produced in-house, according to the California Department of Alcoholic Beverage Control (ABC).

Regulators have clarified that “transactions equal shipments,” Walker said, meaning companies cannot combine orders into larger consolidated shipments or stretch the limit over multiple days.

ABC plans to begin accepting permit applications Dec. 15 through its district offices or forms downloaded from its website. The agency also cautions that shipments without a valid permit constitute a misdemeanor and could result in suspension or revocation of a distiller’s manufacturing license in California or another state.

Koral underscored that the law’s one-year term is a test, subject to legislative renewal before AB 1246 expires Jan. 1, 2027.

“If everybody just ignores it, then (legislators) will say, why bother?” he said.

Demonstrating real, compliant use of the channel, he argued, may determine whether lawmakers expand or extend the program.

But Walker said legislative discussions are ongoing.

“We’ll be getting ready for our next legislative session,” he said. “There does seem to be an appetite to extend this as we sit here today.”

Level playing field

Walker said that eight states introduced bills this year to expand or legalize spirits DTC shipping, but Maine came closest among them to passing one.

As regulators and lawmakers examine possible safeguards, Walker said emerging technologies such as digital IDs, which up to half the states are considering in some form, could help address remaining concerns about responsible delivery.

Koral agreed that California’s move could resonate far beyond state lines.

“Where California goes, I think a lot of the rest of the country will follow,” he said.

But for some distillers, interstate DTC privileges are not just an opportunity but a lifeline.

“We’re absolutely supportive of direct to consumer shipping,” said Arthur Hartunian, founding president of the California Distiller Association and co-owner of Napa Valley Distilling. Ninety-nine percent of his company’s sales depend on DTC channels, he said.

The new law substantially increases the existing daily onsite sales limit per person from 1.5 liters to 4.5 liters, or two to six standard one-fifth-gallon bottles.

The distillery, which holds both a Type 74 craft distiller and Type 3 brandy manufacturer license, produces about 25,000 gallons annually — far below the craft-distiller cap.

Still, Hartunian expects the program to help the state’s small distillers showcase products more widely. The company, which is preparing to reopen its fire-damaged main distillery early next year, continues to emphasize consumer experiences.

“We’re a cocktail company, not just a distillery,” Hartunian said. “We love to showcase spirits in the way that they’re meant to be showcased, and that’s through a cocktail.”

He remains optimistic about the industry’s future.

“I’m 100% big supporter of California craft, distilled spirits and distillers in our state,” he said. “Anything that allows (us) to protect and grow our industry, I’m 100% for it.”

“The only thing that I would have some concern over is distilleries from other states shipping into California without allowing the same privileges of California distillers shipping into their states,” Hartunian said.

If not addressed, he warned, that imbalance could “take up market share from California distillers.”

Bahaneh Hobel, who leads the alcohol beverage law and compliance practice at DP&F Law in Napa, said navigating the patchwork of state laws will be one of distillers’ greatest challenges, based on what vintners have experienced in the 20 years since a U.S. Supreme Court decision started leveling the playing field for alcohol beverage shippers from out of state.

In that 2005 case, Granholm v. Heald, the court held that the Constitution’s Dormant Commerce Clause was being violated by state laws that discriminated against wine shipments from out of state when in-state vintners were able to do so. The states in that case, Michigan and New York, had argued the 21st Amendment, which repealed Prohibition and allowed states to create laws about how alcohol was brought into and sold in the state.

Complications for out-of-state alcohol beverage shippers include qualifying for and obtaining state-specific licenses, registering with state tax agencies, and paying all applicable sales and excise taxes.

“Just because you’re a craft distiller here in California doesn’t mean you can automatically ship to all these states that allow it,” Hobel said.

For example, Napa Valley Distillery would still be under Alaska’s 50,000-gallon annual production cap for craft distillers but be considered too large under Arizona’s 20,000-gallon limit.

Uneven access under licensing rules

While many craft distillers expect to participate in the new program, others say existing constraints — particularly the 65% in-house production requirement for the Type 74 craft distiller license — will keep them on the sidelines.

One of those is Charbay Distillery in Ukiah, among the country’s earliest spirits producers.

“Because of the current parameters and the way our business is structured… we do not qualify currently under the current landscape,” said Jenni Karakasevic, director of operations.

The company blends in-house production with custom bottling, custom distilling, its own brand, and an import business. So despite its long history, Charbay doesn’t qualify for a Type 74 license under current rules, according to Karakasevic.

“We do not have a direct-to-consumer page on our website,” she said. The 65% production requirement disqualifies them “even though we’re all below the proof gallons that are required.”

Still, Charbay sees opportunities ahead.

“I think whatever is good for small distilleries is great for us,” Karakasevic said.

The company continues to expand its product lines. It bought a canning line last year and plans to release Espresso Martini in a can early next year.

“We’re going to be expanding on that line of some lower (alcohol) options, maybe even a non-alcoholic Espresso Martini,” Karakasevic said.

Given shifting consumer trends, “It’s really almost imperative right now to get creative and make sure you’ve got lots of different things going on,” she said.

Pandemic allowances

California distillers have been allowed to ship spirits directly to in-state consumers since 2020 under emergency pandemic authorizations that were extended multiple times: 2021, 2022, 2023 and last year.

Early interpretations by the ABC were narrow until later legislative updates clarified that distillers’ delivery privileges extended beyond literal on-premise handoffs to consumers, said Hobel of DP&F Law. That legal grounding, plus the avenues opened by the Granholm and later rulings, set the stage for the broader authority embedded in AB 1246.

Requirements included adult signatures upon delivery, recordkeeping and the 2.25-liter per-person daily limit.

Alex Villicana, president of the California Artisanal Distillers Guild and a Central California distiller and vintner, said the temporary pathway became a vital sales channel. Based on guild surveys, between 20%–30% of member sales are shipped directly to consumers. He said the majority of the roughly 200 type 74 distillers in the state used DTC shipping during the COVID closures.

The potential of losing such a large percentage of revenue was a concern for the state’s smaller distillers, particularly as the alcohol beverage industry has faced challenges.

“There has been a decline in overall sales across the board,” he said.

Contributing to that are reduced alcohol consumption industrywide. And hesitancy among distillers to invest in DTC marketing or software has come from “knowing that we could lose this temporary privilege.”

Jeff Quackenbush joined North Bay Business Journal in May 1999. He covers primarily wine, construction and real estate. Reach him at jeff@nbbj.news or 707-521-4256.