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Navigating the Road to Compliance

Author: Drea Helfer
October, 2011 Issue
In an industry where the artistry is celebrated, the process romanticized and holding the position of “winemaker” just about catapults one to fame, winery-related compliance is one of the least favorable subjects and, let’s face it, one of the least exciting aspects of the business. Complying with literally thousands of federal, state, county and city regulations simply isn’t often high on the list of priorities. When it comes to complying with these protocols, while one’s intention may be honorable, execution can often fall a bit short. Yet failure to fulfill your compliance requirements is a costly gamble and can result in the revocation of your permits and licenses. Consulting a compliance expert is similar to employing a Sherpa to lead you up a mountain. While you’ll do the hiking, the Sherpa will lead the way and make sure you avoid disasters.

Various public agencies would beg to differ but I’m here to say, in your defense, that the non-complying individuals aren’t fully to blame. The maze of regulations and agencies are daunting at best. Confusion is often the first word that comes from my clients’ mouths. They walk in the door to my office overwhelmed by the plethora of applications, licenses, permits, numbers, requirements and filing frequencies…it’s exhausting. The fun of the wine business can fizzle quickly when addressing compliance—it’s smart to keep a bright attitude and forge ahead.

The learning curve for correct compliance knowledge is long, and there are so many more wineries than experts. Having the right systems and procedures setup will make it more palatable, ensure you avoid the pitfalls and put your operation on a track of successful execution. Not quite as palatable as a fine wine, but possibly pretty close.

The production, importation, purchase and sale of alcohol are all governed by federal, state, county and city agencies. The Federal Alcohol, Tobacco, Tax & Trade Bureau or TTB (formerly ATF), Food & Drug Administration, State of California Alcoholic Beverage Control (ABC) and the California State Board of Equalization are the primary agencies. Federal and state compliance encompasses license and permit applications and maintenance, record keeping, reporting, label approvals and much more.

With each agency comes pages of regulations and a laundry list of requirements. Deciphering, decoding and executing the requirements is nothing less than taxing. Good news: Federal and state agencies are attempting to make their rules and requirements more user-friendly. Most have updated their websites and do their best to inform the public. Bad news: the truth is, there isn’t one resource that encompasses all of the requirements and helps sift through what’s applicable to your business. Toggling from one agency to the next, hoping to avoid confusion and misinformation is, well, very time-consuming and should be handled with care and by someone with experience and/or training.  

Compliance for small wineries is particularly complex, and hiring an employee to deal with it isn’t always an option. Medium to large wineries are usually more in the position to do so. This is precisely why larger entities like Kendall-Jackson, Foley Family Wines and Brown-Forman are sure to have entire compliance departments. It’s simply a vital element of the business—just as important as winemaking, marketing and sales. Compliance is your license to operate—no license means no wine.

Oftentimes, wineries shift focus and direction. That shift can require changes with the various agencies. The trick is to know exactly what and when to submit and report to those agencies due to your new needs. For example, I have a client whose production has increased steadily in the past few years. It started as a small winery and, in a blink of an eye, blossomed and grew. However, the compliance procedures were still those of a small winery. There’s a point where a winery has to transition and develop systems and procedures like the big guys. Production went from just under 100,000 gallons to more than 230,000 gallons within a year. This brought with it an entirely new set of requirements. But there wasn’t a pop-up window or a friendly phone call notifying the winery it had ventured into new compliance territory. It continued, status quo. Unfortunately, we determined it had been reporting incorrectly, using the wrong tax amount along with myriad other issues. A year’s worth of reports had to be amended and back taxes paid (along with severe penalties and interest). A simple, unintentional error that could have been avoided ended up being very costly.

I encounter similar situations all too often. A winery engulfed in a backlog of compliance reports that need to be filed and records that need to be brought up to date. But the owner/winemaker, who wears all the hats, doesn’t have the proper records on file. Months, possibly years, can go by without filing. Unfortunately it’s only a matter of time before the agencies will catch up. It’s best to understand the requirements from the beginning and start with the proper procedures and processes in place.

I’ve always said compliance isn’t brain surgery, but individuals drawn to the wine industry are drawn to it for reasons that don’t involve thousands of pages of regulations and mountains of paperwork. They just want to produce a wonderful product, market it and sell it. Luckily, with proper support and guidance, you can steer your legal path in the right direction. This in turn will keep operations on track, wine in your barrels and, most important, money in your pockets.

Drea Helfer is an alcohol compliance consultant in Santa Rosa. With 10 years in the field, Drea has worked for hundreds of wineries of all sizes. Her company, DH Wine Compliance, offers all levels of compliance services for wineries, importers, wholesalers and retailers. Reach her at (707) 528-8500.


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