For many wineries, partnering with a distributor is a necessary step to expand market reach. But before signing a distribution agreement, wineries must understand the legal framework that may govern the relationship: franchise laws. These state-level laws can significantly impact how—and whether—a winery can terminate, modify, or exit a distributor relationship.
What Are Franchise Laws in the Alcohol Industry?
Franchise laws are state statutes designed to protect alcohol distributors from unfair treatment by manufacturers and suppliers. While the scope of these laws varies by state, they generally impose restrictions on a winery’s ability to end or change its distribution agreement. Once a distributor relationship falls under a state’s franchise law, the winery often cannot simply walk away if the relationship is not working out.
Why Do Franchise Laws Matter for Wineries?
Unlike other commercial contracts, distributor agreements in franchise law states can be extremely one-sided in favor of the distributor. For example:
- Termination restrictions: Many states require wineries to show “good cause” (such as fraud, insolvency, or a material breach of contract) before terminating a distributor. Dissatisfaction with sales performance alone may not qualify (but check with your counsel to make sure).
- Notice requirements: Wineries may be required to give written notice before terminating or altering an agreement. In some instances, this could be a month or more.
- Board approval: Some states require notice to or approval from a state alcohol agency before a termination can take effect.
- Compensation obligations: Wineries may be required to repurchase inventory or even pay compensation to the distributor for loss of brand value.
Note that, even if the specific state does not have a franchise provision pertaining to wine, it is possible that a contractual agreement between a winery and a distributor could include franchise provisions.
The result? Once you appoint a distributor in a franchise law state, you could be “locked in” to that relationship for years, regardless of performance.
Which States Have Franchise Laws?
More than 20 states currently have franchise laws affecting wineries, breweries, or distilleries — though the details vary widely. For instance:
- Virginia, North Carolina, and Georgia have franchise laws that strongly protect distributors.
- New York does not have broad alcohol franchise protections for wine, making distribution relationships more flexible (absent a written contract).
- Some states apply franchise laws only once certain thresholds are met (such as sales volume or years of relationship).
Because the rules differ so much, wineries must evaluate franchise risks on a state-by-state basis before entering into new markets.
Key Considerations Before Signing a Distributor Agreement
If you are a winery preparing to sign a distributor agreement, keep these factors in mind:
- Review state franchise law carefully — determine whether the state has such laws and how they may affect your rights.
- Negotiate contract terms upfront — even in franchise states, some terms may help protect your winery if issues arise later.
- Consider long-term strategy — appointing a distributor in a franchise state should be seen as a long-term commitment.
- Seek legal guidance — a distributor contract is not just a business agreement; it’s often regulated by state law in ways that may surprise you.
How Lindsey Zahn P.C. Can Help
Franchise laws are complex, and their impact on wineries can be long-lasting. At Lindsey Zahn P.C., we work with wineries across the United States to evaluate distributor agreements, understand the risks of franchise states, and develop strategies that align with long-term business goals. Before signing a distribution agreement, contact us to ensure you understand your rights and obligations.
If you’re interested in working with us on a proposed distribution agreement or are seeking guidance on franchise laws, contact us to schedule a consultation and learn more about how Lindsey Zahn P.C. can help your winery navigate franchise laws.
📩 Email us at info@zahnlawpc.com
🔗 Visit our Contact Page to get started.