A Modest Bourbon Proposal for the Secondary Market.

Before I jump in, some people have articulated that selling or trading whiskey for collectability is perfectly legal.  I don’t agree, but I’m not giving anyone legal advice, and if any reader has questions about it, I encourage consultation with counsel. 

With that out of the way, I was asked recently, by someone who had already heard that selling Bourbon on the secondary market is illegal, whether trading bottles could avoid those problems, and it got me thinking about how to fix the secondary whisk(e)y market in the United States.  Then yesterday and today, the secondary market was rocked when Facebook shut down popular Bourbon trading and sale groups, emphasizing for me that there needs to be a legal outlet for selling and trading rare bottles.

Spirits are highly regulated, of course, and can only be sold in accordance with state regulations, which most often involve the “three tier” system of producers, wholesalers, and retailers.  Those regulations have driven whiskey sales into an unregulated secondary market.  While secondary market sales occur everywhere that Bourbon enthusiasts outweigh supply, sellers are taking a risk that somewhere, some day, local authorities will decide to enforce laws that make these types of sales illegal.  In Kentucky, for example, KRS 243.020(1) requires a license to sell alcohol under any circumstance whatsoever:  “A person shall not do any act authorized by any kind of license with respect to the manufacture, storage, sale, purchase, transporting, or other traffic in alcoholic beverages unless he or she holds the kind of license that authorizes the act.”

The Kentucky statute does not expressly use the words “trade” or “barter,” so some consumers might stop there, without checking the definition section applicable to Chapter 243.  The definitions provide that the word “sale” “means any transfer, exchange, or barter for consideration, and includes all sales made by any person, whether principal, proprietor, agent, servant, or employee, of any alcoholic beverage.”  KRS 241.010 (49).  In other words, at least in Kentucky, trading Bourbon is just like selling it.  The real questions are whether the authorities will ever care about small-scale consumer-to-consumer selling and trading, and whether the risks – like being the test-case or getting a fake – are worth it.

Minor reforms in existing laws could provide a relatively simple solution.  Yesterday I suggested to a Kentucky State Senator that Kentucky could leap to the forefront of a new white market by creating a legal, taxable, verifiable clearinghouse for the sale of rare whiskey.  A new category of license could be created to permit sales from non-licensed people to a clearinghouse licensee, which could verify and authenticate the bottle, and then sell or trade it in an online market (we might have to change shipping laws, too, but let’s take this one step at a time).  Authenticity and purchase prices could be determined by trained examiners, and other proof of authenticity (like an original retail receipt) would help consumers demand the best price for their Pappy Van Winkle, Willett Family Estate, and other hard-to-find limited edition whiskeys. 

This would allow consumers – and even the dreaded “flippers” – to sell without violating the law, and it would reduce every black market buyer’s very real concern of counterfeit whiskey.  Plus, clearinghouse licensees will be competing against each other on both paying top dollar to acquire the best selection of rarest Bourbon, and on the prices they charge for re-sale, along with competing on managing those margins and training employees to avoid fakes.  This combination of the free market and sensible regulation would bring the secondary market out of the shadows and Facebook wouldn’t have to aggravate its users by closing private groups.

What do you think?  Could this work?