We use a silly amount of acronyms in the world of winery compliance. One that winery staff often use is AP. AP stands for alternating proprietorship. But what exactly is an AP in the winery world, and why are they so popular in the wine business?
An alternating proprietorship, which for the sake of reducing my typing I’ll refer to as AP for the rest of this post, is what I’ve frequently called a “winery within a winery”. The main reason for calling it that is because any business that becomes an AP client at a winery site must obtain the same type of federal permit and state license that a brand new, stand alone winery obtains. So instead of having to build their own winery, APs are sharing the space of an already existing winery. And on paper their business is viewed as a winery, or producer/manufacturer which comes with certain desirable perks I’ll mention in a bit. The owner of the winery site is called the “host” and the AP clients at the site are called “tenants”. One winery may have 2, 10, 20 or more AP clients within that one site, but each of those AP clients at a given site are seen as individual wineries in the eyes of the regulating agencies.
APs are the most common type of application that my office has managed for new businesses over the past 13 years. Schedule a call here if you’d like to discuss.
Why is this such a common & popular licensing type? The answer has everything to do with the sales model of a wine business. Specifically, will their business follow the “wine club” model, meaning they will sell and ship their wines to customers who live both inside and outside of their home state. This is the coveted direct to consumer, or DTC (another acronym!) model. Any business that is selling/shipping wine to individuals who live in another state is required to obtain that state’s direct shipper type of license. A part of the applications for those out of state licenses is submitting copies of their TTB winery basic permit and their home state license, which must be the winery type. Want to sell your wines to people who live outside your state, but don’t want to build a winery? Your business will need to become the AP type of license holder. (side note, there are actually 13 states that don’t have this type of license requirement, however with the exception of CA, they aren’t the “good” ones)
Here in California businesses that are the AP type, which means they hold the type 02 Winegrower license with the California ABC, also are able to obtain an additional license with that agency, called a duplicate 02, at an off site tasting room. Having a license at these tasting room sites gives their wines direct exposure to consumers, and from that they can begin to grow their clubs. Some of these tasting rooms will only serve the wines from one winery. Others are known as “joint” tasting rooms. They will pour and sell wines from several different winery brands, owned by different businesses. Tasting rooms of both of these types have become very common in the downtowns of many California wine cities, from Santa Barbara to Lodi to Paso Robles and Napa. Downtown Napa, my hometown, has what seems like a ridiculous amount of tasting rooms. Over the past few years it seems like every time I see a long time local business close a few months later it gets redone and reopened as a tasting room. (& all of us locals sigh)
Being the AP type of wine business does have its advantages. The two mentioned above, shipping to consumers out of state and the tasting room options are the biggest reasons for its popularity. On the flip side of those perks is the less popular, but very necessary compliance side of the business. Because APs are a winery in the eyes of the TTB and their state agency, they are required to maintain the same records and file the same reports that any winery must. These records and reports need to be properly managed by people familiar with what is required to be recorded and reported, not always easy to come by. Many winery sites that are the host to several AP tenants offer to manage their records for them and track all their activities using database software.
The popularity of getting into the wine business continues to be strong, and based on the fact that most businesses desire to go the wine club model means that the AP type of licensing will continue to be a common route taken to get them there.