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Lithuanian startup mentality against strict alcohol laws – this might now come to an end

Alcoholic beverages may be sold in Lithuania only at certain times of day. For months, a Lithuanian company cleverly exploited a loophole in the law to circumvent these regulations. Now the law will probably be changed for good.

For some years now, Lithuania has been following the strict alcohol laws of the Nordic countries and is increasingly restricting the sale of alcoholic beverages. Alcoholic beverages, i.e. beverages with an alcohol content of more than 1.2% by volume (beer with more than 0.5% by volume), may only be sold in shops at certain times - Monday-Saturday between 10.00 and 20.00 and on Sundays between 10.00 and 15.00. The sale of alcoholic beverages via vending machines is already completely prohibited. 

The fact that the Lithuanian alcohol control law expressly speaks of “sale” was exploited by resourceful entrepreneurs in the middle of last year. Vending machines suddenly appeared in several places in the capital Vilnius. Word of mouth and newspaper articles spread the news that alcohol could be bought there around the clock – and allegedly completely legally.

The supposed trick is that no sale is made through the vending machines. The system works something like this: Customers who have reached the legal minimum age for buying alcohol (20 years) can register via an app. A one-off fee is charged for registration. In the app, customers can choose from a limited number of beverages. The customer can reserve one of these drinks at any time via the app with the operator's cooperation partners (who has an alcohol sales licence) against payment of a “service fee” – but without payment and without handing over the actual drink. The customer only receives a “storage usage authorization”. 

The customer is then entitled around the clock to take an “equivalent drink” from one of the vending machines according to his reservation. The removed beverage was not previously deposited or “stored” there by the operator or cooperation partner, but by another customer.

In order to keep the system running, it is a condition for the withdrawal from the vending machine that the customer subsequently “stores” an “equivalent drink” in one of the vending machines within 72 hours. However, the customer does not buy this drink from the operator, but from any shop in the Republic of Lithuania in a completely legal manner. This means that neither the operator nor cooperation partners would be involved in the actual sale of the drink. The sale takes place outside this system.

The system is financed by the one-time registration fee and the “service fee”. For the customer these are additional costs compared to buying in a shop – but combined with the flexibility to “buy” alcohol at any time of the day or night. 

Observers quickly agreed that this could not be legal. The Lithuanian Drug, Tobacco and Alcohol Control Authority announced that it would examine the matter. Numerous violations of the Lithuanian alcohol control law were on the table: sale of alcoholic beverages without a licence, failure to comply with the ban on selling alcoholic beverages from vending machines, sale of alcoholic beverages to minors or violation of the regulations on the storage of alcoholic beverages.

The system stands on clay feet – but it stands.

Licence for the sale of alcohol

A licence in respect of trade in alcoholic beverages is only required for wholesale or retail. In retail trade, goods for personal or household use are sold to the final consumer. Wholesale is the sale of goods for resale or production.

The operator, the cooperation partner or the customers would therefore have to actually sell the alcoholic beverages in order for a licence to be required. In a sales contract, the seller undertakes to transfer a good to the buyer as property and the buyer undertakes to accept the good and pay a price.

There is no doubt that with a model such as the one described, the ownership of the alcoholic beverage is transferred to another party. One could even attribute the procurement of the property to the operator – at the moment when the operator machine makes the alcoholic beverage available. But here the remuneration – the price – is missing. The only cash flow within the system is the already mentioned “service fee”. However, the value of the drink far exceeds this, making it difficult to argue that this is the adequate remuneration for the drink and that a purchase is being made. Only if the customer were to buy the replacement drink from the cooperation partner could one possibly assume a sale by the operator/cooperation partner. However, if the customer is required to buy the beverage in any shop in the Republic of Lithuania, this case is rather unlikely. It would be equally problematic if operators or cooperation partners refill the vending machine from time to time to keep the cycle going. From an economic point of view, however, it is questionable whether this would make sense, as each refill would result in losses amounting to the value of the beverages refilled.

Finally, the question must be considered whether any form of purchase takes place between the customers. But even this can be negated. It is, however, a loan in kind. Here, the lender transfers the ownership of objects of a certain type and quality to the borrower, and the borrower undertakes to return the same number of other objects of the same type and quality to the lender. 

Of course, the whole thing resembles a hat player trick, but a license would not be required for this.

Alcohol duty to minors

Persons under 20 years of age are prohibited from consuming or possessing alcoholic beverages in Lithuania. Even though the use of apps (and thus participation in the system) is only permitted from the age of 20, it would by no means be guaranteed that minors would not also be able to obtain alcoholic beverages from vending machines. However, it is not entirely clear whether the operator really has a special duty of care.

It is indeed prohibited to sell alcoholic beverages to persons under 20 years of age. However, according to the law, only Lithuanian companies licensed to retail alcoholic beverages must ensure that persons under 20 do not consume alcoholic beverages. The cooperation partner would be such a company, but the operator would not. 

This obligation also applies to catering businesses affiliated with the company. It would therefore have to be examined to what extent the operator and the cooperation partner are connected with each other. It can be assumed, however, that the operation of the vending machines in this form cannot be regarded as a catering business.

Therefore, the following applies here as well: No alcoholic beverages are “sold” and the operator does not fall into any of the categories mentioned. Only the cooperation partner may have special obligations.

Storage of alcohol

A general licence for the storage of alcoholic beverages is not required for companies that are not producers and do not operate in retail or wholesale. However, all companies (regardless of their business activity) are prohibited from storing the following in the Republic of Lithuania (irrespective of the final purpose of the alcoholic beverages)

  • alcoholic products without a certificate of conformity of alcoholic products
  • alcoholic products for which there is no licence to produce, import or sell and no legally binding documents for the purchase or transfer of such products
  • alcoholic beverages not bearing special marks
  • alcoholic beverages whose labelling does not comply with the requirements of the Republic of Lithuania
  • alcoholic products without a legally binding copy of the purchase or transport documents of these products at the point of sale (storage) and/or during transport

Here, the operator would for the first time make himself clearly vulnerable to attack. Because he too would have to ensure that the storage of alcoholic beverages does not violate the criteria mentioned – regardless of whether a sale takes place or not. If the substitute drinks are actually bought legally in a shop in the Republic of Lithuania, it can be assumed that they may be in conformity with most of the criteria mentioned. However, the legally binding copy of the purchase documents at the storage would probably be missing. A proof of purchase that the customer simply attaches to the bottle would not be sufficient.

It would also be difficult for the operator to make excuses, since he is not storing the products, but simply providing the customer with a “neutral” storage. After all, it is he who has determined the purpose of the warehouse and sets the rules. If he also wants to make sure that only drinks that do not violate these criteria or meet the above-mentioned requirements for “same type and quality” are stored in the vending machine, he must occasionally check the contents of the vending machine and intervene if necessary. Without doubt, it is clear that not only the customers are storage operators, but also he.

Everything has an end

The fact that this system had existed for so many months shows the inventive genius of its creators. Although everything seemed so simple at first glance, it was obviously difficult to stop it with the laws in force. The government of the Republic of Lithuania therefore seems to feel compelled to intervene. The Ministry of Economics has now announced amendments to the Alcohol Control Law to ban vending machines and to introduce rules on the lending and storage of alcohol.

Sources:
Civil Code of the Republic of Lithuania
Law on Alcohol Control of the Republic of Lithuania

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