De-reg shake-out continues nationwide
Pub Date: 7/1/2006
The fallout from court decisions forbidding states to discriminate in their direct-to-consumer wine shipping policies continues to ebb and flow in states throughout the nation.
In May 2005, the U.S. Supreme Court, in Granholm v. Heald, ruled that states which allow in-state wineries to ship products directly to consumers but prohibit out-of-state wineries the same privilege, must either end the practice or open their borders to all wineries.
Some legal scholars and alcohol industry observers warned as a result of the decision the distinction between wine and other types of adult beverages beer and spirits would be obliterated leading to direct shipping of beer and spirits to consumers, rocking the traditional three-tier system of alcohol distribution and control.
Meanwhile, the St. Paul Pioneer Press sponsored attempts by teens to order wine, beer and spirits over the internet and in four of five test cases the companies supplying the products failed to act legally, some delivering the contraband to teens without ID and age verification.
While uncovering little that was previously unknown, the story nevertheless may indicate a growing public awareness of the problems inherent in eliminating responsible face-to-face retailing of controlled products.
State laws continue a cycle of overhaul, repair and fine tuning in the aftermath of the Supreme Court decision.
Alabama
A bill to allow in- out-of-state wineries to direct ship to consumers that was developed, debated and voted on several times over the last three years and recently passed by the House failed to gain a Senate vote.
As a result, Alabama wineries may take a different tack one that apparently will meet no resistance from wholesalers. They may form a co-op that, in addition to allowing some economies of scale on the expense side of the ledger, could also legally function as a wholesaler.
Arizona
A bill intended to bring Arizona into compliance with Granholm v. Heald passed the House and Senate and arrived at the desk of Arizona's governor. However, rumblings from the big wine producers and their plaintiffs lawyers may foreshadow additional legal challenges to come.
The Arizona law would allow wineries producing 20,000 gallons or less annually to ship product directly to consumers, provided a face-to-face purchase had been previously arranged.
Free The Grapes, a front group for Big Wine, is campaigning in the state to pressure the governor to veto the bill. The lobbying group said in a release: If passed, this bill will almost certainly be challenged in the courts. Just when it seemed like the Granholm dust was beginning to settle, states began introducing these bills with discriminatory capacity caps. New rounds of court cases challenging these caps will mean many more changes to come in the world of wine direct shipping."
Delaware
While Delaware wasn't making news specifically on the direct shipping issue, it nevertheless was entertaining a new round of deregulation legislation.
A lawmaker there has introduced a bill to allow beer to be sold in grocery stores and is reportedly considering a law that would end the state's prohibition against an individual owning more than one liquor store, opening the way for chain ownership.
Florida
A court decision in Florida struck down its law allowing only in-state wineries to direct ship, in effect opening the borders to direct-shipped wine from anywhere. The state's legislature then declined to enact any further restrictions on the process, even though wholesalers lobbied heavily for it to set limits on the gallonage production of wineries allowed to direct ship.
By setting a production limit, Florida would have allowed true farm wineries anywhere to bypass wholesalers and direct ship, while impeding the mega wine producers from overwhelming the boutiques.
Indiana
After Granholm, Indiana notified wineries that direct shipping was illegal. Small in-state wineries sued and won an injunction, prompting the legislature to act. It passed a law, apparently meeting with acceptance, that allows in- and out-of-state wineries to direct ship with restrictions.
Customers must first make a face-to-face purchase at a licensed winery, be at least 21 years old and order no more than 288 bottles annually. Wineries must sell no more than 500,000 gallons in Indiana each year or sell more than 24 cases to any one customer, and must get a signature and verify the age of the recipient of plainly marked packages.
Kansas
A new Kansas law, backed by the Kansas Licensed Beverage Association and a coalition of adult beverage business associations, calls for face-to-face transactions. Wine ordered from out-of-state may be shipped to in-state retail outlets where consumers may pick up their orders.
Pennsylvania
Pennsylvania Gov. Rendell has introduced a bill to allow out-of-state wineries producing less than 125,000 gallons of wine annually to direct ship to state residents. Out-of-state wineries would have to obtain a state license and pay all applicable state taxes, some of which do not apply to in-state wineries. The bill is not expected to be acted upon until next fall.
The bill would allow wineries to ship up to three cases per month to state residents, but would not allow direct sales to restaurants. The state restaurant association said they found that provision unacceptable and plans to see it revisited.
Texas
Things are decidedly muddled in Texas where the deregulation campaign has moved from out-of-state wineries demanding access to Texas consumers, to out-of-state alcohol retailers now demanding the same, fulfilling predictions that, with the Granholm cat out of the bag, deregulation advocates are beginning a sweeping rampage on the three tier system and states' rights to regulate alcohol.
At least two lawsuits have been filed in Texas, one seeking to allow out-of-state retailers to ship directly to Texas consumers, since Texas allows its native retailers to ship out-of-state. That suit resulted in an injunction prohibiting the state from enforcing a ban on the practice. Out-of-state retailers will have to use entities specially licensed by the state to ship alcohol, though no licensing process has yet to be established.
The industry is seeking to intervene in the cases.
Vermont
The Vermont Legislature passed, and its governor signed, a new law that allows out-of-state wineries to conditionally direct ship adult beverages to in-state consumers. Wineries must obtain a Vermont shipping permit and ship no more than 12 cases to any resident annually. In addition, wineries can ship up to 2,000 gallons total to restaurants and groceries annually, but not more than 40 gallons a month to any one outlet.
The bills specifies tax collection procedures, requirements of shipping companies, signature and age verification standards and penalties for shipping to minors.
Washington
Effective July 1, Washington consumers and retailers can obtain beer and wine directly from permitted ($100) out-of-state producers. There is no quantity limit, but shippers must report and pay taxes monthly to the state and use plainly marked packages stating the need for age verification and recipient signature.