My Neck Hurts

Posted by Tom Wark on Sep 24, 2008

When you spend enough time watching wine politics play out, it becomes a real necessity to be able to laugh…otherwise you’ll spend your time at the chiropractor from shaking your head back and forth in dismay.

The wine politics playing out in Oklahoma are both hilarious as well as depressing.

This November, Oklahoma residents will, again, vote on the issue of winery "self distribution". "Self Distribution" refers to when a winery sells directly to a retailer or restaurant at a higher price than if they sold their wine to a distributor first, who would then sell it to the restaurant or retailer. When the winery sells direct to the retailer, the cost of the wine to the consumer is either the same as what it would be if the wholesaler sold it or potentially less.

For small wineries in particular (and that’s all Oklahoma has) self distribution is very important if only because it places the destiny of their business in their own hands, rather in the hands of distributors who may or may not distribute their brand and, if they choose to, may or may not actually sell it.

In 2000, OK voters agreed by a 2 to 1 margin to allow OK wineries to self distribute. Now, as you might imagine this didn’t sit well with OK wholesalers. Though the monetary loss they would suffer as a result of OK wineries not using them would be minuscule at best, it’s the principle of the matter: Free markets in wine just don’t sit well with wholesalers who have completely controlled wine distribution in OK for decades and liked it just the way it was.

So, upon passage of the self distribution law the OK distributors filed suit. Now get this:

They argued that the law DISCRIMINATED against out-of-state wineries that were not also allowed to self distribute into the state. And it was true. The law did discriminate against out-of-state wineries. They were not allowed, as OK wineries were, to sell direct to retailers and restaurants and bypass the wholesalers.

Before you start feeling all warm and fuzzy about OK distributors who appear to just be looking out for wineries, you need to keep in mind that this lawsuit was brought not to force the state to allow out of state wineries to self distribute, but rather to kill the new law altogether, making sure that OK wineries would be stripped of the right voters had just given them and would be forced, once again, to live under the thumb of distributors.

The irony of course is that distributors don’t care about fairness, the commerce clause or out-of-state wineries being able to access a freer market. So, give them points for creative duplicity.

Well, the voters of OK get vote again in November on the issue of self distribution for wineries. But if you look at this new potential law closely, I promise you’ll end up at the chiropractors office.

The new law would allow both in-state and out-of-state wineries making less than 4,200 cases of wine per year to self distribute to retailers and restaurants in OK. GREAT!!

However, the law says that they may only do so with vehicles that they own themselves. They may not use any other types of carriers.

In addition, the bill says that if any part of this law is deemed unconstitutional, the rest of the bill will be invalidated and wineries may no longer self distribute.

This potential new law is so clearly discriminatory against out of state wineries, and on a number of levels at that, that if challenged it should most certainly be invalidated by the courts.

So…Wait for it…..Do you think the OK distributors will challenged the law once the voters approve it?…And they will approve it!

Here’s the problem. The part of the law that requires wineries use their own vehicles to get wines to retailers is impractical for out-of-state wineries at best and, therefore, discriminatory at worst. When challenged, the state will have to argue that there is no less discriminatory way for Oklahoma to regulate the sale of wine in the state and no less discriminatory way for them to collect taxes on the wine sold. They won’t be able to show this. And the law will be invalidated.

Add to this the fact that the 4,200 case limit on those that are allowed to self distribute under the law and you have another reason to challenged the law since the vast majority of OK wineries fall under this limit. A similar limitation is being challenged in MA.

But here’s the real kicker. If anyone doubts that the requirement that wineries must use their own trucks to to deliver their wine to retailers and restaurants is not in place for purely discriminatory reason, all they have to do is read the following:

"Brad Naifeh of Central Liquor cautioned lawmakers against the bill.
Some large winemakers from other states, such as California’s E&J
Gallo, sell wines under hundreds of labels that produce less than 5,000
gallons per year, said Naifeh, and could use the proposed law to flood
the market in Oklahoma without using a wholesaler.

Morgan said the bill requires both in-state and out-of-state
wineries who sell directly to retailers in Oklahoma to transport their
wines in vehicles owned by the winery, and requires such deliveries to
be transferred directly from the winery to the retailer. Such vehicles
must obtain the necessary licensure and permits from the Oklahoma
Alcoholic Beverage Laws Enforcement agency. Morgan questioned if it
would be cost-effective for an out- of-state winery to drive a few
thousand gallons of wine all the way to Oklahoma."

Morgan is Rep. Danny Morgan, the Oklahoma State Representative who originally introduced the bill that will be considered by voters in November. Rep. Morgan comes straight out here in the article from the  Oklahoma City Journal Record and says that the bill will discourage out-of-state wineries from self distributing. The bill is clearly written specifically to deter out-of-state wineries from self distribution, even though on its face it allows it. If challenged, it’s going down…and everyone knows this.

Oklahoma wineries are generally supporting this new law and recommending its passage. And why shouldn’t they? It gives them the most basic right any producer of a product should have: the ability to control the sale and distribution of their own product. But they should know that they are heading for a surreal situation where once again the OK distributors end up stripping this basic right away from wineries on the premise that it is discriminatory against the very out-of-state wineries that distributors will do whatever it takes to discriminate against. Has anyone asked OK distributors if they plan to challenge this law in court if it passes? Someone should.

My neck hurts.