Wine Wholesalers Push For Deregulation With H.R. 5034

Deregulateme As the three tier system's traditional structures failed to address a growing consumer demand for fine and artisan wines, one of the most important points wineries and retailers regularly made is that they would willingly accept significantly increased levels of state regulation. Wineries and retailers who sought to expand their markets and get wines to collections of enthusiastic consumers across the country that wholesalers chose not to serve knew that significantly increased regulatory oversight by states would be necessary to assure the developing direct sales market benefited the state and met community standards for safeguarding minors.

Given this, it should be no surprise that since the Granholm v. Heald Supreme Court Decision that served to overturn the "reciprocity wine shipping agreements" between states and open up direct shipping in many states, there has been a significant increase in the amount of wine and alcohol regulations across the country.

What is surprising is the effort now under way by alcohol wholesalers to tear down a remarkably successful regulatory system that has been put in place and worked well for years.

H.R. 5034, the bill crafted by the National Beer Wholesalers Association and enthusiastically supported  by the Wine and Spirit Wholesalers Association, would lead to the demolishing of a regulatory framework that assures state taxes are collected, minors don't obtain alcohol and that producers and retailers produce a paper trail for every bottle of wine the moves through the national marketplace via direct shipment.

What's notable about the significant amounts of new regulation that came into being post-Granholm is that the wineries and retailers actively lobbied for it and still do. The Model Direct Shippers Bill, sample legislation designed by wineries and retailers, has been promoted by shippers in nearly every state they've worked to obtain shipping rights. This legislation calls on all taxes to be paid to the state, a licensing fee, regular reporting to the state, requirements that adult signatures be obtained before delivery of any wine, and that all shippers submit themselves to the legal and regulatory jurisdiction of the state.

To get an idea of the amount of new regulations that have been put in place since Granholm, consider the changes noted at the Wine Institute's long-standing wine shipping website.

The Internet Archive page of the Wine Institute's direct shipping page for January 1, 2004 (a year and a half before the Granholm Supreme Court decision) shows that only 10 states had a permit/regulatory structure in place for direct shipment of wine. Today, 35 states have in place a permit/regulatory structure for direct shipping. In fact, in order to manage the three fold increase in alcohol regulations across the country that wine shippers have asked for and obtained, an entirely new compliance industry has grown up around the direct shipping market.

Here's the punchline:

"It is important that states retain their constitutional power to
regulate the distribution of beverage alcohol and are able to fend off
litigation, which serves to destabilize or destroy that authority."

Craig Wolf, Wine & Spirit Wholesalers Association, applauding H.R. 5034

And this…

"The CARE Act aims to clarify congressional intent that states have
primary authority to regulate alcohol; prevent the additional erosion of
state-based alcohol regulation through the expansion of the Granholm v. Heald decision."

Craig Purser, President, National Beer Wholesalers Association, applauding H.R. 5034

As states respond to the successful passage of H.R. 5034 by banning direct shipping of wine (and as this is the goal of the legislation it most certainly will happen) we will see a tearing down of state based alcohol regulatory structures. This will be followed by a wild west freeforall as consumers go to all lengths to continue to get the wine they once were able to purchase, but will be denied after the passage of laws banning direct shipment.

That the alcohol wholesalers who are pushing and supporting H.R. 5034 are deceiving congress, regulators, the media and consumers when they say there has been deregulation since the Granholm decision is pretty shameful. But there's something worse.

Alcohol Wholesalers are pursuing conditions that will ultimately turn consumers into felons and force state alcohol regulators to fight a battle they cannot win and that will cost the state and state-based alcohol regulatory agencies hundreds of thousands of dollars they can't afford to waste on protecting wholesalers from competition.

9 Responses

  1. Roger King - April 22, 2010

    Great perspective and tact!

  2. Kevin Hamel - April 22, 2010

    Okay Tom,
    This is an interesting take on the whole situation and confusion will be sown by the proponents of H.R. 5034. “Through the Looking Glass” type scenarios are being floated to obfuscate the whole issue. What I am now advocating (it came to me in a blinding head rush yesterday afternoon) is a boycott of big brands that support this legislation. Let’s start with no Corona or Cuervo purchases on May 5. I’m serious about this and think that an effort to get the WSWA to remove the legislation may be as effective as opposing it in Congress.
    Keep up the good work! And if you agree with my thoughts, let’s spread the word!
    Kevin Hamel

  3. Bill Williamson - April 22, 2010

    This is not really about state control of alcohol. Every man woman and child in this country can get alcohol at their local market. It’s about who makes money in the middle transporting that alcohol.
    Generally nobody but a few care but this now threatens everyone’s right to a free market and freedom of choice right here in America! This is dangerous legislation for everyone and in the end will serve no one well!

  4. David Honig - April 22, 2010

    This is not deregulation. It is empowering States to regulate alcohol in the face of the Commerce Clause, and more particularly the dormant Commerce Clause. It is already a very confusing issue, but adding the label “deregulation,” which is inaccurate, will just add to the confusion.

  5. Tom Wark - April 22, 2010

    Currently wine shipping is well regulated, but…
    1. Bill passes
    2. States ban shipping
    3. Consumers find way to get wine
    4. Wine shipping happens unregulated.

  6. David Honig - April 22, 2010

    A slightly in-depth analysis. I will try to give it a second comb-through over the weekend.

  7. David Honig - April 22, 2010

    Wine shipping happens unregulated is the predictable result of this legislation, but the legislation is not deregulation. It is the opposite. I must have just misread what you were actually getting at. My apologies.

  8. Randy Pitts - April 22, 2010

    I encourage all wineries to contact your wine club members in the districts where these dem and republican congress people live. Have them raise hell I actually have two members living in the very districts where these corporate henchmen live. I’ve already contacted then and let me tell you, one was not super happy at all to hear the congressman from the great state of N. Carolina wants to stop her from getting my sauce.
    If anything, this is a reason for…

  9. David - April 27, 2010

    Direct to consumer wine shipping is regulated but not monitored nor managed.
    Factually, many wineries ship direct to consumers throughout the United States today without licenses or permits because they claim they can’t afford the licenses and permits. I don’t buy that argument. I could provide a list as long as my arm of wineries that I know of that choose to ship without licenses or permits.
    At Goosecross, we pay for all of our licenses and permits. This is a necessary expense so we can be law abiding and focus on our customer service. Unfortunately for Goosecross and our entire industry, paying for these licenses and permits is proving to be a financial competitive disadvantage based on so many that choose to break the laws.
    So, why should we care what laws go into place when so many wineries will choose to break them anyway?
    Any winery that is breaking the law is adding traction to the argument of the wholesalers. Maybe we should self-monitor within the industry and reward for whistle blowing. Once the States see that wineries can be law abiding participants and self-monitor within our industry, I think we can stop the wholesalers in their tracks.
    Until then, trust is not on the table… and rightly so,

Leave a Reply