Important New Ruling For Wine and A New View of Alcohol Regulation
On September 3rd an important court ruling emerged out of a Federal Court in Illinois in the Case of Anheuser Busch v. Schnorf
(Download Illinois ruling). The ruling reiterated a holding implied in the Granholm v. Heald Supreme Court case and made explicit in the Costco v. Hoen case: States may not bar out-of-state alcohol producers from selling directly to retailers and restaurants if the same states allows its resident producers to sell to in-state retailers and restaurants.
The case resulted from the Illinois Liquor Control Commission earlier this year barring Anheuser-Busch, a Missouri company, from purchasing an Illinois distributor, holding a distributor license and thereby becoming its own distributor in Illinois…essentially, self-distributing. A-B claimed that by banning it from self distributing but by allowing two in-state Illinois brewers to self distribute, the state was violating the Commerce Clause of the U.S. Constitution by discriminating against out-of-state interests.
In fact, A-B relied primarily on the Granholm v. Heald Supreme Court decision to make its case.
In his decision, Judge Robert M. Dow, Jr. wrote:
"The result of this discrimination against out-of-state brewers is to restrict the ability of out-of-state beer producers to market and sell their beer on equal terms with in-state beer producers. Under Granholm, a state may not permit an in-state producer to operate at more than one tier of the state’s alcohol beverage licensing system or to bypass one or more of those tiers, without according the same right to out-of-state entities."
What's interesting about Illinois is that where wine is concerned it has on the books a law that allows wineries in-state and out-of-state that produce less than 25,000 gallons to self distribute up to 5,000 gallons annually. This law left two Illinois wineries that produce more than 25,000 gallons annually and thousands of wineries across the country that produce more than 25,000 gallons only able to distribute to Illinois restaurants if they use a distributor. This cap is nothing more than protectionism for Illinois wholesalers and my hope is that it will be challenged in the future.
Still the latest ruling is a reconfirmation that states are not given carte blanch under the 21st Amendment to do whatever they desire and there is no indication that at any time Congress or the American people intended states to have carte blanche where alcohol laws are concerned.
Current laws concerning alcohol are very complex and have been built up over the past 70+ years largely in response to bureaucratic inertia and response to powerful commercial interests. Courts have been critical in both bringing down laws that protect specific interests as well as propping up anti-consumer, special interest laws. In this case, fairness and commonsense and the Constitution were the victors.
Yet, one fundamental problem exists concerning state alcohol laws: Their basic structure was created in an era that looked nothing liked today's world. The business, logistics and commercial outline of the 1930s bares no resemblance to the 2010s. As a result, the current set of alcohol laws in the 50 states rarely accommodate in anything close to efficiency the needs of the marketplace. There needs to be a fundamental re-interpretation of the role of alcohol regulation and laws. I have an idea on that issue.
In my view, the 21st Amendment must be understood today as it was understood at its creation: as a vehicle for allowing states to allow or disallow the sale of alcohol. To this end, a state should have the right to regulate the sale of alcohol ONLY inside its own jurisdiction: inside its borders. It should not have the right to regulate how wine is sold OUTSIDE its borders. The three-tier system should be considered "unquestionably legitimate" if it concerns alcohol that is sold inside its borders and not yet in the hands of consumers. But a state should not regulate the way consumers, who are not part of the three tier system, obtain their alcohol. This means a state should not have any jurisdiction over consumers who choose to obtain their alcohol from out-of-state producers OR retailers. Out-of-state retailers and producers are not part of a given state's three tier system. And if a state does not prohibit the consumption of alcohol, it has no interest in where consumers get their alcohol. If a consumer in Texas wants to buy a bottle of wine from a California producer or retailer then that transaction is the concern of California, where the purchase took place.
This is a departure from the current system of alcohol regulation that has no place for the rights or needs of consumers, but rather is concerned primarily with tax collection and protecting and ancient regulatory system that supports very specific special interests.
The ruling in Illinois is a good one for a number of reasons. It reasserts the importance of the Commerce Clause in relation to the 21st Amendment, it give more impetus to the relatively novel practice of "self distribution" and it reminds lawmakers and players in the alcohol regulatory system that a level playing field is critical.