Wine Reforms, State Power and Blackmailers

Personally The battled over H.R. 5034, the bill in Congress being pushed exclusively by beer and wine middlemen, has resulted in some misconceptions and misunderstandings regarding the state of alcohol regulation in America, the meaning of the Constitution and just who is pushing for change.

Wholesalers have been consistent in their messaging over the past year or so. They argue that elements of the American alcohol industry want to "deregulate" the sale and distribution of alcohol and have wanted to do so for many years. Why the state-mandated middlemen would offer up such blatant lies such as this is understandable. "Deregulation" where alcohol is concerned is a scary idea. It suggest a free-for-all in the sale and distribution of alcohol.

But of course no one is suggesting that the sale of alcohol be "deregulated". Even in Washington State, where Initiative 1100 would create major changes, deregulation isn't the issue. Nor do the calls to allow direct shipment of wine to consumers amount to "Deregulation".

What we are talking about here is REFORM. And the basic structure of the American alcohol regulatory system is in desperate need of reform. That basic structure was created 75 years ago when Prohibition ended. A few things have changed since then. Not the least of these changes are Americans enthusiastically adopting wine, the monumental increase in the number of wines in the American marketplace, the revolution in logistics and shipping, the emergence of instant communications and information distribution via the Internet, and the monumental consolidation at the state-mandated wholesale tier of the alcohol industry. Wholesalers act as though nothing has changed since 1933.

Wholesalers, who are the state-mandated bottleneck in the distribution system, conspire to assure that no reform occurs and call any changes "deregulation" as a way to scare and dupe the lawmakers that oversee alcohol regulations in the states and at the federal level. Personally, I don't think lawmakers are as stupid as the wholesalers give them credit for being by asking them to believe that simple, small reforms amount to "deregulation". I think lawmakers understand perfectly that wholesalers are trading in hyperbole in order to protect their own financial interests.

Simple reforms to the state-based alcohol regulatory systems are necessary in order to promote entrepreneurship, innovation, consumer access to products and to assure states are able to collect all the alcohol taxes they have a right to. But deregulation? No one wants it.

Another misconception and misunderstanding that has been promoted in the midst of the HR 5034 battle is the degree of power states supposedly have with regard to alcohol regulations. Again, the wholesalers would have us believe that the states were given carte blanche control over alcohol regulations as a result of the 21st Amendment.

The history of the 21st Amendment that ended Prohibition is very complex. The meaning of the 2nd paragraph of this amendment is mixed up with earlier laws and acts of Congress. But what is absolutely clear is that the 21st Amendment does not trump the rest of the U.S. Constitution. According to the wholesalers' interpretation of the 21st Amendment, a state has the power to prohibit women, African-Americans and senior citizens from owning liquor stores just as they have the power to discriminate against out-of-state businesses because, they argue, the 21st Amendment gave the states total and complete control over the sale and distribution of alcohol.

This is of course absolutely incorrect. The 21st Amendment did nothing of the sort. The 21st Amendment did two things: 1) End national Prohibition and 2) gives those states that sought to remain dry the constitutional right to protect that decision.

With HR 5034, wholesalers have attempted to convince Congress that it was always the intent of Congress going back decades to allow the states to do whatever they want with regard to alcohol. HR 5034 would in fact allow states far more power to regulate alcohol to the point of actually stripping parts of the industry of their vital protection from discrimination under the Commerce Clause of the Constitution—a move so radical that it has only happened one other time in the history of the United States when the Insurance industry was stripped of its Constitutional protection against discrimination by the states in interstate commerce.

None other than the president of the Wine & Spirit Wholesalers Association, Craig Wolf, has recently argued that the various lawsuits that have challenged discriminatory alcohol regulations in different states amount to blackmail on the part of the litigants. In a recent interview with Kane's Beverage News, Wolf argued those filing lawsuits against states are "blackmailing" them by virtue of the fact that if the litigants win, the states have to pay legal fees to the winners so wouldn't it just be easier to cave in to what those suing the state want and avoid potentially paying millions in legal fees.

What this means, of course, is that Wolf's own wholesaler members are Blackmailers. Wholesalers, like vintners, brewers and retailers, have challenged state laws they didn't like or found burdensome or discriminatory, and have sued states where residency requirements keep wholesalers from opening up new branches in those states. Interestingly, when Wolf and the Beer Wholesalers argue that these lawsuits are terrible and hurting the states, they never mention that their own members have sued states too.


1. It's "Reform", Not Deregulation
2. The Power of States to Regulate Alcohol is Not Unlimited
3. Wholesalers Are Blackmailers Too.

21 Responses

  1. James McCann - October 27, 2010

    Sorry Tom, but the Young’s Market ruling (1936)specifically stated that states did have the right to regulate within their borders, and additionally stated that they could not be in violation of the commerce clause if there was a consitutional amendment (the 21st) sanctioning their actions.
    It is only more recent courts that changed this… I would think that a court in 1936 would have a better idea of what was intended by the amendment.
    It seems again I agree with you, but not with your arguments.

  2. Thomas Pellechia - October 27, 2010

    To further what James says, the 2005 Supremes also stated that alcohol being special means that states have a special mandate for regulation that may sometimes seem to be in conflict with the commerce clause but may not be in violation of it.
    Tom, deregulation should be the goal.

  3. Tom Wark - October 27, 2010

    How are you?
    A couple things. First, the Granholm court takes close account of the Young’s decision, noting that the Young’s decision’s proximity to the passing of the 21st amendment does not necessarily make it more authoritative. To quote from Granholm:
    “It is unclear whether the broad language in Young’s Market was necessary to the result because the Court also stated that “the case [did] not present a question of discrimination prohibited by the commerce clause.” The Court also declined, contrary to the approach we take today, to consider the history underlying the Twenty-first Amendment. This reluctance did not, however, reflect a consensus that such evidence was irrelevant or that prior history was unsupportive of the principle that the Amendment did not authorize discrimination against out-of-state liquors. There was ample opinion to the contrary”
    The question comes down to exactly “WHAT” did the 21st Amendment sanction. Clearly it sanctioned the end of National Prohibition. No one disputes that.
    Having read numerous accounts of the debate in the Senate and House over the 21st Amendment, I’m convinced that the right “to regulate within their borders” that the states have amounts to giving any remaining DRY states the power to keep alcohol from being imported into their states…BUT not the power of a WET state to prohibit the import of alcohol in violation of the commerce clause.

  4. Tom Wark - October 27, 2010

    “Deregulation” sounds a lot like getting any government body out of the alcohol regulatory business. Not going to happen and shouldn’t happen.
    However REFORM of the state regulatory systems MUST happen.

  5. Thomas Pellechia - October 27, 2010

    After Nov 2, we may have a host of deregulators in Congress. Why not use them while they last?
    Let’s get government out of our lives, as the many nutcases keep saying with obvious childlike understanding…
    Duck, you are about to get flying debris from some of the nutcase constituency.

  6. James McCann - October 28, 2010

    This is what makes this debate so interesting, as it does not allow anyone to draw neat partisan lines. If we are truly going to open up all the state markets, knocking down “control states” is very important as those states are often the hardest to ship into…
    Senator Robinson, during the 21st amendment debate:
    “Everybody condemns the saloon. I’m no champion of it and never have been. I have submerged my personal views, believing it my duty to take this course. . . . If liquor is to be sold at all, it must be sold either in saloons or State agencies and I don’t think Congress ought to be committed to the policy that we’re choosing permanently between those agencies. . . . The States have just as much ability to handle this question as Congress. . . . There is no ideal way of dealing with the liquor problem. We’ve been looking for such a way for almost a century and it has not been found. … I have grave doubt in whatever form this amendment is submitted whether 36 States will ever ratify it.”
    He says the states have as much ability to decide HOW liquor will be sold inside of their states as Congress does, and that they have the ability to make future changes in how it is sold. As he was the driving force behind the final version of the amendment (the first version left the control of “on-premise” sales to Congress), I think that a fairly strong argument can be made that state regulation was clearly a design of the amendment.

  7. James McCann - October 28, 2010

    From the Young’s decision, the court addressed the need to consider the history of the amendment:
    “The plaintiffs argue that limitation of the broad language of the Twenty-First Amendment is sanctioned by its history, and by the decisions of this Court on the Wilson Act, the Webb-Kenyon Act, and the Reed Amendment. [Footnote 3] As we think the language of the amendment is clear, we do not discuss these matters. The plaintiffs insist that to sustain the exaction of the importer’s license fee would involve a declaration that the amendment has, in respect to liquor, freed the states from all restrictions upon the police power to be found in other provisions of the Constitution. The question for decision requires no such generalization.”
    They chose not to look closely at the historical record because the amendment was so clearly worded. (in their opinion)

  8. Tom Wark - October 28, 2010

    If one is so incline—and you may just count yourself among the very few of this type—there is some very interesting, mostly legal, commentary on the meaning of the Wilson Act, the Webb Kenyon Act, the 21st Amendment and the legislative histories of these laws and amendments that can be found on the Internet.
    At the very least and which can not be denied, is the fact that the 21st Amendment’s grant of power to the states is anything but total where the regulation of alcohol is concerned. It’s also clear that the understand the 21st Amendment it’s vitally clear to understand the meaning of the Webb Kenyon Act and Wilson Acts. Again, this suggests that the “clear meaning” of the 21st is not so clear at all.

  9. Thomas Pellechia - October 28, 2010

    “…this suggests that the “clear meaning” of the 21st is not so clear at all.”
    Tom, the meaning is often clear; it’s the myriad interpretations over the years that muddy the waters, that and the fact that the debate does not get into the actual amendment.

  10. Tom Wark - October 28, 2010

    I suspect you’ve looked into this issue given your focus of research over the years. What’s your interpretation of the 21st vis a vis Federal v. State powers?

  11. James McCann - October 28, 2010

    I don’t disagree with anything you’ve said, except to point out that I can find commentary that supports either side of the argument. The problem with that is as the court changes, and members come and go, decisions can sway back and forth. Thus, without a change to the amendment (which won’t happen) the next generation will be fighting the same battle.
    In terms of Webb-Kenyon, if the 21st amendment had the same intent, why didn’t they use the extensive language that they used in Webb-Kenyon? Don’t mean to belabor, as again, we can both find plenty of legal commentary to support our point of view. I’m just at a loss as to what kind of permanent solution would exist short of a new amendment.

  12. Thomas Pellechia - October 28, 2010

    I think James is correct. The 21st Amendment appears to be in direct conflict with the Dormant Commerce Clause regarding interstate commerce, BUT, the many court readings on the issue maintain that alcohol was and continues to be viewed by Congress and the courts as a special case.
    What they mean by that is that they will come down with a narrow reading for each individual case as long as it manages to maintain State’s right to regulate as each see fit within limits that, because it is alcohol, are wider than the limits on other commercial products.
    As long as a state shows that its laws do not explicitly discriminate against a product or producer, and as long as the state can show that its regulations do not prevent access (limit access is ok) then the friction will remain. Just about every state’s alcohol regulations were set in place in the 1930s with the express purpose of limiting access to alcohol and the courts have never said that is not allowed.
    The only way to remove the friction and the volume of ambiguous rulings is to either amend or repeal the 21st Amendment, which is not likely in our lifetime.
    For every court ruling that goes one way, an appeal will take it to another level where it is likely to go another way. That’s the beauty of Congressional language–it’s simutaneously clear and ambiguous, to keep lawyers and judges employed.

  13. Tom Wark - October 28, 2010

    James and Thomas:
    I think the permanent solution is to make the convincing case that the second paragraph of the 21s Amendment was meant specifically to allow dry states to remain dry without the threat of alcohol being shipped in under the guise of the Commerce Clause, exactly as Webb-Kenyon provided, but does not allow wet states to discriminate against interstate commerce in alcohol in any way.
    The fact is, this view is made clear in the debates over the webb kenyon act, the debates over the 21st amendment, and even in the 1999 debate over the 21st Amendment enforcement act, particularly when we look at how the Goodlatte Amendment was handled then.
    The 21st amendment does not need to be revised or repealed. It merely needs to be understood correctly. And we are slowly moving toward a consensus on that matter. This is why HR 5034 must be defeated. It reverses the meaning of the 21st amendment insofar as it has congress passing off to the states its right to regulate interstate commerce.

  14. Thomas Pellechia - October 28, 2010

    This discussion reminds me of a time when I was employed by someone who directed me to highlight items on an inventory list by drawing a line through them in red that actually had the effect of garbling the information that we needed. Each time that I drew the line with a yellow marker that highlighted without obliterating the information the boss became apoplectic, because I was not doing it his way, even though his way clearly didn’t do what it was intended to do.
    Sure, in the limited view of HR 5934 you are correct. But 5034 is just one in a string of fights that will continue because, what clearly doesn’t work is the law that is in place. You keep glossing over the fact that the Supreme Court has consistently refused to look at what you claim is the case–that 21 obviously conflicts with Commerce. You can scream all you want about fairness, but this is an interpretation of Congressional law that we are talking about, something that doesn’t always relate to fairness, or even to reason.
    In my view, the 21st Amendment was written mistakenly, and it either needs to be challenged as unconstitutional or it will remain a thorn.
    It certainly will be interesting to see what happens with the commerce regulations on marijuana when it ultimately becomes federally legal in this country.

  15. Thomas Pellechia - October 28, 2010

    Sorry–that first number is also 5034.

  16. Tom Wark - October 28, 2010

    The Supreme Court has on numerous occasions, including Granholm v Heald, noted that the Commerce Clause and the 21st Amendment don’t conflict at all. Rather, the two parts of the constitution instruct us as to the extent of powers that the states and the Feds each have with respect to alcohol.
    States may regulate up to and including their borders. The Feds regulate where commerce between the states is concerned.
    The problem with HR 5034 is it extends state powers beyond its borders, allowing the states to regulate not only within their borders, but also outside their borders by allowing states to pass laws that discriminate against interstate commerce.
    In the more than 100 years congress has been dealing with these issues, it has never been the intents of congress to cede its interstate commerce powers to the states.
    The 21st Amendment can not and never will be challenged as unconstitutional. It is the Constitution.

  17. Thomas Pellechia - October 28, 2010

    I know all that. That’s exactly why I say that the only winning solution is to challenge 21’s constitutionality…to end the debate altogether.
    5034 can be defeated but as long as there is this unusual state right of control over one commercial product (and the three tier system) attempts to introduce more bills and to make states restrict trade even tighter will not end.
    As to your statement: “The 21st Amendment cannot and never will be challenged as unconstitutional. It is the Constitution.”
    How do you explain the one and only repeal, the one that replaced the 18th with the 21st Amendment?
    I agree that 21 probably won’t be challenged, but that doesn’t mean that it cannot be challenged. With standing, why not?

  18. Thomas Pellechia - October 28, 2010

    I should add that the 18th Amendment was of course repealed by Congress and it did so without having to gather 3/4 of the state legislature to pass the 21st Amendment. It was done through a majority vote by way of state conventions–a much easier and quicker route. No reason the 21st can’t be amended the same way.
    Petitioning Congress, not the courts, is the way to go, just like the process that wholesalers are using to get 5034 into law.

  19. Tom Wark - October 28, 2010

    The 21st Amendment isn’t going to be repealed. Not in our lifetime. First, if it were simply repealed, we would have national Prohibition again, since the 18th would come back into effect.
    The wholesalers are attempting to amend the Webb Kenyon act and the Wilson act because the 21st Amendment constitutionalized those two acts of congress.
    The big game changer would be if we could get someone to amend HR 5034 to assure that states may not discriminate. In fact, I wrote exactly such an amendment in an earlier blog post.
    However, you’d have to have a congressman with extraordinary cajones to do that.
    If HR 5034 can be turned back, the next and easiest step to assure consumer access to wine is to use the courts to invalidate discrimination against wineries and retailers that is unconstitutional.
    I think it’s clear that it is unconstitutional to allow discrimination against out of state wineries and out of state retailers. I think it is equally clear that it is unconstitutional to allow in state wineries to self distribute to retailers and restaurants but prohibit out of state wineries from doing the same (so says the 9th circuit).
    What’s equally clear to me is that we need a new Supreme Court decision to clarify all that was left unsaid in the Granholm decision.

  20. Thomas Pellechia - October 29, 2010

    “What’s equally clear to me is that we need a new Supreme Court decision to clarify all that was left unsaid in the Granholm decision.”
    On this we fully agree.
    In the Granholm case, the Supremes said that it is ok to bar shipping from out of state but only if you bar it in-state as well. So, the court does allow the state to step on Congress’ toes when it comes to alcohol commerce.

  21. barware - October 30, 2010

    Thanks for your mind-blowing work for wine category.

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