Helping NJ Work Through Its Issue With Wine

Posted by Tom Wark on Jun 20, 2011

I'm a fairly busy guy. However, I'm never too busy to help out the good folks at the different state legislatures. So, allow me to take some time out from this fairly busy schedule of mine to put the New Jersey Legislature on the right course.

Seems they have a conundrum on their hands. In the Garden State, local wineries are allowed to sell wine directly to wine stores and not go through a middleman wholesaler. In addition, New Jersey wineries are able to have a number of tasting rooms located off the premises of their wineries.

Now, I think this is all excellent lawmaking. These two provisions given New Jersey wineries outlets for selling their wine that they should have and it provides retailers with ready access to New Jersey wineries that they likely don't have via wholesalers.

However, the problem the New Jersey Legislature has is that current law does not give OUT OF STATE wineries these same privileges. A Washington winery, for example, is prohibited from selling directly to a New Jersey wine store and it is prohibited from opening its own tasting room in Trenton, clearly off its Washington-based winery premises. A Federal Appeals court has properly ruled that this kind of discrimination against out of state wineries violates the Dormant Commerce Clause of the Constitution. That Federal court told a lower Federal District Court to rule either that out-of-state wineries ought to have these rights too, or no New Jersey wineries can have them. It's a simple concept: regulate in-state and out-of-state business on equal terms.

Here's where it gets tricky. The lower Federal Court told the New Jersey Legislature to decide how they'd like to resolve this Constitutional problem or the Court will. Actually, it's a nice, democratic gesture.

Two competing bills have been introduced to address the issue.

Bill #1
Senate Bill S-2782 would allow all wineries, in-state or out-of-state, that produce less than 250,000 gallons of year to ship wine direct to consumers in New Jersey. That 250K gallons is a little over 100,000 cases. Many argue that by allowing direct shipping, out of state wineries will no longer be at a disadvantage by in-state wineries that are allowed to have numerous retail tasting rooms off their wineries premises—as the Federal Appeals Court ruled they are.

There are two problems with this bill. First, it would do nothing to remove the discrimination that only allows in-state wineries to have the right to have numerous tasting rooms. If passed, proponents of the bill will find themselves back at the drawing board. Shipping wine and being able to have numerous retail outlets are different things. The other problem, of course, is the limit on the size of the winery that would be allowed to ship wine direct to New Jersey residents. Such an absurd scheme has already been ruled unconstitutional by the 1st Circuit Court of Appeals in Boston in the Family Winemakers of California V. Jenkins.

Bill #2
Assembly Bill 3831 would expand the number of retail tasting room in New Jersey that in-state wineries may operate and sell from. At the same time, it would allow out-of-state wineries to open tasting rooms in New Jersey and sell their wines in those tasting rooms. Additionally, this bill would revoke New Jersey wineries' right to sell wine directly to retailers, bypassing the middleman wholesaler.

There's a problem with this bill. It stinks. By revoking the right of New Jersey wineries to self distribute their wines directly to wine stores, these wineries become at the mercy of New Jersey wholesalers if they want to see their wines sold in retail stores. Put another way, this bill will kill numerous New Jersey wineries.

Lots of confusion here. Lots of it. Let me help out the New Jersey Legislature by showing them how they can comply with the ruling of the Federal Appeals Court, help New Jersey wineries and help New Jersey consumers.

Write a bill that allows the following:

1. Any winery in-state or out of state may ship wine directly to New Jersey residents regardless of the size of the winery.

2. Any winery in any state may open retail tasting rooms in New Jersey and many do so in any amount they want to.

3. Any winery in any state may sell wine directly to wine stores.

The benefits of this kind of bill would be numerous.

1. It would remove any state mandate that wine must be sold through a New Jersey based wholesaler in order for it to get on to retail store shelves. Mandated three tier systems of this sort do nothing to prevent tied houses that state and federal laws can't do. Plus, it gives freedom to in-state and out-of-state wineries to choose to use or not use middlemen wholesalers. Plus, states can easily track shipments from wineries to wine stores with no problem whatsoever. Wholesalers that prove themselves economically useful will keep business. Those that don't, well, tough.

2. By allowing both shipments of wines to consumers as well as consumer access to wines via tasting rooms, you have substantially more consumer access to wines that consumers would otherwise not have access to. New Jersey will increase its wine sales and with that take in more tax revenue. Plus, giving in-state and out of state wineries access to tasting room sales and direct to consumer shipping sales, you will spur economic growth both inside and outside New Jersey.

3. New Jersey would lead the way in dismantling the archaic and entrepreneurial-stifling state-mandated system that does nothing to achieve the goals of the state alcohol regulatory systems.

There we go New Jersey Legislators. Easy Peasy.