Zombies and How Winery DTC Shipping Comes to An End

Posted by Tom Wark on Sep 10, 2019

There is a dynamic currently in play among America’s alcohol regulators and the alcohol community as a whole that threatens Wineries’ direct-to-consumer shipping rights.

Over the past month, I’ve sat through two conferences aimed at educating America’s alcohol regulatory community, its attorneys and the leadership of the three tiers. I attended the Center for Alcohol Policy’s Legal Conference in Boston and most recently the National Conference of State Liquor Administrator’s Central/Western Conference in Boston.

At both conferences, there was a significant discussion of the recent Tennessee Wine v Thomas Supreme Court decision. And at each conference the discussion revolved around how, after that decision explicitly affirmed that retailers—and not just wineries—were covered by the non-discrimination principles in the 2005 Granholm v Heald Supeme Court decision, states could defend their discriminatory laws and continue to bar out-of-state wine retailers from shipping wine into their states. 

There is a very creepy element to this kind of discussion. In order to hold this kind of discussion in any kind of serious way, one has to proceed by embracing a make-believe understanding of the case. Here’s why:

If, as everyone seems to agree, the 2005 Granholm case dictated that states could no longer pass laws that discriminated against out-of-state wineries, and if the Tennessee Wine decision explicitly applies the non-discrimination principles of the Granholm decision to retailers, then states also not pass laws that discriminate against out-of-state retailers.

There was a lot of talk at both conferences that described the implications of the Tennessee Wine decision as “complex”. Now, that might be as the decision clearly has implications that go beyond the questions of durational residency requirements and retailer shipping. However, the question of whether states may discriminate against out-of-state retailers by passing protectionist legislation barring them from shipping into states is not a complex question.

The abandonment of reason that I saw at both conferences may have something to do with the fact that on two panels dedicated specifically to discussing the Tennessee decision, the panelists consisted almost entirely of wholesaler representatives and retailers who oppose retailer shipping. The Center for Alcohol Policy Conference can be forgiven for this wholesaler-heavy representation since the Center for Alcohol Policy is an arm of the National Beer Wholesalers Association. The best explanation for the anti-shipping configuration of the panel at the National Conference of State Liquor Administrators’ recent conference is that its moderator was Ms. Jo Moak, general counsel for the Wine & Spirit Wholesalers of America. However, it should be noted that one of the four other panelists on Ms. Moak’s seminar panel was Sean O’Leary, who has written with particular clarity on the issue of the Tennessee Wine case.

Nevertheless, the bulk of both discussions was spent attempting to ferret out ways by which states could uphold protectionist anti-shipping laws with “public health and safety” justifications and by deploying data-based evidence for these justifications. There was not a single moment of discussion of the best way to address these unconstitutional laws—through a retailer shipping permit system akin to that which wineries currently have access.

Try to imagine a panel of scholars and experts sitting down to discuss how they can prevent the emergence of zombies in the middle of the zombie apocalypse. I’m the guy in the audience wondering why there is no discussion of how to corral the zombies who are pounding on the door.

As bizarre as this all sounds, there are some serious consequences of ignoring the obvious.

If a state and its anti-shipping supporters can develop a successful legal strategy that convinces a judge that there are reasons based on “public health and safety” that justify keeping protectionist and discriminatory anti-retailer shipping laws on the books, why can’t those reasons and justifications also apply to winery shipping?

In the Granholm case, defenders of protectionist laws barring winery shipments gave various reasons to the Supreme Court justices why winery to consumer shipments either could not be policed or were too dangerous to allow: Minors obtaining alcohol via direct shipment; difficulting in collecting taxes; facilitating orderly market conditions; protecting public health and safety; ensuring regulatory accountability.

Each of these justifications were shot down by the Supreme Court in Granholm. And not to beat a dead horse, but I’ll remind once again that the Tennessee Wine decision explicitly assured that retailers were covered under Granholm:

“Granholm repeatedly spoke of discrimination against out-of-state products and producers, but there is an obvious explanation: The state laws at issue in Granholm discriminated against out-of-state producers. And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimination against all “‘out-of-state economic interests”
Justice Samuel Alito, Tennessee Wine v Thomas

Is there is some other justification a judge could grab on to for upholding protectionist anti-retailer shipping laws that at the same time would not apply to winery shipping?

Some have suggested that because retailers don’t, like wineries, possess a federally issued permit to be taken away if they are a bad actor this might be reason to think retailers can’t be sufficiently policed. But this ignores the fact that states may prosecute out-of-state retailers in Federal court under the terms of the 21st Amendment Enforcement Act passed in 2000.

Some have suggested that while states can easily track where winery shipments originally came from (the winery), they can’t track where out-of-state retailer products originally came from, increasing the specter of counterfeit or tainted wines getting into the stream of commerce. However, the same can be said of wines shipped by in-state retailers. If this is indeed a problem associated uniquely associated with retailer shipping then it is equally a problem with shipments from a state’s own in-state retailers.

Others have suggested that a state could never provide oversight and regulation of the hundreds of thousands of retailers nationwide that could apply for a permit. This justification ignores the evidence that it is wineries, not retailers, that obtains the vast majority of shipping permits in states that allow both wineries and retailers to ship. It turns out that because so very few of Ameria’s retailers (most of whom are convenience stores, grocery stores, and corner liquor stores) engage in interstate shipment, only 25% to 30% of permits issued in winery and retailer permit states are issued to retailers. The bulk go to wineries.

I bring up the fact that there are no logical or reasonable ways to justify laws barring retailer wine shipments in a post-Tennessee Wine world to impress upon folks that if by chance a judge can be found who will accept any of the above justifications or any other justifications for upholding protectionist anti-retailer wine shipping laws, those same justifications can be equally applied to winery shipping. And there is one simple reason for this:

THERE IS NOTHING OF ANY SUBSTANCE TO DISTINGUISH RETAILER WINE SHIPPING FROM WINERY SHIPPING. They are both remote, retail transactions. They both require the use of common carriers. They both implicate the shipper in tax remittance. 

Still, if I were the wineries or their representatives, I’d be very closely watching this bizarre, creepy, make-believe discussion now beginning to emerge among those who are apparently still in shock due to the Tennessee Wine decision. This Supreme Court decision was not narrow. It was not a decision that had implications only for residency requirements. It was a decision that constitutionally and practically upended a decade and a half of comfortable misunderstandings and intentional misreadings of our founding documents in order to keep legitimate competition at bay and to deny consumers their legitimate and understandable desires.

If the regulatory community and leaders of the alcohol beverage trade don’t soon decide to simply take the new reality at face value and begin accepting reasonable reforms that allow retailer shipping under well and reasonably-regulated conditions, then the fight is going to come back to wineries. Because here’s the bottom line: If retailers can be discriminated against with protectionist ant-shipping laws, then so can wineries.