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Recent Article in Practical Winery & Vineyard

12 Jul

I was recently published in the July/August 2010 edition of Practical Winery & Vineyard, a prestigious wine industry journal.   The article analyzes the recently introduced and highly controversial House Bill 5034, which would effectively shield state legislators from Commerce Clause restrictions when enacting laws regarding alcohol sales and regulation.  Here is the link…

http://www.practicalwinery.com/julaug10/freerun.htm

Image credit to Publisher/Editor Don Neel at Practical Winery & Vineyard

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House Bill Threatens Local Wineries and Microbreweries

10 May
A recently introduced bill in the House of Representatives may limit the choice of consumers in purchasing wine and beer from small wineries and microbreweries. The Comprehensive Alcohol Regulatory Effectiveness Act (“CARE”), would effectively allow State legislators to strictly enforce the three-tier-system which mandates that alcohol sales must flow from producer to distributor to retailer.

37 states, including California, have enacted rules that allow direct to customer sales of alcoholic beverages. These rules benefit small wineries and microbreweries, and in turn wine and beer enthusiasts, by allowing sales to be made directly to the consumer. Currently, a handful of major distributors control a bulk of the sale of wines in the U.S., and these big distributors make it difficult and prohibitively expensive for smaller operations to get their wines and beers to retailers, favoring larger wine entities. If forced to go through distributors, these small ventures will either have to pay the high expenses of a distributorship (costs which would be passed on to the consumers), or be forced to take the financial hit of decreased overall sales, which could be crippling.

It is important for small wineries and microbreweries to be able to sell directly to customers, otherwise these operations may cease to exist. The proposed bill could have a largely negative impact in San Diego, where the microbrew industry is akin to the wine industry in Napa.

Further, the diverse array of local wineries in Temecula and San Diego could similarly be pushed into a corner.

The purpose of the bill, introduced by Rep. Bill Delahunt (D-Mass), is to protect the states right to regulate alcohol sales practices. Their legal argument is based in the belief that the 21st Amendment, ratified in 1933 to repeal the Prohibition era and put alcohol regulation in the hands of states themselves, creates a higher standard for courts to scrutinize state laws which may have discriminatory effects on alcohol producers out-of-state.

The bill, if passed, would effectively overrule a Supreme Court decision in 2005 which held the Commerce Clause of the Constitution prevented state legislatures from enacting laws which allowed in-state wineries to sell directly to consumers but did not afford the same ability to out-of-state wineries. CARE creates a high burden of proof for out-of-state winemakers and a strong presumption in favor of the state laws that would make it nearly impossible to invalidate discriminatory state laws. Its passing would allow states to give beneficial treatment to in-state wineries and breweries, at the behest of out-of-state ones. This would by far have the biggest impact on California, which is home to around 90% of the American wine growth and countless breweries, by potentially limiting exportation to other states.

The law also benefits wholesalers and distributors interests in keeping themselves as middlemen between producers and consumers or retailers. The National Beer Wholesalers Association and the Wine and Spirits Wholesalers of America are the strongest supporters of this bill. It is probably no coincidence that Rep. Delahunt received one of his largest campaign contributions in 2008 from the National Beer Wholesalers Association. The wholesalers true interest is solidifying their position between manufacturers and retailers in the alcohol sales chain, to prevent beer manufacturers from selling directly to retailers, as is done with Wal-Mart and Costco. As a side effect though, it could cripple many small wineries and microbreweries that sell a majority of their products directly to consumers or retailers.

This bill could also adversely impact future creative endeavors in the wine industry. With the rise of the internet and globalization, it is logical and more practical to allow winemakers and microbreweries to sell directly to customers without having to clear an unnecessary and overly expensive hurdle. The law could also stagnate innovative and forward-thinking ways of selling wine, such as Wine.com’s recent sale of futures of a vintage Bordeaux to high-end luxury wine customers. Sales on the periphery of the three-tier-system such as this may cease to exist.

Wine and beer consumers should not fret though, this bill has an uphill climb. Speaker of the House Nancy Pelosi herself owns a small vineyard and will likely side against the bill. Further, a new Facebook group of over 10,000 people and counting is battling this legislation, in addition to many other websites against the bill. In the interest of protecting free trade in the alcohol industry, carrying on the rich culture that independent wineries and microbreweries provide, and preventing a lobbyist driven attempt to line the pockets of alcohol distributors, hopefully this bill will never pass.

Image credit to Graeme Weatherston / FreeDigitalPhotos.net