A Clear-Eyed Look At The Future For Interstate Retail Wine Shipping

July 31, 2019 / Wine Making
A Clear-Eyed Look At The Future For Interstate Retail Wine Shipping

On June 26, 2019, by 7-2, the Supreme Court made it clear that states cannot prohibit interstate shipping direct to consumers by a business licensed to sell wine solely to protect in-state licensed businesses. 

That’s it—the subject is put to rest.

Not exactly.

It’s a lofty position to issue opinions and decisions from the Supreme Court bench, but the Court exercises no enforcement authority over its decisions. That’s why 37 states, even some that allow interstate winery shipping to consumers, still prohibit or limit interstate retailer wine shipping direct to consumers. For states to comply, it will take either amending their regulations on their own or a few more court cases to do it for them.

Robert Epstein was chief attorney in the now famous interstate wine shipping case known as Granholm, et al. In 2005, the Supreme Court decided on the side of wineries being allowed to ship interstate to consumers. Although the recent Court decision concerning Tennessee against its own wine and spirit regulators was about residency rules, in his written decision Justice Alito corrected a 14-year misinterpretation of the Granholm decision: It is not limited to wineries.

With the Court’s latest decision, and its Granholm clarification, Epstein says we should look to Illinois, Michigan, Missouri and California for the next step. Legal cases representing wine retailers seeking the right to ship interstate to consumers had been filed in circuit courts but the cases were stayed awaiting the Tennessee decision. About the four cases, Epstein is sure something will happen but he says, “No hearings are pending at this time.” He also says, “…cases are prepared against New Jersey, Iowa, Kentucky and Texas.” But they are not in the courts yet. 

Daniel Posner, president of the National Association of Wine Retailers (NAWR) and owner of Grapes The Wine Company in White Plains, New York, says, “Wine retailers should send flowers,” to thank the Tennessee wine retailers, not to mention the regulators.

He also says activity on retailer shipping is in the offing in New York, with a bill circulating the legislature to overhaul the state’s beverage alcohol regulations. “After the latest Supreme Court decision, I expect we can insert language in the NY bill to create an interstate shipping permit system for retailers similar to the one in effect for wineries.” 

Posner is confident over achieving success on the issue, but he may not be patient. “It took eight to nine years for Massachusetts regulators to respond positively [to winery interstate shipping].”

Patience or not, Alito gave retailers a wonderful weapon should they want to take their state to court, however, a case may not be a “slam-dunk.”

It’s been 14 years since the Granholm decision. In that time, a majority of states have allowed interstate shipments through a series of new rules and permits. Yet some states continue to prohibit out-of-state wineries from shipping to consumers in their state. States can keep their interstate winery shipping prohibition in place as long as they do not allow in-state wineries to ship direct to consumers. The same could be the case in connection with retailers, and if the Wine & Spirits Wholesalers of America (WSWA) had its “druthers,” that’s what states would do.

The overarching NAWR argument is that retailer interstate shipping is about consumers gaining access to all products and not just the ones distributed or handled by certain retailers within any given state. That explanation brought up my question: “What’s the difference between shipping a product to a consumer from out of state with delivering a product to a consumer within the state?”

Posner accepts that some states will prohibit all wine shipping/delivery, and that’s fine with him. He doesn’t like the idea that in-state retailers may not be able to deliver wine to in-state consumers, but it would at least create, as it were, a level playing field.

WSWA CEO Michelle Korsmo understands Alito’s point about shipping in the Tennessee decision. She says, “We saw the Alito position as when states are looking at regulations they cannot do it [prohibit interstate shipping] out of protectionism.”

To the same question: “What’s the difference between shipping a product to a consumer from out of state with delivering a product to a consumer within the state?” Korsmo says, “It’s not about individual products; it’s about process.” 

WSWA’s senior vice president of government affairs, Dawson Hobbs says, “…state debate will revolve around public health and safety.” 

Agreeing with Hobbs, WSWA’s legal and regulatory affairs vice president, Jacob Hegeman says future court cases on the retailer interstate shipping issue will be seen, “Through the lens of public health and safety.” 

Korsmo concurs: “As a society, we don’t want every product to get to every person every time.”

After the Alito decision, bloggers and others with an interest in the interstate wine shipping issue imagined the imminent fall of the three-tier system. If that’s what WSWA is trying to protect by fighting NAWR on the issue, Posner would be perplexed. He says, “Winery shipping fourteen years later has had no impact on their businesses…the three-tier system is strong; it’s not going away any time soon. All we seek is equal treatment.”

Those who see this as the potential demise of the three-tier system are probably not seeing clearly. But ShipCompliant by Sovos, a company that helps wineries navigate rules and regulations connected with direct-to-consumer selling, sees something many have not mentioned: the Alito decision speaks to a potential future in direct shipping that exceeds wineries and retailers. In a press release, the company stated: “…wine producers face the possibility of added competition from independent wine clubs, meal delivery companies, grocery stores and online marketplaces.” 

ShipCompliant may be correct, and maybe that bugs WSWA, too.

Some states will change their regulations without prodding, although many are likely to drag out regulation change for as long as they can get away with it. Other states will have to be taken to court. If and when that happens, retailers will probably argue for product access to consumers via the Dormant Commerce Clause of the U.S. Constitution and wholesalers will probably argue for maintaining consumer health and safety through stringent regulation. If it were to go that way it looks like retailers would have the better argument; they can point to the past 14 years of winery direct-to-consumer.

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