Wine ruling needs more time to ferment
On May 16, wine lovers uncorked their champagne bottles and toasted the Supreme Court for ruling that states cannot ban out-of-state wineries from shipping directly to consumers while allowing in-state wineries to do so. Since then, states across the country have experienced a flurry of legislative action, but years may pass before wineries and states see significant results.
Supporters of the ruling have argued that direct interstate shipping will help bolster states’ wineries and, subsequently, their economies. For smaller wineries that produce 5,000 to 50,000 cases of wine per year, direct sales are crucial, accounting for 31 percent of total volume sold. Meanwhile, most states have reciprocal laws, meaning they only allow direct out-of-state shipments from states with similar laws.
When New York — the third largest U.S. wine producer — amended its laws in July to allow for direct, out-of-state shipping, Gov. George Pataki and other proponents of the legislation reasoned that it would expand the state’s wine industry, which is estimated to employ 18,000 residents and produce $85 million annually in state and local revenue.
Since the Supreme Court ruling, Connecticut began permitting direct shipping from out of state, and a U.S. district judge struck down Ohio’s ban in July. Also this year, Texas Gov. Rick Perry signed Senate Bill 877 allowing direct-to-consumer sales, following a June 2003 U.S. Fifth Circuit Court of Appeals ruling.
Wineries, however, have yet to see a major increase in sales. “It’s a bit premature to be talking about what kind of change in product sales we’re seeing, because people are still in the process of getting their licenses and trying to get the carriers approved,” says Steve Gross, director of state relations for the San Francisco-based Wine Institute, a public policy advocacy association of California wineries.
Establishing direct shipping in Texas has been a prolonged process. After the U.S. district judge’s ruling in July 2003, the legislature was not scheduled to meet until 2005. Although the state immediately began allowing out-of-state wineries to ship to consumers, Texas has a complicated system in which each jurisdiction decides whether to allow sales of beer, wine and liquor. Once the legislature went into session in May 2005, Gov. Perry signed a bill enabling permitted wineries to ship to dry and wet areas.
Meanwhile, other states continue to battle through the issue. In November, the Massachusetts legislature sent Gov. Mitt Romney a one-of-its kind bill that would prohibit direct shipping by wineries that produce more than 30,000 gallons of wine per year if they have been represented by a Massachusetts wholesaler for the past six months.
“It was a really simple issue of how do we broaden consumer choice?” says Massachusetts Sen. Robert O’Leary, who originally introduced a measure that would have allowed wineries to ship direct, regardless of size. “It’s now become very complicated and complex.” While the governor vetoed the bill, O’Leary and others believe an override is likely.
While it has been slow going, the potential implications of the May ruling are significant. Starting Jan. 1, California is eliminating its reciprocal law, permitting direct shipping from all states. Gross believes that other states will begin overturning their reciprocal laws, too.
Also at issue is the distribution system in states, such as California, that allow in-state wineries to sell to retailers or restaurants, bypassing wholesalers. Issaquah, Wash.-based Costco has filed a lawsuit against Washington, arguing that it should be able to purchase beer and wine directly from out-of-state suppliers.
