Legislation could be detrimental to local wine sales

By Union Democrat staff May 06, 2010 10:41 am

A new piece of legislation working its way through Congress could restrict direct-to-consumer wine sales, which would be a blow to local wine producers.

The legislation, called H.R. 5034 or “Comprehensive Alcohol Regulatory Effectiveness,” would give states the ability to regulate the distribution of alcohol in new and more restrictive ways.

Should it pass, the direct consequence of the bill would be to shift the burden of proof from states to plaintiffs that challenge state alcohol laws.
    That means that in the past, if a winery were to challenge a state law against selling directly to consumers, the state would have to prove that the law did not violate the Commerce Clause of the Constitution, which protects against preferential treatment under law.
    If the bill passes, the seller would not only be forced to prove that the state had violated the law, but the state law being challenged would be “accorded a strong presumption of validity,” according to the bill.
    That raises the bar on what sellers need to do when faced with that kind of litigation, said Paul Kronenberg, president of the Family Winemakers of California group.
    “It turns recent jurisprudence on its head. ... It’s a much higher bar because they’ve changed what the burden of proof is,” Kronenberg said. “They just have to have some justification for the law, which is not explained in the bill.”
    Kronenberg is referring to two court decisions over the past five years, including a 2005 Supreme Court case that determined that if in-state wineries could ship directly to consumers, then out-of-state wineries could as well under the Commerce Clause.
    The bill is only the first step of what wine lobbyists see as the ultimate goal of the legislation — to put more power in the hands of influential alcohol wholesalers that stand to gain if direct-to-consumer sales are shut down.
    It would be difficult to go to court, so then the wholesalers would go back to the legislatures of states and demand stricter wine-shipping laws, Kronenberg said.
    “They have a long and storied history of glad handing and giving,” he said. “They’ll make changes to state alcohol law which would affect direct shipping.”
    Direct shipping is important to smaller wineries because it allows them to cater directly to their own clientele rather than sell first to wholesalers who then sell to other retailers.
    That system, called the three-tier system, was originally put in place after the end of the Prohibition as an additional level of checks and balances, said Richard Boone, co-president of the Calaveras Wine Association.
    This put wholesalers in position to act as the middleman and make money off the distribution of alcohol as they provided an additional layer of security.
    Since the advent of online marketing and sales that made it easier for winemakers to sell directly to their customers, distributors have been trying to protect their business.
    H.R. 5034 is backed by the National Beer Wholesalers Association, and other wholesaler groups.
    Putting sales in the hands of the wholesalers makes life difficult for smaller wineries, Boone said.
    “Direct sales is almost the only option we can pursue on an individual basis,” he said.
    Boone is not yet concerned about the legislation, however.
    “Legislation like this has been tried before, and it’s just not to that point yet,” he said. “I think most people are aware, but not concerned.”
    Tuolumne County winemaker Jim Costello of Mt. Brow Winery predicted that the legislation would be most painful for slightly larger wineries that ship across the country.
    “We’re small and only ship to states that allow it,” he said. “For the most part, it doesn’t change a lot.”
    Wineries like Mt. Brow mostly cater to local markets, and those won’t be affected.
    For those that do outside business, however, the legislation could have a real impact.
    “If direct shipping to consumers ends, it could be devastating for small wineries,” Boone said.