Soon, we may have wine falling from the sky… or at least from a UPS truck. Last week, the Supreme Court ruled on the interstate wine shipment issue, specifically on two court cases in New York and Michigan.
Like many states across the nation, New York and Michigan have a three-tier distribution system, in which an alcoholic product moves from producer to distributor to retail or restaurant outlet. These two states currently allow intra-state shipments to bypass this system, letting a consumer order wine directly over the phone or Internet, but only if it’s from a New York or Michigan winery, not from out of state.
According to the Supreme Court, that’s not cool.
Justice Kennedy, who wrote the majority opinion, said that restricting the ability of out-of-state wineries to ship directly to consumers violates the U.S. Constitution Commerce Clause: “States have a broad power to regulate liquor,” he wrote. “This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a state chooses to allow direct shipment of wine, it must do so on evenhanded terms.”
So does this mean we can throw out the three-tier system? No. The success of the current scheme is three-fold. Distributors pay excise and sales taxes on alcohol, which, considering Americans’ drinking habits, adds a hefty sum to government coffers. The system also keeps alcohol from getting into the hands of minors – a heartstring issue the lobbyists tug to block changes to the existing laws. But most importantly, the current system prevents the “Wal-Marting” of alcohol by making it impossible for mammoth retailers like Wal-Mart to negotiate directly for lower prices on bulk wine shipments with big companies like Gallo or Fetzer. Eliminating the middleman would eventually damage sales of small family wineries, the same people this recent ruling protects.
But three-tier distribution has become as much a matter of choice limitation as it is one of temperance and taxes. Twenty-three states prohibit access to alcohol through any other means than this system. Distributors often ignores small, boutique producers, which are tougher to market, and the little guys wind up with less access to the end consumers. So with this ruling, David conquers Goliath. A little bit.
This decision only directly affects New York and Michigan, the third and 10th largest wine-consuming states (California and Florida are one and two). What this means for other states with no direct shipping is up for debate. In Florida, where there is currently a federal court case pending on this topic, there will likely be some changes. Richard Blau, attorney with Tampa’s Holland and Knight law firm, says this Supreme Court ruling, combined with the current case, will “likely bring about some relaxation in the regulation of alcohol” but notes that “the ruling does NOT mean wineries are completely free to start shipping wine directly to consumers today. In 27 states, such shipments must follow specific procedures (and restrictions) already in place. For the 23 states (like Michigan, New York and Florida) that prohibit direct shipping by out-of-state wineries… the question becomes whether the states are acting in a discriminatory fashion.”
So this leaves Floridians on the edge of their seats, awaiting change. The predicted outcome, by all accounts, is that a small number of consumers – only 1 percent of all wine sales are currently direct-shipped – will get what they’ve wanted for years: access to everything out there.