Gilroy
– Local vineyards are anxiously awaiting the result of a Supreme
Court case that will decide if they can tap into some of the
largest wine markets in the country.
Gilroy – Local vineyards are anxiously awaiting the result of a Supreme Court case that will decide if they can tap into some of the largest wine markets in the country. State laws in New York and Florida – the two largest markets after California – and 22 other states prohibit out-of-state vineyards from selling wine directly to their residents.
“If this ruling changes the law in bigger states, it would definitely increase our online sales,” said Cheryl Durzy, vice president of sales at Clos LaChance, in San Martin. She said the vineyard currently sells 90 percent of the 30,000 cases it produces annually through a wholesale distributor. Direct sales could boost the vineyard’s sales and the percentage of profits it keeps, according to Durzy, who said distributors charge a 30-percent fee just for picking up a case of wine.
Supreme Court Justices Tuesday heard arguments in three appeals involving laws in Michigan and New York that allow direct in-state, but not out-of-state, shipments.
“Many of the [Supreme Court] justices’ questions were pointed at this difference of how states regulate wine within their borders,” said Jeremy Benson, executive director of the consumer-advocacy group Free the Grapes, who attended the Tuesday hearing.
Several justices appeared troubled by the notion of unequal treatment, although they also seemed uncertain about whether overturning state laws in place since Prohibition was the solution. A decision is expected by June.
The case involves a clash between two parts of the Constitution, with lower courts divided over which section should hold sway.
On one side is the 21st Amendment, which ended Prohibition in 1933 and explicitly granted states authority to regulate alcohol sales. Twenty-four states have laws that generally require outside wineries to sell their products through licensed wholesalers in the state. Michigan and New York allow instate Internet or telephone sales of alcoholic beverages. Some other states allow such sales, others do not.
The Constitution also prohibits states from passing laws that discriminate against out-of-state businesses. That provision has been embraced by wine makers who hope to reach faraway Internet customers looking for U.S. vintages unavailable in their home states.
While the 2nd U.S. Circuit Court of Appeals sided with New York in upholding the state restrictions, the 6th Circuit, based in Cincinnati, Ohio, struck down Michigan’s laws as unconstitutionally protectionist.
A ruling favorable to winemakers would benefit the little man in an industry controlled by heavy-weights. According to figures from Benson’s advocacy group, the number of winemakers has increased from about 300 to more than 3,000 in the last 40 years, with the largest 50 wineries accounting for 87 percent of the country’s production. In the same time period, the number of wholesale distributors has decreased from 11,000 to about 500, leaving a handful of wholesalers in control of wine markets in each state.
Janine Kaloczy, sales and event director at Fortino Winery, said the vineyard has interviewed with distributors but has yet to find a suitor.
“We would definitely like to attract more distributors,” she said.
In the meantime, she hoped for a favorable ruling in the Supreme Court case.
“We do a lot of online sales,” she said. “If some of the state laws were loosened up, we could do a lot more.”
Gene Guglielmo said current state laws posed a different challenge for his family’s Morgan Hill vineyard.
“A lot of times we’ll have a wholesaler that might be interested in our wine, but we can’t even ship them samples,” he said.
The stakes are high in the $21.6-billion wine industry. States collect millions of dollars in alcohol taxes and claim the established system helps stem fraud and underage drinking. They argue they have less enforcement power over out-of-state sellers who aren’t licensed.
Opponents say there are other, less-restrictive ways to control underage drinking, such as requiring shipping companies to verify recipients are 21 or older, that don’t burden wineries with hefty middlemen’s fees.
Tuesday’s case only involves wine sales, but groups representing distributors for beer and other alcohol have asked the high court to rule for continued state regulation, believing that the decision eventually could apply to them.
The Washington-based Institute for Justice says the states that ban direct interstate shipments are Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Ohio, Oklahoma, Pennsylvania, New Jersey, New York, South Dakota, Tennessee, Utah and Vermont.
The cases are Granholm v. Heald, 03-1116; Michigan Beer & Wine Wholesalers Association v. Heald, 03-1120; and Swedenburg v. Kelly, 03-1274.
The Associated Press contributed to this story.
