Local vineyards are anxiously awaiting a Supreme Court decision,
expected by June, 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
that prohibit out-of-state vineyards from selling wine directly to
their residents could be affected by the ruling.
Hollister – Local vineyards are anxiously awaiting a Supreme Court decision, expected by June, 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 that prohibit out-of-state vineyards from selling wine directly to their residents could be affected by the ruling.
On Tuesday, the Supreme Court heard arguments in three appeals that could change individual states’ ability to regulate alcohol sales from out-of-state businesses. The dispute pits regulators and wholesalers against out-of-state wineries that want to sell alcohol directly to consumers, mostly over the Internet or by phone.
A beneficial ruling would be a victory for many local wineries who could expand their sales and finally be on par with distributors they say are edging them out of the competition. Currently, only distributors are allowed to ship wine to some states and they often bypass small wineries, said Josh Jensen, owner of Calera winery in Hollister.
“It’s actually easier to sell wine to other countries than to some states,” said Jensen.
A positive ruling would level the playing field and weaken the monopoly distributors have now, Jensen said.
And it would increase the bottom line for many of the wineries in the area, some vintners say.
“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.
But others, like Frank Leal, owner of Leal Vinyards, said the decision is unlikely to influence San Benito wineries because they are not on the so-called “wine-trail” and seldom see out-of-state visitors. Out of the 60,000 bottles Leal sells a year, less than one percent is out of state, he said.
However, the Supreme Court ruling could make individual states treat their in-state sellers the same as out-of-state businesses.
“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. “Our point is that states have a right to regulate evenly, but they don’t have a right to discriminate based on the location of a winery.”
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.
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.
However, the Constitution also implicitly prohibits states from passing laws that discriminate against out-of-state businesses.
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.
The Washington-based Institute for Justice says the 24 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.
Staff writer Karina Ioffee and the Associated Press contributed to this story.
