Archive for April, 2006
HB 247 passes Florida House
April 28th, 2006
As you recall, Florida is currently open for wine direct shipping under the honor system. In the meantime, the Florida House and Senate are busy hashing out the details of what will become the permanent legislation in the Sunshine State.
HB 247 passed the Florida House Wednesday and now awaits the Senate. This bill would establish a cap where wineries that produce more than 250,000 gallons would not be eligible for a direct shipping license in Florida. According to the South Florida Sun-Sentinel, the cap was inserted as a result of a “Big-money lobbying campaign” led by non other than Miami-based Southern Wine and Spirits, who “has given $70,000 to the Republican Party of Florida so far this election cycle”.
A separate bill (SB 282) that does not include a production cap is ready for floor consideration in the Senate. The Federal Trade Commission recently weighed in on SB 282 with their Comment on Proposed Direct Shipment Legislation . This letter is worth reading in its entirety. Here is their conclusion (emphasis added):
Based on our review, FTC staff believes that, if enacted, SB 282 would enhance consumer welfare and allow Florida to meet its other public policy goals. By allowing interstate direct shipping, SB 282 likely would allow Florida residents to purchase both a greater variety of wines and many wines at lower prices. In addition, by requiring manufacturers to comply with certain regulatory requirements, SB 282 would allow Florida to prevent shipments to minors and to collect taxes on direct shipments. However, if SB 282 is amended to prohibit direct shipping by wineries producing more than 250,000 gallons of wine annually, as you suggest is being considered, such limitation likely would significantly reduce the benefits to competition and consumers that SB 282 otherwise would provide. We urge the Florida Legislature to take into account these likely effects on consumers when considering SB 282.
This letter makes a number of good points and also cites some great references. I was particularly interested in their argument that the 250,000 gallon (just over 100,000 case) cap would “significantly reduce the benefits to competition and consumers”. They mention that the cap would exclude in excess of 150 wineries in California alone
Although we take no position regarding the constitutionality of such a prohibition in light of the Granholm decision, we believe that such a prohibition likely would significantly reduce the benefits to competition and consumers that SB 282 otherwise would provide. In particular, limiting direct shipping in such a manner would reduce the variety of wines that SB 282 would allow Florida consumers to access directly. As discussed in more detail above, direct shipping allows consumers to purchase wines that may not be available in nearby bricks-and-mortar retail stores due to, among other things, limited shelf space at such stores. Although FTC staff has not undertaken a rigorous empirical analysis of the effect of a production-based limitation, information readily available to staff demonstrates the impact on variety that such a limitation would have. For example, a review of the survey of most popular wines of 2005 compiled by Wine & Spirits magazine � the same survey utilized in the 2002 and 2004 McLean Studies discussed above � indicates that 25 of the 50 most popular wines are produced by wineries with production in excess of 250,000 gallons per year. Thus, the production limitation being considered would prevent Florida consumers from direct access to half of the most popular wines identified in this prominent survey.
Although the FTC won’t comment on the constitutionality of the 250,000 gallon proposed cap - many other states have also introduced “small-farm” production caps - many opponents of such caps have argued that they will not hold up if challenged in court.
Costco ruling - Findings of Fact and Conclusions of Law
April 25th, 2006
We added the Findings of Fact and Conclusions of Law from the Costco v. Hoen case to our Document Library. Here are a few key passages from the document (emphasis added)
The Sherman Act reflects a strong federal policy in favor of competition. At the same time, the Twenty-first Amendment provides each state with broad authority to regulate alcohol products in order to advance certain “core interests,” such as promoting temperance, ensuring orderly market conditions, and raising revenue. This case requires the Court to consider whether the challenged restraints are effective in advancing the state’s core interests under the Twenty-first Amendment and whether the state’s interests outweigh the federal interests in promoting competition.
For the most part, the Court finds that the policies challenged by Costco are not effective in advancing the state’s core interests under the Twenty-first Amendment. The Court also finds that the state’s interests do not trump the federal interest in promoting competition even when the restraints may be minimally effective in advancing the state’s interests.
…
The following state restraints are preempted by the federal Sherman Act and are not shielded by the Twenty-first Amendment:
(a) Policies that require beer and wine Policies that require beer and wine distributors and manufacturers to �post� their prices with the state and to �hold� those prices for a full month;
(b) Policies that require beer and wine distributors to charge uniform prices to all retailers;
(c) Prohibitions on selling beer and wine to retailers on credit;
(d) Prohibitions on volume discounts for beer and wine sales;
(e) Policies that require beer and wine distributors to charge the same �delivered� price to all retailers, regardless of the actual delivery costs;
(f) Prohibitions on central warehousing of beer and wine by retailers; and
(g) Policies that require a 10% minimum mark-up on sales of beer and wine from producers to wholesalers, as well as a 10% minimum mark-up on sales of beer and wine from distributors to retailers.
Landmark ruling in Costco vs. Hoen
April 24th, 2006
On Friday, Judge Marsha Pechman released Findings of Fact and Conclusion in the case of Costco v. Hoen. In a landmark ruling for the future of the three tier system, the Court found that the Washington state-mandated wholesaler monopoly was not shielded by the 21st Amendment and was in violation of the Sherman Antitrust Act.
After the dust settles, this will likely create a ripple effect not unlike the the Granholm v. Heald ruling of 2005. For now, Judge Pechman stayed the judgement for the 30 days to give the defendants time to appeal.
We’ll have much more to say about this in the coming days and weeks.
Late Update: OK, I just read this and could not pass it up. Check out this quote from Tom Wark at Fermentation:
It will be interesting to see if any wine wholesalers issue any sort of statement. It will be even more interesting if the reactionary national association for wholesalers, Wine & Spirit Wholesalers Association (WSWA), releases a statement. I can see it now:
“we are disappointed that the judge did not respect the clear message of the 21st Amendment and blah blah blah blah…”
Wouldn’t it be nice if the WSWA instead issued a statement that made sense and was honest:
“Our rationale for trying to restrict sales and deprive consumers of choice in the realm of wine has been exploded in a perfectly reasonable ruling by the judge. We have no leg to stand on now and will work closely with state legislatures across the country to liberalize wine sales with the hope that consumers will now be able to obtain the wines they want unfettered by our desire to maintain a state-sponsored monopoly.”
Summary of changing states
April 24th, 2006
Wow, there have been a lot of changes to direct shipping laws this year and we are not even at the six month mark! Many reciprocal and prohibited states are becoming permit states. This is good news for wineries and consumers, but it is hard to keep track of all the changes. There are several states that have passed direct shipping legislation this year that is not yet effective. Here is a brief summary of states that will change to permit systems later this year. Colorado, effective July 1, 2006: A permit is required, but there is no fee. Wineries can ship an unlimited amount to consumers and must pay excise tax. Sales tax is not required. Idaho, effective July 1, 2006: A $25 permit is required. Wineries may ship up to 24 cases to a consumer annually. Sales and excise tax must be paid by the winery. Indiana, awaiting promulgation of rules: Wineries eligible for the $100 permit must have sales under 500,000 gallons with no Indiana wholesaler. The initial sale must be an on-site transaction. There is a 24 case consumer aggregate total and 3,000 case winery total. Sales and Excise tax must be paid by the winery. Massachusetts, awaiting promulgation of rules: The direct shipper�s permit will cost $100. Any winery under 30,000 gallons may obtain a direct-to-consumer and self-distribution permit. Any out-of-state winery over 30,000 gallons who has no wholesaler may apply for a direct-to-consumer permit only. Households will be limited to 26 cases per year. Excise tax is required. In addition, there are some very complex common carrier requirements that could prevent the use of permits even for wineries that qualify. There is one piece of good news, if a winery manages to overcome all of these obstacles it will not be responsible for paying sales tax. Washington, effective June 7, 2006: The cost of a permit $100. Wineries can ship an unlimited amount to consumers and are responsible for paying sales and excise tax. The new laws will not be posted on the Wine Institute website until their effective date, but direct wine shipper applications and tax registration forms will be posted as soon as they are available. I am especially excited about the unlimited shipment amounts in Colorado and Washington. I wonder just how many wine clubs my friends at ShipCompliant will join?
Colorado bill signed by Governor Owens
April 18th, 2006
Effective on July 1st, 2006, Colorado will officially move from a reciprocal state to a limited-direct state. See the file in the ShipCompliant Document Library for the full details of House Bill 1120, which will establish a permit system for in-state and out-of-state wineries. Governor Bill Owens signed the bill on Thursday.
Colorado was previously considered by most to be a “reciprocal” state even though a direct shipping license was required as was a previous onsite visit by Colorado consumers. The new legislation will remove the onsite visit requirement and remove the current per customer quantity limit of two cases per individual per month. Excise taxes and monthly reporting will apply, but the Colorado ABC has yet to determine the exact requirements for reporting and taxes.
Congratulations to our friend Doug Caskey at the Colorado Wine Industry Development Board and Chuck McGrigg from the Wine Institute for helping to get this favorable legislation passed.
Maryland to allow self-distribution
April 18th, 2006
Maryland Governor Robert Ehrlich is expected to sign into law a bill that would allow in-state and out-of-state wineries to sell directly to retailers. Senate Bill 812 would allow any licensed U.S. winery that produces less than 27,500 gallons to self distribute to Maryland restaurants and retailers.
This bill does not improve the situation in Maryland. Although it is being advertised as a “compromise” between Maryland wineries and wholesalers, it is basically par for the course. The only change is that now out-of-state small farm wineries can self distribute to Maryland retailers. Direct to consumer shipments will remain prohibited.
Score one for the wholesalers, who got their way at the expense of Maryland consumers.
The role of retailers
April 10th, 2006
Pending court cases in Washington and Texas will set precedent throughout the country for determining the role of retailers in the world of wine shipping. Before digging in, let’s start with a terminology summary:
Direct Shipment: The direct shipment of wine from wineries (suppliers) to end consumers. Wineries may ship via common carrier (UPS and FedEx) directly or through a third party logistics company (3PL) that ships on behalf of the winery.
Self Distribution: Shipment of wine from winery directly to retailers without passing through a distributor.
Three-tier: Three tier shipments are generally picked up at the winery by a distributor, who then delivers to retailers (liquor stores, restaurants, etc.).
Retail to Consumer: The shipment of wine from a retailer directly to end consumers.
In Washington, the Costco will likely set a precedent for self distribution. Costco challenged the three tier system for distributing wine and beer in Washington. The trial ended two weeks ago and U.S. District Judge Marsha Pechman is expected to rule on the case this week or next.
Costco argues that the three-tier system is effectively a state-mandated monopoly that restricts competition and thus consumer choice and artificially inflates prices via mandatory markups. They would like to cut out the “middle man” and allow wineries to self distribute directly to Washington retailers.
In Texas, the Specialty Wine Retailers Association is suing the Texas ABC for retail to consumer shipping rights. A powerful legal team that includes the infamous Ken Starr will argue that the Graholm decision that requires that states treat in-state and out-of-state wineries evenhandedly also applies to retail to consumer shipments. Here is a quote from the press release:
“A great state has done a real wrong, by engaging in an archaic form of economic protectionism that plainly violates the constitutional rights of citizens. As the U.S. Supreme Court made clear in its recent Granholm v Heald decision, the Commerce Clause requires that out-of-state wine retailers be treated the same as in-state wine retailers,” said James Shannon, partner of Kirkland & Ellis. “Rather than abide by the U.S. Constitution, however, Texas apparently has decided to favor the interests of its powerful liquor lobby, by seeking to prevent out-of-state wine retailers from delivering wines directly to Texas consumers. That unconstitutional decision also punishes Texas consumers, who are made to pay more for wine and have a lesser selection of it,” he added.
These two cases will set landmark precedents that will likely spur another flurry of legislative and judicial activity and further complicate the wine shipping landscape. We’ll be sure to keep a close eye on both cases and their potential impacts.
Legislation update
April 10th, 2006
There has been a flurry of wine legislation activity around the country recently…
Indiana: House Bill 1016 was approved by the Indiana House and Senate and awaits signature from the governor. This is one of the stranger bills out there to say the least. It allows for limited direct shipments from both in-state and out-of-state wineries if they get a $100 permit. However, lawmakers inserted a previous visit requirement that says an initial onsite visit to the winery must be made before consumers can make offsite purchases. There is also a requirement that each consumer is limited to 24 cases per year across all wineries. This is crazy. How will one winery know how much wine a consumer has received from other wineries?
Oklahoma: The Oklahoma Grape Growers and Wine Makers Association is pitted against the wholesalers in a battler where the two sides seem too far apart. Although President Gary Butler proclaimed that both House and Senate versions of direct shipping legislation died on the floor, the OGGWMA continues to fight for direct to consumer shipments through lawsuits and public relations campaigns.
Louisiana: Two separate bills are under consideration in the LA House to allow for the direct shipment of wine. The wholesalers are putting up a good fight as usual and of the options would create a small farm winery exception where wineries that produce less than 2,000 cases only could ship directly to consumers. This would merely create an “incubation period” where small wineries could get off the ground before being forced to use distributors.
Kentucky: Compromise legislation passed the House and is expected to pass the Senate that would allow direct shipments from in-state or out-of-state small farm wineries for onsite sales only.
Maine: Two proposed bills and a lawsuit to lift the current ban on direct shipments have muddied the waters significantly in Maine. Resolution seems pretty distant at this point.
Florida: Florida is currently open to shipments, but on the “honor system” until permanent legislation is passed. A couple of different bills are on the table that would allow for direct shipments with restrictions. Florida consumers and wineries are pushing SB 282, which does not include a “capacity cap” that would prevent wineries that produce more than 250,000 gallons from shipping directly to consumers.
Great News from the State of Minnesota
April 7th, 2006
Minnesota has lifted their ban on internet wine sales and advertisements. A Consent Order was entered on April 3, 2006, in the case of Kimberly Crockett, et al vs. Michael Campion, Commissioner of Minnesota Department of Public Safety, et al, wherein it was declared that the plaintiff and other wineries have the right under the First and Fourteenth Amendment to the U.S. Constitution to engage in truthful, non-misleading advertising and solicitation of direct sales and shipments of wine to Minnesota consumers, as well as to freely initiate and/or accept on-line orders for sales and shipment of wine placed by Minnesota consumers via the internet. Therefore, wineries may advertise and accept internet orders from consumers in Minnesota. A copy of the Order is available at www.wineinstitute.org/shipwine under current events. Finally, one state got a little less complicated!
Colorado bill sent to Governor
April 7th, 2006
Colorado House Bill 1120 passed the House and is now in the hands of Governor Owens. The bill would remove reciprocity language and create a limited direct model with equal access from all states. Colorado consumers will no longer be required to make an initial onsite visit to a licensed winery before making offsite purchases.
This is great news for the Six88 crew. Our Friday wine tastings at the Boulder office are about to get a lot better.
Court cases left and right
April 6th, 2006
We’ve seen a lot of activity over the past two weeks in the court room that will have some big impacts on the direct shipping landscape. We’re going to take a look at recent activity in Washington, Texas, Minnesota, and Maryland in the next few days.
