Posts from the Maryland Category
Wine Sales and Distribution 2012 – A Look Forward
January 9th, 2012
In looking forward to what 2012 might bring the world of wine compliance and regulation, it is instructive to first look back at 2011. One thing we’ve learned after eight years in the world of wine compliance is that once movements gain momentum, it’s hard to slow them down.
The past year demonstrated the continuation of certain trends and the emergence of another that we believe will carry forward in 2012. The trend of more states opening their borders to the direct shipment of wine from other states continued steadily. Maryland and New Mexico both opened their borders to permit-based direct-to-consumer shipping in 2011, a continuation of a movement toward regulated consumer access to wine that began in 2005 with the Granholm v. Heald Supreme Court decision. Tennessee also saw a change in their law in 2011 that made the entire state “wet” for direct shipments from wineries.
The past 12 months also saw an increase in new “Third Party Providers” that help wineries market their products to a broader collection of consumers. Either as flash sites, wine product advertisements, or multi-offer marketplaces, these new entries into the wine market were helped along by a new California Department of Alcoholic Beverage Control (ABC) Advisory that set down specific rules as to how suppliers and non-licensed Third Party Providers can work together compliantly.
Finally, 2011 demonstrated that various forms of privatization of the sale and distribution of wine and spirits in control states are an important trend to watch. The passage of Initiative 1183 in Washington State that took the sale and distribution of spirits out of the hands of the Washington Liquor Control Board was the most tangible example of the privatization trend.
What To Expect in 2012
Direct-To-Consumer Shipping
Winery-to-Consumer shipping laws will continue to be modernized in those now few states that continue to prohibit interstate shipping. We expect New Jersey, the most important wine consuming state currently outlawing interstate shipments, to pass legislation allowing some form of direct shipments to consumers. Currently, a bill working its way through the legislature would allow all wineries making up to 250,000 gallons annually to obtain a direct shipment permit. The capacity cap of 250,000 gallons will be a point of concern, but wineries should expect passage and should be prepared to ship to New Jersy consumers in 212. The bill, which has passed the senate, is expected to be voted on in the assembly before the close of session tomorrow, January 10th.
Massachusetts too has seen a number of direct shipment bills introduced over the past couple of years, but none have found their way to the Governor’s desk. Recently, however, Governor Deval Patrick put a spotlight back on the issue by saying in a radio interview that he would sign legislation that permitted direct-to-consumer wine shipments. 2012 may be the year that Massachusetts finally opens to direct-to-consumer shipping.
Finally, Pennsylvania, traditionally one of the states where alcohol sales and distribution is most tightly controlled, may see a move to allow direct-to-consumer shipping. As talk continues in that state to privatize wine sale and distribution, there has also been much talk and the introduction of bills to “modernize” the PLCB, including allowing direct-to-consumer shipping, opening up a state with big consumer potential for wineries.
Modernized Marketing
Digital marketing in the wine industry has been behind the curve due primarily to the massive amount of regulations that govern the industry on a federal and state level. It’s unlikely that the wine industry will see significant deregulation. However, it appears that some clarity is coming to the issues that have historically deterred modern marketing methods.
Late in 2011 the California ABC issued an “Advisory” that spelled out the conditions under which non-licensed Third Party Providers (TPPs) and suppliers must arrange their relationships in order to work together. In a nutshell, the California ABC made clear that wineries and other licensed suppliers must always be in control of the transaction from approving each transaction to controlling the flow of funds. (Read our blog post that explains these new rules). While adhering to the new California ABC rules can be a complex task and require very specific actions and programming on the part of licensed suppliers and non-licensed TPPs such as flash sites and community buying sites, we believe this new clarity represents an important development for suppliers and marketers that will yield interesting developments in 2012
We expect to see a rise in the number of TPPs. In addition, we expect other states to follow California’s lead in issuing rules and regulations for how licensees and non-licensed marketers can work together to help market wine to consumers in innovative ways.
Privatization
With Washington State paving the way in the realm of privatization of sales and distribution with the passage of Initiative 1183 in November, we predict the privatization trend to regain momentum in 2012. Most eyes are on Pennsylvania where serious discussions are underway concerning the privatization of the sale and distribution of wine in that highly controlled state. Virginia too has seen discussions in the past years concerning the merits of reforming its alcohol control system. Meanwhile, in Michigan a task force has been empowered to look at updating its alcohol beverage laws.
This slow moving trend toward privatization, if it continues and gains more momentum, could lead to significant changes in the area of wine sales and distribution and the compliance measures that suppliers must undertake.
Federal Action on Wine Sales and Distribution
In early 2011, with the introduction of H.R. 1161 (read our series on the CARE Act here) in the House of Representatives, it looked like supporters of federal legislation that would give states greater control over how they can regulate alcohol and overcome judicial rulings that have put limits on state powers, would push hard to see this bill passed. Yet, H.R. 1161 garnered fewer supporters in the House than a similar bill, H.R. 5034, gained in 2010. Furthermore, no hearing was held in the House Judiciary Committee on H.R. 1161 and no Senate sponsor was introduced.
This bill, opposed by all supplier organizations and by retailers, has another year to gain more support and move through the legislative process. Most in the industry are taking a wait and see attitude on H.R. 1161 to determine its fate, but it seems unlikely that the bill will move on to President Obama’s desk in 2012.
Finally, federal legislation is moving forward concerning the United States Postal Services, and it could have long-term effects on the wine industry. The new bill moving forward is the 21st Century Postal Service Act 2011. If enacted as currently written it would allow the United States Postal Service to deliver wine to consumers and compete with Federal Express and United Parcel Service.
As always, ShipCompliant will continue to watch the political and regulatory landscape throughout the coming year and will work to keep you up-to-date on important changes that impact your ability to market and sell wine.
Maryland Released Direct Shipping Report Form and Extends Deadline for Quarter 3, 2011
October 6th, 2011
The Maryland Comptroller’s office released its Direct Shipper Excise Tax Return form Tuesday. This is the form that licensed direct shippers submit quarterly to pay their state excise taxes and report their shipments to consumers in the state.
IMPORTANTLY, the Comptroller’s office has pushed back the deadline for direct shippers to submit their 3rd Quarter Report to November 1. The Report had been due on October 10th. However, because the Comptroller’s Office released the new form so late, they have extended the deadline to November 1. This extension of the deadline only applies to the Quarter 3, 2011 report. All subsequent reports will be due on the 10th of the month following the period. For example, the Quarter 4, 2011 report will be due on January 10th.
The report can be downloaded HERE: http://compnet.comp.state.md.us/Motor_Fuel__Alcohol_and_Tobacco_Tax/Alcohol_and_Tobacco_Tax/Static_Files/Alcohol_Tax/Forms/DWS%20315.pdf
ShipCompliant Clients: If you have subscribed to the Maryland Direct Shipping Report, the new form — all filled out and ready to print and send to the Comptroller’s office — will appear in your “Open Reports” inbox later today.
Not a ShipCompliant Client?: If you are shipping to Maryland, let us produce this report for you at no charge to give you an idea of the simplicity and efficiency that comes with using ShipCompliant. Just send us a spreadsheet and we’ll do the rest for free..
The state of Maryland opened to winery-to-consumer direct shipping on July 1, 2011, after a multi-year effort by the industry and consumers to change the Maryland law.
The Old ‘Wine’ State: Maryland to Open to Direct Wine Shipments
May 10th, 2011
After years of repeated attempts to open the state to wine shipping, Maryland wine lovers will soon be able to have wine shipped directly to their doors. Signed by the Governor today, the new law makes Maryland the second state this year — after New Mexico — to pass new direct wine shipping permit legislation. This flurry of wine shipping legislation comes after no new states opened to direct shipping legislation in 2010.
Two important factors paved the path to the passage of direct shipping legislation in Maryland. First, a local citizens organization, “Marylanders for Better Beer and Wine Laws”, kept pressure on the Maryland legislature year after year even though earlier direct shipping bills were defeated. Second, the Maryland Comptroller’s office released a Direct Wine Shipment Report late last year debunking many of the claims made by opponents of wine shipping concerning minor access to wine and harm that might come to local business as a result of wine shipments.
Though retailers were included in original versions of the direct shipping legislation, they were left out of the final language, perhaps in part, because the Comptroller’s Report did not advocate for retail-to-consumer shipping.
The new law takes effect July 1, 2011 and allows wineries to obtain a Direct Wine Shipper’s Permit for $200 (renew annually). Each licensed winery will be allowed to ship up to 18 cases of wine to a single delivery address each year and will be responsible for quarterly reporting and payment of excise and sales taxes on all shipments made into the state. Potential shippers now await permit application and instruction forms from the Maryland Comptroller, which could be made available any time. We will keep you updated as more information becomes available.
Marylanders for Better Wine Shipping Laws
January 30th, 2011
Following a very favorable report from Comptroller of Maryland Peter Franchot, and years of efforts by the constituent group Marylanders for Better Beer & Wine Laws, bills to allow direct shipments from wineries inside and outside of Maryland were introduced in both chambers of the General Assembly on Friday. According to Free the Grapes!, 83 delegates and 32 Senators have signed on as co-sponsors of the legislation, and the bill is also endorsed by Maryland Wineries Association and Wine Merchants Association of Maryland. Maryland is a felony state and currently one of the 13 states that prohibit offsite wine shipments.
House Bill 234 and Senate Bill 248 follow closely the recommendations of Franchot in his Direct Wine Shipment Report. The new $100 Direct Wine Shipper’s Permit that renews annually at $50 would allow licensees to ship no more than 24 9-liter cases of wine annually to any one consumer in Maryland. Licensees would be required to submit to the jurisdiction of the Office of the Comptroller and remit quarterly sales and excise tax reports. An interesting feature of the bill, as recommended by Franchot, is a prohibition on delivery of wine shipments on Sundays. Licensees would be able to ship wine via common carriers, who must also get a $100 Common Carrier Permit and file quarterly reports of shipments.
Based on the broad sponsorship and many endorsements, it seems likely that Maryland consumers will have access to direct wine shipments this year, although stranger things have happened in the legislative process. Winery direct shipping marketers might want to get to work on a business plan for opening up a brand new market for wine direct shipments in 2011.
H.R. 5034 Update: Revision Reignites Debate, Important Hearing Set for Wednesday
September 28th, 2010
When H.R. 5034 (also known as the Comprehensive Alcohol Regulatory Effectiveness, or “CARE” Act) was introduced on April 15, 2010, the opposition responded quickly and forcefully. Supplier organizations were united in their opposition to the bill, referring to it as the “wholesalers monopoly protection bill”. Even the California State Legislature issued a resolution, SJR 34, that urged Congress not to pass H.R. 5034.
Proponents of the bill, including the National Beer Wholesalers Association (NBWA) and the Wine & Spirits Wholesalers of America (WSWA) claimed the proposed legislation was necessary to protect state-based regulatory systems from “attack” (i.e., legal scrutiny under the U.S. constitution), claiming that “25 states have faced challenges in federal courts to their authority to regulate alcohol and their ability to maintain a licensed system of alcohol controls” since 2005.
Following months of intense debate, heated rhetoric, and an incredible amount of public relations and lobbying activity on both sides, the House Judiciary Committee did not schedule the bill for a hearing until after the August congressional recess. During the recess, Representative Bill Delahunt, lead sponsor of H.R. 5034, sent a letter to House Judiciary Committee Chairman John Conyers Jr., introducing new text in an what he terms effort to “perfect the language”, following “concerns about unintended [sic] consequences of the language as written”.
To help clarify the changes from the original version of H.R. 5034, we put together a redline document that highlights the revisions. The main change is the removal of section 3c, which established the presumption of validity and shifted the burden of proof in legal actions involving the regulation of alcoholic beverages. Like the original bill, the new version would immunize state laws that effect non-facial discrimination, such as capacity caps and in-person purchase requirements, if the discrimination were not proved to be “intentional”.
To better understand the revisions and the corresponding responses, we spoke with individuals from each of the tiers (the “three-tier system” includes suppliers, wholesalers and retailers) that are on the front lines of the debate.
Wholesaler organizations laud the new version as meaningful change. “While the proposed changes to the legislation address a narrower set of deregulatory concerns than the original legislation, it is certainly a step in the right direction,” says Karin Moore, Vice President and Co-General Counsel at WSWA. “The new version clarifies that the Granholm holding prohibiting facial or intentional discrimination against out-of-state producers remains the law of the land by incorporating the exact language used by Justice Kennedy in that landmark decision. The new language clearly and unequivocally confines itself to dormant Commerce Clause challenges, and addresses many of the concerns raised by opponents of the bill.”
Cary Greene, Chief Operating Officer & General Counsel at WineAmerica, sees broader implications. “There are many cases other than Granholm that elucidate how states can regulate interstate commerce in alcohol. As revised, 5034 would undermine or reverse dozens of court decisions. By scrambling settled case law, 5034 will cause years of re-litigation to try and figure out exactly what the new limits are. The fact is courts have not done anything to jeopardize core Twenty-first Amendment powers. State laws run into Constitutional trouble when they try to do something underhanded like fix prices or give an unfair market advantage to certain licensees or products. 5034 allows states to blatantly discriminate against out-of-state products without any concern for Twenty-first Amendment core purposes. From a policy standpoint, I’m not sure why that would ever be a good thing.”
“The problems with HR 5034 remain significant, despite the changes to the language,” says Tom Wark, Executive Director of Specialty Wine Retailers Association. “Discrimination against out of state products would still be allowed on a number of levels and consumers are bound to be hurt by this legislation. Significantly for retailers, HR 5034 would strip wine retailers and merchants everywhere in America of their protection under the Constitution’s Commerce Clause from discriminatory state laws. It has happened only one other time in American history that an entire industry lost its Constitutional guarantee of free and open markets based on the constitutional principle of non-discrimination. Wine merchants would be catastrophically disadvantaged by H.R. 5034.”
A hearing in the House Judiciary Committee will take place at 11:00 ET this Wednesday, September 29th. This is an important hurdle in the process of moving legislation through Congress. Expert witnesses will testify in front of the full committee on Wednesday, and many parties will also provide written testimony to debate both sides of the bill. Barring technical difficulties, the hearing should be available via live webcast. Click here to watch the webcast (RealPlayer required).
So, what are the chances that H.R. 5034 will pass? Well, it’s important to note that the bill has 146 (not an insignificant number) co-sponsors from both parties in the House. On the other hand, supplier organizations continue to be unified in their opposition (Click here to view the joint opposition letter issued by the Brewers Association, WineAmerica, Distilled Spirits Council of the United States, Wine Institute, Beer Institute, and National Association of Beverage Importers on the revised 5034). We hope to learn a lot more in the hearing on Wednesday.
If H.R. 5034 moves through both chambers of Congress (no companion bill having yet been introduced in the Senate) and is signed by President Obama, not much would change overnight. Despite numerous reports that it would mean the end of direct shipping, it would not change current state laws that allow direct shipping. It would likely be an uphill battle to completely repeal existing direct shipping laws in most states. However, H.R. 5034 would open the door in states like Florida, New Mexico, and Massachusetts, where the direct shipping laws are in flux because of court cases and Granholm issues, for new state laws that introduce non-facial discrimination such as caps on production capacity (proposed for the last several years in Florida and recently nullified as unconstitutional in Massachusetts) or in-person purchase requirements. It would also provide discriminatory options for the remaining holdout states, such as Maryland, if their resident consumers’ support for direct shipment should become effective. With potentially greater long-term significance, it would tilt the field decidedly against extension of Granholm’s nondiscrimination principle to interstate retailing by non-producing shippers and to interstate wholesaling.
