A few weeks ago, the Supreme Court agreed to hear early 2019 Tennessee vs. Byrd, a decision by the Sixth Circuit Court of Appeals that ignited a small volcano of speculation among wine industry developers and traders. To find out if the explosion is justified, I asked Tom Wark.
Photo by Kathy Berez
Based in Napa, Wark has worked in wine marketing and public relations since 1990. For the past eleven years, he has served as executive director of the National Association of Wine Retailers, a retailer organization seeking to repair the regulated alcohol beverage market. He is also a blogger and founder of the annual Wine Bloggers conference.
According to Wark, the Tennessee v. Byrd case “is about term residency requirements for retailers,” and more. Under Tennessee law, to obtain a wine retail license, a person must have resided in the state for at least two years. The giant distribution chain, Total wine and more sued that regulation, arguing that the law interferes with interstate commerce in a way that the 2005 Supreme Court ruling, known as “Granholm,” prohibits when it recognizes wineries’ right to ship directly to consumers across state lines. Since 2005, this assumption has been the decision applied only to wineries. But the decision in Tennessee v. Byrd of the circuit court disputes this view; In its decision, the court noted that the non-discrimination principles of Granholm also apply to retailers.
Wark states: “The Supreme Court’s decision in Granholm v. Heald’s 2005 ruling ruled that despite the 21st Amendment granting states the power to regulate the sale and distribution of alcohol, the Constitution’s dormant Commerce Clause prohibited states from passing discriminatory laws that interfered with interstate commerce. . The case concerned New York and Michigan laws that allowed wineries in those states to ship wine to consumers in their states, while prohibiting out-of-state wineries from doing the same… many states have changed their laws to allow out-of-state wineries to ship wine. to consumers…at the same time, some states have prohibited out-of-state retailers from shipping wine while allowing in-state retailers to ship wine to in-state consumers.
Since the 2005 decision never stated that the principle of nondiscrimination applied only to wineries, a number of lawsuits on behalf of retailers against state laws have been filed over the years , but the recent Tennessee case is the first time a circuit court has recognized a constitutional protection of the wine retailer.
The issue of drop shipping from out-of-state retailers is both general and specific. In general, it is a right to engage in unrestricted commerce; more precisely, in all likelihood this would not apply to all types of wine produced.
According to Wark, “Retailers sell imported wines on their own, and retailers are the primary source of rare and collectible wines as well as wine of the month club memberships. If states prohibit foreign retailers from shipping wine into a state, consumers in those states have access to only a very small number of imported wines and rare/collectible wines available nationwide.
Shipments from out-of-state retailers almost always go directly to the consumer, without a middleman. This is the most efficient and least expensive way of shipping. The process is currently taking place in 13 states and the District of Columbia. The distributor of the product shipped to consumers does not lose out: the retailer in each state had to first purchase it from a distributor.
Yet domestic wine distributors are generally opposed to opening interstate shipping to retailers. They argue that an individual state cannot regulate hundreds of thousands of retailers across the country. They also make an infinitely weaker argument that shipping by retailers will lead miners to obtain wines: it is unlikely that a miner will seek out collectible or expensive wine, or wait a week for a shipment of cheap wine.
Wark says, “I don’t believe wholesalers object to shipments by retailers and consumers for these reasons. I believe they oppose shipping from retailers to consumers because they believe it threatens the state-mandated three-tier system that protects wholesalers from competition. »
He has a point. The only truly logical reason for retailers to ship wine to a consumer in another state is the lack of access to that particular product in the state where the consumer resides. Wark says, “We know exactly what products are being shipped from retailers to consumers in interstate shipments. These are largely small production, hard to find, collectible and rare wines…the cost of shipping almost always cancels out any savings one might make by shopping.
Another argument used against allowing retailers to ship out of state involves taxes, but Wark thinks that’s a weak argument. Tax money is likely being lost now by retailers and consumers circumventing restrictions. Legality comes with a better paper trail.
Wark thinks: “Those seeking states to protect them from free competition are local wholesalers and most large retailers… a legitimate attitude has developed over the years on the part of wholesalers and retailers, which has significantly harmed consumers and the wine trade, limiting both sales and competition in order to protect a very small group.
