High Court Ruling Makes Wineries Winners

Many wineries now stand to get a nice boost to their business via remote wine sales: On Monday the U.S. Supreme Court ruled to support interstate wine shipments directly from wineries to consumers.

The court struck down laws in Michigan and New York that restricted out-of-state alcohol producers from bypassing state regulations requiring face-to-face transactions. The ruling stipulates that if in-state direct marketers of wine are permitted to ship directly to consumers, out-of-state wineries should be able to do so as well. The ruling, therefore, forces states to decide whether anyone will be allowed to ship wine and spirits directly to residents. The court upheld a state’s authority under the 21st Amendment to regulate alcohol, requiring that they treat in-state and out-of-state producers the in the same manner.

In Michigan, attorney general Mike Cox asked the Supreme Court to overturn an appeals court ruling that struck down the state’s ban on home shipments of alcohol by unlicensed out-of-state merchants. He argued that these kinds of shipments bypass the state’s alcohol tracking and distribution system, which is intended to protect citizens from unaccountable sales of alcohol. In New York, the case was brought by Washington-based libertarian organization Institute for Justice, which represented two family wine makers, Juanita Swedenburg of Virginia and David Lucas of California, and several New Yorkers who wanted to buy alcohol from those companies. The organization argued that it is unfair that Swedenburg must go through a costly bureaucracy, attaining a liquor license and paying the fee that goes with it, while New York mail order wine companies can circumvent distributors and ship directly to consumers.

For catalogers that have already spent the money to obtain individual state retail licenses to be able to ship to consumers, however, the ruling has little impact, says Chris Kitze, chairman of San Francisco-based wine cataloger Wine.com. “It’s good because it creates awareness that people can legally order wine online, but you have to look at the exact wording of the ruling,” he points out. “It’s about wineries, not retailers. It doesn’t open up new shipping avenues for retailers, and for wineries it does so only in five or six states.” He notes that direct marketer wineries can already legally ship to customers in 34 states. The likelihood is that only five or six additional states, including most likely New York, will agree to allow direct shipments. Moreover, Kitz estimates that direct shipments from wineries probably account for less than 1% of all wine and spirit sales in the country.

But some retailers found the court’s ruling more encouraging. Joshua Wesson, chairman of New York-based Best Cellars, says that within the next few years, either the high court will make a similar ruling that pertains to out-of-state wine retailers, or the laws within states that allow direct shipments of wine from in-state retailers will be amended to allow direct shipments from out-of-state retailers as well. “There’s a parallel logic at work here, and a parallel Constitutional issue at play here,” says Wesson. He says out that the competitive advantage that Wine.com currently enjoys would disappear if the courts were to mandate parity between the legal rights given to out-of-state and in-state retailers. “When the day comes that retailers are allowed to ship across state lines,” says Wesson, “they’ll be just another wine retailer on the Web instead of the wine retailer on the Web.”

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