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Op-Ed

Prohibition, online

Just 13 states and the District of Columbia allow people to order wine from an out-of-state retailer. Such laws stifle consumer choice and keep prices artificially high.

December 17, 2010|By David White

In most states, ordering a gun online is perfectly legal. As is ordering pornography, cigarettes and ammunition. A bottle of merlot, though, could land you in jail.

A coalition of wine retailers from across the country has asked the U.S. Supreme Court to decide if prohibiting interstate wine transactions is constitutional. If the court takes the case, consumers might finally be able to procure the wine they want, regardless of where it's sold.

Today, nearly 7,000 U.S. wine retailers have a presence on the Web. But just 13 states and the District of Columbia allow consumers to order wine from an out-of-state retailer. Even California, which bills itself as the "land of wine and food," prohibits its citizens from ordering wine from outside the Golden State.

Such laws stifle consumer choice and keep prices artificially high. And they're a relic of Prohibition.

When the "noble experiment" was repealed in 1933 by the 21st Amendment, states were given the authority to regulate alcohol within their borders. While some chose to take total control over the sale and distribution of alcohol, most states created a "wholesale tier" to sit between producers and consumers.

This structure was at direct odds with the Constitution's commerce clause, the enumerated power that ensures free trade between the states. But for decades, only policy wonks recognized that tension. So America's wholesaling industry grew unabated.

Today, the wholesaling industry is huge. In 2008, Southern Wine and Spirits, America's largest liquor distributor, had revenue of nearly $8.5 billion.

The industry depends on political support. Without a regulatory structure that literally mandates it, many beer and wine producers would cut out the middleman and sell their wares directly to retailers, just like Coca-Cola and Pepsi. So the industry is quite friendly to politicians. From 2000 to 2006, wholesalers contributed about $50 million to statewide political campaigns. In Massachusetts, wholesalers spent more on campaign contributions in 2006 than all the labor unions in the state combined.

This constitutional question was addressed, in part, by the 2005 Supreme Court case of Granholm vs. Heald. But that case dealt principally with direct sales from wineries to consumers. It came about because as more Americans started developing a taste for high-end wines in the early 1990s, many folks started ordering directly from artisan producers. These sales cut out wholesalers, who spearheaded a campaign to prohibit winery-to-consumer shipping. In 1998, just 17 states allowed direct shipping.

Consumers responded with lawsuits, and in 2005, the Supreme Court ruled in the Granholm case that states could only limit direct sales if laws were applied consistently.

This was a narrow ruling, interpreted to mean that state lawmakers could only prohibit direct shipping from out-of-state wineries if they were willing to block the wineries in their states from shipping out of state.

Since the ruling, wholesalers have lobbied for all sorts of silly regulations. In Indiana, consumers can only order from an out-of-state winery if they've ordered in person. Montana oenophiles need a $50 "connoisseur's license" if they want to order from a winery.

Wine wholesalers have lobbied against Internet wine sales because they see such transactions as a threat to the system that serves them so profitably.

Texas is one of the states that prohibits consumers from ordering from out-of-state retailers, but the state allows its wine shops to ship to consumers. In 2006, Wine Country Gift Baskets, a California-based company, challenged this law on constitutional grounds in federal district court. And it won. In 2008, a federal district court judge agreed that out-of-state retailers should be able to sell and ship wine to Texas consumers. Two years later, though, this decision was reversed by the U.S. 5th Circuit Court of Appeals.

That brings us to the current court action. The Specialty Wine Retailers Assn. — a group that seeks to liberalize alcohol distribution — in November formally asked the Supreme Court to review this decision.

Today, 37 states and the District of Columbia allow out-of-state wineries to ship directly to their citizens. But only 13 states and the District of Columbia allow consumers to order from out-of-state retailers. This doesn't make sense; there's virtually no difference between the transactions.

If the Supreme Court refuses to overturn the 5th Circuit's decision, consumer choice would be crushed and wine retailers would have no rights under the commerce clause.

Suppose you live in Texas and find that perfect bottle — perhaps the wine you had on your first date with your spouse — at a California retailer. Too bad. Or maybe you've discovered a great deal on your favorite Sonoma Coast pinot noir, but it's from an out-of-state shop. You're probably out of luck.

No other industry faces such discrimination. Wine consumers deserve a free market in wine, one in which any adult can purchase wine from wherever he or she wants.

David White is the founder and editor of Terroirist.com, a daily wine blog.

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