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BY CATHY JETT
Barboursville Vineyards ships about $45,000 worth of wine a year directly to customers in other states.
But a proposed federal law that strengthens states' right to control alcohol sales could turn that revenue stream into a trickle.
"The perception is that it is not likely to proceed, but it could seriously impact not just Virginia wine producers, but wine producers across the United States," said Luca Paschina, Barboursville's wine maker.
If passed, House Bill 5034--known as the Comprehensive Alcohol Regulatory Effectiveness, or CARE, Act of 2010--would allow states to limit or cut off direct-to-consumer sales of wine and other alcoholic beverages from other states. This would force producers to go through distributors, which could be economically prohibitive for smaller operations and would limit consumers' choices.
The bill also would trump the Constitution's interstate commerce clause that gives the federal government control of sales between states, and make it harder for consumers and wineries to sue state governments for the right to ship their products directly to consumers instead of going through a wholesale distributor.
Two Virginia congressmen, U.S. Rep. Glenn C. Nye, D-Virginia Beach, and U.S. Rep. Gerald E. Connolly, D-Fairfax, have signed on as sponsors of the bill. It was crafted by the National Beer Wholesalers Association and has the backing of the Wine and Spirits Wholesalers Association. Both are trade groups that represent wholesale distributors.
"Even though this would give Virginia easier authority to pass a law that would be less likely to be challenged in court to protect our own wine industry, the industry doesn't think it is a good idea because of the potential domino effect," said Patrick Cushing, a former Spotsylvania County resident who is director of the Virginia Wine Council.
Currently, Virginia, the District of Columbia and 36 other states allow out-of-state wineries and other producers of alcoholic beverages to ship directly to residents. This bypasses the three-tier distribution system of producer, wholesale distributor and retailer established after Prohibition was repealed.
"What this bill does is leave the door open for other states to eliminate direct shipping," Cushing said. "If that happens, it would be very bad for the industry. The real danger is losing access to customers because another state wants to protect its own wine industry."
Gov. Bob McDonnell's administration supports Virginia's wine industry as a way to boost tourism, he said. Visitors from all but about a dozen states can order Virginia wine directly from a winery if they can't find it when they get home.
Most wineries in Virginia and other states prefer to do that instead of using a distributor because they're small and don't have enough volume to either be attractive to a distributor or to allow them to make enough to be profitable, Cushing said.
"Also, we have some wineries in Virginia that have 10, 15, 20 varieties," he added. "It's unlikely that they'd be able to get all of them distributed in another state."
The wholesalers associations' websites both point out that the proposed CARE Act does not address any specific state alcohol law, although it does protect a state's wine shipping laws if they are challenged in court.
In his testimony before the House Judiciary Committee in support of HB 5034, Craig Wolf, the Wine & Spirits Wholesalers of America's president and CEO, pointed out that about 40 lawsuits have been filed in the past 10 years that challenge state alcohol regulations.
And, while they did not specifically endorse the bill, 39 state attorneys general, including Virginia's Ken Cuccinelli, wrote Congress in March asking for help in addressing "growing threat facing our states from unprecedented legal challenges that seek to eliminate our ability to regulate alcohol."
HB 5034 would, in effect, overturn Granholm v. Heald, a ruling in a Supreme Court case brought by the late Virginia vintner Juanita Swedenburg in 2005. It held that states could not discriminate by allowing their wineries to ship to out-of-state consumers while denying out-of-state wineries the same option.
At that time, 27 states offered some form of direct sales. Lawsuits and new legislation passed over the past five years have allowed residents of 10 more states and Washington to order a case of wine from a favorite winery and have it shipped to their homes.
"The three-tier system established after Prohibition doesn't work as well now because of the changing face of the industry," said Doug Flemer, owner of Ingleside Vineyards in Westmoreland County. "You have 100 times more small producers than you had in the 1930s. You have UPS and FedEx."
Prior to Prohibition, suppliers often owned or indirectly controlled retailers, who were pressured to sell their products by any means. These so-called "tied houses" were widely recognized as a root cause of alcohol abuse and related social problems.
"Everything has changed now, and the three-tiered system doesn't work for the industry except for the big guys," Flemer said. "They're trying to legislate us out of the competition when, in fact, we are no competition. It's bad for the consumer and it's bad for the little guys."
A number of groups across the country are protesting HB 5034, including the Specialty Wine Retailers Association and Free the Grapes, both of which promote direct shipping of wine from winery to consumer.
"We believe that anything that inhibits the expansion of the market is not good for the market as a whole," said Ann Heidig of Lake Anna Winery, who is president of the Virginia Wineries Association board and chairs its legislative committee.
She said VWA has sent information to member wineries and organizations encouraging them to talk to their state representatives.
"A few have signed onto the bill," she said. "We want them to recognize it's a problem, and not have any others sign."
Cathy Jett: 540/374-5407
Email: cjett@freelancestar.com
