June 06, 2020

Court decision could benefit Maine vintners

BROOKSVILLE – Maine’s vintners are closely watching the U.S. Supreme Court this week as justices hear arguments that would allow wineries to ship wine directly to consumers, a move that could see Maine’s wine industry explode.

Though Maine’s wine industry is tiny – just seven vintners annually producing 37,980 gallons of wine valued at $460,000 – changing the distribution law will give Maine’s vintners the edge they say they need to thrive.

Underlying the case is a battle between 3,000 small, family-owned wineries in all 50 states that cannot get national distribution and large wholesalers who oppose direct-to-consumer wine shipments because they are not involved in the transaction and therefore do not profit from such sales.

Maine is one of 25 states that ban interstate sales of wine except through a licensed distributor. The power of the distributors’ lobby is large. In five states, to ship a resident a bottle of wine from another state is a felony. In some states, the penalty for shipping a bottle of Chardonnay to an adult over 21 years old is the same as for a burglary conviction.

Tom Hoey of The Sow’s Ear, an organic, fruit winery in Brooksville, said Sunday, “It was always illegal to ship across the state lines. But everyone would mail a few bottles or ship UPS and it was a don’t ask, don’t tell situation. And then the Internet came along and it became a flourishing business.

“My sales would definitely increase if I could ship,” said Hoey. “Right now, I don’t even advertise in other states. It’s too frustrating.”

At issue is the clash between the 21st Amendment, which gives states the right to regulate alcohol distribution, and the commerce clause, which prohibits states from discriminating against out-of-state competitors.

Maine’s vintners are currently not allowed to ship their wine across state lines, and most vintners can’t afford to deal with Maine’s alcohol distributors.

“I would lose 30 percent of my profit by going with a distributor,” said Dave Ulrich, who has operated Blacksmiths Winery in Casco since 1999 and produces grape and fruit wines.

Ulrich said a bottle of wine that would sell for $10 must be sold to the retailer for $7.69 so the retailer can make its 26-27 percent profit. “If I sell to a distributor, I have to back it down to $4 a bottle,” said Ulrich. “The cost of packaging the wine is approaching $2.”

Ulrich said that the triple-tier approach to liquor distribution – producer, distributor and retailer – was established when Prohibition ended to keep organized crime out of the booze business. Each tier is required to be licensed and report sales.

“In Maine, the distributors have quite a monopoly,” said Ulrich, “and they don’t want to give it up.”

For years, Maine’s wineries have petitioned the state Legislature to change the distribution laws, but the distributors’ lobby has undermined their efforts. “Their argument is that minors can get their hands on alcohol,” he said. The argument says that Little Johnny, at age 11, sitting at a computer in Idaho, could use a credit card to order wine from Maine, and “It’s worked every time,” said Ulrich.

The vintner estimates he could increase his business 20 percent or more by adding out-of-state sales and Internet business. “I get calls from all over the country seeking to buy my wine every day,” said Ulrich.

Major wine states California and New York and 24 others have brought the case before the Supreme Court.

In a prepared statement, Wine Institute President and CEO Robert P. Koch said, “A favorable decision to end discrimination promoted by wholesalers would be good for wine consumers, regulators and tax collectors in states that pass legalized direct shipping, and a win for America’s small family wineries.”

Koch said that 99 percent of all wine is sold through the three-tier system, but that direct shipping would augment that system by allowing small wineries with limited distribution options to do increased business.

“The case has nothing to do with the serious issue of underage drinking,” Koch said. “This is a false argument that the wholesalers are using to protect their monopoly.”

The Federal Trade Commission released a study in July 2003 that concluded that direct shipping of wine gives consumers more choices and has little or no effect on underage drinking.

In a statement on the Wine & Spirits Wholesalers of America Inc. Web site, President and CEO Juanita D. Duggan said, “We believe the Supreme Court will use this opportunity to let states know that they have the right to protect their communities, safeguard their children and track sales and distribution of alcohol within their borders.”

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