Laws in most states limit or forbid shipments to consumers

By Mike Freeman UNION-TRIBUNE STAFF WRITER

December 25, 2002

EDUARDO CONTRERAS / Union-Tribune Joe Travis Hart, owner of Hart Wineries in Temecula, tastes some 2002 Grenache at his boutique winery. Hart and other small vintners hope legal challenges will allow some direct-to-consumer shipments of wine in more states. A few weeks ago, Peter Poole received a telephone call from a distant relative in North Carolina. She wanted to buy wine from Poole's Mount Palomar Winery in Temecula to give as Christmas gifts.

"She said, 'I went to your Web site, and I see you don't ship to North Carolina,'" Poole said. "I said, 'No, I really can't. It's not worth the risk.' "

North Carolina – along with 22 other states – prohibits direct-to-consumer shipments of alcohol. Fourteen states allow direct shipments but only under tough restrictions, which generally make such sales impractical for small wineries.

That leaves 13 so-called reciprocal states, most of which have a wine industry, that permit their residents to buy wine directly from the winery.

Wine advocates and free trade groups have fought for years to kill Prohibition-era laws that limit or forbid direct wine shipments. Earlier this month, they won a victory when a New York federal judge found the state's limitations violated the U.S. Constitution's commerce clause.

The case, which is expected to be appealed by wholesale distributors, is being watched closely by California's boutique wineries – in part because New York is the second-largest wine consuming state in the United States after California.

Temecula vintners are among those with a lot at stake. Most wineries in the Valley are too small to break into the wholesale distribution channel. So unless they can sell directly to consumers, they're frozen out of the market in many states.

"For small wineries in a region like ours, where we have a lot of tourists, it's a big issue," Poole said.

Joseph Travis Hart of Hart Winery in Temecula said a couple from Connecticut drives out to his vineyard each year and buys wine. Connecticut requires consumers to have a permit before they can receive direct shipments.

"That's a long drive for wine," Hart said.

Another longtime member of Hart's wine club moved from California to Nebraska, which requires an annual permit for direct shipments. Not only was the government paperwork onerous, but shipping companies such as UPS balked at delivering alcohol to individual permit holders, Hart said.

For shippers, it's time-consuming to verify that that the person receiving the wine has a valid permit. Moreover, shippers fear the liability if there's a mistake.

So Hart's customer dropped her membership in his wine club.

All states have laws that regulate the sale and shipment of alcohol. Most are framed to encourage producers to sell to wholesalers, who in turn supply retailers.

Wholesale distributors, who oppose direct shipping, say the laws are necessary to prevent alcohol from being shipped through the mail to minors. The state-level oversight also gives each state an efficient mechanism to collect taxes on booze, wholesalers say.

But boutique wineries say today's wholesalers make money by moving huge volumes of wine. Consequently, they're only interested in ordering from giant producers such as Gallo or Beringer.

In Temecula, the only winery that commands the attention of wholesalers is Callaway Vineyard & Winery, a division of Allied Domecq that produces about 300,000 cases a year.

Temecula's other 15 wineries each make less than 10,000 cases a year.

"The venues for small wineries right now are sales from their tasting rooms, and sales in a few local restaurants," said Paul Kronenberg, president of the Family Wine Makers of California. "That's why direct shipping is very critical for small wineries in order for them to be viable and grow."

Sales of California wine reached $13.4 billion last year. The state's wineries produced 450 million gallons – about 90 percent of the U.S. total.

"Direct shipping only represents about 1 percent of all the potential sales out there," he added. "But for small wineries, it would let them capitalize on repeat sales from visitors to their tasting rooms or from people who find them on the Internet after reading about their wines."

Wholesalers say most wine buyers don't care about direct shipping. A survey by the Wine and Spirits Wholesalers of America found that 86 percent of wine drinkers are happy with their local selection of wine.

"It's a very elitist, minority issue," said Craig Wolf, a lawyer for Washington., D.C.,-based Wine and Spirits Wholesalers of America. "They speak loudly, but in terms of actual interest in wines not available locally, it's very small. And they would tear down an entire regulatory system to get what they want."

Advocates for direct shipping have filed lawsuits in Indiana, Florida, North Carolina, Florida, Virginia, Texas and Michigan. The legal actions challenged laws limiting direct shipping as protectionist and unconstitutional.

The wine industry lost in Michigan in federal district court and in Indiana in a federal appeals court.

But in the past year they've won favorable rulings in district courts in Texas, North Carolina, Virginia and New York.

Kronenberg said wine advocates hope to win a favorable ruling in a federal appeals court in one of the states where they have had success in district court. That would set up a conflict with the Indiana case and push the issue to the U.S. Supreme Court.

For Temecula's small wineries, that can't happen soon enough. Loretta Falkner of Falkner's Winery recently received a call from a New York resident who visited her winery two years ago. He liked Falkner's Riesling and wanted some shipped to his home. But Falkner declined – despite the recent favorable court ruling – because of the pending appeal.

"We as a winery are not going to put our license in jeopardy," she said. "We love progress. We feel we should be able to ship to all states. But liquor laws change very slowly."

-- Anonymous, December 25, 2002