Wine Notes: House legislation may affect industry

Living with perils such as invasive moths, extreme temperatures and fluctuating grape prices, winemakers always have plenty to worry about. But this year they’re concerned about something that could be far more destructive to their business: HR 5034.

House Resolution 5034 is a bill working its way through the House Judiciary Committee. Written and promoted by the National Beer Wholesalers Association (NBWA), with support from the Wine and Spirit Wholesalers Associations (WSWA), the bill was introduced in April by four congressmen from states with few wine growers or wineries. Disingenuously named the CARE Act, the Comprehensive Alcohol Regulatory Effectiveness Act of 2010 could end direct shipping of wine and others forms of alcohol in the United States, and reverse the 2005 ruling by the Supreme Court that opened up direct shipping to millions of consumers around the country.

Shipments from wineries to consumers out of state would be affected; in-state shipments could continue.

“We’ve fought so hard for direct shipping, and we’ve gained some ground,” Stacie Jacob, executive director of the Paso Robles Wine Country Alliance said. “We need to keep gaining ground versus reversing that.”

To understand the history of this bill, you need to go back to the passage of the 21st Amendment, which ended Prohibition in 1933 and put states in charge of alcohol regulation. As lawsuits around the country from wineries and consumers challenged the states’ ability to control interstate sales of wine in recent years, the Supreme Court weighed in five years ago and ruled that states’ power to control alcohol sales cannot trump the Constitution’s Commerce Clause, which prevents states from restricting interstate trade. The 2005 Granholm decision led to a wave of winery direct-shipping challenges and new laws, and direct-to-consumer wine shipping is now legal to varying degrees in 37 states and the District of Columbia.

This has been good for consumers and good for wineries. It has also been good for states’ tax revenues thanks to the new bills, which nearly all have required out-of-state wineries to remit state and local taxes on the wines they sell into each state.

The only group this hasn’t been good for is the middlemen — the wine distributors who profit from their role in the “three-tier system.” The NBWA and the WSWA — two of the most powerful lobbying organizations in America — introduced HR 5034 in the name of “states rights,” claiming that the law is needed to allow states to maintain firm control of alcohol sales, as well as prevent alcoholism and underage drinking.

Most opponents of the bill say it is a power grab to guarantee alcohol wholesalers get a cut of every bottle of wine sold in America.

“This is truly a ploy on the part of the wholesalers and the beer folks,” she said, “and you can see very clearly from who’s on the committee and who is pushing this.”

Two leading industry groups, the Wine Institute of California and the Family Winemakers of California, are both strongly opposed, as are many consumer organizations.

The full impact on small wineries won’t be felt immediately, but it will be devastating if the bill is passed. Jason Haas, general manager of Tablas Creek Vineyards in Paso Robles, has been a strong voice against the legislation and met recently with Rep. Kevin McCarthy, R-Bakersfield, along with other Paso Robles winemakers.

“Although the bill has yet to be brought to the floor of the House for a vote,” Haas wrote on his blog, “I did not want to be complacent about its prospects.”

Haas explained that even with half of his sales going though distribution, more than 20 percent of his revenue comes from direct, out-of-state sales.

“I don’t know a lot of businesses that could immediately withstand a 20 percent loss in their revenues,” Haas said.

He further explained that many small wineries in the county rely on direct sales for 100 percent of their revenue.

With the six largest distributors in the country controlling more than 50 percent of the total alcohol sales, it is all but impossible for a small winery to get picked up by a distributor, so direct sales are the only option.

“I think it would end up putting a lot of small wineries out of business,” Haas concluded.

In a statement regarding the bill, McCarthy acknowledges the 200 wineries in the 22nd Congressional District, and writes, “I am concerned about legislation and regulation that would negatively impact that important part of our local economy.” He further said he understands the bill would affect those wineries’ ability to sell to customers directly and said, “I will continue to support their right to do so.”

While the bill is currently in committee, and there is some doubt it will ever be brought for a vote, there is an enormous amount of money and effort being expended by lobbyists to push it forward.

They already have more than 100 co-sponsors of the bill on record, including, astonishingly, three from California.

About the bill

Name: HR 5034 or the Comprehensive Alcohol Regulatory Effectiveness Act (CARE Act)

Introduced: April 15, 2010

Text of bill: http://thomas.loc.gov

More online: www.stophr5034.org, www.freethegrapes.org

Janis Switzer can be reached at 434-5394 or via e-mail at janisswitzer@yahoo.com.