When it comes to understanding the most important legislative changes for wine direct shippers, nobody has a better handle on the shifting landscape than Steve Gross, Wine Institute’s VP of State Relations.
At this year’s DIRECT Conference, Steve ran through all the intricacies and implications of the last year’s legislative changes for DIRECT attendees. His talks are always helpful, so we asked him to follow up with a wider scope of the DtC industry. We hope you find it as interesting as we did!
For the past ten years, I’ve had the pleasure of sharing an update on current events in winery DtC shipping at the ShipCompliant DIRECT conference. During those presentations, there was a great deal of timely information to share – all of it focused on the “here-and-now”.
When the team at ShipCompliant approached me to write a follow-up blog post following this year’s conference, I thought it might be the time to take a longer view of the situation – in both directions. Hopefully, my perspective from 29 years of working on all of the state shipping laws now in existence will be interesting (and not too exasperating) to those who are newer to the business.
I started working on the DtC shipping issue in 1986 when I first joined Wine Institute. One of my first assignments was staffing the newly formed “Small Wineries Issues Committee,” where I was tasked to work with winery members to find a pathway to allow DtC wine shipments to consumers outside of California. At that time, California wineries were not allowed to ship directly to their customers in any other state. A recent crackdown by common carriers had made it clear to everyone that unless the laws were changed, wineries couldn’t ship wine to out-of-state consumers.
The concept of a “reciprocal shipping law” had been adopted the previous year, and both California and Oregon were taking steps to implement laws that would create the first “free trade agreement” for wine sales between those two states. The mid-1980’s was the time of big international free trade agreements, and those working on this issue in the wine industry hoped that “reciprocity laws” would bring a similar freedom of movement for wine across state lines. Reciprocity laws were basically handshake agreements that allowed a winery in State A to ship to consumers in State B only if the wineries in State B were allowed to ship to consumers in State A. Wineries loved these laws – there were no permits, no tax payments, and no reporting required. It quickly became apparent, however, that almost every other segment of the industry hated them!
After passing a dozen reciprocal laws in the late ‘80’s and early ‘90’s, our success in lobbying more states to open up to direct shipping slowed dramatically. Our opponents, especially local wine and spirits wholesaler associations in the other states, began a vigorous opposition campaign characterizing those advocating DtC shipments as bootleggers and tax cheats. Wineries were also being accused of marketing to underage drinkers despite no evidence substantiating the claim.
By 1996, it was apparent that reciprocity laws would not be the solution to opening up the U.S. market to DtC shipping. That was also the year that wholesalers in Kentucky passed the first law that made illegal DtC wine shipping a felony. Eventually, more than half a dozen states passed such laws that put wineries at risk of losing their Federal Basic Permits for the act of shipping a single bottle of wine to a consumer in another state.
In 1997, Wine Institute joined the American Vineyard Association (which later became WineAmerica), Family Winemakers of California, and other state winery associations in adopting a new “Model Direct Shipping Law”. These new laws addressed all of the perceived shortcomings of the reciprocity laws by requiring a permit, the payment of taxes, regular reporting, adopting new labeling procedures to identify each package as containing alcohol and requiring an adult signature at the time of delivery. While everyone in the industry hated to give up the ease of the reciprocity, it was clear that only with these new rules could we start to pass more DtC shipping legislation.
Once we began working on these new DtC shipping permit laws, we gained momentum and were able to pass laws opening another dozen states. While that momentum was carrying the day in the state legislatures, other complications were arising in the courts. Starting in 1996 in Florida, a series of lawsuits were filed by both the opponents and proponents of DtC shipping.
This tale of litigation has been told well by others so I will not go into great detail here, but, it ultimately led to the formation of the Coalition for Free Trade (CFT) that worked to support winery DtC shipping in the courts. In the end, as DtC shipping lawsuits were churning their way through the courts in more than a dozen states, the issue went before the U.S. Supreme Court in December of 2004 in what became known as the “Granholm Case.” When the Court issued its ruling in the spring of 2005 in favor of the wine industry, there was both a sigh of relief and a realization of just how much more work needed to be done.
While working to pass a shipping law in 1998 in Florida, Wine Institute joined with other interested groups (Napa Valley Vintners, Family Winemakers of CA, WineAmerica and CFT) and some dedicated individuals to create a media and consumer relations arm for our campaign. That effort eventually became Free The Grapes, a consumer advocacy group that continues to provide key support for DtC shipping efforts to this day.
When the Supreme Court ruled in Granholm, its message to the states was basically “you can regulate DtC shipping, but you can’t do so in a way that discriminates in favor of in-state wineries.” That meant that every state had to decide if it wanted to grant shipping privileges to its in-state wineries; and if so, it then needed to open the state to DtC shipping from out-of-state wineries, too. There was a distinct possibility that some states would choose to “level down” by taking away its own winery industry’s ability to ship rather than allowing out-of-state shipments.
Fighting these battles occupied us for most of the years immediately following the Granholm decision. Because the reciprocity laws already on the books were now deemed to be discriminatory, we also had to work to replace those popular laws with the more complicated permit bills.
In the wake of Granholm, the momentum for DtC shipping remained with the wine industry. By presenting a united front before the various state legislatures, in-state and out-of-state wine industry representatives were able to lobby for and pass the DtC shipping permit laws that now exist in 42 states (43 when South Dakota starts allowing shipping in January of 2016). While the outcomes were positive, every single bill was a battle at the state level, with local wholesalers and retailers almost always opposing our efforts. Of note was the strong opposition that arose from the National Beer Wholesalers Association and local beer wholesalers who had previously not been engaged. They viewed DtC shipping (and its coupling in some states with self-distribution for wineries) as eroding the foundations of the three-tier system on which their livelihoods depend. Each year, we would target a few states where these fights played out, sometimes working in the same state for a number of years before finally passing a bill.
More recently, in addition to trying to open the few remaining states to legal shipping, we have been working to “improve” the existing shipping statutes. We have successfully fought for less frequent reporting and tax filings; removed onerous capacity caps, on-site sales and bond requirements; increased the amount of wine that can be shipped to a particular consumer and simplified the licensing process. These efforts remain ongoing, as does our work to open new states. As I write this, we are still working on, and hopeful, that a DtC shipping bill will be passed in Pennsylvania before year’s end. We also have plans to open new states and improve existing laws in 2016 and beyond.
It is exciting to be able to look back at the history and see just what a tangible impact the efforts of all involved in the DtC shipping campaign have had. When the team from ShipCompliant and its partners at Wine & Vines announced the $1.8 billion-plus figure for winery DtC shipping at this year’s conference, it was clear what an important channel DtC commerce has become for the industry. It was also clear that we must work together to keep this channel open and viable going forward.
With success comes challenges, and keeping our coalition strong and viable going forward will be more important than ever. Working with our partners such as the common carriers and fulfilment houses that make the system function and ensuring that states understand and support the roles each segment plays is essential to our ongoing success. Compliance with existing state laws by all involved is an important factor in developing the trust necessary to convince regulators and legislators that relaxing things like reporting periods and bond requirements is the right thing to do. These are the things we will continue to strive for as we move forward.
The one thing missing from this article is probably the most important aspect of our whole campaign – the names of all of the individuals who have contributed so very much to this effort. Individual vintners, association staff, lobbyists, attorneys, our legislative and consumer champions have been the real heroes who created the success we see now as a reality. I realized in writing this that for every one name I was tempted to insert, I was leaving out a dozen. For that reason, I chose to name none of the individuals, but wish to acknowledge that it is only because we all pulled together to pursue a common goal that we were able to achieve the great success we now have. I’m confident that we can all keep pulling forward together to achieve even more in the future allowing us to provide consumers with the ability to access the wines of their choice which they have demonstrated is so important to them.
Steve Gross is Vice President, State Relations at Wine Institute, where he has been employed since 1986. Steve’s duties entail overseeing the activities of Wine Institute’s six State Relations Regional Counsels and Regional Managers as they address state legislation affecting the wine industry, as well as coordinating Wine Institute’s legislative and regulatory activities with staff, contract lobbyists, and member wineries. Steve regularly participates in many national programs dealing with issues facing the wine industry, both on the legislative and regulatory levels.