Three Years After Granholm v Heald
By Jeff Carroll, Vice President of Compliance - ShipCompliant
The Wild Ride Continues
Welcome to another edition of the WineMarketer.com newsletter.
If, just after the Supreme Court ruling of May 2005, you thought the Granholm v Heald* decision would simplify the lives of wineries and retailers alike, you were not alone. The general consensus in the summer of 2005 was that this landmark ruling would not only open up a significant portion of the U.S. adult population, but it would also simplify the complexity that seemed to be growing at a steady clip. Well, at least part of the forecast was true. Looking back now just over three years since the May 2005 ruling, we have seen tremendous growth in the percentage of Americans that can receive shipments from wineries. However, with the growth in opportunity has come a significant increase in complexity.
Prior to Granholm, wineries shipping offsite sales** had access to 25 states, representing roughly 49% of total U.S. wine consumption. Today, wineries can potentially reach 35 states, representing over 80% of U.S. wine consumption. The ten states that have opened since Granholm include the significant markets of Texas, Michigan, Ohio, New York, and Florida. Pennsylvania, Massachusetts, and Kentucky have also technically opened to direct shipments, but are not currently available because of problematic provisions and/or carrier policies. Furthermore, all but two of the original thirteen “reciprocal” states have opened up to wineries in non-reciprocal states. Illinois recently adopted a new permit system on June 1st and Wisconsin will open via permit on October 1st. Iowa and New Mexico are the only holdouts form the original thirteen reciprocal states. Since reciprocity was effectively declared unconstitutional under Granholm, they will be forced to change their laws in the near future to become compliant with the decision.
The below shows a snapshot of the effect of the Granholm decision: red states are states where we have already seen significant change; yellow states are states where we may have already seen change, but more change is expected; finally, Wisconsin and Georgia are shown as green because they will adopt new permit systems on October 1st and July 1st, respectively.
There are a number of reasons for expecting much more change to come. First, when wine shipping legislation is written, laws for wineries are generally tightly coupled with laws for retailers and laws for self-distribution (shipping directly from wineries to retailers). The Specialty Wine Retailers Association (SWRA) strongly claims that Granholm applies to retailers. This will continue to play out in the courts, and we could potentially see a Granholm-like case escalate to the Supreme Court to settle the issue. The SWRA is also effectively joining the battle to open access to wine shipping via legislation in parallel to the litigation efforts. Meanwhile, the winery associations, including the Coalition for Free Trade, are challenging what some call de-facto discrimination, where facially the laws look compliant with Granholm. This type of discrimination has come in the form of caps on annual case production (Arizona, Ohio, Massachusetts, Kentucky), on-site visit requirements (Indiana, Kansas, Arizona, Kentucky), and restrictions on distributor relationships (Louisiana, Georgia until July 1st). Overall, there is at least one court case related to wine shipping in over 18 states.
So, what does all this mean? Well, the third anniversary of Granholm is a good time to reflect on the wild ride that we have experienced since 2005. Change is happening seemingly every day, and we don’t expect it to slow down any time soon. The good news is that the market for wineries and retailers will continue to grow. Looking into the crystal ball, optimistically we will see new states open up to direct shipping (Tennessee, Maine, Oklahoma, Pennsylvania, Maryland), the remaining reciprocal states (Iowa and New Mexico) open to all wineries and retailers, de-facto discrimination thwarted in the courts, and retailers get access to more and more states. On the other hand, the laws are all very different from one state to the next, and adding more states and more change will mean more complexity for wine shippers. The ride will continue, but overall, as wine shippers discover innovative solutions for meeting the compliance challenges, the trends look positive for the industry.
Cheers!
Jeff Carroll, Vice President of Compliance - ShipCompliant
*Granholm v. Heald, 544 U.S. 460 (2005), is a court case finally decided by the Supreme Court of the United States, unusual because the arguments centered around the rarely-invoked 21st Amendment to the Constitution ratified in 1933. (This amendment ended Prohibition, the ban on alcoholic beverages throughout the U.S.) The 5-4 decision ruled that laws in New York and Michigan that permitted in-state wineries to ship wine directly to consumers, but prohibited out-of-state wineries from doing the same are unconstitutional.
** An “onsite” sale for direct shipment is one in which the customer was physically present at the winery, could have carried the wine home with them that day (inventory was on hand), but instead elected to have the winery ship the wine back to them for personal consumption. All other shipping transactions are considered to be “offsite” sales (club, web, phone, mail, fax, etc.). –
Jeff Carroll is Vice President of Compliance for ShipCompliant, the automated compliance solution for the wine industry. ShipCompliant processed compliance transactions on over 1 million orders for more than 700 wine brands in the first quarter of 2008. A true software as a service for the wine industry, ShipCompliant services have been integrated into over 30 wine order management and fulfillment systems.
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