Tag Archives: Granholm

15 years since Granholm, and how much hasn’t changed in the three-tier system

GranholmThe Supreme Court’s Granholm decision was supposed to make it possible for us to buy wine from out-of-state retailers and on-line. So why didn’t it?

This is the first of two parts looking at how the century-old three-tier system still prevents us from buying wine on-line or from out-of-state retailers. Today, part I: The Supreme Court’s 2005 Granholm decision, and why it didn’t change three-tier as much as everyone hoped. Friday, part II: Dear Supreme Court: Please fix three-tier.

Fifteen years ago this spring, the Supreme Court made it possible to buy wine from an out-of-state winery in its Granholm decision. The court ruled that states had to treat wineries in- and out-of-state the same way. So, if residents could buy directly from an in-state producer, then they had to be allowed to buy wine from an out-of-state producer as well. This opened the direct-to-consumer wine market, which is worth about $3 billion today

Many smart people also thought Granholm would open the retail wine market, so that consumers could buy wine over the Internet and from companies like Amazon. But that never happened (save for the rare exception like Wine.com), and I explain why in a freelance piece I wrote for Meininger’s Wine Business International.

And why didn’t Granholm do that? Because state lawmakers, regulators, and the courts still go by what’s called the “public health and safety” standard that was set up by the political compromise that ended Prohibition and gave us three-tier. The doctrine says that if a liquor regulation protects the public health and safety, then it’s constitutional. And each group – and particularly the courts in almost every decision since Granholm – still insists it isn’t safe for wine drinkers in one state to buy wine from a retailer in another state. So it remains illegal.

Yes, this is silly and outdated in the second decade of the 21st century – but that’s three-tier for you.

More about three-tier, Granholm, and direct shipping
• Tennessee residency law: Did the three-tier system come crashing down yesterday?
• Is the coronavirus pandemic the beginning of changes to the three-tier system?
• Direct shipping loses a big one

Winebits 373: Big Wine, Treasury, direct shipping

Big Wine ? How big is big? One of the most difficult concepts to get consumers to understand is that their wine probably isn’t made by who they think it is. As noted here, Big Wine controls a majority of the U.S. market, and Big Wine includes many companies most of us have never heard of. Case in point: Trinchero Family Estates, a 20-million case producer that wants to be a 30-million case producer. And how many of us have heard of Trinchero, a California company? It’s best known for Menage a Trois and Sutter Home, but those are only a fraction of Trinchero’s production and its three dozen brands. If Trinchero makes it to 30 million cases, it will be as big as the entire U.S. wine business was in 1965.

? Now they’ve figured it out: Regular visitors may remember the Wine Curmudgeon’s attempt to cash in on Treasury Wine Estate’s financial woes, which — not surprisingly — failed. One reason, aside from my lack of financial acumen, is that the people running Treasury were a little confused about how to sell cheap wine. Luckily for the company, that seems to have changed, and its results in the U.S. are much improved. Ironically, it seems this success came from a formula that I suggested when I wrote abut Treasury’s problems last year. Not that the company needs to give me credit — I’m used to saving really rich people lots of money.

? The judges like their wine: Supreme Court Justice Ruth Bader Ginsburg made a bit of news last week when she admitted she fell asleep during the State of the Union address in January because she had too much wine. This got giggles from many, but they missed the point, focusing on Ginsburg’s age, 81. Rather, it points to the real reason the court ruled in favor of direct shipping in 2005 in the landmark Granholm decision, which surprised many observers. Forget precedent and constitutional interpretation; the Supremes carved out an exception to the three-tier system because they liked wine and wanted to be able to have it shipped legally from their favorite California wineries. How else to explain that Ginsburg, Anthony Kennedy, and Antonin Scalia, all referred to in the BBC story in the first link, voted to allow direct shipping?

The Supreme Court and retail direct shipping

The U.S. Supreme Court this week declined to hear an appeal of a Texas case, Wine Country Gift Baskets.com v. Steen. In doing so, it decided that the direct shipping law as it stands, which makes it all but impossible for a retailer to sell wine to someone in another state, is perfectly fine.

Tom Johnson at Louisville Juice sums up the development nicely:

The Fifth Circuit Court of Appeals had previously ruled that the 21st Amendment gave states the power to require retailers to operate from within a state; the Gift Basket folk argued that retailers should be treated similarly under a state ?s laws regardless of where they are located.

The Supremes declined to intervene, so the case law on this tiny gray area is now clear. The world will continue to operate as it has been operating since the repeal of Prohibition.

Unless something truly untoward happens, this non-decision will almost certainly end any hopes that someone will do for wine what Amazon.com did for books and music. In fact, the legal tangle is so dense and so complicated that Amazon gave up trying to become a national, direct-to-consumer wine retailer about 18 months ago.

That’s because, under the existing law, each state can regulate out-of-state retailers anyway it wants; a retailer would have to adhere to one set of laws in Utah, another set of laws in New York, another in Pennsylvania, and so on. Which, as Amazon discovered, is impossible.

That’s why, since the advent of the Internet, no one has really succeeded in selling wine on-line. Virtual Vineyard failed. WineShopper.com (which Amazon invested in) failed. The first version of Wine.com failed. Even the current version of Wine.com has limited reach, with wine sales to just three dozen or so states.

Yes, consumers can still buy wine directly from the winery in some states, thanks to the Supreme Court’s 2005 decision in Granholm v. Heald. But Granholm, which many of us thought would pave the way for a company like Amazon to sell wine directly to consumers (what pricing! what selection!), was, apparently, an aberration. The Wine Curmudgeon was one of those people, and I have since been disabused of my optimism.

We are, as Tom noted, stuck in 1933, so we’d better learn to live with it.