The Supreme Court's Decision has Cascading Effects for the Wine Industry
What does the recent Supreme Court ruling mean for your DTC program? Does looser restrictions on retailers mean stiffer competition for wineries?
Chances are, no matter how busy you’ve been this summer, you still caught wind of the recent Supreme Court case Tennessee Wine & Spirits Retailers Association v. Thomas. Both industry and mainstream publications have been writing about the outcome of this case for weeks. A decision this disruptive in the beverage alcohol industry hasn’t happened since 2005 when the Granholm v Heald Supreme Court case ended discrimination in shipping between in-state and out of state wineries. We poured through recent articles in an effort to summarize what the verdict of this case means for wineries and how it could shape the future of wine shipping.
WHAT HAPPENED?
First of all, this case was not directly about wine shipping. Justice Samuel Alito’s decision struck down Tennessee’s durational residency requirement that required an applicant to live in the state a minimum of two-years. The Supreme Court found that it was unfair to discriminate against out of state businesses. They noted that the Tennessee law contained extreme provisions beyond the two-year residency requirement, including a 10-year residency requirement of people seeking to renew liquor licenses and extending the requirements key players in the business.
Tennessee retailers pointed out that the residency requirement in question would not have been so fiercely defended if the law did not regulate alcohol. By striking down the Tennessee residency law, the ruling potentially limits the section of the 21st Amendment that gives the power to regulate alcohol to state governments.
WHAT DOES THIS MEAN FOR WINERIES?
Since the ruling says that states cannot discriminate against out-of-state interests, does this open the floodgates to interstate shipping of wine by retailers? You can read more about what was said in court and what’s next in Wine Spectator’s article What the Supreme Court Said—and Didn’t Say—About Wine.
The Supreme Court’s ruling does not conclusively affect the enforcement of the three-tier system. But many publications, like Irish Liquor Lawyer and SCOUTSblog, reported that this could have broader implications for wine shipping.
“In his opinion, Alito indicated that the Constitution bars states from discriminating against ‘all out-of-state economic interests’ – not just out-of-state alcohol and alcohol producers, as the retailers had argued.”
Says Amy Howe in her article on SCOUTSblog, “This means that states that allow in-state retailers to ship wine to customers within the state could face an uphill battle in preventing sales from out-of-state retailers as well.”
Today, retailers can ship into only 13 states. “I don’t think it’s possible for discriminatory wine retailer shipping laws to stand now,” said Tom Wark, the executive director of the National Association of Wine Retailers (NAWR).
An interview with Michelle Korsmo of Wine & Spirits Wholesalers of America concludes that the three-tiered model and system were reaffirmed as legitimate. “The immediate impact of the decision will be played out over the next few years, but one thing that is clear from the outcome is that the 21st Amendment grants states latitude with respect to the regulation of alcohol.”
But the case did not address retailers. By chipping away at Prohibition-era laws, we are also opening up the possibility for national giants, like Amazon and Walmart, to fully step into the world of alcohol delivery. Some are wondering if we could be opening the door to creating the “amazon of liquor.
WHAT’S NEXT?
Will future courts strike down laws prohibiting out-of-state retailers and wholesalers from exercising the same rights and privileges granted to in-state retailers and wholesalers? Only time will tell. New cases are already being filed and some think that the real changes will come next year as the legislature comes into session.
