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Direct Shipping Shenanigans, Delaware Edition

After a burst of progress on wine direct shipping in 2016, in which Pennsylvania, Indiana, and Arizona all opened up, we've had a bit of a pause for the last 18 months or so. Some of that is because most states are now open, and most of the states that are left are relatively small wine markets without their own wine industries, which reduces the pressure both from consumers in that state and from job-creating wineries.  Some of that is because the holdouts tend to be clustered in areas like the deep south (where cultural norms tend to resist the liberalization of alcohol laws) or the northeast (where arcane blue laws, most of which protect powerful distributor lobbies, are long-entrenched). But for the first time in over a year, we have a bill up for vote in a non-shipping state that has the potential of opening a formerly closed market to wine shipments.  Sure, the state is Delaware, the 39th largest state in wine consumption and only 0.42% of the American wine market. But I identified it a few years ago as the likely next state to open up, and we'll happily take any progress we can get.

Enter Delaware bill HB 165. It contains pretty standard wine direct shipping language, establishing a reasonable annual permit ($100) for wineries wanting to ship wine into the state and requiring that wineries collect and remit taxes as though the sale were completed in the location where the wine was delivered.  Common carriers are responsible for checking ID's at delivery.  Reporting requirements are reasonable (quarterly). There is a quantity restriction (three 9-liter cases per household per year) that I don't think is necessary, but it shouldn't cause too many people much angst.  In essence, it's a good bill, and would put Delaware in Tier 2 of the five-tier hierarchy I devised a few years back to evaluate the ease and cost of state shipping regulations.

Except for one clause. A restriction, found in Section d, Clause 5 (lines 61 and 62 of the bill's text) dictates that:

A wine direct shipper licensee may not ... Ship wine that is listed in the current publication designated by the Commissioner for sale by Importers in this State to retailers in this State."

What's the big deal here? Delaware is one of many states that require that any wholesaler register with the state any alcohol product that they offer for sale within the state's borders. States see a role for themselves here in ensuring that wine, beer, and liquor be offered equitably to different retailers and restaurants, and that it not be (for example) given away to prejudice an account into giving preferential treatment to one wholesaler or another. Again, this is fairly routine.  But this shipping bill would eliminate any wine that a Delaware wholesaler is offering for sale from the direct shipping permit. Although this seems straightforward on its face -- you're opening access to the market for wines that aren't available in distribution, and wineries without a wholesaler relationship in Delaware would see this as a win -- it's a major headache for several reasons.

First, just because wineries have a wine listed with a distributor doesn't mean that this wine is actually in stock in retail anywhere.  A quick search of wine-searcher.com for Tablas Creek in Delaware shows four wines available, all at one shop in Claymont.  Only one is current vintage (the 2015 Patelin de Tablas), one is back vintage (the 2013 Esprit de Tablas) and two look like they're the Cotes de Tablas and Cotes de Tablas Blanc, but don't have vintages listed.  I know that our distributor there, who also covers Virginia and West Virginia, also has Esprit de Tablas Blanc, Patelin de Tablas Blanc, and Patelin de Tablas Rosé available for sale.  It's possible that they just haven't sold any recently (our total wholesale sales in Delaware in the last 12 months totaled just 24 cases), or that what they've sold has all gone to restaurants.  But in either case, even the wines that aren't in stock wouldn't be eligible to ship to Delaware consumers. 

Second, just because it's at retail, it doesn't mean it's convenient to a customer.  I had to look up where Claymont, Delaware is, and learned that it's north of Wilmington, at the very northern tip of the state, right on the Pennsylvania line. If a consumer is in the middle of the state (think Dover) they're looking at a drive of about an hour, without traffic.  It's a two-hour trip each way for a resident of a southern town like Laurel.

Third, wineries typically sell a different mix of wines in wholesale than they do direct. Our wine club shipments include early access to our top wines (like our Esprit de Tablas and Esprit de Tablas Blanc) as well as small-production wines that don't make it into distribution. A restriction like this means that our wine club shipments wouldn't be legal to ship into Delaware, which means that we couldn't sign up club members.  Our point of sale system -- which is one of the most sophisticated winery platforms available -- isn't capable of restricting residents of certain states to only certain wines, so we wouldn't be able to take any orders online from Delaware, or would have to then cancel out the portion of orders that weren't eligible for shipment, which would be a nightmare.

Taken together, if that restriction stays in HB 165, it wouldn't make any sense for us to get a shipping permit.  And there are many, many wineries like us out there, which means that the bill wouldn't do much to make available new wines to Delaware consumers, and will likely leave them frustrated and baffled as to why some of their favorite wineries will ship to them and others won't.

Why would this restriction have been entered into the bill?  It's a case of wholesaler (and retailer) protection.  Wholesalers (and retailers) are state-licensed companies, and contribute big money to state campaigns ($107 million in the last decade, according to one study) to protect their share of this $135 billion industry.  Although some individual distributors have more progressive views, wholesaler associations see direct shipping as a threat, and have consistently opposed the liberalization of shipping laws.  They tend to argue that restricting shipping combats underage drinking and ensures the orderly collection of taxes, but given that no one has ever shown a link between wine direct shipping and underage drinking, and that most shipping bills add revenue to state coffers, neither holds up, and it's pretty clear to me that this resistance is at its root protectionism, pure and simple.

Opposing these forces are an array of winery and consumer groups, most notably the Wine Institute and Free the Grapes, both of which support liberalized direct shipping and have seen a remarkable run of success in opening up one state after another since the 2005 Granholm v. Heald decision struck down laws that protected in-state wineries right to ship to consumers but prohibited out-of-state wineries from doing the same.  It was on the Facebook page of Free the Grapes that I found a remarkable exchange that included Paul Baumbach, the principal sponsor of HB 165.  Free the Grapes was urging consumers to contact their Delaware representative and support an amendment to HB 165 (Amendment 1, proposed by Delaware House Rep Deborah Hudson) that proposed the elimination of lines 61 and 62 that restrict the shipping permit to non-distributed wines.  Rep. Baumbach wrote the following (remarkable) comment:

This post is paid for, not by those concerned about Delaware vineyards, but by a California lobbyist organization. Why does HB165, which I am prime-sponsoring, prohibiting the Direct shipping of Delaware wines which are available in our stores? Because they are available in our stores! This bill s designed to help Delaware wine consumers have access to all wines? That means that it works to provide access to wines which aren’t legally available to Delaware residents? HB165 as filed accomplishes that, despite what a California group is spending money on Facebook to make you believe. Make sense?

The level of obfuscation here is pretty remarkable, and makes clear that the goal is not in fact to "help Delaware wine consumers have access to all wines". I would submit that it's in fact a delaying tactic, in much the manner that New Jersey has done, appearing to pass a shipping bill while not actually opening the market much and protecting as much of the state-licensed distributors' profits as possible.

I hope consumers see through this.  If you live in Delaware, please make your voice heard, and support the bill provided it includes House Amendment 1.  An interface on the Free the Grapes Web site makes it easy to contact your elected officials.

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