Tablas Creek Vineyard Blog

An Independence Day look at progress in direct shipping since Granholm v Heald

On the day that Granholm v. Heald was announced in 2005, there were impromptu celebrations around the country, stories in the national media about how the Supreme Court had sided with wine lovers and struck down restrictions on interstate wine shipment, and general euphoria among small and medium-sized wineries who rely on direct shipping.  A closer reading of the decision in the ensuing days produced a more nuanced view, that the Supreme Court overturned a certain type of state protectionism and that the real-world consequences of this decision were likely to be on balance positive to wineries and consumers wishing to order wine from these wineries.  Readers might be interested in a detailed analysis of the Granholm v Heald decision I wrote for a newsletter back in 2005, which I later expanded on this blog.

Slightly more than three years later, the results are complex.  The net effects have been to allow more people in more places to receive wines direct from wineries, but the impacts have been far from uniformly positive for wineries and their customers.

When the Granholm decision was announced, we could ship to the thirteen states with reciprocal shipping laws.  These states (Alaska, California, Colorado, Idaho, Illinois, Iowa, Minnesota, Missouri, New Mexico, Oregon, Washington, West Virginia and Wisconsin) allowed wines from the other twelve reciprocal states, with the stipulation that those states also allowed their wines.  Geographically, they were clustered around the West Coast and the upper Midwest.  None (with the exception of West Virginia) was near the East Coast or the South.  The total population of the reciprocal states comprised just under 30% of the US population.  The benefits of this system were that, as long as you were shipping to someone in one of these states, you needed to do very little compliance work and (outside of California) did not need to charge for or remit taxes.

Now, three years post-Granholm, we can ship to 26 states (Alaska, California, Colorado, Florida, Idaho, Illinois, Iowa, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oregon, South Carolina, Texas, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming).  We expect to receive approval to ship to Georgia within the next month. These 27 states comprise nearly 70% of the US population, and most of the rest border on at least one state to which we can ship wine.  Our only "landlocked" states (where no bordering state allows direct shipment) are Mississippi and Rhode Island -- two of the smallest wine markets in the country. 

Note that if you look at a shipping map such as the one published by the Wine Institute (in conjunction with ShipCompliant, which we'll hear more about later), you'll see 36 states listed as legal shipping states.  The discrepancy between their number and ours comes because of the varying levels of restriction and cost that states impose on wineries wishing to ship.  Some (like Arizona and Massachusetts) restrict us from shipping because we're too large.  Some (like Louisiana and Indiana) prohibit wineries from shipping if they also have a relationship with a distributor in the state.  Some (like Kansas and Rhode Island) allow you to ship orders placed while the customer was on-site only.  Others (like Hawaii and Connecticut) have such onerous reporting requirements that the business we could do does not justify the expense.  Finally, the District of Columbia has such a low monthly limit (one quart per month) that shipping there is not practical.

This variability by state is a large part of the downside of the proliferation of state direct shipping laws post-Granholm.  By and large, states have taken advantage of the portion of the Supreme Court decision that allows them to recoup the taxes they would otherwise have collected from an in-state sale of the same wine.  Some states (like Texas) have made this relatively simple by applying a uniform state-wide tax rate and then distributing the revenue internally.  Others (like New York) require that we collect the precise tax that would be charged at the point of delivery.  So, in addition to any state taxes, we need also collect county and city taxes, and remit these to the appropriate agencies at the schedule they dictate. As you'd expect, this can be a nightmare.  Different jurisdictions require reporting -- which can range in complexity from relatively simple to exceptionally detailed -- monthly, others quarterly, others annually.  At Tablas Creek, we have one person in our office who specializes in compliance.  She spends about one third of her time on this, and we receive additional contributions from our Controller.  The overall cost of the time they spent (in salaries and benefits) probably approached $20,000 last year. 

The main cost to consumers is that (with the exception of the three remaining reciprocal states) we are now required to collect and remit taxes on the wines that we sell.  The 21st Amendment that repealed prohibition gives special authority to states to treat alcohol differently from other products.  However, the Supreme Court has held that the Commerce Clause prohibits states from collecting taxes on most out-of-state sales.  For example, you don't pay taxes on a book you order from Amazon.com unless you live in Amazon's home state of Washington.  The Supreme Court last weighed in on the collection of taxes in interstate commerce in the 1992 decision Quill Corp. v. North Dakota, and affirmed the earlier rule that required a company to remit state taxes only if it has a "nexus" in that state.  The decision looked specifically at a mail-order business, but it has been held to apply equally to Internet commerce.

Yet, the new direct shipping laws nearly all require that wineries collect and remit taxes on their sales.  I think it's interesting that I can't distinguish how this conflict between the 21st Amendment and the Commerce Clause differs materially from the one ruled on in Granholm.  Yet, when the states' Attorneys General argued in Granholm that they had a "legitimate local purpose" in collecting taxes on the sales of wine within their borders (as a justification for prohibiting untaxed out-of-state sales) Justice Kennedy specifically rebuts their concerns by suggesting that wineries remit taxes.  From the court's opinion:

Licensees could be required to submit regular sales reports and to remit taxes. Indeed, various States use this approach for taxing direct interstate wine shipments, e.g., N. H. Rev. Stat. Ann. §178.27 (Lexis Supp. 2004), and report no problems with tax collection.

This imposition of formerly-uncollected taxes amounts to a surcharge of between 6% and 10%, depending on the location where the wine is delivered.  On the volume of sales even of a relatively small winery like us, this adds up.

You might well ask how a really small winery, with little or no staff, can hope to navigate this labyrinth.  It is a real challenge.  Some small wineries have simply abandoned shipping to the non-reciprocal states, and therefore seen their market shrink rather than grow in the last three years.  However, a handful of companies specializing in compliance have moved in to fill the void. We use what is probably the market leader, ShipCompliant, and it has made the process much easier.  For a fee of a few hundred dollars per month, we filter our sales through their software and have state and local compliance documents generated automatically.  Of course, there have been other costs in setting up and integrating this system with both our Web front-end and our accounting back-end systems.

Another hidden cost to consumers has been the erosion of rights to receive out-of-state shipments from wine retailers.  The Granholm decision specifically addresses wineries, and many states have taken the (in my mind, constitutionally indefensible) position that it was not intended to apply to other sellers of wine.  The Wine & Spirits Wholesalers of America has been tireless in the face of public ridicule and judicial rebuke in opposing any expansions of direct shipping privileges, and the newly formed Specialty Wine Retailers Association has only recently begun mobilizing to protect retailers' shipping rights.  Meanwhile, several states, most notably Illinois, have stripped their consumers of the rights to order wine from out-of-state retailers.

Finally, as a conclusion, it's worth noting that my initial idea in writing this article was to find relevant sections of the Declaration of Independence, and its spirit of rule by and for the people governed, as a way of exploring the various impacts. Looking at the Declaration's text, I decided that idea was overblown. Yes, I'd love to be able to ship a bottle of Mourvedre to Maryland, but I don't think that the fact that we cannot should encourage us to dissolve our system of government.  The US Constitution (which, after all, specified the mechanism of government rather than the justification for it) seems a better guide.  The most relevant?  The wisdom of the founding fathers, who in the Commerce Clause (Article I, § 8, cl. 3) reserved for Congress the power to "regulate Commerce with foreign Nations, and among the several States".  It's clear that states, given a sliver of opportunity, find justifications for imposing and collecting taxes and for favoring businesses licensed by and in that state.  One can only imagine how fragile the federation of states would be, and how discouraging it would be for business in general, if every product had to navigate the same patchwork of regulatory challenges that producers of wine face.

Tannat, Heart Health and Longevity

Is it possible that we make the single healthiest California wine?

In the last year, we've seen a growing trickle of requests for our Tannat, often from people who are not our typical wine consumers.  The most recent of these was a request from a gentleman in Mississippi (which is unfortunately not a state to which we can ship) asking for whichever wine we make that contains the highest percentage of Tannat.

Tannat is a thick-skinned grape native to south-west France that makes wonderful dark, dense, smoky wines renowned for their ageworthiness.  We imported it to Tablas Creek in 1996 thinking it would be a good blending component.  It turned out to be too dominant to play a minor role in wines based on other varieties and as a result we pulled it out of the blends.  We have been producing a small amount of one of California's only Tannat-based wines since 2002.

Do I think that the Mississippi gentleman is a Basque transplant who has had to leave his sources of Madiran at home?  It doesn't seem likely.  Neither his nor the other requests we've received ask for wines that have the flavor profile of Tannat.  Instead, these requests appear to be driven by recent research suggesting that Tannat is the single healthiest grape to consume.

The correlation between red wine consumption and health (particularly heart health) has been recognized for some time, and burst into American consciousness following the 1991 French Paradox broadcast on 60 Minutes.  However, the mechanism by which red wine contributes to health has not been well understood, neither why red wine (and not, say, white wine or other forms of alcohol) is so beneficial, nor whether different red wines or different farming or fermentation techniques provide different levels of protection. 

In his book "The Red Wine Diet", Dr. Roger Corder (a cardiovascular expert at the William Harvey Research Institute in London) makes the case for oligomeric procyanidins (OPCs) as the source of red wine's health benefits.  Dr. Corder researches other possible sources -- the most publicized of which is resveratrol, which does exist in grapes and has been known to discourage cancer but would not be of nearly sufficient quantities in wine to be of clinical use -- before identifying OPCs as the most likely culprit.  All red grapes, particularly those with thick skins and high skin-to-pulp ratios, contain OPCs.  But, after measuring the OPC concentration of several common red wine grapes, Dr. Corder identifies Tannat as the grape with the greatest concentration.  The real-life evidence of Tannat's benefits can be seen in the surprisingly long lifespans of residents of the département of Gers in southwest France, whose local wine appellation is Madiran.  Gers contains more than double the national average of men in their nineties.  Madiran's principal grape is Tannat.  From the conclusion of an article in Nature:

"The higher OPC concentration in wines from southwest France is due to traditional wine-making, which ensures that high amounts of OPCs are extracted, and to the flavonoid-rich grape Tannat, which makes up a large proportion of grapes used to produce local wines in the Gers area but is rarely grown elsewhere."

If thicker-skinned, darker red wines contain more procyanidins, I am not surprised that Tannat should rank at the top of Dr. Corder's list.  Its skins are so tenacious that it is often difficult to de-stem, and the wines are dense, dark, spicy and tannic.  According to Dr. Corder's measurements, Tannat wines contain three to four times more procyanidins than other red wines such as Cabernet Sauvignon. 

While making one of California's only Tannats seems enough to put us in the running for healthiest wine in California, I find Dr. Corder's identification of traditional winemaking as a contributing factor to the OPC levels in French Tannats also very appealing.  If it is possible, as Dr. Corder asserts, that wines that are less processed, with longer fermentations, less or no filtering and fining, and a minimal reliance on technology exhibit higher concentrations of OPCs, then it's possible that the Tablas Creek Tannat is the single healthiest wine made in California.

We're grilling ribs tonight.  I think I'll open a bottle of Tannat to celebrate!

Earth Day thoughts on sustainability in the world of wine

Today is the 39th annual Earth Day celebration, and a great time to assess wine's progress on its quest for sustainability.  Wine, like any other agricultural product, has environmental impacts from its vineyard and winery practices, and additional impacts from its packaging and marketing (Tyler Coleman had an interesting op-ed piece in the New York Times on wine's carbon footprint).  It's great that so many wineries are talking about their efforts toward sustainability.  It's less clear to me (as I pointed out in a post from last spring) that the actions of many of these wineries match their rhetoric.

Last weekend, we participated in the Earth Day Food & Wine Festival here in Paso Robles.  This event is organized by the Central Coast Vineyard Team, who is (in their own words) "a non-profit collaboration of agriculture and natural resource professionals with a shared dedication to sustainable winegrowing".   The event was great, very well attended and organized, with attendees exceptionally interested in how each exhibitor was practicing sustainability.  When we told the people who came by our table that we were, in fact, certified organic, many were surprised that we needed to make a point of that.  They had assumed that everyone there, or most everyone, was organic.  In fact, there were only three wineries (of the fifty or so there) who are certified.

There are lots of ways that wineries can be sustainable without being organic, and I don't want to denigrate the efforts that many of these wineries are making.  Any approach that reduces any negative environmental or social impacts that a business may foster needs to be encouraged.  I think that Brian Talley of Talley Vineyards deserves particular credit for expanding the understanding of sustainability to encompass the quality of life and affordable housing through his Fund for Vineyard and Farm Workers. 

Wine is one of the best agricultural crops, on many levels, in terms of environmental impacts.  Vines are planted and left for decades, so you don't have topsoil loss and erosion from annual tilling.  Wine grapes are generally watered very little, and with high-efficiency drip irrigation, so they're low-impact on water use or runoff.  Similarly, the best vineyards tend to be nutrient-poor, so there is little incentive to fertilize heavily.  There are very few devastating grapevine pests, so most vineyards are rarely sprayed with pesticides.  And vineyards are a sufficiently value-added commodity that once a vineyard has been planted the land is rarely redeveloped for housing or other higher-impact uses.

Still, there's a wide range of practices in the world of wine.  Most vineyards do have some pesticides applied.  Most also spray with herbicide under the vine rows to prevent competition with weeds.  Commercial fertilizers, too, see some application.  Enormous quantities of water are used in the cellar for the production of wine, as tanks, barrels and crush equipment need to be cleaned after each use.  And the environmental impacts of packaging, shipping and marketing wine are significant.

Even out in our neighborhood, you can see wineries who preach sustainability but whose practices speak of expediency.  And it's a shame.  Wine grapes have to be one of the easiest products to grow organically, as they don't require much fertilization or pest control, and weed control can be conducted mechanically (see an earlier post on organic weed control).  Winery wastewater can be recaptured and used for other purposes (as in our wetlands area).  Particularly surprising to us is that more people haven't made the plunge to get the added intensity, flavorfulness, and character of place in organically farmed wines.

I think it's great to celebrate the progress that the wine community has made in environmental consciousness, but I also think it's too bad more haven't taken the plunge to become fully organic.  And, it's high time we created objective, enforceable criteria for the designation of "sustainable" so that wineries have standards to meet and so that the designation does not become diluted into meaninglessness.

A Supreme Court tobacco ruling that may have implications on wine direct shipping: Rowe v. New Hampshire Motor Transport Association

I was intrigued by a story in the New York Times today on a unanimous ruling by the Supreme Court on a tobacco case.  This case, Rowe v. New Hampshire Motor Transport Association, was brought by the New Hampshire Motor Transport Association in challenge of a Maine law requiring shippers of tobacco products to identify and intercept packages from sellers unlicensed to ship tobacco, and to conduct age verification on delivery.  The law seems unexceptional, except that the federal government is given exclusive authority over common carriers under the 1994 Federal Aviation Administration Authorization Act.  The First US Circuit Court of Appeals overruled Maine's law, and the Supreme Court agreed that the 1994 act (which established the deregulation of trucking to put it on a level playing field with the newly-deregulated airline industry) superseded a state's desire to achieve specific public policy goals through regulating the distribution and delivery of a controlled substance.

Particularly interesting as the ruling might apply to wine is the Court's dismissal of a public health argument by states as a means of overriding the federal legislation.  From Justice Breyer's opinion:

"Despite the importance of the public health objective, we cannot agree with Maine that the federal law creates an exception on that basis, exempting state laws that it would otherwise pre-empt."

As the regulatory patchwork allowing direct shipping of wine has coalesced, it has become clear that the compliance costs for wineries will be enormous.  Each state has different regulations, requires different remittances and reports, and exacts different fees.  An industry has developed around knowing these regulations, with companies like Ship Compliant arriving to fill the growing needs of wineries to handle the regulations created by filling the orders of their customers.

It will be interesting to see whether the statutory authority of states to regulate the sale and distribution of alcohol within their borders (granted by the 21st amendment repealing prohibition) takes precedence over the Federal Aviation Administration Authorization Act.  All state regulations (and the model direct shipping bill drafted by the Wine Institute) include portions requiring shippers to verify age upon delivery.  This specific clause was singled out by the Supreme Court as:

"the very effect that the federal law sought to avoid, namely, a State’s direct substitution of its own governmental commands for 'competitive market forces'"

Certainly, the phrasing in the recent ruling suggests that the Supreme Court is not likely to look favorably on many of the "risk to public health" arguments put forth by the states and their distributor financiers.  Again, from Justice Breyer's ruling:

"Many products create “public health” risks of differing kind and degree. To accept Maine’s justification in respect to a rule regulating services would legitimate rules regulating routes or rates for similar public health reasons. And to allow Maine directly to regulate carrier services would permit other States to do the same. Given the number of States through which carriers travel, the number of products, the variety of potential adverse public health effects, the many different kinds of regulatory rules potentially available, and the difficulty of finding a legal criterion for separating permissible from impermissible public-health-oriented regulations, Congress is unlikely to have intended an implicit general “public health” exception broad enough to cover even the shipments at issue here."

Of course, there are constitutional debates involved in the debate on wine shipping, as the Granholm v. Heald ruling demonstrated. The Commerce Clause has its own contradictions with the 21st Amendment.  I don't know whether the Federal Aviation Administration Authorization Act would be viewed as bowing to the 21st Amendment as it impacts the common carriers who deliver wine shipments.  But, I am cheered by the Court's understanding of the difficult burden that various state regulations put on a business trying to deliver a product within the fifty different United States.  This recent ruling gives me additional hope that when the next direct shipping case reached the Supreme Court, wineries are likely to receive a sympathetic hearing.

Sulfites in Wine - What's Causing my Headache?

In my recent post on lessons I've learned from blogging I recommend that bloggers write about the questions they find themselves asked all the time.  Following my own advice, I realized I've recently answered several questions about sulfites in our wines.  There are two phrasings to this question, both getting at the same issue.  One phrasing runs along the line of "oh, you farm organically.  Does this mean that your wines are sulfite-free?"  The other phrasing is "I get headaches from the sulfites in wine.  Does the fact that you're organic mean I can drink your wines?" 

Just the other day, I got pulled in by a discussion on organic wines and sulfites on the excellent blog 1 Wine Dude.  As I was writing the response, I realized that this is exactly the sort of issue I'm recommending that others address.  The confusion surrounding the issue would be farcical if it didn't negatively impact the acceptance of organic wines in the marketplace.  The punch line of the joke (which no one I know really finds funny) is that sulfite sensitivities don't typically cause the headaches that most people who believe they suffer from sulfite allergies describe as their principal symptom.  Those who report headaches are far more likely to be reacting to the histamines (or, more rarely, the tannins) in wine.  Or the alcohol.

As for us, yes, we use sulfites.  If we didn't, our wines would be unstable to a degree we're not comfortable with, and we're making wines for aging over the long term.  We do what we can to minimize the concentration to under 100 parts per million (the average American wine is about 350 ppm).  Still, I am not aware of any top winery anywhere in the world who omits sulfites entirely from the winemaking process.  And, sulfites have been used since Roman times in wine.  The fact that (unlike in other countries) United States regulations prohibit us from calling our wines organic is an unfortunate consequence of the widespread fear in America that many, many people are allergic to sulfites.  Fortunately, sulfite allergies are quite rare, and wine contains minor quantities of sulfites compared to other common foods.   

Important fact #1: If you (other than wine) eat quite normally, and wine (particularly young, red wine) gives you headaches, you almost certainly are not allergic to sulfites. 

Sulfur occurs in many foods, including (according to WebMD):

• Baked goods
• Soup mixes
• Jams
• Canned vegetables
• Pickled foods
• Gravies
• Dried fruit
• Potato chips
• Trail mix
• Beer and wine
• Vegetable juices
• Sparkling grape juice
• Apple cider
• Bottled lemon juice and lime juice
• Bottled Tea
• Many condiments
• Molasses
• Fresh or frozen shrimp
• Guacamole
• Maraschino cherries
• Dehydrated, pre-cut or peeled potatoes

Particularly common sources of sulfites are dried fruit, potato chips and french fries, and condiments.  Three ounces of dried apricots, for example, contain 175mg of sulfur dioxide.  By contrast, a four ounce glass of Tablas Creek (at 100ppm of sulfites) contains about 12mg.  Even a glass of wine with average sulfite levels would contain about 40mg of sulfur dioxide.  You'd need to drink half a bottle to get the same sulfites as that handful of apricots. 

The FDA estimates that about 500,000 people in the United States have sulfite allergies (about two-tenths of one percent of the population).  Those who do need to be very careful about what they eat and drink, as exposure to sulfites can cause respiratory reactions.  Six people have died in the last 30 years in the United States due to sulfite reactions (none traceable to wine).  The reactions to a sulfite allergy are typically wheezing, coughing, hives, abdominal pain, and difficulty swallowing, the same reactions you'd expect from, say, a medical allergy (and, in fact, those with allergies to Sulfa drugs are much more likely to have other sulfite allergies).

Headaches, on the other hand, are not mentioned in the literature on sulfites, but are common reactions to an excess of histamines.  Many more people have sensitivities to histamines, which are common in pollen as well as many other plant materials.  Reactions to histamines include headache, itchy eyes, runny nose and flushed skin... the common effects of hay fever.   It's less well known that histamines are also common in the skins of grapes.  This explains why many people are sensitive to only red wines (which spend time in fermentation next to grape skins) or only to young wines (histamines break down over time in bottle).

Important fact #2: as with seasonal allergies, sensitivities to the histamines in wine can be treated with an over-the-counter antihistamine such as Benadryl or Claritin.

So why does the government mandate that wines display "CONTAINS SULFITES" on the back of nearly every label, but make no mention of histamines, when histamine reactions are much more common than sulfite allergies?  Essentially, histamine reactions are not particularly dangerous.  Inconvenient, sure, but not life-threatening.  However, from the number of questions I get, it's clear that the government-mandated warning has convinced lots of people that they're allergic to something they're not, and obscured the easy steps people could take to minimize their reactions. 

I've already written about how the fact that American wines with sulfites are prohibited from being labeled organic discourages vineyards from farming organically, so I won't go into that again here.  It's just another example of the unintended consequences of even well-intentioned government.

The TTB's new AVA rules: a well-meaning step in the wrong direction

I was surprised with how quickly the TTB published new draft rules to resolve the issues surrounding the approval of new AVAs that might conflict with existing brand names, or that are nested within other existing AVAs. [I wrote about this a few weeks back at some length.] 

A first reading of the new TTB proposals suggests an honest effort on their part to create more rigorous protections of the future use of place names as brands while redressing possible negative financial implication for brands created after 1986 who use a viticultural area as a part of their brand name.  However, we believe that it takes the wrong approach, would set United States regulations further at odds with our responsibilities under international law, and would set a dangerous precedent not just for the geographical labeling of wine, but also of other agricultural products.

The crux of the proposal suggests a rule whereby wineries that registered a brand name between 1986 and 2005 which later was adopted as a viticultural area may continue to use their brand name but must make a "statement which the appropriate TTB officer finds to be sufficient to dispel the impression that the geographic area suggested by the brand name is indicative of the origin of the wine".  Labels approved after 2005 have no such protection, and wineries will be notified upon the approval of any new COLA (Certificate of Label Approval) if there is a chance that it may one day conflict with a place name.

In addition, the new regulations address the nesting of AVAs within other AVAs, which has been done for centuries in other countries and for decades in the United States.  The rules proposed include a frightening warning for those who (like the Paso Robles AVA Committee) would propose AVAs of greater specificity within an existing AVA.  The full paragraph is below, with the most alarming idea in bold:

"In any case in which an AVA would be created entirely within another AVA, whether by the establishment of a new, larger AVA or by the establishment of a new AVA within an existing one, the petition must dispel any apparent inconsistency or explain why it is acceptable. When a smaller AVA has name recognition and features that so clearly distinguish it from a larger AVA that surrounds it, TTB may determine in the course of the rulemaking that it is not part of the larger AVA and that wine produced from grapes grown within the smaller AVA would not be entitled to use the name of the larger AVA as an appellation of origin or in a brand name."

The Napa Valley Vintners Association quickly objected both to the expansion of the grandfathering clauses to cover an additional twenty years of brand approvals and to the curious departure from the international standards of appellation nesting.

In a letter to the other members of the Paso Robles AVA Committee, my dad proposed another solution that would strengthen, rather than weakening, place-name designation:

"If honest and accurate representations of the wine in the bottle to the consumer is the objective of the TTB then the problem of conflict that they are feeling is due not to the AVA system regulations but to the issuance of COLAs.  The owner of a COLA that is issued with a geographic name should be required to source 85% or more of his grapes from that geographic location, whether or not it is an AVA.  Installing such a rule would avoid all future conflicts between COLAs and AVAs.  It would mean that the wine in the bottle was made from grapes of the same geographic origin as the label implies.  It would inform the consumer reading a wine list or retailer solicitation without it being necessary for him to see a bottle disclaimer.  It would also eliminate the need for a rolling grandfather amendment.             

As for AVAs within AVAs, the precedent has already been set in the USA, since they already exist.  The larger AVA informs the consumer by determining the larger geographic location of the vineyard with which he will be more likely to be familiar.  The smaller AVA determines the more exact location of the vineyard(s) and their distinctiveness within the larger AVA.  That is the way all wine producing countries in the world regulate their identifications of geographic locations to best inform consumers.             

I am not for rolling grandfather exceptions.  There is an established regulation for 1986 and prior.  It should be followed.  People who find themselves in conflict with new AVAs, who have COLAs approved after 1986 should be given a length of time, say 5 years, to bring their sourcing into line or change the brand name or /and label.  After all, they are fraudulently representing the source of their grapes, and they know it.             

If I had my way, I would make people who have COLAs prior to 1986 that misrepresent the source of their grapes either conform by sourcing 85% from the geographic area or change their label and/or brand name in a delay of 10 years or so."

I believe that we have an opportunity to make a better system, and that the TTB's proposed new rules instead make a system even more riddled with exceptions, exemptions and disclaimers.  The first order of business is making comments to the federal government on their proposed changes in rulemaking.  To learn how to do so, visit Docket No. TTB–2007–0068 (at www.regulations.gov).

The TTB's Reevaluation of its AVA Approval Process: a Retreat from the "Common Good"?

[Editor's Note: with the publication in late November of the TTB's proposed new rules for AVA approval, the questions under debate have been clarified.  I have posted an updated analysis of the new rules, as well as a discussion of some of the responses of local and regional organizations, in the December 6th blog post The TTB's new AVA Rules: A Well-Meaning Step in the Wrong Direction.]

Recently, the TTB (Tax and Trade Bureau), which among other responsibilities oversees the applications for new AVAs (American Viticultural Areas) announced that they would be suspending consideration of any AVA petitions which either nest inside of an existing AVA or could conflict with an existing brand name.  This has effectively shut down the consideration of all new AVA petitions within the United States, including the 11 petitions to subdivide the 600,000 acres within the Paso Robles AVA (map below).

I was asked recently by a writer visiting the area what I thought of the TTB's decision.  I thought that the question deserved a little more thorough consideration, and began this post.  Shortly thereafter, a terrific article by Corie Brown was published in the Los Angeles Times addressing the issue.  I wanted to take a little more time to incorporate the new information she unearthed and think about this issue from a larger perspective.  My feeling is that this provides a great opportunity to think about what the purpose is of the TTB's regulation of viticultural areas, and to address why they might be looking at changing their regulations now.

In essence, viticultural areas were created to provide specificity of origin when existing place names (cities, counties, or states) were either too large or too imprecise.  To use the Paso Robles AVA as an example (as I'm most familiar with its specifics), the AVA includes portions of three towns: Atascadero, Templeton, and Paso Robles itself.  These all share characteristics of climate and geography that make them distinctive from other areas outside the AVA.  Yet, within the AVA there is still enormous variation in rainfall (from 7 inches to 45 inches, depending on where you are), temperature (as much as 10 degrees on any given day), elevation (from 600 to 2200 feet), topography (high plateau to the far east, alluvial riverbeds in the center, and foothills to the west) and soils (over 40 soil types have been identified within the appellation).

The goal of creating AVAs (within the Paso Robles region and elsewhere) is to help consumers understand what characteristics a wine will inherit from where its grapes are grown.  In order to make these AVAs meaningful, the TTB requires that any brand incorporating an AVA name use grapes grown in that AVA.  When the TTB began recognizing AVAs in 1986, and enforcing the directive that wineries that incorporated a place name into their brand name had to use grapes from that place in their bottlings, they identified that they had created a problem for some existing brands.  These brands were grandfathered in and are allowed to make wines from any California AVA, as long as the wine's AVA is clearly marked on the label.  This seems a reasonable compromise to the competing goals of protecting the meaningfulness of geographic identifiers and avoiding harm to brands created before the rules were made.

However, the rules are different for brands created since 1986.  The regulations expressly prohibit any winery from using an approved AVA as their brand name unless they're using fruit from that AVA.  This is well known within the industry, and is an important consideration for any winery in choosing its name.  If, for example, you're going to call yourself Paso Robles Winery, you know that this will preclude you from ever making a "Central Coast" or a "California" (or even a "Napa") AVA wine.  And, this is important even if you're using a place name that has not yet been made an AVA (such as Calistoga). 

In the Los Angeles Times article, Corie Brown interviews the proprietors of Calistoga Cellars, who are in a fight with the proposers of a "Calistoga" AVA.  They created the brand in 1999, but make wines under the Napa Valley AVA, incorporating some fruit from within the proposed Calistoga AVA but buying the majority of their fruit from elsewhere in Napa Valley.  They filed a letter of objection to the Calistoga AVA proposal, claiming that it would harm their business to have to find new sources of fruit.  I found the most fascinating insight into their thought process from the following quote from owner Roger Louer: "I assumed Calistoga Cellars would be grandfathered just as those wineries were in 1986".

It seems incredible that the federal government should be in the business of protecting speculative business owners who begin a project with the expectation of an exemption from the rules on the books, yet this is what has happened.  The TTB has suspended consideration of any new AVA that "would affect an established brand".

Every exception to the rules requiring geographical specificity undercuts the foundations of American AVAs.  It is alarming to me that the TTB seems to be indicating that it is planning a retreat from the rules that it has made for itself and for its wineries to follow.  What's more, it is doing so while several proposals developed under the old rules are in mid-approval.  In a letter explaining their decision, they state that what they're going to do is "take a balanced approach to its administration".  This sounds alarmingly to me like what is going on elsewhere in the federal government, where agencies are being directed to support the interests of individual businesses over their statutory responsibility to promote the common good.

What do all of you think of this?  Am I overreacting?

Direct Shipping to Florida - A New Challenge

Wineries' privileges to ship to Florida are under attack.  As is happening in many states, the distributors' lobby has been working to reduce or eliminate the abilities of out-of-state wineries to ship directly to consumers, and there have been recent developments consumers in Florida - or wineries who ship to Florida - should be aware of.

Last week, in what sounds like a strange and contentious legislative session, Florida House Jobs & Entrepreneurship Council voted 7-6 against a direct shipping bill modeled after the legislation used in states around the country.  The Department of Business & Professional Regulation, which has allowed wine shipments by executive ruling since early 2006, has said that without approved legislation, it will revoke its ruling on May 5th.  The failure of the committee to forward a bill to the state Senate leaves this permission in limbo.

An good article describing the recent developments appeared in the Orlando Sentinel.

It appears to me that the distributors' lobby, in responding to state legislators' unwillingness to vote publicly against a consumer-friendly (and pro-business) measure like regulated direct shipments of wine, have offered legislators an out: by declaring that the amendment with a production cap had failed, they delivered a bill to the committee that a bare majority could vote against... uniting those legislators who believe that no direct shipping should be allowed with those who believe that it should be allowed only for smaller wineries.  In effect, they offered a "poison pill" provision into the direct shipping bill, allowing legislators to appear to vote against a part of the bill while actually voting against the entire bill.

It is too early to know what impact this will have.  The legislature has until May 5th to pass a workable bill before the state deadline passes.  Interested consumers should write to your state representatives, urging them to pass a workable wine shipping bill.  A sample letter, which can be modified to suit your desires, is available on the "Free the Grapes" Web site.

At Tablas Creek, we have always worked to open legal avenues of shipping, and we hope that Florida will not become the first state to remove shipping privileges granted after the Supreme Court ruling two years ago.

Direct Shipping of Wine: The Supreme Court's Granholm v. Heald Case Explained

[Ed note, July 2008:  I recently wrote an update analyzing the ongoing impacts of the Granholm v Heald decision on wineries that readers of this post might find interesting.]

With the issues surrounding wine direct shipping becoming more complicated (check out Free the Grapes or ShipCompliant's excellent blog) I have had lots of conversations with people around the industry concerning the implications of the Supreme Court's landmark Granholm v. Heald decision from 2005. 

I speak each week with a surprising number of consumers who believe that after the Supreme Court ruling, we should be able to ship wine anywhere, and take it personally when I explain that we can't.

I thought it would be timely and interesting to republish the article I wrote for our Summer 2005 newsletter.  The article is reprinted below.  I'll be revisiting this issue over my next few posts, with an eye toward what has changed in the last 24 months:

Introduction

We were thrilled that on Monday, May 16, 2005, the U.S. Supreme Court struck down laws that prohibit out-of-state wineries from shipping to consumers while allowing in-state wineries to do so. However, some of the hype surrounding the case gave consumers the mistaken impression that wineries can now ship wine to anyone, anywhere. Rather, this decision is a positive step in the direction of giving consumers access to more wines, but will have only limited immediate impact.

Case Details

In order to know what impact the decision will have, it is important to understand the two cases under review. Michigan and in New York both have enacted laws or regulatory systems that in effect permit their in-state wineries to ship wine directly to consumers, but prohibit out of state wineries from doing so. The mechanisms were slightly different, but the effects were the same. In Michigan, wine writers Ray and Eleanor Heald, joined by San Luis Obispo winery Domaine Alfred, challenged the state’s laws on the grounds that they represented an unconstitutional favoritism of in-state producers over out-of-state producers. The Michigan Association of Wholesalers, fearing that direct shipping could erode their share of the wine market, intervened in favor of the state’s argument claiming that the 21st Amendment to the Constitution immunized states from prosecution for discrimination over alcohol. The district court upheld the state’s regulations, but the 6th Circuit Court of Appeals reversed it.

In New York, small winery owners Juanita Swedenburg (Swedenburg Estate Vineyard in Virginia) and David Lucas (Lucas Winery in California) brought suit against New York claiming that the state’s restrictions violated the Commerce Clause, and again New York wholesalers intervened in the state’s defense. A district court found for the plaintiffs, but the 2nd Circuit Court of Appeals reversed the decision, ruling in favor of the state. This led to the Supreme Court combining the two cases to review the question of whether the 21st Amendment permits states to enact regulatory schemes that discriminate in favor of in-state wine producers.

Constitutional Arguments

The commerce clause is actually a very short piece in Article 8 of the Constitution, giving congress “Power to regulate Commerce among the several States” . However, Supreme Court interpretation has concluded that there is a dormant commerce clause assumption implicit in the wording, best expressed in a ruling from 1949:

Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation… Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents. Restrictions so contrived are an unreasonable clog upon the mobility of commerce.

The 21st Amendment repealed Prohibition, while assuring that states or municipalities who wished to remain “dry” could do so:

The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.

The states argued that the ban on out-of-state shipping was necessary for two reasons. First, to ensure that minors did not receive access to alcohol. Second, to ensure that states were able to collect the appropriate tax revenues. They further argued that it was reasonable to permit in-state wineries rights denied to those from other states because the remedies they had against local wineries who broke state laws were more easily enforced.

The plaintiffs in the case countered that there were remedies in place that addressed the states’ legitimate concerns. 26 states have enacted some sort of direct wine shipping, requiring an adult signature at delivery, and requiring wineries that ship into the state to remit the appropriate taxes.

The Supreme Court’s Decision

After reviewing case history, the Supreme Court, in a 5-4 decision, agreed that the 21st Amendment gave states broad powers to regulate alcohol in many ways, including the rights to assume all control over liquor distribution, or to funnel sales exclusively through distributors. However, as the court pointed out in its decision:

State policies are protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent. The instant cases, in contrast, involve straightforward attempts to discriminate in favor of local producers.

In conclusion, the court ruled that although states may control the distribution in many ways, they must do it equitably:

States have broad power to regulate liquor under §2 of the Twenty-first Amendment. This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it must do so on evenhanded terms.

The court affirmed the Michigan Decision, and reversed the New York decision, remanding the case back to the state legislatures to enact constitutional legislation.

The Decision’s Impact

There are currently only eight states that permit in-state wineries to ship to consumers but prohibit out-of-state wineries from doing the same thing (and who are therefore in violation of this recent ruling).  These are New York, Michigan, Massachusetts, Connecticut, Ohio, Florida, Indiana, and Vermont.  The regulations in those states will have to be re-written, and it is possible that the states will choose to prohibit direct shipping from everyone (including their own wineries) rather than opening the states’ borders to all.  However, it appears unlikely that states with a significant winery presence (including New York, Michigan, and Connecticut) will take an action that would mean economic ruin for some of its small in-state wineries.  States with a strong wholesaler lobbying presence and very few wineries (including Florida and Massachusetts) seem more likely to prohibit all direct shipping of wine. 

[Ed note, April 2007: New York, Michigan, and Vermont passed legislative solutions permitting direct shipping to both in- and out-of-state wineries.  The Ohio and Florida executive branches enacted rules permitting in- and out-of-state shipping.  Massachusetts and Connecticut enacted legislation that theoretically permits wineries to ship to consumers, but with so many restrictions and such high compliance costs that few wineries actually are shipping, and the Indiana Attorney General clarified the state's laws to prohibit any wineries from shipping wine to consumers.]

But, you do have power to affect the decisions state legislatures make.  If you have an opinion, contact your legislator and let him or her know what you think.  Resources online that can help you contact your legislator include the Wine Institute (www.wineinstitute.org) and Free the Grapes (www.freethegrapes.org).

[Ed note, April 2007:  At Tablas Creek, we have since created and maintain a page of wine shipping news where we post any updates as they occur.]

We will be contacting our mailing list members who live in affected states as soon as we learn what any new regulations mean.  We are also working with our common carriers (FedEx and UPS) to ensure that our customers are protected from questionable or unscrupulous shipping practices. We only ship to the states to which we are allowed by state law, and we mark our shipments clearly as wine. If you live in a non-shipping state, we're happy to help you find local retailers or wholesalers who carry our wine. 

The significance of "Estate Bottled"

My dad recently met with a marketing guru and spent some time talking about what makes Tablas Creek special.  We sat down after his conversation, and went through the usual suspects: Rhone specialist, organic vineyard, grapevines from Beaucastel, etc.  One thing that we both agreed was of great importance, but which we felt was not that well understood by most people outside the industry (as well as many inside it) was that at Tablas Creek, we are 100% Estate grown, made, and bottled.  Of course, the rules that govern estate bottling contribute to the confusion.

The significance of estate-bottling a wine is relatively straightforward.  It means that the winery grows the grapes themselves, and controls the product from beginning to end.  This does not guarantee a great wine (obviously, not all vineyards are capable of greatness, and just because you farm it yourself doesn't mean that you've maximized its potential) but it does mean that there are no excuses.  You grew the grapes, you made the wine, and you did it all on-site.  And, you at least have a chance of elaborating the elusive sense of place that the French call terroir.

No matter how great the relationship with a grower with whom you work, the grapes are still their product, not yours.  Plus, if you work with multiple growers, you can make a wine that's a reflection of a grape, or of a region, but not of a specific place.  At Tablas Creek, this reflection of place is what we've been reaching for since we started the project in 1989.

And, of course, we've used exclusively the grapes we grew ourselves on our 120-acre vineyard for all wines that have borne a Tablas Creek Vineyard label.  We are, in the classic definition, Estate Grown and Bottled. 

But, how the labeling laws are written, you can claim estate bottled status for vineyards over which you exercise "significant control".  This definition is left up to the winery, and I've never heard of it being audited by the Tax and Trade Bureau, who oversees the wine labeling process.  That looseness of definition weakens the designation dangerously, and if you asked most consumers which was more important, "Single Vineyard" or "Estate Bottled" most, I venture, would say "Single Vineyard".  And this is probably logical; there are stringent requirements set by the TTB about vineyard-designate wines.  All must be at a minimum 95% composed of grapes grown in that vineyard.  But, there's no guarantee (except for the ownership implied by identifiying the source of the grapes) of how, or by whom, that vineyard was farmed.  Many (maybe even most) vineyard-designate wines are from purchased grapes, and the best vineyards (think of Bien Nacido, in Santa Barbara County) sell grapes to dozens of winemakers.

So, back to Tablas Creek.  We are both Estate Bottled and vineyard designate.  It's implied by our name: we've chosen to call the winery "Tablas Creek Vineyard".  We grow all our own grapes, and our winemaker Neil Collins is also our vineyard manager.  In our opinion, it's not a separate job... the vineyard is the first step of the winemaking process.  We'll continue to try to communicate why we feel this is so important.