Raising a glass to the justices? Not so fast…

Amid the toasts from wine lovers this week, you could easily lose sight of just what the Supreme Court’s ruling on direct wine shipments actually means.

The high court’s 5-4 decision was portrayed as opening the valves for wine to flow freely across state borders. That simply isn’t true. The court merely resolved an issue of discrimination and threw the issue back to individual states, whose alcohol-trade laws vary enormously.

The case was quite narrow and revolved around two states, Michigan and New York. Each allowed their own wineries to ship to in-state customers, while at the same time barring out-of-state wineries from doing the same. They were sued, and now face a choice, along with every other state: Do you allow wineries nationwide to ship to your consumers, or none?

The decision puts legislators in several winemaking states in a bind. This is the situation in both New York, with 203 wineries, and Michigan, with 90, which have burgeoning wine industries. Long courted by the powerful wholesale-liquor industry, lawmakers have scuttled out-of-state shipping laws in the past — New York Gov. George Pataki suggested new rules last year, then shelved them — but undoubtedly will face a backlash if they try to revoke in-state wineries’ ability to sell online and by phone.

On the other hand, in states that produce little or no wine, such as Florida and New Jersey, the wholesalers have little opposition (and considerable support in state legislatures). New Jersey, for instance, last year barred its own small wine industry from shipping to residents. And Florida, notably, is home to Southern Wine & Spirits, the nation’s number one distributor, which heavily backed a 1997 Florida law that makes direct shipping a felony.

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And then there are the mega-producer states, notably California, which have both a history of liberal alcohol-distribution rules and the desire to sell as much wine as they can produce through as many channels as they can generate. Given the size of markets such as New York, the Golden State’s Joseph Phelps Winery is eager to start tapping into its sizable waiting list and grow its 5,000-strong wine club. But as Phelps president Tom Shelton put it, “This decision in itself really doesn’t move the ball that far.”

So it is the so-called “restrictive” states — most of which have few, if any, wineries — that are the most likely locations for new battlegrounds in the Internet-fueled shipping wars.

“Most of these liquor boards are in the pockets of these wholesalers,” says UCLA law professor and wine blogger Stephen Bainbridge. “These bans on direct-to-consumer sales are something these wholesalers are prepared to fight to the death for.”

Floodgate fears
Shipping opponents usually base their case on two arguments: public safety and taxes. The latter appears to be dying — little evidence exists to show that such shipping hurts state revenues, especially since states can require out-of-state wineries to pay taxes. Meanwhile, the safety argument — that UPS and FedEx will be hauling box upon box of wine to reckless teen drinkers — has gained popularity, spurred by the occasional local sting operation.

Only by looking your customer in the eye before you sell them booze, this argument goes, can you ensure you’re not helping some kid break the law. In a statement, Wine & Spirits Wholesalers of America CEO Juanita Duggan described Monday’s ruling as “a choice between supporting face-to-face transactions by someone licensed to sell alcohol or opening up the floodgates.”

The Supreme Court, though, didn’t buy the children-at-risk tack. Justice Anthony Kennedy, writing for the majority, found “little evidence” for such claims: “The 26 states now permitting direct shipments report no such problem, and the states can minimize any risk with less restrictive steps, such as requiring an adult signature on delivery.”

Moving on
So it comes down to the machinations in state capitols. Wine lovers have been heartened by a couple of recent decisions, including a 2003 vote in which Virginia reversed strict anti-shipping laws and the signing last week by Texas Gov. Rick Perry that allows shipping to every corner of the state, even dry counties. “Texas used to be one of the most impossible places in the country to do anything,” says Michaela Rodeno, CEO and president of St. Supéry Winery, in Rutherford, Calif.

In some ways, however, the wine fight may just be a warm-up for the main event — the potential dismantling of the three-tiered alcohol-regulation system that emerged after Prohibition, which carves out separate roles for producers, distributors and retailers. (While Americans buy $23.2 billion in domestic wine each year, liquor wholesaling is a $32 billion industry, so it’s pretty clear which stakes are bigger.)

The 21st Amendment (which repealed Prohibition in 1933) guarantees states a right to closely regulate alcohol, but in a suit against the Washington state liquor board, retail giant Costco has argued it should be allowed to distribute beer and wine on its own. The company claims that the current system unnecessarily jacks prices by at least 10 percent as wholesalers take their cut, and that even state-run distribution, such as exists in Pennsylvania, amounts to antitrust.

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