Alcohol beverage is one of the most regulated commodities in the United States. In fact, it is the only commodity that has appeared specifically in two amendments to the U.S. Constitution.
In simple terms, the 21st Amendment repealed the 18th Amendment, ended Prohibition and granted the states wide authority to regulate the sale and service of beverage alcohol within their borders.
Legal issues involving the service and sale of beverage alcohol are often heard in state courts. On rare occasion, such matters make their way through the federal court system and ultimately to the U.S. Supreme Court.
In 2005, one such case, Granholm v. Heald, changed the way wine consumers could purchase wine. Under certain circumstances, the court concluded that wineries were permitted to ship their wines directly to consumers through interstate commerce, bypassing the entrenched three-tier system. Prior to Granholm, direct-to-consumer sales by manufacturers across state lines was impermissible.
Wine aficionados rejoiced. After a wine country tour of Napa or Sonoma, wine lovers could now order a favorite label from the comfort of their home in a far-off state and have that wine shipped to their front door. Once unavailable wines now became available for drinking enjoyment far from the wine maker’s estate.
Moreover, retailers around the U.S. took Granholm to mean that they too could ship to consumers across state lines. The court never articulated such a position but retail sellers of alcohol began to open up shop by creating web portals for ordering and shipment. Alcohol beverage wholesalers reacted and put pressure on state legislatures to curtail this activity. States began to enact restrictive measures designed to prevent common carriers from delivering alcoholic beverages directly to consumers.
Currently, just north of a dozen states permit common carriers to deliver to consumers directly (with much regulation in place). The dream of unrestricted wine enjoyment by consumers began to appear and taste like an outdated vintage.
Fast forward to today. The court recently heard arguments in the matter of Tennessee Wine and Spirits Retailers Association v. Zachary W. Blair, which most certainly will have implications in the way consumers purchase alcoholic beverages.
The facts of Blair are simple enough. Total Wine & More, one of the largest retailers of alcoholic beverages in the U.S., desired to open brick-and-mortar retail locations in the state of Tennessee. Tennessee retailers opposed the large competitor’s market entry and pointed to state legislation that permitted only state residents to be licensed as retailers of alcoholic beverages.
Total Wine pushed back against the constitutionally of the law, and now the issue is before the Supreme Court.
At its core, Blair asks the question of whether the 21st Amendment trumps the commerce clause and permits the state to discriminate against out of state residents from opening brick-and-mortar stores within its borders.
By extension, Blair surely asks the question whether states will have the authority to limit on-line sales by retailers through interstate commerce by enforcing residency requirements for internet sellers as well.
The availability of wine, beer and spirits to consumers is heavily dictated by the three-tier system: manufacturers must sell to distributors, who can only sell to retailers, who can only sell to consumers, with limited exceptions. Indirect consumer purchasing decisions in many instances are made by wholesaler executives and state regulators prior to alcohol beverage brands making their way to the retail shelf. Blair clearly will have the effect of either limiting or expanding consumer choice.
In support of limiting Tennessee’s ability to enforce residency requirements, 81 wine consumers from around the United States filed an amicus curiae brief with the court. They argued that the court should uphold the principle of the commerce clause and prohibit Tennessee from maintaining residency requirements for holders of retail liquor licenses.
In the opening paragraphs of the brief, they state: “This brief is written on behalf of 81 wine consumers who live in twenty-five different states. They share a common frustration that they cannot find the wines they want locally and are prevented from buying them from out-of-state sellers.”
Consumers of hard-to-find wine, beer and spirits are frustrated by the unavailability of their preferred drinks. Advocates of the three-tier system, namely wholesalers, are pushing back against the concept of direct-to-consumer sales by retailers.
State legislators and alcohol regulators are on standby and may or may not align their laws with direct to consumer sales. Retailers are waiting in the wings to exploit this potential opportunity. Drinks lovers across the United States and in the state of Florida, where this author resides, are waiting to exercise their consumer choice and click on the “order” button of an online retailer that may be in business many thousands of miles away.
Louis J. Terminello is a Miami partner, chair of the hospitality, alcohol and leisure industry group and a member of the firm management committee at Greenspoon Marder.