Matthew Mann
April 16, 2010 | Compliance, Wine Industry Trends | Matthew Mann

Reregulating the Wine Industry

Now that a bill, H.R. 5034, has been introduced in Congress to stop the continued “deregulation” of the wine industry, it’s interesting to look at the game of semantics that is being played by the bill’s supporters in Congress and the wine industry. See So-Called Alcohol Deregulation Bill Introduced in Congress from Wine Business.com. Most interesting is the use of the word “deregulation” itself.

The very definition of deregulation indicates “the reduction or elimination of government power in a particular industry,” (Source: Dictionary.com). The idea is that what once was governed, limited, and restrained by regulations is now without restriction, free to operate in any manner the industry deems appropriate and most profitable, regardless of consequences good or bad. One could create a picture of a Wild West free-for-all, with bad guys and good guys fighting it out in the streets at the risk of the community.

This “deregulation” impetus in the wine industry is often associated with the 2005 Supreme Court decision in Granholm v. Heald. As most in the industry now know, Granholm held that while the 21st Amendment granted considerable authority to states to regulate and control the manufacture, sale and distribution of alcohol within their borders, the states could only do so within the confines of the Commerce Clause and its opposite by implication, the dormant Commerce Clause. Since Congress is granted the ultimate authority over interstate commerce by the Constitution states may not create laws, even under the great authority offered by the 21st Amendment, that burden or restrict such commerce between the states.

Granholm’s Result

Granholm created an elegant interweaving of Commerce Clause jurisprudence and 21st Amendment prerogatives. It conceded the states’ near complete authority granted by the 21st Amendment as sublimated only to the absolute authority granted to Congress by the Commerce Clause. To do otherwise would have undermined the authority over interstate commerce held by Congress, creating an exception that would also implicate the Supremacy Clause, as state authority would be considered supreme to that of the federal government in the area of alcohol regulation.

In reaching its decision, the Granholm Court did not throw out the baby with the bathwater. It did not simply say that all state alcoholic beverage laws and regulations are invalid or suspect. It did not call for the “deregulation” of anything. It did not wipe out state regulatory schemes but rather required them to be rewritten in such a way as to not discriminate against out-of-state interests. It upheld the states’ general grant of authority under the 21st Amendment. Drawing from years of previous Commerce Clause precedent, the Court crafted a test to determine if such discrimination existed and, if so, whether the discrimination served a legitimate local purpose and that no other non-discriminatory means were available that could achieve that purpose. This is hardly the underpinnings of “deregulation”.

The real result of Granholm is not “deregulation”, but rather “reregulation”, and this is where the game of semantics is played. The bill’s proponents and industry allies would like to paint that picture of a Wild West free-for-all to the public. They seek to benefit from the idea that state control is thrown out the window; that anyone and everyone can buy alcohol on any street corner or through the internet; that states are losing tax revenue because of illegal wine shipments to their residents that are outside the 3-tier system.

State “Reregulation”

The reality for most states is that their legislatures went back to the drawing board after Granholm and created new regulations that either permitted or denied access to direct shipments of wine to their residents in a way that did not discriminate between instate and out-of-state interests. They passed meaningful and rather sophisticated laws and rules to regulate the direct shipments coming into their states. They required permits, fees, and taxes and put in place defined requirements to ensure wine did not fall into the hands of minors. Additionally, they created new regulations for common carriers as another layer of protection against deliveries to minors. Quite simply, they “reregulated” the industry under their authority to do so granted by the 21st Amendment.

Regardless of where you stand on the issue of direct shipments of wine between the states…good, bad, or indifferent; make no mistake that alcoholic beverages continue to be a highly regulated industry and that the states hold considerable authority to determine the manner in which they are manufactured, sold and distributed within their borders. The idea of a newly “deregulated” industry as a result of Granholm and its progeny is simply not so. Instead, it is the product of a clever but inaccurate game of semantics.


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