Scary Monsters and the Maryland Direct Shipment Proposal

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When I was a little kid growing up in New Jersey, I used to love watching the old Abbott and Costello movies that were run each Sunday morning on WPIX out of New York City. My all time favorite movie by this duo was “Abbott and Costello Meet Frankenstein.”  In the film, the hapless duo encounters three of cinema’s most terrifying monsters: Dracula, Frankenstein and the Wolf Man.  Hilarity ensues.

Of course this begs the question, what do Dracula, Frankenstein and the Wolf Man have to do with Maryland’s Direct Shipment proposal? Because just like Abbott and Costello, abbott.jpgMaryland’s Wholesalers will undoubtedly unleash their three scariest monsters onto the general public as the Maryland Legislature considers its direct shipment legislation. In no particular order, the wholesalers’ monsters are: 1) underage access to alcohol over the Internet; 2) organized crime; and 3) illegal shipments of wine by wineries.

In the days and weeks ahead, I would like to take each of these ‘monsters’ in turn and demonstrate that they are nothing more than scare tactics unleashed by Maryland Wholesalers on the general public. Let’s start with access to wine over the Internet by underage drinkers.

This is by far the favorite monster of the Wholesale lobby and the good folks over at Vinotrip are already on the case. Time and again Wholesalers testify before elected officials and tell the same scary story: direct shipment will allow underage kids to easily access wine over the Internet. As the story goes, kids will simply hop onto the Internet, order some wine through with their parent’s credit card and wait for it to show up at their door.

But just like any monster, this is a story that has no factual support. Indeed, the real monster lurking in the shadows is often the parents themselves. This is evidenced by a June 2008 study from the United States Department of Health and Human Services. The study provides a broad overview of the problem of underage drinking, but one chapter is relevant to our discussion.

Specifically, Chapter 4.3 of the report is dedicated entirely to how underage drinkers gain access to alcohol. The research is organized by age group (i.e., 12 – 14; 15 – 17; and 18 – 20) and mechanisms for alcohol procurement are identified for each (e.g., took from home, received from parent, etc.). Although HHS uses three separate bar charts in their table, I have consolidated their results into a single graph, which is contained below:


Although the chart identifies the numerous ways in which underage kids gain access to alcohol, noticeably absent is any mention whatsoever of the Internet. This is particularly striking since at the time the report was released, the Pew Internet & American Life Project released a report (Adobe Acrobat required) finding that 73% of respondents (about 147 million adults) were internet users, and the share of Americans who had broadband connections at home was 42% (about 84 million). In other words, the Internet was embedded in mainstream American life in 2006 when HHS was compiling its data.

Moreover, a quick look at the data reveals that in the overwhelming majority of instances, kids are getting alcohol through social contacts (e.g., their parents, guardians or someone’s home), not retail contacts.  In this regard, I thought it would help to aggregate these data sets into broader categories to see the results. My reconstructed chart is contained below:


Looking at the numbers in this way demonstrates that the vast majority of kids — between 81% and almost 90% — are clearly obtaining alcohol through non-Internet means. The monster is not the Internet, it is parents, guardians, adults and unlocked liquor cabinets. The only exceptions to this rule are the categories identified in the HHS chart as “Other” and in those instances where kids purchased the alcohol on their own. Taking each of these in turn, even the most basic research reveals that these other sources of alcohol cannot be placed at the Internet’s doorstep.

For example, the category identifying kids who purchase alcohol themselves illustrates that as kids get older, this acquisition method for alcohol increases. That makes logical sense: as kids get older, they look older, and their ability to purchase alcohol through use of fake IDs increases. And this logic is backed up by various reports and surveys, including this one from the Centers for Disease Control.

As far as the “Other” category goes, there is not much to say.  As a threshold matter it is a relatively smaller subset of the overall group.  In addition, it was likely included as a ‘catch-all’ for less prominent means of access (e.g., stole from a store, purchased at a sporting event, etc.).

The bottom line, wholesalers’ arguments about kids accessing alcohol through the Internet should be dismissed out of hand.  It is nothing more than a scary monster manufactured by their industry to try to scare the public and legislators.

Virginia Legislative Update

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There are four key pieces of legislation moving their way through the Virginia legislature that impact the Commonwealth’s wineries.  They are briefly detailed below, and for what it is worth, all of this information is available through the Virginia Legislative Information System which can be accessed here. richmond2.jpg

HB2071 and SB1033. Both bills are in identical form (one on the House side, the other on the Senate), and would amend Section 15.2-2288.3 of the Virginia Code to require localities to take into consideration the agricultural nature of farm wineries before attempting to restrict the on-site marketing and sale of wine. The legislation was sponsored by Delegate Ed Scott (R-Culpeper) and Senator Emmett Hanger (R-Augusta) in the House and Senate, respectively.  The full text of HB2071 and SB1033 can be accessed here and here, respectively.

HB2606. This bill would have have permitted further regulation of farm wineries operating under so-called urban county governance. Interestingly, there is only one such county in Virginia: Fairfax County. Even more interesting, is the long, tortured history involving the single winery trying to open its doors in Fairfax County. That winery’s fate is still uncertain, but this legislation was part of this drama as you can read here.  There has been strong opposition to this bill in Virginia, arising from concerns of legislative/regulatory creep. Fortunately, for the Virginia wine industry, the House Agriculture, Chesapeake and Natural Resources Committee voted to pass the bill by indefinitely on a voice vote Wednesday morning. And apparently, much credit must be given to Delegates Chris Saxman (R-Staunton) and Bobby Orrock (R-Caroline) who worked hard to support the Virginia wine industry.  The full text of HB 2606 can be accessed here.

SB 1445. This one is my personal favorite. Sponsored by Senator Creigh Deeds (D-Bath) it would permit wineries to solicit wine club memberships at wine festivals and events. The Virginia ABC apparently concluded that such solicitations were not permitted under present law (see second and third entries). If passed, this legislation would permit “wine of the month club” operators to solicit memberships at any location for which a permit to consume alcohol has been issued, including restaurants.  This is great — and fair — legislation that provides equal marketing opportunities for both in-state and out-of-state wineries.  The full text of SB 1445 can be accessed here.

As this and other legislation moves through the halls of Richmond, we will keep you updated.

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Maryland Takes Another Crack at Direct Shipping

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I wrote about this topic last year, and despite the unhappy ending, I am glad to see that our neighbor to the North is once again taking a shot at changing its direct wine shipping laws (for the better).  Senator Jamie Raskin (my old law school professor) introduced the bill, S 388.

Among other things, the bill (Adobe required) would establish a direct wine shipper’s license issued by the State of Maryland.  In addition to permitting self distribution by in state wineries, it establishes a permit process for out of state wineries to ship into Maryland.  You can read more information about the bill here, including sponsors and legislative history.  

I became aware of this legislation after receiving an e-mail from these folks — the Marylanders for Better Beer and Wine Laws.  I seem to recall these guys were around last year, and I wish them the best of luck in helping to get this legislation passed.  We will keep you posted.

Top 10 Legislative and Regulatory Radars

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A few days back, I wrote about keeping an eye on the horizon for gathering storms. Since I am a big believer in lighting a candle as opposed to cursing the darkness, I thought it might be helpful to identify ten easy ways to set up your own weather radar for governmental developments that could create stormy weather.

10. Stay in touch with other wineries. The easiest way to stay abreast of possible developments is talking across the fence to wineries in your area.  I have found that — at least in our neck of the woods — other wineries are eager to get the word out about legislative developments, especially at the local and state level.

9. Utilize Association Information. Whether just visiting their websites, or signing up for full membership, associations are a tremendous resource.  From a membership perspective, Wine America in particular has been a great resource for our winery to stay abreast of developments (the Wine America members section has a legislation tracking tool for each state, and fantastic label approval tools).  Of course, for you California wineries you have the Wine Institute, which is chock full of handy resources, including their state distribution webpage.

8. Join your State Association. While I have not checked all fifty states, I know that Virginia (such as here and here) and several others have winery associations that keep their eyes on what is happening in State capitals. Coupled with the benefits of membership in a National association, these resources let you stay on top of developments at the State and Federal level.

7. Join — or form — a Regional Association. All politics is local, and there are a number of regional winery associations out there.  Even if the organizations are not advocacy based, they can still be a great resource for wineries.

6. Read the paper. I know newspapers are falling on hard times, but I have found they are great resources for getting information. My hometown paper, the Washington Post has a number of weekly sections where this information often turns up. In particular, I am a huge fan of the Monday “Regulators” section, which has covered TTB initiatives on several occasions (including developments on the changes to nutritional labeling, here and here

5. Sign up for Google News Alerts. Google has a great tool for receiving notices on a particular topic that hits the news. They can even be used to track what people are saying online about your winery.  It is a great tool for staying on top of developments in wine law.

4. Read Blogs.  There are just too many good ones to choose from.  The information is always free and the folks who write these are incredibly informed.  In no particular order, some of my favorites are the Fermentation Wine Blog by the great Tom Wark; Wine Without Borders; and the REthink Wine Blog.

3. Keep Tabs on your Legislature. Virginia has a pretty decent main page for tracking all sorts of information. They even have a free service for tracking the status of up to five specific bills, or, if you want to drop some coin, you can even track an unlimited number of bills with a wider range of customer service support. They even have an index by subject, dating back to 1995. Most states have similar tools. Once you receive information on a particular bill, it is a great resource for getting the latest developments, without having to go back to the website to check.

2. Sign up for TTB’s Newsletters. TTB has a number of newsletters that companies can sign up for. The best type of information is that which comes from the source.  You can sign up here.

1. Get Free Information from . . . Attorneys! Believe it or not, many law firms have free newsletters that address specific industry topics. For example, McDermott, Will and Emery has separate newsletters for both Agribusiness and Food and Beverage issues, while Stoel Rives has a newsletter for Wineries and Vineyard. Both are free.

Using all of these informative resources can go a long way to keep you appraised of the weather. And in 2009 I hope it is clear skies and sunny . . . but you never know.

Who’s Endorsing Your Wine?

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Trying to sell some stuff? Many merchandisers are picking up the hottest endorsement around. And unlike Tiger, Lance or Tom, this star is not being compensated for his endorsements.

There have been a number of articles about how many businesses and sidewalk entrepreneurs are using Barack Obama to sell their products. The New York Timnow-selling.jpges reported that businesses are selling everything from soap to ‘romantic items’ bearing the next President’s likeness. Similarly, the Washington Post’s food section reported on how brewers are even getting in on the act, rolling out beers under the names “Barack Bock” and “Obamagang” in advance of the inaugural (the latter denied by TTB). Along these lines, the Bevlaw blog has some other great examples including “Ale to the Chief“, “Obama Beer” and even “Lipstick on a Pig.”

So what are a lot of these reports missing? How about Intellectual Property issues? At least one reporter had an item on this specific issue in a piece buried this week in the back of the Washington Post. It appears that President-elect Obama’s White House Counsel, Gregory Craig, will likely not take too kindly to this profiteering.

Intellectual Property laws are remarkably specific and violations can cost a company a lot of money in the long run. Damages, attorney’s fees and — in the case of wineries — relabeling could run up the costs very quickly. The bottom line, hope and change may be a great thing, but be careful about putting it on a wine bottle.

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Somewhere Over the Jersey Rainbow . . .

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No, this is not an opportunity for another New Jersey joke (what exit?!).  As a Jersey native, I was thrilled to read this morning that my home state is considering a change to their direct to consumer shipment laws.  As some of you reading this blog may be aware, New Jersey is one of the few states that still prohibits direct to consumer shipments of wine.

jersey-turnpike.jpgWhile thrilled to read about this development, I was nevertheless upset to see the same tired arguments trotted out by opponents to this legislation: underage drinkers will have access to wine over the Internet!  The mob is bound to get involved!

Of course such arguments are coming from the likes of Fred Barnes, of the New Jersey Licensed Beverage Association.  Mr. Barnes is quoted in the article as saying “There are really no regulations to it. You don’t know who’s getting the wine, whether it’s underage children or what. All they need is their parents credit cards to get it . . . It’s like calling up for a pizza.”

No regulations?  Not exactly.  Just some of Virginia’s regulations, rules and policies governing the sale and distribution of wine to consumers can be read here, here, here, here, here, here and here).  And those are just some of the requirements for intrastate wine shipments to consumers.

And finally, the process is hardly like “calling up for a pizza.”  Dominoes, Pizza Hut and (my personal favorite) Church Street Pizzeria don’t card me when they deliver a pizza to my door — fortunately for wineries shipping wine to other states, FedEx does.  Of course,Mr. Barnes’ true colors are revealed later in the article when he says, ”Direct shipping would be just another knock at our industry.”  It’s all about the Benjamins.

While Fred’s statement is typical, what is unfortunate is that policy makers in New Jersey — including the state’s Attorney General Anne Milgram — are parroting the exact same arguments.  Hopefully, the New Jersey legislature won’t give us another reason to laugh at the state’s expense.

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Storm Clouds on the Horizon

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Any winery owner today should be concerned about the current state of the economy: businesses large and small are failing; credit is drying up and consumers are closing their wallets.  As if that were not enough, there may be more storm clouds brewing on the horizon — and recent events in the Empire State of New York suggest winery owners may need more than just an umbrella.storm-clouds.jpg

It was just 8 months ago that new York’s Governor David Paterson stressed the importance of agriculture in the state’s economy.  According to the Governor’s press release, his 2008-2009 budget “sent a message to New York farmers that their needs are a priority for lawmakers in Albany.”

My how times have changed — and here come the storm clouds.

With New York State now facing a $15 billion budget deficit, the Governor is reportedly looking to cut funding for wine related programs and increase excise taxes.  While sympathetic to the plight of the Governor and the state of their budget deficit, I’m baffled as to any logic in cutting New York state wine industry funding.  New York is the third largest state in terms of wine production, and agriculture and tourism are the first and second largest industries for the state.

So why should developments in the Empire State be of concern to winery owner in other states?  Because almost every state is facing problems identical to those in New York: deficits, tight budgets and tremendous pressure to do something.  One recent report noted that Virginia is facing a $2.9 billion deficit and Maryland is $1.9 billion in the hole.

So even as winery owners accomplish the day to day tasks to keep their businesses going, they need to keep their eyes on the horizon for developments in their local legislatures.  Staying aware of these developments will be critical to the well being of their business.  And from the looks of it, they better have an umbrella close at hand.

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One Hand Giveth — The Other Hand Taketh Away

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Last week, the Washington Post published an article on the front page of its Metro Section entitled “Grapes of Wealth, Potentially.”  The article is well worth the read, but the long and short of it is that the state of Maryland and local governments are doing what they can to help farmers transition from declining agricultural crops (e.g. tobacco) to wine-related agriculture (e.g. vineyards and wineries).  This would be the hand that giveth.

Unfortunately, Maryland also has one hand that taketh away.  Maryland is one of the few states in the Union with horrendous direct shipment laws.  I wrote about the plight of Maryland’s wineries back in March of this year when efforts were underway to change these laws.  Unfortunately, the wholesalers had their way.  It was a real shame that the Maryland legislature reached the wrong conclusion on this one.  There were a lot of good people that were trying to change these laws back in March — including one of my old law professors — and they tried as best they could to get a lot of good information out there.

I sincerely hope they make another crack at it this year.  As a winery owner in the Commonwealth of Virginia, I think it would be fantastic if our neighbors to the North could also establish themselves as a regional wine presence.  It would be great for consumers, and great for competition.

Big Win in Massachusetts — and Not Just by the Patriots

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The folks over at ShipCompliant have a great discussion about a very important (and encouraging) decision out of Massachusetts last week. The court (the District Court for the District of Massachusetts) came down on the side of fair distribution laws for out-of-state wineries. The Court essentially found that Massachusetts was favoring in-state wineries over out-of-state competitors, which is a no-no under the Constitution’s Commerce Clause.mass.jpg

One of the things that is being lost in the coverage, however, is that the case was won on summary judgment — that means the court looked at the facts in a light most favorable to the defendants (i.e. the wholesalers and the state of Massachusetts) and concluded that the challenging party (in this case consumers and out-of state distributors) had the law on their side. I am no litigator, but I do know that very few cases are won on summary judgment — it essentially means that the facts of the case demonstrated a clear violation of the law.

As noted by ShipCompliant, the case is a great read for an overview of wine shipping law. I also agre that the court does a great job of describing the three tier system:

The wine distribution system is shaped like an hourglass, in that there are a large number of producers (the top) and a large number of consumers (the bottom), but significantly fewer wholesalers (the middle). This structure has the effect of giving wholesalers greater bargaining power with both wineries and retailers in states where it is mandatory to have a wholesaler. Generally wholesalers prefer to carry a larger volume of a particular wine, rather than an equivalent volume of several wines, because it is more profitable for a wholesaler to warehouse, manage and sell a single wine. Many wineries produce both specialty wines in small quantities and higher volume wines.

There is one distinction in this analogy that I would draw: the comparison suggests that all those wine producers at the top of the hourglass will have their wine shipped to all those consumers at the bottom. But that is the problem with the wholesalers in the middle: they have neither the interest or the ability to ship that wine for smaller producers. Only some of that sand is making it to the bottom of the hourglass, and that’s an unfortunate loss for wineries and wine consumers.

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I’m Back — And so is Virginia

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Hey all. Sorry for dropping off the radar there, but a confluence of events pulled me in several different directions. Needless to say, I am not happy that I was out of the blogging scene for so long, but I promise some new changes that I think you will like.virginia-2008-10-03.jpg

With that being said, let’s address an issue that a lot of people seem to be talking about: Virginia wines. I think a lot of people should read this article regarding the status of the Virginia wine industry.

The central question in the article addresses how the Virginia wine industry can go from “distinctive” to “blockbuster.” The author concludes we can get there, but only if Virginia and its winemakers focus on three areas: more production, marketing and distribution.

Taking each in turn, I think the Virginia wine industry is up to the challenge.

  • Distribution: With the launch of the Virginia Winery Distribution Company (VWDC), small Virginia wineries now have an essential tool in their belt. While the VWDC only permits smaller wineries to ship to retail locations within the state, it will be an essential component for these same wineries to establish a market presence. If you are a Virginia winery that has not yet signed up with the VWDC — and only about 70 have so far — get cracking.
  • Marketing: This is obviously a key component for any business, particularly a winery. What some wineries may be unaware of, however, are the various resources at their disposal. The state of Virginia dedicates a decent chunk of change (from wine taxes) to market these wines, and have set up resources like this. Wineries need to work with their local chambers, local newspapers and anyone else they can get on board to get the word out. And of course, get active with your relevant wine trail, whether you are in the heart of Virginia, down by Thomas Jefferson’s place, near the Mason Dixon line or just outside of DC. Get involved and get out there.
  • Production: I don’t know what I can say here, except that Virginia’s growth in the number of wineries, has clearly led to an increase in production — according to this, Virginia has increased by 35% between 2001 and 2007. I know that our winery is looking to boost production, as are many in the area.

So there you have it my friends. Virginia is coming on strong, and I think the signs look good for the future. See you on the wine trail!

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