Protectionism

Alcohol Wholesalers: We Must Protect Our Profits the Public

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In 2005 the U.S. Supreme Court overturned alcohol shipment rules that discriminate against out-of-state wineries, saying they amount to unconstitutional trade barriers. If a state lets local wineries ship their products directly to consumers, the Court said, it has to let out-of-state wineries do so as well. Six years later, according to a tally by the Wine Institute, 37 states allow direct shipments from wineries regardless of where they are located, nine ban all direct shipments, and four (Arkansas, Kentucky, Massachusetts, and Pennsylvania) continue to discriminate against wineries in other states. But when it comes to direct shipments by out-of-state retailers (including wine-of-the-month clubs and online auctions), the picture is much different: Thirty-seven states ban such transactions, insisting that the wine go through government-appointed wholesalers, who vigorously resist any regulatory changes that would cut into their artificial profits. Wine blogger David White notes that legislators in Maryland, one of the states that bans all direct-to-consumer wine shipments, are considering a bill that would legalize direct sales by out-of-state retailers as well as wineries. The bill has broad support, with 83 co-sponsors (out of 141 members) in the state House and 32 co-sponsors (out of 47 members) in the state Senate. But White warns that the politically influential wholesalers may yet block full liberalization:

One possible compromise would keep in place the Maryland laws that prohibit residents from ordering wine from Internet retailers, joining wine-of-the-month clubs and taking part in out-of-state wine auctions….

State officials argue that online sales—from wineries and retailers—enable minors to buy booze. Teenagers are certainly resourceful when it comes to obtaining liquor, but it's unlikely that they'd be willing to jump through all the hoops required to purchase wine online. For starters, they'd need a credit card and the ability to make it through the numerous age verification services used to thwart underage purchasing. They'd then need to be home when the wine is delivered while making sure their parents were not. They'd also have to sign for the wine, convincing a FedEx or UPS employee that they're over 21.

Most important, they'd need money. Many California cult wines cost $50 or more a bottle. Auctioned wines are even more expensive.

State officials also contend that online sales enable retailers and wineries to "dodge state taxes." This, too, is absurd. Maryland manages to collect sales taxes on just about every other retail product without the help of wholesalers.

The truth is that these laws have their roots in Prohibition, and they remain in place only because of well-financed special-interest groups.

It's a familiar theme in alcohol regulation: Rules ostensibly aimed at promoting public health and safety create vested interests that resist change even when the official rationale no longer seems persuasive. Public employee unions fight liquor store privatization, liquor stores try to stop supermarkets from selling beer and wine, and convenience stores complain that bars are illegally horning in on light beer sales. One of my favorite examples is South Carolina's itty-bitty bottle requirement, which mandated that all liquor in bars and restaurants be served from the 50-milliliter containers you see on airplanes and in hotel mini-bars. The restriction, which was enacted by constitutional amendment in 1973, was meant to discourage strong cocktails. But it accomplished exactly the opposite, since South Carolina bartenders were required to use 1.7 ounces of liquor per drink, compared to the 1 or 1.25 ounces that became typical in other states. By the time the rule was repealed in 2004, its opponents included Mothers Against Drunk Driving and the South Carolina Baptist Convention. Its main supporters were mini-bottle wholesalers and retailers.

More on the battle between alcohol wholesalers and out-of-state retailers here.