Short Term Implications of Granhold v. Heald

On Monday, the U.S. Supreme Court held that states law which discriminate against out of state wineries violate the Commerce Clause of the Constitution (Art. I, §8). Granhold v. Heald (544 U.S. ___ 2005). Specifically the Court determined that state laws which prevent out of state wineries from direct shipping wine to state residents while permitting in state wineries are unconstitutional.

For the Internet savvy wine lover, this decision should open a bounty of new wines and better wine pricing. As the decision notes, the number of wineries in the U.S. is exploding as the number of wholesalers is declining. As the wholesale industry consolidates, fewer wholesalers represent fewer brands. The decision permits a winery to sell it's wine directly to a consumer anywhere in the United States.

Does this mean you can start having wine shipped to your non-reciprocal state right away? No. The Court upheld a state's right to regulate shipment of wine as long as all the regulations applied evenly to both in and out of state wineries. Well advised wineries are being told to hold of shipping until states pass new laws to comply with the ruling. State's are likely to permit shipping but only if the winery obtains a necessary permit, complies with regulations designed to prevent shipping to minors, and collects sales taxes for that state.

Under the decision, however, a state can prohibit out of state wineries from shipping into the state if they also prohibit in state wineries from shipping within the state. Since the decision came out, Michigan has already promised to seek such legislation (click the first Google search result).

Other states - including New York and Florida (where direct shipping is currently a felony) - already have legislation pending from before the Supreme Court's decision. Connecticut released a statement that indicates they will seek to permit direct shipment.

Whether wine retailers will be able to direct ship into a state is less clear and the big question. While it will be nice to bring home that bottle from the winery you found on vacation, wine retailers are responsible for the vast amount of the $23 billion in annual U.S. wine sales. They aggregate selection and educate customers to sell wine.

The Court's decision was based on the controversy brought by the litigants - the parties where the states and wineries, not retailers. Therefore, it is not immediately clear whether retailers will benefit. As states pass new laws to comply with the legislation, they may include retailers in their direct shipping ruberic. If they don't, however, retailers may have to bring their own suit to have this decision extended to include their shipments.

In that case, the logic behind the Granhold decision seems to apply equally well to retailers as to wineries. According to the Court:

...states laws violate the Commerce Clause if they mandate "differential treatment of in-state and out-of-state economic interests that benefits the forms and burdens the latter." Oregon Waste Systems, Inc. v. Dep't of Enviornmental Quality of Ore., 511 U.S. 93, 99 (1994). 544 U.S. at 8

States that permit in state retailers to ship to residents while prohibiting out of state residents violate this principle. Though the 21st Amendment (which repealed Prohibition) gives the states broad power to regulate alcohol, it "does not allow States to regulate the direct shipment of wine on terms that discriminate in favor of in-state producers." 544 U.S. at 13.

Of course some states already prohibit local retailers from shipping to residents (Massachusetts), but I am optomistic about the future of internet wine retailing. A system where a retailer must register in each state, keep records and collect sales tax by state is still vastly preferable to the current system.