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Looking Deeper at Pending Wine Shipping Legislation

By Chuck Sudo in Food on Jun 19, 2007 3:00PM

2007_06_bordeaux.jpgA couple weeks back we wrote about the Illinois House approving legislation that would restrict the amount of wine an Illinois vineyard could sell directly to a customer to 12 cases a year. The legislation, HB 429, was drafted to bring Illinois in compliance with the 2005 U.S. Supreme Court decision in Granholm V. Heald, in which they found non-reciprocal wine laws in New York and Michigan to be in violation of both interstate commerce law and the 21st Amendment to the Constitution repealing Prohibition. We wrote that the bill was “beneficial to all involved parties, albeit just enough to say that it is.” Under current law, Illinois vineyards can sell up to 10,000 gallons directly to customers, while out-of-state vineyards are limited to selling two cases of wine a year directly to Illinois customers. On the surface, HB 429 appears to even the playing field of a serious trade imbalance.

From the subsequent e-mails and phone calls we’ve received from both supporters and opponents of the legislation, we had no idea the can of worms we opened when we filed the post. Supporters say that the bill can only increase the profile of Illinois’ vineyards and wine industry, while opponents claim that HB 429 is unnecessary and could actually lead to Illinois being in violation of Granholm. It places out-of-state retailers, which for years have been the only way for some Illinois wine lovers to acquire wines they wouldn’t otherwise find, in the cross hairs of Illinois’ powerful liquor distribution lobby. The bill has also exposed a rift within the Illinois wine industry itself, with the state’s larger vineyards breaking away over what they see as a reduction in direct sales.

Confused? So were we. We decided to educate ourselves.

HB 429 – and its State Senate counterpart, SB 123 - was the result of long, tense negotiations between the Associated Beer Distributors of Illinois (ABDI), the Illinois Grape Growers and Vintners Association (IGGVA), the Wine and Spirits Distributors of Illinois (WSDI), the Beverage Retailers Alliance of Illinois (BRAI), the Illinois Retail Merchants Association (IRMA), and the California-based Wine Institute, who all objected in some way to the dueling bills that led to HB 429. The IRMA dropped its objection once it received assurances that Illinois retailers could still operate as they had been under state law. Rob Karr, Vice President of Government and Member Relations for the IRMA, told Chicagoist that the "IRMA is neutral on HB 429 as amended and passed by the House." That said, HB 429 would restrict out-of-state retailers from shipping directly to Illinois customers. Some attorneys claim that the majority opinion in Granholm applies to these retailers, as well. HB 429 would prohibit Illinois customers from doing business with out-of-state retailers or subscribe to wine clubs from out-of-state.

One of the provisions of HB 429 is the creation of a “direct shipping permit” allowing out-of-state boutique and small-yield vineyards with an annual production of less than 25,000 gallons to sell up to one-fifth of their product directly to customers in Illinois. Currently, they can sell to Illinois customers through out-of-state retailers. Tom Wark is the Executive Director of the Specialty Wine Retailers Association and the founder/manager of the Fermentation Wine blog, which keeps track of wine distribution news and pending legislation throughout the country. Wark told Chicagoist that Illinois consumers have had the right to purchase wine directly from out-of-state retailers for 15 years, and that HB 429 would “demolish” consumer access to wine. “It's a direct, blatant protectionist power grab by the distributors,” Wark said.

Bill Olson, the President of the ABDI, disagrees. “There are many people who think wine should be treated like it is fruit juice,” Olson said. “Out-of-state retailers have never had the right to ship into Illinois. When the legislation authorizing interstate shipments of wine passed, the legislative debate only and clearly stated it was to authorize wineries to ship.” HB 429 ensures the enforcement of the three-tier distribution system for sales of alcohol by making sure that all vineyards have to use the distribution system to sell their wine to retail customers, save for the 12 cases of wine they can sell directly to consumers. Wark calls this a “direct, blatant protectionist power grab by the distributors.”

Power grab or not, ABDI doled out some serious money to the campaign funds of many of HB 429’s sponsors during the bill’s negotiations. 2nd District Rep. Edward Acevedo (D – Chicago) received $7,500 in campaign contributions from ABDI, according to reports filed to the State Board of Elections (available online). Other sponsors of the bill to receive campaign contributions from ABDI include, but are not limited to, 33rd District Rep. Marlow Colvin (D – Chicago, $5,000), 16th District Rep. Lou Lang (D – Skokie, $15,000), 85th District Rep. Brent Hassert (R - Romeoville, $13,000), and 112th District Rep. Jay Hoffman (D – Collinsville, $17,000). Still, ABDI president Olson claims that if HB 429 is signed into law by Governor Blagojevich, it’ll actually increase consumers’ wine choices. Wark is skeptical that some of the legislators have a basic understanding of the bill. “The ABDI wrote the bill and gave it to (the bill’s sponsors) to carry. Thats clear.”

David Stricklin is a local lobbyist who represented the IGGVA during the HB 429 negotiations. He sees HB 429 as a great opportunity for the state's wine industry. Stricklin told Chicagoist that he understands the concerns raised by Wark and the SWRA, but “we disagree with it. So did the House subcommittee that voted 11-1 against (the amendment supported by the SWRA, HB 4444) and the House, which voted 92-6 (in favor of HB 429) after the SWRA debate was held.” Stricklin points to the increase in direct sales to customers, and how out-of-state case sales must conform to it - as evidence that the IGGVA achieved its goals in increasing awareness of Illinois wine, positioning the industry for further growth, and offering more out-of-state options for Illinois consumers. “I am not sure how an out-of-state winery which can now ship six times more wine into Illinois would lose its place in the market.”

Some vineyards disagree with Stricklin and the IGGVA. Led by Fred Koehler of Lynfred Winery, the state’s larger winemakers split from the IGGVA to form the Illinois Winemakers Alliance. According to a story in last week's Sun-Times, these separatist vineyards are concerned with maintaining current levels of self-distribution. Koehler told the Sun-Times that having to use a distributor to sell his wine "takes all the profit out of the deal” and that he was frozen out of negotiations on HB 429 once they started to pick up steam. These concerns place Lynfred and larger vineyards like Galena Cellars Vineyard & Winery at odds with the smaller and up-and coming vineyards that stand to benefit from HB 429.

It’s obvious to all that the ones who will hurt the most from this legislation are out-of-state retailers. Since Wark believes that the Granholm decision also covers retailers, a resolution to the problem is as simple as amending HB 429 to include extending availability of the direct shipping permit to out-of-state retailers. Not only would those retailers still be able to do business in Illinois, but the state would reap the benefit of increased tax revenue associated with their sales. “In the end, the consumer is screwed because if they buy from a retailer, that retailer must be in Illinois, and that retailer gets their inventory from wholesalers. If the wholesalers don't bring a particular wine into the state and sell it to Illinois retailers, then the consumer does not have access to it. There are literally thousands of rare imported and domestic wines that Illinois consumers will no longer be allowed to legally access.”

There’s no guarantee that Illinois retailers will even carry wines made in Illinois, which is another of the reasons behind the formation of the IVA. Now that HB 429 is waiting for Governor Blagojevich’s signature, Wark says the only way for any of this to happen, or to kill the bill, is to try and raise awareness through the media.

IRMA’s Karr said the only certainty is, if Governor Blagojevich signs HB 429 into law, there will be a lawsuit. “This question of whether or not treating Illinois retailers differently than out-of-state retailers when it comes to Illinois customers and whether that constitutes a violation of Granholm is what will likely be at the heart of any possible litigation.” Wark has already promised the resources of the SWRA will be behind any legal challenge to HB 429.