A response to the Family Winemakers lawsuit

Sovos
September 24, 2006

Doug Caskey, from the Colorado Wine Industry Development Board, responded to our post about the lawsuit in Massachusetts with a lengthy comment. I wanted to republish it in a new post because it is well worth reading.

At the risk of sounding like a traitor to the cause of wine, free trade and the American Way, I would like to challenge the premises that underlie Mr. Kronenberg’s lawsuit against the revised wine shipping statutes in Kentucky. As a representative of the very small wineries in Colorado, the last thing I want to do is “protect and perpetuate a wholesaler monopoly at the expense of wineries seeking market opportunities,” as Mr. Kronenberg accuses the Kentucky legislature of doing. Yet, I take exception to his comment that we are “one national economic market.” As recent court rulings in Virginia and Michigan have shown, the local implementation of the three-tier system was reinforced, not invalidated by the Granholm decision, as long as the implementation is not discriminatory or preferential. States still have the right to regulate alcohol in a meaningful way that suits the “needs and desires” of their residents, as the language of the Colorado Liquor Code requires.

If a state chooses to impose size limits on certain privileges for liquor distribution or market access, that state may well be doing so because it has determined that small wineries have more difficulty getting their products through the three-tier system than large wineries with sales teams and marketing budgets. That state could be saying that it values small businesses that stimulate agriculture, and it should not have to defend that position against the legal whims of wineries that produce more wine in a year than the entire state. While the Family Winemakers of California represents the “smaller” wineries in that state, I doubt if many of Mr. Kronenberg’s members produce less than the entire state of Kentucky or Colorado or both states combined.

We should remember that prior to Prohibition and the 21st Amendment, the beverage alcohol industry was made up of small, local breweries and wineries in almost every community. The advent of the mega-breweries and corporate wineries was something that happened as a result of Prohibition. The 21st Amendment was designed to protect states against the liquor monopolies spawned in the void created by Prohibition. The framers of that amendment wanted to return to the alcohol industry model of the late 19th and early 20th Centuries. It is easy to accuse the wholesale industry of being monopolistic because a handful of companies dominate the market in every state. But the same can be said of the large wineries in California.

The grape growing industry did not disappear in California and New York as a result of Prohibition the way it did in most other states, such as Colorado. Our vineyards were replanted to peach trees. Consequently, California wineries, and certain breweries in St. Louis and Golden, were able to capitalized on the demise of the local wine industries and recover more quickly than those in the rest of the county. The wine industries in states other than New York, California and Washington are just now coming back from Prohibition.

So at this point in history when California’s wine industry, which has been growing nicely for 40-50 years, complains that states are discriminating in favor of small wineries, it is in truth asking the courts for special protections. In effect, the 40-50 year advantage that California has over wine industries in the rest of the country, during which time small wineries enjoyed special protections and privileges from the California government, makes them the monopoly now. Under the guise of “equal protection” as spelled out in the Granholm decision, their legal actions have the impact of squelching the advantages that state governments want to give small agribusinesses like wineries.

The economic reality is that large wineries can afford to navigate the spiffs and expenditures of the three-tier system. Just because few states have wineries that produce more than 20,000 gallons annually, or whatever number a state uses to define a small winery, imposing size limits on direct shipment or self-distribution is not an attempt to inhibit trade. It is an acknowledgement we are not starting with a level playing field.

To my friends (and I hope we remain friends, as this is a friendly debate) Paul, at the Family Winemakers, and Steve, at the Wine Institute, I call on you to recognize the historic disparity between where your industry is and where the industries are in Colorado, Kentucky, Missouri and other states. You have a big economic head start on the rest of us. Our attempts to limit how the “big boys” play in our states are not attempts to keep you out. They are the implementation of each state’s right to define the rules for the three-tier system within our state, to identify who is small enough to need help and who doesn’t. This is the American Way.

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Sovos

Sovos is a leading global provider of software that safeguards businesses from the burden and risk of modern transactional taxes. As VAT and sales and use tax go digital, businesses face increased risks, costs and complexity. The Sovos Intelligent Compliance Cloud is the first complete solution for modern tax, giving businesses a global solution for tax determination, e-invoicing compliance and tax reporting. Sovos supports more than 7,000 customers, including half of the Fortune 500, and integrates with a wide variety of business applications. The company has offices throughout North America, Latin America and Europe. Sovos is owned by London-based Hg. For more information visit www.sovos.com and follow us on LinkedIn and Twitter.
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