Wine-O Canada

While the United States deals with its own challenges regarding shipping of wine across state lines, our neighbors to the north face a similar problem. Though the laws of some of our own states may seem archaic and overly stringent, they pale in comparison to at least one Prohibition-era law still on the books in Canada. Under the 1928 Importation of Intoxicating Liquors Act, provinces are able to prohibit individuals from carrying wine and alcoholic beverages across provincial lines, let alone receive direct shipments from out of province wineries. Presently, some in Canada are trying to remove this vestige of the Prohibition-era, but are facing significant pushback from the provincial liquor boards.

History of Prohibition in Canada

The temperance movement was not unique to the United States, and our country was neither the first nor last to prohibit alcoholic beverages. Russia, Iceland, Norway, Finland, and Canada each had their own prohibition eras. Just as in the U.S., however, each faced the same fate as a result of opportunistic bootleggers and organized crime.

Much like the United States, religious and women’s groups were the lead proponents of prohibition early on, hoping to cure the social ills they believed to be caused by intemperance. Canada’s first prohibition on the sale of intoxicating liquors occurred during the War of 1812, when an Act was passed as a temporary war measure to prohibit the exportation of grain restrict the distillation of spirituous liquors from grain.

In 1878, the Canada Temperance Act was passed as a local-option measure, prohibiting the sale of intoxicating liquors in those localities that decided to adopt it. In 1898, an official, though non-binding, federal referendum on prohibition was held, receiving just over half the votes for prohibition. Despite its popularity, however, the government chose not to introduce a federal bill on prohibition. Therefore, Canadian prohibition was enacted through laws passed by the individual provinces. By 1921 every province except Quebec and British Columbia had declared for prohibition. However, the provinces repealed their prohibition laws, mostly during the 1920s.

Advocates of the temperance movement realized that they would not be able to keep the population from drinking entirely, but were able to pressure all of the provincial and territorial governments to curtail the sale of liquor through the tight control of the liquor control boards.

In 1928, the federal government passed the Importation of Intoxicating Liquors Act. This Act gives provincial liquor control boards monopolistic power and control over the importation, inter-provincial shipment, distribution, and retailing of wine and other alcoholic beverages in Canada. Taking liquor across provincial borders is a federal offense. Though it appears that no one has ever been prosecuted under this law, in the current era of internet ordering and transcontinental shipping of wine, it may prohibit individuals from easily accessing and enjoying wines from other regions, and prove to be a detriment to Canadian wineries.

The Legal Argument

Under existing law, Canadian wineries can ship to liquor stores, but not directly to customers. Alcoholic beverages cannot be sent or taken across provincial boundaries unless prior arrangements have been made to consign he shipment through the liquor control board of the destination province. Customers are not allowed to directly import wine from another province, but rather must either only purchase that which his local liquor control authority makes available, or use the special order system of the liquor control board in his home province, a process involving extensive paperwork, waiting for shipments, and paying provincial markups.

Canadian legal scholars make the argument that just as the U.S. Supreme Court found state laws prohibiting direct shipment to be unconstitutional in Granholm v. Heald, so too are Canada’s restrictions unconstitutional under its constitution. One scholar reasons that prohibitions on the inter-provincial shipment of wine are contrary to § 121 of the Constitution Act of 1867, which requires that products made in one province must be “admitted free” into other provinces.

Current Action

Presently, a Member of Parliament is attempting to pass a bill that would change the existing law and allow for direct shipping of wine and other alcoholic beverages. Bill C-311, an act to amend the Importation of Intoxicating Liquors Act, was introduced in the House of Commons last fall by British Columbia Conservative MP Dan Albas. The bill has passed committee and will return to the House of Commons for further debate.

While trade between provinces in Canada is a federal responsibility, liquor sales themselves are regulated by the provinces. Therefore, even if the bill passes, the provinces can control how much people bring in. Presently some jurisdictions place volume limits on the amount of wine begin shipped or require it to be on one’s person.

Groups such as the Alliance of Canadian Wine Consumers argue that current laws encourage Canadians to buy foreign wine, thereby hurting domestic wineries. Some argue that privatization of the distribution and sale of premium wines will expand opportunities for the domestic wine industry and provide Canadian consumers with a greater level of convenience and a wider selection.

However, not everyone agrees with the proponents of the bill. Canada’s provincial liquor boards say that the amendment is unnecessary because they can order wine from outside of their borders for their customers. The executive director of the Canadian Association of Liquor Jurisdictions told MPs last week that he and the Association have concerns with direct sales into other provinces since this would be a new and distinct retail channel. Such a change allowing direct sales would have a potentially substantial impact on the jurisdictions’ business and the provincial revenues.

It is clear that while winemakers and consumers stand to benefit from a change in the law, the provincial liquor control boards are fearful that they will be squeezed out of the distribution chain, and thereby lose profits. Canadian constitutional scholars have a strong argument for allowing direct shipments and transportation to take place, and it is the hope of many that current legislation will eradicate this remnant of the Prohibition-era.  

Wine Not Help Small Business?

When it rains it pours. It seems that legislatures like to get on a bandwagon and roll with it. OpenMarket.org, a blog of the Competitive Enterprise Institute, featured a lengthy list of proposed alcohol laws in their Alcohol Regulation Roundup.  Many of them focus on beer and breweries, but quite a few affect the wine industry. For example, the recently filed Arizona referendum hoping to raise taxes on all alcoholic beverages. Part of the referendum calls for an increase in wine taxes by 20 cents per bottle (making wine taxed at $1.04 a gallow!).  However, the money is said to support alcoholism-related social programs. In New York, lawmakers are pushing to legalize wine in grocery stores. The economy stimulating goal is clearly repented in the title of the legislature, the "Wine Industry and Liquor Store Revitalization Act."

One might think wine and immediately think deep pockets and rich snooty people make and drinking the delicious elixir. But notions like these make it easy to forget that there are many small wine makers, who are more economically vulnerable and were hit heaviest by the Great Recession. Enter Alabama House bill sponsored by Representative Becky Nordgren, R-Gadsden.  The Alabama House’s Economic Development and Tourism committee bill hopes to even the playing field to allow small farm wineries to be competitive. 

The bill has stalled since its first reading early last month, but Nordgren stresses the powerful effect this bill could have. Currently in Alabama, wine manufactures can only sell on their premises, and this bill would allow farm wineries to sell to wholesalers or distributors.  America's alcohol operates under a  three-tier distribution system. The distribution system emerged after the prohibition, with the historic rationale to assure that alcohol taxes are duly paid and collected by the government. Further, it is believed by some that the system "serves the interests of everyone in the value chain: consumers, states and their revenue collectors, local communities, brewers, wholesalers and retailers. Consumer choice would suffer if retailers were owned or controlled by a supplier or distributor, as they would feature only the brands offered by these suppliers and exclude others."

However, Nordgren says the current structure systematically disadvantages small business. While small farm wineries can currently sell bottles of wine on their premises, they struggle distributing their product because they don't produce large enough quantities to entice distributors. She thinks that if you allow farm wineries to self-distribute, you will give them the leg up needed to grow to a size that would distributors would be willing to work with.

But are Alabama small wineries really in an economic position that ensure this legislation will serve its purpose? While I am doubtful, Nordgren and supporters are not. A similar experiment in North Carolina was met with great success. The state had 19 wineries before the bill, and in the five year period after the bill was passed the number reached a whopping 99. These wineries equated to jobs and taxes for the state, and a 2011 study by Frank, Rimmerman & Co. of St. Helena, California estimated

 "the total economic impact of the wine industry was $1.28 billion. During the five-year period, the number of jobs in the North Carolina wine industry increased from 5,727 to 7,575 and wages paid increased from $158 million to $237 million. Production increased from 470,000 cases to 529,000 cases, and the number of wineries grew from 55 to 89. Wine-related tourism produced $122 million in 2005 and increased to $156 million in 2009. In the final year of the survey, the North Carolina wine industry paid $65 million in federal taxes and $51 million in state taxes.

John Copety, Wills Creek Vineyard owner, believes that the Alabama would have the same effect on its' state wine industry as its equivalent did in North Carolina. He confidently proclaimed that not only are "people ... going to buy wine,” and “[he'd] prefer them to buy wine from Alabama and not California.” As a Californian, I may not want this for selfish reasons, but I can't argue with a state trying to revitalize their economy.

Utah relaxes its stance on alcohol regulation

Utah is not the first state you think of when you are craving a nice cold beer or a glass of wine. In fact, Utah may be the last state you think of due to its infamously strict regulation of alcohol. Until 2009, anyone who wanted a drink had to first purchase a membership at a private club (what we know commonly as a “bar”). This fee requirement had the effect of restricting patrons to one or two local bars, which, as you can imagine, decreased the amount of alcohol consumed at bars in Utah. No one wants to go for a drink at the same bar 5 nights a week. When Governor Jon Huntsman Jr. ended the old membership system in 2009, navigating the bar scene got much easier for patrons and bar owners enjoyed increased profits, free from the constraints of the fee system. However, business slumped in 2011 when Utah outlawed drink specials. Happy hours were already illegal but bar owners had managed to draw customers in with daily drink specials. Now, there’s no such thing as a $2 pint in Utah. In the same year, Utah also expanded its ban on kegs by outlawing mini beer kegs called “Chubby’s.”

Similarly peculiar are the rules governing the service of drinks in restaurants. Backroom bartenders pour the drinks and mix the cocktails behind the “Zion curtain,” out of view from customers. “Zion” refers to the powerful dry Mormon constituency in Utah and the curtain symbolizes the separation between patron and bartender in eateries. Patrons are also forbidden from ordering a “double” and must order food with their drinks. This constantly changing maze of liquor laws is tough for bar and restaurant owners, and a bit annoying to out-of-town visitors who just want a drink, but the tide may be changing.

More recently, a bill which could relax liquor laws in Utah made its way through a House of Representatives committee. HB 193, introduced by the liberal state Representative Brian Doughty, would require that at least two members of the state’s five-member Alcoholic Beverage Control Commission be “consumers of an alcoholic product.” How much alcohol one needs to consume before qualifying for the position remains unclear. Originally, the bill called for a “regular” drinker, which means “happening or occurring not less than once a month.” But that modifier was dropped in the amended version because it was too hard to define. Mr. Doughty believed that the monthly drink requirement would have ensured that whoever was hired had an up-to-date perspective on the sale and service of alcohol in the state. In an interview with the New York Times. He explains: “I didn’t want someone to be able to say, ‘I had glass of wine or a beer 10 years ago, and that makes me a consumer of alcohol.’ ” Because a majority of the state’s population is Mormon and does not drink at all, however, the modifier may be unnecessary.

If the bill passes, the hope is that liquor laws will be written in a way that does not hinder business. Already, there is a growing demand for good beers in touristy ski towns, and Utah microbreweries have answered the call. Even though beers in Utah can only contain 3.2% of alcohol if sold on tap, microbreweries like Wasatch Brewery, are undeterred and simply sell higher strength beers as liquor. Some of the favorites? Polygamy Porter and Evolution Amber Ale.

Direct Shipping Law Signed in New Jersey

The Twenty-first Amendment gives states broad powers to regulate the importation and use of alcoholic beverages within their borders. While there are federal laws dealing with alcoholic beverages, each state is able to create its own laws regarding the importation of such beverages. This has resulted in a patchwork of state laws that vary widely.

These variations have major implications for the wine industry. One’s ability to participate in wine of the month clubs, make online purchases, and ship wine home from a trip to the Napa Valley is dependant on where one lives. While some states have no restrictions on direct to consumer shipping, others prohibit the practice entirely, while still many more limit the amount allowed to some degree.

Last month, New Jersey became the most recent state to allow direct to consumer shipping of wine. Governor Chris Christie signed the legislation approving this measure, meaning that New Jersey will join 38 other states that allow at least some form of direct to consumer shipping of wine into the state. The law will go into effect on April 1, 2012.

Not only will this law allow residents of New Jersey to import wines from around the country and abroad, but it will also allow New Jersey wineries to ship their wine directly to customers outside of the state. Under the new law, customers can have up to twelve cases of wine per year shipped to them for personal consumption from a winery that produces 250,000 gallons of wine or less annually.

While not a place one usually associates with wine making, New Jersey has more than forty wineries that produce over 225 different varieties of wines, and is the seventh largest producer in the nation. Local New Jersey vineyard owners said that the new law allowing small wineries to bypass distributors and ship directly to customers will benefit their industry, though it may take a few years for them to recognize significant profits. Some have even noted that Robert Mondavi had to start somewhere, and hope that the new law will provide them with opportunities to make New Jersey wines as well known as those from already well-established winemaking regions. This is an important step for local winemakers as they seek broader recognition of the quality of their products.

However, not everyone is pleased with the new legislation. Wine retailers are concerned that they will see their sales of cases of wine decline, particularly around the holiday season. Direct shipping allows wineries to undersell local stores, providing a benefit to the consumer, but a potential detriment to the stores. Owners of “mom and pop” shops are concerned that they will see sales decline. Some are also concerned with the potential effect this law will have on the New Jersey economy, from the extra 18-year-old workers they hire during the holiday season to the state and local jurisdictions that will not receive tax revenue, to the fact that direct shipment from California wineries will result in revenues spent in other states, rather than New Jersey.

Though the legislation was signed into law, it still faces the approval of a federal court judge who must rule whether New Jersey the legislation is constitutional, and ensure wineries have stopped disallowing out-of-state wineries to operate retail outlets and tasting rooms within the state. Previously, in Freeman v. Corzine, 629 F.3d 146 (2010), the court held that New Jersey policies prohibiting out-of-state wineries from operating retail outlets was unconstitutional. Furthermore, it may still take time before the law can be implemented effectively by the State Alcoholic Beverage Control Commission.

Each state in the United States has its own laws regarding direct shipment of wine. New Jersey’s twelve case rule puts it on par other states such as Illinois, Louisiana, Maine, New Hampshire, Vermont and Wisconsin. Other states vary wildly, from Wyoming and Minnesota that allow only two cases per year, to Idaho at 24, New York at 36, and California, Colorado, Florida, Iowa, and Washington that have no limit. Still other states, such as Alabama, Arkansas, Delaware, Kentucky, Massachusetts, Oklahoma, South Dakota, and Utah, prohibit the practice entirely.