ShareThisMeet the wine industry's new bogeyman. It goes by the name of HR 5034.
The U.S. House of Representatives bill, introduced in April and backed by beer and liquor wholesalers, affirms states' rights to regulate alcohol, per the 21st Amendment. But, subtly, it does more. It would all but exempt states from federal oversight in these matters.
In other words, it stands to roll back freedoms gained by wine lovers in the wake of a 205 Supreme Court ruling that now allows wine to be shipped direct in 37 states and the District of Columbia.
In its own words, HR 5034 would let states discriminate against wineries as long as it isn't "without justification," a stance similar to what the high court found unconstitutional five years ago.
What would make wholesalers scramble to make this their top legislative priority?
"It's the cumulative weight of the challenges in the courts," said Paul Pisano, senior vice president and general counsel of the National Beer Wholesalers Association.
As the wholesalers see it, the 2005 case was just the tip of the iceberg. There was also lengthy and tangled fight between Costco and the state of Washington to let the big-box retailer become, in effect, its own distributor. There was a Massachusetts law limiting out-of-state wine shipments that was nixed in January by an appeals court. And what probably sparked this activity stems from March, when Anheuser-Busch InBev sued an Illinois regulator, claiming discrimination after the world's largest brewer was blocked from buying a full share in a local beer distributor because it wasn't an in-state company.
Rarely has the liquor industry so quickly taken up arms on an issue. And it has created unusual bedfellows. Wineries big and small -- including the Wine Institute, the California industry's lobbying arm -- have attacked the bill with venom. But they find themselves allied with the nation's liquor distillers, including bourbon producers who fear that HR 5034, among other things, would allow states to toss out federal codes that define how spirits are made. (Something similar to this is why certain localities have low-proof beer.)
Would bourbon mean one thing in Kentucky and another in Kansas? "This bill is not good as a matter of public policy," says Frank Coleman, senior vice president of the Distilled Spirits Council of the United States.
But HR5034's backers see something more afoot. They see this parade of court cases as a shadow charge for deregulating liquor.
Craig Wolf, president and CEO of the Wine and Spirits Wholesalers of America, the distributors' main trade group, suggested that his real priority is to make sure direct shipping -- a step toward deregulation, as wholesalers see it -- remains the task of state legislators alone.
Deregulation is a wholesaler's nightmare. This middle tier of the three-tier system has long been propped up by a system of state laws that preserve a business model with serious competitive flaws. (Ironically, wholesalers are trying to preserve this complicated system at the same time their own industry has undergone huge streamlining.) Start poking holes in the three tiers -- exactly as these court cases were designed to do -- and you begin to see why HR 5034 is their greatest hope.
Without fail, wholesalers fall back on the fact that alcohol is regulated differently than any other product. They sometimes dangle the specter of underage drinking, as they did when direct shipping was about Internet sales.
But as wine industry legal experts tell it, HR 5034 amounts to an unprecedented cap on federal powers. Tracy Genesen, a partner at the law firm Kirkland and Ellis who represents the wine industry, argues the new law could provide wholesalers with a near-blanket antitrust exemption. (Only baseball owners have gotten something similar.)
Wendell Lee, general counsel for the Wine Institute, noted that a decade ago wholesalers backed the 21st Amendment Enforcement Act, which let state prosecutors use federal courts to attack interstate liquor shipments. Now they want to keep those issues out of federal court.
The heated tempers over HR 5034 have revealed a more dramatic concern, one that the industry would rather not discuss: The current model for selling booze in America is filled with anti-competitive regulations and state semi-monopolies that often create higher prices and build inefficiencies into an already inefficient system.
States' rights were preserved after Prohibition because, at the time, parts of America truly demanded to stay dry. The world has changed. Now municipalities are debating whether to tax marijuana to boost revenue. Longtime control states like Washington are weighing whether to get out of the liquor business entirely.
(E-mail Jon Bonne at jbonne(at)sfchronicle.com.)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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