Under the Influence: Money and Power in Politics

Alcohol bill splits industry, campaign contributions

The CARE Act will make it more difficult for lawsuits to challenge state alcohol regulations. (Credit: John Guenther)

Shoppers can buy just about anything online today with just a point and click, from a book to a pair of shoes to a camera. But buying a bottle of wine can be a little trickier.

That's because states, not the feds, have ultimate control over the sale of alcohol crossing their borders, unlike almost every other product. This allows states to prevent residents from buying that bottle of wine directly from an out-of-state seller.

A bill before Congress could strengthen states' hold on that power and make it harder for alcohol producers to break into new markets. The pending legislation has already reignited a fight between producers and wholesalers, whose business it is to distribute alcohol across the country and who represent one of the most powerful industry lobbies in Washington.

The Community Alcohol Regulatory Effectiveness Act, or "CARE Act," among other things would reaffirm the states' authority to regulate alcohol and make it tougher to challenge that authority in court.

"At the end of the day, the CARE act is not about what laws a state has on the books but who gets to define how alcohol gets into the states," said Mike Johnson, executive vice president and chief advocacy officer of the National Beer Wholesalers Association, an organization that represents 3,300 beer distributors across the country.

People have been trying to make an end-run around state liquor laws, Johnson said, citing a rash of recent lawsuits as proof.

Click for larger graphic. Credit: John GuentherA 2005 Supreme Court decision opened the door for such challenges to state alcohol laws. The court found that direct shipping laws in New York and Michigan were unconstitutional because they were in violation of the Commerce Clause, a rule that in part says states may not enact laws that discriminate against out-of-state sellers. Wholesalers say the subsequent suits brought against other states are a threat to the safety of alcohol sales and distribution in the United States and a waste of taxpayer money.

But producers — namely, wineries, breweries and some retailers — see it as a turf war over distribution rights. They claim wholesalers are trying to ward off any threat to the so-called "three-tier" system of alcohol distribution, in which wholesalers play a vital role.

In the three-tier system, producers sell their alcohol to wholesalers, which in turn sell to retailers in each state. That makes producers heavily dependent on the wholesalers to get their products to market.

Producers do have another option, at least in the case of vineyards. Currently 37 states, including California, to one degree or another allow consumers to have wine shipped directly to them from out-of-state wineries. So a winery might opt to go for the direct sale, instead. But there's a catch. Since each state has its own regulations governing distribution, this can be difficult if not impossible.

No Direct Shipping of Wine
• Alabama
• Arkansas
• Delaware
• Kentucky
• Maryland
• Massachusetts
• Mississippi
• Montana
• New Jersey
• Oklahoma
• Pennsylvania
• South Dakota
• Utah

"The whole scheme out there is a very challenging one, because you have 50 different sets of rules that you have to abide by," said Wendell Cottle, chief financial officer of Laetitia Winery in Arroyo Grande, Calif.

Furthermore, producers argue that a new discrimination rule in the CARE Act would reverse the 2005 decision and explicitly allow states to block out-of-state alcohol.

And that could make matters even worse for vineyards or wine websites, severely hampering their sales when shipping across state lines.

The two sides in this fight are not exactly evenly matched. In the 2009-2010 election cycle, liquor wholesalers made more than $4 million in campaign contributions to House candidates, according to Maplight.org, a nonprofit transparency organization. Alcohol producers dropped less than half that amount on campaigns, with just $1.7 million.

The Center for Responsive Politics even lists the NBWA as a "heavy hitter" that donated over $22 million to federal election campaigns from 1989 to 2010, putting it at 26th on a list of 100.

Click for larger graphic. Credit: John GuentherWholesalers are very powerful on the state and federal level, said Tom McCormick, executive director of the California Small Brewers Association, which represents micro-brewers and brew pubs. By comparison, McCormick said his group has neither a PAC fund nor a large federal presence.

"A lot of politicians just continue to move forward in terms of putting protections in [for wholesalers]," McCormick said. "We're just small brewers and we're kind of awakening to the political power that distributors maintain. We're playing defense to protect the system in place, as imperfect as it is."

Financial supporters of the CARE Act have denied their sponsorship was merely a fundraising bonanza. The wholesalers, for their part, argue they have given money to Congress members regardless of their stance on the issue.

"Members who oppose the CARE Act may support us on another issue. There is no quid pro quo," said Craig Wolf, president and CEO of Wine and Spirits Wholesalers of America.

Small craft brewers, a market segment which has boomed in recent years, say that distributors do play a vital role and have helped open up the market for craft beer. But they are concerned about the effect the CARE Act will have in terms of distributing to more states.

David Walker, co-founder of Firestone Walker Brewery in Paso Robles, Calif., said that brewers respect the need for regulation and the need to keep alcohol out of children's hands, but that he does not want to see bad law enacted.

"I don't think that's an excuse to control access to market," said Walker. "We don't control access to market for chewing gum or chocolate or corn flakes."

Wholesalers enjoyed a recent legal victory when the U.S. Supreme Court declined to hear a case involving Texas alcohol laws, which restrict out-of-state retailers from shipping directly to consumers. Still, wholesalers insist the CARE Act is necessary.

"I think the problem is not everyone seems to get the message," said Johnson, of the NBWA. "Before the ink was even dry in the denial you could see quotes from the plaintiff's attorneys, people making it their business not to see wine distributed safely but to sue states."

An earlier version of the CARE Act was actually introduced last year. It garnered 152 bipartisan co-sponsors in the House, with some members receiving thousands of dollars in contributions from wholesalers, though the bill eventually died in committee. The top contributors then were the NBWA and the WSWA.

Rep. Mary Bono Mack, R-Calif., co-sponsored that version (she also received $2,500 from the NBWA), but she recently stated that she will not sign on again as a supporter. And 42 other co-sponsors are not in office any more, making the prospect of a second chance look a bit dim.

But Johnson said discussions with House members show there is actually more support this time around. The bill was sent to the House Judiciary Committee after being introduced in mid-March.

So, while online shoppers for some time have been able to buy a book and have it shipped across the country in one click, the debate over direct shipping of a bottle of wine may not be settled anytime soon.

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LEAVE A COMMENT Leave Comment  

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Whatever the reason these printable coupons or "Printapons" exist and it is valid to use them, although it can skew the marketing research for which they were intended.

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This is a good article about the bill with views from both sides. However, there are a few errors in your list of states that do not allow shipping. Shipping is allowed in Missouri, DC and as of next month, Maryland.

Michael Kaiser
Director of Communications
WineAmerica

mkaiser@wineamerica.org

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Michael, thanks for your feedback and for catching that error. I've made the correction.
Brian Frank
Web Editor
SoCal Connected