Another Reason to Celebrate—Wine Delivered
Straight to Your Door!
This holiday season brings an extra reason to celebrate for
Massachusetts wine enthusiasts. When long-overdue changes to Mass.
Gen. Laws. ch. 138, § 19F take effect at 12:01 a.m. on January
1, 2015, Massachusetts residents will finally be able to purchase
wine directly from most out-of-state wineries and have it shipped
to their door.
Historical Prohibitions on Direct Wine Shipment in the
Commonwealth
The law governing the direct shipment of wine to Massachusetts
residents has a long and convoluted history—owing to changes
in Supreme Court precedent, in-state protectionism, and legislative
sluggishness.
From the end of Prohibition in 1933 until 2006, Massachusetts law
permitted in-state wineries to sell and ship their wines directly
to Massachusetts residents, but prohibited out-of-state wineries
from doing the same. Mass. Gen. Laws. ch. 138, §§ 2, 19,
19F. In 2005, the Supreme Court of the United States ruled in
Granholm v. Heald1 that similar laws in New York and
Michigan unlawfully discriminated against out-of-state producers in
violation of the Commerce Clause.
Recognizing that Granholm rendered the Commonwealth's direct
shipping rule unconstitutional, in 2006 the Massachusetts
legislature adopted a new version of Mass. Gen. Laws. ch. 138,
§ 19F. This new version compelled "large"
wineries—those producing more than 30,000 gallons of wine per
year—to choose either to ship their wine directly to
consumers or distribute it through Massachusetts-based wholesalers.
At the same time, the new Section 19F allowed wineries producing
less than 30,000 gallons per year—a cap that encompassed all
Massachusetts wineries—to simultaneously engage in direct
shipping and wholesale distribution, as well as a third option
completely unavailable to large wineries: direct distribution to
retailers.
The practical effect of this statutory regime was that most
out-of-state wineries wishing to sell wine to Massachusetts
consumers were forced to distribute exclusively through
wholesalers, as those wineries were unwilling to forgo the revenue
and increased brand awareness offered from wholesale distribution
to the retail market. Further, for profitability reasons,
Massachusetts wholesalers typically carried and distributed only
one or two of a winery's lower priced, higher volume wines,
rendering the remainder of that winery's offerings unavailable
in Massachusetts.
Unlike the statutes invalidated in Granholm, and the pre-2006
version of Massachusetts' direct wine shipment law, the revised
version of Section 19F was facially neutral; it categorized
wineries not by state citizenship but rather by production volume.
Nevertheless, in 2010 the First Circuit held in Family Winemakers
of California v. Jenkins that Section 19F violated the dormant
Commerce Clause "because the effect of its particular
gallonage cap [was] to change the competitive balance between
in-state and out-of-state wineries in a way that benefits
Massachusetts's wineries and significantly burdens out of state
competitors."2 The court further observed that
"Section 19F's statutory context, legislative history, and
other factors also yield the unavoidable conclusion that this
discrimination was purposeful." Id.
Although the First Circuit held that Section 19F was
unconstitutional in Family Winemakers in 2010, the legislature
failed to act until 2013. During that time, there existed no
constitutionally valid regulatory framework under which
out-of-state wineries could legally ship directly to Massachusetts
consumers. As a result, out-of-state wineries continued to abstain
from direct shipping, while lobbying the legislature to enact a new
regulatory scheme under which they could legally do so.
After four years of limbo, the Massachusetts legislature overhauled
Section 19F to allow out-of-state wineries to ship directly to
consumers as well as distribute through wholesalers, placing
out-of-state wineries on the same competitive footing as wineries
located in the Commonwealth. That new law takes effect January 1,
2015. Certain limitations apply to direct shipments under the new
law, including that a direct wine shipper may sell and deliver a
maximum of twelve cases of wine per year per consumer, each
containing the equivalent of twelve standard 750 ml bottles.
What Does the New Law Do?
One wine industry expert has said that the change to Massachusetts
law is "perhaps the most important change to the direct
shipping market since [Granholm]" and predicts that
"Massachusetts will easily vault into the top ten states by
shipping revenue and represent over $60 million in additional
revenue for wineries that ship," due to factors such as
Massachusetts' population, per capita consumption of wine, and
proximity to important wine-producing regions.3
Apart from convenience, direct shipping offers a number of other
benefits to consumers. Under the previous regime, out-of-state
wineries were often only able to distribute one or two of their
lower priced, higher volume wines to Massachusetts consumers. Now
wineries will be able to offer their entire range of wines to
Massachusetts consumers through direct shipping, while still
offering their high volume labels in retail settings. In addition,
smaller out-of-state wineries that face economic barriers to entry
in the Massachusetts wholesale market will now be able to reach Bay
State consumers for the first time. And finally, direct shipping
eliminates wholesaler and retailer price markups.
For Massachusetts wine lovers, this new law should mean lower
prices, more choices, and wine delivered to your doorstep. Happy
New Year!
1 544 U.S. 460.
2 592 F.3d 1, 5.
3 Jeff Carroll, VP of Compliance at ShipCompliant, July
17, 2014; available at http://shipcompliantblog.com/blog/2014/07/17/is-massachusetts-the-most-important-change-since-granholm/.
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