Booze Rules: 2020 and the Decade to Come – Great Expectations (with apologies to Charles Dickens)
By: John Hinman, Hinman & Carmichael LLP
The Roaring Twenties are coming back, with a vengeance. Wine, Beer and Spirits will be challenged during the next decade by the federal and state government, by consumers, by the anti-alcohol forces of darkness and by the industry itself.
Missouri and the First Amendment - Another Supreme Court Case?
The year started off with a bang on January 9th with the 8th Circuit affirming the District Court’s Opinion in the Missouri Broadcasters case. The decision (against the strong protest of WSWA and Southern Glazers, who all weighed in on behalf of the state and the regulations) invalidated most Missouri retail advertising bans on First Amendment grounds. The court found that the challenged regulations are subject to so many inconsistencies and exceptions they made no sense and could not be justified in the face of a First Amendment challenge.
Sean O’Leary published his take on Missouri Broadcasters on his Irish Liquor Lawyer blog. We wonder if the US Supreme Court will take this case because it sets up a circuit conflict with the 9th Circuit Retail Digital Network case (prohibiting supplier provided video in retail stores), which Alva Mather of McDermitt speculated about yesterday in her blog. Applying the First Amendment to invalidate arbitrary (and often capricious because of the number of special exceptions) state regulations on advertising and tied house relationships should be high on everyone’s agenda this year. The question is whether anyone benefits from blanket (and inconsistent) prohibitions on advertising and promotion. The regulators argue that it’s a slippery slope but in an age of ubiquitous social media that bridge has been crossed.
Mississippi
The month continues strong with January 15th oral arguments in the Mississippi Supreme Court over the right of consumers to take delivery of wine from merchants in other states and ship it to themselves. This case is about a merchant only being required to pay taxes and be liable for sales of alcohol in the states in which they have licenses and permits; so long as the products are delivered to the purchasing consumers in the merchant’s state of licensure. You can see our report on the progress of the case here and listen to the January 15th oral arguments (11:30 am PST) before the Mississippi Supreme Court at this link.
Discriminatory Laws, Wal-Mart and Texas
2020 will continue with legal challenges to discriminatory laws (in states such as Michigan) that, for example, allow in-state retailers but prohibit out of state retailers from delivering wine to in-state consumers. These continuing battles are reviewed in the National Association of Wine Retailers website here. The next step in this battle may be fought by Wal-Mart as it appeals the very recent (January 7th) denial of its motion for rehearing in the 5th Circuit licensing decision denying it the right to sell spirits in Texas because it’s a public company. This decision is reviewed by Paul Pisano of the National Beer Wholesalers Association in his blog. The question is whether the Texas ban on public companies is discriminatory, or just plain stupid.
Retailer Direct Shipping Legislation - it's Happening
2020 will be marked by the deliberate advancement of legislation (driven by Tennessee wine) permitting retailers to obtain permits in the same way the wine producing industry harnessed the 2005 Granholm decision to drive winery DTC permits. The agenda of the National Association of Wine Retailers with their model direct shipping bill is to get these issues on the legislative agenda of every major wine consuming state. Expect to hear more about this as the year wears on the legislatures meet across the country. A bill has already been introduced in New York State.
DTC Audits - Texas Leads the Way!
The many facets of DTC will continue to be controversial all year long. For example, Texas has embarked on an ambitious effort, through audits, to discover how the DTC permits they issued to wineries are used by the wineries and the Texas consumers. What will Texas find? How compliant are wineries that use multiple production facilities? Questions that come immediately to mind are why does Texas care, and will other states with similar precise DTC requirements follow? Michigan, Wisconsin, Washington and Massachusetts have already reached out to companies whose customers live in their states. Jeff Carroll explains the Texas issues in his Blog at Avalara.
The California RBS Program - The ABC Builds an Empire
California, as of January 1st, embarks on a server training program (RBS) experiment that will affect millions of people in California – everyone who pours alcohol in the state will be tracked, tested and logged into a massive ABC database being built solely to track whether servers have been trained and passed the test. You can see our reports on the regulations here, here and here. Expect industry challenges to the regulations as they are phased in and the industry wakes up to realize Big Brother is here, and they have no one to man their tasting rooms, pour wine at their events or serve margaritas to customers at their restaurants.
Private and Control Labels - The New Normal and a Regulatory Nightmare
Country-wide the increasing dominance of major retail chains, major producers and major wholesalers will drive the regulators batty because equal enforcement of marketing and business practices across the country has become practically impossible – the major beneficiary will be retailer created private label wines, spirits and beers.
The TTB may (or may not) continue their march towards cleaning up the industry at the top level by attacking consignment sales, commercial bribery, category management and the use of distributor producer marketing funds to finance retail promotions. The TTB has the enforcement funds but do they have the will or the knowledge of the industry to follow through? The new year has started with the anticipation of more TTB accusations attacking consignment sales, as explained by Bahaneh Hobel at WinExpo, but no actions against category management, marketing fund banks or commercial bribery have been announced yet by the TTB.
Declaratory Rulings - A Solution in Plain Sight
Finally, this may be the year that legislation (or regulations) will be introduced (and passed) requiring states to issue declaratory rulings about business practices that might run afoul of obscure regulations, but always result in marketplace uncertainty (and often heavy fines). The model to follow is the New York State Liquor Authority declaratory ruling protocol.
The purpose of the initiatives will be to force state regulators to tell industry members what the regulations mean and how to comply. Industry members (especially in California) are flying blind. Promotional and other activities that one industry member believes are legal, engages in and gets away with are unlawful when attempted by another. This is a common dilemma and when the regulators are asked how to interpret conflicting regulations the answer isn’t a reliable “here is how it works,” rather, the attitude is “take your chances” and if we think you are wrong (no matter what others do or don’t do) we will suspend or revoke your licenses. That should be unacceptable agency conduct.
Welcome to the roaring 20’s; buckle up and get ready for an exciting decade.