Support for Direct Wine Shipping Restrictions Builds in Congress

YIKESSSSSSSSSSSSSSSSSSSSSSSSSSS! This could be horrific!
Wine Spectator http://ow.ly/1Rfxp
More than 100 co-sponsors for H.R. 5034 has wine industry uneasy; wholesalers have made more than $11.55 million in campaign donations since 2005
Robert Taylor, Ben O'Donnell
Posted: May 27, 2010

Lines are being drawn in Congress in the fight over direct-to-consumer wine shipping. In the six weeks since H.R. 5034, also known as the Comprehensive Alcohol Regulatory Effectiveness Act of 2010 or the CARE Act, was introduced in the House of Representatives, more than 100 congressmen have signed on as co-sponsors, while others are aligning in opposition. While it’s unclear if the bill will pass or even come to the House floor, supporters and opponents are lobbying hard.

The bill’s leading proponents—the National Beer Wholesalers Association (NBWA) and the Wine and Spirits Wholesalers of America (WSWA)—are arguing that the bill is necessary to protect states' abilities to regulate alcohol sales. Those who oppose it, including winery owners, brewers, distillers and consumer groups, allege that the bill will end direct shipping of alcoholic beverages and provide government-sponsored protection of wholesalers’ turf. They're urging wine lovers to tell Congress that the bill would hurt small businesses and restrict consumer choice.

But a Wine Spectator investigation has found that wholesalers have been speaking loudly to Congress for several years now—in the form of campaign contributions. In the four years since a Supreme Court ruling eased restrictions on direct shipping, the NBWA and WSWA each increased their federal campaign contributions by 33 percent compared with the previous four years. All told, the organizations’ PACs have donated more than $11.55 million since 2005. That money may have made their voices impossible to ignore.

The CARE Act

Thanks in large part to litigation filed on behalf of wineries and consumers following the Supreme Court’s Granholm v. Heald decision in 2005, 37 states now allow some form of direct shipment of wine to residents. The Granholm decision declared state laws that discriminate between in-state and out-of-state wineries to be unconstitutional. The majority opinion cited the Constitution’s Commerce Clause. Suits challenging other direct shipping restrictions are pending in several federal courts.

Introduced on April 15 by Congressman William Delahunt (D-Mass.), the CARE Act, if passed, would erect large hurdles for anyone attempting to challenge a state’s wine-shipping laws through litigation by giving the 21st Amendment, which grants states the right to control alcohol sales, precedence over the Commerce Clause, the section in Article One that prohibits states from discriminating between in- and out-of-state commerce. The NBWA made the initial lobbying push for the bill. An early draft of the bill, obtained by Wine Spectator, was written by the NBWA’s staff and closely mirrors the language of the version now on Capitol Hill.

Since Delahunt introduced H.R. 5034, 103 representatives, from both parties, have signed on as co-sponsors. But the bill is not expected to make it to the House floor in the current session and there is no companion bill in the Senate. A judiciary committee hearing on the bill, however, is expected to be scheduled soon. Rep. Lamar Smith of Texas, the ranking Republican on that committee, is one of the co-sponsors.

California Congressman Mike Thompson, a proponent of winery direct shipping, is among the most outspoken of those opposed to the bill. A Democrat, Thompson represents California’s First District, which includes Napa, Sonoma, Lake and Mendocino counties, among others. “The National Beer Wholesalers are pushing legislation that would discriminate against wineries, breweries and distilleries, and would certainly hurt businesses in the district that I represent,” Thompson said. “I've met with the Speaker [Rep. Nancy Pelosi (D-Calif.)], and she’s assured me she’s in opposition to [H.R. 5034] and that House leadership will do everything they can to make sure it doesn’t pass. But it’s important to get the word out there as to how devastating this could be for our areas.”

Thompson also explained why the wholesaler groups are so powerful a lobbying force in Washington. “There’s only a few of us who represent wine country, and there’s only a couple who represent distilleries,” Thompson said, “but every member of Congress has two, three, four, five, maybe six distributors [in their district].”

Money Talks

The CARE Act’s proponents insist the bill’s intention is to protect states from costly lawsuits attacking their alcohol regulations and to fortify both the three-tier producer-wholesaler-retailer system and states’ rights to regulate the sale of alcohol.

The National Beer Wholesalers Association is one of the five most generous political action committees in Washington. A Wine Spectator investigation of campaign finance records finds that in the five years since the Supreme Court decided Granholm v. Heald, both the NBWA and the WSWA have dramatically increased spending on federal campaign initiatives. The NBWA, through its political action committee (PAC), donated $4.84 million from 2001 through 2004 to federal campaigns. From 2005 through 2008, that rose to $6.45 million. The WSWA donated $1.57 million from 2001 through 2004, and $2.10 million from 2005 through 2008. In each case, these figures represent a 33 percent increase in campaign financing after the court’s decision. Since 2005, the NBWA has also spent $3.29 million on lobbying activities.

Much of that generosity has helped underwrite the campaigns of members of the House of Representatives, including the backers of H.R. 5034. Since 2005, the bill’s 103 co-sponsors have collectively accepted $1.52 million from the NBWA PAC and $247,358 from the WSWA PAC. Three legislators also received donations from state alcohol wholesaler interest groups, in the amount of $12,699. All told, alcohol wholesaler PACs have donated $1.78 million to the members of Congress who currently support the bill.

Organization 2001-2002 2003-2004 2005-2006 2007-2008

National Beer Wholesalers Association (NBWA) $2,221,210 $2,616,285 $3,162,189 $3,282,946

Wine & Spirits Wholesalers Association (WSWA) $658,973 $913,018 $1,026,005 $1,072,336

Total Federal Campaign Contributions $2,880,183 $3,529,303 $4,188,194 $4,355,282

Rep. Howard Coble (R-N.C.), who introduced the bill to the floor alongside Delahunt, has accepted $27,500 from the NBWA since 2005. Rep. Jason Chaffetz (R-Utah) and Rep. Mike Quigley (D-Ill.), the other initial sponsors, are both freshman representatives, but each received $5,000 from the NBWA in 2009. The wholesaler associations invested most enthusiastically in Rep. Patrick McHenry (R-N.C.)—the NBWA sent him $42,500 in five years, and the WSWA contributed an additional $4,000. Additionally, 18 legislators were forced to return money to either the NBWA or the WSWA because the PACs had exceeded contribution limits. Delahunt returned $5,000 to the NBWA in 2009.

Rep. Tim Bishop (D-N.Y.) is another co-sponsor of the bill, even though his jurisdiction includes the entire Long Island AVA, home to 44 wineries. Among representatives of substantial wine regions, only Bishop and Congressman Smith of Texas, whose district encompasses the Hill Country AVA and its 24 wineries, have signed on. Both wine regions sell primarily within their home states, and it’s possible the two representatives believe laws restricting out-of-state wineries would help their constituents. (Neither congressman responded to requests for comment.) But opponents argue that the bill’s success would hurt all wine producers in the long term by making it more difficult for them to grow into out-of-state markets. And many U.S. consumers rely on direct shipping to purchase New York and Texas wines already, because few retailers in other states carry them. Bishop accepted $30,000 from the NBWA in the last five years; only one co-sponsor received more.

The bill's sponsorship is bipartisan—68 co-sponsors are Democrats and 35 are Republicans. Florida, Texas, Illinois and Pennsylvania are home to 39 of the measure’s 103 supporters, representing 38 percent of its support, though these states’ representatives constitute 22 percent of the House. Those four states have small wine industries, though Texas’ and Pennsylvania’s are expanding. But Florida, Texas and Pennsylvania have a large wholesaler presence. Pennsylvania wholesalers distributed $920 billion worth of beer in 2008. In Texas, it was $1.5 trillion. Florida is home base for Southern Wine & Spirits, the country's largest wine distributor.

The Opposition Organizes
Opponents of 5034 aren't completely silent when it comes to campaign cash. But few wineries are big contributors, and allied organizations such as the California Association of Wine Grape Growers, Allied Grape Growers, the Wine Institute, WineAmerica, and the Distilled Spirits Council of the United States have contributed only $745,000 through their PACs since 2005.

More powerful adversaries are brewing companies Anheuser-Busch and SAB MillerCoors, who have voiced dissatisfaction with H.R. 5034 and have put $5 million toward federal campaigns since 2005. (The major corporations on the other side, distributors Southern Wine & Spirits, Republic National Distributing Company, and Gerson Lehrman Group, Inc. have contributed an additional $521,000 to the wholesaler cause since 2005.)

The bill’s opponents have made educating House members on both current law and the effects of H.R. 5034 a top priority, and have met with some success. When Tablas Creek’s partner and general manager Jason Haas initially e-mailed Rep. Kevin McCarthy (R-Calif.), who represents Paso Robles where the winery is located, the Congressman wrote back to say, "According to the bill’s sponsors, H.R. 5034 is intended to reiterate the three-tier system of alcohol regulation in the U.S. and to ensure that states retain their traditional regulatory authority over alcohol distribution, which are areas that I support."

But later, when Paso Robles vintner Amanda Wittstrom-Higgins, whose Ancient Peaks winery has hosted fundraisers for McCarthy, arranged a meeting between the Congressman and a group of Paso Robles wine-industry supporters (including Wittstrom-Higgins, Haas, Alex Villicana, owner of Villicana winery and a member of the Paso Robles Wine Country Alliance board of directors, and Joe Barton of Grey Wolf Cellars), McCarthy seemed to be leaning toward the opposition, and assured those present that the bill would not pass in this session. “He clearly understood the issues at stake," Haas said.

“There are over 200 wineries in the 22nd Congressional district, and I am always concerned about legislation and regulation that would negatively impact such an important part of our local economy," McCarthy told Wine Spectator on Wednesday. "I met with a diverse group of wineries about H.R. 5034 recently, and smaller wineries, especially, told me this legislation would negatively impact their ability to sell to their customers directly, and I will continue to support their right to do so.”

Supporters of the CARE Act have trumpeted the support of most of the country’s state attorneys general, citing a March 29 letter signed by 39 members of the National Association of Attorneys General (NAAG). Addressed to Rep. Hank Johnson, chairman of a key subcommittee that held a hearing on the bill earlier that month, the letter stated, “We are writing to seek your help with the growing threat facing our states from unprecedented legal challenges that seek to eliminate our ability to regulate alcohol.”

But the letter did not specifically name H.R. 5034, and at least one signee has since announced his opposition to the bill. Washington state attorney general Rob McKenna wrote in a May 17 letter, “some proponents of H.R. 5034 have suggested that I support this legislation. Let me assure you that this is not correct. H.R. 5034 goes far beyond the general states’ right principle which was the focus of the NAAG letter. I have been a strong supporter of the wine industry and will remain one.”

That same day, Wine Institute president Robert Koch and WineAmerica president Bill Nelson co-signed a letter from the two wine-industry advocacy groups in opposition to H.R. 5034. “NBWA and WSWA are asking Congress to cede federal authority to the states so that wholesalers can pass discriminatory and anticompetitive laws,” the statement read.

This past Monday, the Kentucky Distillers Association (KDA) voiced opposition to the bill. In a letter addressed to Rep. Brett Guthrie (R-Ky.) and the Congressional Bourbon Caucus, KDA president Eric Gregory argued that the bill might erode federal rules on what can be labeled bourbon, allowing each state to craft its own definition, erasing Kentucky's geographical designation for the spirit. The Brewers Association also issued a statement this week saying that H.R. 5034, “invites states to enact inconsistent laws that needlessly raise costs and impede small brewers’ efforts to expand into new markets.” The Distilled Spirits Council announced its opposition to the bill as well.

Congressman McCarthy told his winemaker constituents that he thinks HR 5034’s chances of passage are slim—if Pelosi opposes it, the bill may never see debate. “With the opposition of the Democratic leadership and the fact that the House has way too much important stuff on their plate, he doesn’t think this is getting out of committee,” Haas said. But a fierce lobbying fight is still in the works. And the number of co-sponsors will undoubtedly rise above 103. “It's a scary, scary number,” Haas said. “I calculated that 21 percent of our revenue is wine shipped out of state. If the law were enacted, it would put a significant number of small wineries out of business in California.”

Kevin Brown
www.kbsinsight.blogspot.com