The United States Supreme Court agreed on Monday to rule on the legality of interstate wine shipments directly to consumers. Within a year's time, the situation facing small wineries and their customers could get either much better or much worse.

This is one of those situations where the Constitution actually contradicts itself, and only the Supreme Court can resolve matters. The Commerce Clause of the Constitution prohibits states from discriminating against other states. This is a fundamental principle supporting the national character of the American marketplace, and has been of tremendous value and significance to our economy. But the 21^st Amendment, which ended Prohibition, gave states the authority to regulate beverage alcohol.

As matters currently stand, small wineries [full disclosure: I am a partner in a small winery] can only gain access to the markets of many states by working with a distributor with a license issued by the state government. If no distributor is willing to take on the winery's products, the winery is frozen—out of the market. A number of states permit direct sale to consumers by shipping—in from out of state, but many states do not.

The state regulatory barriers create many obstacles for small wineries to grow into large wineries, and strengthen the bargaining hand of the distributors, some of whom are extremely large corporations. It is not in the least uncommon for the distributor's and retailer's gross margin on a bottle of wine to be as large or larger than the producer's gross margin. In other words, if wineries are able to ship direct to consumers, they can more than double their profit margin on the bottle.

So important is this issue to small wineries that it has actually induced the San Francisco Chronicle to speak of Kenneth Starr with respect. The Chron, for all its faults, provides outstanding coverage of the wine industry (easily the best in the nation), and has been a significant advocate for the cause of small wineries. As it happens, the cause of the small wineries is being represented before the Supreme Court by Kenneth Starr.

The Chronicle managed to speak the following neutral—to—favorable words about the man once vilified as a prude and worse:

Wineries have a powerful ally in Kenneth Starr... who has appeared before the court many times....

Posted by Thomas  05 25 04