Bill uncorks a brawl over interstate sale of alcohol

Reporting from Washington — 

With little public notice, distributors of alcoholic beverages are pressing for a federal law that would allow states to block interstate sales of wine and beer to their residents — a result that could limit consumer choices, raise prices and hurt hundreds of small vintners and microbrewers.

A bill pending in the House would put the authority to regulate alcohol more squarely in the hands of the states and would require those challenging the regulations to prove the rules violate federal law or the Constitution.

And it would supersede a number of recent court rulings that have struck down limits on interstate sales of alcoholic beverages.

“It’s the cumulative effect of all these lawsuits, and the confusion,” said Paul Pisano, a vice president at the National Beer Wholesalers Assn., which proposed the legislation in the spring and backs a lobbying campaign. “We’re asking to make sure that states aren’t having their hands tied when they’re trying to defend their alcohol laws.”

Critics countered that the distributors’ real motive was to restrict competition.

The House bill would “devastate California’s and other states’ wine industries, stunt economic growth and harm consumers by allowing discriminatory law and regulation to be passed and go unchallenged,” Reps. Mike Thompson (D-St. Helena) and George Radanovich (R-Mariposa), who head the Congressional Wine Caucus, recently wrote their colleagues.

California accounted for 75% of all wine shipped directly to consumers for the fiscal year that ended March 31, according to Wines & Vines in San Rafael, Calif., an industry news, marketing and research firm.

Internet and direct-mail sales have become essential to the growth of smaller winemakers and microbrewers in the last decade.

South Coast Winery in Temecula, for instance, sells almost 30% of its wine through a 10,000-member wine club and ships to customers in about 20 states, owner Jim Carter said.

“It’s very important for small wineries, especially, to be able to have these wine clubs because it’s our best vehicle for dealing direct with the public,” Carter said. “We sell more wine through our wine club than we sell in the wholesale market.”

Through consolidation in recent years, many markets are controlled by only a handful of high-volume distributors, and they have little incentive, critics contend, to carry wines and beers that are available only in small quantities.

As they grew through mergers and acquisitions, wholesalers and distributors lobbied states for laws that would in effect block interstate sales. But federal courts have struck down some of those laws — prompting the companies to turn to Congress.

They argue that direct sales pose a threat to public health and enable minors to buy alcohol illegally. But critics scoff at such claims, saying, for instance, that few underage drinkers seeking alcohol are likely to order more expensive craft beers and wines from faraway states.

So far, beer and wine lovers in 37 states and the District of Columbia enjoy some form of direct-to-consumer shipping. Should those states be allowed to restrict such sales, residents could see their choices narrowed — and prices hiked.

Jerry Ellig, a research fellow at the Mercatus Center at George Mason University, studied wine prices in the years before and after Virginia enacted a law in 2003 to allow direct shipping to residents. The study, published in 2007, found that the law had prodded retail stores to become more competitive with online sellers.

Liquor makers also have weighed in, arguing that the bill could go beyond direct shipping by allowing states to enact laws relating to taxes, advertising and labeling.

Bourbon makers fear that states would allow local distillers to brand their products as bourbon by overriding federal law that states a whiskey can be labeled as bourbon only if it is made from at least 51% corn and aged in new charred oak barrels.

Wineries, brewers and the Distilled Spirits Council of the United States have lobbied many of the bill’s 136 co-sponsors and organized the mailing of thousands of consumer letters in opposition.

“I can’t remember a time that we’ve ever really held hands and worked this closely before,” said Mark Gorman, the council’s senior vice president for government relations. “We have an unprecedented three-part coalition that is strongly opposed to this.”

With an annual lobbying budget of more than $4 million, the council is a powerful ally for small wine and beer producers. Lobbyists for beer giants Anheuser-Busch Cos. and MillerCoors also have mobilized against the bill.

Yet when it comes to campaign contributions in the current election cycle, wholesalers and distributors outmatch the coalition of producers. They have donated more than $2.2 million to House members, including $922,000 to lawmakers who signed on to the bill as sponsors, according to the Center for Responsive Politics.

The National Beer Wholesalers Assn. made contributions to at least 53 of the bill’s co-sponsors within one to 30 days of the lawmakers’ signing on.

“I don’t think there’s an industry around that’s got the time and the money that these guys have,” said Thompson, the congressman whose district includes the wine regions of Napa, Sonoma and Mendocino counties.

The distributors are “pretty plugged in, and they have a lot more resources than the rest of the alcohol beverage community,” he said.

Six groups opposing the bill have contributed a combined $621,000, so far, to House members’ campaigns.

Craig Wolf, chief executive of distributors’ trade group Wine & Spirits Wholesalers of America, defended the political contributions. He argued that distributors were simply trying to protect states’ rights to regulate alcohol. Alcohol rules should be made by elected officials, not federal judges, he said.

“This isn’t about direct shipping,” Wolf said.

Critics, however, said a loophole in the legislation permits outright discrimination against out-of-state producers if justified by a policy objective, such as restraining alcohol consumption.

In 2005, the Supreme Court struck down laws in Michigan and New York that blocked out-of-state wineries from shipping directly to consumers. That ruling forced states to find more creative ways to limit out-of-state producers’ access to their residents.

In Massachusetts, a federal judge recently overturned one such law, which in effect forced out-of-state wineries to choose between using a distributor or relying only on direct sales — and banned those wineries from selling to retailers.

Both sides agree that had the pending federal legislation been in effect earlier this year, the Massachusetts law would have been allowed to stand.

But Wolf said distributors would not seek any state legislation that blatantly discriminates against out-of-state producers. His word, though, wasn’t enough for some lawmakers.

“I don’t believe them at all,” Thompson said. “There’s no guarantee that they won’t.”

kim.geiger@latimes.com