[Ralph at Tuthilltown]

H.R 5034 was introduced into the House of Representatives on April 15, 2010. Written and supported by the National Beer Wholesalers Association with support from the Wine and Spirit Wholesalers Association, the bill was assigned to the House Judiciary Committee where it awaits a date for a hearing. It is noteworthy that H.R. 5034 was introduced, supported and lobbied for only by alcohol wholesalers and with no support by any other sectors of the American alcohol industry and no state alcohol regulators or their professional associations.

You may learn more about what portends to be a devastating blow to the small distiller trying to introduce new brands. Several articles and major groups oppose the bill including: STOP HR 5034, which website is located at:

http://www.stophr5034.com/

This is an issue that concerns every small distiller. Please visit the site and review the info and then contact your State and Federal representatives to voice your opposition to this blatant attempt to undermine the COMMERCE CLAUSE of the Constitution. This is serious stuff. The site also offers you the opportunity to send off a letter of opposition through the site to your Congressmen and Senators.

Read the info. Voice your opinion here. But more importantly, CONTACT YOUR CONGRESSMAN AND SENATORS.

[Wes Henderson]

Ralph is right on point with this one.

You can find more information at www.discus.org

Here is a good link to start:


http://www.discus.or...asp?NEWS_ID=593


Wes Henderson

[Chris Martin]

IMHO, I thought the Kentucky Bourbon response could have been stronger. After all, this stinker of a bill at least does provide for legal opposition in cases where "the party challenging the state law establishes by clear and convincing evidence that the state law has no effect on the promotion of temperance, the establishment or maintenance of orderly alcoholic beverage taxes, the structure of the state alcoholic beverage distribution system, or the restriction of access to alcoholic beverages by those under the legal drinking age." I see no reason why they couldn't challenge another state establishing their version of the federally protected label "Bourbon." How about a little more passion in favor of the smaller Bourbon producers?

Anyway, for what it's worth, here's my letter to my congressman...

Quote

To The Hon. Rep. Howard Berman:

I am writing you to strongly urge your vote against HR 5034.

The Commerce Clause of the Constitution protects us against State economic protectionism and discriminatory actions against interstate commerce. HR 5034 however would weaken the Commerce Clause in favor of the alcohol wholesalers who have written the bill, while severely hurting smaller wine, beer and spirits producers and retailers. These producers rely on the ability to reach consumers without contending with the barrier of a state-sanctioned wholesaler wherever possible. Thus, we see less consumer choice in terms of the products they may buy. If the smaller producer cannot convince the "gatekeeper" wholesaler to even carry their product, let alone promote it, both consumers and producers stand to lose if there is no direct way for the producer to reach the consumer. And when those many smaller producers fail as a result, both the States and the Federal government lose the enormous tax revenues these producers contribute!

I sincerely hope you realize that constituents like me will not stand for YET MORE legislation supporting special interests like the alcohol wholesaler lobby to the detriment of consumers and smaller producers -- all couched in the language of "states rights." After the Big Banks and the Big Oil, it's really time for congress to take a stand in favor of the little guy... and I am one of them. I supported you in your political campaigns. Now I need your support against HR 5034.

Sincerely,

Chris Martin

[Phil]

I've sent an email in opposition to the delegation from Arkansas.

Phil

[JarHead]

Chris, good letter. I hope you dont mind that I heavily plagiarized from it and sent one to my congresswoman.

[Chris Martin]

No problem, JarHead (Ed?)! Glad to help...

[Jonathan Forester]

Ed, what address did you use?

JarHead, on 01 June 2010 - 12:43 PM, said:

Chris, good letter. I hope you dont mind that I heavily plagiarized from it and sent one to my congresswoman.

[JarHead]

Jonathan, used the corporate headquarters address, but Port Chester is also in Lowey's district.

[Ralph at Tuthilltown]

The following from www.FREETHEGRAPES.COM


HR 5034 PRESENTS TANGIBLE THREAT TO CONSUMERS, AS WELL AS WINEMAKERS, WINE MERCHANTS, BREWERS AND DISTILLERS
Wholesalers Attempting to Dupe Congress

June 8, 2010, Napa, CA – The nation’s winemakers, brewers, and distillers have each issued statements urging Congress not to consider House Resolution 5034. Meanwhile, wine wholesalers cynically claim the bill would have no effect on current laws.

Drawing from producer statements, HR 5034 presents significant, tangible threats to thousands of businesses – most of which are family-owned and operated – and millions of consumers who enjoy wine, beer and spirits. More specifically:

• Winemakers: HR 5034 Will Decrease Consumer Choice, Increase Prices:
States could pass laws that discriminated against interstate wine commerce and, if HR 5034 passed, make it nearly impossible to overturn them in federal courts. This would turn the clock back on consumer choice from the nation’s 6,000+ US wineries. Over the past 12 years, the number of states that allow legal, regulated winery-to-consumer shipments has grown from 17 to 37; these states represent 83% of wine consumption. Additionally, states could pass laws allowing wholesalers to fix prices and, if HR 5034 passed, these laws would be immune from challenge on federal antitrust grounds.

• HR 5034 Will Bankrupt Wineries:
Only 17% of wineries are distributed nationally, and 54% of them were unable to find a wholesaler in states where they actively sought representation, according to a survey by Wine Institute, a public policy trade association representing more than 900 California wineries. As a result, many wineries now rely on direct sales to survive. If a winery cannot secure distribution, but is prohibited from selling to its customers directly, the winery will be locked out of the market.

• Brewers: HR 5034 Intended to “Protect In-State Interests.”
In its May newsletter, the Beer Institute warned of “unintended consequences” of HR 5034 and that, if passed, “…imposes a virtually insurmountable burden on anyone challenging an unfair, anticompetitive or even unconstitutional state law regulating alcohol beverages.” The Brewers Association warned that the bill would allow states to enact new laws to “heighten discriminatory treatment of out-of-state brewers (and beer importers) or to limit or ban commercial activities that wholesalers do not like.”

• Distillers: State-Imposed Price Fixing:
The Distilled Spirits Council of the U.S. wrote Congress that HR 5034 has been misrepresented as “no big deal, but it is in fact a big deal.” States could “set their own labeling requirements,” impose price fixing, give tax advantages and consumer convenience measures such as Sunday sales only to in-state distillers and companies. According to the Kentucky Distillers Association, the bill would allow states to establish their own formulas, labeling and bottling standards for Bourbon, concocting their own whiskey and calling it ‘Bourbon,’ thus overriding uniform federal requirements and 200 years of American heritage.

“Contrary to wholesaler claims of solving a ‘problem,’ HR 5034 is a legal distortion and full-scale attack on the balance of federal and state laws that prevent monopoly protections for wholesalers in each state,” said Jeremy Benson, executive director of Free the Grapes!, a national grassroots coalition of consumers, wineries and wine retailers.

Wineries
Representing wineries across the U.S., a joint statement by Wine Institute and WineAmerica was issued May 17: “Oppose H.R. 5034 – Wholesalers Monopoly Protection Bill.”

Brewers
The Beer Institute’s May newsletter
The Brewers Association statement in opposition to H.R. 5034

Distillers
Separately, the Distilled Spirits Council of the United States, and the Kentucky Distillers’ Association issued statements in May.

Discus: Controversial "State-Based Alcohol Regulation" Bill Will Undermine Longstanding Framework of Alcohol Control (H.R. 5034).

Kentucky Distillers Association: “Bill Could ‘Wipe Out Centuries of Kentucky Craftsmanship, Quality and Heritage.’”

Since April 20, wine lovers have sent more than 35,000 letters through www.freethegrapes.org to Congress in opposition to HR 5034.

For more information on Free the Grapes’ response to HR 5034

[cowdery]

While some of the commentary has been hyperbolic, this is a bad law. I call it the Distributor Monopoly Protection Act. It's hard to see how it benefits anyone else. While some state Attorneys General have endorsed it, no state Alcoholic Beverage Control agency has. It's certainly not needed to protect consumers. In fact, consumers are ill-served by the status-quo, in terms of their access to products, which this will only make worse. There is no question that HR 5034 would be bad for small alcoholic beverage producers of all kinds: vintners, brewers and distillers.

[Ralph at Tuthilltown]

The NEW YORK FARM BUREAU and the NEW YORK GRAPE FOUNDATION have both come out in opposition to HR 5034. Don't forget the Farm aspect of this when speaking with your Legislators. Contact your State Farm Bureau.

[cowdery]

The Wall Street Journal today is reporting that Costco Wholesale is supporting proposed changes to laws in Washington state that would allow retailers to buy alcohol from manufacturers instead of distributors. The warehouse chain doesn't like that it currently cannot buy in bulk, but instead must buy wine and beer for each store separately, through a local distributor.

This is what ultimately will get the law changed and why the distributors want HR 5034. Big manufacturers want to deal directly with big retailers. Is this good or bad for you guys, who are not big anything? I think it's good. The 3-tier system benefits no one but the distributors. Certainly not the consumers.

[Ralph at Tuthilltown]

Thanks Chuck I agree. The debate on the "three tiered system" continues. The wholesalers believe, rightfully, it will eliminate the monopoly they have on moving spirits in and out of States; they would no longer be able to control the spigot. The counter argument is specious, "the three tier system ensures controlled flow of spirits and supports temperance" which is utter bullshit (excuse me). Good wholesalers do their job and deserve their cut. But that does not mean they deserve nearly total control, which is what they have now.

The small producer starting out has time and luxury (some don't consider it a luxury, we do) of going out at the start to personally introduce their products first in their home region. At some point if the producer is successful, there will not be enough time to make the juice, bottle it, pack it, make introductions, take orders and deliver the goods (we know this from personal experience); and so at that point a wholesaler becomes a partner in your biz by taking on all the logistical side while the producer concentrates on production and promotion. A good partner in distribution can make the difference between remaining a local brand, or moving out Statewide, or Nationally.

That said, the "three tiered system" is arcane and unnecessary in the year 2010. When the system was introduced there was no common use of television or even telephones for that matter, no internet, no personal computers or cell phones. There was no overnight delivery of retail goods ordered by phone or internet (as with wine) Regional farms were ubiquitous. And no micro distilleries. All that is changed.

In NY State micro distilling licenses come with the right to acquire a Wholesale license and self-distribute (an example how the system is fatally flawed, in NY State a micro-producer may hold a wholesaler's license, a direct violation of the Federal three tier system, a violation which the Fed totally ignores), it is how Tuthilltown launched its HUDSON brand. It was necessary. At the start, as many small producers quickly learn, we could get no distributors to give us a second look. Self-distribution allowed us to get a solid regional base, including the Metropolitan area; by which we attracted the attention of distributors. The ability of small distillers to sell into other States directly increases the ability of the producer to survive and if their product is good and accepted, prosper. And interstate commerce is a good thing.

Unfortunately it raises the issue of State's rights (in this case a red herring dragged through the debate in an effort to stall it in favor of wholesalers). There are mechanisms can be employed (indeed in place) to give individual States the control over distribution they need and to which they have a Constitutional right. If the system is continued, it should not be a Federally mandated system. If the States have the right to control distribution and sales, that should also include control over the right of retailers to purchase goods legally from the producers who want to bring their goods into that State. It should be a State decision to join and insist the three-tier system in that State if it chooses, or drop the system entirely.

In my opinion the three-tier system has outlived its usefulness and needs be abandoned by the Fed as a national system. The Commerce Clause should control interstate commerce with respect to spirits sales and individual States should be required by the Fed to allow interstate sale of spirits by the producers direct to the on and off premise accounts.

The honest, hardworking Wholesaler will gain as the smaller producers grow and need them. There is a place for Wholesalers in the system, but they have to earn it like the rest of us, rather than have a government guarantee of their place in the world.

Ralph

[cowdery]

What federal law mandates the 3-tier system? Not the 21st amendment. I genuinely don't know. There doesn't seem to be anything in Title 27 about it. I think it may be entirely a creature of state law, which is why states can, and some states have, permitted deviations from the 3-tier system in some circumstances.

[Ralph at Tuthilltown]

That is an interesting observation. The States report a Federal obligation, but regularly ignore it. This information sheds new light on the question of the system nationally. The States, like NY, seem to have the collective opinion the Three Tier System is their bible, the untouchable rule. From the small producer's point of view, this is entirely in favor of the wholesalers. For us, the system is an anti-competition system, no longer the "protection" it was originally supposed to be.

The world is changed. Business has changed. It's time for individual States to change, rewrite alcohol law. The most, correction, the ONLY way this will happen is with the pushing and prodding and lobbying of the small distillers who show their actual faces, the new Face of spirits production (small producers with families employing locally, using local raw materials) get their issues before their State Legislators. Point away from alcohol and to: tax revenue, rural economic development, tourism, tax revenue, jobs creation, agriculture preservation, TAX REVENUE! (Oh, did I say that already?)It is possible to change State laws, total amateur lobbyists that we are (were) we managed to change NY State Law, more than once in favor of the small producer. And if it's possible in NY, it's possible elsewhere.

[Charles@AEppelTreow]

Title 27 sets out a two tier system. Look at the chapters on the '4 Noes', ummm... chapters 6 (Tied House), 8 (Exclusive Outlet), 10 (Commercial Bribery) and 11 (Consignment Sales). All the prohibitions are set out in terms of 'Industry members' and 'retailers' and IMs are defined as producers and wholesalers. (And a unified single proprietor being a special case.)

In Wisconsin, the 4 Noes are embodied in a section of Statutes 125 titled 'Relations with Retailers'. That section pretty much reflects the CFR chapters. But WI goes further and applies Tied House to the producer / wholesaler tier. On the other hand, we (in WI) don't have to deal with franchise law (at least for wine/spirits) - which I view as the inverse of Exclusive Outlet. Interesting system - bar IMs from making exclusive deals with retailers - but mandate it for producers & wholesalers.

WI also mandates a certain path to market. Who can sell to whom. The Feds don't seem to delve into that side at all.

It hadn't occured to me before - but my notes above show two side to the 'three tier system'. Once side deals with money and market influence. The CFR deals with that, and makes it two tiers. The other side deals with physical flow of alcohol - forcing through a specific value (ha) chain. The States seem to have created that system - and it surely has different motives and effects.

[stevenstone]

Young's Market and Southern-Odom are supporting a competing initiative in Washington. As you guess it, they want to leave the the three tier system in place.

It's going to get really interesting here in Washington when the public goes to the voting booth this fall.

cowdery, on 18 June 2010 - 12:50 PM, said:

The Wall Street Journal today is reporting that Costco Wholesale is supporting proposed changes to laws in Washington state that would allow retailers to buy alcohol from manufacturers instead of distributors. The warehouse chain doesn't like that it currently cannot buy in bulk, but instead must buy wine and beer for each store separately, through a local distributor.

This is what ultimately will get the law changed and why the distributors want HR 5034. Big manufacturers want to deal directly with big retailers. Is this good or bad for you guys, who are not big anything? I think it's good. The 3-tier system benefits no one but the distributors. Certainly not the consumers.

[cowdery]

I wrote about H.R. 5034 yesterday on my blog.

There is a short history of post-Prohibition federal regulation on the TTB web site here.

There was a lot of concern when Prohibition was repealed about preventing what were perceived as abuses pre-Prohibition. The primary concern was "tied houses" and similar measures whereby producers controlled retailers. You can still find on the books federal rules against tied houses, commercial bribery and other forms of coercion, but I can't find anyplace at the federal level where placing a distributor between the producer and the retailer is the federally prescribed solution.

In the official statements of opposition to H.R. 5034 by DISCUS and others, they are always careful to endorse states rights and the three-tier system. If, however, the goal is open competition one certainly can argue that the three-tier system as it currently exists is more of a hindrance to competition than a help. Distributors have become the competitive "choke point."

[delaware_phoenix]

The TTB site says the one of the goals for the various Federal legislation set up post-Prohibition was

Quote

open, fair marketplace for the alcohol industry and the American consumer

The current system at the state level doesn't do that.

[Ralph at Tuthilltown]

The SLA in NY refers in many circulars and the SLA representatives and counsel often refer to the "three tier system", deferring it always seems to the Federal mandate to which they must defer. But it seems now this is not the case. The general confusion over the actual existence of a so-called "three tier system" as a codified, so named "thing" has all the appearances of a big misunderstanding at best, or a big lie at worst. Perhaps it is time to call the whole thing into question in a serious way. All evidence is that the only opposition to free market legal alcohol commerce on a National basis is to put the question out there. "Does the Federal Government mandate any such so called 'three tiered system' for the control of alcohol production, sales and distribution in the US?"

The other question: "Does (your State) mandate an actual, so named 'three tiered system' for the sale and distribution of alcoholic beverages in the State?"

My cursory review of NY State ABC Law reveals no legislative mandate mentioning the system. If the phrase even exists in NY State law, I can't find it. It may be an invention of the SLA under it's assigned duty to "promulgate regulations" which describe how the law is to be enforced. But that is not the same as "the Law" enacted by the Legislature and signed by the Governor.

Is the "system" a big hoax, or misinterpretation so long in place and so ubiquitous it goes unquestioned? Or are we just all not seeing it, please if that is so, someone point us all in the right direction.