[grehorst]

Charles@AEppelTreow, on 28 June 2010 - 11:53 AM, said:

...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. ...

Not true. Wisconsin is a franchise state. Once you contract with a distributor you are obligated to maintain the relationship whether you are happy with their performance or not. Only exception is if it is mutually agreed to make a change. Just another law that protects the wholesaler from us evil producers.

[Charles@AEppelTreow]

grehorst, on 29 June 2010 - 08:01 PM, said:

Not true. Wisconsin is a franchise state. Once you contract with a distributor you are obligated to maintain the relationship whether you are happy with their performance or not. Only exception is if it is mutually agreed to make a change. Just another law that protects the wholesaler from us evil producers.

I stand corrected. It turns out you have to look beyond the alcohol regs. The beer franchise provisions are in the booze regs, the spirits are elsewhere. And wine might be excluded entirely - but I will grant that not falling under the regs, and proving it in court are two totally different things.

[delaware_phoenix]

Ralph at Tuthilltown, on 29 June 2010 - 07:37 PM, said:

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.

I don't think it's a hoax, but it may be the way the system is set up that creates such a system. At least in the NY spirits law it talks about licenses for producers, licenses for wholesalers, and licenses for the various retailers (bars, restaurants, wine shops, liquor stores, etc). It then stipulates who producers can sell to, wholesalers sell to, etc.

So if you're an out of state producer, you can't sell in the state of NY, so you have to sell to a wholesaler (or rectifier or Class A distillery).

That's my simplified understanding of it.

Interestingly, Taxation and Revenue, the agency that collects taxes of all kinds in NY, has it's own alcohol distributor license system that seems to completely subvert the SLA's wholesaler system. It seems mostly for wineries, but I don't know why an out of state distillery couldn't register and then start to sell direct to license holders in NY.

[Ralph at Tuthilltown]

Fact is that anyone can file for the Farm Distillery or A-1 licenses which also includes ability to acquire a WHOLESALE license at no additional cost and they're in business in NYS. ABC law in NY and Federal alcohol law often contradict one another. Your example is spot on. Another example, Federal law technically prohibits the combination of a tasting room and winery or distillery or brewery; yet there exists a network of wineries and breweries and distilleries across the us in clear violation of this Federal regulation. The "system" is ignored when convenient and invoked to qualify decisions as necessary.

It is not a question if the system is in situ by tradition, practical use. If there is no mention in the Law, the requirement is either by habit or Regulatory. Not suggesting it is an actual "hoax", not a conspiracy theorist. But the promotion and continued invocation of the hallowed "Three Tier System" appears to have all the identifying characteristics of an "urban legend"; "Oh, you can't do that or the Three Tier System under your bed will get you."

The question is: Does a mandated, so-called "three tier system" exist in law at either the Federal or any particular State level? I can find no reference to it in NY Law.

[MikeW]

In Tennessee, there is no "three-tier system" spelled out in the law, but the practical effect of the body of law, creates a three-tier system. My guess is that is the case in a lot of states, and possibly the US Code. Alcohol laws have been written, rewritten and amended so many times that unless you live with your head in the law book they are very hard to understand. At least ours are.

Now, nobody asked me, but, as a 5 term member of a state legislature and now a professional lobbyist (who happens to be in the process of building a distillery) if you really want to change some laws here is some advice:
1) you don't have to have a lobbyist, but you are better off with one. You are in the business of making spirits, a lobbyist is in the business of taking care of your business at the Capitol. Things take a long time to get done at the Capitol, but when they happen they happen fast and not always with a lot of notice. You might not be there when it happens and your opponent's lobbyist will be. By all means, have a professional write your legislation. A friendly legislator will probably have staff do it. If you don't have a lobbyist be prepared to spend a lot of time running to the Capitol. Whether you have a lobbyist or not, the group must give someone permission to sign off on amendments, changes and compromises and that person must be available and show up at all hearings/meetings/discussions. You can't vote on everything.
2) Be prepared for incremental progress and compromise. There is an old saying in lobbying: "the perfect can be the enemy of the good". In other words, refusing to accept any progress until the three tier system is abolished will prevent you from getting improved laws. My guess is that we are going to be waiting along time to get rid of the 3TS, but there are other things that would help us here. If you get less than you want this year, the legislature meets next year. Come back again.
3) If you don't know your State Rep and State Senator you are stupid. Have you invited them to your distillery? Did you go to his open meeting at the courthouse? Did you contribute $100 to his last campaign? And don't give me that stuff about he is a Republican and you're not (or the other way around) This isn't about national healthcare or a Supreme Court nominee. He is IN and is probably going to stay in, and he represents your distillery. Ask and he'll probably help you. If he won't, feel free to oppose him in the next election, but the chances of beating an incumbent are slim. You're better off making friends and taking any help he can give. If he is just opposed to drinking, give him a break and ask him to introduce you to some of his colleagues and to not be against you. There's more than one way to skin a cat and there are different levels of opposition.
4) There is strength in numbers. Get everyone together and go to the Capitol. Go see your personal legislators and then see everyone on the committee that is hearing the legislation. Have written talking points so that everyone is delivering the same message. Have a one page written summary for the legislator. They are busy. Distilleries aren't the only thing they are thinking about. If you give them a book, they won't read it.
Go every year, whether you have a bill to lobby or not. Think about hosting a distiller's reception.
5) Meet the staff person in charge of the legislation. They can be a lot of help, more than the legislator most of the time. Be very nice to the secretary. You want your calls on the call list.
6) Know the lobbying laws inside and out. Generally, as a business person you can't get in much trouble. But be careful. Find out if it is legal for you to give little gifts, like shot glasses, coasters or bottles of your product. DO NOT, ever say, "this is in consideration for your vote." That is a bribe, and people have gone to jail for less. Say, "this is to show our appreciation for your service to our state." If gifts are illegal don't give them.
7) Don't threaten. "We will remember in November" will probably be counter productive. Saying, "if you don't do this we will be against you" will just hack them off.
8) If they tell you yes, but vote no, go back and ask why. Be polite, but don't let them get away with that. "I'll do all I can for you" or "I'll be there" is not a yes. It's a dodge. If they say something like that, ask if that means yes. When they say yes, write it down or mark your sheet so that he can see that you are putting him in the "yes" column. Always remember that "No" is the second best answer. At least you know and can count him. If he says maybe, you have to go back again and again.

You can change state law but you have to be persistent, organized, and prepared for a long frustrating process. And let's not get into a discussion of how the system needs reform. Of course it does, but the system we have is the system we have. Trying to reform the system will just keep you from working on your industry's laws and regulations.

If you ever want to hear the story of how we passed the new Tennessee distillery law, let me know.

[cowdery]

You probably won't find the words "three-tier system" in any statute, federal or state. Many states do not have "pure" three-tier systems, as the exceptions mentioned in New York illustrate. What you have are laws about who can be licensed, what the different types of licenses are, and who the different kinds of licensees can sell to.

A friend of mine who has an ownership interest in one of the Kentucky whiskey producers told me she couldn't get a job as a bartender because of Kentucky's rules. Merely owning stock in a publicly-held company that produces alcohol won't do it, but this was a closely held family company making her a direct owner and a producer licensee, so she couldn't even take a job with a distributor or retailer licensee.

While it's probably not impossible for a small distillery to succeed without direct sales, the ability to sell directly both to retailers and the public makes it a lot easier. Distributors will do whatever they can to prevent direct sales and if HR 5034 passes, they will do everything in their power to reverse it where it exists now.

If you look at where micro distilleries are emerging, it tends to be in states that have the most hospitable laws, like New York and Washington.

If you look at the statements of purpose of most state alcohol laws, you see lots of stuff about promotion of temperance, creating orderly markets, keeping alcohol away from underage persons, that sort of thing. You never see anything about providing exceptional customer service or about meeting the wants and needs of consumers. In a market system, sellers constantly strive to give buyers whatever they want. A government-run system tends to give people the minimum they will tolerate. That's why the typical control state wants to limit its selection to the most popular products.

The bottom line, if you haven't figured it out yet, is that less state control is good for you guys and more state control is not, hence HR 5034 is bad.

[Charles@AEppelTreow]

Wisconsin uses the term 'three tier system' in the 'legislative findings/intent' preamble in two different chapters of statutes. The chapter on 'fair dealerships' goes so far as to say that it is the 'intent of the legislature to protect and promote alcohol wholesalers in order to foster competition in the middle tier.' For the other tiers, the stated intent is 'to restrict and restrain' (in the words of the top regulator.)

Federal regulation hasn't always been more open than State - but in this moment, I'd agree with Chuck.

[Ralph at Tuthilltown]

Those following the progress of HR 5034 may find the following update enlightening. Please consider the following and contact your Senators and Congressmen:


FROM FREE THE GRAPES NEWSLETTER, RE: HR 5034:

Editor's Note: Stop HR 5034..."For the Children"??

You know the battle over wine or alcohol legislation has begun to move into its true political stage when "the children" have been co-opted. Recently a collection of civil rights organizations weighed in on H.R. 5034 in a letter to Representative John Conyers, Chairperson of the House Judiciary Committee where this bill will be heard. Their message: Support H.R. 5034 and save the children.

In their letter the civil rights group wrote, "By stripping state and local governments of the power to effectively regulate alcohol sales, the foreign-owned breweries and big retailers are putting our communities and our children at risk. Without these laws, shopping malls, department stores and discount retail outlets could effectively transform into bars, providing teens easier access to alcohol at almost any hour of the day."

It goes without saying that states currently have extraordinary powers to regulate the sale of alcohol to children. However, it should not go without saying that no states or local governments have been stripped of their power to "effectively regulate alcohol sales." The claim that H.R. 5034 is necessary to stop deregulation is a flight into Fantasyland and the biggest lie being perpetrated by proponents of H.R 5034.

It should be noted that over the past 20 years, America's alcohol wholesalers and distributors and their allies have consistently claimed that allowing direct to consumer sales will lead to children accessing alcohol. Yet, no member of law enforcement and no alcohol regulator has ever claimed or shown evidence that they are confronting any serious problems with minors obtaining alcohol in this fashion. Not once. Crying "Save the Children" simply won't work and is clearly a desperate move.

Tom Wark, Executive Director
Specialty Wine Retailers Association

________________________________________


HEARINGS ON H.R. 5034

It appears that H.R. 5034 may get a hearing in the House Judiciary Committee on July 14th. This is the word being spread and both proponents and opponents of H.R. 5034 are gearing up to be in Washington, DC on that date to testify, although no official date has been set.

Currently the House Judiciary Committee staff is creating a list of those they will be inviting to testify at the hearings. Most certainly, given this hearing will center on the three-tier system and how H.R. 5034 may affect and protect that system of alcohol distribution, it is expected that representatives from all three tiers will be invited. To exclude fair representation of any of the three tiers (producers, wholesalers, retailers) would delegitimize the upcoming hearings.

It's likely a number of organizations and associations will ask to testify. Specialty Wine Retailers Association has made it clear to the appropriate staff members of its desire to testify.

What is unlikely is that any consumer representatives will be on hand to testify. This is unfortunate.

The committee hearing is likely to be broadcast over the Internet and we will make readers of this newsletter aware of where they can view the hearings over the Net.

________________________________________

DEBATING H.R. 5034

Late last month the National Conference of State Liquor Administrators held their annual conference in New Orleans at which a debate over H.R. 5034 took place. The debate was called by many in attendance, the most contentious discussion this body of alcohol administrators from across the country had witnessed in years.

Steve Gross and Marc Sorini of the California Wine Institute represented opponents of H.R. 5034 while Craig Wolf, president of the Wine & Spirit Wholesalers Association, and Paul Pisano, General Counsel of the National Beer Wholesalers Association represented the proponents of the bill. However, there were also many comments and discussion from audience members at the seminar.

Among the points made:

-Sorini called it a "myth" that state regulations are under siege as distributors claim and is one of the reasons they give for supporting the bill. Sorini notes that no laws regulating the licensing, background checks, restrictions on where and when alcohol can be sold or any other basic tenets of the three tier system had been struck down by lawsuits.

-Wolf and Pisoni complained that no members of the alcohol industry had come forward to offer changes or amendments to H.R. 5034.

-Gross noted that it was not opponents' job to help get the bill passed, but rather they oppose the bill and it is their job to help assure the bill is not passed.

-Gross argued that H.R. 5034 goes far beyond what wholesalers claim it will do including allowing states to pass any alcohol related laws whether they violate the commerce clause or "any act of congress".

Within the industry, lines over H.R. 5034 have been clearly drawn and this exchange makes it clear that on the proponents side of the line stands only wine wholesalers.

________________________________________

AMERICA'S ALCOHOL PRODUCERS JOIN FORCES
In what is a nearly unprecedented action, representatives of America's wine, beer and spirit producers have come together on a single issue: H.R. 5034.

The Brewers Association (small and independent brewers), The Beer Insittute (large brewers), the Distilled Spirits Council of America (spirit producers and importers), The Wine Institute (California wineries) and Wine America (wineries in all 50 states) came together on June 23 to issue a statement to Congress opposing H.R. 5034.

"We the undersigned beer, wine and spirit producers representing virtually all alcohol producers in the 50 states respectfully request you preserve the effectiveness of the existing state-based alcohol regulatory system—and support the Constitutional principles that protect the marketplace against discriminatory and anti-competitive state laws—by rejecting H.R. 5034."

The letter goes on to state the primary problem with H.R. 5034:

"With H.R. 5034 NBWA [beer wholesalers] and WSWA [wine wholesalers] want to put brewers, wineries, distillers and retailers at a competitive disadvantage; allow states to unfairly and arbitrarilly enact protectionist laws against out-of-state beer, wine and spirit producers; and preempt federal oversight of alcohol. Specifically, H.R. 5034 would allow states to pass laws that violate the dormant Commerce Clause, federal anti-trust laws and any other Act of Congress."

The statement is a powerful one and likely to carry great weight with those representative that will eventually consider the merit of H.R. 5034.

________________________________________

MEET THE OPPONENTS OF HR. 5034: Family Winemakers of California
Family Winemakers of California represents hundreds of small and medium sized wineries across California.

The organization has been instrumental in protecting the unique interests of smaller wineries and played the key role in helping to overturn a Massachusetts law that discriminated against out of state wineries wanting to ship wine to MA residents.

Family Winemakers of California very quickly came out against H.R. 5034 after it was introduced into Congress. In explaining their opposition to H.R. 5034, Family Winemakers of California noted:

"H.R. 5034 would fundamentally change the way discriminatory laws are challenged in court. It would essentially allow the 21st Amendment, which gave the states the right to regulate alcohol, to trump the concerns of the Commerce Clause. The burden of proof to challenge a facially neutral law that discriminates would be so narrow that litigation would wither and put interstate commerce in wine at jeopardy. The bill is a naked attempt to dominate the marketplace and change consumption patterns. It puts at risk most of the 7,000 wineries in the nation."

______________

Okay Micro Spirits Producers, above is your ammunition. Your assignment is to contact your State Representatives and make the point this is bad law, prejudicial, monopolistic; it attempts to circumvent the intent and the precedents set related to the Commerce Clause of the Constitution. It opens the door to further contradictions in law between States, which then serve to exclude the small producers who can not afford legal teams of conformance experts and retired TTB folk to help them sort through the changes and differences in law from one State to the next wrought by HR 5034. Those of you DSP operators trying to expand your distribution beyond your own State already know the problems with interstate compliance.

A public hearing on this bill would open opportunity for a public discussion on the so called "three tiered system" as mentioned in the newsletter copy. This may well be a perfect case where the Emperor has no clothes. "Hey, that System hasn't got any pants on!"

R

[Chris Martin]

MikeW, on 01 July 2010 - 07:35 AM, said:

If you ever want to hear the story of how we passed the new Tennessee distillery law, let me know.

I for one would be very interested in hearing it. So as not to hijack this particular thread, maybe post it in the State subforum. Thank you MikeW, those were some very good advice points.

[Chris Martin]

...and thank you Ralph for the update.

I think it was probably already said in this thread, but those who are interested in the play-by-play on this issue can sign on to the email update/alert list at stophr5034.org.

[MikeW]

You know, I do apoligize, I kinda got carried away there and posted a rather long post in a thread where it didn't belong. I guess, my fingers got excited. This is an important thread. Sorry.

[delaware_phoenix]

I just thought of something. It seems from the way HR5034 is talked about, that it wants to strike down or make ineffective the Constitution itself (at least in this one area). I didn't think you could pass a law to override the Constitution. I thought that's what constitutional amendments were for.

[Ralph at Tuthilltown]

FREEDOMWORKS F0undation Releases Analysis of new legislation aimed at thwarting Wine shipments

Source: Freedomworks
Jul 28th

The CARE Act, H.R. 5034, shores up monopoly profits at the expense of consumers who would face higher prices and fewer choices in the marketplace FreedomWorks Foundation has published a new study examining the detrimental effects of the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act, H.R. 5034. Introduced by Rep. William Delahunt (D-Mass.), the legislation is a clear example of economic protectionism designed to shore up the monopoly profits of beer, wine, and spirits wholesalers, much to detriment of vintners, craft brewers, small distillers, and consumers, who will face higher prices and fewer choices.

"It seems that cronyism is still alive and well in Washington, D.C.," said Wayne T. Brough, chief economist and vice president for research at FreedomWorks Foundation. "This legislation is a classic example of rent-seeking, or special interests using the power of government to thwart competition and shore up monopoly profits. Unfortunately, consumers will bear the burden of this legislation, which is nothing more than economic self-interest on the part of the wholesalers." More specifically, the legislation is an attempt to overturn the legal victories that have opened the door to direct shipments of wine in 37 states and the District of Columbia.

A copy of the new study, "No Wine Shall Be Served Before Its Time-At Least Not Without Wholesalers Taking a Cut," is available at:

\http://www.freedomworks.org/files/Microsoft_Word_-_CARE_Act_IA_Final_Format.pdf

[cowdery]

Here is a clickable link to it. The title makes a hash of the old Paul Masson slogan, "We will sell no wine before its time," but the paper is pretty much on-target.