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HR 5034, Contact your Senator and Congressman


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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.

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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.

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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

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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.

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...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.

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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. smile.gif

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  • 4 weeks later...

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

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  • 1 month later...

Some of you may be getting calls from your "friends" at the Wine and Spirits Wholesalers Association. I got one yesterday from them wanting me to spend money on a listing in their Annual Catalog (or some such thing). When I asked if this was a sales call, if it cost money to have this listing, the answer was "Yes". I said that I didn't have money to spend on such a thing. "Not even $395?" No.

The person immediately hung up. I didn't even get a "Thank you for your time" or a "Perhaps in the future you'll consider us." Just click.

Only later did I remember that these were the folks sponsoring HR5034.

I just checked the House of Representatives bill status for this. As of mid-June, it's been referred to the Subcommittee on Courts and Competition Policy, a subcommittee of the Committee of the Judiciary. It might be worthwhile to contact one of the representatives if they're in your state, and inquire on the status of the bill. Think I may give the Hon. Maffei's office a call today. smile.gif

Edited by delaware_phoenix
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I just checked the House of Representatives bill status for this. As of mid-June, it's been referred to the Subcommittee on Courts and Competition Policy, a subcommittee of the Committee of the Judiciary. It might be worthwhile to contact one of the representatives if they're in your state, and inquire on the status of the bill. Think I may give the Hon. Maffei's office a call today. smile.gif

Thanks for the heads up! I see our congressman Sensenbrenner on there- he's helped our little distillery out with a TTB problem in the past. I'll give his office a shout.

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  • 3 weeks later...

I received an untimely notice of a Public Hearing on HR 5034 in Washington, DC which was held on September 28th. Unfortunately there appears to have been no notice of the hearing to the general public posted till September 27th, which is when I received it. I wanted very much to attend, but unfortunately I was on the last day of an overseas trip. Had I received it earlier certainly I would have changed my trip to attend. I'm wondering if anyone else heard of this Hearing soon enough to do something about it, like submit a letter if not attend.

But in the meanwhile, here is a report which appeared in the WINE AND SPIRITS DAILY giving an apparently even handed account of the notable comments. It's a shame we were not represented. Here is the report:

The House Judiciary Committee Hearing on HR 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act, got under way in the US on Wednesday (29 September). Here, we hand over to Wine & Spirits Daily in the US for coverage of the hearing on its first day.

Several Congressmen testified on the act in the first session. Reps. Mike Thompson (D-Calif.) Peter DeFazio (D-Oregon and co-chair of House Small Brewers Caucus) and George Radanovich testified in opposition to the bill. Meanwhile, Reps. Bruce Braley (D-Iowa), Ed Towns (D-N.Y.) and Gary Miller (R-CA) are all co-sponsors of the bill. HR 5034 has 148 co-sponsors in the House but none from the Senate.

THE WINE INSTITUTE - NO PROBLEMS WITH STATE REGULATION

Tracy Genesen, on behalf of The Wine Institute, argued that “HR 5034 is a drastic solution to a problem that does not exist”. She explained to the committee that small- and medium-sized wineries often have a hard time finding distribution, so it's especially difficult for them to enter states that bar direct-to-consumer shipping. “Wholesalers tend to focus almost exclusively on the well-know high-volume wines to the exclusion of the smaller, lesser-known brands,” she said. Genesen claimed that wholesalers “ordinarily do little in exchange for the high costs they charge small and medium wineries. Not surprisingly, wineries that succeed in obtaining wholesalers often complain that the wholesaler fails to maintain contact with restaurants or wine shops after making an initial sales call.”

As a result, US wineries "have an interest in even-handed regulation permitting them to ship wine directly to consumers and retailers”. But, wholesalers “have an interest in maintaining” their grip on the three-tier system. She went on to say that HR 5034 benefits wholesalers “at the expense of producers, retailers and consumers”.

The “only state alcohol regulations that are truly vulnerable”, she said, "are ones that discriminate against out-of-state businesses”. HR 5034 “gives states free reign to pass intentionally and facially discriminatory statues that foreclose out-of-state wholesalers and retailers from market access,” she said.

HR 5034 is “not about protecting the overwhelming majority of state alcohol regulations at all”. Instead, the bill “is about protecting wholesalers from competition... . What wholesalers want is nothing less than a power grab designed to protect their market share … the opportunity to develop in-state cartels, free from competition from out-of-state wineries, breweries, retail outlets, and other wholesalers.”

HARPOON BREWERY - MORE DIFFICULT FOR SMALL BREWERS TO FIGHT FRANCHISE LAWS

Rich Doyle, chairman and CEO of Harpoon Brewery, gave the small brewers' perspective by speaking on behalf of the Brewers Association. He noted that beer distributors are “very important to small brewers”. He said that the “current system has also served the public well” but passage of HR 5034, “even in its amended form, risks exposing that delicate balance to unintended consequences”.

A big issue for small brewers is state franchise laws, which protect “wholesalers from dominant large brewers”. “I have worked through franchise agreements mandated by state laws with dozens of wholesalers (but) those negotiations are always tough because state laws provide wholesalers with strong leverage.” The proposed legislation “would undeniably make this situation worse”, he argued. “Not only would we be playing away, but the state-based referee would not have any concern about being tempered by federal oversight.”

He said he “appreciates the threat that wholesalers feel to their business from a change of the status quo, and more power flowing to large retailers. However, we do not think that solving a problem for wholesalers by creating a problem for brewers makes sense”.

In closing, Doyle stated: “I respectfully urge the Committee to refrain from reporting HR 5034. Federal legislation is not needed to better address underage drinking, drunk driving, or other problems.... Our industry is already adequately regulated at the federal and state level … .”

MICHIGAN LCC - STATE REGULATION IS "UNDER SIEGE"

Meanwhile, Nida Samona, chairperson of the Michigan Liquor Control Commission, supports the legislation. She said: “Michigan and other states continue to be challenged with lawsuits whose goal is to eviscerate effective state regulation of alcohol beverages, by opening the floodgates and allowing entities over whom state regulators have little or no control to distribute alcoholic beverage free of the oversight and rules that govern in-state licensees.”

She brought up out-of-state retailers as an example. The Specialty Wine Retailers Association sued Michigan for the right to ship direct to consumers. She claims the District Court sued against Michigan's position and “rather than face the additional costs of litigating”, the state legislature “restricted the ability of all retailers [in-state and out-of-state] to ship to consumers”.

She believes that, because states are being subjected “to this type of expensive and uncertain litigation where a state may be forced to expend great manpower and incur great defence costs … a federal statute is needed to confirm the primacy of State regulation over dormant commerce clause and antitrust challenges that might apply to other products.” Furthermore, HR 5034 “is also needed to help states defend against attacks that are motivated by economics not for public health reasons”.

MARIN INSTITUTE - REGULATION IMPORTANT TO PUBLIC WELFARE

Michele Simon, research and policy director for the Marin Institute, argued on behalf of public advocacy groups. “It is irrelevant to us if the bill favours any particular party's economic interests,” she said. Instead, their “goal is to advance policies to reduce alcohol harm”.

HR 5034, she said, is very important in preserving public welfare. But, “as long as the public and policymakers think this is all just an industry food fight, the science and the historical context to support strong state regulation gets lost in the shuffle. While the fight between alcohol distributors and producers presents an obvious disagreement of economic interests, HR 5034 must not be dismissed as industry infighting.”

She said that the “benefits of state alcohol control are significant”, such as “lower consumption”, “less alcohol-related harm”, and a source of revenue for state programmes. “State laws and regulations controlling alcohol sales were passed to help protect the health and safety of the public; however, certain special interests are challenging state regulatory authority and threaten to undermine the very protections every state has established.”

“Maintaining the integrity of the three-tier alcohol control system is necessary for ensuring the health and safety of the public,” she said.

UTAH AG – ANHEUSER-BUSCH COMPARED TO ARTISAN WINERY

Utah Attorney General Mark Shurtleff is all for the Care Act. “Alcohol … is a unique product both constitutionally and physically,” he said. “It is restricted for good reason … . The people of Utah feel differently about alcohol than the people in Detroit. That is the beauty of the American system. Just because alcohol can be sold like toothpaste, doesn't mean it should”. Shurtleff pointed out that Utah is a control state and that it “takes alcohol very seriously”.

Referring to the US Supreme Court's ruling in favour of interstate wine shipments from 2005, Shurtleff noted that the court “believed that the Michigan system impermissibly harmed a poor artisan out-of-state winery”. But now “fast forward” five years and ask, “where are the states in trying to understand what this decision meant? The answer is the legal waters are muddier, not clearer.”

Shurtleff contrasted that “small artisan winery” where “now we have Anheuser-Busch InBev … using the same theory … to say they are being discriminated against in Illinois. Last I checked, A-B InBev was everywhere. How are A-B InBev and a small winery similarly situated? I don't know.”

And then you also have “out-of-state retailers saying that the Granholm decision means that out-of-state, remote sellers of alcohol have the same rights as entities licensed to sell alcohol in the state. There are 2,966 accounts that sell alcohol in Utah and Utah does a fine job regulating them. We cannot regulate 521,000 accounts that sell alcohol across the country.”

Here's the money shot from the AG: “Michigan has been hauled into federal court over this very issue of retailer shipping. Texas and New York were sued too. Michigan lost at the district level. Texas and New York won at the 5th and 2nd circuits. What am I to tell the Utah legislature? Go with the Texas and New York ruling, or race to the bottom and abandon regulation to be safe from a Michigan-type decision?”

HARVARD PROFESSOR - BILL IS PROTECTIONIST AND NEEDLESS

Testifying on behalf of the Beer Institute, Harvard Law School professor Einer Elhage made the case that not only is the new Care Act not necessary, because most of the legal conflicts have been “largely resolved … and that none of the cases has resulted in deregulation”, but that the Act would still “allow many types of protectionist state laws and could allow state regulations that conflict with federal antitrust statutes or other important Congressional Acts”.

LAW SCHOOL PROFESSOR - CARE WOULD "PRESERVE" MODERATION

Professor Steve Diamond, from the University of Miami School of Law, testified in favour of HR 5034. Post-Prohibition state laws have been largely successful in controlling the “appetite for drink … and the pursuit in profit in selling it,” he said. The three-tier system, he said, created an environment where “no particular segment of the industry was to feel disproportionately over-regulated”, but rather to create “a culture and a climate of control. They were aimed just at the few. The alcoholic was not the only problem consumer; the gangster was not the only problem seller. The aim was moderation in drinking, moderation in selling, and moderation in law-making”. Was it perfect? "Of course not," said Professor Diamond, but it still “commands respect” and HR 5034 is a “moderate, reasonable effort to preserve this programme of moderation”

***

If you choose to respond here to the points made please do it methodically so that others will be able to use your comments as talking points. But more importantly please get your responses and your phone calls to your Legislators and local press to counter the misleading "logic" of the bill's advocates. This is a snow job. Let your Representatives know.

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Heard from Congressman Hinchey's office. They are looking into the HR 5034 issue. I requested the Congressman's position on 5034 and was asked for a summary of the issue, I provided the following:

Our position, as with most of the 200 craft distillers across the US, is 5034 will undermine the Commerce Clause and cause confusion among the consumers. It is a bill designed to strengthen the monopoly of wholesalers who, due to the so-called (but actually non-existent) "three tier system", operate as the de facto "gatekeepers" when it comes to what new products are introduced at the State level.

It will mean small wineries, brewers and distillers are further constrained from entering the marketplace.

This is particularly problematic since it means local farmers who grow the raw materials used by craft distillers will suffer as well. The success of new distilleries introduction of new brands into the State markets is already having a direct positive economic impact upon rural agriculture in New York.

One example how 5034 could be a problem:

Suppose Kentucky introduces a law further parsing out the definition of the term "bourbon", thereby prohibiting any but Kentucky bourbon from sale in Kentucky under the name "bourbon". Under 5034, Kentucky would be immune from challenge, thereby eliminating the State of Kentucky from the list of states to which we New York bourbon makers might sell our products; though those products are legally bourbon under Federal law.

5034 helps ONLY the wholesalers, who already enjoy a legally mandated monopoly in most States on the distribution of alcoholic beverages. It hurts the small and new producers and brand owners. It hurts the retailer since the availability of product is limited to what the wholesalers determine worth selling. It hurts the consumer by allowing the wholesaler to determine what is available to the consumer, rather than the marketplace determining success and availability of new products.

We urge the Congressman to come out solidly AGAINST 5034.

In response Hinchey's office assured me they would take this directly to the Congressman for his consideration. Feel free to use any of the above in your correspondence with YOUR Legislators on the issue of HR 5034.

R

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NEW DEVELOPMENT:

CLEAR SPRINGS DISTILLING COMPANY, and JIM BEAM BRANDS, have filed a COLA application for three new brands: "BEAMS EIGHT STAR", "SUNNY BROOK" and "PM DELUXE" "blended" whiskeys. The applications are a first salvo in the kind of branding war which could result from the passage of HR 5034, as well as impacts which are related to the current COVER OVER flap involving DIAGEO and the VIRGIN ISLANDS.

On the application the products are described as "whiskey", it is "a blend". The Standards of Identity leave open the opportunity for a distiller to blend "neutral spirits" into whiskey in blends. However, section "b" which defines "whiskey" clearly states it is the distilled spirits of a mash of FERMENTED GRAIN. It is likely in writing "neutral spirits" into the CFR, the writer never anticipated the possibility that a producer might substitute Cane Neutral Spirits for Grain Neutral Spirits. So I put it to the distilling community, is it whiskey if it is blended with Cane Neutral Spirits and is not completely a spirit from grain?

The implications are fierce. BEAM is not the only producer preparing to make the switch. It will affect the farmers who grow corn. It will affect the nature and definition of "whiskey".

Both the COVER OVER program and HR 5034 come into play. The COVER OVER program as it is now, with no limits on financial incentives (paid with US tax dollars) the VI can pay to such as Diageo or other big producers of cane neutral spirits will create an uneven playing field. HR 5034 makes it possible for the State of Kentucky to redefine "Kentucky Bourbon" (which is NOT a class of whiskey under US law) allowing for the mixture of cane spirits rather than grain spirits. Under 5034 it will be impossible to challenge that change and the Kentucky whiskey makers will redefine whiskey.

This is important. If BEAM acquires a COLA for the new brand, it sets the precedent and "whiskey" as we know it will be redefined.

R

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So I put it to the distilling community, is it whiskey if it is blended with Cane Neutral Spirits and is not completely a spirit from grain?

It's imitation whiskey. At best a kind of rum and whiskey. But it ain't whiskey.

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  • 4 weeks later...

The unfortunate thing is that the consumer will not know that. They'll see "blended whiskey" on the front and assume it's whiskey, when in reality it is not (regardless what the "blended whiskey" definition says, which contradicts the definition of "whiskey" which precedes it in the Code of Federal Regulations). The challenge is not to declare cane neutral spirits not whiskey, but to more clearly define "neutral spirits" in the definition of "blended whiskey" as having to be GRAIN neutral spirits. Notwithstanding arguments that "neutral" is "neutral" (which is arguable easily by anyone who is actually making neutral spirits from fruit for instance), the contradiction exists and is an open invitation to further dilute the reputation of American "whiskey". But given the money to be made by large distilleries who are happy to make cheap blends to make tons of money (nothing wrong in profit, by the way), it is unlikely the small real craft whiskey makers will have the chance to make the case that a whiskey blended with cane spirits is no longer whiskey. The shame of it is the willingness of the venerable American whiskey houses to sell out and mix non grain substances with their whiskey and attempt to pass it off as "whiskey". What's to be introduced next: squash neutral spirits, algae neutral spirits?

We've all read the reverse argument already about the "types", "You can make anything you want, the regs just tell you what you can call it." By this logic and argument the larger spirits makers who are making so called "blended whiskey" with cane neutral spirits may of course make it as they want, but the regs in this case have a loophole that needs be closed. If the big players are preaching to the little guys "does it really matter if you call it whiskey or not if you're selling it?", the retort should be the same. In the EU they argue, "you can sell your goods in the EU, just call them 'aged grain spirits'"; but everyone in the industry knows it is easier to introduce and sell your new product as "bourbon whiskey" or "rye whiskey" than to sell it as "aged grain spirits" then identifying the grain.

Public perception of the product drives sales to a major degree; and the perception of "whiskey" is that it is a grain spirit. The introduction of cane neutral spirits will fool the consumer into thinking they are drinking a whiskey, when what they are truly getting is a "blended spirit", not a "blended whiskey".

R

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I really don't understand the big deal with using cane neutral spirits in blended whiskey. It's 20% whiskey and 80% cheap neutral, the cheapest that can be got. Grain, cane, citrus, puppy tails, why does it matter when it's in blended whiskey produced by international brands? They'll use whatever is cheapest, and yes indeed, when it's produced on column stills and blended with whiskey, neutral is neutral. The 20% is the definitive requirement, not the 80% of whatever. The standards of identity are clear to me: whiskey is defined, neutral is defined, and blended whiskey is defined. These are three different things.

I am flummoxed as to the idea of diluting the reputation of American whiskey. I am unaware that American whiskey's reputation has been recently harmed; I thought it was the opposite. Blended whiskey has a customer base that I believe is not concerned nor even aware of the components of whiskey. Hell, the vast majority of people think all vodka is made from potatoes, and most people don't know what rum is made from. This is not conjecture, it is based on my own experience.

Blended whiskey has an official definition which exists regardless of craft distillers' thoughts on the matter, just as vodka's definition requires an arbitrary 190 proof starting point. Complaining that blended whiskey made with other-than-grain neutral is not real blended whiskey seems counterproductive for craft distillers who can capitalize on the real and obvious differences between their products and national brands, especially blended whiskey. If I produced whiskey, I would be pleased to point out that mine was made with 100% American grown grain, unlike those other "whiskeys". IMHO, others' cheapening their products only improves the impression of mine.

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While I sympathize with Ralph and agree that CNS blended whiskey isn't whiskey, TTB has already granted the COLAs.

The Taft decision of 1909 originated these distinctions, and President Taft at the time wrote that mixing whiskey and rum, not matter how rectified, wasn't really whiskey. When the current SID came into being I'm not sure, I suspect after Prohibition, and maybe it was passed into law by Congress instead of being a gentleman's agreement.

I doubt any of us have many customers that are out there buying Early Times (the new blended whiskey), Sunny Brook, PM Deluxe, etc. at $10 a liter.

I'm sure there'll be someone that wants to make artisanal blended whiskey. rolleyes.gif

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  • 2 weeks later...

I can only say to the willingness to acquiesce: Laws are NOT made to be broken, they are made to be CHANGED. We can live with the regs the way they are forever, or we can find the inconsistencies and at the very LEAST address them. I am not one to stick my head in the sand. The law contradicts itself, simply stated, by mistake or by deliberate action, no matter. Easy to live with it when it comes to stupid, illogical, arcane and contradictory law. But it is not productive and it will come back to bite you every damned time. So it seems difficult to change regulation, or impossible to get entrenched law changed in the face of huge liquor funded lobbies fighting for the status quo. To quote the lyric: "the difficult we can do right now, the impossible may take a little time".

But back to HR 5034, the topic of the this thread. Singing the chorus of "protecting the health of our State citizens" the wholesalers are digging in their heels and spending a lot of money on passage of 5034. DISCUS is fighting to keep it off the books as should every producer and retailer and on-premise owner in the country. Everyone ELSE in the business knows who the wholesalers are trying to protect, and it isn't the citizen.

The craft distillers of the US may think it is hard to get product out on to shelves now; just you wait. If 5034 is passed into law, you will be on your hands and knees before the great gods of distribution praying one of them takes a liking to you and your product when you try to move it into another State. Protectionism exists, and it is practiced not only by countries and States but by the wholesalers too. It's a logical sound business position, "protect your market". But 5034 limits competition, restricts trade and opens the door to the breakdown of the Commerce Clause of the Constitution which protects equal interstate commerce practices.

I should think the US BARTENDER'S GUILD would want to take a stand on this, since they are the professionals in the field who will be most likely to be limited in their creativity behind the bar by a wholesaler who decides not to introduce some of the very special and unique products the small privately held distillers are producing and will produce in the future. I can almost hear the salesman saying "Hey, use PUCKER. It's like the hand made apple stuff those guys are making, and it's cheaper."

Speak out against HR 5034, your ability to show the world your spectacular goods is also at stake.

R

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  • 2 weeks later...

Mr. Cowdery's comment in GOVERNMENT forum page regarding the obscure Kentucky law goes to the heart of the issues raised by HR 5034. Were this bill to pass into law, Kentucky would be protected against any challenge to that law, though it does not conform to the CFR STANDARDS OF IDENTITY.

Thank you to Mark Brown for pointing out the following case which, though it is a wine issue, relates directly to this discussion:

Wine Retailers Appeal to the Supreme Court Over Discrimination in Wine Shipping

Source: Business Wire

Nov 29th

In asking the Supreme Court of the United States to grant a review of the case of Wine Country Gift Baskets v. Steen, a coalition of American wine retailers hopes the high court will to bring a definitive end to the ongoing interstate trade war over the direct shipment of wine. The battle over direct shipment of wine is one that rages on even in the wake of the groundbreaking 2005 Granholm v. Heald Supreme Court wine case, but that has switched battle grounds from wine producers to wine retailers.

At issue in the case of Wine Country Gift Baskets v. Steen, decided in the Fifth Circuit Court of Appeals, is whether, notwithstanding the 2005 Granholm v. Heald decision that determined States may not discriminate against out-of-state wine producers, the Twenty-first Amendment overrides the Commerce Clause and allows States to discriminate against out-of-state wine stores. The Specialty Wine Retailers petitioning the Supreme Court contend that the Fifth Circuit, as well as the Second Circuit, has turned the Granholm decision upside down. Rather than construing the Granholm decision as a prohibition against discrimination, these courts have interpreted that decision as a license for states to discriminate against inter-state commerce.

Wine Country Gift Baskets v. Steen originated as a lawsuit challenging Texas law that allows Texas wine stores to ship wine direct to Texans, while prohibiting out-of-state wine stores from doing the same. A Federal District Court in Texas ruled the law unconstitutional based on the 2005 Granholm v. Heald Supreme Court ruling that declared, "in all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter."

That District Court ruling was overturned by the Fifth Circuit Court of Appeals, which did not identify any compelling justification for such discriminatory treatment. Rather, the Appeals Court held that the Twenty-first Amendment, which repealed Prohibition, categorically immunized the Texas law from Commerce Clause scrutiny. If this view is upheld, millions of wine consumers across the country will fall victim to protectionist state laws and hundreds of thousands of wine retailers will see their protection from state based discrimination promised by the Commerce Clause of the Constitution stripped from them.

"In asking the Supreme Court to hear an appeal of this case we hope the high court will instruct states across the country that laws discriminating against interstate commerce in wine for the purpose of protecting in-state interests cannot stand and violate the fundamental principles of our Constitution and of a national economic union," said Keith Wollenberg, President of the Specialty Wine Retailers Association.

The Petition for a Writ of Certiorari in Wine Country Gift Baskets was written on behalf of the petitioners by Tracy Genesen and Ken Starr of the firm of Kirkland and Ellis. The case involves critical Constitutional issues of concern to wine retailers across the country and to the foundations of Internet Commerce. Today only 13 states and the District of Columbia allow consumers to have wine shipped them from out-of-state wine stores while 37 states allow such transactions by wine producers, thereby severely limiting access to wine by American consumers. The unconstitutional treatment of American wine retailers occurs despite the fact that both wineries and wine retailers are engaged in an identical retail transaction when they sell wine remotely and ship it to the consumer.

******

Given the above noted case, it is not inconceivable other States will take protectionist measures should HR 5034 be put into law.

R

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  • 4 weeks later...

Saw this blog post, about the contributions from the Beer and Liquor wholesalers to the co-sponsors of HR 5034. Not really new news, but ...

http://excellentproj.com/2010/12/21/a-whiff-of-scandal-and-the-odds-of-hr-5034-becoming-law-grow-longer/

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