Uncorking Consumer Choice: a Case for Direct Wine Sales

Last legislative session the Governor signed a bill raising the production cap for craft breweries and allowing these manufacturers up to seven retail locations to sell their product directly to the consumer.  This was a win for the growing craft beer industry and allows them to continue to flourish and serve consumers.

A similar opportunity exists for the wine market in Arizona.  Currently it is illegal for Arizona wine-lovers to direct ship more than two cases of wine in a calendar year from a winery in or out of the state, if that winery produces more than 20,000 gallons (8,412 cases) a year.

A little history…In and out of state wineries used to be strictly prohibited from selling directly to consumers.  They were required to sell their product to a wholesaler who sold to retailers to sell to the public.  In 1982 lawmakers made an exception for Arizona wineries in an effort to give them an economic boost.  The exception applied to any in state winery producing less than 75,000 gallons – which was all of them.

This isolationist practice to give special treatment to in-state wineries was common throughout the country, except there was just one problem– it is unconstitutional.  Under the Commerce Clause in the constitution, states are prohibited from passing legislation that discriminates or excessively burdens interstate commerce. As a result, several groups sued Michigan and New York that had a similar exception as Arizona, and won.

After the Supreme Court ruling in 2006 Arizona had to scramble to comply.  At the grumbling of large distributors and other wine interests, the cap for direct shipment to consumers was lowered to wineries who manufactured less than 20,000 gallons a year.  This still included all Arizona wineries except one – Kokopelli Winery – who produced 30,000 gallons each year.  To appease them, the restriction on “stacking” liquor licenses was removed so their facility could sell their wine on premises directly to consumers in addition to manufacturing.

While the new cap allowed direct shipment by very small wineries, the same onerous restrictions (and lack of consumer choice) still exist for most other vineyards. There are over 1,000 wineries in the country that produce more than 20,000 gallons a year.  Larger out of state wineries must apply for an Arizona 2W series liquor license just for the consumers who will visit from out of state and who can only purchase two cases each year. In fact, Arizona is one of only three states that tie direct wine sales either to a cap in production or requires that a person visit a winery to ship the product directly.  Every state in the western United States, with the exception of Utah, allows for direct to consumer wine shipment.

The reality is that in the 21st century economy consumers are demanding more choices and options, and Arizona needs to keep up. In the click-and-buy, Amazon enriched marketplace, everyday people don’t understand why these complex restrictions on their purchasing freedom exist.  These limitations on direct to consumer shipping is just one example of the vestiges left of the three-tier system that has long outlasted its relevancy and failed to serve the public good.  One thing is for sure – it is time to uncork the wine industry and toast to more consumer choice.