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Michigan Finally Settles on Direct-Shipping Bill

Months of debate end with wineries and wholesalers agreeing on a 1,500-case limit

Eric Arnold

Posted: Tuesday, December 06, 2005

After several months of rapid-fire legislation, consumer outcry, scathing editorials and tense negotiations, the Michigan legislature finally passed two bills allowing state residents to order wines from local and out-of-state producers and have them shipped directly to their homes. The arrangement is unusual in that it limits the total amount wineries can ship rather than the amount that individual consumers can buy. But after a long, tough battle, those on both side of the debate conveyed at least a sense of satisfaction that they had reached a compromise.

SB 625 and HB 4959, which easily passed the Senate on Dec. 1 and the House on Dec. 6, allow wineries in any state to ship a total of up to 1,500 cases per year to Michigan consumers. The wineries must pay $100 a year for a shipping license, pay all applicable taxes and verify the age of the buyer either by obtaining a copy of a photo ID or using an online age-verification system. All shipments will have to be labeled as containing alcohol, and the recipient must provide proof of legal drinking age and sign for the package upon delivery.

"It gives consumers a lot of opportunities they did not previously enjoy," said wine lover Mike Brenton, president of the 800-member Greater Lansing Vintners Club. "From that perspective, it's a fair compromise."

For 31 years, Michigan allowed its own wineries to ship to consumers within the state, but did not permit wineries outside the state to ship in. Those laws were challenged in a federal court case that eventually went all the way to the U.S. Supreme Court, which ruled in May that states must treat in-state and out-of-state wineries equally when it comes to direct shipping.

Instead of immediately extending shipping rights to out-of-state wineries, in June state Rep. Chris Ward (R) introduced House Bill 4959, which would have not only banned all direct-to-consumer shipments of wine in Michigan, it also would have taken away Michigan wineries' ability to distribute their wines directly to restaurants and retailers.

Soon after Ward introduced his bill, Michigan papers wrote several editorials lambasting it, and a group called Wine Consumers Across Michigan formed to oppose it. WineCAM began to rally support for a package of bills introduced by Sen. Michelle McManus (R) that would have allowed shipments from all wineries and that were similar to shipping laws in many other states.

Instead, in early September the House passed a compromise version of HB 4959 that would have limited wineries to shipping no more than 500 cases per year to consumers and required producers to distribute their wines through a wholesaler. At the time, McManus said that the bill "still benefits the wholesalers, and it still leaves Michigan wineries and consumers out in the cold."

That bill never made it to the Senate floor, and in early November a federal judge, who was charged with issuing a remedy to comply with the Supreme Court decision, ruled that Michigan must open up its borders to direct shipping. The wineries and wholesalers then re-negotiated over issues such as case limits and self-distribution and came to an agreement early last week.

Both bills passed the Senate without a single dissenting vote. HB 4959 passed the House 103 to 1, and SB 625 passed 104 to zero. Gov. Jennifer Granholm has 14 days to decide whether she'll sign the bills or veto them, but all parties involved have indicated that they expect her to sign them.

Brenton, who is also a member of WineCAM, expressed disappointment that the bill restricts the total amount that wineries can ship, rather than how much they can ship to an individual consumer. "We don't see any legislative reason to arbitrarily cap the growth of a business by stating that once it reaches a certain level of sales, it's not allowed to sell any more of its product," he said. However, he noted that he doesn't know of any Michigan wineries that currently ship more than 1,000 cases directly to consumers, and he expects the issue would be revisited if any Michigan wineries did approach the 1,500-case limit.

Even many California wineries that do substantial business in direct shipments to other states don't sell that much in any one market. Paul Leary, vice president of marketing for Duckhorn in Napa Valley, said that the only state to which the winery directly ships more than 1,500 cases a year is California.

The wholesalers, like the wineries and consumers, have mixed feelings about the bills. "The legislation in its final form wasn't exactly as we had envisioned or supported when we started the process. We gave a little, the wineries gave a little, and we've reached a comfortable medium," said Michael Lashbrook, president of the Michigan Beer and Wine Wholesalers Association. But, he added, the distributors are happy with the requirements for obtaining a shipper's license. "We think they're probably the most responsible and enforceable provisions that have been enacted to date by any state."

The bills do not address the right of Michigan wineries to distribute wine directly to retailers or restaurants. However, HB 4959 does have a provision toward the end that states that, if the measure is challenged in court, the portion of the state's liquor control code allowing Michigan wineries to self-distribute would be repealed.

Already one Michigan newspaper, the Traverse City Record-Eagle, has published an editorial suggesting that the wholesalers have just been waiting for passage of the bill to file a lawsuit.

When asked if self-distribution is still an issue of concern to the wholesalers, Lashbrook said only, "It could be addressed in the future."

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