California Legislation Seeks Limits on Out-of-State Retailers

Shipments allowed only from states with similar statutes on the books

Daniel Sogg
Posted: August 23, 2005

Legislation in California that has provoked retailer furor over proposed changes to the state's wine-shipping regulations passed both the State Assembly and Senate on Aug. 18. Gov. Arnold Schwarzenegger (R) will likely sign the bill within the next two weeks.

Senate Bill 118 proscribes shipments from retailers in 36 states to California, in contrast to out-of-state wineries, which are allowed to ship directly with few restraints to California consumers. The new law will allow all licensed U.S. winegrowers to obtain a permit from the California Department of Alcohol Beverage Control, allowing them to ship directly to California consumers.

But the bill specifies that out-of-state retailers can only ship if they are located in states with agreements with California that allow direct shipments. There are only 14 of these so-called reciprocal states. That, say retailers, makes the law discriminatory, and puts it at odds with the U.S. Supreme Court decision in May--and might also pave the way for other states to pass comparable legislation. "We're very disappointed and frustrated that retailers were not included in the bill," said Todd Zucker, president of K & L Wine Merchants, based in Redwood City, Calif.

Retailers say that SB 118 serves the interest of large wholesalers, who've doggedly opposed direct shipping because it bypasses their distribution network. Lesley Berglund, CEO of the Napa-based Winetasting Network, an online retailer, said that the wholesalers convinced Sen. Wesley Chesbro (D), who introduced the bill, that the Supreme Court ruling applied only to wineries, so retailers should not be permitted the same shipping privileges.

Critics of SB 118 acknowledge that the final version of the bill (which was amended six times) does include some improvements. California retailers interviewed for this article no longer fear that the legislation might eliminate their in-state shipping privileges. And winery shipments are no longer limited to a maximum of 24 9-liter cases per year.

One other development is that retailers, who feel that the wholesalers and wineries outmaneuvered them, are now in the early stages of forming their own trade group, which will allow for more forceful and timely expression of their interests. "We haven't had any representation in the past. We expect [SB 118] to be signed, but don't view it as the end. It's just the end of this chapter and we've got some work to do," said Berglund.