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How Wine Got Caught Between Commerce and States' Rights

How did U.S. wine regulations evolve? Thank (or blame) the founding fathers, ambitious entrepreneurs, the Supreme Court and prohibitionists
Photo by: David Yellen

Posted: Aug 2, 2016 11:30am ET

By Mitch Frank

If you've ever had wine delivered to your doorstep by a large brown truck, you can thank a ferry that navigated the Hudson River in the early 1800s. If you found ordering that wine frustratingly complicated, you can blame the 21st Amendment to the Constitution, ironically, the same provision that makes it legal for you to buy any wine in the first place.

In 1807, when our young nation was moving goods by ox carts and flatboats, Robert Fulton accelerated America's path toward industrial revolution by successfully powering a boat with a steam engine. Within a few years, six steamboats, all licensed by Fulton, were ferrying passengers across the Hudson River between New York and New Jersey, protected by a monopoly granted by the state of New York.

But there was a seventh boat. Unlicensed, it would pull up to Manhattan's West Side, tie up at any free dock it could find and try to pick up passengers before the police arrived. Owned by Thomas Gibbons, it was piloted by an ambitious young man named Cornelius Vanderbilt.

One of the licensed boat owners sought an injunction against Gibbons. Multiple New York state courts ruled against the rogue boat, dismissing Gibbons' claim that he had the right to operate thanks to a 1793 federal law regulating coastal commerce. He appealed, and in 1824, a unanimous U.S. Supreme Court decided in his favor in Gibbons v. Ogden, ruling that Article I, Section 8, Clause 3 of the U.S. Constitution assigned the power to regulate interstate commerce to Congress. Thanks to the Commerce Clause, states could not erect trade barriers. Within a decade, 43 ferries were steaming across the Hudson. Fares dropped 40 percent.

What does this have to do with wine? In my last blog, I asked who decides which wines you can buy. The selection you can choose from and the amount you pay is determined by the state you live in and its tangle of regulations.

The Commerce Clause is supposed to prevent that mess. When Alexander Hamilton, James Madison and other founding fathers met in 1787 to draft our Constitution, America was in economic freefall. The 13 states functioned like 13 countries, each with their own business laws and even their own currencies.

The Supreme Court's decision on steamboats gave teeth to the Commerce Clause. Freed from parochial barriers, companies prospered.

But when it comes to wine sales, since 1933 state governments have had a trump card: the 21st Amendment. You're probably familiar with its first section. It ended Prohibition. But the second section reads, "The transportation or importation into any state, territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." This has been interpreted to mean that, when it comes to booze, states are in charge.

Why? When Prohibition ended, it didn't end everywhere. More than half the states had banned alcohol before national Prohibition was enacted, and many wanted to stay dry after repeal. Mississippi remained officially sober until 1966.

Before Prohibition, state governments had struggled to enforce dry laws. Thirsty residents simply bought alcohol from states next door. Congress had passed laws to stop this, but the Supreme Court repeatedly struck down their efforts, citing the Commerce Clause.

The 21st Amendment's second clause enshrined state control in the Constitution. For decades afterward, the Supreme Court ruled that the 21st Amendment trumped the Commerce Clause.

But attitudes shifted. In 1964, an opinion said that it would be "an absurd oversimplification" to conclude that the 21st Amendment repealed the Commerce Clause. In 1984, the Court struck down a Hawaii law that taxed alcohol at 20 percent, but exempted a local spirit called okolehao. The majority wrote in Bacchus Imports, Ltd. v. Dias that the Commerce Clause prevented state alcohol laws whose sole purpose was to favor local companies or products.

The justices created a test: A state could only pass a discriminatory law if it advanced the "core concerns" of the 21st Amendment: promoting temperance, raising state revenue, and keeping the alcohol market orderly.

In 2005, the majority of justices employed this test when they decided Granholm v. Heald, ruling that it's unconstitutional for states to forbid out-of-state wineries from shipping directly to consumers but allow in-state wineries to ship. It's the reason direct shipping is legal, in some form or another, in 43 states today.

But the justices who wrote the Granholm opinion were careful to add a caveat: They called the three-tier system most states use-in which wineries selling to retailers or restaurants must go through a local wholesaler-"unquestionably legitimate." That system passed the "core concerns" test.

The three-tier system plays a huge role in what wine you can buy. But does it address those core concerns? Let me know what you think.

You can follow Mitch Frank on Instagram and Twitter at @FrankWine.

 

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