Thursday, April 29, 2010

Do you know about H.R. 5034?

If you haven't read about HR 5034, also known as the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010, you should. It's a bill that would have a profound impact on consumers and wineries, leading to increased prices and winery closures. Although there is widespread opposition to the bill it's also gaining support.

I'm not a lawyer nor do I play one on TV, and I didn't sleep at a Holiday inn last night. So I urge you to get the facts and make your own minds up, but here is my understanding.

The problem goes back to the repeal of Prohibition and the passing of the 21st amendment. Unlike most legal stuff it was brief and plainly worded. It says:
  • Section 1. The eighteenth article of amendment to the Constitution of the United States is hereby repealed.
  • Section 2. 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.
Following this, various states set up alcohol distribution systems that were either owned by or regulated by the states. The 3 tier system was born: producers sold to wholesalers, wholesalers sold to retailers, retailers sold to customers and everyone got to make a profit (except the customer). For a long time nobody really cared too much; there was relief that prohibition was over and most people purchased their beer, wine and spirits from their local stores. Since the distributors controlled the flow of alcohol they got to become rich and powerful, and effectively stifled competition by merging and lobbying.

The recent winery boom began to challenge this. Small wineries like to interact directly with their customers; the profit margins are higher and the customer establishes a connection that goes beyond mere brand loyalty. If there's a problem with the wine due to flaws or bad shipping the winery can deal with it personally. It's good for the winery and the customer.

But not the wholesaler. They see this as a challenge. Despite the fact that it's a tiny fraction of the overall market, it's their market and they want to keep that fraction. The problem eventually reached the Supreme Court in the case of Granholm V Heald which effectively said that the 21st amendment did not give a state the right to treat wineries within the state differently from those based in other states.

HR 5034 (which was drafted by the National Beer Wholesalers' Association, or NAMBLA) would effectively overturn the Granholm V Heald ruling, granting each state the right to regulate alcohol however they see fit, regardless of the commerce clause. It also amends the 1890 Wilson act, which states "that all fermented, distilled or other intoxicating liquors or liquids transported into any state or territory" are subject to the same rules as alcohol produced within the state. This would greatly strengthen the wholesalers' position and allow the states to prevent wineries from shipping to customers.

Laws designed to limit alcohol shipping are often claimed to have the aim of preventing minors from accessing alcohol. But how many minors buy alcohol over the internet? HR 5034 would allow states to make it illegal for wineries and retailers to ship alcohol to adults. Meanwhile firearms collectors and dealers are still allowed to ship guns. Tobacco retailers can ship cigarettes and cigars. Pharmaceutical companies can ship prescription drugs. Does that make sense? You could buy a Smith and Wesson, but not a Smith-Madrone? Viagra but not Varner? Montecristos but not Montallegro?

HR 5034 is a terrible bill that would be disastrous for small wineries such as those in the Santa Cruz Mountains, but don't just take my word for it. Rep Mike Thompson (D-CA), co-chairman of the Congressional Wine Caucus says it would "devastate California’s and other states’ wine industries, stunt economic growth, and harm consumers by allowing discriminatory law and regulation to be passed and go unchallenged."

What can you do? Write to your Representative, asking them to oppose the bill.
Free The Grapes has a Write Your Congressperson web page that lets you do this automatically.
Send a fax to the office of the House Subcommittee on Courts and Competition Policy at (202) 225-3673.
Become a fan of the STOPHR5034 page on Facebook

What's your view on HR 5034? Have you heard back from your Congressperson on whether they will oppose it? Let me know in the comments.