Regulation of Northern California Wines Remains Largely in Local Hands

(Written for a Justia client, January 2013. Used with permission.)

Northern California's wines, from the area commonly known simply as Wine Country, is the source of much pride and prestige for the region. Wine Country's fame spreads as far as San Francisco and the Bay Area, impacting tourism and other industries. The laws affecting wines remain surprisingly local. Even as the internet enables people around the world to access information about northern California's wines, local governments, often at the city level, are the primary sources for legal requirements and restrictions. The geographic scope of these regulations reminds us, as business attorneys, of the local laws and regulations governing professionals, including doctors, dentists, and lawyers.

Federal Limits on Interstate Regulation

The U.S. Supreme Court addressed state-level regulation of wines in Granholm v. Heald, 544 U.S. 460 (2005), greatly limiting states' ability to regulate the import of out-of-state wines. The case involved laws in New York and Michigan that allowed in-state wineries to sell directly to in-state consumers, but prohibited out-of-state wineries from doing the same. This primarily applied to sales via the internet, since consumers can now order wine that is not available to them in local retail locations.

The Granholm court cited a 2003 report from the Federal Trade Commission (FTC) warning of "anticompetitive" state legislation that could impact internet commerce by favoring local wineries over out-of-state producers. The court held that the New York and Michigan laws, by prohibiting importation of out-of-state wines entirely, were a restraint on interstate commerce that violated the "Dormant Commerce Clause" of the Constitution, as well as the Twenty-First Amendment. The Twenty-First Amendment, mostly known for repealing Prohibition in 1933, also secures much of the regulatory authority over alcohol with the states. The court held that § 2 of the Twenty-First Amendment affirms the Commerce Clause's prohibition on laws that discriminate against interstate commerce.

California Licensing

California regulates wine through the Department of Alcoholic Beverage Control (ABC). The ABC's authority largely consists of licensing the sale of alcohol. It requires out-of-state wineries, with no in-state physical presence, to obtain a California license to sell directly to consumers, but this requires an association with a physical location in the state. State law also requires ABC retail licensees to purchase their inventory from in-state wholesalers or manufacturers. This poses a problem for out-of-state wineries and benefits California producers, and it could be a subject of court dispute in the future.

Local Government Regulation and Promotion of Wineries

Regulation of the daily, hands-on aspects of wineries, such as marketing and the hosting of wine tastings, mostly still occurs at the local level. Land-use regulation is at the center of much winery regulation, and several county governments have recently taken steps to promote local wine tourism. Officials in Santa Barbara County, somewhat outside traditional Wine Country, held a public meeting to discuss re-defining the commercial use of agricultural property to enable wineries to hold special events. Santa Clara County passed an ordinance making permits for wine tastings and other events easier to obtain. Sacramento County, in a bid to boost its wine industry, reformed its zoning laws to allow certain grape growers to manufacture wine on-site and to allow wineries to host public events.

Sources:

Direct Shipments and Internet Sales of Alcoholic Beverages (PDF file), California Department of Alcoholic Beverage Control, Form ABC-409, January 2011

Possible Anticompetitive Barriers to E-Commerce: Wine (PDF file), Federal Trade Commission, July 2003

© David C. Wells 2014