Virginia Fires Shot Over Direct Shippers’ Bow

By issuing a circular on July 22nd requiring Virginia direct shipper licensees to take orders and ship wine only from their own facilities using only their own employees, Virginia ABC fired a warning shot at direct shippers who were not reporting their shipments in a manner compliant with state requirements.  But stay calm, my guess is this rather extreme dictate will soften once reality comes back to the forefront.

Look at the situation.  Virginia’s direct shipment statute requires shipper licensees to ship to consumers using approved common carriers and to report to the ABC the carrier used.  Certainly not unreasonable, since tracking shipments seems a legitimate way to monitor illegal shipments into the Commonwealth.  Many wineries, particularly large ones in California, use third party logistics companies (3PL’s) to stage and fulfill both daily and wine club orders.  They are legitimate businesses providing a service more efficiently than wineries could do it themselves.  Even the recent California ABC advisory made it clear that such businesses operate legally.  While these 3PL’s provide reporting information to their winery clients, I’m guessing that some wineries were not properly reporting carrier information because they didn’t have it in front of them at the time the reports were due and Virginia ABC got tired of trying to follow up to get the information.

There are many legal issues involved, including the real possibility that the Virginia governing statute violates the Commerce Clause.  In Healy v. The Beer Institute (1989) the Supreme Court rejected the “extra-territorial” application of a Connecticut law that had the “effect of controlling commercial activity occurring wholly outside the boundary of the State” in violation of the Commerce Clause.  While certainly not a slam-dunk, you could make an argument that this application of Virginia’s law could be considered unconstitutional on the same grounds.

But aside from the legal considerations, the Virginia rule just doesn’t make good sense.  The obvious problem is that Virginia ABC’s response was to throw out the baby with the bath water.  Requiring all shipper licensees to ship from their own facilities will likely cause many wineries to simply not ship to Virginia.  It doesn’t make economic sense for wineries to change their entire shipping regime or carve out a more expensive exception to accommodate the requirements of one state, even the 9th largest consumption state.  There are no winners here.  Wineries lose customers, Virginia consumers lose access to many wines, and the Commonwealth of Virginia loses tax revenue at a time when most states can use all of the revenue they can get!

My hope and expectation is that Virginia will pull back from the requirements set out in the circular and recognize that wineries using 3PL’s are perfectly legitimate, as well as efficient, ways for wineries to get wine to Virginia consumers.  If not, it’s going to be a long, dry winter in the Commonwealth.