Direct Shipping Coming Soon to New Jersey?

New Jersey residents may be able to receive direct shipments of wine from out-of-state wineries as soon as this February. In a series of exclusive interviews, Wine Spectator has learned that local wineries are working with state legislators to craft a bill that would allow shipping by both in-state and out-of-state wineries.

The legislative scramble comes in the aftermath of a federal court ruling. This past December, the U.S. Court of Appeals for the Third Circuit handed down its ruling in Freeman v. Corzine, a case challenging the state’s ban on direct shipping. The court ruled that New Jersey’s laws do not violate the Constitution’s Commerce Clause, as neither in-state nor out-of-state wineries are currently permitted to ship wine directly to residents of New Jersey.

The U.S. Supreme Court’s Granholm v. Heald decision in 2005 ruled that states may not discriminate between in-state and out-of-state wineries. Since that time, 37 states have established laws permitting direct shipping of wine, but forbidding direct shipping from both in- and out-of-state wineries is also legal under the ruling.

The Third Circuit did, however, find fault with New Jersey’s laws regarding winery tasting rooms. New Jersey wineries are currently permitted to run up to six satellite tasting rooms where the wineries can make retail sales, as well as hand-deliver wine directly to restaurants and retailers, bypassing the three-tier system. The Dec. 17 ruling found that unconstitutional, stating that it discriminated against out-of-state wineries. Without an adequate remedy, the satellite tasting rooms will be shuttered.

Most of New Jersey’s nearly 40 wineries are located in remote rural areas and do not have distributors, making their offsite tasting rooms the lifeblood of the industry. Without them, the industry would “die in a heartbeat,” one New Jersey wine industry insider told Wine Spectator. “If we do not fix the outlet situation, we’ll lose the entire industry in the state of New Jersey,” said the source. “The agriculture implication would be massive. [Wine] is the fastest-growing agricultural commodity in the state, and we’re trying to preserve farmland.”

But a devastating ruling for New Jersey wineries may prove to be a good thing for state residents, forcing Trenton’s hand on long-hoped-for wine-shipping legislation. To save the satellite tasting rooms—and the New Jersey wine industry itself—members of the Garden State Wine Growers Association have banded together to propose a remedy: Legalize direct shipping. By permitting direct shipping, out-of-state wineries would theoretically no longer be put at a disadvantage by in-state wineries’ offsite tasting rooms, and in-state wineries in remote areas would be able to ship to customers across the state.

“The GSWGA has been working closely and diligently to solve the problem,” said the industry insider. “Open up the markets—we want everyone in New Jersey to have the ability to buy whatever wine they want. The opposition, of course, is the wholesalers, who can’t stand that.”

A direct shipping bill, SB766, passed easily in the state Senate in 2010, sponsored by Senate president Stephen Sweeney, but the state Assembly refused to vote on its companion bill three times. Now that so many of the state’s small wineries are threatened, the bill is expected to be fast-tracked as a remedy to the court ruling. The assembly is anticipated to hold a hearing on SB766's companion bill, AB1702, soon. Members of the GSWGA believe they have the necessary votes, and Gov. Chris Christie is expected to sign the bill into law soon after it passes.

“It’s the smaller wineries that are really driving this,” said Wine Spectator’s source. “Because what Christie doesn’t want to be responsible for is putting small [wineries] out of business—that would not look good for the governor, or any of the legislators, for that matter.” The governor also recently received a report that opening the state to direct shipping would bring in $5 million in sales and excise taxes for the state’s beleaguered budget.

As a concession to the state’s wholesalers, the legislation may include a limit on how much wine each resident can receive annually, likely to be capped at 10 cases.

Other sources disagreed with the idea of shipping as a solution, saying direct shipping would not mollify the judges who ruled the offsite tasting rooms illegal.

“When the district court opinion came down, we were stunned, frankly, and still are. We weren’t a party to the litigation,” said Scott Donnini, co-owner of Auburn Road Vineyards and Winery and a former attorney. “The only ones that wound up losing in this decision were New Jersey wineries."

“Shipping will not [solve the offsite problem] in and of itself,” said Donnini. “What this judgment says is that our only recourse to sell our wine is to enter the three-tier system.” Auburn Road expects to make about 3,000 cases of wine this year, and because of that, “the wholesalers have no interest in Auburn Road. If we’re forced into the three-tier system, you’re going to put 90 to 95 percent of the Jersey wineries immediately out of business, and the rest will follow closely. We’re a little terrified. Some of our sister wineries say, ‘Hey, there’s no way they’re going to let us all go down in flames.’ Really? I’d like to believe that, but I don’t see anyone scrambling to come to our defense.”

Louis Caracciolo, owner of Amalthea winery and president of the GSWGA, met with legislators at the state capital today and will meet with all 33 of the GSWGA members tomorrow. He said there was pressure today, mostly from wholesaler-interest groups, to abandon the shipping issue, but “our customers want it, and we want it—we took a stand on shipping, we’re with it, and we’re staying with it,” he said.

Donnini echoed that. “We’re supporting [direct shipping] because, one, as Americans, damn it, it’s the right thing, and secondly because the more people who drink wine, the better it is for everyone,” he said.

Maryland Comptroller Report Supports Direct Shipping

In Maryland, where hopes for direct-to-consumer wine shipping have long been slim, a report issued Dec. 21 has opened the door. A recent law, the Maryland Winery Modernization Act, required the state’s comptroller, Peter Franchot, to issue a report to the state’s General Assembly on “the viability and efficacy of instituting in Maryland the policy of permitting direct shipment of wine to consumers in the state.”

Franchot’s 250-plus-page report found that direct shipping from wineries to consumers posed no risks for the state, and the report was enthusiastically supported by wineries both within and outside Maryland. Addressing one of the most controversial claims by those opposed to direct shipping, that it would give minors easy access to alcohol, the report states, “There is no evidence that underage drinking has increased or decreased as a result of direct wine shipment. The reasons for this may be that wine is not the drink of choice for youth [and] direct shipment of wine is costly and time-consuming.”

“We’re seeing a potential light at the end of the Maryland tunnel here,” said Kirkland & Ellis attorney Tracy Genesen, who has been the lead attorney on many successful direct-shipping lawsuits. “With this new legislative analysis, they’ve really debunked all the arguments.”

The comptroller’s report did, however, distinguish winery direct shipping from retailer direct shipping. “Direct wine shipment by out-of-state wineries to Maryland consumers would not have an overall negative effect on in-state licensees, because purchases from wineries are primarily motivated by availability,” it reads. “Direct wine shipment by out-of-state retailers to Maryland consumers would have a negative effect on in-state licensees (retailers and distributors), because purchases from retailers are primarily motivated by price.” Retailers fighting for direct shipping rights strongly dispute that.