An article in the July 7 Loudoun Extra misstated the legal status of direct wine sales to retailers in Virginia. A U.S. District Court ruling that such sales are unconstitutional is under appeal. A request for a stay, which would have allowed sales to continue while the appeal is considered, was denied. (Published 7/21/2005)
The tasting room at Breaux Vineyards is crowded on a Saturday afternoon in June. Customers are swirling Viognier or recommending chardonnays to newcomers at the counter.
Outside, the grapes are growing sweeter on the vine, which makes winemaker Paul Breaux optimistic about the coming season.
"It looks like it's going to be the best year we've ever seen for wine grapes in Virginia, at least in Loudoun County," Breaux said in a phone interview. He said that business is up 25 percent from last year and that after a decade of making wine, this is the first year he expects a profit.
The recent U.S. Supreme Court ruling in favor of Middleburg winemaker Juanita Swedenburg, which cleared the way for direct shipping of wine to eight new states, could only brighten his outlook.
But just as small winemakers are clearing one legislative hurdle to open markets, they are facing another.
In April, one month before the Supreme Court decision in the Swedenburg case, the U.S. District Court in Richmond said a law allowing Virginia's wineries to sell directly to restaurants or retailers was unconstitutional. The Virginia attorney general has appealed the ruling, and winemakers and wholesalers hope to hash out a solution in the 2006 General Assembly.
Winemakers are concerned that limits on their distribution rights could drastically affect their businesses.
"My opinion is that you'll see a large portion of the Virginia wineries vanish," said Lew Parker, vice president of the Virginia Wineries Association and the owner of Willowcroft Farm Vineyards in Leesburg, Loudoun's oldest winery. Parker said that of the 3,000 cases of wine he produces each year, 60 percent are sold at the winery and the rest directly to retailers. The direct sales are still permitted while the ruling is under appeal.
In the early 1980s, the Alcoholic Beverage Control Act in Virginia was amended, giving farm wineries the right to sell their wine to retailers. The law allows wineries whose wines are made with at least 51 percent of grapes grown on site or at least 75 percent of grapes grown in Virginia to circumvent the three-tier system set up after Prohibition that requires a wholesaler to bring wine to market.
Other states, including California, have passed similar laws to help their wine industries. In Virginia, the approach has worked, and there are now more than 100 wineries, Parker said. There are 11 in Loudoun County.
As many as 800,000 people visit Virginia's wine-tasting rooms per year, Parker said, and it is an important part of the state's tourism industry.
Parker said that in Maryland, which does not have such a law, there are 16 wineries.
The district court ruled that it was discriminatory for Virginia wineries to enjoy such privileges when out-of-state wineries do not. The court said the law challenges the commerce clause of the U.S. Constitution, intended to level the playing field among states.
The Supreme Court used the same principle in May to strike down the direct shipping laws in Michigan and New York, which favored in-state wineries by allowing them to ship to consumers while banning shipments from other states.
A separate lawsuit challenged Virginia's direct shipping laws in 1999, leading the legislature to change the state law in 2003. Rather than settling the suit at that point, the plaintiffs expanded the case to challenge all Virginia laws that favored in-state wineries, including the right of farm wineries to wholesale their wine.
So now the winemakers are looking for a new solution.
Parker is drafting proposals. The challenge is to come up with a plan to protect farm winery owners and comply with the commerce clause.
Parker said he sees the process as a fight with wholesalers "who want every drop of wine to pass through their hands."
A representative of the wine wholesalers disagreed.
"Nobody that I know wants to see Virginia wineries crash and burn," said lawyer Walter A. Marston Jr., a partner at Reed Smith in Richmond who represents the Virginia Wine Wholesalers Association. He said that wineries, wholesalers, the Virginia Department of Alcoholic Beverage Control, and retailers and consumers will all have to come together to draft a compromise.
"My hunch is that most of the truly small wineries probably can't exist without some ability to self-distribute," Marston said.
He suggested there might be a way to protect some of the smallest wineries through direct distribution, but he also encouraged more cooperation between mid-size wineries and wholesalers.
Another option is to open up the gates for all out-of-state wineries to sell directly to retailers. "If you have an in-state privilege, you need an out-of-state privilege," said Tracey Genesen, legal director of the Coalition for Free Trade, a nonprofit group organized to legalize direct-to-consumer shipment of wine in states where it is prohibited.
So far, Genesen said, there is no consensus in the wine industry on what model legislation should look like. Parker said other states will be watching what happens in Virginia's legislature.
"It's going to be precedent setting," he said.