Wine Without Borders

Unintended Consequences

June 2, 2008 – 10:01 am

Maybe the motto should be: “Cogitate before you legislate”.

This is the lesson that a number of people might want to take away from bad direct shipping legislation in California and Illinois that brought with it unintended consequences.

ILLINOIS RETAILERS
In the case of Illinois, that state’s recent ban on out of state retailers being able to ship to Illinois residents has the unintended consequence of preventing Illinois’ own retailers from being able to ship into Missouri and California.

Missouri has a reciprocity law in place for retailers that explains if another state allows MO’s wine retailers to ship in, MO will allow that state’s retailers to ship wine direct to consumers in MO. Now that Illinois has banned out-of-state retailers from shipping to Illinois residents, the reciprocal arrangement the two states had shared up until June 1st is no longer in existence. The Illinois legislature just cut off its own retailers from a lucrative neighboring market.

Illinois retailers will face the same fate with regard to CA come January 1, 2009. That’s the date when an agreement between the CA Attorney General and litigants in a lawsuit will no longer be in force. The agreement had the California ABC NOT enforcing a ban on shipping into the state by out-of-state retailers through 2008. The CA ban was put into effect with the passage of California Senate Bill 118 passed in 2005. The law kept reciprocity in place for retail sales. Like in Missouri, Illinois’ ban on out-of-state retailers shipping into the state will lead to Illinois retailers being completely shut out of the CA market.

 CALIFORNIA WINEMAKERS SHUT OUT OF IL
Then there is the issue of CA winemakers being prohibited from shipping into Illinois. Illinois’ new anti-retailer shipping bill provides that only those winemakers in other states licensed to “produce” wine are eligible for the state’s new wine shipping permit. The intention of this bill was to protect Illinois wholesalers as much as possible from competition while not prohibiting its own wineries from shipping wine direct. In order to allow its own Illinois wineries to ship wine to Illinois resident, the state must give the same privilege to out-of-state wineries. There was no way Illinois wholesalers would make a stand against its own in-state wineries so they exacted a price for their support: ban retailers from shipping into Illinois even though they had been allowed to for 15 years.

However, it turns out that hundreds of CA winemakers don’t have a license to produce wine. That is, they don’t hold a “Type 02″ producers licenses. Rather, their wine is produced at an off-site facility and these “virtual wineries” receive “Type 17″ and “Type 20″ licenses. These licenses are essentially licenses to retail and distribute wine. They are the same combination of licenses that many Internet retailers and brick and mortar retailers receive. As a result of not having the “Type 02″ license, these winemakers will be shut out from the Illinois shipping market because they are not eligible for the new Illinois Wine Shipping License.

RETALIATORY CONSEQUENCES
Finally, there is the unintended consequence of retaliation. When California was in the process of banning out of state retailers from shipping into the state via SB 118 in 2005, legislators and others were told that other states would retaliate by passing laws that banned CA’s own substantial number of retailers from shipping into their states. During the debate over the Illinois anti-shipping legislation, HB 429, legislators and advocates of the ban brought up the fact that, “Well, doesn’t California ban out-of-state retailers from shipping into their state?!?”

California’s own legislators and those who backed the bill that banned out-of-state retailers from shipping into the state effectively played a key role in seeing millions of dollars in wine sales lost from California’s fine wine retailers and hundreds of its winemakers.

The Lesson: There are unintended consequences to poorly written, poorly thought-out and discriminatory laws.