The Money Trail

Prohibition left a nasty little stain on the wine industry.

By Cameron Fries, White Heron Cellars

In 2004 we went to France to travel a bit with our son who had just finished a year as an exchange student.  We took eighteen bottles of wine with us as gifts for host families.  Also, when I am abroad, I like to taste the local wines and occasionally try one of mine to see how it fits in.  The French customs agent asked if we had anything to declare, and I replied, “Eighteen bottles of wine.”  He looked at me with incredulity and said “Surely you know we make wine in France!”

The point behind the story is not so much the amusing response, but that he then told us we were allowed to bring in eight bottles of wine per person.  France and Italy trade off as the world’s largest wine producers, and how wonderful is it that they allow people to bring in even more wine?  Compare that with the puny U.S. policy of allowing travelers abroad to bring in two liters per person, or 2.5 bottles of wine.

This attitude towards beverages containing alcohol is reflected in the myriad of state laws relating to wine.  After prohibition, the federal government allowed each state to regulate alcoholic beverages as their legislatures wished.  This means that there is an amazing variety of laws, varying from an almost laissez-faire attitude such as California’s to complete and total control as in Utah.  In the last year or two, Costco has made headlines by legally challenging some of these laws in Washington State.

Prohibition ended at the federal level in 1933.  Most states then enacted laws regarding the production, distribution and retail of wine.  Since organized crime had controlled all three of these elements, most state legislators wanted to prevent these criminal organizations from becoming legitimate businesses.  Thus the “three tier” system was created in which no business could be a producer, distributor, and retailer in one.

Washington State was no different, and this system still exists today.  Over the years, times have changed; but we still have odd laws that were put in place to prevent collusion between retailers and distributors (or producers and distributors).  Thus, for example, retailers are required to pay for wine upon receipt.  There is no payment due in thirty days when it comes to wine.  This is a law that no distributors wants to change as they are guaranteed payment.

But it does create the odd little wine festival dance.  When wineries arrive with their wine, the wine festival is obligated to give them a check for all their wine.  At the end of the evening, the wine is returned to the wineries, the original checks are returned to the festival organizers, and new checks are written for the wine actually sold.  As a famous lawyer once told me, “You can do anything you want, it’s just how you describe it.”

Many of Washington State’s laws pertaining to wine can only be understood if put in the context of prohibition.  For example, the Washington State legislature recently had to pass a law specifically allowing wineries and restaurants to advertise together to promote tourism.  Otherwise, a brochure that listed all the wineries and restaurants in an area would be considered collusion between two tiers, and therefore illegal.

If my math is correct, it has been seventy-five years since the end of prohibition.  Surely it is long past time to junk the current system.  Organized crime no longer has an interest in the wine business.  Illegal drugs are far more profitable.  Recently a commission was appointed to examine Washington State liquor laws and recommend changes.  They did so, but it seems to this curmudgeon that far more could have been done.

There are two reasons for liquor laws.  The first is to prevent underage drinking.  Do current laws such as the requirement that a bar be separated from the dining part of an establishment by a physical barrier (as simple as a brass pole) prevent underage drinking?  Of course not.  The second is to make sure the State receives all taxes.  However, I once read that politics can be best understood by following the money trail.  Thus we have to ask, who is profiting from and defending the current system?  The State profits from State liquor stores, but there are obviously other private vested interests that are quite happy with the current state of affairs.