Should wineries in California, Oregon and other states be able to sell wines directly to Iowa retailers, bypassing wholesalers? Yes, according to a Sept. 30 federal court decision. U.S. District Judge Rebecca Goodgame Ebinger ruled it was unconstitutional for Iowa to allow in-state wineries to sell directly to Hawkeye State retailers while preventing out-of-state wineries from doing the same.
Like most states, Iowa allows out-of-state wineries (but not out-of-state retailers) to ship directly to Iowa consumers. But unlike many states, Iowa allows wineries to sell directly to in-state retailers—essentially letting them act as their own distributors—if those wineries hold a “class A” permit. But Iowa code doesn’t grant that permit to wineries without an in-state presence.
If you’re wondering, Iowa’s wineries produced about 335,500 gallons of wine in 2023—making it the 25th largest wine-producing state—according to a recent report from economic development consultant Fourth Economy. Per the same report, Iowa brought in about 4.4 million gallons of wine from out of state in the same year.
A Commerce Clause Case
As in similar cases, Buckel Family Wine v. Mosiman questioned whether a law violated the Dormant Commerce Clause of the U.S. Constitution, which prevents states from discriminating against interstate commerce. However, there’s an exception when it comes to alcohol: States can keep outwardly discriminatory laws if they’re needed for regulating alcohol sales—if a state can show that laws are needed for promoting temperance or maintaining an orderly market, then those laws don’t necessarily violate the Commerce Clause.
Colorado-based winery Buckel Family Wine, the plaintiff, claimed that Iowa’s law is discriminatory against out-of-state wineries. (Buckel is also a plaintiff in a case brought in 2023 challenging a similar law in California.) Iowa disagreed, arguing the law is necessary because state officials would be stretched too thin if they regulated both in-state and out-of-state wineries selling to retailers.
The Judge’s Decision
This didn’t convince the court. “Defendants, however, do not provide ‘concrete evidence’ to show that allowing out-of-state manufacturers to sell directly to retailers would prevent effective enforcement of Iowa’s laws,” stated Goodgame Ebinger’s decision.
Rather, the judge found Iowa isn’t even operating on an “unadulterated three-tier system,” in the first place. Because Iowa lets in-state producers be their own wholesalers, it “essentially creates a two-tier system” that allows in-state producers, and only in-state producers, to sidestep one level of the three-tier system. With that in mind—and rejecting the state’s other arguments—the court found that Iowa’s in-state premise requirement is not “an ‘essential feature’” of the three-tier system in the state. And if the law is discriminatory but not essential, then it isn’t constitutional.
“As the judge in the case pointed out, there is no evidence the state protects consumers when it discriminates against out-of-state producers,” said Tom Wark, executive director for the National Association of Wine Retailers (NAWR) trade organization (which is not involved in this case), via email. “The only protection that occurs is on behalf of wholesalers. Discrimination and protectionism took a blow with this decision.”
“It is hard making an argument about maintaining the three-tier system when the in-state winery is not even required to,” said attorney Sean O’Leary, who specializes in alcohol law cases but was also not involved in this case.
What Does This Mean for Wine Consumers?
“The potential effect for consumers is more choice,” explained O’Leary, noting that retailers also stand to benefit if the market becomes more accessible. “This will allow them to take a chance on small wines from outside of the state.” Wark…
Source : https://www.winespectator.com/articles/iowa-wine-shipping-ruling
