Alcohol retailers received significant support in their quest to sell products to out-of-state customers thanks to the recent Tennessee Wine & Spirits Retailers Association v. Thomas ruling. While this ruling was limited to Tennessee’s residency requirements for retail licensees, it offers a strong argument against other restrictive bev/alc rules.
Supreme Court Takes Action
At issue was a Tennessee law requiring anyone who applied for a wine or spirits package store license to be a resident of the state for two years before being eligible—and 10 additional years of residency for license renewal. A trade association for local retailers sued the state after it granted national retailer Total Wine a license without meeting these restrictions.
The Court struck down Tennessee’s residency requirements, writing that it “blatantly favors the state’s residents and has little relationship to public health and safety.” The court also noted that non-discrimination and anti-protectionist principles upheld in the 2005 Granholm v. Heald decision, which focused on wine producers, also applies to bev/alc retailers.
With this recent decision, laws in 20 states—including Illinois, Michigan, New Jersey, New York, Ohio, and Pennsylvania—may be subject to a challenge in court.
Progress Will Take Time
Though the ruling only applies to Tennessee’s residency requirement, it shifts the understanding of states’ power to regulate alcohol under the 21st Amendment. But even without this ruling, an expansion of direct-to-consumer (DTC) shipping of alcohol does not need to come from litigation. States may pursue the added revenue that increased bev/alc sales from DTC shipping can bring. Though changes won’t be quick, they could pave the way for a dramatic modernization of the bev/alc industry.
Lessons from the Granholm Decision
Based on the progress of the DTC market, which grew to $3 billion in 2018, here are a few changes bev/alc retailers can expect if this decision loosens DTC restrictions:
- A lengthy and involved rollout of new laws. Even 15 years after the Granholm decision, the DTC wine shipping market still has hold-out states and states that impose onerous restrictions on the market. As retailers and other industry members look to change the rules, they should expect to face the same barriers that wine producers have dealt with in their lobbying efforts.
- Cautious resistance from regulators and other industry players. The DTC shipping of wine, as it exists today, isn’t without its critics. Despite the efforts that have been made to create a legal and compliant DTC market, there remains more work to convince regulators and other industry players that supporting public health and safety and having a healthy DTC shipping market are not mutually exclusive.
- A potential for increased competition in the market. If restrictions loosen, there will be more market players, leading to greater competition. But in that more competitive environment, parties that have already taken the time to establish compliant shipping services will have the advantage. Complying with shipping rules brings extra challenges, so retailers should consider integrating technology to keep pace with complicated laws.
Time will tell if this decision expands the market for alcohol retailers, but these businesses can prepare by looking to the wine industry’s response to Granholm to take advantage of prospective changes.
Alex Koral is regulatory counsel for ShipCompliant by Sovos. He actively researches beverage alcohol regulations and market developments to continually improve Sovos’ ShipCompliant product and helps educate the industry on compliance issues. He has worked with the company since 2015, after receiving his J.D. from the University of Colorado Law School.