I’ve spent a while now going through the text, and I don’t think Delaware residents are going to be getting wine shipped to their homes any time soon. The statute is fundamentally flawed.

What the law says

Signed August 15, 2025. Effective August 15, 2026. Expires August 15, 2030.

Who can ship

You have to be a Delaware farm winery under §512A, or an out-of-state producer the Commissioner decides would qualify under §512A if it were sitting in Delaware. A farm winery grows its own fruit and ferments on site. So if you buy grapes, you’re out, and that’s most of the industry. Négociants, custom crush clients, urban wineries, all out. Farm wineries also can’t be affiliated with an importer or a retailer, and retailers can’t ship at all.

Volume

Three nine-liter cases per household per year. Look at the unit there. Household means address, not adult, and in-state retailers have no limit of any kind. On top of that, no shipper can send more than 1,800 cases into the state in a year. Go over the limit and the Commissioner cancels your license, at which point you can apply for a supplier license and join the three-tier system, which is presumably the idea. Except that doesn’t work either, because no distributor is picking up a producer on the strength of 1,800 cases.

The wholesaler clause

You can’t ship if a licensed Delaware importer or wholesaler already represents you. The definition runs wider than that, too. It covers any winery that is a subsidiary of a larger manufacturer or supplier listed in the importer/wholesaler’s current price publication designated by the Commissioner. That’s Delaware’s version of price posting, and it works differently from most states. Rather than a schedule filed with the regulator, Rule 904 defines it as a single trade publication that a majority of the licensed wholesalers agree to use, covering prices, post-offs and quantity discounts offered to Delaware retailers. So the disqualifying test isn’t whether you have a Delaware distributor. It’s whether your corporate parent’s brands appear in the price book that Delaware retailers order from.

Fees

$400 biennial if you ship up to 200 cases a year, $3,600 biennial above that. Common carriers pay $500 biennial.

Delivery

Adult signature, 21 or older, package labeled CONTAINS ALCOHOL. The driver has to scan and keep a copy of the recipient’s ID. Drivers and contractors have to complete age verification training approved by the Delaware Commissioner. A driver who fails to ask for ID faces a fine of $250 to $500 on a first offense and up to ten days in jail if they don’t pay it. Carriers face fines up to $5,000 and can lose the license after three violations.

Reporting

Monthly filings to both the Commissioner and the Division of Alcohol and Tobacco Enforcement, covering volume, purchaser names and addresses, tracking numbers, and the carrier’s name and license number. Excise tax monthly. Consent to Delaware jurisdiction and to an audit whenever they want one. In-state retailers file none of this.

The carriers said no

Nothing ships without a licensed common carrier, and so far the carriers have said no to this legislation as too onerous and with serious privacy concerns.

Two provisions are the main issue for them. One, Delaware wants to be the agency that trains delivery drivers, which is a strange thing to insist on when every other state has managed to get drivers doing the right thing without running the training program itself. Two, Delaware wants carriers to photograph customer IDs and hold onto them, which is a data retention problem rather than an age verification one. The state exempted itself from its own public records law to cover that data, which tells you it understands the exposure. FedEx and UPS don’t get to write themselves a similar exemption, and their customers would have opinions about it either way.

So, Delaware has a law, a licensing system opening sometime this fall, and no lawful way to move a bottle.

What are we, as an industry, actually trying to accomplish here

Years ago, we started using a shorthand for what a state is actually trying to solve when it writes direct shipping rules, and we still use it. ALTA: Age verification, Licensing and compliance, Tax calculation and collection, and Auditability, meaning a system that tracks a delivery from start to finish and leaves a complete trail behind it.

Health and safety usually shows up as a fifth item in the legislative language, and it belongs under the first one. The safety question in shipping alcohol is whether a minor ends up with the bottle, and age verification is how you answer it.

Four provisions in the Delaware law do this work: adult signature on delivery, the license itself, tax reporting and remittance, and the carrier tracking that comes standard with every package. Everything else in the new law fails all four tests. It doesn’t improve age verification, licensing, tax collection, or auditability. It just protects the wholesale channel.

Start with the volume limits. The three-case household cap doesn’t’ touch age verification, licensing or tax. It just reduces the tax the state collects and creates a monitoring job the state didn’t previously have. Retailers don’t track how much a household buys in a year, because there is no reason to. The 1,800-case ceiling works the same way from the other direction: it’s a volume cap protecting wholesale throughput, and a winery successful enough to hit it gets pushed into a system that has never done much for producers at that scale.

The wholesaler representation ban has nothing to do with age, licensing, tax , or auditing either. It reserves every brand a Delaware wholesaler touches, and every sibling brand under the same parent company, for the wholesale channel. That is channel protectionism, not compliance.

The estate fruit requirement sorts producers by farming practice rather than by whether they can comply with anything. On its own, it eliminates most potential applicants.

The $3,600 fee is the highest direct shipping license fee in the country and it’s attached to the smallest state.

Then there’s the auditability argument, which Delaware gets backwards. The monthly filing of purchaser names and home addresses is the state reaching for a paper trail it already has. FedEx and UPS built tracking and labeling systems that follow a package from a warehouse to doorstep, including the ones that come back damaged or never arrive, because the DTC industry needed them. That is better information than a spreadsheet filed thirty days after the fact, and it doesn’t require handing the state a list of who drinks what and where they live. There’s some irony in it. The auditability Delaware says it wants is delivered by the two companies its own rules have just chased out of the state.

The ID scanning requirement rests on a premise that isn’t true, and we have the numbers to show it. Vinoshipper published a white paper on this in 2023. Across more than a million shipments and 633,985 registered buyers between 2020 and 2022, electronic pre-purchase age verification blocked every single underage attempt. Compliance was 100%. Minors made up 0.15% of buyers, fewer than one attempt a day across more than two thousand storefronts. It costs about fifty cents per buyer, one time.

Compare that to how alcohol is sold in physical stores. In the 2021 SAMHSA reports, brick and mortar retailers averaged 89.6% compliance nationally. Delaware finished last in the country at 63.9%. The state with the worst record in America for selling alcohol to minors in person has concluded that the thing to fix is the common carrier, and it hasn’t asked its own retailers to run the electronic verification that has never let one through. The carrier training requirement, for what it’s worth, is duplicative for companies already running compliant programs in 48 other states and the District of Columbia.

How it got this way

My assumption, going into the history of the bill, was that the original proposal would have been a common sense one. Delaware had plenty of successful examples in other states to look at. That turned out to be a bad assumption.

HB 187 was introduced on June 5, 2025 by Rep. Michael Smith, with Rep. Jeffrey Spiegelman and Sen. Brian Pettyjohn. The bill had the $3,600 tier, the 1,800-case ceiling, the wholesaler ban including subsidiary brands, the ID scanning and the three-case household limit. None of that was added later. Smith told the committee he’d worked with the distributors, the Teamsters, the unions and the Commissioner’s office to reach a compromise, and that compromise is listed above. The later versions only made it worse, adding the estate fruit requirement, monthly reporting, the carrier training, the one-year delay and the sunset. It was filed on June 27, amended on the June 30, and passed after midnight on the last night of the session. Both chambers, unanimously.

The objections came from the National Association of Wine Retailers, where Tom Wark called it “one of the worst, most exclusionary, and most anti-consumer” shipping bill in decades; from Wine Institute, whose amendments were ignored; from Free the Grapes, which still lists Delaware as effectively closed; and from UPS and FedEx, who asked for the ID scanning and the training requirement to come out and were turned down.

The wholesalers and retailers who had killed every previous version of this bill went neutral on this one. I don’t think that’s a coincidence, and I don’t think it’s because they had a change of heart about direct shipping. They knew going in that it was dead on arrival for the producers and consumers who wanted more choice.

Since it passed, the ABC Commissioner has gone to Wine Institute’s Delaware lobbyist for help writing the implementing rules, and Wine Institute said yes. The organization that opposed the statute is now advising the regulators on how far its language can be stretched. Given Wine Institute’s recent record, I’d question whether they’re the right people to have in that seat. The state could have called Sovos ShipCompliant, or Vinoshipper, or any other compliance company that deals with these rules every day and could have shown them how the rest of the country functions.

We already know what good looks like

None of this needed to be invented. The National Direct Shipping Bill of Rights takes the 1997 model language and brings it up to date, and three of its provisions would fix most of what’s wrong in Delaware.

A direct shipper’s quantity limit should be whatever a retailer in that state is allowed to sell a walk-in customer. Anyone licensed to sell alcohol for off-premise consumption should be able to ship it. And reporting should be quarterly, covering order numbers, volume and tracking numbers, with the customer’s personal details kept by the seller instead of filed with the state every month. The tracking numbers are the audit trail. A state that wants to follow a shipment can follow it.

Every one of those rules is already operating successfully in one state or another in the United States.

Where this leaves us

Delaware has a law nobody can use, because nobody wants to play in the sandpit on these terms.

Grant the four provisions that serve the public interest, adult signature, licensing, tax remittance, and carrier tracking, and what’s left is protection for wholesalers, retailers, and union drivers who have been told direct shipping costs them jobs. It doesn’t. Ask the people who worked at RNDC how much the wholesale tier cared about their jobs, and look what happened to carrier volume in every state that has opened up to DTC.

The wine is going to reach Delaware consumers anyway, the way it does now: through a friend in Maryland and a car trip. The state has just decided not to collect the tax on it.

Good luck selling in Delaware. And if you’re a consumer in Delaware, let your legislator know how they failed you.

ALTA and the National Direct Shipping Bill of Rights are both Vinoshipper frameworks, and the age verification figures come from a Vinoshipper white paper. I run Vinoshipper. All of it is public, and the SAMHSA numbers are the government’s own.

Rather than send a letter by mail, I think Substack is the best place for the discussion, because I’d rather have this conversation in the open, with transparency, with you and with anyone else who ships wine, sells wine, or just wants to buy the bottle they actually want. The topic is direct sales of wine, and for that matter, any product in the beverage alcohol space.

Tennessee is a genuinely lovely place. Great barbecue, great music, fireflies in the summer, and great people. I am stating this first because nothing below is an attack on the state itself. It’s an open discussion on one piece of state policy that doesn’t hold up to scrutiny and common sense, and I believe you’re in a position to influence and fix it.

Let’s start with what everyone actually agrees is needed to operate safely in the beverage alcohol industry. When it comes to direct-to-consumer shipping, the state’s goals are simple:

1. No sales to minors

2. Sellers must be licensed

3. Taxes get collected and reported

4. Protect the health and safety of citizens

That's it, and none of it is hard. Worth noting upfront: goal four folds into goal one. Keeping wine out of the hands of minors is the health and safety concern here.

A handful of straightforward rules can satisfy all four:

• Require adult signature on delivery

• Require a state shipping license

• Require regular tax reporting and remittance

This is easy to comply with and meets the actual goals legislators and their constituents care about. In other states around the country that keep it this simple, these three rules already cover all four stated goals.

So, what are the additional obstacles trying to protect?

Tennessee doesn’t stop at those four things. It layers on a set of rules that add cost and friction without moving the needle on minors, licensing, tax collection, or health and safety. It’s worth asking, line by line, what public benefit they actually produce.

Quantity limits. Tennessee currently caps direct shipments at one case per month and three cases per year per adult consumer (six for smaller wineries producing under 30,000 cases annually). How does a case limit stop sales to minors? It doesn’t touch licensing. It doesn’t affect tax collection either; if anything, a lower limit means less tax collected, not more. And it does nothing for health and safety, since the wine still ends up in the same adult hands, just spread across more months. The only thing a quantity cap protects is the volume of business that flows through the wholesale tier instead of direct to the consumer.

Fulfillment house licensing. Since 2022, fulfillment facilities have had to be separately licensed by the state before they can handle a winery’s shipments. This is a redundant burden. The mechanism to track and verify shipments already exists through the winery’s own direct shipper license and reporting requirements. Adding a second license for the warehouse that packs the box doesn’t catch a single additional sale to a minor, doesn’t make the product any safer, and doesn’t collect a dime more in tax. It just adds another gate a winery has to pay to pass through.

Worldwide exclusive brand ownership. Tennessee only allows a winery to ship wine that it produces, that is produced for it under contract, and for which it exclusively owns the brand. Ask yourself what that has to do with keeping wine out of the hands of minors, keeping sellers licensed, getting taxes paid, or protecting anyone’s health and safety. Nothing, on all four counts. It has everything to do with narrowing who’s allowed to ship and keeping that business inside a controlled lane.

State-level COLA registration. Requiring wineries to separately register federal label approvals (COLAs) with the state adds a paperwork step and a cost, for zero verification value. The TTB already manages this at the federal level, including the safety and labeling review that actually protects consumers. Tennessee re-doing that work doesn’t make a bottle safer, a seller more licensed, or a tax dollar more collectable. It just makes the state a second toll booth on a road the federal government already built. Honestly, those reviewing it often don’t know what they’re looking at or what it’s actually telling them.

The real cost of all this

Governor, the impact of these rules doesn’t stop at the Tennessee border. It impacts domestic Tennessee businesses for sure, but it also hits wineries and shippers nationwide who want to do business with Tennessee residents and can’t justify the falsely inflated compliance overhead to reach the consumers in your market. Most of all, it hits your constituents: the consumers who have fewer choices and less access to the products they want from the sellers they’d choose, because the rules were written to protect a distribution toll-taking tier rather than help those consumers.

I think if you cared for the agricultural business and consumers in your state, you would take a close look and see if you are supporting a system that protects a single sales channel: the wholesale tier, which doesn’t need protection. The rules that you currently support are not producer or consumer friendly. The wholesale tier directly restricts consumer choice: wholesalers can’t offer retailers in the state the wide range of products that’s actually available around the country, so consumers suffer, and the state’s rules prop up that structure.

An additional item worth considering: Tennessee’s old three-tier system, built under the powers granted by the 21st Amendment, effectively ended the moment the state opened the door to direct shipping. Once that door opened, the three-tier system stopped being “the system” and became one of three parallel sales channels: wholesale, retail, and direct. You can’t defend the old model’s exclusivity while simultaneously operating a system that competes with it. You should continue opening all lanes, and let the one that serves consumers best win on its merits. What you are likely to find is all three can work harmoniously together, as they do in other states.

None of this costs the state anything to fix. Keep the three rules that actually do the job (signature on delivery, a state license, tax reporting), cut the rest, and hold every future rule to the same four-part test: does it stop sales to minors, does it ensure licensing, does it ensure tax collection, does it protect health and safety. Anything that fails all four isn’t policy, it’s protection for one industry player at the expense of everyone else. Applying that test would take Tennessee from one of the more difficult states to ship wine into to one of the more straightforward ones, without giving up a single goal the legislature claims to care about.

The TABC needs to become friendlier to business so the residents who want the freedom to choose their products can. It is easy to do, providing they are not left to interpret the rules in a biased fashion to protect a single sales channel.

If you or your staff want help talking through what a simplified system, one that would lower operating costs and increase state tax income, would look like in practice, let me know. I’m very happy to help. This isn’t a complicated fix.

Respectfully,

Steven

The Wine Institute has done genuinely useful work for the California wine industry. Its international market development programs have opened doors for California wine in markets where individual producers could never afford to operate alone. Its regulatory guidance and compliance resources are very helpful to all. Its brand stewardship of California wine abroad has value, and their latest work to get us all back into Canada. These are great initiatives and matter because these are the industry’s interests at the core of these items.

But if you dig a little deeper, you can start to see who’s likely behind the push for these programs. And when you look at the legislation that they don’t support, the story that is untold, that idea starts to become even clearer.

Let me note, that being “genuinely useful” and “representing the industry’s best interest” do not always go hand in hand.

When looking closer, you do find in each case, Wine Institute’s public advocacy has aligned with the commercial interests of its largest members, particularly E. & J. Gallo Winery, where other smaller members, such as the growers, small producers, and independent vintners absorbed the costs. Two recent legislative items, California’s bottle bill expansion and the current battle over the “American” wine designation, show this very clearly.

The Bottle Bill Reversal: Why 2022 Was Different

For years, the Wine Institute opposed expanding California’s Container Redemption Value (CRV) program to wine and spirits bottles. The Bottle Bill, which creates consumer deposits on beverage containers redeemable at collection points, has covered beer, soda, water, and juice for decades. Wine was carved out. Wine Institute worked to keep it that way.

In 2022, something changed. Senate Bill 1013, authored by Senate President pro Temp Toni Atkins, proposed bringing wine and spirits containers into the CRV system. Wine Institute all of a sudden became, in its own characterization, a key supporter.

The public explanation was that previous proposals had been operationally difficult and cost-prohibitive, but that SB 1013 represented a workable path. Tim Schmelzer, Wine Institute’s Vice President of California State Relations, described it as “the most cost-effective and viable path for wine producers and consumers to positively impact California’s circular economy.” Interesting positioning all of a sudden.

What changed? Two things, both significant.

First, the bill included a tasting room exemption and special provisions for alternative packaging formats like pouches and bag-in-box, accommodations that addressed the operational concerns of smaller, direct-to-consumer producers, although in hindsight has created great confusion amongst those impacted.

Second, and the most telling as to the changed position: the bill’s late amendments loaded it with financial provisions that consumer advocacy groups immediately flagged as corporate giveaways. The amendments directed nearly $400 million in consumer CRV funds, deposits left unredeemed by consumers, toward industry beneficiaries who, by the advocates’ analysis, didn’t need them. The Container Recycling Institute, which had originally supported SB 1013, withdrew its support after those amendments were introduced.

Where Were the Unredeemed Funds Going to Go?

The financial provisions embedded in SB 1013 explain a lot.

The bill authorized CalRecycle to spend up to $60 million annually, drawn from the CRV surplus that had grown to more than $635 million from unredeemed consumer deposits sitting in state accounts. The provisions also included $30 million in glass “quality incentive payments” through fiscal year 2027-28, which critics noted did not actually improve glass quality but effectively subsidized glass processors by reducing their costs. They also included $45 million in grants through 2027-28 to expand glass cullet processing capacity in California.

What is cullet processing? It is the term for recycled glass processed to furnace-ready specifications, the raw material that glass manufacturers use in place of virgin sand and other ingredients to make new bottles.

The largest glass manufacturing plant in California, and by most measures in the country, is Gallo Glass Company, located in Modesto. By the company’s own account, it is California’s largest single-site consumer of recycled glass, purchasing more than 20 percent of all glass recycled in the state and processing nearly 175,000 tons of cullet annually to produce approximately two million bottles per day. A dedicated processing plant located four miles from the Gallo Glass facility handles 150,000 tons of recycled glass per year to supply cullet to the furnaces.

CalRecycle documents confirm that Gallo received grant funding to install a recycling line specifically to produce glass cullet for wine bottles before SB 1013 passed. The new provisions created a much larger, sustained funding stream for exactly that activity.

The people who first noticed this were not micro-observers. Consumer Watchdog stated plainly: “Facilities have already been built for this purpose, including by Gallo, and consumers’ CRV deposits shouldn’t underwrite enormously profitable companies such as Gallo to do it.” The Container Recycling Institute’s analysis similarly found that the grants and incentive payments served manufacturers and large recyclers rather than the redemption infrastructure consumers needed to actually claim their deposits back.

It would be one thing if this were a coincidence of interest, a bill that happened to benefit Gallo while serving broader industry purposes. But Gallo is not simply Wine Institute’s largest member. Matt Gallo was elected Wine Institute Chairman for 2024-25. The Gallo family has cycled through Wine Institute leadership positions across decades. This is not an organization where Gallo happens to be a significant presence. It is, in meaningful respects, an organization that Gallo leads.

Lastly, the support flip flop gave no thought to the massive burden the new CRV rules created not only for California producers, but those around the country and internationally as well. It was a very self-centered change and put money in the pockets of the largest producers, while increasing the operating costs of everyone else.

The American Wine Question

AB 1585 was a straightforward bill. Under existing federal rules, a wine labeled “American” can legally contain up to 25 percent imported bulk wine, shipped in bulk from foreign producers, blended into domestic product, and sold under a label that most consumers reasonably interpret as domestic. The United States is the only major wine-producing country in the world that allows this. French wine must come from France. Italian wine from Italy. Australian wine from Australia.

AB 1585 would have required that wine sold in California bearing the “American” appellation be made from 100 percent American-grown grapes. It did not restrict blending. It did not ban imports. It simply required that the label reflect the contents. Why would anyone object to this?

The bill passed the California Assembly 67 to 0, not a single no vote. Then it went to the Senate, where its first committee hearing was quietly canceled at the author’s own request as industry lobbying intensified. The bill is dead for this session. The bottle on the shelf is unchanged. I covered this in detail here.

The bill was co-sponsored by the California Association of Winegrape Growers and Family Winemakers of California, organizations whose legal precedents Wine Institute has not hesitated to cite favorably in other contexts when it suited their argument, though the two are squarely on opposite sides here. The bill was endorsed by more than 17 regional wine associations. Thousands of growers and independent producers supported it. The argument is not complicated: between 2003 and 2022, bulk wine imports surged from essentially zero to 400,000 tons per year. In 2025 alone, bulk imports increased 19 percent, adding roughly 45 million gallons to the market. Vineyards are being removed across California because there is insufficient demand for domestic grapes, and a significant portion of that demand destruction is attributable to large producers substituting cheaper imported juice.

Wine Institute opposed the bill.

Its stated objection was that changing the American appellation standard would create compliance burdens, harm entry-level wines, and restrict supply flexibility. In a fact sheet circulated to legislators, the association argued that data doesn’t support the claim that American appellation rules increase imports, a position the Lodi Winegrape Commission and others have pushed back on directly, showing that import surges track grape price increases with visible consistency.

What Wine Institute’s opposition protects is the ability of its largest members to blend imported bulk wine into products sold under an American label when it is economically advantageous to do so. The same association that spent years advocating for consumer trust in California wine’s brand and quality declined to extend that logic to origin labeling, where the consumer trust stakes are arguably higher than anywhere else.

The “cost stabilization” argument, in plain terms, is an argument for preserving a financial advantage for large producers at the expense of domestic growers and the consumers who believe they are buying American wine.

Who Else Is at the Table

Wine Institute is not the only organization working on behalf of California wine and wine producers. For members of the industry, particularly smaller producers, independent wineries, and growers, it is worth knowing who else is in the room.

Family Winemakers of California represents small and medium-sized wineries with a demonstrated focus on direct-to-consumer access, three-tier reform, and labeling integrity. They co-sponsored AB 1585 and have a track record of prioritizing producer independence over the interests of large commercial wineries.

California Association of Winegrape Growers (CAWG) is the primary voice for growers in the state, and the other co-sponsor of AB 1585. On the issues that most directly affect vineyard economics, bulk imports, domestic demand, and fair pricing, CAWG’s advocacy has been consistent and grower-forward.

Micro Winery Guild focuses specifically on the smallest producers, limited-production, estate-scale operations whose regulatory and commercial challenges are fundamentally different from those of a company producing millions of cases annually.

These organizations do not have Wine Institute’s resources, and in some areas, international market development and federal regulatory engagement, that matters. I am not suggesting ignoring what Wine Institute offers. But on the questions that define the economic future for growers, small producers, and anyone who cares whether “American Wine” means something, the interests of those organizations and the interests Wine Institute has most consistently served are not the same interests.

A Simple Question

Trade associations exist to represent their members. That is the stated purpose and the legal structure. The question is not whether Wine Institute represents members. It is which members’ interests dominate when those interests diverge.

The CRV fight in California directed hundreds of millions in consumer funds toward glass infrastructure owned by the association’s most powerful family. The opposition to AB 1585 protected the ability to sell foreign wine under an American label, against the explicit wishes of most of the state’s growers and a broad coalition of its independent producers. In both cases, the winners are the same, and so are the losers.

Transparency is not a radical ask. Industry members who are paying dues and relying on association advocacy to represent their interests deserve to know whose interests are actually being served. The organizations listed above are doing that work. So are the growers and independent wineries who put their names on AB 1585 despite knowing exactly who would be on the other side.

The question of who speaks for California and US wine is one the industry should be asking out loud.

Last month, California’s Assembly tried to fix this. Assembly Bill 1585 would have required that any wine sold or bottled in California under the “American” appellation be made from 100% American-grown grapes, closing the gap between what the word says and what the bottle contains. It passed the Assembly 67 to 0. Not a single no vote. Then it went to the Senate, where its first committee hearing was quietly canceled at the author’s own request as industry lobbying intensified. The bill is dead for this session. The bottle on the shelf is unchanged.

I wanted to take a look at why this happened, because the answer is not just about wine labels. It’s about a pattern that runs through the entire US beverage alcohol business, and once you see it, you cannot unsee it. You cannot talk about one element individually; you have to step back and put the pieces together to get the true story. That story is this: in our industry, the language of protecting the consumer and the small producer is most often deployed through the voice of the largest players to defend the very arrangements that entrench and protect them. And the tell, every single time, is a sleight of hand between number and size and unfortunately our legislators swallow this hook, line and sinker.

Here is how you bring it all together.

“Very Few Winemakers”

When AB 1585 reached the Senate, the bill’s main opponent was the California Wine Institute, the trade association that represents less than a thousand California wineries. Its Vice President of California State Relations, Tim Schmelzer, gave KQED the case against the bill. It is worth quoting in full, because it is a small masterpiece of misdirection:

“Very few winemakers actually make this so-called American wine appellation, but the idea of allowing for that flexibility is to allow those that do, to deal with the ups-and-downs of agriculture. And also to be able to make wine that customers demand.”

Read it again. There are three misdirects in two sentences.

The first one is very few winemakers. This is true, and it is the heart of the trick. By counting wineries, Schmelzer makes the practice sound marginal, a handful of operators. Why upend a federal standard for them? But the wine behind the American appellation isn’t estate wine, it’s bulk juice traded by the gallon, and the ‘very few’ who use the designation are volume bottlers, not boutiques. They are among the largest wine companies in the country. Few producers produce most of the wine. When you measure by volume instead of by winery count, the marginal practice becomes a dominant one, and the bill stops looking like a niche fix and starts looking like what it is: a constraint on the biggest players in the state.

The second move is the ups-and-downs of agriculture. This dresses the loophole in the work clothes of the struggling farmer, droughts, short harvests, and the natural variability of growing things as a farmer. It is a sympathetic image. It is also backwards, and the people who farm said so quite clearly. There is no shortage of American fruit right now. There is an excess. Growers are leaving grapes to rot on the vine. Craig Ledbetter, who farms near Lodi, told KQED his family has pulled out about a third of their vineyard acreage for lack of demand, and that he has clients who have torn out nearly all of theirs, leaving the ground fallow. The “ups-and-downs of agriculture” are not why these companies import bulk wine. They import it because it is a lot cheaper. As Natalie Collins of the California Association of Winegrape Growers put it, if a winery wants to put a varietal on its label, “there’s an easy fix”, source the grapes from California, where the fruit is sitting unsold.

The third move is wine that customers demand. This is the consumer-welfare stance, and it is the boldest of the three, because the entire bill exists to give consumers information they are currently denied. A shopper cannot demand transparency they do not know they lack. The “demand” being served here is the demand for cheap input costs, which belongs to the producer, not the customer.

None of this is unusual. It is par for the course. The California Wine Institute’s broader message on the bill was that “California wine is facing a demand crisis, not a labeling crisis”, a clean piece of redirection that treats two true things as if they cancel each other out. The demand crisis is real. I would agree, but the existence of a demand crisis is not an argument for keeping a misleading label. If anything, it is an argument for restoring trust in the one that consumers already reach for.

Follow the Refund

Here is the part of the story that the labeling debate mostly left out, and it is the part that explains everything else.

The federal government charges import duties on foreign wine. There is a program called duty drawback that was designed to refund those duties when a company exports a comparable product in return. The loophole is this: the exported product does not have to be related to the imported product. Bring in bulk wine from Australia, export something else entirely different, and you still recover 99% of the duties on the Australian wine. The two transactions just need to exist in the same company’s books. The largest wine companies are using a refund program, never designed for this purpose, to subsidize the cost of replacing domestic grapes with cheaper foreign ones.

If you run the numbers the way the growers at the Lodi Winegrape Commission have, Australian bulk wine, the most imported into the US, lands at around $2.65/gallon, and the duty drawback can return roughly $1.06 of that on every gallon, as a refund of 99% of the federal excise. On wine that already arrived cheaper than almost anything a California grower can profitably produce. The program does not merely permit importing foreign bulk wine over buying domestic grapes; it tilts the math toward doing it.

The volumes involved are massive. In the first half of 2025, bulk wine imports rose 17% to more than 25 million gallons, the equivalent of about 150,000 tons. Over five years, the equivalent of 1.7 million tons. The Lodi commission estimates that translates to over $28 billion in lost economic activity inside California.

Now connect the stories. The duty drawback loophole creates the financial incentive to bring in cheap foreign bulk wine. The 75 percent federal labeling rule lets that wine be blended into a product sold to Americans as “American.” AB 1585 tried to close the labeling deception here in California as a start, federal rules need fixing next. The same companies sit at both sides of the table, collecting the refund on the way in, wearing the patriotic label on the way out. As Lodi’s Stuart Spencer wrote “the loophole only benefits a handful of California’s largest wineries at the expense of thousands of growers and vintners.” To my earlier point, the positioning of a handful. The same handful that is “very few winemakers” when it is time to defend the labeling argument.

This is why the California growers fight matters. We have a system in which a federal subsidy quietly rewards the substitution of foreign product for domestic, and a federal label law quietly hides that substitution from the buyer, and a well-funded California trade association defends both in the name of the small farmer and the consumer, the two groups actually paying the price for it and the deception caused.

The Same Move, One Tier Over

The labeling argument is not isolated. The same structure, invoking the small producer and the consumer to defend an arrangement that benefits the largest players, runs straight through the distribution tier.

Consider the three-tier system itself. It was sold, and is still sold, as an anti-monopoly safeguard: an independent middle tier of distributors standing between producers and retailers so that no single entity could dominate the chain.

The reality is that the state mandate guaranteeing a middle tier exists has been captured by a small number of mega-distributors who now use it as a state mandated moat. Reyes Beverage Group, the largest beer distributor in the country, has assembled more than half of all beer sold in California by some estimates, through a series of acquisitions. Current laws require that beer passes through a wholesaler; Reyes has consolidated enough of that mandatory chokepoint that it now functions as a tollbooth no producer can get around. The mandate sold as protection against concentration now protects the most concentrated player in the tier.

The fiercest opposition to Reyes-style consolidation has not come from consumers, who are oblivious that any of this exists. It has come from the independent distributors themselves, the very small, family-owned wholesalers that three-tier was supposed to protect. In California they broke away from the established beer-distributor association to form their own group specifically to fight the biggest member of their own tier. When the intended beneficiaries of a protective system organize against it, the protection has plainly stopped flowing to them.

Or consider the price discrimination case the FTC brought against Southern Glazer’s, the country’s largest wine and spirits distributor. The Commission alleged that Southern Glazer’s gave large retail chains discounts and rebates it withheld from small independent retailers. So the supposed neutral middle tier was, in fact, tilting the field toward the biggest buyers. Southern Glazer’s defense is the consumer-welfare argument again, almost word for word: it called the Robinson-Patman Act a Depression-era law left unenforced for decades because, it argued, enforcement raises prices for consumers. The largest distributor in the country, invoking the shopper’s wallet to defend pricing that favors the largest retailers. The two parties reached a tentative settlement this June and the case is stayed into August; however it resolves, the framing is the point. Same move, one tier over.

What This Is Really About

Step back for a moment and connect all of these scenarios: a duty drawback loophole that pays the biggest wineries to import, a labeling rule that hides what they imported, a distribution mandate that shields the biggest wholesaler, and a pricing practice that favors the biggest retailer.

In every case the public justification by the associations and the benefiting parties reaches for the small producer or the consumer as the beneficiary, and in reality, in every case the actual beneficiary is the largest incumbents.

In every case the rhetorical comment is the same, swap between number and size, very few winemakers, a handful of companies, the independent middle tier, many small things invoked to camouflage a few enormous ones. They, themselves, are as deceptive as the labels they put on their products. They cannot allow for truth in labeling otherwise the rest of their structure falls apart.

What unites these arrangements at the mechanical level is even simpler. Every one of them depends on controlling what the consumer can see of the producer.

• The label controls what you know about where your wine was grown.

• The mandated wholesale tier controls what reaches the shelf and on what terms.

• The pricing structure controls which retailers can stock what.

Each is a layer of distance between the person who makes the thing and the person who buys it, and that distance is not an accident. It is their product.

I have always said and believe that distributors have a role to play. That said, direct sales should be an open alternative. DTC and self-distribution are the two sales channels that remove the problem the market is encumbered with today. They let a grower in Lodi or a small winery in Sonoma sell to a buyer in Ohio with nothing in between but a compliant, tax-paid, age-verified transaction. There is no bulk-wine blend to hide, no mandated intermediary to capture, no shelf to ration. The buyer knows exactly who grew the grapes and exactly what is in the bottle, because they bought it from the person who made it.

I have reiterated many times: I do not believe in regulation that exists only to protect one sales channel over another. AB 1585 was not even that ambitious. It asked only that a word on a label means what a reasonable person thinks it means. It passed the people’s house unanimously 67-0 and died without a recorded vote in the Senate, and the trade association of the companies that benefit from the ambiguity issued a statement calling it a chance to “refocus”. Refocus on what exactly?

The honest version of the American wine label is not complicated. It is the same standard California already applies to its own name, a wine that says “California” has been required, for decades, to be 100 percent California fruit, and that rule did not create chaos. It created one of the most trusted labels in the world. “American” could mean what it says, too. The only thing standing in the way is the very small number of very large companies for whom the ambiguity is worth defending, and the language they have learned to use to make that defense sound like it is about someone else.

For anyone not following the case closely, here is the situation in brief. Ohio bans out-of-state retailers from shipping wine directly to Ohio consumers. In May 2026, the Sixth Circuit Court of Appeals struck that ban down, ruling it violated the Commerce Clause by treating in-state businesses more favorably than out-of-state ones. Ohio has now asked the U.S. Supreme Court to take the case, Block v. Canepa, and reinstate the ban. To make that case, Ohio argues that its three-tier system protects public health and that without the ban, the state will be flooded with cheap, unregulated alcohol.

I have another view on the strategy and statements being made that I feel aligns with and is complementary to Tom’s post, specifically the financial side of things that tends to get glossed over.

What caught me the most were these two statements from the State of Ohio.

“Wine sold in Ohio must, generally, pass through all three tiers. Doing so reduces alcohol consumption and serves the State’s health and safety goals by facilitating inspection of in-state retail premises and products meant for consumption in Ohio as well as ensuring adherence to other Ohio liquor laws.”

“This Court should grant review and restore Ohio’s sovereign power to regulate alcohol importation into its borders. If not, Ohio alone among its sister states will suffer an influx of cheap, unregulated alcohol, which will undermine the three-tier system it erected to protect its citizens.”

Let’s take these apart, because neither one holds up to scrutiny.

Statement One: Distributors Reduce Consumption and Ensure Product Safety

The claim that passing wine through a distributor reduces consumption is stated without a single piece of supporting evidence, because none exists. The Sixth Circuit Court of Appeals said as much in its May 2026 Block v. Canepa ruling, finding that Ohio’s health, safety, and temperance justifications for its shipping restrictions were “speculative or undermined by evidence that Ohio allows similar activities by other out-of-state entities.” Courts are now saying out loud what the industry has known for years: these arguments are not grounded in fact.

These are the same distributors who have argued in court filings that they must be involved in alcohol sales because the products are “inherently dangerous.” So the mandated intermediary is simultaneously telling consumers these products are dangerous while restricting what consumers can actually access. That is not a public health function. That is rent extraction dressed up in regulatory language.

As for “inspection of in-state retail premises and products meant for consumption”, I would love to hear Ohio explain in open court exactly what they are inspecting, where they are inspecting it, and what the results of those inspections show. Because the entity actually responsible for alcohol product safety is the federal Alcohol and Tobacco Tax and Trade Bureau (TTB). The TTB’s laboratories conduct chemical testing to ensure product integrity is not compromised and that contaminants, adulterants, and prohibited ingredients are not present in marketed alcohol products. TTB investigators run a market surveillance sampling program, purchase products in the open market, and take enforcement action when what is being sold is not what it claims to be. State distributors play no documented role in any of this. The product safety claim in Ohio’s brief is not a health argument, it is a placeholder that has never been tested against any actual evidence.

Statement Two: “Cheap, Unregulated Alcohol” Will Flood Ohio

Ohio’s second statement contains what I consider the most telling phrase in the entire filing: “Ohio alone among its sister states will suffer an influx of cheap, unregulated alcohol.”

Let’s start with the word “unregulated.” Ohio itself has already established, through its own legislative choices, a clear system that allows in-state retailers to sell and ship direct to Ohio consumers. More importantly, Ohio has had winery direct-to-consumer shipping licenses in place since 2007, nearly nineteen years, during which wineries from anywhere in the country have been able to obtain a permit and ship directly to Ohio consumers, bypassing the wholesale tier entirely. The Sixth Circuit made note of this exact contradiction, concluding that “Ohio does not actually maintain a three-tier system through which ‘all [wine] passes before reaching consumers.’” So the product shipped directly from wineries is somehow regulated enough to have been legal for nineteen years without incident, but the same bottle shipped from a licensed out-of-state retailer would create an unregulated catastrophe? Where is the evidence?

Then there is the word “cheap.” This is where Ohio’s argument doesn’t just lack evidence — it actively contradicts itself in a way that should not go unnoticed.

Ohio is one of the very few states in the country that mandates minimum price markups at every tier of the distribution chain. Under Ohio Administrative Code, distributors are required to mark up the wholesale invoice cost by a minimum of 33.3% before selling to retailers. Retailers must then mark up that already-inflated price by a minimum of 50% before selling to consumers. The compounding effect of these two mandatory markups means that a bottle of wine effectively doubles in price between the producer and the consumer’s hand — a 100% markup over the producer’s base cost, mandated by law. Wine Spectator has reported this as the highest mandatory retail wine markup in the nation, with Ohio consumers paying 25–50% more per bottle than consumers in comparable open-market states.

So when Ohio warns about “cheap alcohol,” what they are actually defending is a system that has artificially inflated alcohol prices for Ohio residents since Prohibition. The “cheap alcohol” they fear is simply wine priced at what a competitive market would naturally produce. The three-tier system’s mandatory margins are not protecting citizens — they are protecting the distributors’ legislatively guaranteed income stream.

Follow the money, and the argument clarifies itself quickly.

The Bigger Picture

I genuinely hope the courts — whether that is the Sixth Circuit sitting en banc or eventually the Supreme Court — ask the hard questions that these arguments have never had to face. What exactly are you inspecting? Show us the data that distributor involvement reduces consumption. Explain why winery DTC has operated safely in Ohio for nineteen years but retailer DTC is an existential threat. And explain how protecting a state-mandated 100% markup over producer cost serves the health and safety of Ohio citizens rather than the financial interests of the wholesale tier.

The Commerce Clause and the dormant commerce doctrine exist for precisely this reason: when a state erects barriers that interfere with interstate trade under the cover of regulation, without evidence that those barriers serve a genuine public interest, the courts are supposed to look past the stated justification to what is actually happening. The 21st Amendment gave states meaningful authority to regulate alcohol. It did not give them a blank check to protect incumbent middlemen with mandatory margins and evidentiary-free health claims.

As they say in the technology industry: garbage in, garbage out. The arguments Ohio is making to defend this system are not built on evidence. They are built on the assumption that courts will keep accepting the same assertions they always have, without demanding proof. That assumption deserves a direct challenge.

So the question I keep coming back to isn’t what went wrong at RNDC. It’s what this tells us about the system that producers have been told, and in many states legally required, to depend on. Because if RNDC can effectively vaporize in a year, then every relationship a producer has built through the wholesale tier is sitting on a foundation that the law protects but the market doesn’t.

Which distributor is next? And more importantly: we have to ask, why are we still building on this foundation at all?

What actually happened — and why it matters for every producer

The seeds of RNDC’s collapse were planted in 2022 with the acquisition of Young’s Market Company. It was an aggressive bet on consolidation and national footprint, financed with debt, timed into a market that was about to get harder. When Brown-Forman left, then Sazerac, then Proximo, then Tito’s, each departure removed volume that had been subsidizing a fixed cost base that didn’t shrink with it. California became the visible failure point — but it was the symptom, not the cause.

What doesn’t get discussed enough is the producer side of that equation. Treasury Wine Estates, a publicly traded company with resources, legal teams, and distribution relationships across multiple partners, disclosed that RNDC California had represented roughly 25% of its U.S. net sales revenue. Ten percent of its entire global business, gone essentially overnight. Treasury had options. It had lawyers and leverage and the financial runway to scramble for alternatives before September. Most producers don’t have any of that.

A 5,000-case winery in Sonoma. A family-owned distillery in the Hill Country. A regional producer who spent five years building retail placements and on-premise accounts through a distributor rep who actually knew their story — and who is now unemployed. Those producers didn’t get a transition plan. They got a notice that their route to market was closing, in a system that in many states gives them no legal alternative.

That’s not a RNDC story. That’s a structural story. And the structure hasn’t changed.

The financial model was always more fragile than it looked

The three-tier system asks distributors to finance the entire inventory layer of the alcohol supply chain. In a low-rate, growing-volume environment, that math works. Borrow cheaply, carry product, turn it, collect the margin, repeat. The model made sense when it was built, and it generated enormous businesses on the back of it.

That environment is gone.

Interest rates were raised aggressively from 2022 through 2024 and remain at their highest levels in decades. For a business built on carrying aging inventory across thousands of SKUs, that shift is not a headwind — it’s a structural cost increase that compounds every quarter. At the same time, distributors went into 2025 already overloaded, having over-ordered during the post-pandemic bounce and found themselves holding product against softening consumer demand. The response was entirely rational from a cash flow perspective: cut the portfolio, prioritize fast movers, deprioritize anything that requires active selling effort to move. Smaller producers were the first to lose placement — not because their product got worse, but because their wholesaler needed to protect working capital.

I want to be fair here. Distributors carry real costs. Warehousing infrastructure, delivery fleets, compliance staff, state licensing requirements — none of that is trivial. The operational complexity of moving alcohol through a regulated system is genuine, and someone has to bear it. The problem isn’t that distributors exist. The problem is that a mandated commercial intermediary has been allowed to substitute for a functional market, and that substitution is now cracking under pressure that the model wasn’t designed to absorb.

When the financial model depends on cheap debt and growing volumes, and both of those conditions reverse simultaneously, you don’t get an orderly adjustment. You get RNDC.

Beer distributors are not the answer

Reyes Beverage Group has been the most visible beneficiary of RNDC’s collapse — picking up wine and spirits brands in California and several other markets as RNDC divested or exited. On paper, it looks like the system is self-correcting. Volume is moving from a struggling player to a stronger one. Problem solved.

I don’t think that’s right.

Beer distribution is, at its core, an order-taking business. The brands are established. Retailers know what they want. The distributor rep’s job is largely execution — making sure the right product shows up at the right account at the right time. That’s a logistics function, and Reyes is genuinely good at it.

Wine is a different business. Wine requires active selling. It requires a rep who can walk into a restaurant and make a credible case for why this producer from the Willamette Valley belongs on the list alongside the usual suspects. It requires follow-through — someone who calls the account after the placement, checks the velocity, brings the winemaker in for a staff training. The brands that succeed through distribution aren’t the ones with the best product. They’re the ones with the most consistent advocacy at the account level. And that advocacy lives or dies with a specific person at the distributor, not with the distributor itself.

What I’d ask any producer whose book just moved from a wine-specialist distributor to a beer-first operation: is your rep someone who chose to sell wine, or someone who was handed a new category? Because that distinction matters more than the name on the portfolio agreement.

And if the honest answer is that producers are increasingly doing their own selling — hiring brand ambassadors, running their own account programs, managing their own retail relationships — while the distributor handles the paperwork and the truck, then we have to ask plainly: what exactly is the mandated intermediary adding? What are producers paying for that a licensed logistics provider couldn’t deliver more efficiently and at lower cost?

The new competition doesn’t care about tier structure

There’s a push in some industry circles to bring THC and CBD beverages into the three-tier system — to require them to move through licensed distributors the way wine and spirits do. The argument is framed as leveling the playing field. I understand the opportunity to replace their dwindling sales. But let’s be honest about what’s really being asked.

The U.S. cannabis beverage market reached approximately $450 million in 2025 and is projected to exceed $2 billion by 2028. It is the fastest-growing product format in legal cannabis. It is already here, it is already on shelves, and it is directly competing for the same social occasion that wine and spirits have historically owned — particularly with consumers under 40, who are driving the long-term demand question for this industry.

These products largely don’t move through mandated wholesale distribution. They have built their own compliance infrastructure, their own retail channels, and their own consumer relationships. Arguing for regulatory parity doesn’t remove this competition from the market. What it does is reveal something important about why the three-tier mandate exists: it was never primarily about consumer protection or public health. It was about channel protection. Protecting the revenue and margin structure of an intermediary tier that happens to have significant lobbying infrastructure in every state capital.

I’m not saying there’s no role for a distributor in the cannabis beverage space. I’m saying that using “parity” as a justification for extending a mandate that is already failing on its own terms is not a serious policy argument. It’s a defensive posture dressed up as fairness.

What the courts are telling us and what legislators are ignoring

The Supreme Court has never said the three-tier system must exist. What Granholm v. Heald established in 2005 is that states cannot discriminate between in-state and out-of-state producers when it comes to direct-to-consumer shipping — a ruling that opened the door to the DTC wine shipping rights that now exist in 48 states. The broader question of mandatory wholesale distribution has been permitted, not mandated. There is a significant legal and policy difference between those two things, and state legislatures routinely conflate them to justify what is, in practice, the protection of a single commercial sales channel.

Ohio has been more direct than most about this. The courts there have been willing to examine whether the public interest rationale for mandatory distribution actually holds up against modern commerce realities — and the answers have not been favorable to the status quo. That conversation is going to spread.

Here’s the core argument that I think eventually wins: the three-tier system’s original justifications were traceability, tax collection, and preventing the concentration of alcohol retail that existed before Prohibition. In 2026, traceability is a software problem that’s already been solved. Tax remittance on DTC shipments is handled digitally at scale. Age verification is more rigorous in direct-to-consumer channels than it is at most retail outlets. Every legitimate function the wholesale tier was created to perform can now be performed without a mandated commercial intermediary.

What’s left, once you set aside the actual compliance functions, is a protected margin for an industry that has earned its protection through political relationships rather than consumer value. The courts are beginning to notice. It’s time for legislators to catch up.

Canada is doing what U.S. Legislators won’t

The contrast here is almost too clean to be useful — but it’s real, and it’s happening right now.

As of May 2026, Canada’s federal government has removed all federal barriers to interprovincial alcohol trade. It amended the Importation of Intoxicating Liquors Act, eliminated federal exceptions under the Canadian Free Trade Agreement, and pushed provinces toward a Memorandum of Understanding — signed by 11 provinces and territories — targeting full direct-to-consumer sales by May 2026. Manitoba and New Brunswick have already implemented fully open DTC. Ontario ended a decades-old Master Framework Agreement that had given The Beer Store a quasi-monopoly over distribution, opening alcohol retail to convenience stores, big box outlets, and more for the first time.

The federal government’s message was explicit: we have done our part. The remaining work is with the provinces, to modernize and serve their producers rather than protect a single sales channel.

That framing is worth sitting with for a moment. A government looked at its alcohol distribution structure and asked: who is this system serving? And when the answer turned out to be “a legacy commercial intermediary with political connections,” they changed it.

In the United States, the equivalent question — who does the three-tier mandate actually serve? — is rarely asked out loud in a legislative chamber. The distributors have made sure of that. But the market is asking it anyway, and RNDC’s collapse is one of the louder answers we’ve gotten.

What should actually replace it

I want to be clear that I’m not arguing for no regulation. I’ve now spent a lot of my professional life working inside regulated alcohol commerce, and I believe in the compliance infrastructure. Age verification matters. Tax remittance matters. Traceability matters. The question is whether a mandated commercial intermediary is the right vehicle for delivering those outcomes — or whether it’s simply the vehicle that has historically had the most lobbying power.

What smaller producers actually need is a licensed third-party logistics provider that can move product compliantly and efficiently without being commercially mandated into the producer-retailer relationship. The selling is the producer’s job — and increasingly, they’re already doing it. The compliance and physical delivery is an operational function. Separating those two things — the commercial relationship from the logistics execution — is where the policy conversation needs to go.

There are already operators in this space working toward that model. The compliance infrastructure exists. What doesn’t exist yet, in most states, is the legal framework to recognize it. That’s a legislative choice, not a technical limitation.

The states that move first — that separate the legitimate compliance function of distribution from the commercially protected sales monopoly — will have a meaningful advantage in attracting and retaining producers who are increasingly aware that their route to market is fragile. The states that continue protecting the wholesale tier for its own sake will watch that tier keep consolidating, keep weakening, and occasionally collapse. Taking producers down with it.

So, which distributor is next?

I have been transparent on this Substack about our experience with the Virginia ABC, and I have written at length about the regulatory capture I’ve watched up close — the plenary power claim, the self-dealing structure, the walk-out arrangements with wholesalers. What I have not yet written about is what actually happened to the appeal itself, and why some commentators continue to claim Virginia “won.” They didn’t. The case was dismissed on a procedural failure that had nothing to do with the merits. Here is what occurred.

The Court Record, Briefly

The merits record is more favorable to Vinoshipper than most readers realize. The original Circuit Court ruling found that our drop-shipping model complied with Virginia law. The Court of Appeals reversed. We were preparing the next step — an appeal to the Supreme Court of Virginia — when the case ended in a way that had nothing to do with the strength of our argument and everything to do with one missed filing.

A Notice of Appeal That Was Never Filed

Filing an appeal in Virginia involves two documents: the appeal itself, and the notice of appeal. The notice is a single page. Its only purpose is to tell the lower court and the opposing party that an appeal is being pursued. Without it, there is no appeal — full stop.

Our then-attorney, Mark Shuford, had been on vacation in the run-up to the deadline. He scrambled to make the filing on time and, clearly distracted, missed the notice of appeal entirely. The opposing party — the Virginia ABC — did not even catch the omission initially. They proceeded to file their brief responding to the appeal, which means they too were operating on the assumption that the appeal had been properly noticed. The error was eventually flagged not by the ABC, not by Shuford, and not by Shuford’s selected appellate printer. It was flagged by the clerk’s office.

When confronted, Shuford blamed the printer. The printer — Gibson Moore Appellate Services of Richmond, Virginia, since acquired by Counsel Press in July 2025 — blamed Shuford. Neither offered an apology. I have requested all correspondence from the printer about the filing on more than one occasion. They have not responded. Not once.

That is the actual story of how Virginia “won” its appeal.

Why There Is No Malpractice Suit

The natural question is: why not bring a malpractice action against Shuford? The answer reveals something about how the legal system is built to protect itself.

Virginia, like many states, applies the “case-within-a-case” doctrine to legal malpractice claims. To prevail, a plaintiff must prove not only that the lawyer breached the standard of care — which in this instance is uncontested and a matter of public record — but also that the underlying case would have succeeded but for the breach, and that any resulting judgment would have been collectible. In other words, you have to win the case your lawyer failed to file, in the context of a different lawsuit, in order to recover.

This is the rule the lawyers wrote. A clear, documented failure of duty — a missing notice of appeal, an attorney scrambling after a vacation, a printer that has stopped responding to records requests — is, on its own, not enough. You have to prove the counterfactual. And the counterfactual is exactly the case the missing notice prevented from being heard.

It is worth adding that review by the Supreme Court of Virginia is discretionary, not a matter of right. The Court grants only a small fraction of the civil petitions filed each year. A malpractice plaintiff in our position would therefore have to prove three counterfactuals stacked on top of each other: that the Court would have agreed to hear the case at all, that it would have ruled in our favor on the merits, and that any resulting judgment would have been collectible. Shuford’s failure prevented even the first of those counterfactuals from being tested.

So no, there is no realistic malpractice suit on the way. Not because the failure isn’t obvious. Because the system is designed to make obvious failures unrecoverable.

What Has Happened Since

After the dismissal, the Virginia ABC told us, in effect: find us a way forward and we will support it. We did. We built a per-location licensing pathway that addresses the concerns the Court of Appeals identified, and an Administrative Law Judge (ALJ) agreed that the pathway gives the ABC what its statute requires.

The ABC is now appealing its own ALJ. I covered that move — and the broader claim of “plenary power” the agency is using to overturn its own findings — in my October post. I won’t re-litigate it here. I’ll only note that an agency that asks for a path forward, receives one, sees it ratified by its own judge, and then appeals against itself is not behaving like a regulator. It is behaving like a market participant defending its share — which, given that the ABC is also Virginia’s largest alcohol retailer, is not as ironic as it sounds.

The Wind Is Shifting

Two days ago, the Sixth Circuit Court of Appeals issued a unanimous 3-0 ruling in Block v. Canepa finding Ohio’s ban on out-of-state retailer wine shipments unconstitutional and remanding the case for the district court to actually demonstrate a public health justification — rather than simply invoking the three-tier system as a magic word. It is, in the words of one industry observer, “a tiny pin that eventually brings down the entire three-tier system in some states.” A similar Arizona case is pending before the Supreme Court.

Vinoshipper’s path forward — whether through Virginia’s own administrative process, the courts, or the General Assembly — has not narrowed. It has widened. And our position on what a workable national framework looks like has been on the record for two years in the National Direct Shipping Bill of Rights, supported by more than 150 producers and organizations across the country.

What I will not let stand is the suggestion that Virginia prevailed on the merits. They did not. The appeal was dismissed because of an unforgivable procedural failure by counsel since terminated, compounded by a printer that has refused to account for its role and an attorney malpractice doctrine that makes that failure functionally unrecoverable. Those are facts. They belong on the record. And now they are.

This is a great article, helped by input from the Brewers Association and Sovos ShipCompliant. Consumers expect direct access, brewers want to sell direct – so who’s to blame for this quagmire? Once again, it comes down to the anti-direct selling group: wholesalers who believe the world needs them as a mandated middle tier. Funny, just like the wine industry, the beer industry will flourish whether they are there or not. There will always be a place for the wholesale tier, but not a mandated channel.

The survey, with data collated by The Harris Poll, unsurprisingly finds “substantial revenue opportunities for breweries”. 63% of Americans age 21 and older believe current beer shipping laws should be expanded to allow direct shipment of beer to consumers.

This sounds familiar “simply getting beer into the hands of the people who want it has become vastly convoluted and could be simplified”. My recent article hits on this exact topic. The pathway forward is simple: add the word “beer” to every piece of legislation that currently references wine in the DTC space. So simple.

Even Alex Koral of Sovos states “These findings indicate that DTC shipping could provide a meaningful and recurring revenue stream for breweries while meeting existing consumer demand.”

Over the years, we’ve had many discussions with those eager to run direct to consumer beer clubs, where they can go from fresh brewed to the consumer in under a week. How fun would that be? Getting fresh beer direct from the producer, letting people taste what real beer is. Who knows how long some of the big beer brands have been sitting going stale in the wholesale system.

The article is worth reading. It clearly states the reasons for modernization. The good news is that all the testing has been done over the past 20 plus years in wine. As we extend DTC to beer, we have the opportunity to remove the unnecessary limits and rules that cost our states and country more than it needs to. The blueprint exists. Let’s use it.

The 21^st Amendment allows for change. Legislators just need to take a little red ink to the current rules, with the goals of removing the red tape, slashing unnecessary enforcement costs, and increasing overall tax revenue in states where the wholesale tier is crumbling, and tax revenues falling.

I wrote an article recently of the simple changes Tennessee should make to benefit the whole market. My proposals would increase state tax collection, decrease administrative costs, increase consumer choice, and allow producers to bring innovative products to the market, also known as free market capitalism.

Below is a summary of state rules that are unnecessary and provide no value. They have been put forward by the wholesale distribution tier to hinder direct sales, while also increasing the costs for state governments and sellers, reducing consumer choice, and reducing tax revenue the states could be collecting.

For added context, I have a few notes regarding retailer sales that are needed to draw a clearer picture of the nonsense around direct sale limits:

• In-state retailers have no quantity limits. Every limit in the table below is a compromise made by legislation sponsors to get direct shipping laws passed in their state. These can be removed now, reducing state operating costs. After all, out of state wineries are not being licensed as wineries but as direct shipping retailers.

• In-state retailers do not need to register labels. Requiring direct shippers and wholesalers to do so is a burden with no rationale.

• In-state retailers have no ABV restrictions. Federal law classifies a beverage as a wine up to 24% ABV. Some states have made up arbitrary limits so that wines over 16% cannot be shipped direct.

• The enforcement cost falls on states. They need to monitor quantity limits by delivery address, by person, by month, by quarter, by year – none of that is required for in-state retail. To enforce this, states have to collect a lot of personal details on consumers and build systems to track it. That is not consumer protection.

Below is a list of restrictions that direct sellers face – all of which add zero value but create a burden on the states, the seller or producer, and the consumer.

Wine Shipping Laws by State

High ABV

Four states have created their own definition of what is considered a wine for direct shipping. If the ABV of the wine is above that level, it cannot be sold direct, regardless of what the federal law says:

• Montana 16%

• South Carolina 16%

• Vermont 16%

• West Virginia 16% (Fortified wines up to 22% ABV permitted)

These limits prevent value added products like port being sold by the producers directly, for no good reason.

In conclusion, modernizing these rules and reducing regulatory costs requires no compromise on consumer health and safety, and no state gives up its right to manage alcohol sales. If in-state retail sellers had the same quantity limits and tracking requirements, the story may be different. The asymmetry is not an oversight. It is discrimination against out-of-state producers, dressed up as regulation.

Like much of the domestic adult beverage sector, Tennessee wineries are having to operate within an increasingly challenging environment - market contraction, consolidation pressures, and changing consumer behavior are placing strain on small and mid-sized producers. In that context, regulatory efficiency is just common sense and matters more than ever.

Tennessee already has a functioning direct-to-consumer (DTC) shipping framework under TN Code § 57-3-217. The state has demonstrated that Age verification, Licensing, Tax collection, and Auditability (ALTA) can be effectively maintained in a DTC environment. However, several structural elements within the current framework impose cost and administrative complexity without advancing health and safety or compliance outcomes, which are the two reasons that these hurdles were originally put in place.

A simple common-sense review of the TN statute shows opportunities for refinement in three principal areas:

1. Volume Caps That Do Not Correlate to Compliance Risk

Tennessee currently imposes quantity limits on DTC shipments including a monthly limit of 9L per month (Twelve 750ml bottles) and an annual limit of 36L (48 750ml bottles). Due to this, shipments require ongoing monitoring and enforcement (both the seller has to have systems to manage this, and the state has to apply resources for checks and balances). These checks do not enhance age verification, tax collection, or product safety. They serve primarily as market constraints.

Removing or modernizing DTC shipping quantity limits would:

• Increase excise and sales tax revenue

• Reduce state enforcement cost overhead to manage

• Allow regulated businesses to operate with greater predictability

Importantly, eliminating arbitrary caps would not affect Tennessee’s ability to require licensing, tax remittance, reporting, or age verification at delivery.

2. Duplicative Reporting Requirements

The licensed seller, common carriers, and fulfillment centers are all required to provide detailed shipment reporting to the state (ludicrous!). This duplicative reporting increases administrative burden without materially improving regulatory oversight.

A streamlined reporting system focused on licensed entities rather than intermediaries would:

• Lower compliance costs

• Improve data clarity

• Reduce privacy concerns related to consumer purchasing data

• Maintain full audit capability

Modern compliance systems are capable of real-time tax remittance and transaction-level traceability without requiring redundant filings. All major compliance platforms, Sovos/ShipCompliant, Avalara, and Vinoshipper, can already do this.

3. Overly Prescriptive Record-keeping Structures

Winery direct shippers are required to submit shipment records to the commission on a quarterly basis, in a manner, form, and format the commission prescribes. This requirement was designed for a paper-based compliance era and adds administrative cost for producers and processing burden for the state without improving oversight. Subsection (e)(3) already gives the commission the authority to request shipment records at any time under penalty of perjury, which is the meaningful safeguard.

Removing this requirement would not affect the state’s ability to:

• Enforce age-gated purchasing

• Collect taxes at point of sale

• Ensure seller-of-record accountability

• Provide regulators with full audit access

Modern compliance platforms already provide transparent, auditable, and secure transaction records in real time. Scheduled batch reporting in a state-prescribed format is a relic of the pre-digital era. Subsection (k) can simply go.

Aligning Modern Commerce with the 21st Amendment

Let’s think about the 21st Amendment for a second. It grants states authority to regulate alcohol, but it does not require static regulatory design. Courts have repeatedly recognized that states may structure alcohol distribution in ways that both preserve public safety and respect constitutional principles of commerce and fairness.

Direct shipping, when licensed and audited, is a regulated channel (and heavily at that), not a deregulated one. Modernization does not weaken oversight; it can strengthen it by concentrating regulatory focus on meaningful safeguards rather than administrative formalities. Our technology capabilities are so far advanced that commercial businesses are already doing this work for regulators, without any government investment required.

A Practical Reform Path

By a simple redlining of the current winery direct shipper regulations, the changes I have proposed would:

• Preserve all meaningful regulatory protections

• Reduce enforcement expense

• Increase taxable revenue

• Support domestic agricultural producers

• Expand consumer access within a compliant framework

These are structural improvements, not ideological shifts. Tennessee and many other states (I shall look at others and assist their legislators as well) have an opportunity to refine its regulations in a way that works for regulators, taxpayers, producers, and consumers alike. Modern compliance systems now allow for transparent reporting, automated tax remittance, and full auditability, without unnecessary volume restrictions or duplicative reporting layers.

The objective is straightforward:
Maintain accountability.
Reduce friction.
Increase economic efficiency.

Thoughtful modernization would allow Tennessee’s wine industry to compete in today’s marketplace while preserving every safeguard that truly matters.

2024 Tennessee Code
Title 57 - INTOXICATING LIQUORS (§§ 57-1-101 — 57-10-102)
Chapter 3 - LOCAL OPTION-TRAFFIC IN INTOXICATING LIQUORS (§§ 57-3-101 — 57-3-1103)
Part 2 - LICENSES AND FEES (§§ 57-3-201 — 57-3-227)
Section 57-3-217 - Winery direct shipper’s license

Universal Citation:

TN Code § 57-3-217 (2024)

• (a) Any person, firm or corporation that holds a federal basic permit pursuant to the Federal Alcohol Administration Act (27 U.S.C. § 201 et seq.), and is in the business of manufacturing, bottling or rectifying wine may apply to the commission for a winery direct shipper’s license under this section. Applicants for a winery direct shipper’s license shall submit to the commission a copy of the federal basic permit and a permit for the manufacturing, bottling, or rectification of wine from the state where such wine is produced winery is licensed.

• (b) A winery direct shipper, meeting the requirements of this section, may make sales and delivery of wine, as defined in § 57-3-101, by common carrier to the citizens of this state over twenty-one (21) years of age who have purchased the wine directly from the winery direct shipper, subject to the limitations and requirements imposed by this section; provided, that a winery direct shipper may only ship wine sold under a brand name owned by or licensed to the winery or farm winery, which is either:

  • (1) Produced by the winery or farm winery, including manufactured in a manner authorized pursuant to § 57-3-207;

  • (2) Produced exclusively for the winery or farm winery under an existing written contract with the winery or farm winery; or

  • (3) Produced and bottled exclusively for the winery or farm winery.

• (c) As a condition to the issuance or renewal of a winery direct shipper’s license as authorized in this section, an applicant for the license must satisfy the following conditions:

  • (1) Pay to the commission a one-time nonrefundable fee in the amount of three hundred dollars ($300) when the application is submitted for review. A winery direct shipper’s license under this section shall not be issued until the applicant has paid to the commission the annual license fee of one hundred fifty dollars ($150);

  • (2) Execute a consent to jurisdiction and venue of all actions brought before the commission, any state agency or the courts of this state, such that any and all hearings, appeals and other matters relating to the license of the winery direct shipper shall be held in this state;

  • (3) Acknowledge, in writing, that it will contract only with common carriers that agree that any delivery of wine made in this state shall be by face-to-face delivery and that deliveries will only be made to individuals who demonstrate that the individuals are over twenty-one (21) years of age and the individuals sign upon receipt of the wine.

• (d)

  • (1) No winery direct shipper may ship more than a total of nine (9) liters of wine to any individual during any calendar month nor shall the shipper ship more than twenty-seven (27) liters of wine to any individual in any calendar year.

  • (2) Notwithstanding subdivision (d)(1), a winery direct shipper that produces or manufactures less than two hundred seventy thousand (270,000) liters of wine per calendar year may ship up to fifty-four (54) liters of wine to an individual per calendar year.

  • (3) Any shipment of wine pursuant to this section shall be made only in containers that clearly indicate on the exterior of the container, visible to a person at least three feet (3’) away, that the container “CONTAINS ALCOHOL: SIGNATURE OF PERSON AGE 21 OR OLDER REQUIRED FOR DELIVERY”.

• (e)

  • (1) A winery direct shipper shall be responsible for remitting all sales taxes due resulting from any sale made under this section. In addition to all sales taxes imposed upon such sale, a winery direct shipper shall remit the gallonage tax as imposed by § 57-3-302.

  • (2) The taxes levied on sales made by a winery direct shipper as authorized by this section shall become due and payable on the first day of each month following the month during which the sales occur, and shall become delinquent if not paid on or before the twentieth day of each such following month. For the purpose of ascertaining the amount of tax due, it is the duty of any winery direct shipper licensed pursuant to this section to transmit to the commissioner of revenue appropriate returns on forms prescribed by the commissioner.

  • (3) Upon request of the commission or its designated agent, any winery direct shipper licensed pursuant to this section shall provide to the commission, under penalty of perjury, a list of any wine shipped to an address within this state, including the addressee.

  • (4) The commission may enforce the requirements of this section by administrative action, may suspend or revoke a winery direct shipper’s license and may accept an offer in compromise in lieu of suspension.

  • (5) A winery direct shipper that is found to have violated this title, in addition to any fine imposed by the commission, shall reimburse the commission for all costs incurred in connection with the investigation and administrative action, including the out-of-pocket costs and reasonable personnel costs.

  • (6) No winery direct shipper may avoid liability under this section by subcontracting with a third party to perform its obligations required pursuant to this section.

• (f) The commission and the department of revenue are authorized to promulgate rules and regulations that may be necessary to implement this section, in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

• (g)

  • (1)

    • (A) It is an offense for a person to ship alcoholic beverages or beer to residents of this state without a license authorizing such activity.

    • (B) A violation of subdivision (g)(1)(A) is a Class E felony, punishable by a fine only.

  • (2)

    • (A) All shipments of alcoholic beverages or beer made in this state must be by face-to-face delivery to individuals who provide proof satisfactory that they are over twenty-one (21) years of age and sign upon receipt.

    • (B) A violation of subdivision (g)(2)(A) is a Class B misdemeanor, punishable by a fine only.

• (h)

  • (1) Each common carrier that contracts with a winery direct shipper under this section for delivery of wine, beer, or other alcoholic beverages into this state shall prepare and file monthly with the department of revenue a report of known wine, beer, or other alcoholic beverage shipments containing the name of the common carrier making the report, the period of time covered by the report, the name and business address of the consignor, the name and address of each consignee, the weight of the package delivered to each consignee, a unique tracking number, and the date of delivery. Reports received by the department of revenue must be made available to the public pursuant to the open records law, compiled in title 10, chapter 7.

  • (2) Upon the request of the commissioner of revenue, any records supporting the report must be made available to the department of revenue within a reasonable time after the commissioner makes a written request for such records. Any records containing information relating to such reports must be retained and preserved for a period of two (2) years, unless destruction of the records prior to the end of such retention period is authorized in writing by the department of revenue. Such records must be open and available for inspection by the department of revenue upon written request. Reports must also be made available to any law enforcement agency or regulatory body of any local government in this state in which the common carrier making the report resides or does business.

  • (3) Any common carrier that willfully fails to make reports in accordance with this section or that violates any rules of the department of revenue for the administration and enforcement of this section is subject to a notification of violation. If a common carrier continually fails to make reports, the common carrier may be fined in an amount not to exceed five hundred dollars ($500) for each delivery not reported to the department of revenue. Unpaid fines assessed under this subdivision (h)(3) must be collected in accordance with title 67, chapter 1.

  • (4) This subsection (h) does not apply to common carriers regulated under 49 U.S.C. §§ 10101 et seq., or to rail trailer-on-flatcar/container-on-flatcar (TOFC/COFC) service, as defined in 49 CFR § 1090.1, or highway TOFC/COFC service provided by a rail carrier, either itself or jointly with a motor carrier, as part of continuous intermodal freight transportation, including, without limitation, any other TOFC/COFC transportation as defined under federal law.

• (j) A winery direct shipper licensee shall maintain records for a minimum of three (3) years from the shipment date, which shall include:

  • (1) The name, address, and license number of the fulfillment house used, if any;

  • (2) The name of the common carrier, if no fulfillment house is used;

  • (3) The date of each shipment;

  • (4) The carrier tracking number;

  • (5) The quantity, by weight or other means, the sales price, and product type of wine shipped; and

  • (6) The name and address of the recipient.

• (k) A winery direct shipper licensee shall submit the records maintained pursuant to subsection (j) as a report to the commission on a quarterly basis in the manner, form, and format prescribed by the commission.

• (l) A winery direct shipper may only ship, or have shipped, wine from either their licensed winery direct shipper location or a licensed fulfillment house location.

• (m) Two (2) or more licensed winery direct shippers may make sales and shipments of wine pursuant to this section in conjunction and coordination with each other; provided, that if the wine products of more than one (1) licensed winery direct shipper are included in the same shipment, then such products may only be shipped to a resident of this state from a fulfillment house licensed pursuant to § 57-3-415. Each winery participating in a sale made pursuant to this subsection (m) must have a winery direct shipper license.

• (n) The requirements of this section, including subsections (d) and (e), apply to winery direct shippers whether the wine is shipped from the winery direct shipper or a licensed fulfillment house.

Over 95% of U.S. wineries are family-run or craft producers. The other 5% are large, manufactured brands that dominate wholesale distribution and fund most national and state industry associations. That split matters. It helps explain why the rules keep getting tighter for small producers while staying flexible for the large few.

Industry associations have all but given up fighting for expanded shipping rights, protecting the rights that already exist, or even working to remove the restrictions they had to compromise on to get directs sales allowed in the first place. They act as if their work is done because wineries can ship to 40+ states. Wrong. There is still so much to do.

Yes, the number of states allowing direct sales has expanded to almost all of the US states and that is a great win. But look at the new restrictions and the tightening of rules making it harder for small wineries. Compliance costs go up. Operating gets harder. And once again, the burden falls on the 95% of the industry that are not large wineries.

States like Delaware, Mississippi, Montana, Michigan, Maine, Delaware, Virginia, and you can go on and on, have wholesaler influenced restrictions (like quantity limits) that are not applied to instate retailers. These restrictions, aimed at DTC sellers (who are retailers as well because they sell to end consumers) include quantity limits, address limits, label registrations, alcohol percentage restrictions etc. They are added as an extra layer of complexity and justified as consumer protection, even though these exact restrictions do not apply to products that have passed through the wholesale tier. Once the wholesale distribution tier receives their cut, they do not care about consumer protection or any health and safety matters.

In California, the powerhouse of wine associations is the Wine Institute. They have a $25 million plus annual budget to enact positive change in the state where 80% of wineries reside. According to public records, half of the $25m goes directly to employee salaries, leaving around $12.5m left for change. It is notable that the Wine Institute CEO made $2 million in 2025, close to double the base salary of Constellation Brand’s incoming CEO.

The Wine Institute Board of Directors consists of the who’s who of the largest US producers. They continue to push their outdated Model Direct Shipping Bill built on very antiquated wholesale compromises and limited quantity shipping limits. Who benefits from that? Follow the money.

The Wine Institute should replace the Model Direct Shipping Bill with the widely supported National Direct Shipping Bill of Rights, which updates the Bill for modern commerce and better and lower cost regulatory structure.

The Wine Institute is not using its voice to support the vast number of businesses in California unless an issue directly impacts its biggest members. I’ve been told this is why it was against direct shipping initially and advised members to not support what became the famous Granholm case.

The recent changes in Maine effectively killed direct-to-consumer wine sales. The Wine Institute could have taken a much stronger position on this legislation, but chose not to. That said, no other state association added commentary to the legislative process either. No word from Wine America, which claims they represent the producers at the federal and state level across the country.

Another great example of the Wine Institute not helping the small craft producers here in California, is the Type 79 license (Certified Farmers’ Market Sales Permit). This should be a great license for small producers to introduce their products to customers that love small, family brands. Instead, with input from the Wine Institute, this license is limited to wineries with a California type 02 that manufacture using exclusively fruit (grapes only) grown on their estate property. This takes away the opportunity from many small producers who start up using fruit of others or who use alternative fruit. It blocks cider makers, mead makers etc. because those products are not made 100% from grapes.

This is not how you help small businesses grow and establish themselves. When we read that Gallo is closing production facilities, we need to be supporting our next generation of producers, not making it harder for them. At the time of writing this blog, the Family Winemakers of California have submitted legislation to remove the estate fruit clause. It’s currently progressing and should be receiving wide industry and legislative support.

You would think as the wine, cider and mead industries are so important to California’s agricultural base, our leading industry association should be leading the way for positive regulation around the country and teaching the smaller states how to help the industry. Please tell me if I am blinded by optimism. Are there any downsides?

What the industry needs to understand is that the continued success of our domestic wine business is heavily at the hands of the legislators and enforcing regulators at this point. And nobody has more influence over legislators and enforcing agents than the wholesale distribution tier. You see the problem here. No state would purposely take away consumer choice and reduce sales tax collection. They are being manipulated by false information and fear mongering from the wholesale distribution tier.

We need to unite in the wine industry. This really is a story of David vs Goliath. The wholesalers are organized. The small producers are fragmented. That is why distributors can join forces and enact the changes that they want.

As an industry, we do have new and modern ways to manage regulations, collect taxes, verify age, track products and generally reduce the management of regulation to make it easier for states and lower their cost of operating. But regulators have to work with the industry, not be the VP of NO.

If we keep letting legislators add rules that do not apply to retailers, keep allowing regulators to flex muscle through their negative interpretation of rules, and keep accepting industry associations acting like the work is done, we will keep losing. Consumer choice will shrink. Compliance costs will rise. Small wineries will close.

This is not complicated. If there is anything a small winery does not like or is making it difficult to operate their business, join your local or national association. Then use your association to communicate with your legislators. Educate them on the impact on you, your business, and the families of your employees. Legislators don’t know what they don’t know, and right now they are being educated by the wholesale distribution tier. Once they hear from the families running small businesses in their states, they will start supporting you. If we don’t unite and do this, the 5% of large businesses will keep writing the rules for the 95%.

Think about that: an agency acting as judge, jury, and appellate court against itself. It’s a power move born of fear, not law, and it should alarm anyone who believes in fair commerce or basic checks and balances.

What is Plenary Power?

For those following this ongoing saga, you already know I’ve been documenting the VA ABC’s ongoing crusade against direct shipping. In this process, I’ve been subject to their horrible interpretation of Virginia consumer rights and the overriding desires of their state legislators. The VA ABC, the “enforcement” agency, continues to undermine their state regulations in favor of their own interpretations.

Under the 21st Amendment, states can regulate alcohol within their borders. But the VA ABC has gone further, trying to dictate how businesses operate outside their borders. That’s not regulation. That’s complete overreach.

When the VA ABC created their state DTC permit, it was meant to provide an alternative to the three-tier system, and it worked, which did not please the wholesalers. Because the VA ABC can’t rewrite the law, they’ve instead chosen to weaponize interpretation, inventing new barriers that don’t exist in statute, and that even their own lawyers can’t defend.

Cornell Law defines plenary power as “complete power over a particular area with no limitations”. That definition should concern you. No state agency should operate without checks and balances.

The VA state legislature created a mechanism for wineries to legally ship DTC. The courts agree with this definition. The VA ABC disagrees and is in control of enforcement. That’s what makes the VA ABC plenary power scary. They go unchecked and so become very dangerous in precedent setting.

How the Virginia ABC interpret their own code

“Va. Code§ 4.1-101 (A) provides:

The Board of Directors of the Authority is vested with control of the possession, sale, transportation, distribution, and delivery of alcoholic beverages in the Commonwealth, with the plenary power to prescribe and enforce regulations and conditions under which alcoholic beverages are possessed, sold, transported, distributed, and delivered so as to prevent any corrupt, incompetent, dishonest, or unprincipled practices and to promote the health, safety and welfare, convenience, and prosperity of the people of the Commonwealth.”
* bold items added for emphasis

How the ABC Board interpret this:

“The Board is of the opinion that plenary power bestows on this Board complete power over a particular area with no limitations.”

Let that sink in. A state agency is openly claiming unreviewable power and then using that power to overrule its own legal findings when they do not like their own administrative law judge’s decision.

Now Virginia takes it even a step further.

Virginia’s Code grants the ABC Authority the power to control the possession, sale, transportation, distribution, and delivery of alcoholic beverages within the Commonwealth.

Nowhere in the law does it say the ABC can exercise those rights outside Virginia’s borders. Yet that’s exactly what they’re trying to do. They are trying to apply their rules to businesses outside the state where they have no authority.

And let’s not forget, this is the same agency that misplaced $1 million worth of product and couldn’t reconcile $1.6 billion in inventory. They define “incompetent” in their own mission statement and then meet it.

Even though the ABC believes in its so-called plenary power, it’s still limited by one small but important thing, the U.S. Constitution. The ABC’s authority is constrained by both state and federal law, and it can be restricted or expanded only by the Virginia General Assembly or overturned in court. Plenary power is not absolute; it’s broad, but it isn’t boundless. Judicial review exists for exactly this reason, and that’s where the ABC is headed next.

Here is where things get really weird and wild.

The Virginia ABC is the Authority overseeing the operations of the liquor distribution in the state.

The Board is considered the “Hearing Officer” of the Virginia ABC.

The Board can delegate their role as the Hearing Officer to an Administrative Law Judge (Hearing Office) to review and opine on specific hearings. In essence the Hearing Officer and Board are one in the same.

What does this mean? The VA ABC acts as both the regulator and its own judge.

In the latest case, a California winery argued it could act as a fulfillment center under California law. The Board, by way of the Hearing Officer, found for the California winery, reviewed the case and ruled in favor of the winery.

ABC’s own attorneys didn’t like that result, so they appealed their own agency’s decision. On appeal, they requested to present additional evidence. The hearing officer allowed it, reviewed it, and then reaffirmed his original decision for the California winery.

Again, not liking their own decision, the agency’s attorney appealed. This time they claimed there were “outside concerns” about the Hearing Officer’s decision. Outside concerns? From someone outside of the agency that has so much leverage that they can have the agency appeal again?

Well, that person or entity soon made themselves known.

Virginia Wholesalers Association quickly appeared filing an Amicus Brief supporting the ABC’s position. The “outside concerns” were the wholesalers. The same group who has been fighting against direct sales from the start.

What happened next was terrible. After a quiet backroom huddle between the Board and the ABC attorneys that are appealing the case, the Board (remember they are also the hearing officer who found for the CA Winery), decide to invoke its Plenary Powers rule and override its own decision.

That’s not regulation. That’s clear corruption. Good job there is still judicial review.

In its role as an administrative law judge, the Board holds hearings, issues subpoenas, and hears testimony in disciplinary matters, contested applications, and franchise issues.

So “in its role as an administrative law judge” it also gets to appeal its own findings. Failing a successful appeal against itself, it can use its plenary powers to overturn its own administrative law judge’s decisions. But when an agency can both issue a ruling and then appeal, and then use absolute power to reverse it, the term “judge” loses all meaning.

I have written many times about our dealings with the Authority with the hope that common business sense would prevail, which I define as providing consumers choice, following the laws related to reporting, payment of taxes, adhering to quantity limits, and not selling to underage people. However, it appears impossible to overcome the influence of the Wholesaler Associations in the state of Virginia who argue process over the substance of the law.

The legislation states that the ABC’s power is to be used for the “public purpose” of promoting the health, safety, and welfare of Virginia’s people. This provides a framework within which the ABC must exercise its authority. 

But blocking direct shipments by licensed out of state direct shippers does not protect Virginians. It protects wholesalers.

The Authority is not returning the expected financial results to the state. It is failing to keep order in its own house by losing product and failing to manage its own system. And it is wasting state funds pursuing the building of barriers for the state that obstructs the welfare of Virginia’s people.

Conclusion

Sadly, Virginia is not alone. It’s just the most visual at the moment of the broader trend of incumbents using old laws to block modern commerce, while hiding behind the facade of public safety and the 21^st Amendment. All this is done for a few large businesses at the expense of thousands of American family businesses and millions of consumers.

The good news? Judicial review still exists. And that’s exactly where this is headed next. The courts have already sided with direct shippers before and they’ll likely do so again. We won’t stop fighting the good fight because we know we are on the right side. Consumers deserve better. Wineries deserve better. And Virginia deserves better.

The wine industry is at a crossroads and if you think we can turn this ship around under the current iron curtain of the three tier system then you are mistaken. It’s been an interesting 90 year experiment. Let’s now see if direct sales (both consumer and trade) is the way forward.

Maine has had a recycling program in place since 1976, and wine has been included since 1990. I see bottle bills as an added tax on consumers to fund a state program. The core issue I find with the Maine bottle bill was that the rules were set up to work well for wineries operating within the wholesale tier without any consideration for the hundreds of small producers selling into the state directly. There are 30 wineries in Maine, only a few of which have a DTC shipping permit. There are many hundreds of out of state wineries that carry a permit to ship into the state. The exact number is not shared by the state.

It appears to me as though the expectation was that all sellers into Maine had a wholesaler, which we know is not the case. I am not sure if states understand that only around 3% of producers have national wholesale distribution. The wholesalers are certainly not sharing this statistic as they lead states to believe they are supporting the entire industry with their distribution network. In many cases, we see wholesalers carrying more international products than those created by US producers.

I have written previously about these state bottle bills and what is going to happen to labels if all states follow the same path of implementing this new tax on consumers (disguised as a fee). Don’t get me wrong, I am not against recycling at all, and it is important to do so. However, the way states are implementing bottle bills is terrible for both the consumer and the producer. Oregon is following along, Illinois is trying to come up with a new system, but the Maine implementation is a trade killer. Think domestic tariffs, on steroids.

Let me highlight the disruptiveness of this practice to cross-border commerce:

• Their structure adds a massive business burden (tax) to small producers through not only the recycling fees but also the mandatory handling fees to fund the program.

• Producers are forced to select one of three Commingling Groups (Maine Recycling, TOMRA, and Maine Beer and Wine) to pay the taxes to for sorting and retrieving the bottles from the Redemption Centers and delivering the bottles to Recycling Centers. These taxes are 15 cents per bottle charged to the consumer plus 6 cents per bottle to the state.

• These three Commingling Groups are designed for wholesalers, not hundreds or thousands of small direct shippers. They are overwhelmed and do not respond to inquiries from small, out of state direct shippers. I hear one winery managed to reach a group and were quoted a minimum $2,000 set up fee. This structure has to be some form of commerce clause violation or other constitutional breach. Maine requires the recycling tax to be stated on the bottle, unlike California which only requires “CA CRV” on the label

• When amounts change, all existing wine labels become incorrect, forcing costly relabeling for products that could be ten or fifteen vintages old.

If this is not anti-business and anti-consumer choice by the State of Maine, I do not know what is. Their governor and legislators should be ashamed of what they are doing for the residents of their state. This demonstrates how our state governments work to kill US business by over regulating. We have non-businesspeople creating rules with no understanding of the consequences. The complexities of what they thought to be a simple change to a bottle bill hit small producers. They will back out of the state and the state will lose both tax revenue and licensing revenue, and consumers will lose access to their favorite wines

The state can fix this with a few simple ideas:

• Exempt the labeling requirements for out of state shippers that ship less than the 13,000 minimum threshold the Commingling Groups use to calculate their fees

• Allow the shippers to pay the fee annually directly to the state or monthly via the marketplace facilitators that are currently used for the collection of sales and use tax

Having looked at testimony for the bill that was passed to include out of state direct shippers in the bill, there was one comment from a wine industry advocacy group, the Wine Institute. They highlighted that, “it could be prohibitive for some small wineries”, a very soft stance considering this will impact every small winery. The wine industry is routinely affected by the feedback of non-commerce groups and from wholesale associations who actively lobby against small wineries. But why are the national or local wine associations not providing feedback?

To conclude, I believe recycling is the right thing to do, but the approach from states on this matter has not taken into account all players, only those with the largest volume. 99% of US wineries are small, with only a few percent having national distribution. The vast majority of wineries are managing their own direct sales to states and items like Maine’s Bottle Bill make doing commerce in that state prohibitive at the expense of the consumer choice.

Next time you’re in Maine and would like an Oregon Pinot. Shame. You’ll be stuck with whatever mass market, mass produced, most likely international wine that the wholesalers are providing in that state. Another loss for the consumer in Maine and another blow to small domestic family-owned producers.

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A recent state audit found Michigan's Liquor Control Commission failed to monitor $1.6 billion in spirits sales while nearly $1 million in inventory went missing. Yet instead of fixing these massive oversight failures, Michigan aggressively targets small wine producers for direct-to-consumer shipping violations using $317,000 in taxpayer funding secured by wholesale lobbyists—a textbook case of regulatory capture that protects incumbent distributors while undermining family-owned wineries.

Michigan is a control state for spirits. This means that in the state of Michigan, the Michigan Liquor Control Commission (MLCC) is the monopoly wholesaler for spirits, buying directly from producers, managing warehousing via Authorized Distribution Agents (ADAs), then selling to retailers. Michigan controls the rules, enforcement, and profits of this middle tier granting sub-monopolies to certain beer and wine wholesalers. Strange - sounds illegal on paper, but not an uncommon practice in the US since the end of prohibition.

When prohibition ended and the concept of the three tier system was crafted, this middle tier (wholesale distributors), were set up for the safety and protection of the customer and financial interests of the state regarding tax collection. With the state so involved with the commercial process of wholesale distribution, questions arise about how well these mandatory middlemen are doing this job in the market and how conflicted are they between protecting their own sales verses those of the modern direct shippers.

The answer is appalling.

Starting with a recent story as reported by Crains Grand Rapids Business in 2025, “Official audits of the Michigan Liquor Control Commission over two consecutive fiscal years found the agency failed to oversee $1.6 billion in spirits orders, raising questions about its ability to verify tax payments on a significant portion of state liquor sales.”

“These audits were conducted by the Michigan Office of the Auditor General (OAG). The audit report also stated “that nearly $1 million in liquor inventory went missing from the MLCC in 2022. This included over 62,000 state-owned bottles of liquor.”

For a full copy of the audit report, please click here.

I repeat, the purpose of Michigan being a control state and for control states to exist is about accountability and public safety, but these audits show it’s failing on its core responsibility.

I reckon the AG’s office should be prosecuting those responsible for this massive loss of oversight, loss of products, and potential subsequent loss of taxes. Or they should at least come down on those responsible in the MLCC, as the MLCC does on direct shippers.

The Irish Liquor Lawyer expands on the situation in MI more in this helpful article.

The anti-direct sales association

Now why do I care about the three tier movement of spirits? It’s not that I am a staunch reporter of their failures, it’s that I want to highlight the opportunity cost of what Michigan is doing throughout the year when it clearly cannot manage its own house.

The private side of wholesale alcohol distribution is represented by the Michigan Beer and Wine Wholesalers Association (MB&WWA). Their website states that since 1948, they have “advocated for alcohol laws that create access to the beverage alcohol market on a level playing field for all participants.”

I’m here to tell you why that is false.

First, the MB&WWA actively “helps” fight DTC as they claim it erodes their market dominance. Doesn’t sound like a very level playing field to me.

They do this by requesting and reviewing carrier (UPS & Fedex) manifests and turning producers in to the MLCC that they feel are illegally shipping and not paying taxes. In response to this we see the AG’s office files 21^st Amendment suits against small out-of-state shippers and comes down hard on them to set an example.

Now what part of that screams level playing field to you?

The MB&WWA and the AG’s office are clearly anti-direct sales (both to consumer and self-distribution) and are causing blatant damage to the industry and most importantly the family-owned producers in this country. All to protect their businesses. Forget the free market principles.

To further advance their role in the market, the MB&WWA claims one-third of bottles shipped to Michigan directly are unreported by shippers.

The MB&WWA got to this number frankly by using ridiculous math. They use the weight of a box supplied by the carriers (note the box weight includes the bottles, cans, and all the protecting packaging) to estimate the number of bottles and compare this to excise taxes paid on that package. However, if producers are sending products to their wholesalers at any time via a common carrier, then those sales would not include excise tax and would skew the overall numbers greatly as the wholesale number is a separate line item. Talk about making numbers fit their crazy rhetoric. Also, producers send other items in their boxes such as business swag (t-shirts, hats, glassware etc.) all adding to the weight and distorting the numbers that the association makes up. They aren’t concerned about the truth as we have already established in their mission statement. They are concerned about protecting their interests.

Evidence of Regulatory Capture

The terms regulatory capture describes what’s going on in Michigan.

Regulatory Capture is a situation where a government regulatory agency, intended to act in the public interest, instead, advances the commercial or political interests of the industry or entities it is supposed to be regulating

We see Regulatory Capture in many other states, such as Virginia, that I have written about previously. When examining Michigan, you see clear evidence of Regulatory Capture.

The MB&WWA actively advocates to the legislator for the inclusion of a "direct shipper enforcement revolving fund" in the state budget. This fund, which in a recently proposed budget was allocated $317,000, is specifically designated for the MLCC to investigate and audit direct shipments of wine.

This could be seen as an instance where a regulated industry actively shapes the MLCC's enforcement activities in a way that benefits the industry's interests by limiting competition.

Now think about how much better the MLCC would do if they redirected those funds to manage the $1.6 billion they lost sight of, instead of doing the wholesalers’ bidding and attacking small family producers of wine from around the country.

They could even use those funds to clean up the state’s DTC process. The funny thing is, the better the DTC market in Michigan, the better the wholesalers would do in the state, as the direct sellers would be growing the overall market and the wholesalers could see the exact brands that were performing and would benefit from a retail presence. Yet, at the moment, we’re stuck with the wholesalers that are shrinking our domestic market, and flooding Michigan with imported products in complete contradiction to helping US businesses grow.

The MLCC should start channeling the DTC enforcement funding into their own audit system for two reasons:

1. To not be controlled by the wholesalers

2. To ensure their house is in order prior to worrying about small amounts of DTC sales that the department is spending large sums to manage and enforce

While it's important to note that this isn't a direct payment from wholesalers to the MLCC, it's clear that the wholesalers, through their lobbying efforts, play a significant role in ensuring the MLCC receives the funding needed for direct shipping enforcement. Tom Wark talks of this in more detail in his Fermentation blog.

The MLCC does continue to enforce the rules on direct shipping independently, including securing fines and taking legal action against illegal shippers. However, the wholesalers' influence on the funding for this enforcement is a noteworthy aspect of the Michigan alcohol regulation landscape.

International products and Michigan

Get this, Michigan and the Michigan wholesalers can distribute any international products, yet domestic producers are banned from direct sales of products “made” with any amount of international fruit. Once again, a demonstration of too much power given to a single sales channel and the regulatory capture of the agency overseeing the marketplace.

Consumer privacy and the MLCC

We also have the privacy and civil rights concerns of the general public in Michigan. I was wondering how the MB&WWA could make some of their claims that one-third of DTC shipments go unreported.

According to the MLCC Common Carrier Quarterly Report Michigan law requires common carriers transporting alcoholic liquor into the state to submit quarterly reports to the Michigan Liquor Control Commission (MLCC). These reports include: 

• The name and business address of the shipper.

• The name and address of the recipient.

• The weight of the alcoholic liquor delivered

• The date of delivery. 

The MB&WWA would obtain this data from the MLCC, which presumably makes this information available to relevant parties or the public as part of its regulatory oversight.

So, the MLCC first obtains customer data from common carriers, who apparently provide this information to anyone who requests it. Anyone want to sue the MLCC for the disclosure of personal information that lets the world know that you bought alcohol and where you bought it from?

How to fix this

I should not just cast stones without giving them a solution, so here are my suggestions for MLCC to increase efficiency, cut costs, and improve compliance levels:

• Stop the need for COLA registrations for direct shippers. This is a process that adds no value. The labels are already federally approved. If they need to do this for wholesalers still to enforce their franchise laws, then so be it for that sales channel.

• Remove quantity limits for buyers/sellers. This is an unnecessary roadblock that causes more work for the agency to check but is not something consumers face via retailers in the state.

• Have DTC shippers send them the tracking numbers and order numbers for each shipment. They can talk to New Hampshire, a state that has successfully run this model for around twenty years.

These three simple changes would make it much easier to manage the DTC sales and greatly increase enforcement and taxes collected. They could then apply the general funds for enforcement of DTC towards their internal monitoring systems and bring the relationship with the wholesalers in line.

Everyone would win - the consumer, the country's producers, the overall market, and the state would lower its costs and increase its revenue.

Just like the Michigan wholesale associations, I too want to advocate for alcohol laws that create access to the beverage alcohol market on a level playing field for all participants, except in my case, I am not going to do it at the expense of other parts of the market.

Call me crazy but a level playing field means just that.

Here is a great model to follow and is gaining wider industry support. Add your name as well. National Direct Shipping Bill of Rights - Craft Wine Association

• The Virginia Wholesalers state their core mission is not supporting the market, but protecting the three tier system.

• Wholesale distributors dominate the contributions to Virginia legislators and the Virginia Attorney General.

• Virginia beer and wine wholesaler statements on the industry protect their interests at the expense of category growth

Virginia beer and wine wholesalers do everything they can to maintain their relevance, all at the expense of the industry. They bully their large home state producers, who are terrified that their products will not be distributed if they dare ask for better service or better privileges that circumvent the wholesale tier. I’ve been told the local Virginia winery association is paralyzed in fear of consequences to their members if they push for change against the wholesaler tier, even though it would benefit the overall market. The wholesalers also completely outspend producers via contributions to legislators to help protect their position on the market. See table below.

Wholesalers claim health and safety concerns: Show me one

The wholesale tier, their associations, and legal representation continue to espouse that they have to maintain the three tier system because alcohol products are “inherently dangerous if abused”. Shovels can be inherently dangerous if abused, but I can still buy a shovel from a manufacturer. The only positive from their latest statement are the words “if abused”, which is an added softening of their stance. The reality is the wholesale tier does nothing, zero, nada, when it comes to health and safety of products. They are not involved in the sale to the end consumer, that falls to bars or retailers. Their claims of health and safety are nonsensical. The wholesale tier is not involved in age verification, sales tax collection, or any other aspects of safety. To claim otherwise is a blatant lie to those involved in the industry and to the legislatures tasked with setting laws to regulate and grow a thriving but currently throttled traditional American industry.

Core mission: Very misplaced

In official court documents the Virginia Wine Wholesalers Association and Virginia Beer Wholesalers Association said, “The core mission of both VWWA and VBWA is the preservation and protection of Virginia's three-tier system of alcohol distribution.” You would think that it would be a core mission of an alcohol distribution company to support the industry and its participants, i.e. producers, retailers, themselves, consumers, but that is not the stated mission. Their goal is preservation of themselves and of their right to make money off every bottle sold in a state, even though the model they cling to is 90 years old and failing nearly every other participant in their antiquated tier system. They do go on to say the system they support “fosters healthier competition, improved consumer choice, and community safety”. None of this actually happens with a mandated wholesaler involved in the transaction. To repeat, all the services they perform can be completed without a mandated structure. The free market will select the appropriate route to market, of which for some companies the wholesale tier is the best.

Wholesale associations often justify their opposition to direct-to-consumer (DTC) reform with dismissive lines like “however inconvenient it may be to the applicant’s business model”. In plain terms, that means, we don’t care if the current system makes your business unworkable, the law comes first, and your model needs to adapt. But that logic cuts both ways. If wholesalers find it “inconvenient” to be constrained by the current structure, limited to traditional distribution, reliant on scale, and increasingly cut out of DTC growth, that’s not a flaw in the system. That’s the business model they chose. Just like they tell small producers to adapt, wholesalers made a bet on the old way of doing business. The market is evolving, and legislators are expanding access through self-distribution and DTC, and that’s market progress. Wholesalers should stop complaining about the erosion of their gatekeeper status and use their financial and political power to open and expand markets, not lock them down. The wholesale associations also make claims that rules are “not there to stifle any particular enterprise”. Well of course the regulations they push are there to stifle everyone but the wholesalers, otherwise the wholesalers would welcome and support new and innovative models, which once again would grow the overall market, AND the wholesalers. Am I starting to get repetitive?

The wholesalers do not “promote health, safety, welfare, convenience, and prosperity of the people of the commonwealth of Virginia” – this is such marketing nonsense once again. They are there to protect their businesses and the financial money machine they have had the luxury of owning by getting a piece of every sale, whether they contribute to the process or not. By example, over 80% of the products distributed by the wholesalers are NOT of Virginian origin. In fact, they routinely promote international products over domestic products, which puts money into the pockets of international shareholders as opposed to small family US wineries. When I see wholesalers make their claims, they are “never” supported by real statistics, because up until now all conversations have been behind closed doors. Again, they are the ones telling legislatures that they sell “products that are inherently dangerous”.

Wholesalers ensured the DTC structure was messy

Wholesalers in VA state “the enormous growth of the direct-to-consumer market has costs for Virginia, chief among them is the time-consuming and labor-intensive task of investigating and enforcing compliance”. This is a fact-less claim. The following comment made by the VWWA and VBWA in official court documents, provides the answer to the above problem they identify “Both VWWA and VBWA were heavily involved in the early design and development of Virginia's ‘direct-to-consumer' licensing and shipping scheme”. The associations understand the direct sales business and use that to their advantage to intentionally add complexity. Their direct involvement has created speed bumps, which have made it time consuming for regulators to manage, not to mention slows the progress of emerging brands, leading to product fatigue in the retail setting, dropping sales, and thus hurting three tier’s own bottom line. Wholesalers – look at the big picture!

Cost to the state

In reality, DTC is easy for states to manage. DTC sellers increase the effectiveness of tax collection as it is all reported and paid directly online, with full transparency of knowing who bought, where it went and how much. In fact, the biggest impediment and cost to the state is the unnecessary monitoring of shipping quantity limits, a requirement not put on retail stores. Put DTC shipments on parity with retail stores and a whole section of unnecessary monitoring goes away. Just ask any state that does not have this impediment. My suggestion is always to add tracking numbers to state reports, which would streamline the state’s enforcement of unreported sales. States like New Hampshire can be a model, as they have been doing this successfully for close to twenty years. It is the state’s responsibility to get advice from those that know how the markets work, and they could very quickly and easily cut cost and time and begin redirecting resources to where they would truly help, like illegal shipping, words that their own board have stated in private hearings. The wholesaler’s decision to ignore modern technology, blatantly lie about their role in the industry, and funnel millions in legislative contributions, manipulates the way legislatures see the market. It’s unethical.

Wholesalers in Virginia need to live by their words and live by the channel they chose “no matter how inconvenient to their operations” and leave the other channels alone. DTC is the onramp to wholesale. By throttling DTC, they throttle their own future cash flows.

An update on VA ABC hearing

I have said it before, and I will say it again; the VA ABC leadership represents a terrible organization that will go to any lengths to prevent the legitimate modernization of state legislation. They make up definitions and rulings that are not set in any precedents. And let’s be clear, when legislators are silent on an issue, it’s not an invitation for agencies to make things up. Lawmakers in Virginia are precise when they want to make a point. If something isn’t spelled out, it’s because they didn’t intend it. VA ABC’s job is to enforce the law, not rewrite it.

Ask yourself: if 75% of the producers in a state use a platform to help their business, yet the state agency works as hard as it can to close down the platform, who are they really acting on behalf of? Follow the money.

I believe the VA ABC has lost sight of what their state legislators wanted for their constituents. To clarify, I will outline the key legislated requirements for direct shippers:

• Licensed direct shippers who agree to make books and records available for inspection up to a certain time period.

• Report and pay taxes – both sales and excise taxes as if the sale takes place in the state.

• Age verification of the buyers at both the point of purchase and delivery (notably, local ABC stores fail at this significantly more than online sellers).

• Adherence to monthly quantity limits – a wholesale compromise since local retailers do not have this restriction. Removing this requirement would eliminate an entire layer of complexity.

• Applying an adult signature sticker to the box – easily managed by wineries, direct shippers, or fulfillment facilities.

• Use of an approved common carrier – whether that be UPS, Fedex, one maybe one day USPS (that’s a blog post for another day).

Those are the things the legislators care about as they allow for management, enforcement, and provide safety.

What the legislation does not state, meaning the legislators do not worry about these details, or they would have been specific like they were about requiring the seller’s license number on the shipping label (quite detailed, I would say):

• Who applies the adult sticker on the box - Preprinted boxes blow their minds.

• Where the product ships from - The legislators’ concerns were around where the books and records were kept for inspection.

Understanding the legal framework helps clarify why these distinctions matter. The state is licensing direct shippers to allow them to ship from out of state to customers in Virginia. They are not dictating how out of state businesses operate because they lack jurisdiction to license businesses in other states—they simply license the right to ship to Virginia customers. The 21st Amendment provides the state the right to manage what happens "within" their state, not what happens in the process of getting products to residents until those products cross the border or are "imported" to the state.

Many of you may think, “this guy” hates wholesalers, but that is not 100% true. I very much dislike their monopolistic, mandated nature. They serve a purpose in the industry and will continue to do so. They may even serve a greater purpose if they stop throttling the whole darned industry.

As I have laid out in earlier articles on my observations of regulatory capture at the Virginia ABC and the absurd hearing process where the VABC appeals their own administrative law judge’s (ALJ) decisions, the agency appears to actively hunt for ways to stop direct sales. The pattern has become so predictable that we can forecast outcomes before hearings even occur.

The usual suspects: Wholesale associations & their anti-consumer agenda

I always caveat that I’m not anti-wholesale. I am opposed to the mandatory nature of the three-tier system, franchise rules, and the dominance of wholesaler associations in contributing to legislators to ensure their protected position remains untouchable. While this dynamic exists in many states, Virginia’s version makes it particularly easy to see how the game is played.

The Virginia Wine Wholesalers Association and Virginia Beer Wholesalers Association, both represented by Marston & McNally, P.C. and their partner Mr. Kevin McNally, are what I would consider a first-class demonstration of anti-American business practices. They do not believe in consumer choice, they do not believe in free trade, and they will do anything to protect their personal profit interests over both state tax revenue and consumer choice. What’s more, is their willingness to document this opposition in their official state filings against any new and innovative processes unless that process directly benefits their business model.

Predictable outcomes and last-minute interventions

In my last article, I outlined how the state was appealing its own ALJ findings and pointed out that there will be a Board hearing shortly. With regulatory capture in full effect, we can see the ending before it happens – it’s unfortunately comical to watch it all unfold.

True to form, at the last minute, Mr. Kevin McNally states he is going to file an Amicus Curiae Brief in favor of the VABC. Of course he is. This unheard of move in a VABC administrative hearing serves the same goal as always: curtailing consumer choice and making navigating of the rules as difficult as possible, even when it reduces state taxes, solely to protect the profit interests of the wholesalers, who have no axe to grind beyond market protection for their members.

The contradiction of “modernization”

I found it ironic reading Governor Youngkin’s article, talking up a story of modernization and regulation reduction, yet the judges in his state make comments (supporting the VA ABC) like: "VinoShipper may have developed an innovative and efficient wine-shipping model that is ideal for a "'just-in-time' digital economy," but that model does not currently comply with Virginia law."

Funny how the initial judge in the same case found the opposite to be true, that the model did comply. But when you try to change outdated laws, you find every interested legislator has received contributions from the wholesaler associations who will fight any changes. Meanwhile, the Governor demonstrates no intention to deregulate and modernize the beverage alcohol sector. Do note the current CEO of the VABC, Dale Farino, served as President of the Wine Wholesalers Association from 2019-2023.

The VABC’s own compliance problems

Adding insult to industry, I’ve mentioned in my previous articles that the compliance rate of the VABC-run stores is significantly lower than the documented online transactions of direct shippers to Virginia consumers. This must be embarrassing for the VABC. They cannot control their own sales operations yet cast stones at companies that do a better job.

The predictable path forward

Keep an eye on this case, though the outcome is predictable due to regulatory capture. As an observer of the Virginia ABC and their actions, it’s clear they are not serving Virginia, its residents, its wine industry, or the country in a positive fashion.

Add to this the current administration’s stated desire to grow US business and reduce costs to the US consumer. The administration and state should look no further than the alcohol beverage industry to find opportunities to help rather than roadblock innovation and efficiency.

To the regulators, this is just a paycheck and keeping their wholesale masters happy. To those of us in the industry, it's a livelihood that creates real jobs in this country – something those collecting government paychecks don't worry about when they clock out at 5.

After Virginia ABC's own administrative law judge ruled against the agency in our case, they exercised their right to appeal. This presented an unusual situation: an agency appealing the legal findings of their own employee to their own administrative board.

The hearing process breakdown

The sequence of events that followed illustrates the dysfunction in Virginia ABC's regulatory process:

• The hearing was initially scheduled with appropriate notice to all parties.

• A few days before the proceeding, Virginia weather forecast predicted a significant snowstorm, and the hearing was properly postponed.

• With a new hearing date established, all parties prepared accordingly - attorneys and witnesses arranged travel, including flights.

• Two hours before the hearing was scheduled to begin, Virginia ABC announced they would be introducing new evidence, including testimony from an out-of-state expert witness.

This created several problems. Appeals are typically decided on the original record of proceedings, and the introduction of new evidence fundamentally changes the nature of the hearing. The timing of this disclosure - when the agency would have known days in advance of their intention to present additional evidence - suggests either poor planning or a deliberate, deceitful strategy to everyone’s time and money, or both. In traditional court proceedings, such late disclosure would likely result in the evidence being excluded. However, when an agency controls its own hearing process, different standards apply, apparently.

Once everyone arrived at the Virginia Alcoholic Beverage Control Authority HQ, the Virginia ABC Board demonstrated a fundamental misunderstanding of the appeal process. They expected our legal team - the prevailing party from the original decision - to present arguments supporting the administrative law judge's ruling. This revealed a concerning gap in understanding: in any appeal, the burden falls on the appellant (in this case, Virginia ABC) to demonstrate why the original decision was incorrect. The prevailing party only needs to defend against the appellant's arguments.

The hearing was ultimately rescheduled to allow proper notice regarding the new evidence Virginia ABC sought to introduce.

Following the rescheduled hearing, where Virginia ABC presented their additional evidence and expert testimony, the same administrative law judge issued his second ruling. His conclusion remained unchanged: Virginia ABC's interpretation of the regulations was legally incorrect.

The agency then had 30 days to file another appeal. On the 29th day, they did exactly that.

It took 29 days to write a three-sentence appeal, with one of their grounds for appeal being the administrative law judge exceeded his authority in issuing his decision. This argument is particularly troubling given the Virginia ABC had requested the remand for the judge to hear more evidence. Realizing this didn't serve in their best interest, they are arguing the judge lacked authority to rule on the very evidence they insisted on presenting.

Virginia ABC is now arguing to their own board that their administrative law judge has been wrong in his interpretation of the law not once, but twice. It will be interesting to see how the Board now rules. They have two choices.

1. They confirm that their independent law judge was wrong twice, or

2. The Board, as non-lawyers, decide that they know the law better than their own judge and side with the VA ABC.

Broader implications

This case illustrates several concerning aspects of Virginia ABC's operations:

• Resource allocation: The agency is spending considerable taxpayer resources - including hundreds of thousands of dollars in legal fees, hearing costs, and administrative time - to overturn decisions made by their own employees.

• Regulatory consistency: When an agency consistently appeals its own legal determinations, it raises questions about the coherence of their regulatory framework and the independence of their legal analysis.

• Market impact: During this extended legal process, Virginia consumers continue to face restricted access to products that Virginia ABC cannot provide, while the state loses potential tax revenue from sales that could otherwise occur.

• Competitive fairness: The ability to repeatedly appeal internal decisions creates an uneven playing field where Virginia ABC can use procedural delays to maintain restrictions on competitors while facing no similar oversight of their own operations.

As a side note, I would like to include that data reveals that Virginia ABC's own retail operations have lower compliance rates than licensed direct shippers. You would expect them to embrace and not fight against new and improved systems.

The bigger picture

Virginia's Governor frequently promotes the state as business-friendly, but the alcoholic beverage industry faces a different reality. Virginia ABC's regulatory capture by wholesale interests creates deliberate barriers for producers seeking direct consumer access, protecting influential wholesalers at the expense of an industry that generates substantial tourism revenue, jobs, and tax income for the state.

This dysfunction extends beyond Virginia to other states as well, where agencies have financial stakes in the industries they regulate.

The solution requires structural reforms separating regulatory functions from commercial operations to ensure that businesses and consumers no longer bear the costs (higher prices) of a system that serves agency interests over public benefit.

As reported in The Drinks Business, "The owners attributed their downfall not to a lack of demand but to what Hlebichuk described as an 'oppressive regulatory' climate..." This reality is playing out across the country, where our regulatory structure actively damages domestic alcohol businesses rather than supporting them. Read the full article here: https://www.thedrinksbusiness.com/2025/04/the-montana-distillery-files-for-bankruptcy/

I am not saying that this distillery would have been saved, but our US regulatory structure does nothing but damage our industry’s businesses.

There are three clear sales channels for all beverage alcohol producers: direct to consumer, direct to trade, and wholesale. Legislators have a responsibility to ensure that all channels are freely open to producers, rather than being swayed by wholesale propaganda that falsely positions the mandated wholesale channel as the only channel available. The current restrictive system is failing to serve the needs of 99% of producers.

The argument that the three tier system is legitimate because courts and states enforce it is protectionism for one type of seller. This isn’t a legitimate justification, in fact, it is backward thinking at its worst.

By closing off any channel in favor of another, legislators and courts are creating a regulatory environment that actively discourages domestic businesses. While tariffs are making the news, as I mentioned in my previous post, without changes to our bad regulatory environment, all the hoopla the current administration is creating will amount to nothing for domestic business.

Our family craft producers (the 99%) create many of the hospitality jobs, tourism opportunities, and tax dollars that are important for states to maintain a healthy economy. Yet our legislators and consequently regulators are the ones preventing domestic businesses from surviving, ultimately letting down the country while driving business overseas.

Growing domestic businesses and domestic employment requires federal support and, more importantly, state-level infrastructure that allows businesses to sell what they make to those who want to buy it. The 21^st Amendment did not stipulate the outdated three tier system. This structure was created, in error, in each state and causes the very problem it was meant to prevent. It is time for legislators to make the necessary changes and for courts to support producers and consumers, with industry associations helping to educate lawmakers. We need to understand that the wholesale channel is contributing substantially to legislator’s coffers, creating bias for their channel. This should not be tolerated.

A true but sad story - when discussing potential legislation in a state recently, I was told “Oh, you need to talk to the wholesalers first. If they are not on board, the legislators will never pass the bill.” Everyone knows the system is corrupt, but they are unwilling to change it for fear of losing their donations, and associations for fear of retaliation from wholesalers against their already restricted distribution of home state products. Shame on the legislators for allowing this to happen.

The Montana Distillery’s close is the fault of our regulatory system and this will continue unless all channels are opened. Fear of change and greed are not legitimate reason to hold back change.

This week’s ruling: More of the same problem
This is exactly the problem we see with courts making terrible decisions that negatively impact US businesses, as shown in a recent case where a federal court in California dismissed a winery's challenge to shipping laws. Read the full article here. This ruling demonstrates a complete lack of understanding of how harm and damages are created for producers while reducing choice for consumers. It is time for proper reform to take place.

Following this case, nearly all states adopted these economic nexus rules, giving birth to the concept of the 'marketplace facilitator.' Under this model, if a platform meets certain criteria, it stands in place of the seller, taking responsibility for collecting and remitting all sales tax processed through that platform. A piece of genius really, as it helps sellers who use these platforms, and it helps the state cut down on paperwork and increase its collection of sales tax and in particular from out of state sellers.

Ironically, seven years later, the very state that championed these changes is now contradicting its own legal framework. South Dakota's Department of Revenue, specifically its alcohol division, is now asserting that alcoholic beverages should be exempt from marketplace facilitator rules. This position stands in direct opposition to the state's own legislation, which clearly states

10-65-5. Certain marketplace providers required to collect and remit sales tax--Criteria. Notwithstanding any other provision of law, a marketplace provider is subject to chapters 10-45 and 10-52 and shall collect and remit sales tax on all sales of tangible personal property, products transferred electronically, or services for delivery into this state, that the marketplace provider makes or facilitates for a marketplace seller if the marketplace provider:

(1) Is a seller subject to § 10-64-2;
(2) Facilitates the sales of at least one marketplace seller that is subject to § 10-64-2; or
(3) Facilitates the sales of two or more marketplace sellers that, when the sales are combined, are subject to § 10-64-2, even if the marketplace sellers are not separately or individually subject to § 10-64-2.

The law clearly provides no exclusions for alcohol products, making the DOR's interpretation particularly problematic. So, you either have an illiterate department or a department that believes it is above the law and so does not have to follow its own regulations and can make up its own interpretations. This overregulation without benefit is the nemesis of our industry.

The DOR's interpretation undermines multiple benefits established by the marketplace facilitator framework. States previously struggling with fragmented tax collection now receive consolidated payments from marketplace providers, significantly reducing administrative overhead. This streamlined approach allows businesses to operate with simplified compliance procedures while ensuring more efficient tax collection, especially from out-of-state sellers who might otherwise be difficult to track and manage.

Our company recognized early on the importance of meeting state requirements efficiently, leading to our adoption of the A.L.T.A. framework. This comprehensive approach incorporates:

• Age verification

• Licensing & Compliance

• Taxes

• Audit trail

Through this framework, we've demonstrated how businesses can effectively meet regulatory requirements while maintaining operational efficiency and ensuring compliance across multiple jurisdictions.

South Dakota's situation reflects a concerning pattern emerging across multiple states. In Virginia, for example, regulatory authorities are implementing similar barriers to efficient marketplace operations, apparently influenced by traditional wholesale channels resistant to modern distribution methods. This trend threatens to undermine the progress made in streamlining tax collection and regulatory compliance.

The federal "Protect Small Businesses from Excessive Paperwork Act of 2025" presents a valuable model for state-level regulatory reform. States need to modernize their regulatory frameworks to align with current business models while reducing unnecessary administrative burdens. This modernization should focus on supporting family-owned craft businesses and enhancing consumer choice, all while maintaining efficient tax collection systems that benefit both state revenues and business operations.

Looking ahead, the South Dakota DOR's current position on alcohol sales marks a concerning regression from the efficiency gains achieved through the Wayfair decision. Their interpretation not only contradicts their own legislation but also threatens to reintroduce unnecessary complexity into tax collection and compliance procedures. This situation calls for immediate attention from policymakers and stakeholders to prevent the erosion of progress made in streamlining state tax collection and regulatory compliance.

We have to hope the federal “Protect Small Businesses from Excessive Paperwork Act of 2025” concepts trickle down to states. There needs to be some severe rethinking at the state level of what departments should be doing to help businesses and not hinder them. When it comes to alcohol, so many of these departments are highly influenced by the old-fashioned wholesale channel. These departments even admit that the influence comes from the wholesale channel as to what they should be doing.

The South Dakota Department of Revenue's approach to alcoholic beverages exemplifies a troubling trend among regulatory departments nationwide. Their interpretation contradicts both common sense and the efficiency principles that drove the original legislation. This regulatory inconsistency creates unnecessary barriers for businesses while potentially wasting taxpayer resources on inefficient collection methods, an approach that Governor Kristi Noem would likely find inconsistent with her administration's commitment to efficient governance and fiscal responsibility.

Even as businesses demonstrate their ability to meet state regulatory needs, regulators are increasingly influenced by the wholesale lobbyists to complicate compliance. This same pattern is evident in Virginia, Tennessee, Michigan and others, where regulators have abandoned logical pathways to improve consumer choice and focus on creating barriers under wholesale channel influence. It's time to overhaul regulatory rules nationwide, a change that would improve consumer choice, help family craft businesses grow, and generate more tax revenue for states while reducing the outsized influence of entrenched wholesale interests. It is the American thing to do, help our family craft businesses.