Trading Grapes: The Case for Direct Wine Shipments in Arizona

Posted on November 18, 2003 | Type: Policy Report | Author: Mark Brnovich
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Executive Summary

Arizona Law prohibits out-of-state wineries from shipping wine directly to Arizona consumers, with few exceptions. A vestige of Prohibition, Arizona statutes require out-of-state wineries to sell their products to licensed wholesalers (tier 1), who then sell to retailers (tier 2), who select which beverages will be available to consumers (tier 3). It is illegal for an out-of-state producer to bypass the wholesaler. This antiquated three-tiered distribution system grants undue power to wholesalers, drives up the price of wine by forcing the product through a middleman, and reduces choices available to consumers.

At the same time, Arizona law allows in-state wineries to sell and directly ship to consumers. Thus, in-state wineries have the ability to bypass the state's three-tiered distribution system. This protectionism cannot be reconciled with the principles of free trade and violates the Commerce Clause of the U.S. Constitution.

Since 2001, laws involving similar three-tiered distribution schemes have been held to be unconstitutional violations of the Commerce Clause in Michigan, North Carolina, Texas, Virginia, and New York. On October 7, 2003, the Institute for Justice filed a lawsuit in Federal District Court to challenge Arizona's system, charging that the system is unconstitutional because it prohibits out-of-state wineries from shipping directly to consumers while permitting in-state wineries to do so.

The Arizona legislature should quickly repeal the prohibition on direct shipment of out-of-state wine. With the court likely to strike down Arizona's prohibition, the repeal will allow the state to avoid costly and unnecessary litigation. But more important, eliminating the three-tiered distribution system will provide Arizona consumers with the benefits of a free market: more choice, greater convenience and lower prices.

Read Trading Grapes here.

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