More News

Wineries decry new sales rule

Officials, lawmaker say restriction could ruin state’s growing industry

Thursday, Feb. 9, 2006

The state Comptroller’s Office stunned Maryland winery officials last week when it told them they may no longer sell directly to Maryland retailers and restaurants, effective March 31.

The restriction could devastate Maryland’s burgeoning wine industry, says Kevin Atticks, executive director of the Maryland Wine Association, a trade group.

Maryland wineries Existing wineries: 22 Wineries in the works: 18 2004 production: 139,000 gallons Production rank among the 35 wine-producing states: 20th in fiscal 2005 Sales: 70 percent directly to retail or restaurants

‘‘If and when this takes effect, it has the potential of putting a lot of small farm wineries out of business,” Atticks said. ‘‘Maryland wineries have relied on the ability to deliver [directly] to the restaurants and retailers in this state.”

Carol Wilson, president of the association and owner of Elk Run Vineyards in Mount Airy, said the prohibition would ‘‘irreparably harm” the industry.

The new restriction helps Maryland comply with last year’s U.S. Supreme Court ruling that state laws that favor in-state over out-of-state wineries violate the Constitution’s Commerce Clause, according to the comptroller’s notice.

Unlike in-state wineries, out-of-state wineries must reach consumers via Maryland’s three-tier system, selling to a distributor, which then sells to retailers, which then sell to consumers.

Industry leaders say the new rule is a reaction to a suit filed against the state last year in U.S. District Court by Robert Bushnell of Silver Spring and Wright Wine Works of Barto, Pa. The plaintiffs claim inequitable treatment of out-of-state wineries under Maryland law. The goal of the suit, said Stephen Wright, owner of Wright Wine Works, is to open up Maryland for direct shipping to consumers.

Wright said the case finds its roots in the office of Indiana lawyer James A. Tanford, who, following last year’s Supreme Court ruling, realized state legislatures would be slow to comply. Tanford began recruiting wineries and consumers to file suit in states — including Maryland — that would be affected by the high court ruling, according to Wright.

A phone call to Tanford seeking comment was not immediately returned.

Jay Cohen of Chevy Chase, the Maryland attorney for Bushnell and Wright Wine Works, said the state reviewed the complaint when it was filed in November and asked for additional time to answer. The case is stayed until April.

Cohen said the plaintiffs would proceed with the suit, even following the comptroller’s order, as state law regarding wine sales would still be unconstitutional.

That may change, however.

State Sen. Thomas McLain Middleton (D–Dist. 28) of Waldorf and Del. Virginia P. Clagett (D-Dist. 30) of West River are sponsoring legislation that would let both in-state and out-of-state wineries act as wholesale entities and sell directly to retailers and restaurants.

‘‘A situation like this could spell doom for Maryland wine,” Middleton said of the new restriction. ‘‘The government has put a lot of time” into helping the fledgling industry, he said, releasing a report and a series of recommendations last year. ‘‘A lot of investment goes into [winemaking]. It takes a vine seven years in the ground to just get to peak production.

‘‘The industry has just started to take off,” Middleton said. ‘‘This could be a killer.”

Middleton expects opposition to his legislation from wholesalers, but said the bill will be a way to get the involved parties to the negotiating table to save the Maryland wine industry.

‘‘Farm wineries are in jeopardy and we need to find a way to save them,” Middleton said, adding that he hopes a resolution is reached by March 31.

Calls to distributors and wholesale distribution associations seeking comment were not immediately returned.

18 new wineries planned

Maryland’s wine industry is set to almost double over the next three years or so, with 18 new wineries in the works, Atticks said. Half a dozen new wineries are poised to open in the next year and a half, including wineries in Dickerson, Mount Airy and Frederick. Wineries, in more preliminary planning stages, are eyed for the Eastern Shore and Calvert and Baltimore counties, and four more in Western Maryland and Frederick County.

The new restriction could quash those plans and drive off investors, Atticks said.

‘‘Four [of the wineries in planning stages] and one other investor are considering other options” to Maryland, he said. ‘‘They have taken the comptroller’s release as a signal of the state’s support of the industry.”

Dan Adams, assistant director of the Alcohol and Tobacco Tax Bureau in the Comptroller’s Office, said Comptroller William Donald Schaefer consulted with Attorney General J. Joseph Curran Jr. regarding the best way to comply with the Supreme Court ruling.

Given the current statutes, he said, state officials ‘‘didn’t have the option” of opening up direct sales by out-of-state wineries to Maryland retailers and restaurants. Curran’s advice was that all wineries should be allowed to sell only to wholesalers, Adams said.

According to the Maryland Wine Association, Maryland wineries sell the lion’s share — about 70 percent — of their wine to retail stores and restaurants.

‘‘We currently sell 68 percent of our products to restaurants and wine stores in 13 counties in Maryland,” Ken Korando, owner of Solomons Island Winery, said in a statement. Korando founded Solomons Island Winery in 2004 and believes he will be out of business — as will all farm wineries in Maryland — after the new ruling takes effect.

Only three Maryland wineries are large enough to have — and have — distributors, Wilson said. One of the problems, she explained, is that there is a 30 percent markup involved when dealing with a distributor, and the smallest, newest wineries have business plans based on direct sales.

Also, ‘‘unless there is a huge demand for [a specific winery’s product], the wholesaler isn’t benefiting from [having that winery] in their portfolio,” so many wholesalers won’t even carry the smaller wineries’ products, Wilson said.

‘‘We are reviewing our options — both legal and legislative,” Wilson said in a statement.