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Wineries press their case

Lawmakers consider proposals regulating direct sales to restaurants and retailers

Friday, March 10, 2006

Maryland winemakers and distributors sparred this week in Annapolis, as lawmakers considered bills that winemakers say could determine the fate of their burgeoning industry.

Following a U.S. Supreme Court ruling last year and a lawsuit, still pending, on the issue, Comptroller William Donald Schaefer last month issued a regulation prohibiting Maryland wineries from selling directly to restaurants and retailers.

Instead, Schaefer said, to comply with the court ruling, the wineries would have to sell through wholesale distributors, just as out-of-state winemakers must.

Winemakers, most of whom say they are too small to deal with wholesalers, have sought some legislative relief from Schaefer’s ruling.

Two bills —one in the Senate and one in the House — would let all small wineries, both in-state and out-of-state, sell directly to Maryland restaurants and retailers, thus leveling the playing field. Another bill would level the playing field by codifying Schaefer’s rule — set to take effect June 1 — into law.

On Tuesday, Sen. Thomas McLain Middleton (D–Dist. 28) of Waldorf, testified before the Senate Education, Health and Environmental Matters Committee on his bill, which would overturn Schaefer’s regulation, allowing all wineries that produce less than 40,000 gallons annually to be licensed as their own distributors and sell directly to retailers and restaurants.

Middleton reminded committee members that Maryland’s move to viticulture was a conscious decision by the state to preserve the farmland where tobacco once grew.

‘‘Agriculture is a part of the history of Maryland,” Middleton said.

‘‘When you look at wine production in this state, [the industry] is right at its infancy,” he said. ‘‘The Supreme Court decision and the, I suppose, necessary action taken by the Comptroller’s Office avoided more stringent [measures, but] it substantially reduces the wineries’” ability to grow.

Passage of his bill could help lead to ‘‘a $5 million to $100 million industry in the next five years,” Middleton said. ‘‘Our job is to fix it, to preserve the wineries here in the state.”

On the other side of the issue was lobbyist Bruce C. Bereano, representing the state’s wholesale distributors of liquor and wine. Bereano argued in favor of Senate Bill 877, sponsored by Sen. Joan Carter Conway (D-Dist. 43) of Baltimore City, supporting Schaefer’s rule.

Conway said Middleton’s bill ‘‘might create an economic disadvantage” for Maryland wineries.

‘‘I don’t fear the competition” from out-of-state wineries, said Al Copp, owner of Woodhall Wine Cellars in Parkton. ‘‘I’m already selling against the world.”

Aris Melissaratos, secretary of the Department of Business and Economic Development, Melissaratos told the committee that DBED ‘‘is working together with the Department of Agriculture as never before. ... Maryland is making [a strong] effort to replace tobacco with” grapes and wine.

He said he hoped that the wineries and distributors could work out a non-legislative solution.

‘‘I see potential for compromise,” Melissaratos said.

Winery owners and representatives of the Maryland Wineries Association were less optimistic than Melissaratos.

Copp told the committee that he has been associated with wholesalers three times in 20 years. The first wholesaler, which was small, he said, ‘‘went out of business. The second one dropped my retail business by two-thirds.”

Later, he said, ‘‘one of the largest distributors in the state wooed me. They came to me. Three years later [around Christmas] I got the call that they were dropping me.”

Ken Korando, owner of Solomon’s Island Winery, said he approached wholesalers last year, but they told him they could not make a profit selling Maryland boutique wines such as his.

Bereano, however, said ‘‘wholesalers fully support [Maryland’s] wineries.”

‘‘What is not being emphasized here is that [Middleton’s bill] will allow out-of-state wineries to direct sell [to retailers and restaurants] within the state,” Bereano said. ‘‘Let’s not give advantages to out-of-state wineries which I think will be damaging to Maryland wineries.”

The state’s wholesale distributors, Bereano said, are willing to work with the wineries, tailoring distribution and marketing efforts to each of the wineries’ individual needs.

‘‘Give us a chance over the next six months to show we can do it,” he said.

Bereano pointed out that of the 11 million gallons of wine sold annually in Maryland, only 1.4 percent is produced in the state. With a portion of that already sold through wholesalers, he said Middleton’s legislation ‘‘is about 20,000 gallons of wine.”

‘‘If we’re only talking about 20,000 gallons, then what’s the big deal?” countered Sen. James Brochin (D–Dist. 42) of Towson.

If Maryland winemakers ‘‘don’t have a concern [about Middleton’s legislation], then why do you have a concern?” Brochin asked Bereano.

Bereano didn’t answer Brochin. Instead, he called the 40,000-gallon cap unconstitutional. He repeated his request for six months for wholesalers to work with the wineries, asking lawmakers what distributors did ‘‘to earn [lawmakers’] distrust.”

‘‘We’re not talking about trust here,” replied Sen. Paul G. Pinsky (D–Dist. 22) of University Park. ‘‘We’re talking about cost.”

‘‘We can’t hold back for fear of a court case. The legislature needs to do what’s right,” said Sen. Allan H. Kittleman (R–Dist. 9) of West Friendship.

Charles Daneri of Frederick Cellars, which he expects to start producing wine in the next year, told the committee he harvested his first crop last year, has invested $80,000 in savings and has taken out $400,000 in small-business loans backed by his home and retirement.

He called Conway’s bill, supporting Schaefer’s ruling, a serious blow to his business, while Middleton’s proposal would allow his winery ‘‘to grow to the point in order to be offered the services of wholesalers.”

Kevin Atticks, executive director of the Maryland Wineries Association, said it may take a week or more for the committee to act on Middleton’s bill.

‘‘The concept needs to be understood, that Maryland wineries are their own best marketers,” Atticks said. ‘‘None of these wholesalers have the wherewithal to promote local product.”

On Monday, the House Economic Matters Committee heard testimony on a companion bill to Middleton’s proposal introduced by Del. Virginia P. Clagett (D-Dist. 30) of West River. Atticks said the committee seemed supportive.

Including Clagett, 79 of the House’s 141 delegates — a majority — have sponsored her bill.