The Case that Could Put Small Producer Incentives at Risk

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Earlier this month, the US Court of Appeals for the First Circuit ruled that a Massachusetts law (which gave smaller production wineries additional shipping rights over larger wineries) is unconstitutional because

“... the effect of this particular gallonage cap is to change the competitive balance between in-state and out-of-state wineries in a way that benefits Massachusetts’ wineries and significantly burdens out-of-state competitors.”

The National Beer Wholesaler’s Association’s statement, the day after the decision, sums up the largest issue surrounding this decision:

“This opinion will put at risk laws designed to encourage the development of small brewers, small vintners and small distillers as well as those designed to ensure that alcohol is effectively regulated.”

The Massachusetts law at issue allowed small wineries (those producing less than 30,000 gallons per year) to simultaneously ship wines directly to consumers and to have their wines sold through the traditional three tier distribution channels. Large wineries, on the other hand, could either ship wine directly to Massachusetts consumers (and opt out of other distribution options), or have their wines sold at wine retailers, restaurants, and bars through the traditional distribution methods.

The law did not effect any Massachusetts winery (as in all Massachusetts wineries fell into the small winery category). It did not matter that the law was not discriminatory on its face, the effect of this law, the Court held, was to discriminate against out-of-state wineries.

The court’s ruling, on its face has some potentially serious ramifications for small wineries, breweries and distilleries which receive tax and regulatory incentives at both the federal and the state level. Extended even further, the decision could put at risk small business incentives in other industries.

As with all court opinions, there are limitations to the decision … check in with us Friday for a discussion of some of the factual limitations of the case.