Tag Archives: Tennessee residency

Tennessee residency law: Did the three-tier system come crashing down yesterday?

tennessee residency lawSupreme Court overturns Tennessee residency law – does that mean all of three-tier is in trouble?

Did the Fourth of July come a week early for wine drinkers yesterday? That’s when the Supreme Court struck down a Tennessee residency law that limited who could open a liquor store in the state. As such, a host of legal and alcohol experts from around the country have predicted the beginning of the end of the three-tier system – the series of laws that restricts how we buy alcohol in the U.S. – if the court did just that.

I talked to a couple of attorneys who practice liquor law and they weren’t quite ready to pronounce three-tier dead. Said Lou Bright, the former executive counsel of the Texas Alcoholic Beverage Commission, the state’s liquor cops: “There will be lots and lots and lots of screaming and arguing about this in the coming weeks and months and years. You might consider just reporting the facts of the case with a ‘stand by for further screaming.’  ”

Still, the 7-2 decision seemed unequivocal: Since the residency requirement “has little relationship to public health and safety, it is unconstitutional,” Justice Samuel Alito wrote in the majority opinion.

The key phrase in the decision is “relationship to public health and safety,” which has been the bedrock of three-tier since the end of Prohibition. Every part of three-tier rests on the assumption that each state can regulate alcohol as it sees fit, since it’s protecting the public health and safety. Hence, every restriction in how we buy wine, beer, and spirits in the U.S., no matter how foolish or outdated or left over from the days when Al Capone controlled the liquor business, has been defended in court.

Because public health and safety

• Can’t buy wine on the Internet? That’s the various states protecting our health and safety.

• Can’t buy discounted wine where you live? That’s the various states protecting our health and safety.

• Can’t buy wine in a grocery store where you live? That’s the various state’s protecting our health and safety.

• Can’t buy wine directly from the winery where you live? That’s the various states protecting our health and safety.

• Can’t by a wine where you live even though it’s sold in a neighboring state? That’s the various states protecting our health and safely,

And Justice Alito’s majority opinion seems to turn all of that on its head. He invoked the Commerce Clause of the Constitution, which says states can’t favor their residents ahead of anyone else. That has been the law for more than 200 years, though exceptions had often been made for alcohol laws.

In fact, that was the defendant’s argument in asking the court to uphold the residency law, which made it all but impossible for anyone not from Tennessee to open a liquor store. The defendants said that the state, by essentially outlawing out-of-state chains like Total Wine, was protecting the public health and safety. Resident owners, because they were residents, would sell alcohol more responsibly than anyone else.

The court said phooey to that

But did it say phooey to all of three-tier? Robert Lewis, a partner in the Spiritus law firm in Coral Gables, Fla., told me that many analysts may see the beginning of the end of three-tier in the decision. But he is more circumspect. He remembers hearing the same sort of optimism in 2005, when the Supreme Court allowed direct shipping in its landmark Granholm decision. Many, myself included, expected three-tier to come tumbling down 14 years ago. It never did.

“I think the decision made it more difficult for states to use residency laws to regulate alcohol sales as part of three-tier,” Lewis said Wednesday afternoon. “But I’m not so sure it will affect more than residency laws. The idea that it may change other parts of three-tier, I just don’t see that.”

So the Tennessee decision may make it possible for supermarkets to sell spirits in Texas, which they can ‘t do currently because state law says only residents can get a license to sell whiskey, gin, and so forth. But it probably won’t help consumers in Michigan and Connecticut, where state law mandates minimum wine prices and forbids discounts, 20 percent off sales, and the like. And it won’t help consumers in New York, who can’t buy potato chips in a liquor store (perhaps my favorite part of three-tier’s vast and bizarre grip on the country).

And it almost certainly won’t do anything to loosen the stranglehold that distributors have over the wine, beer, and spirits supply chain. That’s the most fundamental tenet of three-tier, that consumers must buy directly from the retailer and restaurant, and that the retailer and restaurant must buy from a distributor. Only the distributor can buy from the producer (with minor exceptions like direct shipping), something that exists in almost no other consumer goods category. And if a wine doesn’t have a distributor in your state, you can’t buy it – something that will become even more common now that the top three distributors control 60 percent of the market.

Imagine not buying being able to buy a computer from Dell because the state is protecting the public health and safety – and then wonder why we have to endure that in wine.