Thanks to the language of the Twenty-first Amendment, the body of laws governing the alcoholic beverage industry is a complex system involving regulations set by local jurisdictions (i.e. cities and counties), the states, and the federal government. Under this system, states are authorized to regulate the delivery and use of alcoholic beverages within their borders (intrastate commerce), while the federal government has control over alcoholic beverages in interstate commerce. As such, there are more than 51 different systems of regulation that can impact the wine industry.

I say more than 51 systems because after Prohibition ended, many states chose to return to the pre-Prohibition practice known as the “local option”, which allowed cities and counties to vote on when and where, or even if, alcohol could be sold within their jurisdiction.  The decision is made by the voters, usually by way of a local ballot measure. The most widely known aspect of the local option is the existence of “dry counties” where the sale of all alcoholic beverages is still prohibited within its borders. The local option is still available in 41 states today, though several of those states no longer have any cities or counties exercising the option. The local option is not available in California.

In addition to deciding whether or not to allow the local option, states also chose between being a “license state” or a “control state”. In a control state, the state has a monopoly on the wholesale and/or retail distribution of alcohol. The number of control states has decreased in recent years; Washington recently voted to privatize their liquor industry, and Idaho is looking at getting out of the business as well. Further, control states do not necessarily control the wholesale and retail sale of all alcoholic beverages; some only monopolize wholesale distribution of spirits, leaving wholesale of wine and beer and all retail sales to private entities, others retain full control. The extent of the government monopoly in the control states seemingly varies to every degree in between these extremes, making it hard to know how wine can be distributed in a given state. Richard Mendelson, in his book Wine in America, provides a useful table of the systems in control states as of 2011, but  even this is already out of date. If you are concerned about distribution in a particular control state, an attorney can advise you as to how to get your product to consumers in that state without violating any local laws.

In a license state, such as California, a state agency takes responsibility for licensing private entities to import, produce, distribute, and sell alcoholic beverages. The licenses are strictly controlled – that is, they are not freely transferable – and often come with conditions specific to a particular licensee’s operation. The state agency often controls the number of licenses available in a given area; for example, in California, the ABC will not issue a retail license in an area of “undue concentration of licenses” unless the applicant can show that public convenience or necessity requires the additional license (see, e.g., Cal. Bus. & Prof. Code Section 23958). The agency is also responsible for enforcing the state’s laws, regulations, and rules concerning trade practices, and in some states the alcoholic beverage control agency even collects excise taxes due.  The California licensing system is quite complex, so it will be covered in depth in a later post.

As mentioned above, the federal government regulates alcoholic beverages in interstate commerce. The agency charged with enforcing the two primary sources of federal regulation of alcohol (the Internal Revenue Code and the Federal Alcohol Administration Act) is the Alcohol and Tobacco Tax and Trade Bureau, aka the TTB. The laws and regulations enforced by the TTB cover viticultural practices, wine production, distribution, marketing, and even trade practices (by way of tied-house restrictions). Since the regulations in each of these areas are complex and important, coming posts will discuss them individually in further detail.

If you’re thinking of getting into the wine business for yourself, or taking your home winemaking hobby commercial, an attorney can help you understand the regulations that will apply to your new venture. In the mean time, more background information can be found on the TTB website.


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