09.21.2016  
 

A New Era for Wine Sales in East

Recent legislation liberates wineries in Pennsylvania, New York and elsewhere

 
by Linda Jones McKee
 
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More than 350 wine producers have obtained direct shipping licenses in Pennsylvania since Act 39 went into effect last month.

Harrisburg, Pa.—When Pennsylvania Gov. Tom Wolf signed Act 39 on June 8, the new legislation was scheduled to go into effect Aug. 8. Act 39 is a major change in the way wine is sold in the state, and the big question was whether or not the Pennsylvania Liquor Control Board would be ready to implement the bill by that date.

Pennsylvania is just one of several states that will see changes to their direct-to-consumer (DtC) sales laws. Lawmakers in New York, Arizona, Delaware, Illinois and Rhode Island also proposed changes (see below), although some of them do not take effect until 2017, and others died in committee.

Pennsylvania–DtC starts up
An important part of Pennsylvania's new law affects direct-to-consumer (DtC) sales. Under the new legislation, a wine producer may sell 36 cases per year to a Pennsylvania resident of legal drinking age, provided that producer has acquired a direct wine shipper license at a cost of $250 per year as well as a sales tax license. In addition, the winery has to pay $2.50 per gallon sold, Pennsylvania’s 6% sales tax and any applicable local sales taxes.

The good news is that the necessary forms for wine producers were available shortly after the law became official, and by Aug. 17, a total of 16 wineries had signed up for licenses: 12 from Pennsylvania, two from California, and one each from New York and Michigan. Four weeks later, on Sept. 21, the total number of direct shipping licenses was up to 355, with California at 241 and Pennsylvania with 43. New York, Oregon and Washington each have 17 wine producers signed up, and Virginia has nine. Eight other states–Connecticut, Maryland, Michigan, North Carolina, Ohio, Texas, Vermont, and Virginia–have one or two licensed producers currently licensed.

Until this bill was passed and then signed by the governor, Pennsylvania was one of two “control states” (along with Utah), and sales of wine and liquor in Pennsylvania were permitted only at “state stores” owned by the Commonwealth of Pennsylvania and operated by the Pennsylvania Liquor Control Board. An exception was made in 1968, when legislation was passed that allowed “limited wineries” to produce and sell up to 50,000 gallons of wine per year. That amount was raised to 100,000 gallons in 1970, and in 1987 it went up to 200,000 gallons.

The 1968 law gave limited wineries the ability to sell wine to customers at the winery; subsequent legislation permitted wineries to have five additional “licensed premises” where they could sell their wine. In addition, limited wineries were able to ship wine to customers of legal age anywhere in Pennsylvania without an additional license. Wine deliveries from out of state required a special license and had to be sent to one of the state stores for pick-up by the customer.

Jamie Williams, president of the Pennsylvania Wine Association and vice president of the Winery at Wilcox in Wilcox, Pa., told Wines & Vines that under the new legislation, “Limited wineries do have to sign up” and become licensed in order to ship directly to consumers anywhere, including Pennsylvania. As Williams noted, the law “levels the playing field.”

In addition to establishing a way for DtC sales to take place, Act 39 also permits grocery and convenience stores that already sell take-out beer, restaurants and hotels to sell 3 liters (four bottles) of wine to go per transaction. Restaurants, hotels, bars and delis that are appropriately licensed will be permitted to sell the same quantity of take-out wine. For the first time, Pennsylvania wineries will be able to sell their wine in grocery stores if they get the direct wine shipper license. Williams noted, “That gives Pennsylvania wineries another market we haven’t had, but we’re just starting the process of getting into the groceries. We’re still in the ‘shake-out’ period.”

According to Wines Vines Analytics, Pennsylvania has a total of 226 wineries. When asked why less than 20% of Pennsylvania wineries signed up for a direct wine shippers license, Williams responded that many wineries—especially smaller ones accustomed to selling all their through the tasting room—were in a “wait and see” mode. Those winery owners also are not used to selling their wine at wholesale price.

Pennsylvania–wine for sale in grocery and convenience stores
The challenge in Pennsylvania now is for grocery and convenience stores to come up with shelf space and a variety of wines so Pennsylvania customers will have viable choices as soon as possible, and definitely before the holiday buying season arrives. On Aug. 16, a little more than a week after the permits for wine sales became available, 81 grocery and convenience stores had applied. As of Sept. 26, a total of 186 facilities had applied for wine expanded permits. While getting the wine into the stores to begin sales to the public may take some stores longer than others, some stores are moving quickly.

Weis Markets, a mid-Atlantic food retailer with 171 stores in Pennsylvania, Maryland, New Jersey, New York and West Virginia, to date has applied for 34 permits and plans to be selling take-out wine in all 49 of its in-store cafés by Thanksgiving. On Tuesday, Sept. 20, the Weis Markets on Simpson Ferry Road in Mechanicsburg, Pa. was one of the first stores to begin selling wine. Travis Peters, manager of that store’s beer café told Wines & Vines that the shelves were stocked with approximately 80 varieties of wine on Sept. 19, and sales began the following day. Peters reported that the café currently has more than 900 beers in stock and will probably carry about 400 wines. The only limitation to carrying additional wines is the availability of shelf space.

Kurt Schertle, Weis Markets chief operating officer, stated, “We’ve sold beer in our Pennsylvania cafés for more than 10 years, and throughout this time, we’ve been repeatedly asked one question: when are you going to sell wine? Now we have an answer.” He continued, “We want to offer our customers improved convenience and a more complete shopping experience; selling wine in our cafés allows us to do both.”

In order to sell wine, each grocery or convenience store, restaurant or hotel currently holding an “R” license (restaurant license) must apply for a wine expanded permit. The cost? There is a $2,000 fee to apply for the permit, and then an annual renewal fee of 2 percent of the cost of the wine purchased from the PLCB (or from Pennsylvania’s limited wineries) for off-premise consumption.

Other facilities that hold “E” license s (eating place licenses) may request to convert their “E” license into a restaurant license, and then apply for a wine expanded license. Holders of “E” licenses are allowed to sell malt and brewed beverages, and typically are pizza shops, corner stores, or delicatessens. The one-time cost of this conversion is $30,000, and the facility must meet the legal requirements for an “R” license. After that, the re-licensed premise must also apply for the wine expanded license.

New York
New York Gov. Andrew M. Cuomo signed two laws (S5707-A/A7960-A and S5341/A5580) on Sept. 13 that continue the modernization of New York’s Alcoholic Beverage Control Law to reflect the growth in the state of the craft beverage industry. According to Jim Trezise, president of the New York Wine and Grape Foundation, while licensed premises have been permitted to sell craft beverages by the bottle and to give tastes, under the new legislation, “Farm wineries, breweries, cideries and distilleries will be able to sell any New York-made alcoholic beverage by the glass at their production facility or off-site branch store. Until now, farm manufacturers could only sell products by the glass that they produced on site.”

Trezise continued, “This will give consumers more options at the locations which choose to benefit from this change, which will likely attract more visitors and increase their revenues through greater sales. While there is already significant collaboration among the different beverage producers, this new law is very likely to increase it.”

Gov. Cuomo stated, “These new laws further break down artificial barriers and help increase exposure to New York’s world-class beer, wine, cider and spirits, which will help this already booming industry grow further.”

Another bill (S5049) granting a farm winery license to the Grape Discovery Center in Westfield, N.Y., was signed by Gov. Cuomo on Aug. 24. The center is operated by the Concord Grape Belt Heritage Association as an educational facility that focuses on the local grape, grape juice and wine industries, with an emphasis on Concord grapes, which dominate the Lake Erie grape belt. The center already sells glasses of locally made products to visitors, including wine; under the new law, the center will be able to sell wines by the bottle as well.

Arizona
As of Jan. 1, 2017, wineries that produce more than 20,000 gallons will be allowed to get a DtC permit for off-site sales. Under this legislation, wine consumers can order wine from any winery in the country, no matter what its size, without having to visit the winery first. After obtaining a shipper’s license from the state, wineries are permitted to send a maximum of six cases per person in 2017, then nine in 2018, and finally 12 cases in 2019 going forward. Arizona Gov. Doug Ducey signed Senate Bill 1381 on March 31.

Delaware
Legislation to amend Delaware’s Alcohol Beverage Control code was introduced in May 2015. House Bill 134 would permit wine producers holding a valid license in Delaware or another state to obtain a license and ship wine directly to Delaware consumers so long as it is done through a common carrier with a “carrier permit”. The bill requires the payment of taxes and obtaining the signature of a person 21 years of age or older before delivery of the wine. The Economic Development/Banking/Insurance /Commerce Committee scheduled a hearing on the bill for June 15, but that hearing was canceled.

Illinois
Legislation that established tougher penalties for direct wine shipping violations, SB 2989, was signed by Illinois Gov. Bruce Rauner on Aug. 26. Under the new law, any person, winery, importer or retailer who distributes or sells more than 12 cases of wine without a license will be guilty of a felony for each offense. Illegal shipments smaller than 12 cases will be classified as a business offense with a fine, but subsequent violations will be a felony.

The legislation also imposes new reporting requirements on direct wine shipping for both common carriers and fulfillment houses. Wine producers with an Illinois wine shipper license will be required to register the name and address of third-party providers who are authorized to ship wine for that wine producer.

Licensing fees were raised by this legislation, including non-resident dealer and DtC licenses. The new fees took effect when the governor signed the law; the changes in DtC shipping regulations will go into effect Jan. 1, 2017.

Rhode Island
Lawmakers in Rhode Island introduced legislation in 2016 to remove the provision that wine consumers must visit a winery before receiving a wine shipment from that winery, but the bill died in committee. Rhode Island and Arkansas are the only two states who permit DtC purchases but also require that consumers first visit the winery. A total of 44 states (now including Pennsylvania) and the District of Columbia allow winery-to-customer shipments.

 

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