Iowa’s Wine Shipping War: Unraveling the Latest Twist

A federal district court has overturned a law that prohibited out-of-state wineries from selling directly to retailers in Iowa, which may have implications across the country.

Should wineries located in California, Oregon, and elsewhere be permitted to sell wines directly to retailers in Iowa, circumventing wholesalers? The answer is yes, as indicated by a ruling from U.S. District Judge Rebecca Goodgame Ebinger on September 30. She determined that it was unconstitutional for Iowa to permit in-state wineries to sell directly to retailers while denying the same right to out-of-state wineries.

Like many states, Iowa permits out-of-state wineries (though not retailers) to ship directly to Iowa consumers. However, unlike many other states, Iowa allows its wineries to sell directly to in-state retailers, effectively allowing them to act as their own distributors, provided they possess a “class A” permit. The catch is that this permit is not available to wineries lacking an in-state presence.

If you’re curious, Iowa’s wineries produced roughly 335,500 gallons of wine in 2023, making it the 25th largest wine-producing state. This information comes from a recent report by the economic development firm Fourth Economy. Similarly, the report highlighted that Iowa imported about 4.4 million gallons of wine from out-of-state during the same year.

In a case reminiscent of others, Buckel Family Wine v. Mosiman examined whether a specific law infringed upon the Dormant Commerce Clause of the U.S. Constitution, a provision designed to prevent states from engaging in discrimination against interstate commerce. Nonetheless, an exception exists regarding alcohol regulation: states are permitted to maintain overtly discriminatory laws if they can demonstrate that such regulations are essential for the governance of alcohol sales—essentially, if they can argue that these laws support temperance or ensure an orderly market, they may not violate the Commerce Clause.

Buckel Family Wine, a winery based in Colorado and the plaintiff in this case, alleged that Iowa’s law unfairly targets wineries that are based outside the state. (Buckel is also involved in a separate 2023 case contesting a similar statute in California.) In contrast, Iowa maintained that the law is justified because state regulators would be overwhelmed if they had to oversee both in-state and out-of-state wineries selling to retailers.

This line of reasoning did not sway the court. “Defendants, however, do not provide ‘concrete evidence’ to show that allowing out-of-state manufacturers to sell directly to retailers would prevent effective enforcement of Iowa’s laws,” the decision of Goodgame Ebinger noted.

Furthermore, the judge determined that Iowa does not operate under an “uncontaminated three-tier system.” Iowa’s practice of allowing in-state producers to act as their own wholesalers effectively creates a two-tier structure, permitting only in-state producers to bypass one level of this three-tier system. Considering this—and dismissing the state’s alternative arguments—the court concluded that Iowa’s in-state requirement is not an “essential feature” of the state’s three-tier system. Therefore, if the law is deemed discriminatory yet not crucial, it cannot be constitutional.

“The judge in this case emphasized that there is no indication the state safeguards consumers when it discriminates against producers from other states,” stated Tom Wark, executive director of the National Association of Wine Retailers (NAWR), a trade organization not affiliated with this case, in a message. “The sole protection afforded is to wholesalers. This ruling represents a significant challenge to discrimination and protectionist policies.”

“It’s difficult to justify the preservation of the three-tier system when local wineries aren’t even bound by it,” commented attorney Sean O’Leary, who focuses on alcohol law yet did not participate in this case.

“Consumers may benefit from increased options,” O’Leary elaborated, mentioning that retailers could also profit if the market becomes more accessible. “This change would enable them to explore small wine brands that originate outside their state.” Wark echoes this sentiment, suggesting that this ruling could enhance the selection in wine shops, ultimately benefiting consumers in Iowa.

“Creating a channel that doesn’t solely depend on sourcing from wholesalers for purchasing, storing, marketing, and distributing a brand will undoubtedly enhance the experience for consumers and retailers in Iowa,” remarked Alex Koral, regulatory general counsel at shipping compliance firm Sovos ShipCompliant, who expresses concern that current distribution methods cannot adequately satisfy consumer demand.

Will wholesalers face any repercussions? Koral does not anticipate any major adverse impact. For one, wineries satisfied with their distributors are unlikely to sever ties; he hasn’t observed wholesalers in distress in states where wineries have already taken on self-distribution.

It’s worth noting that Iowa’s state legislature could potentially decide against allowing all wineries, both in-state and out-of-state, to deliver wine straight to retailers. This could severely affect Iowa wineries, who may find it difficult to secure distribution. “One of the risks posed by these lawsuits is that states might choose to retract such permissions instead of facing legal challenges,” Koral remarked, remembering that a similar situation occurred “on a limited basis” following the U.S. Supreme Court’s significant ruling on Granholm v. Heald in 2005. “If the concern is discriminatory impact, then eliminating self-distribution rights universally will mitigate that discriminatory effect.”

This ruling could set a precedent for challenges against similar regulations in other jurisdictions. As mentioned, plaintiffs are contesting a similar law in California, and there is a related case in New York, Alba Vineyard v New York State Liquor Authority. “District courts certainly reference other jurisdictions when deliberating on new legal matters such as the constitutionality of self-distribution laws that apply solely to in-state entities,” Koral explained. “Should the Iowa court’s ruling remain firm in favor of the out-of-state wineries, other jurisdictions will undoubtedly take that into account.”

O’Leary believes it is quite probable that Iowa will appeal this verdict. “This ruling has laid a solid legal foundation for subsequent decisions,” he stated, noting that Goodgame Ebinger’s decision may have armed the plaintiffs with some legal backing for future appeals by setting Buckel apart from the earlier, somewhat analogous case Sarasota Wine Market v. Schmitt. This case contested Missouri’s statute barring out-of-state retailers from selling to consumers in Missouri; it concluded in the U.S. Court of Appeals for the 8th Circuit, the same court to which Buckel would appeal.

Regardless of the outcome, we will have to observe whether any of this leads to significant changes. So far, it appears that this recent court ruling could have a far-reaching impact across the nation. “The [ruling] made a considerable effort to distinguish between the three-tier and two-tier systems,” O’Leary noted. “If this legal principle holds, we could see the establishment of a two-tier system, making it much harder for states to justify discriminatory practices.”

Interested in ordering wine? Explore Wine Spectator’s comprehensive guide to state shipping laws.

About the Author: Chris Lehoux

Meet Chris Lehoux, an experienced wine connoisseur and dedicated blogger with a deep passion for all things wine-related. With years of expertise in the industry, Chris shares insightful wine reviews, valuable wine tasting tips, expert pairing advice, and captivating tales of vineyard visits. Join Chris on a journey through the world of wine, where every sip is an adventure waiting to be savored!