Washington Relaxes Wine Laws

Some vintners say changes are positive, but not sufficient

by Peter Mitham
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Legislators loosened some key wine regulations during their 2009 session at the Washington state capitol.
Olympia, Wash. -- Washington state's small wineries are looking forward to positive changes resulting from new state legislation governing the pricing, promotion and distribution of alcoholic beverages.

House Bill 2040, passed this spring, allows wineries to invest in distributors and retailers, a practice permitted in the neighboring jurisdiction of British Columbia, where 13 wine shops are affiliated with wineries. Washington Wine Institute executive director Jean Leonard said the new laws, which take effect on July 26, 2009, will help smaller wineries cultivate relationships with restaurants and retailers and help open new markets.

While previous changes to state regulations have allowed wineries to operate two off-site tasting rooms in addition to one at the winery itself, Leonard told Wines & Vines that the new legislation creates opportunities for hotels, restaurants and retailers to develop closer ties with wineries.

"It's going to be all new to us because it hasn't been previously allowed, and we are hopeful that it will allow for some more creative investment among these players in the hospitality industry," Leonard said.

The new legislation also allows wineries to provide promotional items to restaurants and retailers for on-premise use. Leonard believes this will provide options for new and emerging wineries to boost awareness of their businesses. Previously, such promotional items were deemed an unlawful benefit for carrying product.

The legislation also moderates a ban on wineries offering credit to distributors and retailers--also previously considered a benefit in exchange for carrying product--by allowing wineries to establish accounts permitting electronic transfer of funds as an alternative to cash on delivery.

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Paul Beveridge, proprietor of Seattle's Wilridge Winery and chair of Family Wineries of Washington, believes more changes are in order..
Paul Beveridge of the Family Wineries of Washington believes the main failing of the legislation is that, although it's intended to improve the business environment, it doesn't go far enough. While lifting one prohibition, it continues to prohibit payment by checks sent by mail.

Beveridge's association, with a membership of about 90 wineries, has several criticisms of the legislation--primarily that the bill didn't do enough to eliminate red tape from Washington's wine trade.

"We once again have the liquor board being a private economic policeman enforcing what in any other business would be normal private economic activity," he said.

Beveridge pointed to the provisions allowing for cross-ownership as an example. While cross-ownership is allowed, an objection to the ownership submitted to the state liquor board could result in the denial of the arrangement. While this might prevent the larger players from creating operations integrating production, distribution and retailing, Beveridge fears it could also leaves small players vulnerable to trumped-up charges by competitors that would not have to be substantiated in a court of law.

"All I have to have is one of my competitors object and it shuts down my business?" he asked. "Who's going to invest with that kind of a cloud over their business plan?"

The one positive legislative change acknowledged by Beveridge's association is the elimination of minimum mark-ups over distributors' costs, though this is not expected to have a significant impact on retail pricing.

The bill in the most recent session of the state legislature was brought forward by Reps. Steve Conway and Cary Condotta, with support from the industry following Issaquah-based Costco Wholesale Corp.'s challenge of state liquor laws. Among its other provisions, the new legislation eliminates the state's post-and-hold regulation that required a minimum of 30 days between changes to liquor prices posted with the state liquor board. Costco successfully challenged the practice in court last year.

However, this spring's legislative changes don't address Costco's three-year fight for quantity discounts and central warehousing. A federal appeals court last year nixed Costco's efforts to obtain these changes.
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