The Continuing Effects Of The Supreme Court's Granholm Decision on Beverage Alcohol Licensing
By Deborah Skakel Partner, Dickstein Shapiro LLP | October 21, 2012
As we approach the 80th anniversary of the repeal of Prohibition, the ratification of the 21st Amendment to the U.S. Constitution, and the states' establishment of what is known as the "three-tier system" for the sale and distribution of beverage alcohol, the federal courts and state legislatures continue to grapple with the issues arising from a 21st century industry operating within an early 20th century distribution system. In particular, while the U.S. Supreme Court's 2005 landmark decision in Granholm v. Heald (1) provided substantive directives and substantial guidance concerning the constitutional issues surrounding "direct shipping," Granholm also spawned controversial legislative initiatives and further litigation addressing its scope and meaning. More recently, the principles of Granholm articulated in the direct shipping context have been applied in litigation challenging state residency requirements. This article will discuss those fundamental principles of Granholm and their evolution, the effects of which continue to be felt by the wholesale and retail tiers.
The "Three-Tier System"
The structure for the sale and distribution of alcohol adopted by the majority of the states in the wake of the ratification of the 21st Amendment was the "three-tier system," which the Supreme Court in Granholm defined as follows:
Producers or distillers of alcoholic beverages, whether located in state or out of state, generally may sell only to licensed in-state wholesalers. Wholesalers, in turn, may sell only to in-state retailers. Licensed retailers are the final link in the chain, selling alcoholic beverages to consumers at retail locations and, subject to certain restrictions, through home delivery(2).
Granholm addressed the initial, basic direct shipping questions: Does a state law that allows all of its in-state wineries to sell and ship directly to in-state consumers, while prohibiting all out-of-state wineries from obtaining a license to do so, violate the U.S. Constitution's Commerce Clause by discriminating against interstate commerce? If so, is that statute saved by the 21st Amendment?