Washington state may not allow in-state wineries and breweries to sell alcohol directly to retailers unless it extends the privilege to out-of-state producers.
Washington state may not allow in-state wineries and breweries to sell alcohol directly to retailers unless it extends the privilege to out-of-state producers, a federal judge has concluded.
The state’s current system “prevents out-of-state beer and wine producers from competing on equal terms with in-state producers,” U.S. District Judge Marsha J. Pechman wrote in a case brought by Costco Wholesale Corp. “Under the Commerce Clause of the United States Constitution, Washington’s policies cannot stand.”
Costco, based in suburban Issaquah, was seeking a summary judgment that would have allowed the big-box retailer to buy directly from out-of-state wineries and breweries, but Pechman gave the state Legislature until April 14 to decide whether to ban all direct sales or extend the right to out-of-state as well as in-state producers.
Earlier this year, the Supreme Court ruled that states where citizens may buy directly — in person or by mail — from in-state wineries must also allow them to buy directly from wineries in other states. That decision has forced a number of states to reconsider their alcohol distribution systems.
Lawyers for Washington state, the nation’s second-largest producer of premium wines behind California, contend that the Supreme Court ruling didn’t deal with quantities as big as those at stake in the Costco.
Alcohol consumption would rise dramatically as Costco, which filed its lawsuit last year, and other retailers slashed prices as a result of being able to buy directly from out-of-state producers, lawyers for the state Liquor Control Board contended.
“We’re disappointed,” assistant attorney general David M. Hankins said. “We think we can demonstrate … the system is justified.”
At the same time, Hankins was relieved that the judge did not go farther.
“I’m pleased that she agreed with the state that the appropriate remedy should be decided by the Washington state Legislature. I think that’s where this issue should be resolved, not in court,” Hankins said.
Out-of-state vintners and brewers now must sell to a distributor at a markup of at least 10 percent above cost. The distributor then sells to retailers, such as Costco, adding another 10 percent.
Washington’s 450 wineries and breweries can sell directly to retailers with just one markup of at least 10 percent.
Costco says that by buying in bulk, striking deals directly with out-of-state wineries and using its own distribution system, it could offer beer and wine at better prices.
“We hope to offer relief to the consumers through better value and more choices in purchasing beer and wine,” said John Sullivan, a lawyer for the company. “That relief would expand the competitive options of Washington wineries and breweries as they become extensive drivers of the Washington state economy.”