The Wine Shipping Battle Takes a Twist in Iowa

Should wineries in California, Oregon and other states be able to sell wines directly to Iowa retailers, bypassing wholesalers? Yes, according to a Sept. 30 federal court decision. U.S. District Judge Rebecca Goodgame Ebinger ruled it was unconstitutional for Iowa to allow in-state wineries to sell directly to Hawkeye State retailers while preventing out-of-state wineries from doing the same.

Like most states, Iowa allows out-of-state wineries (but not out-of-state retailers) to ship directly to Iowa consumers. But unlike many states, Iowa allows wineries to sell directly to in-state retailers—essentially letting them act as their own distributors—if those wineries hold a “class A” permit. But Iowa code doesn’t grant that permit to wineries without an in-state presence.

If you’re wondering, Iowa’s wineries produced about 335,500 gallons of wine in 2023—making it the 25th largest wine-producing state—according to a recent report from economic development consultant Fourth Economy. Per the same report, Iowa brought in about 4.4 million gallons of wine from out of state in the same year.

A Commerce Clause Case

As in similar cases, Buckel Family Wine v. Mosiman questioned whether a law violated the Dormant Commerce Clause of the U.S. Constitution, which prevents states from discriminating against interstate commerce. However, there’s an exception when it comes to alcohol: States can keep outwardly discriminatory laws if they’re needed for regulating alcohol sales—if a state can show that laws are needed for promoting temperance or maintaining an orderly market, then those laws don’t necessarily violate the Commerce Clause.

Colorado-based winery Buckel Family Wine, the plaintiff, claimed that Iowa’s law is discriminatory against out-of-state wineries. (Buckel is also a plaintiff in a case brought in 2023 challenging a similar law in California.) Iowa disagreed, arguing the law is necessary because state officials would be stretched too thin if they regulated both in-state and out-of-state wineries selling to retailers.

The Judge’s Decision

This didn’t convince 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,” stated Goodgame Ebinger’s decision.

Rather, the judge found Iowa isn’t even operating on an “unadulterated three-tier system,” in the first place. Because Iowa lets in-state producers be their own wholesalers, it “essentially creates a two-tier system” that allows in-state producers, and only in-state producers, to sidestep one level of the three-tier system. With that in mind—and rejecting the state’s other arguments—the court found that Iowa’s in-state premise requirement is not “an ‘essential feature’” of the three-tier system in the state. And if the law is discriminatory but not essential, then it isn’t constitutional.

“As the judge in the case pointed out, there is no evidence the state protects consumers when it discriminates against out-of-state producers,” said Tom Wark, executive director for the National Association of Wine Retailers (NAWR) trade organization (which is not involved in this case), via email. “The only protection that occurs is on behalf of wholesalers. Discrimination and protectionism took a blow with this decision.”

“It is hard making an argument about maintaining the three-tier system when the in-state winery is not even required to,” said attorney Sean O’Leary, who specializes in alcohol law cases but was also not involved in this case.

What Does This Mean for Wine Consumers?

“The potential effect for consumers is more choice,” explained O’Leary, noting that retailers also stand to benefit if the market becomes more accessible. “This will allow them to take a chance on small wines from outside of the state.” Wark similarly predicts this decision could lead to more variety in wine stores, benefitting Iowa consumers.

“Having an available channel that does not rely solely on finding a wholesaler to purchase, store, market and distribute a brand will only improve things for Iowa consumers and retailers,” said Alex Koral, regulatory general counsel for shipping compliance company Sovos ShipCompliant, who believes distribution, at this time, cannot fully meet consumer demand.

But will wholesalers take a hit? Koral doesn’t foresee any significant negative effect. For one, wineries happy with their distributors probably won’t drop them; he hasn’t seen wholesalers struggling in states where wineries have already been self-distributing.

Of course, it’s also possible that Iowa’s state legislature could vote to prevent all wineries, in-state and out, from delivering wine directly to retailers. That would inflict a lot of damage on Iowa wineries, however, who might struggle to find distribution. “One of the risks of these lawsuits is that states will decide to retrench such permissions rather than face court censure,” said Koral, recalling that this happened “on a limited scale” after the U.S. Supreme Court’s monumental decision on Granholm v. Heald in 2005. “If the issue is discriminatory effect, then removing self-distribution rights for everyone will remove the discriminatory effect.”

What Comes Next?

There’s a chance this decision could influence challenges to similar laws in other states. As noted, plaintiffs are challenging an analogous law in California, and there is a similar case in New York (Alba Vineyard v New York State Liquor Authority). “District courts absolutely look to other jurisdictions when reviewing novel legal questions like the constitutionality of in-state-only self-distribution laws,” said Koral. “With the Iowa court ruling so decisively in favor of the out-of-state wineries (and if that is held up on any further appeals), other courts will certainly take that into consideration.”

O’Leary believes it is highly likely Iowa will appeal the case. “This decision provided a strong legal framework for other decisions to follow,” he said, observing that Goodgame Ebinger, in her decision, may have given the plaintiffs some legal armor for future appeals by differentiating Buckel from the earlier, somewhat similar case Sarasota Wine Market v. Schmitt. That case challenged Missouri’s law preventing out-of-state retailers from selling to Missouri consumers; it met its end in the U.S. Court of Appeals for the 8th Circuit, the same court Buckel would head to on appeal.

In any event, we will have to wait and see if any of this makes the difference. But so far, it looks like this latest case decision could have a national rippling effect. “The [decision] went to great lengths to differentiate between the three- and two-tier system,” O’Leary said. “If this legal principal sticks, then we are looking at a new system, a two-tier system, where state justifications to discriminate are very difficult to sustain.”

Where can you order wine from? Check out Wine Spectator’s comprehensive guide to state shipping laws.