The state comptroller's office has told Maryland wineries that they can no longer sell their wines directly to restaurants and retailers - erasing their long-held legal right to bypass the middleman and threatening the survival of some producers.
A Maryland wine industry spokesman says the decision could put up to half of the state's 22 wineries out of business. Kevin Atticks, executive director of the Maryland Wineries Association, said some Maryland wineries distribute about two-thirds of their product through direct sales to stores and restaurants and would lose money if they had to deal with wholesalers.
"It's a decision that could spell the end of the farm wine industry," Atticks said.
Bertero Basignani, owner of Basignani Vineyards in Baltimore County, said wholesalers aren't interested in wineries as small as his 3,500-case-a-year operation.
"It's going to put a big strain on me. I'm going to have to make a decision whether to continue," he said.
The comptroller's decision is part of the continuing legal fallout from a Supreme Court decision last year that struck down state laws forbidding direct shipment of out-of-state wines to consumers if a state permits such shipments from in-state wineries.
When the high court ruled, the initial reaction from the comptroller's office was that "the decision should not have any effect" on Maryland's $8-million-a-year wine industry.
But then a lawsuit challenged the Maryland statute that prohibits direct shipments to consumers - one of the strictest laws in the nation and one backed by the state's powerful liquor distribution lobby. The lawsuit, filed by a Maryland resident and two Pennsylvania winery owners, argued that Maryland favors in-state wineries by allowing them to bypass wholesalers while out-of-state vintners cannot.
Rather than defend the current law, the comptroller's office - under advice from the state attorney general's office - chose last week to reinterpret the meaning of the statute. Though the state had held for a quarter-century that the law allowed Maryland wineries to take their wines directly to stores, the comptroller gave the wineries 60 days - until March 31 - to find wholesalers to distribute their wines.
Gerald Langbaum, an assistant attorney general representing the comptroller's office, said the interpretation was the only one he could find to preserve the constitutionality of the state's law prohibiting wine shipments to Maryland residents. Supporters of the law say it is needed to ensure that all required taxes are collected by the state and to help prevent the purchase of liquor by minors.
Langbaum said he did not see what the size of a winery had to do with whether it made sense to use a wholesaler.
"My obligation is to interpret the law, which I've done," he said. "I am not an alcoholic beverage administrator. I'm a lawyer."
The wineries, most of them small, family run businesses, said they hope the General Assembly will intervene. They are backing legislation sponsored by Sen. Thomas M. "Mac" Middleton, a Southern Maryland Democrat, that would allow both in-state and out-of-state wineries to deal directly with retailers and restaurants.
May drain profit
Middleton, the Finance Committee chairman, said the comptroller's order could take much of the profit out of the winery business.
"My fear is that if they're subjected to the direction from the comptroller's office, most, if not all, of these Maryland wine producers may dry up on the vine," he said.
The state's three-tier alcoholic beverage distribution system, in place since the 1930s, requires that each bottle pass through all three levels of the system - producer, wholesaler and retailer. Middleton's legislation would create a new exception for wineries.
While the current system is criticized by consumers groups, it is jealously protected by the liquor store and wholesalers lobbies.
Steve Wise, a lobbyist for the Maryland Licensed Beverage Association, said the retailers' group has not adopted an official position on the Middleton legislation, but his first response was cool.
"The big concern on behalf of the wine retailers is that you maintain the three-tier system," he said.
Jerome Markoff, counsel for the wholesalers lobby, did not return a call seeking comment.
On issues involving wine shipments, the two lobbies are often allied with the comptroller's office, which favors the three-tier system for its efficiency in collecting taxes.
Comptroller William Donald Schaefer declined to be interviewed for this article, but spokesman Michael Golden said the office is working with wholesalers to look for a way to help the Maryland wineries.
Atticks said his association would be satisfied if the wholesalers are willing to preserve the right of Maryland wineries to self-distribute their wines.