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18 WINES&VINES July 2016 WINE INDUSTRY NEWS H arrisburg, Pa.—Gov. Tom Wolf changed Pennsylvania's status as a "control state" on June 8, when he signed H.B. 1690, a bill that will permit the direct shipping of wine to Pennsylvania residents over 21 years of age. For years, Pennsylvania was one of two "con- trol states" that permitted the sale of liquor and wine only at "state stores." One excep- tion was made in 1968, when legislation was passed that allowed "limited wineries" in the state to produce and sell up to 250,000 cases of wine per year. Steve Gross, vice president of state relations at the California-based Wine Institute, told Wines & Vines that with this new law in place, Pennsylvania becomes the 44 th state where U.S. wine producers can ship wine direct to consum- ers (DtC). He noted, "Now Pennsylvania con- sumers will be able to get wines that consumers in other states can order." According to Jeremy Benson, director of Free the Grapes, Pennsylvania is an impor- tant state—not just for California wine pro- ducers, but for producers across the country. "First, Pennsylvania is the 12 th largest wine- consuming state in the country. Second, it's by far the largest state that effectively bans DtC sales currently, and third, there's a lot of latent demand in the state for DtC wine sales," Benson said. Wines & Vines spoke with two California wine producers who are already selling their wines through the PLCB state stores. Both were very enthusiastic about the possibilities for increased sales in Pennsylvania. Dennis Cakebread, senior vice president of sales and marketing for Cake- bread Cellars in Rutherford, Calif., noted, "It's good for consumers to have the freedom of choice. The amazing part is how long it took to get this law passed." Cheryl Murphy Durzy, vice president of Clos LaChance Wines in San Martin, Calif., commented, "We're already selling in the state stores and have good brand awareness in Pennsylvania. This will allow people to get some limited, really cool wines that they weren't otherwise able to get." In order to sell DtC under the new law, wine producers must acquire a direct wine shipper license at a cost of $250 annually as well as a sales tax license. The winery then will pay $2.50 per gallon sold, plus Pennsylvania's 6% sales tax and any applicable local sales taxes. Each consumer may purchase up to 36 cases per year from a given wine producer. "Thirty-six cases is a generous amount—more than in some states, although the tax component of $2.50 per gallon is one of the higher gallon taxes," Gross said. He added that the tax rate could have been much higher if the 18% "Johnstown Flood Tax" (applied currently to the wholesale price of wine in state-owned stores) had been included in the tax calculation. Technically, Pennsylvania has permitted DtC wine sales for about 10 years. After the U.S. Supreme Court handed down its decision in the 2005 Granholm v. Heald case, ruling that a state could not have different direct shipping rules for in-state wineries than for out-of-state wineries, Pennsylvania set up a complicated system to comply with the ruling. Out-of-state wineries had to obtain a license and then ship all wines sold to a state-owned store for pickup by the customer. Smaller out-of-state wineries could get a limited winery license and then ship directly to Pennsylvania customers. Ac- cording to the Pennsylvania Liquor Control Board, there are only 22 active out-of-state limited wineries. Not surprisingly, this method of complying with the Granholm decision did not work well for either wine producers or Pennsylvania's wine-consuming residents. Both Wine Institute and Free the Grapes have worked for years to get Pennsylvania to liberalize and change its liquor laws. "Wine Institute deserves credit for keeping after this for years and years," Benson said. "It's been a goal of Free the Grapes and the wine-producing community. We think it's a big win for Free the Grapes." Other provisions of H.B. 1690 Jamie Williams, president of the Pennsylvania Wine Association and vice president of the Winery at Wilcox in Wilcox, Pa., told Wines & Vines that there are numerous positive aspects to the new bill. "It settles the shipping prob- lem," he said. "The per-gallon tax paid into the general fund will provide at least $1 million that will go to the Pennsylvania Wine Market- ing Research Board." That board will then make grants for marketing and research proj- ects within the state. While serious wine consumers will appreci- ate the ability to purchase wine directly from producers, many of the state's wine consumers may be more pleased that the law will allow them to buy up to four bottles of wine in grocery and convenience stores that already sell take-out beer. Licensed restaurants, hotels, bars and delis also will be permitted to sell the same quantity of take-out wine. Under the new legislation, limited winer- ies in Pennsylvania will be able to sell beer produced from licensed breweries and liquor produced by licensed distilleries, and craft distilleries will be able to sell beer and wine for on-site consumption. Some Pennsylvania wineries already have a license to produce distilled spirits. Linda Rice, owner of Mountain View Vineyard Winery & Distillery in Stroudsburg, Pa., said, "The new law will allow us to sell all of our products in the same room and ring up our customers on one cash register. Currently, the law requires us to sell our wine and spirits in separate rooms with separate cash registers. When visitors come for tasting experiences, they legally have to be kept apart." She believes the change will elimi- nate an inconvenience for customers and in- crease sales. A number of other changes in Pennsylvania's liquor laws will take place as a result of the new legislation. For example, Pennsylvania's 12 ca- sinos will be allowed to sell alcohol every day at any time; other venues could apply for li- censes, including performing arts centers with 150 seats (down from 250 seats); bed-and- breakfasts may give one bottle of Pennsylvania wine to paying guests at check-in, and the re- quirements that state stores close on holidays or operate with limited hours on Sundays to sell alcohol would be lifted. The new legislation is scheduled to go into effect Aug. 8 (60 days after Gov. Wolf signed it). However, Benson noted that it may take additional time to create the necessary licens- ing and to implement other requirements of the bill. "It's going to take some time to get everything working," he said. "We hope direct shipping will be in place in time for the holiday season." —Linda Jones McKee TOP STORY Pennsylvania Liberalizes Wine Sales, DtC Pennsylvania Gov. Tom Wolf signs a bill that will allow grocery stores and convenience stores to sell wine outside of the "state store" system.