Washington Wine Institute Fails to Support FWWS Legislative Proposals

Dear FWWS members,

FWWS board members attended a meeting two weeks ago with a State Representative who had agreed to consider sponsoring all of our legislative proposals in the State House of Representatives. Also in attendance were the Executive Directors of the Beer and Wine Wholesaler's Association, and the Washington Wine Institute (WWI). We regret to report that WWI was not only unwilling to support any of our bills but further expressed active opposition to our Craft Winery and Payment Parity bills. Subsequent to this meeting our prospective legislative sponsor withdrew his support for these two bills.

Based on comments from the Wholesaler's representative, trade credit has been removed from the Craft Wineries bill, and language has been proposed for inclusion in that bill in order to prevent large wineries from registering multiple brands as Craft Wineries. We are continuing our dialogue with the Washington Beer and Wine Wholesaler's Association. Unlike the Wholesaler's association the WWI refused to suggest any changes that might make the bills more acceptable.

We understand that the broad range of topics included in the Craft Wineries bill makes immediate support by the WWI less than certain. However their opposition coupled with their unwillingness to offer any constructive criticism is to say the least, unhelpful.

Even more disappointing is the stated opposition of WWI to the Payment Parity Act which is extremely simple and would extend exactly the same terms of transaction to business checks (which virtually all of our members use for self distribution activities) as were extended last year to Electronic Fund Transfers (EFTs, which to our knowledge none of our members use for sales to retail licensees. If you do use EFTs for this purpose we would like to hear from you so we do not misrepresent this point).

At this point we would like to ask those many FWWS members who are also members of the Wine Institute to contact them and politely ask for an explanation as to why they are not clarifying the specific reasons for their opposition to the Craft Wineries bill and why they are not wholeheartedly supporting the Payment Parity Bill. Since time is of the essence with the legislative session fast approaching, and further since the Wine Institute Director is presently on vacation, we encourage you to contact Mr. Marty Clubb, WWI Board Chairman at (509)525-0940 or by email to martyc@lecole.com. In your discussions please be aware that a position of "neutral" is not the same as "support" for a bill.

If you would like to discuss this issue further or would like more information as always, please email us and a Board member will contact you.

Thank you for your attention to this vital matter.

The FWWS Board

Goals of Family Wineries of Washington State

• Sell more Washington wine
• Promote small family wineries
• Economic stimulus for craft wineries through simplification of regulation
• Economic free market – the only truly level playing field
• Put the responsible consumer’s interests first
• Maintain effective public safety regulations
• Public safety basis for all regulation
• Align goals of small wineries and Liquor Control Board
• Cooperation with Liquor Control Board
• Eliminate unenforceable or unenforced regulations
• Freedom to create and innovate
• Freedom of contract
• Streamline tax payment
• Streamline wine shipping (set an example for other states)
• Pricing flexibility
• Elimination of money’s worth restrictions
• Responsible advertising
• Joint advertising and promotion
  
• Sales on credit as wholesalers get from wineries
• Consignment sales
• Remove economic restrictions on internet wine sales
• Discounts reflecting savings in cost of sale
  
• Delivered pricing
• Gifts
• Remove all limitations on investment between tiers
• Make it easier to promote craft wine in a responsible manner
• Remove economic restrictions on wine sampling
• Unlimited tasting rooms
• Distributor dock sales
• Central fulfillment operations
• Promotional partnerships
• Elimination of license category restrictions
• Simplify licensing
• No state label approval copy requirement
• Annual tax reporting instead of monthly
• No price posting (achieved)
• No price holding
• Put the responsible wine consumer first
• Provide opportunities for consumers to support small wineries
• Establish direct relationships between responsible consumers and our members
• Wine events off premises
• Facilitate holding wine events
• Refilling of recyclable wine containers at wineries and retailers
• The Perfect Legal Climate for Wine

And whatever else our dynamic and innovative small Washington State wineries come up with in the future to responsibly sell Washington wine.

FWWS Legislative Proposals 2010

Dear FWWS member,

We have recently received copies of our legislative proposals from the State Code Reviser's office. These are the actual bills the Legislature will be considering in the coming legislative session. We have prepared concise one page fact sheets to go with each bill providing you with information on what the bill does, why it is needed, and the benefits of its passage.

The first bill is our "Tax Reporting Relief Act".

Bill
Fact Sheet

This bill, which we have run previously, would provide that wineries selling less than 6,000 gallons of wine annually in Washington would be allowed, to report production and pay State taxes not more than once a year, at their option.

The second bill is our "Craft Wineries Act".

Bill
Fact Sheet

This bill is a follow-on to a bill we ran last year. The concept is to create a new optional class of small winery that would be exempt from most of the purely economic restrictions on trade in Washington wine. The difference this year is that the bill would only apply to smaller wineries, and would require an opt in.

The third and final bill is our "Payment Parity Act".

Bill
Fact Sheet

This bill would extend exactly the same terms created last year for completing Electronic Funds Transfers (EFT's) to all other forms of payment, including ordinary business checks. As with the other bills it is optional as wine would continue to be due on receipt without voluntary agreements between wineries and their wholesale customers.

We encourage you to read the fact sheets and, if time permits, the actual bills as well. The Payment Parity Act for example changes only a few words of the RCW and should take less time to read than its accompanying fact sheet.

We are available to answer any questions you have about the details of these bills. We encourage you to discuss and promote these proposals with your winemaking colleagues and to explain the importance of the bills to them. As always, we value your comments and input.

Sincerely,

The FWWS Board

FWWS Meeting with WWC

Dear FWWS Member,

The FWWS Board as part of our ongoing dialogue with Washington wine industry stakeholders will be meeting with members of The Washington Wine Commission Board on December 11th.

As you are undoubtedly aware, the Wine Commission is a commodity commission organized for the purpose of promoting Washington Wine and is paid for by assessments on Washington wine and wine grapes sold. If you have questions or concerns you would like us to raise with the Commission your behalf, please send them to us in an email to board@familywineriesofwashington.org. We will report back to you on the outcome of our various discussions in the coming months.

As always we encourage you to email us on any areas of concern you would like us to address.

Sincerely,

The FWWS Board

Winter Wine Event Opportunities for FWWS Members

FWWS Winter Tasting Opportunities Update

Dear FWWS Members,

Based on feedback from members we have made the following changes to the format of the Enumclaw event:

• The requirement for donation of the first 400 pours was a bit too confusing and/or burdensome. This requirement has been dropped. Scrip (ticket) prices will be reduced to $1.00 each in order to provide more flexibility in pricing pours. The winery will receive half the price of the tickets they turn in ($0.50/ticket) and FWWS will retain the other half. Wineries will be able to price their pours at whatever number of scrip tickets they feel are appropriate to cover their bottle costs at $0.50/ticket. We will still be running a wine shop as noted in the original email.
  

• An additional volunteer is not required. However, staff available for hire through David is limited. So we encourage you to provide a volunteer if you can.

• The Chocolate Festival organizer is purchasing the tasting glasses and will handle all aspects of the glassware. The FWWS will not be purchasing or selling the tasting glasses.
  

The sign-up page is once again: http://www.vinolover.com/WineryPayments.html

No changes have been made to the Georgetown event.

Wineries are signing-up as we email you! Don't miss out on this great opportunity and reserve a space now.

Thanks and hope to see you there.

Sincerely,

The FWWS Board


Dear FWWS Members,

The FWWS Board has been busy working on some promotional opportunities to begin fulfilling the promise and opportunity that FWWS presents to be a promotional body as well as an advocacy organization. FWWS is well positioned as a winery association to be the beneficiary of these types of events (state law requires either a charitable or wine association beneficiary to allow such tastings).

Saturday January 9th
2nd Anniversary Party for Seattle Uncorked (6:00-9:00 pm)
Georgetown Studios

David LeClaire will be organizing this event as a fundraiser for FWWS. Seattle Uncorked wine club has decided to host this wine event at Georgetown Studios on Jan. 9th to be at the same time as the Art Attack. Many of you are familiar with David's events and know them to be extremely well run and well attended. This is the 2nd annual party for the largest wine club in the Northwest – they have over 8,000 members. The event will be limited to 200 attendees and will be only $20 since it is right after the holidays. Pictures from last year’s sold out event are at http://www.seattleuncorked.com/AnniversaryParty.html.

Participating Wineries
Attendance will be exclusive to FWWS member wineries. First paid, first in line. Please RSVP by paying the $50 ASAP to reserve your winery’s spot. We may have to limit the number of wineries that can participate due to space constraints, so get your payment in early to avoid disappointment.

Fees and Requirements
A promotional fee of $50.00 per winery will be charged. Wine sample pours will be donated. You may register to participate by paying your $50 sponsorship fee at http://www.vinolover.com/WineryPayments.html.

Wine Sales
There will be wine sales area run by Lysle Wilhelmi and manned by FWWS volunteer staff and David’s staff. Wineries will receive 70% (wholesale) of the revenue from sales of their wines. FWWS will receive the other 30%. (Please let us know if you have a wireless credit card reader.) Once you have signed up to participate we will have you send the wines you plan to pour and sell to lysle@wilridgewinery.com.

Food & Music
As the ticket price is so low, we will not be providing food. Instead there will be one or more “mobile” food vendors in the parking lot. Possibly “Skillet” or someone similar. We will also have a “live band” – most likely “Two Buck Chuck” to make it lovely. They are not loud and are a lot of fun.

Friday - Sunday January 29th-31st
Enumclaw Wine and Chocolate Festival

FWWS has agreed to be the beneficiary for the wine garden in the Enumclaw Wine and Chocolate Festival. While this event has the possibility of being a very successful fundraiser for FWWS, it will be a significant challenge due to the length of the event and the expected turnout of 3,000-5,000 attendees. David LeClaire will also be helping us organize the wine garden at the event.

Participating Wineries
Participation will be open to FWWS wineries first. First paid, first in line. Please RSVP by paying the $50 ASAP to reserve your winery’s spot. The venue is quite large and up to 6,000 square feet of wine garden space will be available, so we may be able to accommodate all interested FWWS member wineries.

Fees and Requirements
An entry fee of $50.00 per winery will be charged in advance – this fee will pay for part of David’s services managing the 3 day event for us. Each winery must agree to participate in all three days. If you cannot operate your pouring station all three days, David will provide staff to cover for you at a price of $50 a day. You will also be required to provide a volunteer in addition to your pouring representative to assist with sales and logistics. Please contact the FWWS board and Lysle Wilhelmi if you want to discuss staffing and attendance, we will help in any way we can. You may register to participate by paying your $50 sponsorship fee at http://www.vinolover.com/WineryPayments.html.

Wine Donations & Compensation
Wineries will donate the first 400 tasting tickets they receive (assuming at least 20 wineries participate). Admission to the Wine Garden is free - 5 tickets (scrip) will be sold for $10. The first 400 tickets you collect will be counted as your donation. From there wineries will be compensated for wine sample pours on a ticket basis. You may set the ticket price for your wine (e.g. one ticket for a taste of your inexpensive wine, more tickets for more expensive wines). Once the fixed costs of the event are covered (by the first 400 tickets per winery) the winery will split the income per ticket they receive 50-50 with FWWS.

Wine Sales
There will be wine sales area headed by Lysle Wilhelmi and manned by FWWS volunteer staff (including the volunteer you will bring). Wineries will receive 70% (wholesale) of the revenue from sales of their wines. FWWS will receive the other 30%. (Please let us know if you have a wireless credit card reader.) Wines under $30 retail will sell much better at this kind of event, so think about keeping the cost down on what you feature.

Misc.
The organizer of the Chocolate Festival has 300 glasses to sell from last year at $8 a piece. Once they have been sold, we will offer FWWS logo glasses for a similar price – we will order 500 of them. Participants will have the choice of buying a glass to drink their samples from, or to have free plastic cups to sip their wines from. While this is not optimal, with the possibility of 3-5,000 people attending, we can not commit to that level of wine glass purchases or rentals. Most participants will only buy one $10 worth of tickets and try 5 wines.

FWWS will get a special occasion license for both events and will apply for the licenses for both events. We hope these events will provide good exposure for member wineries and help spread the message of FWWS. Please respond to this email ASAP so we may gauge interest in either or both of these events (and send in your check to reserve a spot if you are sure you will participate).

Once again, don't hesitate to contact the FWWS board and Lysle Wilhelmi if you have questions or concerns about the requirements. We want to make sure we meet the needs of our members and we can work with you if you have specific concerns about the event.

We hope to see many of you at these events.
The FWWS Board

WA State Winery Data

Have you ever wondered how much wine is produced by WA wineries? Or how each winery would breakout into categories of gallon production? Well, the FWWS board received WA state winery production data in April 2008 as part of its efforts in the Winery Tax Reporting Relief Act effort. Since we had the data handy, we decided to analyze the numbers and produce some graphs for your viewing pleasure. Keep in mind the data is 1 year old. There are more wineries now and the production numbers would be larger. But the general trends would probably be reinforced. Also keep in the mind the graphs we are going to show you are representative of annual gallons production. Here we go...

Distribution of Wineries by Gallons Sold
What we did was break down production into 6 different categories. Each category is basically a range of annual gallons produced. We then figured out how many wineries fall into each category.



Distribution of Wineries by "Craft" Designation
We have been using the term "craft winery" to identify wineries that produce less than 25,000 gallons per year. This is also a requirement to be eligible as a full regular member of the FWWS. Here's how wineries in WA state break down by whether or not they are a "craft" winery.



Actual Gallons Sold by "Craft" Winery Threshold
OK, so now we know how many wineries in WA state would be considered a "craft" winery. The following data and graph show you how many actual gallons of wine are produced annually by craft wineries versus non-craft wineries.


Summary
So there you have it: 94% of the wineries in WA state would be considered a "craft" winery. Our organization is striving to represent that 94% so that we can all succeed at the business we love. It's interesting to note 2 things. First, the other 6% of the wineries (non-craft wineries) produce about 94% of the actual gallons per year. Secondly, 1 winery tops the scale at producing almost 12 million gals. annually. The next biggest winery only produces approximately 2 millions gals. annually.
The board will try obtain updated data this year and perform the same kind of analysis. Thanks!

FWWS Seal and Friends of the Family Logo

FWWS members:

We hope your harvest was successful and that the freeze event didn't cause you too much stress.

Below you will find a link to two logos that have been developed for our organization. The first is a logo denoting your status as an FWWS member. The second will be for the use of our "Friends of the Family" category of consumer members. We hope you are as pleased with these images as we are.

As FWWS develops more consumer focused content, many logical uses for these graphics will occur. As a benefit of membership you are entitled to include these logos immediately on advertisements, stationary, point-of-sale material, bottle labels, and web content without limitation, as long as you remain a member in good standing. The image files will be available on our website at the following location:

http://familywineriesofwashington.org/images/marketing

Please note that the images are currently in Adobe Illustrator (AI) format. These images will be converted to high-resolution JPG and available at the same location within the next few days.

Cheers,

The Board

SWRA Online Fundraising Auction

This is a worthy fundraising event for our affiliate member, the Specialty Wine Retailers Association:

Just a quick note to let you know that the first ever Specialty Wine Retailers Association "Wine Without Borders" fundraising auction is now underway at WineCommune.com.

You can see the lots and register to bid by going here: http://www.winecommune.com/help/swra.cfm.

This first ever SWRA fundraising auction is meant to bring attention to the issue of free trade in wine and the work SWRA is doing to overturn protectionist laws that ban consumers and wine merchants for buying and selling wine, and to raise funds to help in that effort.

You can help this effort by doing any of the following:

1. Head to WineCommune.com, bid on and pick up some AMAZING wines for your self via the auction.
2. Forward this email any and all of your wine loving friends and colleagues may also want to bid.
3. Put the link to the auction on your web page along with the logo that is attached.
4. Put a link to the auction on your Facebook page.
5. Help promote the auction by "tweeting out" the web address on Twitter and telling your followers about it.
6. Write about this movement and auction on your blog if you maintain one.

The online auction at WineCommune runs through November 19th.

If you are at all interested in the ongoing effort to open up states to allow the direct shipment of wine, and if you've ever wondered what you can do (besides making calls to lawmakers) to help the effort, then you have a chance now.

Don't hesitate to call or write me if you have any questions. And thank you very much for your help and support.

Cheers,
Tom...

Tom Wark
Executive Director
Specialty Wine Retailers Association
twark@specialtywineretailers.org
707-935-4424-tel
707-246-6451-cell

Family Wineries of Washington State Booth at the Western Washington Fair

Hansen & Hansen LLC
PO Box 1073
Puyallup, WA 98371

Representing Exceptional Washington Wineries

Re: Family Wineries of Washington State Booth at the Western Washington Fair

Hello Family Wineries of Washington State members:

A booth was provided at the Western Washington Fair to raise state residents’ awareness of Washington wineries existing throughout the state. We feel the booth was a great success and served the intended purpose. Over the five days we reached hundreds of people. We displayed a variety of wines and handed out winery rack cards as well as a case of the “Touring Washington’s Wine Regions” books from the Washington Wine Commission.

The booth was up on the morning of September 19th, and it remained in place until the evening of Wednesday, the 23rd. We want to thank FWWS members, Mike and Judy Cavett from FairWinds Winery for taking a shift on Wednesday, we appreciated the break. We were also relieved by a couple of friends on Saturday night so we could attend a Fair concert.

We displayed the bottles of 16 FWWS members to demonstrate a handful of the wines that are produced in Washington. Many people asked why their favorite winery wasn’t represented in our display. We explained that we could only show a sample of what is available, and that all WA wineries are invited to join FWWS. If their favorite winery wasn’t on the membership list, its absence only indicates that they haven’t joined the organization yet.

People were fascinated by the AVA maps and surprised by the number of wineries that exist within the Puget Sound region and throughout the state. The majority of people had no idea there are over 600 wineries in the state. We emphasized that wherever they go in Washington, there are wineries nearby to be visited.

This was only a minor contribution in the effort to promote FWWS and the Washington wine industry as a whole. It’s going to take a long time and a great deal of effort by everyone in the industry to increase demand for Washington wine. Every public tasting, wine festival, barrel tasting, winemakers’ dinners, etc. is helping to create loyal customers. We have a product to be proud of. Now we just need to make sure everyone knows about it.

Thank you for the opportunity to represent your organization at the Western Washington Fair. We are aware of other potential opportunities for your organization and will present them to you for your consideration in the near future. We look forward to working with you again.

Sincerely,

Doc and Sonie Hansen
Hansen and Hansen, LLC
253-227-3822
hansen-hansen@comcast.net

FWWS Comments on Advertising Rules

The following comments were submitted to the WSLCB in response to a formal hearing notice on advertising rules. You may recall a post on the same subject earlier this year. At that point, the LCB staff was running some ideas up a flagpole as it were to get some general feedback on areas for rulemaking. Based on that input from FWWS and other stakeholders, the original draft language was substantially refined into the now formal version that is going through the hearing process.

Areas that the LCB has already amended that address our concerns include:

• Clarifying that the prohibition on presenting wine as fashionable appliesonly to wine being portrayed as fashionable for those under age 21.
• Exempting winery, brewery and tasting room premises (technically "non retail" premises) from the restrictions on number and size of signs.
• Eliminating the depictions of known sports figures from wine (ie Mario Andretti, Greg Norman, any famous amateur athlete, etc.).
• Exempting wine tour directional signs from the proximity to school churches playfield restrictions.

We remain concerned about two areas as noted in the following comments. I addition to the suggestions made in our letter, we have also discussed the issue of premise signs within 500 feet of schools churches and playfields with LCB Staff. Since the issue of concern seems to relate primarily to offsite billboards., we have suggested that an additional option would be to exempt winery, brewery and tasting room (non retail premise) signs from these restrictions as well.

We are generally pleased with the pragmatic and thoughtful approach of WSLCB staff in addressing our specific concerns. Stay tuned!

Family Wineries of Washington State is an organization presently representing the interests of more than ninety small Washington Wineries. We were pleased to offer comments on the initial draft proposal for the amendment of WAC 314-52, Advertising Rules. We were further pleased to see that many of our concerns, or similar concerns of others, were taken into account in the succeeding revision of the language. However, we have two specific concerns remaining in regard to the proposed amendments before you.

314-52-015(1)
While we are pleased at the careful rewriting of proposed subsection h, we are still troubled by proposed subsection i, which prohibits advertising that “associates alcohol with social achievement.” The logical negative presumption here is that moderate consumption of alcohol is incompatible with social achievement, a presumption that we reject. We believe, for example, that the common advertising image of a well dressed couple enjoying a glass of fine Washington wine over an elegant dinner, while a depiction probably associating alcohol with social achievement, is a thoroughly appropriate image for advertising. We ask that subsection 314-52-015(1)i be struck.

314-52-070
We were very pleased at the careful revision of subsection 314-52-070(2) to reflect “retail premises” and that our comments in reference subsection 2 about offsite directional signs were covered by the provision of an exception for “tourist oriented directional signs” within section 5. However, we remain very concerned that within section 314-52-070(5) the proposed change in language from the general "in proximity to,” to the specific "within five hundred feet of,” will create immediate non conformance issues for the signage of some of our member wineries.

Though permitting of wineries requires the consideration of neighboring uses such as schools and churches, which may be considered incompatible by some, much more latitude is given in the location of such other uses, particularly churches, in proximity to wineries. The result is that many existing wineries may find their legally permitted signage to be made non-conforming under the proposed language following the voluntary location of a church, school or playground, near their already established business. The only recourse of a winery in protecting such a vital advertising asset in such a case would be to vigorously protest the permitting of such a "non compatible" use in their vicinity. Such a protest would likely be acrimonious and unnecessarily damaging to the public image of our members.

We understand that the deletion of the clause "where administrative body of said schools churches, playfields objects to such placement, nor" was proposed in order to streamline the language of the WAC. However, we strongly urge that the existing language be retained and revised to include athletic fields. We do so, not only because this would require an actual complaint in order to create a non conformance issue, but also because the voluntary location of a church, school, or playground within five hundred feet of an existing winery could be considered a presumption, albeit rebuttable, that the administrative body thereof was comfortable with the existing signage.

If the existing language is removed as currently proposed, we urge that an exception be included to provide that:

"In the case where said church, playground, school, or athletic field is sited so as to create a de facto violation of this section for a pre-existing, and otherwise permissible sign, then nothing in this section shall prevent the continued use, maintenance, or replacement of said sign or its alteration, provided that such maintenance, replacement or alteration is in conformance with the remainder of section 314-52 WAC."

Proposed rule making (CR 102)

Advertising: Notice to Stakeholders
Advertising: Issue Paper

Bill Request #S-3280.2/09 - "Checks" Bill

Dear FWWS Member, We have an ambitious legislative agenda for this coming year. The following draft bill is our way of attaining equity in payment methods for small wineries. This past Legislative session, the Wholesale Industry inserted an amendment into an omnibus wine bill that exempted Electronic Fund Transfers (EFT) from the due on receipt requirement. In the previous Joint Select Committee process, the suggestion was made by FWWS that, since our members do not generally use EFT but rather use business checks, and further since our members do not generally favor the "money's worth" prohibition on extending credit, the same terms should apply to business checks. We were rebuffed in front of the Committee by the lobbyist for the Beer and Wine Wholesaler's Association.

Section (1) of the attached draft bill is the Wholesaler's language from last session and is now current law. Section (2) is our proposed change. This change would extend the same terms to wineries using business checks that anyone using EFT now enjoys. You would have (at your option) the right to accept a check up to five business days after delivery. This will allow you, if you so chose, to legally leave wine at a wholesale customer's premise if no one is there to write a check. This will also allow you to legally ship wine to wholesale customers without prepayment. No change will be made to the current practice where a customer who does not pay their bills timely will be considered in violation of their licensure.

As always, we are interested in your input.

BILL REQ. #: S-3280.2/09 2nd draft

ATTY/TYPIST: JA:seg

BRIEF DESCRIPTION: Concerning methods of payment for purposes of the alcohol beverage control statutes.

AN ACT Relating to methods of payment for purposes of the alcohol beverage control statutes; and amending RCW 66.28.270.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. RCW 66.28.270 and 2009 c 373 s 11 are each amended to read as follows:

(1) Nothing in this chapter prohibits the use of checks, credit or debit cards, prepaid accounts, electronic funds transfers, and other similar methods as approved by the board, as cash payments for purposes of this title. Electronic ((fund[s])) funds transfers must be: (((1))) (a) Voluntary; (((2))) (b) conducted pursuant to a prior written agreement of the parties that includes a provision that the purchase be initiated by an irrevocable invoice or sale order before the time of delivery; (((3))) (c) initiated by the retailer, manufacturer, importer, or distributor no later than the first business day following delivery; and (((4))) (d) completed as promptly as is reasonably practical, and in no event((,)) later than five business days following delivery.

(2) Nothing in this section prohibits domestic wineries or certificate of approval holders, acting in their capacity as distributors of their own production, from accepting checks under the same terms specified in subsection (1) of this section for transactions by electronic funds transfers.

WA State Label Approval Requirement Eliminated

GREAT NEWS!

At its meeting last Wednesday, August 19, the Washington State Liquor Control Board voted to stop requiring state label approvals. Family Wineries of Washington State has been advocating for this change ever since the Costco lawsuit ended price posting in Washington State. In testimony to last year’s Joint Select Committee, FWWS pointed out that, since the price posting system was being eliminated, and since product approval codes would therefore no longer be required, the State label approval process was now largely redundant. We were the only stakeholder to point this out. Subsequently, Board President Paul Beveridge raised this issue with WSLCB staff at a conference regarding Washington State Wine Law held at Cave B Winery. The FWWS Board is very pleased that the Liquor Board made this positive change on its own and that legislative action was not necessary. Now wineries will be able to market their wines in Washington immediately upon receiving federal label approval. Elimination of the state label approval requirement is a perfect example of what FWWS seeks to accomplish in the way of reducing the paperwork burdens on small family wineries.

We are making progress!

Puyallup Fair Informational Booth

We are seeking volunteers to staff a booth for the Family Wineries of Washington State in the Agricultural section of the ShowPlex building at the Puyallup Fair in September. This is an informational booth (no tasting or selling) to promote the members of Family Wineries of Washington State as well as the Washington wine industry as a whole.

September 19 to September 23

• Building is open from 10:00 AM to 10:00 PM except on Saturday when it is open from 10:00 AM to 11:00 PM
• Shifts are four hours each
• Two people per shift (bring a family member, friend, or relative to work with you)
• A free entrance ticket is provided for each person working a shift

For more information and to sign up for a shift please contact FWWS

Comments on Rulemaking to Implement Section 506, Session Laws of 2009 (Pre-proposal Notice #09-13)

Family Wineries of Washington State (FWWS) is an organization presently representing over 85 small Washington Wineries. FWWS has since its inception supported the elimination of those aspects of Washington State’s liquor laws which serve solely to regulate economic aspects of wine trade and which do not provide a public safety benefit. We believe such restrictions and prohibitions serve only to benefit various special economic interests to the detriment of the consumer and the overall growth of the Washington wine industry. We were therefore pleased at the expressed intent of the legislature to liberalize certain areas of the law regarding “inter-tier” ownership and point of sale practices. We continue to advocate for the elimination of restrictions on such areas of trade. Unfortunately, from our perspective, the Legislature adopted a bill drafted by entrenched economic interests that could be read to reinforce many areas of trade restriction under the auspices of liberalizing them. We believe that in attempting to carve out a few new exceptions while maintaining a logically indefensible system, a predictably complex statute emerged. We further believe that the bill as drafted contains some fairly glaring omissions and logical errors, could lead to new and unintended restrictions on trade, and could increase economic uncertainty.

We were therefore very pleased at the apparent willingness of WSLCB policy leaders, as expressed at a recent legal seminar teleconference (hereafter referred to as “the recent teleconference”), to interpret the legislative intent of the new law broadly and boldly. Such authority in interpretation is granted to the Board by Title 66 and is indeed necessary to allow regulatory clarity and to facilitate the reform envisioned by the law. In short, we believe that Board action through rulemaking is vital to achieving the stated goals of the legislation and reducing the uncertainty created therein.

Specific Concerns and Recommendations on Rulemaking related to Section 506, Session Laws of 2009

RCW 66.28.180, Section 3, Regarding Inter-Tier Ownership Interests

Concern:

This section, when taken together with the explicit prohibition contained in section 6 on advancing money under any “agreement,” “business practice, or arrangement” is sufficiently incomplete as to be meaningless. Glaringly, no specific exception is made for capitalization of an inter-tier "interest,” leaving inheritance as the only (admittedly important) conceivable venue for obtaining such an interest. Likewise, and equally glaring, is the obvious question of distributions of equity or earnings from such entities since, presumably, most investors will seek to obtain interests of this type with the goal of eventual profitability. A prudent investor would reasonably seek assurances on these points, given the specific prohibitions on advancing money contained in the law, which, barring suitable clarification, are controlling.

Suggested Rulemaking:

In order to facilitate the obvious intent of the Legislature to allow inter tier interests, the Board should establish rules recognizing the obvious ordinary transactions surrounding such business investments and should:

1) Provide specific language clarifying that such interests may be capitalized by advance of money or money’s worth including but not limited to cash, or equity interests in real estate, equipment or facilities, and

2) Provide specific exceptions from the blanket prohibition on advancing money for ordinary business distributions, including but not limited to, distributions of equity, corporate dividends, distributions of cash from operations, and payment of fair value for goods and services.

RCW 66.28.180, Section 5 Regarding Assertions of Undue Influence in Inter-Tier Interests

Concern:

FWWS finds the form of section 5 unsettling. The section provides that “any person” may request that the board investigate whether an inter-tier financial interest “has resulted or is more likely than not to result in undue influence or has resulted or is more likely than not to result in an adverse impact on public health and safety.” Such a person may not even need to be theoretically harmed by the alleged influence. Additionally unsettling is the provision of possible remedies including the Board issuing the draconian order “that the transaction be rescinded or otherwise undone.”

FWWS has advocated consistently that the venue for adjudicating claims of undue influence should, as with any other such anti-trust allegations, be in a court of law. We believe that without clarifying regulations the law could be read to set the bar for mischief and harassment far too low and could result in a substantial waste of Board resources.

We are also concerned that without rules specifically identifying the range of ordinary business practices that may occur between inter-tier entities, the law as written will have a severe chilling effect on any prudent investor’s desire to enter into such business arrangements. One example of a potential area for allegation of undue influence would be a restaurant changing their house wine from another supplier’s brand to the brand of their winery affiliate. Such a scenario is not only logical, but might well be the compelling reason that a restaurant owner enters into such a relationship in the first place. In this example the restaurant owner and winery affiliate might also be construed to be violating the explicit prohibition contained in section 2(6)(h) regarding “an industry member having a commitment not to terminate its relationship with a retailer with respect to the sale of a particular product or products.” Again this is an obvious aspect of a long term business commitment and yet another example of the logical inconsistencies in the legislation that should be addressed by rulemaking. When this subject was raised in the recent teleconference, the moderator suggested that the Board identify “safe harbors” to address some of these concerns. We agree that the implementing regulations should identify transactions that will comply with the law. Without specific rulemaking, a prudent investor will not have sufficient certainty regarding day to day business relations with its affiliate to reasonably make such a financial commitment.

Finally, we are concerned that a third party might use a “routine” liquor code violation (e.g. a citation issued under a State ID check enforcement operation) to allege inter-tier public safety impacts. The rules should include provisions to limit frivolous claims.

Suggested Rulemaking:

Provide clarification that ordinary purchasing and sales decision making regarding the products of an industry member affiliated with retailer by financial interest are beyond the scope of undue influence allegations.

Provide specific clarification that the commitment of a retailer to purchase the products of an industry member or distributor with which they are affiliated by financial interest is not considered undue influence as defined in section 2(6)(h). Further clarify that the commitment of such a retailer to purchase the product of such an affiliated supplier does not constitute a violation of section 2(6)(d) with regard to purchasing a “specified amount” (i.e. more than none) of said supplier’s product.

Provide a list of transactions (“safe harbors”) that are presumed legitimate and a procedure whereby other proposed economic transactions can be approved in advance by the Board

Specifically provide that a rescission or divestiture order will only be undertaken after the Board has exhausted all other reasonable remedies and penalties to address the alleged issue of undue influence or public impact.

Provide that any party bringing an allegation under section 5 of public safety impacts due to inter-tier ownership shall provide detailed evidence of the specific way in which the alleged impact is caused directly by the ownership interest in question.

RCW 66.28.180, Section 7 Regarding Gifts of Branded Promotional Items

Concern:

In liberalizing the restriction on producers and distributors providing branded promotional items to retailers, the drafters of this section provided in subsection (1)(a)(iii) that such items “May be provided by industry members only to retailers and their employees and may not be provided by or through retailers or their employees to retail customers.”

This begs the question, when taken together with the interlocking definitions in section 2 of “industry members” and “retailers,” as to whether such a prohibition extends to self distributed wineries acting in their capacity as “retailers.” If so this would constitute a new prohibition on a practice widely used by FWWS members in the past, and one which, on balance, is considered by many to be a more valuable marketing tool than the new allowance for nominal gifts to retailers. Indeed, when this question was raised by an FWWS member in the recent teleconference, Board staff indicated that the Board “had not considered the implications for self distributed wineries.” We very much appreciate this candor and further appreciate the stated desire by Board staff to allow any such promotions to consumers if purchased by the retailer and suitably not targeted to “appeal principally to youth.” However we are concerned that the vague wording of the law as written makes the LCB’s confusion on this point understandable. We further believe that absent suitable clarification through rulemaking such confusion is likely to be repeated in the future by the Board’s MIW representatives in their enforcement of the statute. We therefore believe that clarifying rules are needed.

Suggested Rulemaking:

Provide rulemaking to the effect that nothing in the law will be interpreted to prevent a retailer, or a self distributed winery or brewery acting in its capacity as retailer from purchasing and providing such branded promotional items to its customers subject to the restrictions of section 7(1)(a)(iv) on items appealing “principally to youth.”

Comments on Excise Tax Increase

Family Wineries of Washington State is an organization representing 85 small wineries in Washington, as well as numerous affiliate and business members within the wine industry. We are focused on promotion of and advocacy for small wineries. We are writing to express concern over the recent proposal to increase alcohol taxes on wine for the purpose of funding health care reform.

The proposal to raise the tax per proof gallon of alcohol to $3.50 represents, depending on the tax class of wine in question, an increase of more than threefold over the current rate. Worse, since all of our members qualify for the Federal “Small producer tax credit” the actual increase for wine under fourteen percent alcohol by volume would be more than fifteen fold, assuming the small producer credit remains in place. This is an economic hit that small wineries are particularly unable to sustain in the present credit and business climate.

We are further concerned that, given the many studies showing positive rather than negative health benefits deriving from the moderate consumption of wine, the proposal to place wine taxation squarely in the category of alcoholic beverages more subject to abuse, represents bad public policy.

We support the Committee’s goal of attaining health insurance coverage for all Americans, but we believe that such an enormous burden must be shared as broadly and fairly as possible among all taxpayers for this effort to be successful.

Comments on Pre-Proposal 09-09: Internet Sales and Home Delivery

The following comments were submitted to the Liquor Control Board in response to their request for input regarding proposed rulemaking on issues surrounding direct shipment to consumers. Note the word "proposed". As noted in the text, we believe that some of the proposed areas for consideration are alarming, do not represent present concerns, and have not been specifically authorized by the Legislature. We will keep you posted as this rulemaking process procedes.

Family Wineries of Washington State is an organization presently representing over 85 small Washington Wineries. Many of our members are self distributed and virtually all rely on direct to consumer shipments for a significant part of their income, and consequently for their economic viability. We are therefore extremely concerned about the scope of this proposed rulemaking.

We are first concerned with one aspect of the background offered to justify the need for this proposal. It is suggested in the background section of the issue paper that the 2007 US Supreme Court decision “Rowe, Attorney General of Maine v. New Hampshire Motor Transport Association et al.” calls into question the State’s ability to regulate delivery of wine by common carriers. However, importation of alcohol into any State in violation of the laws thereof is prohibited by section 2 of the Twenty First Amendment to the United States Constitution. It is not reasonable to assume that the Rowe decision regarding the regulated substance tobacco supersedes the constitutional authority granted to states regarding the regulated substance alcohol. We are concerned that, to the extent this rulemaking is being predicated on such an assumption, it is unnecessary and may be somewhat alarmist.

Our second concern relates to the section of the issue paper regarding “other public safety measures to be explored” specifically:

• restricting when alcohol may be delivered to residential addresses;
• restricting the amount of alcohol that may be sold or delivered at any given time;
• requiring that a delivery person works directly for the licensee; and
• verifying and documenting the legal age of the person who purchases and/or accepts the delivery.

With regard to the first two points concerning timing and quantity of delivery, we would expect the Board to request evidence that these are presently issues raising problems in practice before proceeding to rulemaking. In the absence of such evidence, these two points would appear to invite regulations in search of actual problems to justify them.

The third point regarding requiring delivery by a winery employee is extremely disturbing. The elimination of a winery’s ability to ship to consumers via common carrier would be a devastating economic body blow to small wineries in already difficult economic times.

We do believe the final point regarding age verification to be an appropriate area of concern for rulemaking. We believe that both the statutory authority and the potential for adverse impacts are sufficiently existent for the Board to consider rulemaking on this point. We further believe that the information systems and technology are already in place to accommodate such regulations if they are drafted with reasonable care to work within the limits of such technologies.

Family Wineries of Washington State stands ready to offer input to the Board on sensible regulation of age and identity control for direct to consumer shipment of alcohol to consumers. Should the Board wish to expand the scope of the proposed rulemaking significantly beyond this issue, we feel it would be appropriate to seek direction to do so from the Legislature.

WSLCB References

Notice for Comment
Background Issue Paper

Comments on Proposed Amendments to Advertising Rules in WAC 314-52

Introduction:

As a matter of policy, FWWS maintains that public safety regulation of dangerous consumption of alcohol can and should be kept separate from economic regulation of alcohol manufacturers, importers, distributors and retailers. In fact, as FWWS has repeatedly testified before the Washington State legislature, the LCB’s regulation of private economic activity detracts from the LCB’s efforts to protect the public from the dangers of abusive consumption of alcohol. Regulation of private economic activity wastes scarce LCB resources that would be better used to protect public safety. Regulation of private economic activity also limits the economic growth of the Washington wine industry (which is an important state industry) and should therefore be pursued only when there is a clear public safety reason to do so. FWWS recognizes that the most difficult area to implement the distinction between beneficial public safety regulation and unnecessary economic regulation is advertising. FWWS supports reasonable restrictions on advertising that will have clear public safety benefits. In this regard, we appreciate the LCB’s effort to reduce the verbiage and eliminate many of the arcane restrictions in the existing advertising rules. However, the current proposal goes too far, is overbroad, will have unintended consequences, will unnecessarily hamper promotion and sale of Washington wine (an important state agricultural product), is unconstitutional, and is not necessary. As discussed below, FWWS will not support the proposed regulations without substantial revision to better balance protection of public safety with promotion of a legal and vital Washington state product. Our specific comments follow:

WAC 314-52-005 Purpose and application of rules.

WAC 314-52-005(1). The proposed revisions to the purpose of the regulations reflect a conceptual error that is repeated throughout the proposed regulations. The proper goal of the advertising regulations, and in fact the proper goal of all LCB regulation, is “to prevent the misuse of alcohol” as stated in the first part of the proposed new language. FWWS supports this goal. However, reducing youth exposure to alcohol advertising and marketing is not a goal, rather it is a means to an end (that end being protecting public safety by preventing the misuse of alcohol). If everyone always drank in safe, moderate amounts, there would be no public safety need to prohibit young people from drinking alcohol. For instance, minors are permitted in Washington State to drink alcohol at home with their parents and at church because there is little public safety concern in these circumstances. It is because alcohol can and is abused by some members of society that the state has banned the sale of alcohol to minors as a means to achieve the end (goal or purpose) of protecting public safety from abusive consumption of alcohol. Therefore, the second part of the proposed new language is not a legitimate purpose or goal and should be deleted. Other specific examples of this conceptual error are found elsewhere in the regulation as discussed below. The effectiveness of the regulations would be improved, and the unnecessary (and probably unintended) consequences of the regulations would be reduced, if this distinction between means and end was kept in mind while drafting the next version of the proposed regulations.

WAC 314-52-015 Mandatory statements.

WAC 314-52-015(1)(f). As written, the regulations prohibit reference to “any athlete” and “any athletic achievement.” Is the state going to ban advertisements of Greg Norman’s wine? Mario Andretti’s wine? Almost anyone can be considered an athlete, including many winemakers in Washington State whose names are proudly placed on advertisements for Washington State wine. Chateau St. Michelle used to claim in advertisements that their winemaker liked to climb mountains. Would that advertisement be illegal? This proposed regulation should be substantially limited or deleted.

WAC 314-52-015(1)(g). As drafted, the proposed expansion of the prohibition of advertisements depicting children to prohibition of advertisements depicting persons “under twenty-one years of age” is overbroad and will unduly (and unconstitutionally) restrict the promotion of Washington State wine. One cannot think of an effective advertisement that would be appealing to a thirty year old that might not also be appealing to a twenty year old.

WAC 314-52-015(1)(h) and (i). The proposed prohibitions on advertisements that imply “that consumption of alcoholic beverages is fashionable or the accepted course of behavior” or associate alcohol “with social achievement” are perhaps the most objectionable provisions in the proposed regulations. The fact is that Washington wine is fashionable. The fact is that drinking Washington wine is an accepted course of behavior. The fact is that Washington wine is associated with social achievement. Medical doctors tell us that wine has public health benefits. The governor of Washington State and the members of the Liquor Board all drink Washington wine in public. Surely these social achievers are fashionable and pursuing an accepted course of behavior? These provisions should be deleted.

WAC 314-52-015(2). There appears to be an error in this proposed provision. The provision should apply to “advertisements” not “labels.” To FWWS knowledge, the LCB is not proposing to amend the labeling regulations at this time. If the LCB does intend to amend the labeling regulations, please let FWWS know as we would have many additional comments.

WAC 314-52-030 Liquor advertising prohibited in school publications.

An exception should be provided for elementary and secondary school fund raising events. These events are targeted to adult donors. Small Washington wineries are regularly asked to contribute wine to such events and such events are an important source of funding for public and private schools.

WAC 314-52-040 Contests, competitive events, premiums and coupons.

WAC 314-52-040(1)(a). For the reasons discussed above, the second reference to “persons under twenty-one years of age” should be changed to “children.” It will be impossible in practice to distinguish a prize targeted at a twenty year old from one targeted to a twenty-one year old.

WAC 314-52-070 Outdoor Advertising.

WAC 314-52-070(2). This new provision may be well intentioned but is overly broad. Many existing signs at small family wineries are over six hundred square inches. Six hundred square inches equates to a sign that is only 24 by 25 inches in size. Many existing highway signs must be larger than this to be legible. At a minimum, exceptions should be provided for the primary winery signs on the winery building or tasting room, directional signs, “winery open” or “winery closed” signs, “adopt a highway” signs and similar signs.

From conversations with members of the prevention community, we understand that the concern is not with wineries with multiple signs, but with retailers who plaster their buildings with beer advertisements. The proposed regulation could be easily fixed by changing the word “sign” to “advertisement” in the definition of “outdoor advertising” and throughout the provision. It’s advertisements, not signs, that are the problem. The language “trade name and room name signs” should be deleted from subparagraph (1). Washington wine is not evil. Wineries need to be able to show people where they are located and promote their products.

WAC 314-52-070(5). This new provision also appears well intentioned but overly broad. The current requirement that the school or church must object should be retained. If it is not retained, many existing wineries will be in violation because they located their facilities near schools or churches without objection. (Believe it or not, not every church or school thinks that alcohol is evil or that wineries are a threat to children.) Similarly, the objection requirement should also apply for playgrounds or athletic fields. Will wineries currently located within 500 feet of playgrounds and athletic fields be forced to close? At a minimum, there must be an exception for existing wineries and other industry members and for situations where a new school, church, playground or athletic field chooses to locate near an existing winery.

Another way to fix this provision would be to change the definition of outdoor advertising in subparagraph (1) from “signs” to “advertisements” as suggested above.

WAC 314-52-113(2)(b) and (d). For the reasons discussed above, the references to “persons under twenty-one years of age” should be deleted. It will be impossible in practice to distinguish an “inflatable” or “costumed individual” appealing to a twenty year old from one appealing to a twenty-one year old.

WAC 314-52-120. Sponsorship of public and civic events.

WAC 314-52-120(3). The connection between “giveaways” and sponsorship of public and civic events held in public areas is not clear. All public and civic events are held in public areas. Many wine festivals occur on public property. Some small wineries like to give away items of nominal value such as T-shirts and corkscrews at such events. If a giveaway is otherwise legal and appropriate, why can’t it be given away in a public area? Subparagraph (3) is ill conceived and should be deleted. At a minimum, an exception should be provided for events holding a special occasion license.

Conclusion

In conclusion, FWWS supports reasonable restrictions on alcohol advertising to meet the legitimate public safety goal of reducing dangerous drinking. However, as described above, the current proposal goes far beyond limiting alcohol abuse and unduly interferes with commercial speech that is important to the marketing of a valuable Washington State agricultural product. As a wine producing state, Washington’s advertising rules should be a model of balance between promoting public safety and promoting economic growth. The proposed regulations are not balanced and should be substantially revised as suggested above.

WSLCB References

Notice for Comment
Drafted Proposed Language
Summary

Food Safety Enhancement Act of 2009

A member of the FWWS Board received a post from the Yahoo Small Winery group regarding the Food Safety Enhancement Act of 2009. In a nutshell, the proposed legislation suggests a $1000 fee to cover the fee of an annual federal inspection of any winery. We encourage you to write your federal representatives using the below template:

I represent a small commercial winery in your district – *NAME OF WINERY* in *CITY*, WA. I wish to comment on the draft bill being titled, "Food Safety Enhancement Act of 2009".

Ref: http://energycommerce.house.gov/Press_111/20090526/fsea_draft.pdf

Under 21 USC 350d, wineries are considered "food facilities" and are presently required to register with the FDA. We have no objection to registration, even though no human pathogens have been identified in commercial wine. Registration has been a simple process, with no fee involved.

We also have no objection to being inspected by another agency, even though we are already subject to inspection by the state LCB and the Federal TTB. However, the draft bill referenced above proposes a $1000 annual fee for the registration, ostensibly to cover the cost of annual inspections.

To Gallo or Hormel, etc., that fee is pocket change, and in fact, would not even cover the actual expenses of the inspection. But to a small winery such as ours (producing only *NUMBER GALLONS* gallons a year) it would consume a large percentage of what little profit we make on a bottle of wine. It constitutes 2 to 3 times the combined federal and state excise taxes! And just imagine the effect on the local “Mom & Pop” producers of jams and relishes who sell at local stores and Farmers Markets. Such a fee would put them out of business.

There are currently many small wineries in your district for which a $1000 fee will either inhibit growth or possibly precipitate shutdown. Certainly, the fee would be an additional barrier to entry for any start-up winery.

We agree that protection of the nation's food supply is critical, especially considering the recent problems with tainted beef, spinach, and peanut butter, but including wineries in such a program is misguided and unnecessary, and places an unfair and disproportionate burden on small wineries.

We urge you to recommend that small "food facilities" such as small wineries be exempt from the $1000 annual fee, proposed in the draft legislation.

Thank you for your consideration,

*NAME*
*NAME OF WINERY*, *CITY*, WA
*WEBSITE ADDRESS*
*EMAIL*

You can find your representatives at http://www.usa.gov/Contact/Elected.shtml. Simply fill in the template from above and submit your email to your reps.

Thanks to Dan Strickland from New River Winery in Lansing, NC for creating this template and posting.

Law Seminars International - House Bill 2040

Comments of Family Wineries of Washington State President Paul Beveridge on House Bill 2040

The following comments were provided by FWWS President Paul Beveridge during a June 2, 2009, tele-seminar sponsored by Law Seminars International:

Thank you Corbin. The specific detailed comments of Family Wineries of Washington State on the new law are contained in the written materials that are provided on the Law Seminar International's website and the FWWS website. As you will note from our written comments, we are very disappointed in the bill. We see it as three steps backward described as two steps forward. But rather than discussing in detail our specific concerns with the new law, I would like to make a general comment as a winery owner.

I would like to ask a central question: Is Washington wine a good thing? Would the world be a better place if more people drank Washington wine? I think how you answer this question determines where you come out on this new law and other wine law reform legislation. As a winery owner, am I a pillar of our agricultural economy in Washington who should be supported and promoted by the State? Or am I an evil drug dealer who should be discouraged and controlled?

In Washington, our wine laws were largely written after the close of prohibition when we had no wine industry in this state. The existing statute treats me like a drug dealer and requires the Liquor Board to meddle in my private economic affairs with little corresponding public safety benefit. The new law does little to change this presumption. It continues a legislative policy of economic regulation that has little to do with public safety or preventing alcohol abuse. Rather, it expands economic regulation because that regulation benefits a few (and by a few I mean a few established wineries and a few large distributors). It benefits these few at the expense of the many (and by the many I mean small wineries and, most importantly, wine consumers). It claims to provide a few new exceptions to these onerous economic regulations, but it does not do a very good job of drafting the exceptions, actually repeals some former exceptions, and in fact dramatically increases the Liquor Board's role in economic regulation. It continues the Kafkaesque presumption that unless an economic activity is expressly permitted in the statute, it is prohibited. That's no way to help promote an important state industry.

Perhaps the best (or actually worst) example of the unnecessary and counterproductive expansion of the Liquor Board's regulatory power over private economic activity is the supposed relaxation of the tied house rules on cross ownership between industry tiers. Presumably, this would allow restaurants and hotels to partner and invest with wineries. Presumably that would be a good thing. Perhaps we would get more good restaurants and places to stay in wine country. However, the new law giveth with one hand and taketh away with the other. It gives the Liquor Board the unprecedented power to cancel private contracts after they have been consummated if there is "undue influence" or "an adverse impact on public health and safety." Any person may file a complaint - even after the contracts have been signed and even after the buildings have been constructed. Who is going to make substantial investments with this cloud of uncertainty hanging over their head?

Another example is the supposed relaxation of the moneys' worth restrictions to allow wineries to give knick knacks to their retail customers. But the law does this in such a poorly drafted manner that it threatens a winery's longstanding right to give such "branded promotional items" directly to consumers. It means I may no longer be able to give my best customers a t-shirt or corkscrew when they purchase a case of wine. That's one step forward and two steps back.

I am pleased to hear today that the Liquor Board is going to interpret the new law in ways that may blunt some of its more onerous economic restrictions. However, the fact remains that this new law does little to move Washington wine law into the 21st century. We still have a Liquor Board that is statutorily required to limit competition and the economic growth of Washington wineries. The new law strengthens the regulation of private economic activity at the expense of local industry, agriculture, innovation and consumers. You can rest assured that Family Wineries of Washington State will be back at the legislature again next year seeking more meaningful change.

FWWS Website Revamp

Once again, your web mistress Sally, and technical ninja Alex, have used their awesome computing skills for your benefit. The web site has been revamped to provide you with new features, as well as to refresh existing functionality. Peruse the list below (and don't worry if some stuff is technical sounding and you don't really understand what it is; it's still cool):

1. Front page of web site has been redesigned into a "news" style front page, which includes:

• Winery of the week! Each winery member will get a dedicated column, with active hyperlinking and a blurb.


• News feeds via RSS which includes up-to-the-minute news from: Wines & Vines, FWWS (aka us), Wine Press NW, Wine Spectator, Seattle Times Wine Adviser, and WAWGG.


• Sponsor of the week! Designed especially for our industry members, who we encourage all winery members to do business with.

2. An FWWS blog! All of our news will now be posted in blog format rather than in an e-mail newsletter. The blog allows members to comment on posts, it is publicly available in the blogosphere, and it provides a subscribable RSS feed which is also displayed on our web site front page.

3. A navigational link to an embedded page where we display the login into our electronic member mailing list. All winery members are automatically part of this electronic mailing list. Now you can easily find the page that lets you view the archive and set personal options.

4. A navigational link to an embedded page where we display our online bulletin board. Use this board to discuss topics, sell equipment, whatever.

5. An updated "Join Now" page with membership types and dues defined.

6. A new "Legislation" page with links to all of the legislation that FWWS is working on.

7. The new "Maps" feature which is described in the first blog post.

8. An updated "Additional Resources" page with a slew of new and pertinent links.

9. Updated "Board Members" page if you want to know who your board members really are.

10. The web site also has an updated navigation bar, and updated footer, and now uses "Server Side Include" technology which permits us tech-types to make global "look and feel" and navigation changes almost instantly.

As a result of all of these updates and changes, we will no longer be sending out periodic newsletters via e-mail in PDF format. Instead, we will post news on our blog and send an alert out via e-mail. We hope you like this new system!

We have one remaining new feature which will be deployed in the next 1-2 weeks. We will be able to process dues payments via PayPal and major credit cards! This should make it much easier for our members to pay their dues.

Thanks again and we hope you like the updated site.

WA Legislative Update

LEGISLATIVE UPDATE

“Those who love the law and their sausages should never witness either being made”

This quote from an anonymous 19th century German legislator was well suited to the just concluded Washington Legislative session. We had originally planned to include this update in our spring newsletter, but given the number of topics raised in the past session, we will limit this update to legislative issues. This means you can expect another update in short order to inform you on other work we have been doing.

This update is a bit lengthy but the topics are complex, and, unfortunately, despite what you may have heard, not much has been solved. These issues are very important to our industry and will not go away until they are addressed in an effective and comprehensive fashion. Read on.

”STAKEHOLDER COALITION” BILL

This bill, which passed the Legislature, was drafted by the members of the so called “Coalition of Stakeholders”. This coalition, you may recall, included the Beer and Wine Wholesalers, the Washington Wine Institute, and large grocers, among others. FWWS was excluded from participation in the Coalition deliberations; therefore you will not be surprised to learn that the bill does little for small wineries. The changes agreed to and recommended by the Coalition were essentially a lowest common denominator collection of what was acceptable to this group. To see who controlled the coalition, one need only look as far as the first sentence of the bill which reads:

“The legislature recognizes that Washington’s current three tier system, where the functions of manufacturing, distributing, and retailing are distinct and the financial relationships and business transactions between entities in these tiers are regulated is a valuable system for the distribution of beer and wine.”

They may as well have added: “Take that Costco!”

General overview of the Bill

The bill addressed three areas of Washington wine law:

1) Trade practices by suppliers, such as point-of-sale merchandising.
2) Prices charged by suppliers.
3) Interests an industry member in a supplier tier of distribution may hold in a retail tier business, and vice versa.

These topics are addressed by expanding the reach of the State and the authority of the Liquor Board to regulate private economic activity, expanding the scope of money and money’s worth prohibitions, and reinforcing the “whatever is not permitted is prohibited” interpretation of the statute. These effects go against the stated goals of FWWS which are to eliminate unnecessary regulation and mainstream the purely commercial aspects of wine trade into the ordinary commercial codes applicable to other businesses.

An additional problem with the bill is its poor drafting throughout, which, when combined with its complex definitions and its expansion of existing prohibitions, appears to have many unintended consequences. A complete listing of the potential problems raised by the bill is beyond the scope of this update but we will endeavor to point out some of the most glaring problems as they relate to the main features of the bill.

What the Bill Does:

Repeals Minimum Mark Up

The repeal of the minimum ten percent markup over distributors cost is perhaps the one thing that this bill accomplishes cleanly. Virtually all industry members including FWWS testified that the ten percent minimum mark up was too small to be meaningful and should be repealed. The good news is that the legislature repealed a meaningless regulation. Unfortunately the benefits of repeal of a meaningless provision are, by definition, not terribly meaningful to small wineries. One positive effect of this provision is that it will allow wineries to lower the price of inventory that they are desirous of “blowing out”.

Money’s Worth

The prohibition against extension of moneys or money’s worth from producers or distributors to retailers is reinforced and expanded under the bill to include money advanced under any “agreement”, or “business practice or arrangement”.

Much has been made of the allowance under the bill for suppliers and distributors to give corkscrews, coasters and other branded promotional items to retailers. Just one example of the consequences of the overly broad restrictions under the bill, when taken together with the multiple and often overlapping definition of wineries as “Industry Members’”’, “affiliates,” and “retailers,” is the apparent prohibition against wineries (defined in this case as an industry member or distributor) any longer being able to give such promotional items directly to retail customers. Since this appears to be an example more of poor drafting than intent, we will have to wait to see how the WSLCB chooses to interpret the bill.

Tied House “Reform”

The bill includes provisions for cross tier ownership of interests in wineries by retail tier interests and vice versa.

It accomplishes this by allowing certain ownership interests between various newly defined and sometimes overlapping categories of ownership. The reinforced restrictions on advancing money (mentioned above) when combined with these overlapping definitions create even more potential for problems. The bill provides a short, specific, and narrow list of exceptions to the prohibition on advancing money. Incredibly, money for investment, corporate dividends or distributions of cash from partnerships or limited liability companies is not included among the allowed exceptions!

The bill also provides parties alleging that such relationships provide “undue influence” over purchasing decisions or a number of other undesirable influences listed in the bill, the right to challenge the investment relationship after the fact. Further such a claim of undue influence need only be made to the Liquor Board, rather than, as in the case of any normal anti trust complaint, and as FWWS had suggested, in a court of law. Such complaints can, under the bill, be made by any party whether or not actually harmed by the alleged behavior or even a part of the industry. The complaints must be addressed by the WSLCB and penalties could include a divestiture order, a draconian outcome that would undoubtedly be chilling to such future investments. Giving the incredibly broad prohibition of advancing money’s worth through “business practices” and the specific prohibitions listed, any number of business arrangements could potentially run afoul of these restrictions.

Price Posting

In order to comply with the court ruling in the Costco case, the bill ends price posting. Unfortunately rather than recognizing the entire concept as unnecessary, the Legislature retained the requirement for wineries to list their prices. Now such lists, rather than being posted on line, must be maintained at the winery’s licensed location. The bill is silent on whether this list might be in electronic form or whether it might be modified from the field.

What the Bill Does Not Do

Volume or Other Discounts

Uniform pricing remains. Volume discounts are not allowed by the bill. You still have to charge the same price to a retailer who buys one bottle of wine from you the same price you charge a retailer who buys 50 cases of wine from you.

Ban on Credit

The ban on extension of credit remains under the new bill (money has a time value therefore extension of credit is advancing money or money’s worth). The wholesalers succeeded in getting an exception for EFT transfers, which benefit them, but refused to allow a similar exception for small wineries to accept checks by mail (please see Omnibus bill discussion below).

Summary of Coalition Bill

The bill extends rather than reduces the reach and scope of the State’s police powers with regard to wine regulation, confuses and complicates significant areas of trade, and reinforces the idea that no business practice should be allowed unless specifically listed in the statute. The bill is a poster child for why FWWS was founded and shows we still need to pass our fundamental reform bill to change the wine statutes.

TAX REPORTING RELIEF ACT

This was our attempt to change state wine tax reporting requirements for wineries removing less than six thousand gallons of wine annually. This bill would have allowed over 80% of Washington wineries to choose annual (versus monthly) State excise tax reporting. Alas the bill did not pass out of committee for the second year in a row.

We did make quite a bit of progress over the past year. We crafted the bill so that the Washington Wine Commission (whose dues are collected through the excise tax reporting process) found the delays in receipt of their revenues acceptable. By the way, if you happen to see Rick Small, Robin Pollard or another WWC board member, please thank them for their cooperation! The bill encountered (constructive) criticism from the California Wine Institute whose suggestions were adopted and made for a better bill as regards applicability to small out of State wineries. Unfortunately these changes for somewhat arcane reasons required re-introduction to the House commerce committee during a busy time frame. This situation was terminally complicated by a $250,000 fiscal impact statement from the Washington State Liquor Control Board, an obvious non-starter given this year’s budget constraints. This fiscal note which relates to computer system costs is frankly baffling to us since this bill should require less, not more, staff time from the WSLCB and no change whatsoever to their computer systems.

We plan to address this fiscal note with WSLCB staff and re-introduce the bill in the next session. We also plan to press the Wine Institute to support the bill which they have not done in the past.

OMNIBUS BILL

This bill, which we initially supported because it made many minor improvements in the liquor codes, was unfortunately used for mischief before it was passed.

Throughout the Joint Select Committee process the “Coalition of Stakeholders” insisted that any discussion of credit be limited to electronic funds transfers (EFT’s) which typically take up to five days to settle, and thus violated the COD requirements for wine and beer sales. One of two compromises on credit we proposed to the Committee suggested that we would accept the coalition’s proposed changes for EFTs (which virtually none of our self distributed members use) if the same policy applied to checks (which virtually all of our self distributed members use). Our compromise was rebuffed by the wholesaler’s lobbyist and received no support from the Wine Institute’s representative to the coalition. The five day exception from COD requirements for EFT transfers was slipped as an amendment into the House version of the bill and is now law.

We intend to see if a changed definition of “checks as cash” under this bill will allow the Liquor Board to extend this gracious treatment to checks as a policy position. If we are not successful, we will be running a separate bill to extend these payment terms to checks. We will not rest until self distributed wineries get parity on the issue of COD requirements.

A further amendment to this bill, also slipped into the House version enacted the Coalition’s views on retail to retail sales of wine. Such sales will now be allowed but only between licensees under common or corporate ownership. In other words, one grocery store in a chain can now “resell” wine to another branch but a Mom and Pop wine store may not resell inventory to another store or restaurant. FWWS had vehemently opposed this grossly unfair limitation. Ironically, the bill limits the amount of wine that can be so transferred to twenty cases per year, a poison pill sure to limit the usefulness of the change even for the corporations it applies to.

WINE.COM BILL

This bill would have allowed direct shipping to consumers from out of State retailers. We supported this bill because we firmly believe that Washington must take leadership on allowing such shipments. Easing direct shipping requirements is currently being considered (and fought by the wholesale lobby) in numerous states around the country. We believe success nationally will open up many new opportunities for wine sales by Washington wineries. Incredibly, this bill failed even though it had the support of both the WSLCB and the prevention community in Joint Select Committee testimony. Both recognized the short comings inherent in the current system. The Wine Institute was officially neutral on the bill, which they opposed in the previous year because it was non reciprocal (an obviously impossible goal).

If this bill is run again, we will lobby for it actively and will press the Wine Institute to support it.

We wish we could provide you with a more positive report, but much remains to be accomplished before Washington State will have “the perfect legal climate for wine.” Please let us know if you have any questions or comments by sending us an e-mail or posting on our blog. Thanks.

EHB 2040 is available on the State Legislature website for your reference.