Total Wine and direct-to-consumer wine shippers scored a win in June in the U.S. Supreme Court with the results of Tennessee Wine and Spirits Retailers Association v. Russell F. Thomas (previously known as Tennessee v. Blair).
In a 7-2 decision, the Supreme Court found against a Tennessee law that required someone live in the state for two years before becoming eligible for a liquor license. This law had technically prevented the opening of Big Box stores like Total Wine, along with businesses that shipped wine across state lines to Tennessee consumers. With the ruling — that basically found that the residency law unfairly favors Tenn. residents in matters of business — the Justices set important precedent in favor of Big Box and direct-to-consumer shippers.
What does that mean for beverage alcohol retailers across the country? For insight into that, we recently spoke with Tucker Herndon, a partner at Burr & Forman in Nashville, Tenn., who works with clients in the beverage alcohol industry on regulatory compliance and licensing matters. Here’s what Herndon had to say:
Kyle Swartz: Do you agree with the decision?
Tucker Herndon: I agree with the majority decision’s statement that the two-year requirement has nothing to do with health. [Those in favor of the Tenn. residency law had argued that it protects public health and safety.]
Perhaps I would feel completely different talking about this 20-to-30 years ago, if me and my wife had invested in a liquor store and treated it like a family business. But a number of places now are bigger establishments where the owners are not present day-to-day, or you have people who are looking at the business more as a source of passive income. So I think the limitation of stores to state residents is absurd. I am a capitalist and a free-market person.
A lot of people ask, ‘So now what’s the next step?’ I do not anticipate having the ability to buy booze from New Jersey and have it shipped to me in Tennessee. I don’t think we will have direct shipment for liquor.
But I do think this gives clarification if you want to be a big establishment like Amazon and deliver wine. Now you have the ability to lobby the correct way for wine, because the path forwards is more clear.
Kyle Swartz: Sure, and perhaps Amazon can now open a physical store in Tennessee and use that as an excuse to ship wine all over the state. Is that a concern — especially for the three-tier system?
TH: Listen, legally, you can already order Dominos pizza and, if the driver is approved with a delivery license, he can legally pick you up a bottle of wine and liquor and deliver those to you with your pizza. Retail establishments can do that too.
I do not think this will erode the three-tier system in Tennessee. Just because they lost a battle does not mean that the wholesalers will lose the war. The taxes they collect have a trickle-down affect: that’s how the state is reaching the taxes. If you go around the three-tier system, and allow outside retailers or wholesalers to detract from the state-controlled tax portion of it, that’s how you get in trouble. And people do care about continuing the three-tier system from a straight regulatory component. Amazon can create a bricks-and-sticks store here for delivery purposes, but they still have to buy product from the Tennessee wholesale tier.
But at the same time I also don’t support if Southern Glazer’s combines four-to-five stores and then puts one hub in South Carolina and delivers to all the surrounding states. Product should still come from a Tennessee channel of business. A state must retain the ability to connect with businesses in that state for regulatory reasons.
Kyle Swartz is editor of Beverage Dynamics magazine. Reach him at firstname.lastname@example.org or on Twitter @kswartzz or Instagram @cheers_magazine. Read his recent piece, 11 Alcohol Trends to Watch in 2019-20.