Will Washington Legalize Virtual Wineries?

Lawmakers, winemakers work to clarify cloudy regulations that define wineries

by Peter Mitham
John Bell
John Bell, owner/winemaker of Willis Hall, Marysville, Wash., urged an open forum do discuss the proposed changes.
Woodinville, Wash. -- Washington state’s wine industry is facing major change, and not just in the form of potential bids to privatize the state’s liquor retailing framework (see winesandvines.com Headline, July 19, “Washington Wineries Oppose Ballot Measure”). Rather, the Washington State Liquor Control Board and the Washington Wine Institute are seeking to legalize virtual wineries, which to date haven’t had a formally defined place within state liquor legislation.

While federal law requires bonded wineries to produce wine on premises --  period -- Washington laws have traditionally allowed greater leeway that reflects the dynamic, evolving conditions in the state’s wine industry.

“Washington has a very broad and vague law on what a winery is, and it requires you to do one of four things at a premise -- age, bottle, crush or blend your wine,” Jean Leonard, executive director of the WWI, explained at an industry meeting in Woodinville on Aug. 23. She updated about three dozen wineries and other interested parties about both the privatization bid and the potential change to winery licensing. A similar information session took place in Prosser on Aug. 24.

The differences between federal and state legislation mean some producers that use custom crush operations occupy nebulous territory. Some have a wine-filled barrel in the tasting room to effect compliance with the letter of the law while the spirit remains free.

“What most people are kind of surprised to hear is that most of the custom crush operations are wineries. They’re bonded wineries -- but customers of the custom crush operation, because they’re not producing wines at the premises, are technically not in compliance with the law when they are selling their own wine,” Leonard said. “There is no such thing as a virtual winery. You’re either a winery or you’re not. And under federal law, if you’re a winery, you need to produce wine at your premise.”

Discussions have been ongoing for the past two years with respect to resolving the issue, which Rick Garza, deputy administrative director for the Washington State Liquor Control Board, and Leonard both called a hassle for enforcement agents and wineries alike.

“Wineries don’t know, enforcement people are confused, and I think the last thing you really need is to have inaccurate, improper or uneven enforcement,” Leonard said.

The legislation remains in draft form, and Leonard told Wines & Vines outside the meeting that discussions are still focusing on the language to use to define the new license. A document could be presented to the industry in January, after the current privatization initiatives and their impacts on wineries are addressed.

Leonard told the meeting, however, that the domestic winery license would remain a broad license. The new license would be more like a négociant license or brand license that would allow the distribution and sale of wine made off-premise. “It would just be a different kind of a license, one that would not require production at a premise -- similar to what the federal law has as a bonded wine cellar, which allows you to market and distribute wine even if you don’t produce it,” she said.

The final form may be a sort of secondary license that allows direct sales of wine to consumers and retailers, as well as supplies to charitable events. It might also define the privileges custom crush customers have. John Bell, a member of the executive board of the Family Wineries of Washington State, urged the WWI to open its planning process to the entire wine industry, including his group and regional associations such as Washington Association of Wine Grape Growers and the Walla Walla Valley Wine Alliance.

“My plea to you is that more than just the Wine Institute voice is written down in this new legislation,” said Bell, owner of 2,500-case Willis Hall, Marysville. “We need to open this up beyond what Jean has already put together, we need to see what Jean’s done already. And then we need to discuss it in an open forum.”

While firm numbers for non-compliant wineries aren’t available, Rick Garza said a single standard is important, and he encouraged discussion among stakeholders so the industry speaks with a unified voice when the time comes to make changes. “We’re tired of arguing with our winemakers,” Garza told the Woodinville meeting. “It’s time to make some decisions as to what this is going to look like.”
Posted on 08.29.2010 - 12:49:42 PST
Kudos to the LCB for wanting to make it easier, but present law permits a winery to bottle and sell under a bottling alias and brand name licensed from a non-winery trademark owner and to employ the trademark owner as agent for marketing the wine on a per-case commission. It is correct to say there are no virtual wineries, only wineries; it is an error to suppose that trademark-owning agents of wineries (or of wholesalers) need a winery license or that a virtual winery license category needs to be created.
Seattle, WA USA

Posted on 08.29.2010 - 13:18:29 PST
This sounds like a non-problem in search of a non-solution. The Liquor Board and the Washington Wine Institute should be working to make the liquor laws simpler, not more complex. Rather obviously, there is nothing to legalize. It is already legal for licensed wineries to make wine and to bottle under fictitious names. It is already legal for anyone to own a trademark. It is already legal for wineries and wholesalers to use licensed agents to sell their wine. These people need to get better legal advice and start working for all Washington wineries instead of a few established wineries that want to pull up the draw bridge to prevent free and fair competition.
Seattle, WA USA