The impending ruling from the United States Supreme Court in Tennessee Wine and Spirits Retailers Association v. Zackary Blair, could make the wine and spirits retail market in 21 states a much friendlier place for emerging and growth companies.
This spring, the Court will decide whether the 21st Amendment permits states like Tennessee to restrict granting (and in some cases, renewing) retail or wholesale liquor licenses only to individuals or entities that have resided in the state for a certain period of time. Many argue that such durational residency requirements run afoul of the dormant commerce clause, which prohibits states from passing laws that discriminate or excessively burden interstate commerce.
Proponents of durational residency requirements argue that such requirements foster public health, safety, and welfare by requiring a prospective licensee to become acquainted with the community in which the licensee will sell alcohol and affording the state more time to vet a prospective licensee’s background and qualifications. They interpret the 21st Amendment broadly, arguing that it has historically given the states control over alcohol laws since the repeal of Prohibition nearly a century ago.
Opponents of the restrictions argue that state residency has no bearing on the public safety considerations; a person living just over the Tennessee border in Fort Olgethorpe, Georgia is likely more in tune with the community in Chattanooga, Tennessee (9 miles away) than a fellow Tennessee resident living in Memphis (337 miles away). Additionally, Tennessee law already requires prospective licensees to complete a criminal background check and demonstrate adequate moral character and business experience before receiving a license. Opponents argue that durational residency requirements constitute economic protectionism and discriminate against new or out-of-state residents in violation of the dormant commerce clause.
Both sides agree that if the case concerned any product other than alcohol, which implicates the 21st Amendment, such durational residency requirements would be unconstitutional.
A decision in favor of opponents of durational residency requirements could significantly expand opportunities for emerging and growth stage companies to enter or expand in the wine and spirits retail space by forcing state legislatures in 21 states to draft new laws that are more favorable to out-of-state and new state residents. And although not central to the facts in Tennessee Wine, the Court’s decision could create significant opportunities for wine and spirit retailers by expanding their ability to ship alcohol directly into states that currently permit direct shipments of alcohol from in-state producers only.
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