Owners of two Minnesota wineries are challenging the state’s law which limits wine production by Minnesota-licensed farm wineries to predominantly Minnesota-grown grapes. In 2017, Alexis Bailly Vineyard and Next Chapter Winery challenged a provision of the state’s law and argued that the law is a violation of the U.S. Constitution’s interstate commerce clause. The case was dismissed by a federal judge, who suggested it was possible for a winery to obtain other winery licenses in Minnesota which would allow the winery to produce wine from grapes sourced from outside the state.
In many states, a farm winery license does require the use of state-grown grapes. In some states, such as New York, farm winery licensees must produce wine made entirely from state-grown grapes (or other fruits or agricultural products grown within the state). N.Y. ABC § 76-a(5)(a). There can be some exceptions—such as when a state declares a natural disaster due to inclement weather—which would allow the requirement to be lessened. See, e.g., N.Y. ABC § 76-a(5)(b).
Many states introduced farm winery licenses as a means to promote local agriculture and further develop state wine regions while simultaneously lowering license fees, making farm winery licenses more attractive and approachable to smaller or newer wineries. This is certainly the case for the Minnesota farm winery license, which was introduce in 1980 when the state passed the Farm Winery Act. The state’s statutes require a “majority” of Minnesota-produced or -grown grapes, grape juice, other fruit bases, or honey to be used in the production of table, sparkling, or fortified wine produced by a farm winery. M.S. 340A.314(4). It seems that the State interprets “majority” to mean at least 51%.
Alexis Bailly Vineyard and Next Chapter Winery argued that the state’s law is protectionist and discriminates against out-of-state grape growers. Further, the requirement is not always economical or commercially viable. The case was originally dismissed by U.S. District Judge Wilhelmina Wright, who suggested that the winery can apply for a more traditional wine manufacturer’s license to avoid the Minnesota grape threshold. However, that license does not allow the shipment of wines directly to consumers in Minnesota and is also more expensive. The wineries have since appealed the decision to the U.S. Eighth Circuit Court of Appeals.
The current issue in Minnesota touches on two very strong themes. The first is the idea of appellations of origin and American Viticultural Areas (“AVAs”). The second is the concept of licensing.
With respect to appellations of origins and AVAs, Minnesota’s requirement that farm wineries source at least 51% Minnesota-produced or -grown grapes is actually somewhat low. If a wine produced by a Minnesota farm winery meets the absolute minimum of the State’s threshold, the wine would not even qualify for an appellation of origin or an AVA under the federal regulations. (27 CFR 4.25(b)(1)(i) requires at least 75% of the wine derive from grapes or fruit within a named appellation; 27 CFR 4.25(e)(3)(ii) requires at least 85% of the wine derive from grapes within the boundaries of a named AVA.) If it is the State’s (or any state’s) intention to promote or develop its wine regions by offering a farm winery license, is the State not doing itself a disservice if its farm winery licensees are not even required to meet the federal regulatory threshold to tout an appellation of origin?
There is also a disconnect with respect to the Minnesota wine manufacturer’s license and the farm winery license. The former grants licensees the privilege to source grapes from any origin but is criticized for being more expensive ($500 for a one-year license plus a $5,000 surety bond) and without the direct-to-consumer sale privilege. The latter is cheaper ($50 for a one-year license plus a $5,000 surety bond) and allows for direct-to-consumer sales but is condemned for its grape source requirement. Why not create something in between, such as a micro winery license, to offer wineries an additional option? This “in between” license could restrict the total amount of gallons produced per year, cost more than the farm winery license but less than the wine manufacturer’s license, and allow for unrestricted grape use. If the State’s concern is having smaller wineries source Minnesota agricultural products, perhaps consider making the farm winery license a prerequisite for this proposed micro winery license.
That being said, it seems likely the Court of Appeals will issue a decision in the coming weeks. Depending on the Court’s stance, the outcome could call to question the practice of many other states who have enacted similar farm winery licenses (many of which have stricter grape source requirements).
For more information on wine or alcohol law, please contact Lindsey Zahn.
DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.