Ruling could devastate small Maryland wineries

By VICKI FISHER and RICHARD McNEY
Staff Writers
February 20, 2006

Mark Emon has a simple system for selling and delivering his company’s wine to The Village Shop in St. Michaels: The shop orders a case or two of wine and Emon delivers it, sometimes in a Red Flyer wagon, since the store and the winery are only a half block apart. A recent ruling by the state comptroller’s office would make things a bit more complicated.

The state comptroller’s office ruled last week that the state’s 22 wineries can’t sell directly to restaurants, retailers and liquor stores. Last week, The (Baltimore) Sun reported that the state comptroller’s office will extend the time for Maryland wineries to begin distributing their products through a wholesaler from March 31 to June 1.

The comptroller’s decision follows a Supreme Court decision last year that struck down state laws forbidding direct shipment of out-of-state wines to consumers if a state permits such shipments from in-state wineries, according to an Associated Press report.

The comptroller’s office initially decided the high court ruling would not have any effect on the state’s $8 million a year wine industry, the AP reported. However, the comptroller’s office ruled otherwise after a lawsuit challenged the Maryland statute.

“It’s devastating. It’s horrible,” said Emon, president of St. Michaels Winery. The small winery recently opened in St. Michaels and held its first bottling in December. If the ruling stands, Emon and his employees would “have to examine whether we’d want to be in this business,” he said.
Emon plans to add a retail store on the winery site at the Old Mill and a tasting room is now under construction, but if the company must sell its wine through a distributor, he might have to redo his business model “to even see if we could still exist.”

“Our ambition is to grow and that would certainly mean jobs, right here at home,” Emon said.

According to the Maryland Wineries Association, only four of the state’s 21 wineries distribute their product through wholesalers. Seventeen rely solely upon their ability to sell directly to retailers, restaurants and consumers.

Emon said the winery has shared a “wonderful partnership” with The Village Shop in St. Michaels, which sold more than 30 cases of the company’s wine for holidays.

“The way it’s worked, it’s been delightful,” Emon said. “They (The Village Shop) didn’t know what the demand would be, so they’d order literally just two cases at a time, sometimes day by day, and we were able to supply them in that method.” If the comptroller’s office ruling stands, The Village Shop would have to order the wine through a distributor.

“Distributors honestly don’t care about us,” Emon said of his winery. “They break — accidentally — the amount of stuff we produce” in a year, he said.

St. Michaels Winery will produce around 2,000 gallons of wine this year, Emon said, whereas larger companies that now use distributors produce as much as 40,000 gallons of wine in a year.
“Today 100 percent of our sales are self-distributed to local retailers and it’s been going really well,” Emon said. “This is just really devastating.”

Wine festivals like the St. Michaels Wine Festival and the wine tasting at the Waterfowl Festival also could be affected by the decision if small wineries in the state closed as a result of the decision. “Those could go away if this stands,” Emon said.

“It was kind of a surprise to all of us. The law was in effect for a long time,” said Jeannie Haddaway-Riccio, R-37B-Talbot, who is co-sponsoring a bill that will be introduced to both the House of Delegates and State Senate to allow both out-of-state and in-state wineries to deliver their products (directly themselves or by employees) to restaurants and retailers. This ability, if allowed equally to all wineries, would end any alleged discriminatory effect of Maryland’s laws about wineries, the Maryland Wineries Association said in a recent release.

The bill should appear before the House Economic Matters Committee, Haddaway-Riccio said. Its sponsors are Sen. Thomas Middleton of Charles County and Virginia Clagett of Anne Arundel County.

“We have all our hopes pinned on having to get support and have the legislature act and save the day,” Emon said.

Don Tilmon operates Tilmon’s Island Winery out of his home in Sudlersville. He said his operation is too small to be affected by the reinterpretation of the law. He only makes around 500 cases of wine and sells the majority of his wine through his tasting room.

F. Wick Dudley has grown 10 acres of grapes on his farm in Queenstown for the last nine years.He supplies grapes to Linganore Winecellars at Berrywine Plantations in Mt. Airy, Boordy Vineyards in Hydes, Tilmon’s Island Winery in Sudlersville and St. Michaels Winery.

Many regulations have made it tough for Maryland’s fledgling wine industry to grow in the state, Dudley said. He said Maryland has just more than 20 wineries, where Virginia has more than 90. According to the Virginia Wineries Association, self-distribution has been the most important factor in the growth of Virginia’s wine industry from six farm wineries in 1979 to more than 100 farm wineries today. Virginia faces a similar situation with winery self-distribution.

The decision to no longer allow wineries to sell and distribute their wines directly to retail stores and restaurants in Maryland is just another hindrance to the growth of the industry, he said. He explained that the wine-making process has a small margin of profit due to the high cost of making wine. Because of the tight margin of profit, small wineries need to deal directly or as directly to the customer as possible to grow, he said.

“It is the small guy they are hurting that are only doing 2,000 to 3,000 cases (annually),” said Dudley, explaining that wholesalers do not want to deal with them. “It is hurting anybody who wants to start. There are a lot of people who want to get into this business who have been talking about it and this is another roadblock against it.”

The new interpretation of the law will force the small wineries to rely solely on selling their product out of on-site tasting rooms, he said.

“It has the potential to bother anybody who grows grapes,” he said. “It will trickle down to everybody because (the wineries) won’t be able to pay as much per ton (of grapes).”

Mark Cascia, who owns Cascia Vineyards in Stevensville, grows 12 acres of grapes with plans to have 14 acres of grapes planted by the end of this year. He is also in the process of opening a winery that he intends to operate by appointments only. He said the decision to no longer allow wineries to self-distribute will be devastating.

“There will be no way we can make ends meet,” he said. “It will raise the prices beyond what people will pay.”

Cascia is still in the process of building the facility for his winery, getting a label approved for his wine and going through the time-consuming regulatory process.

“What am I going to do with it?,” he said. “I will end up just having a big private wine cellar.”

Cascia said he had not tried to contact any distributors because for his business plan it does not make sense due to the profit margins being almost zero even without going through a distributor.
“I think it is time to change the entire structure in my opinion, but I don’t think that will happen,” he said.