New Jersey winemakers worried by bottleneck on direct shipping

In the midst of a busy summer sipping season, New Jersey wineries can't expand and new wineries can't open because of a stalemate in the Legislature over a bigger issue: allowing the direct shipping of wine from out of state.

"It's costing me at least $3,000 a week," said Tom Sharko, owner of Alba Vineyard in Milford, who recently won the Governor's Cup for the best wine in New Jersey (a 2010 Gewürztraminer). "I've got four outlet licenses pending that I can't get."

Bruce Morrison, a family doctor in Huntingdon Valley, and his longtime friend Art Reale say they are facing financial ruin because their new Jessie Creek Winery in Cape May Court House can't get a license to sell wine.

"We took a big chance as entrepreneurs," said Reale, who sold his diving business in Florida three years ago to join Morrison in creating a South Jersey vineyard at a cost of several million dollars. "We've got a great product, but we can't sell it. If we can't do something soon, we're done."

In December, the U.S. Court of Appeals for the Third Circuit said New Jersey unconstitutionally discriminated against out-of-state wineries by permitting only in-state wineries to sell directly to consumers and retailers. Wineries in New Jersey sell most of their wine at on-premises tasting rooms and at off-site stores and outlets in local restaurants.

The appeals court sent the case back to a lower court with two options: Give out-of-state wineries the same right, or prohibit all wineries from selling directly to consumers. The lower court has not ruled, giving the Legislature time to tackle the issue.

The state Alcoholic Beverage Control Division, reacting to the court ruling, has stopped issuing licenses for new wineries or for new sales outlets for existing wineries. That has left 15 new wineries and 20 retail outlets - stand-alone stores or kiosks within restaurants - in limbo, unable to operate.

And on July 1, when annual licenses expire for existing wineries, ABC director Jerry Fischer says he won't issue new licenses unless the courts or legislators have solved the issues raised by the December ruling. Instead, he says, he will merely extend existing licenses for an unspecified period.

State legislators, in their effort to solve the problem, have become deeply enmeshed in the Wine Wars, fueled by the contentious issue of direct shipping.

Under current law, New Jersey, unlike 38 states, does not allow out-of-state wine sellers to ship directly to New Jersey consumers.

In Pennsylvania, a federal judge in 2005 ruled unconstitutional the state's prohibition of out-of-state wine shipments and ordered Pennsylvania not to enforce its bans on direct-to-consumer shipments. The legislature has not created a new law, but many out-of-state wineries remain leery of the legal limbo and won't ship to Pennsylvania consumers.

New Jersey liquor store owners and liquor wholesalers want to keep the ban on direct shipping, to protect their businesses. Wine-consumer groups and out-of-state retailers want to overturn the ban.

"There are very powerful interests on either side of the issue, and one very powerless interest - us - stuck in the middle," said Scott Donnini, a Philadelphia lawyer-turned-vintner who is one of the owners of Auburn Road Vineyard & Winery, near Woodstown.

And powerful legislators are representing both sides.

Senate President Stephen Sweeney (D., Gloucester) supports direct shipping and insists any new law include that. Assembly Majority Leader Joseph Cryan (D., Union) champions a liquor industry-backed bill that would restore direct sales without permitting direct shipping; it was approved by the Assembly but remains bottled up in the Senate.

With neither side showing interest in compromise, both bills may languish when legislators recess for the summer. The lawmakers are expected to go home about July 1, unlikely to return until after the November elections.

Most of the wineries want Sweeney to allow direct sales to be separated from the fight over direct shipping. But several wineries are strong supporters of direct shipping, as are wine-consumer groups.

The Sweeney bill would limit direct shipping to small wineries, those that produce fewer than 250,000 gallons a year. All wineries in New Jersey would qualify under that cap.

The legislative impasse could leave the matter up to Judge Katharine Hayden of U.S. District Court in Newark. She could "level up," giving out-of-state and in-state producers the same right to sell directly to consumers, or "level down," prohibiting all wineries from selling directly to consumers.

On Wednesday, Hayden ordered the warring sides in the court case to meet no later than July 1 to try to resolve matters. If they fail to reach agreement, she said, they will have until Aug. 5 to file their arguments in the case.

At the same time, the judge rejected an effort by the Garden State Wine Growers Association to intervene in the case, saying the wine growers should have acted sooner.

Wineries in the state worry the judge may choose a general ban.

"We wake up every day wondering what will happen," said Sergio Neri, owner of Hopewell Valley Vineyards in central New Jersey. "The sales outlets are the life and blood of our business."

Neri, whose 2009 merlot won a best-in-class award at the Los Angeles International Wine and Spirits Competition last month, said he has six licenses on hold for outlets and has had to lay off several employees because of the political stalemate.

New Jersey is the seventh-largest wine-producing state, and winemaking is the fastest-growing segment of state agriculture, according to the Garden State Wine Growers Association. There are 40 wineries in the state, many rooted in the sandy soil of South Jersey.

"The big problem I have is if they shut the outlets, we're out of business," said Toby Craig, owner of the Cape May Winery, who just planted 15 more acres of vines to supply his growing winery and is in the midst of the lucrative summer tourist season. "Ninety-eight percent of our revenue comes from outlets. . . . If Judge Hayden made a decision to level down, that would shut us down."

"Eventually, the two sides should come together," said Steven Some, spokesman for UnCorkNJ, an advocacy group for direct shipment. "If it's not resolved, the District Court judge in Newark is going to have to make a decision, and that's a real roll of the dice."

Meanwhile, in Cape May Court House, Art Reale is questioning his decision to get into the winemaking business with Morrison.

"We've been best friends for 30 years, and this was always his dream," said Reale. "Now it's become my nightmare."