Wine Distributors Sue the Liquor Control Board
Jason Malumed of MFW wine company is suing the Pennsylvania Liquor Control Board. At issue is the Board’s refusal to permit direct wine delivery, despite four year old legislation ordering it to do so.
MFW distributes specialty wine to retail outlets around the Mid-Atlantic region. It sells upmarket wines of the type found in wine shops and restaurants. When selling to customers outside of Pennsylvania, Malumed generally ships the wine directly. In Pennsylvania, however, all distribution must be routed through the Liquor Control Board (LCB) special order system. Malumed ships the product to an LCB warehouse where the customer picks it up. The LCB adds no value to the transaction but it does collect a fee of about $1.75 per bottle.
During the mid-March virus panic, the LCB announced it would be closing all of its stores and suspending the special order system. Just like that, specialty wine distributors couldn’t sell in Pennsylvania and retail outlets couldn’t buy the product they needed.
Tellingly, if retailers wished to buy “listed product,” that is, product which the LCB sells from its own stock, they could do that. But they couldn’t buy from private distributors like Malumed. He claims he had to furlough three employees as a result of the stop in business. The LCB’s rash decision harmed itself as well: it furloughed 4,000 employees during the virus pandemic and deprived itself of a major revenue stream. It reopened its special order system on April 20, but only in the massive minimum quantity of fifty cases.
All of this mess could have been avoided if the LCB had followed the law four years ago. Back in 2016 the state legislature passed Act 39, also known as liquor modernization. Among other things, the Act provided for direct delivery of special orders to retail outlets. The exact wording was that the LCB “shall by January 1, 2017” implement a direct delivery system. Later that year, though, Act 85 changed the wording from “shall” to “may.” The LCB used this grammatical leeway to never implement direct delivery.
Malumed and his partner in the lawsuit, A6 Wines, won their case in commonwealth court and it is now on appeal, although the LCB’s sovereign immunity may prevent them from recovering their legal fees even if they prevail.
Perhaps the LCB will ultimately implement direct delivery and the recission of the virus pandemic will fully restore Malumed’s business. The question remains, though: why is the LCB so unaccountable that it can ignore the legislature for years on end? What value does the LCB add? What purpose does it serve? If it is supposed to maximize state revenue and customer choice, it does neither of those things. If it is supposed to reduce drinking in the commonwealth, it doesn’t do that either, except perhaps inadvertently through its own blunders like the March shutdown. If the PLCB is anything other than a patronage jobs program, it has yet to explain itself.
Another interesting detail: the PLCB, not content to simply skim from the wholesale wine industry, wants to be in competition with it. Back in 2012 the PLCB used taxpayer money to develop and market a store-brand wine called Table Leaf. The wine came not from local wineries but from California.
Improving the wine delivery system will remove an unnecessary bottleneck in Pennsylvania’s wine business. It will, however, be a partial fix unless and until sales are fully privatized.
Click here to hear an interview with Jason Malumed on Commonwealth Foundation’s State Street Podcast.