Introduction

Granholm v. Heald, the U.S. Supreme Court case which struck down state laws which allowed in-state wineries to ship to in-state residents but denied this same privilege to out-of-state wineries, is 20 years old on May 16th. Granholm resulted in the legalization of interstate winery shipping.

I will be writing a series of posts on Granholm at 20 and how Granholm has impacted the liquor industry and how its future will be shaped.   

The Gutting of Granholm

For years numerous courts have attempted to limit the power of Granholm. Granholm was the 2005 U.S. Supreme Court decision which held that Michigan and New York wine shipping laws, which allowed in-state wineries to ship but did not allow out-of-state wineries to ship were unconstitutional.

Subsequent to Granholm, in the Arnold’s Wine line of cases, which includes Wine Country Gift Baskets from the 5th Circuit and Southern Wine & Spirits from the 8th Circuit, these cases held that Granholm’s reach was limited to producers. Eventually numerous other circuit court cases disagreed with this conclusion, including Byrd v. Tennessee Wine & Spirits Retailers Association, creating a circuit split, which became the Tennessee Wine Supreme Court case.

In Tennessee Wine Justice Alito put to rest any ambiguity on the reach of Granholm.

“And Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers. On the contrary, the Court stated that the Clause prohibits state discrimination against all “ ‘out-of-state economic interests” Tennessee Wine & Spirits Retailers Ass’n v. Thomas, 588 U.S. 504, 534, 139 S. Ct. 2449, 2471, 204 L. Ed. 2d 801 (2019)

We all thought the answer was glaringly obvious, but somehow lower courts did not get the message.

After Tennessee Wine enshrined a strong anti-discrimination principle via Granholm and extended the non-discrimination principle to wholesalers and retailers, numerous circuit courts held that states maintain an interest in discriminating against out-of-retailers. These decisions were generally based on maintaining the in-state wholesaler requirement.

As bad as these decisions were, two recent decisions from courts located within the 9th Circuit’s jurisdiction represent an absolute legal abomination.

Gutting the Granholm decision like a pig

Granholm was clear in its decision that state laws, which require an out-of-state business maintain an in-state physical presence as a condition for competing against an in-state businesses were unconstitutional. As the high court held:

“in-state presence requirement runs contrary to our admonition that States cannot require an out-of-state firm to become a resident in order to compete on equal terms.” Granholm v. Heald, 544 U.S. at 475

Nevertheless, a 9th Circuit panel against the weight of the Granholm legal principle ruled that requiring an in-state presence for an out-of-state retailer to compete against an in-state retailer was indeed constitutional. To provide some perspective, in the cases from the three circuit courts that upheld discriminatory wine retailer shipping laws, each circuit acknowledged the law was discriminatory but they believed it could be upheld based on a legitimate nonprotectionist reason.

The 9th Circuit judge justified its abandonment of the Granholm principle with the disregarded Arnold’s Wine line of cases, reasoning that Granholm’s nondiscrimination principle was limited in its application. “Like the Second Circuit, we decline to construe the language of Granholm to reach the circumstances of this case.” Day v. Henry, 129 F.4th 1197, 1206 (9th Cir. 2025). The judge further held that Granholm only applied to a “New York statutory scheme that created a discriminatory exception to the three-tier scheme.” Day v. Henry, 129 F.4th 1197, 1206 (9th Cir. 2025).

Although this decision seems legally ridiculous, its influence has already spread. In a federal court case in Washington (Washington is under the jurisdiction of the 9th Circuit), a judge ruled that Washington could discriminate against an out-of-state distillery that wanted to exercise the same privileges as an in-state distillery, the right to DTC ship its products to Washington residents.

Granholm involved an interstate winery shipping case and was very clear that a state cannot discriminate against an out-of-state supplier desiring to enter the marketplace through DTC.

However, the judge in the Washington case ruled that an out-of-state distillery, although a supplier, could not enjoy the same privileges as an in-state distillery, and ship DTC to Washington residents.

The judge justified his decision based on a Washington law that requires Washington distillers selling DTC to comply with applicable laws related to retailers. Hence, a distiller shipping DTC in Washington is not a supplier but magically turns into a retailer. And as Day v. Henry, permitted an in-state physical presence for a retailer, the same treatment was permissible here.

Ironically, a Washington winery DTC shipping also similar to the Washington distiller is required to comply with laws applicable to retailers. However, Washington has an out-of-state winery shipping law, whereas it has no out-of-state distillery shipping law.

But the point is, Washington is picking winners and losers on which suppliers it could discriminate against. Under Granholm a state cannot discriminate against any out-of-state supplier in a DTC market.

The Washington District Court sided with the state over the Supreme Court and field dresses and gets ready to gut Granholm by essentially concluding that Granholm applied only to wineries and to no other supplier. The court attempts to distinguish Granholm’s broad reach out of existence and apply it narrowly to a specific set of facts.

It remains to be seen what will happen, but Granholm’s non-discrimination principle, which was expanded by the Supreme Court in Tennessee Wine, has seen its reach narrowed by lower courts. Some courts noted that there is an accordion like interplay between the Twenty-First Amendment and the Commerce Clause, but that does not mean that Supreme Court precedent should be ignored.

Granholm is 20 years old next month, only the future will tell how it stands the test of time, but it is apparent that lower court judges are redefining it, narrowing its reach and attempting to gut its power.