There are five lawsuits filed around the country challenging state laws, which allow in-state manufacturers to sell direct-to-retailers (DTR) but don’t allow these same privileges to out-of-state suppliers. These privileges are also commonly known as self-distribution privileges.
What puzzles me is why are the states objecting to these legal challenges, as they are inconsistent with the states’ major legal justifications in other cases.
The five legal challenges are based on these DTR privilege laws violating the nondiscrimination provision of the Commerce Clause, as these privileges are afforded to an in-state producer but not afforded to a similarly situated out-of-state producer.
In the direct-to-consumer (DTC) retailer shipping cases, the states justify their position because the product would not pass through an in-state licensed entity and it would allow for a sale that bypasses the three-tier system.
The DTR cases demonstrate the states’ lack of fidelity to their own legal principles. In DTR cases the in-state producer can bypass the three-tier system, if the state follows the Constitution, so can the out-of-state producer. Which calls into question how important the health and safety aspect of the wholesaler tier is when the states routinely allow their own producers under certain circumstances to bypass the system. Is the state really concerned that if product does not flow through the three-tier system, then it will impact the health, safety, or orderly markets principle? It does not seem so.
That is the position (product needs to flow through the three-tier system) the states espouse in the DTC retailer shipping cases, but somehow this important government interest falls by the wayside when the states want to provide a benefit to in-state producers.
The other issue that comes up in DTC retailer shipping cases is that there is no licensed in-state party to hold accountable so it is hard to regulate. Since the out-of-state retailer who DTC ships, purchases product from an out-of-state wholesaler, there is no licensed party in the chain of custody that is in-state to hold accountable.
That is not the case with the DTR cases. In DTR cases, the out-of-state producer would sell direct to an in-state retailer. If there is an issue the states have an in-state licensed party to hold accountable.
So why all the fuss!
What this demonstrates is the health and safety justification utilized by the states and the wholesalers are malleable at best.
None of this ever pertains to protecting health and safety as goalpost for justifications move depending on the facts.
What this is really about is providing an advantage to in-state businesses and most importantly forcing as much product as possible through the three-tier system and limiting the number of products that bypass the three-tier system.
We must question whether it is the goal of the government agency to prevent competition from sources outside the wholesale tier, and whether it is the goal to setup a policy to steer as much product as possible through the three-tier system?
Because when looked at holistically the government interests have no consistency from case to case, but one thing is consistent in these cases, protecting the economic interest of in-state wholesalers.
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