BUREAUCRACY

Part I.   June 29, 2022

A discussion of the bureaucracy of the Virginia wine industry can get wonky but it does bring some insights into how a vineyard or winery delivers its product to you. 

The Players.  The two main governmental entities relevant to wine in Virginia are the Alcohol Tobacco Tax and Trade Bureau (TTB) of the Department of the Treasury and the Virginia Alcoholic Beverage Control (VABC) Authority.  There are also various boards and industry associations that play in wine production, marketing, sales, and export.  There are also local jurisdictions that may regulate operations, and special events, although Virginia law appears to prevent local jurisdictions singling out wineries for special treatment.

Federal.  The Alcohol Tobacco Tax and Trade Bureau (TTB) of the Department of the Treasury has jurisdiction in area of labeling, content, and is the body that establishes AVA’s, which we will discuss in greater detail.

 State.  In Virginia, I would start with the Virginia Alcoholic Beverage Control (VABC) Authority.  VABC has a hand in approving labeling of Virginia wine, licensing for retail and franchise, and assessing taxes and collecting reports (such as the Farm Winery Monthly Report).

Virginia Wine Board.  Created by the Virginia General Assembly in 1984 as part of Virginia's Department of Agriculture and Consumer Services, the Virginia Wine Board promotes the interests of vineyards and wineries in the Commonwealth through research, education and marketing. 

Virginia Wine Board Marketing Office (Virginiawine.org).  Funded through the Virginia Wine Board, the Virginia Wine Board Marketing Office handles the board's education and marketing efforts on behalf of all Virginia wineries. The office manages the development and execution of a continuous and integrated marketing program, which focuses on advertising, public relations and promotions. Collectively the efforts communicate a clear and positive message on Virginia wines, encourage visits to the State wineries and help increase sales of Virginia wine. Virginiawine.org is an excellent source for wine consumers like us.

The Virginia Wine Board and the Virginia Wineries Association and many others receive funding from the Virginia Wine Promotion Fund, established in 2004 to promote research, education and marketing of Virginia wine.  Va Code 3.2-3005.  A portion of the $.40 per liter excise tax on wine goes to the Fund.  Va Code 4.1-235.

 Virginia Winery Distribution Company.  Established in 2008, the Virginia Winery Distribution Company (VWDC) is a non-profit, non-stock corporation created by the Virginia Department of Agriculture and Consumer Services (VDACS) to provide wholesale wine distribution services for Virginia farm wineries. Many wineries in the Commonwealth use VWDC to distribute and personally deliver their wines to local retailers like shops and restaurants. The VWDC was created to help smaller wineries as regular wholesale arrangements were often too expensive. The VWDC Board is composed of two representatives nominated by the Virginia wine wholesale industry, two representatives nominated by the Virginia wine industry, plus the VDACS Commissioner.  A recent survey for the Virginia Wine Vision strategic plan reported that 58% of wineries use VWDC.

Other Bodies. There are several other entities that play a role in policing and promoting the production and sale of Virginia wine.

 Virginia Vineyards Association.  The Virginia Vineyards Association began in 1979 as a joint effort among Virginia viticulturists, wineries and Virginia Polytechnic Institute and State University to oversee and promote the following areas of mutual interest. 

Virginia Wineries Association.  Formed in 1983, the Virginia Wineries Association (VWA) grew out of the desire by owners of Virginia wineries to create a wine community that shared ideas and resources to the benefit of everyone in the Virginia wine industry. As a non-profit trade organization, the VWA advocates on behalf of the industry in a number of areas. 

Part II   February 8, 2024

Distribution.  Since Prohibition, Virginia has managed alcohol using the Three Tier System or the “Tiered House” system in which manufacturing, distribution and sales are separated.  Thus, wineries could not distribute or sell directly to the public and wholesalers and retailers could not manufacture wine. Over time, the distinctions have blurred and softened, particularly when it comes to the creature known as the “farm winery.”

I should mention that the folks who founded Swedenburg Winery in Middleburg (now Greenhill) brought the case to the Supreme Court that removed barriers that kept wineries from direct shipping to customers in other states.  Swedenburg v. Kelly, 544 U.S. 460 (2005) (also cited as Graholm v. Heald).  New York State allowed direct shipping for its in-state wineries but barred out-of-state wineries.  The Supreme Court found that this was an unconstitutional infringement on interstate commerce not authorized by the 21^st Amendment.  I’ll Drink To That!   Virginia’s own alcohol distribution and sales statutes were similarly attacked as discriminatory to out-of-state producers in favor of our farm wineries, prompting at least two rounds of legislative changes by the General Assembly before the challenges were held to be moot.  See, Brooks v. Vassar, 462 F3d 341 (4th Cir 2006).

The field of play for direct out-of-state shipments continues to evolve.  Virginia is one of the few states that permit wine shipments from both out-of-state wineries and retailers (subject to a 2-case a month restriction.  Va Code Section 4.1-209.1).  A recent decision found that a drop-shipment delivery business, Vinoshipper of California, must have licenses with each entity (e.g. winery) that it ships.  Virginia Alcohol Beverage Control v. Zero Links Markets, Inc. T/A Vinoshipper.com, 78 Va App 261, 890 S.E. 2d 832 (Court of Appeals April 15, 2023).  Wine Spectator has noted this reflects a national trend to restrict out-of-state shipments.  See, Collin Dreizen, The 2023 Wine Shipping Battle Comes to Virginia, Wine Spectator, September 21, 2023. 

Part III.  Farm Wineries.  May 32, 2023

Farm Wineries.  Virginia has two general classes of wineries: regular wineries and farm wineries.  Va Code 4.1-206.1.5 and .6.  Except for several really large commercial wineries, most Virginia wineries are classified as farm wineries, meaning that they grow most of the grapes they use and that they make wine on the premises. 

In 1979 and 1980, Archie Smith, Jr., of Meredyth Vineyard and his wife Dody led an effort to get legislation to consolidate the $2,200 licensing fee and taxes into an umbrella license of $100.00. See, Canttell, Wines of Eastern North America…page 301.  Despite “formidable” opposition, the General Assembly passed the Farm Winery law effective July 1980.  This law marked a sea-change in Virginia wine production and sale.  I think the original idea was that a farmer growing grapes and making wine should be able to sell their product directly to consumers, akin to a roadside farm stand selling tomatoes or corn.  The tasting room was the roadside stand.  Contrast to a regular commercial winery which typically had a wholesale arrangement and did its business through the wholesaler. 

Over time, the distinction between farm wineries and commercial wineries has blurred.  In 2019 commercial wineries were allowed to sell retail on their premises.  These commercial wineries may receive their juice from any source.   Some in the industry have complained lax enforcement by VABC licensing a number of operations as farm wineries that had little or no growing or production capabilities (buying fruit and outsourcing all production), skirting farm winery regulations or at least the "spirit" of the legislation to promote Virginia agriculture.   We have spoken about this elsewhere on this blog more than once.  In March 2023, the governor signed into law amendments to title 4 of the Virginia Code to re-align the law closer to the original intent of having farm wineries.  The General Assembly had passed the changes with strong bi-partisan support. (S.983)

As of July 2023, the two former classes of Farm Winery licenses – Class A and Class B will be replaced by four Classes (Class I, II, III, and IV).  The old Class A and B licenses described requirements in terms of the percentage of juice being produced on premises in the Commonwealth.  – 51% for a Class A license and 75% for a Class B license.  (The Class A& B structure also had only two license fees: $245 and $4,730, respectively.)  The new licensing requirements also lay out minimum growing acreage on the licensed premises, fermentation capabilities on the licensed premises, and minimum production in terms of liters of wine per year.  Here are the four new classes incorporating an analysis from the Summer 2023 Grape Press newsletter of the Virginia Vintner’s Association, accessed at: https://virginiavineyardsassociation.org/wp-content/uploads/2023/05/SummerGRAPEPRESS2023c.pdf

Class I:  This license was created for the micro-wineries who start small and may never want to expand. They grow grapes on a minimum of 1.5 acres and make a minimum of 250 cases (2,250 liters) of wine with those grapes.  All of the wine sold must be fermented on site and come from the fruit grown on-site. The annual fee for this license is $275.

Class II:   This license lines up with the existing Class A license but adds a requirement for least 3 acres of grapes planted on the licensed premises.  At least 51% of fruit is grown or produced in Virginia on property owned or leased by licensee.  No more than 25% of fruit may be grown or produced outside of Virginia;  License fee $275/yr.  Current holders of a Class A license with less than three acres of planted grapes have five years to get to that acreage or or move to a Class I or Class III license  Contract winemaking is allowed.

Class III:   This is perhaps the most significant change to the licensing structure.  At least 75% of fruit grown in Virginia on property owned or leased by licensee; 100% from Virginia.  Ferment on the licensed premises at least 4,500 liters of wine a year (500 cases).  At least 75% of wine sold by the licensee must be fermented on the licensed premises.  This means that no more than 25% of total wine sold may be produced through contract winemaking.   License fee $500/yr.

Class IV:    Class IV aligns with the current Class B Farm Winery license but with additional requirements of at least a 10 acre grape growing area on licensed premises.  At least 75% or fruit grown in Virginia on property owned or leased by licensee.  Contract winemaking is allowed.  ; Licensees must have operated under an existing farm winery license for at least 7  years; License fee $4,000/yr.

Applicants seeking licenses before July 1, 2023 follow the old categories and those applications must be processed and approved prior to Jan. 1, 2024.  There is a five-year grace period for any existing farm winery to come into compliance with these new regulations. Any new farm winery applications filed after July 1, 2023, must follow the new classes (I-IV).

I think that the goal is to encourage farm wineries to be actual working/producing farms.  For bona fide operations, the minimum production of  2,250 and 4,500 litres for Class I and II, respectively should not break the bank; this translates to only around 250 and 500 cases.  The new structure seems to allow some flexibility in terms of licensing fees and market entry depending on the winery’s business. 

Left pretty much unchanged is allowance for farm wineries to trade fruit among themselves (except the 25% cap on custom crush with Class III licenses).  The receiving farm winery may count the fruit it receives from another farm winery as grown or produced on its premises for purposes of meeting its sourcing percentage requirements.  Va Code 4.1-219.E.  This allowance relates to the trade between farm winery licensees of "fruits or agricultural products."  However, the new language requiring fermenting on the licensed premises and minimum growing area may have significant implications for some current licensees. For example, a store-front operation, like Bacchus Winery in Fredericksburg, which grows no grapes and gets all of its juice from elsewhere, but has fermentation/production capability, can petition to be a farm winery with a straight face as long as the juice comes from farm wineries in Virginia and it chooses a class of license without a growing area requirement.  A farm winery may sell retail at up to five locations, Va Code 4.1-206.1.6.  I understand that many farm wineries chose to include wine festivals and farmer's markets as among the five allowed retail locations.  Regardless of the class of license, the VABC Board may permit use of a greater quantity of out- of-state products to achieve an anticipated level of production for a given year.  Class I, II, and IV farm wineries might petition also to use a lesser percentage of product (e.g., juice) from the leased premises in Virginia where severe weather or disease reduces the amount of available fruit significantly.  Va Code 4.1.219.F. 

Farm wineries have a number of benefits under Virginia law.  As will be discussed, Virginia law curbs the authority of local jurisdictions to plan and zone for wineries – authorizing the VABC instead.  Some are located in Agricultural and Forestal Districts with substantial property tax breaks.  Farm wineries often try to obtain restrictive easements that have netted them significant tax savings on estate taxes and federal/ state income taxes.  Changes have been and are being made to require safety devices and safety planning at tasting rooms, event centers, and production facilities.  See, Va Code §36-98.4.  A committee is looking at these and other modifications perhaps for structural, electrical.  Clean water act requirements are not being enforced.  See, https://protectow.com/farm-winery-and-brewery-legislation.  Farm wineries also benefit from access to the Virginia Winery Distribution Company and use that state-sponsored wholesaler to distribute up to 3,000 cases per year, according to the VWDC website.  According to the ProtectOW group, no other industry has had so many barriers to entry removed or costs eliminated.  Anyone considering opening a farm winery should get competent legal counsel.  While the VABC may control much, local jurisdictions still control basic zoning and may control how some special events are conducted and how food is prepared and served.

Look for updates as the impact of the 2023 changes is more closely analyzed by the industry.

Part IV.  Labeling.   December 3, 2023

Wine labels in the United States are regulated both at the Federal and State level mostly between the TTB and the VABC.  Other governmental and private groups may have their own labeling.  The goal at least at the Federal level is to produce labels that are not confusing or deceptive for consumers.  Most wine bottles have two labels: (1) an "art label," which usually faces the consumer at retail and often displays art or advertising and (2) a "brand label" which is required to carry a class designation (e.g. "red wine," "red table wine," etc), alcohol content, bottle address where operations take place, net contents (e.g., 750 ml), the sulfite statement, and the Government warning addressed to pregnant women and on the risk of impairment in operating motor vehicles or machinery.  Beyond these basics, many of the terms you see on wine labels are legally defined.  Here are some common ones:

 - Virginia Farm Winery.  At least 51% of the grapes come from land owned or leased by the named winery.  Va Code 4.1-219

- Virginia [or “Virginia White” or “Virginia Red”].  At least 75% of the grapes were grown in Virginia.  27 CFR 4.25(b).  Don’t assume that a winery in Virginia serves Virginia wine.  For example, both Woodlawn Press Winery in Mt Vernon and Bacchus Winery in Fredericksburg import their juice (stems and skins too) from outside the state, including from overseas.   The owner at Woodlawn Press is reported to have said: “We don’t like the taste of Virginia wines.  I’ve never been drawn to any one that would get me excited.”

- American.  Less than 75% of the grapes were Virginia grown (supplemented from outside Virginia). 

- Bottled by [or “Vinted and Bottled by” or “Cellared and bottled by”].  Normally grapes were not grown by the named winery.  Indicates fairly limited activity by the named winery.  If a town is listed where the winery is located, then the wine was made by someone else, bought in bulk, and bottled (perhaps with some processing or ageing) by the named winery. 27 CFR 4.35.  Woodlawn Press Winery in Mt Vernon, for example, is labeled as “Bottled By…”

- Produced and Bottled by…Produced means making (fermenting) the wine.  Generally, Produced means that at least 75% of the wine is fermented at the named location.  27 CFR 4.35. The winery name and location indicate by whom and where.  This is most common and is the traditional arrangement where winemaking and bottling are done on site.

- Produced and Bottled by Winery X at Location Y for Winery A at Location B.  Wineries may be under contract to make and bottle wine for another winery.  Referred to as a “custom crush.”  This label makes the arrangement clear but is often not shown on labels as it is optional under the regulations.  4 CFR 4.35(a)(2).  See our Pricing page for a fuller discussion of "custom crush."

- Grown, Produced and Bottled by…  This is the purest situation.  100% of grapes were grown by the named winery in the named location with winemaking and bottling on site.  Some wineries may use the “Produced and Bottled by” label even if qualified for this higher designation, as a convenience to avoid relabeling if they have to use off-site grapes on occasion.

- Estate Grown. A winery is in an AVA and all grapes were grown on the named winery’s property in the AVA named.  27 CFR 4.26.  Also “Estate Bottled.”

- Name of Varietal.  At least 75% of the wine is derived from that varietal of Vitis Vinifera grape.  27 CFR 4.23.  Vitis Labrusca grapes have a lower percentage.

- AVA Name is usually on the front "art" label and means at least 85% of all grapes come from that AVA.  27 CFR 4.25(e)(3)(ii).

-  Vintage.  If a wine is labeled with a vintage year and an AVA, then at least 95% of the grapes were harvested in that calendar year.  If no AVA is identified, then at least 85% of the grapes were harvested in that calendar year.  27 CFR 4.27.

- Dry, Sweet, Semi-sweet, etc.  These designations refer generally to the amount of residual sugar in the wine.  But the terms have no legal meaning in U.S. labeling.  Compare to European Union regulations which set parameters of residual sugar for the different designations.

- Reserve.  In the U.S. “Reserve” has no legal meaning.  While for most wineries, the label “Reserve” is used for the higher quality offerings, a few wineries use “Reserve” as a way to charge more for average quality.  Some European countries, like Spain and Italy, define “riserva” or “reserve,” usually associated with how the wine is aged. 

- Organic.  Wines labeled "USDA Organic" are certified to meet standards of the USDA's National Organic Program (NOP - 7 CFR Part 205) and the TTB.  Grapes are grown without synthetic fertilizers in a way that protects the environment and the soil.  Yeast must be organic,  No added sulfites.  This differs from wine labeled as "made from organic grapes" which applies to organic grape growing practices and less to fermentation and production.  See, Organic 101:Organic Wine, https://www.usda.gov/media/blog/2013/01/08/organic-101-organic-wine, accessed April 20, 2022. There are a number of organizations that have their own labeling, such as "B Corporation" (social responsibility) and "Regenerative Organic Certified" (net positive goal for carbon emissions).  See also, the Climate Change section of our "What Grows" page.

- Meritage (rhymes with “heritage”) is a term used to describe Bordeaux-style red and white wines made by members of the Meritage Alliance. The Alliance is a non-profit organization that charges a membership fee in return for the right to label wine as “Meritage,” and the Alliance provides quality assurances as to the grapes used and the percentages of the blends. As of December 2023, there were 59 Virginia wineries and vineyards with Meritage Alliance memberships according to the Alliance website.

In keeping with the Bordeaux focus of Meritage, the primary grapes for Red Meritage are Cabernet Sauvignon and Merlot but can include Cabernet Franc, Malbec, and Petit Verdot.  Other possible blending grapes like Saint Macaire, Gros Verdot, and Carmenere, are not listed on either the Virginia Wine Marketing Office or VABC sites.  Virginia White Meritage is rarer but try it at La Grange or the Meritage Blanc at Stinson.  White Meritage should be a blend of Sauvignon Blanc and Semillon, as with classic white Bordeaux wine.  Semillon is not listed as a Virginia varietal by either the Board or VABC lists.

Some winemakers produce wines that otherwise qualify as Meritage but have chosen not to be members of the Alliance.  Instead you might see labels reflecting “Bordeaux Blend.”  There is no set definition for “Bordeaux Blend.”

Further detail may be found in:  Alyson Outenreath, Behind the Label: Exploration of U.S. Wine Label Laws, 21 Va Sports & Ent. L. J. 197 (Fall 2022).