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Originally published May 6, 2009 at 12:00 AM | Page modified May 6, 2009 at 12:57 AM

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Bill to loosen wine, beer sales in Washington on Gov. Gregoire's desk

A Washington state bill would eliminate a Prohibition-era ban on cross-ownership for breweries, wineries with distributors and retailers. Changes are result of lawsuit brought by Costco Wholesale.

Seattle Times business reporter

The long road to legal change for Washington's wine and beer industry is taking a turn that suits Costco Wholesale and the state's wineries.

Beer and wine distributors also supported a bill that awaits the governor's signature, but they expect to disagree with Costco over further changes the warehouse retailer wants.

One of the biggest changes in the current bill is that it allows wineries and breweries to have cross-ownership with distributors and retailers. There have been exceptions to the original Prohibition-era ban on cross-ownership, for example allowing breweries and wineries to operate restaurants on their premises.

The new law would eliminate the restriction altogether, making it possible for a restaurateur or hotel owner to invest in a winery or brewery, and vice versa.

"It's all new, so we're going to have to see what the opening up of that law will bring," said Jean Leonard, executive director and lobbyist for the Washington Wine Institute, which represents more than 150 wineries.

The provisions in House Bill 2040 came from hearings by a Joint Select Committee on Beer and Wine that included four members each from the House and Senate.

The new law also would allow wineries and breweries to give small gifts like coasters and corkscrews to restaurants and other retail customers.

They can't give them items to pass along to the public, because that raises concerns about paraphernalia ending up in the hands of minors.

For Costco Wholesale, which fought a years-long legal battle against several provisions of the state's beer and wine law, the bill offers some of what it wanted.

One item is a direct result of a skirmish Costco won in that battle: Elimination of the state's "post and hold" provision that required beer and wine manufacturers and suppliers to wait 30 days before making price changes they have posted with the state liquor board.

"When we do audits of manufacturers and distributors, we'll make sure they're not posting a price and making it available to one or two clients and then the next day posting a new price," said Rick Garza, deputy director of the liquor control board.

The new law also would eliminate a provision that forced wine and beer distributors to mark up the product they get from manufacturers by at least 10 percent.

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Most distributors mark up products more than 10 percent anyway, said John Sullivan, Costco's associate general counsel. On higher-priced items, though, "there would be more ability to have a discussion" now that the law has changed.

Two items that Costco continues to want are quantity discounts and central warehousing, meaning distributors could bring beer and wine to a central location for Costco to distribute rather than having to deliver them to Costco stores directly.

The Issaquah-based chain lost both those items at the federal appeals court level last year.

"In the next [legislative] session, we intend to continue to seek with other members of the industry further reforms to bring the beer and wine regulations into the 21st century," Sullivan said.

Washington's distributors are willing to talk about volume discounts, but "anything we would agree to would be so limited that they [Costco] wouldn't agree to it," said John Guadnola, executive director of the Washington Beer and Wine Wholesalers Association.

Some distributors would make money and some would lose money in a system with volume discounts, said Guadnola, who believes the problem with cheaper wine and beer is social.

"The lowest price to the consumer is not the lowest cost to society when you're talking about alcohol," he said.

The state's wineries won a host of other legislation during the last session, from passage of a bill that requires wines labeled from Washington to contain 95 percent Washington grapes, to one that lets wineries accept payment from retailers electronically, to a law that has been signed by the governor allowing the sale of Washington wine in the legislative building's gift store.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Copyright © 2009 The Seattle Times Company

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