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Can a wine using Napa Valley grapes, but made in another state, be labeled as a Napa Valley wine?

According to federal labeling laws, the answer is generally no. Yet the question has nonetheless dogged and divided the wine industry for several years, driven by a “loophole” of sorts in today’s regulations.

The loophole, as opponents refer to it, allows wineries that hold a certificate exempting a wine of theirs from label approval (called a Certificate of Labeling Approval, or COLA, exemption) to buy out-of-state grapes, make the wine in their state and label it with the origin of the grapes, as long as the wine is then sold only in the state where it was made.

Now, a proposed rule from the federal authority on the issue, the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau, or TTB, is poised to end the practice.

If passed, the rule would be the culmination of a years-long effort by the local wine industry’s main trade group, the Napa Valley Vintners, who have sought to end the practice, which they call “inherently misleading.”

At stake, the group contends, is the integrity of the AVA system.

AVAs, or American Viticulture Areas, are designated wine grape growing areas like Napa Valley, Paso Robles, the Finger Lakes region of New York and the Willamette Valley in Oregon, among many others. For a wine label to carry the name of an AVA, federal labeling laws call for 85 percent of its grapes to come from the region in question. The wine must also be made and finished within the state, or states, where the AVA is.

But again, that applies only to wines that are made with plans to be sold across state lines. As it stands, if a winery with a COLA exemption in Texas buys Napa Valley grapes and produces a wine in Texas that is then sold only within Texas, then that wine can use the Napa Valley AVA on its label.

Such is the current “loophole” that, if closed, would prevent hypothetical Texas winemakers from calling their product “Napa Valley wine” under any circumstances.

Efforts to enact the rule date to 2015, when the Napa Valley Vintners brought the issue to Rep. Mike Thompson, D-St. Helena, who, along with then-California Sens. Dianne Feinstein and Barbara Boxer, initially proposed the rule to TTB in September 2015.

Grape growers, winery owners and industry groups across the U.S. argued that consumers deserve to know where a wine’s grapes come from regardless of where the wine is made. Others praised the rule for protecting not only the AVAs’ validity, but also their reputations.

As grape grower Andy Beckstoffer put it to the Register in December 2016, “I’m very concerned about the quality of wine that goes to the consumer with Napa Valley on it and the ability to control that when it’s made in a winery out of state is majorly decreased.”

Others, like David Lecomte, head winemaker at City Winery, which produces a “Napa Valley” wine at its location in New York City, said at the time, “This regulation is really to protect Napa wineries producing Napa wine and not to protect the customer.”

Other groups, including the California Association of Winegrape Growers and the Wine Institute, wrote seeking more time for their members to weigh the issue. Ultimately the agency obliged, extending the deadline for comments to December of that year.

But as the deadline came and went, the rift within the industry persisted. The Wine Institute joined forces with the Napa Valley Vintners, however, and the groups offered an alternative. Their “Joint Proposal” suggested allowing wineries with COLA exemptions to use “Grape Source Information” on their labels instead of AVA names.

The proposal floats the idea that the Grape Source Information could include the name of the county or counties, as well as the state, or states, where the grapes were grown, and the city or state where the wine was finished. Though, if using county names, such as Napa, labels would have to read ‘Napa County, California’ and not ‘Napa Valley,’ which is the name of the AVA here.

Fast forward nearly a year to October 2017 and the TTB reopened the comment period, in part to gauge industry opinions on alternatives like the “Joint Proposal”.

The latest round of comments, submitted in January, reveal an industry still divided.

Addressing the idea to use county and state names, while excluding AVAs, industry groups from areas like Lodi, argue that the alternative offered in the Joint Proposal puts the region at a disadvantage.

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As the region includes portions of both San Joaquin and Sacramento counties, the Lodi Winegrape Commission posited in their letter to the TTB that having COLA-exempt out-of-state wineries use either of the county names on a label instead of the Lodi AVA, “…does not effectively denote the Lodi wine region…”

The group further wrote, “Napa and Sonoma, conversely, do not have that problem, as the name of their counties and regions are one and the same…”

Responding to those points, Napa Valley Vintners government relations director Rex Stults said that the NVV’s attorneys at Dickenson Peatman & Fogarty had researched the number of Certificates of Label Approval that came from the Lodi region over the last two years.

According to Stults, the group discovered that from January 2016 to January of this year, there were 1,500 COLAs and COLA exemptions with Lodi identified as the wine’s appellation. Of those 1,500, he said, only 12, or 0.8 percent of all wines designated with the Lodi appellation over the last two years, would be affected by the rule.

“They’re going to bat for less than 1 percent of the COLAs from the region,” Stults said. “Is that really worth eroding the integrity of the whole AVA system? We (the NVV) say no.”

Others, like the California Association of Winegrape Growers, in its most recent letter to the agency deemed the issue too complex to be resolved through the traditional channels of notices and comments. The group instead suggested that the TTB start a process of “negotiated rulemaking,” a consensus-based approach of “in-person meetings and face-to-face discussion,” asserting that such a process “would give everyone with a stake in the issues … the chance to reach agreement about the main features of a rule before it is proposed in final form.”

In its letter, the group also asked the TTB to specify how the issue undermines the AVA system and the harm it causes to the industry and consumers, claiming that the shipment of California wine grapes to out-of-state wineries is “significant,” to the supposed tune of $20 million.

Per the suggestion for a process of negotiated rule making, Stults pointed to the original request members of Congress made to the TTB in 2015 asking the agency to close the loophole.

“We think that the TTB acted appropriately to Congress’s request and they should move forward ASAP,” he said.


Wine Reporter / Copy Editor

Henry Lutz covers the local wine industry. He has been a reporter and copy editor for the Register since 2016.