ARNOLD'S WINES, INC., d/b/a/ Kahn's Fine Wines & Spirits, Buy Rite, Inc., Doing Business as Crown Liquors, Joshua T. Block, Sharon Silber, Plaintiffs-Appellants, v. Daniel B. BOYLE, Chairman of the New York State Liquor Authority, in his official capacity, Lawrence J. Gedda, Commissioner of the Division of Alcoholic Beverage Control, in his official capacity, New York State Liquor Authority, Defendants-Appellees, Eber Brothers Wine & Liquor Corp., Charmer Industries, Inc., Metropolitan Package Store Associates, Inc., Intervenor-Defendants-Appellees, 571 F.3d 185

WESLEY, Circuit Judge: This case asks us to chart a course between two constitutional provisions that delineate the boundaries of a state’s power to regulate commerce, one an express grant, the other an implied limitation.

Section 2 of the Twenty-first Amendment provides: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” U.S. Const, amend. XXI, § 2. The Commerce Clause reserves for Congress the power “[t]o regulate Commerce ... among the several States,” thus implicitly limiting the states’ power to do so. U.S. Const, art. 1, § 8, cl. 3. Here, we must determine whether New York’s alcohol regulatory regime is properly within the scope of

section 2 of the Twenty-first Amendment, such that it does not run afoul of the dormant Commerce Clause. We conclude that the challenged regime is permissible under the Twenty-first Amendment insofar as it requires that all liquor sold within the State of New York pass through New York’s three-tier regulatory system. BACKGROUND Appellant Anold’s Wines, Inc., doing business as Kahn’s Fine Wines & Spirits, a wine retailer operating two stores in the Indianapolis, Indiana area, would like to sell its products directly to New York consumers. Appellants Joshua T.

Block and Sharon Silber, New York residents, would like to be able to buy and receive wine directly from out-of-state retailers. Appellants thus brought this action in the United States District Court for the Southern District of New York against the New York State Liquor Authority and individual officials of the New York State Liquor Authority, pursuant to 42 U.S.C. § 1983, seeking a declaratory judgment finding sections 100(1), 102(l)(a), and 102(l)(

b) of New York’s Alcoholic Beverage Control Law (“ABC Law”) unconstitutional to the extent that they prohibit out-of-state wine retailers from selling and delivering wine directly to New York consumers. Two licensed New York wholesalers and an association of licensed New York retailers were granted leave to appear as intervenor-defendants.

The district court (Holwell, J.), in a well-reasoned decision, granted defendants’ motion to dismiss, holding that the challenged sections are an integral part of the three-tier alcohol regulatory system consistent with the authority granted to New York by the Twenty-first Amendment. Arnold’s Wines, Inc. v. Boyle, 515 F.Supp.2d 401, 413-14 (S.D.N.Y.2007). Appellants timely filed this appeal. A. New York’s Regulatory Scheme Sections 100(1), 102(l)(a), and 102(l)(

b) of New York’s ABC Law require that all liquor sold, delivered, shipped, or transported to a New York consumer first pass through an entity licensed by the State of New York. Section 100(1) states, “No person shall manufacture for sale or sell at wholesale or retail any alcoholic beverage within the state without obtaining the appropriate license therefor required by this chapter.” N.Y. Aleo. Bev. Cont. Law § 100(1) (McKinney 2000 & Supp.2006). The other two provisions make it illegal to ship alcoholic beverages to an unlicensed entity within the state (i.e., a consumer). Id. § 102(l)(a)-(b).

These provisions are part of the three-tier licensing structure for the sale and distribution of alcoholic beverages established in New York shortly after the passage of the Twenty-first Amendment. The main purpose of the three-tier system was to preclude the existence of a “tied” system between producers and retailers, a system generally believed to enable organized crime to dominate the industry. The three tiers are: (1) the producer, (2) the distributor or wholesaler, and (3) the retailer.

Under this system, the producer sells to a licensed in-state wholesaler, who pays excise taxes and delivers the alcohol to a licensed in-state retailer. The retailer, in turn, sells the alcohol to consumers, collecting sales taxes where applicable. In New York, only in-state and out-of-state wineries may bypass the three-tier system to ship directly to consumers. Id. §§ 79-c, 79-d. All other out-of-state producers and sellers must ship to state-licensed wholesalers within the three-tier system. Id. § 102(l)(a)-(b); see also Arnold’s Wines, 515 F.Supp.2d at 403-04.

This licensing scheme allows the state to oversee the financial relationships among manufacturers, wholesalers, and retailers, see N.Y. Aleo. Bev. Cont. Law §§ 101, 105(16)-(17), 106(13)-(14), as well as the ways these entities price goods and make sales, see id. §§ 101-aa, 101-b(2)-(3). The State Liquor Authority may inspect any premises where alcoholic beverages are manufactured, stored, or sold, as well as the books and records kept on such premises. Id. §§ 18(4), 103(7), 104(10), 105(15), 106(12).

New York asserts that the three-tier regulatory system allows the state to collect taxes more efficiently and prevent the sale of alcohol to minors. Relevant in this particular case, New York-licensed retailers, the final tier in the state’s three-tier system, may obtain off-premises licenses permitting them to deliver alcohol directly to consumers’ homes “in vehicles owned and operated by such lieensee[s], or hired and operated by such licensee[s] from a trucking or transportation company registered with the liquor authority.” Id. § 105(9).

New York retail off-premises licensees must comply with a set of highly detailed regulations governing the location, physical characteristics, and operating hours of their premises, as well as their financial relationships with producers and wholesalers, and the manner in which they keep books and records for all their transactions. Id. § 105(l)-(23). Out-of-state retailers without an in-state operation cannot obtain a New York retail off-premises license.

It is this distinction— that New York-licensed retailers, but not out-of-state retailers, may deliver liquor directly to New York residents — that Appellants challenge in this case. DISCUSSION Appellants argue that New York’s ban on direct sales to consumers by out-of-state liquor retailers discriminates against interstate commerce and thus violates the Commerce Clause. The Commerce Clause provides that Congress has the power to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” U.S. Const, art. I § 8, cl.3.

It is well established that the affirmative implies the negative, and that the Commerce Clause establishes a “dormant” constraint on the power of the states to enact legislation that interferes with or burdens interstate commerce. See, e.g., Dennis v. Higgins, 498 U.S. 439, 447, 111 S.Ct. 865, 112 L.Ed.2d 969 (1991). Thus, states may not pass laws that discriminate against out-of-state economic interests unless those laws “advanced a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” New Energy Co. of Ind. v.

Limbach, 486 U.S. 269, 278, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). However, the Supreme Court has made clear that the Twenty-first Amendment alters dormant Commerce Clause analysis of state laws governing the importation of alcoholic beverages. E.g., Granholm v. Heald, 544 U.S. 460, 488-89, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005). Ratified in 1933, the Twenty-first Amendment repealed the Eighteenth Amendment and ended Prohibition.

Section 2 of the Amendment provides: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” The purpose of

section 2 was to protect certain core interests of the states in “promoting temperance, ensuring orderly market conditions, and raising revenue” through regulation of the production and distribution of alcoholic beverages. North Dakota v. United States, 495 U.S. 423, 432, 110 S.Ct. 1986, 109 L.Ed.2d 420 (1990) (plurality opinion). The Twenty-first Amendment is thus in tension with the Commerce Clause, as

section 2 “grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.” Granholm, 544 U.S. at 488, 125 S.Ct. 1885 (quoting Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 110, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980)) (internal quotation marks omitted). But state powers under the Twenty-first Amendment are not without limitation; the Amendment does not immunize all regulation of alcoholic beverages from Commerce Clause scrutiny. Id.

State policies are only “protected under the Twenty-first Amendment when they treat liquor produced out of state the same as its domestic equivalent.” Id. at 489, 125 S.Ct. 1885. Most recently, in Granholm v. Heald, the Supreme Court addressed the difficulties inherent in the intersection of these two constitutional provisions. Analyzing the Wilson Act and the Webb-Kenyon Act — two pre-Prohibition statutes that influenced the drafting of

section 2 of the Twenty-first Amendment — the Court concluded that

section 2’s purpose was to return to the states only the Commerce Clause immunity provided by those two Acts. Id. at 483, 125 S.Ct. 1885. The Twenty-first Amendment was intended “to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods.” Id. at 484-85, 125 S.Ct. 1885. The Granholm Court set forth the test for determining the constitutionality of state liquor regulations.

If the state measure discriminates in favor of in-state producers or products, the regulatory regime is not automatically saved by the Twenty-first Amendment simply by virtue of the special nature of the product regulated. See id. at 484-87, 125 S.Ct. 1885. Rather, if the court finds the law discriminatory, it will only be upheld if it reasonably advances legitimate state interests “that cannot be adequately served by reasonable nondiscriminatory alternatives.” Id. at 489, 125 S.Ct. 1885 (quoting Limbach, 486 U.S. at 278, 108 S.Ct. 1803) (internal quotation marks omitted).

Applying this framework, the Granholm Court struck down laws in New York and Michigan that created exceptions to the states’ three-tier distribution systems, allowing in-state wineries to bypass the three tiers and ship directly to consumers, while preventing out-of-state wineries from doing so. Id. at 466, 125 S.Ct. 1885. The Court found that the “differential treatment requiring] all out-of-state wine, but not all in-state wine, to pass through an instate wholesaler and retailer before reaching consumers” impermissibly discriminated against interstate commerce.

Id. at 473-74, 125 S.Ct. 1885; see also id. at 467, 125 S.Ct. 1885. Thus, the Court found that the New York and Michigan laws were not immunized by the Twenty-first Amendment. Having concluded that the challenged laws were not authorized by the Twenty-first Amendment, the Granholm Court next undertook the standard dormant Commerce Clause analysis, determining whether the discriminatory statutes served a legitimate local purpose that could not be accomplished through nondiscriminatory means. See id. at 489, 125 S.Ct. 1885.

The Court noted that there were a number of nondiscriminatory practices by which the states could achieve their stated goals of facilitating tax collection and preventing minors from consuming alcohol. See id. at 489-93, 125 S.Ct. 1885. Accordingly, it struck down the New York and Michigan laws as violative of the Commerce Clause. Id. at 493,125 S.Ct. 1885. In reaching its conclusion, the Court repeatedly emphasized that the three-tier systems in place in both states did not themselves violate the Constitution.

Specifically, the Court stated that it is “unquestionably legitimate” for a state to bar the importation of alcoholic beverages if it bans the sale and consumption of alcohol altogether, or to “funnel sales through the three-tier system.” Id. at 489, 125 S.Ct. 1885. Granholm is best seen as an attempt to harmonize prior Court holdings regarding the power of the states to regulate alcohol within their borders — a power specifically granted to the states by the Twenty-first Amendment — with the broad policy concerns of the Commerce Clause.

See, e.g., North Dakota, 495 U.S. at 432, 110 S.Ct. 1986; Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 712-13, 104 S.Ct. 2694, 81 L.Ed.2d 580 (1984); Midcal, 445 U.S. at 110, 100 S.Ct. 937. Granholm validates evenhanded state policies regulating the importation and distribution of alcoholic beverages under the Twenty-first Amendment. It is only where states create discriminatory exceptions to the three-tier system, allowing in-state, but not out-of-state, liquor to bypass the three regulatory tiers, that their laws are subject to invalidation based on the Commerce Clause.

Granholm, 544 U.S. at 489, 125 S.Ct. 1885; see also Brooks v. Vassar, 462 F.3d 341, 351-53 (4th Cir.2006). A. Application of the Granholm Analysis to New York’s ABC Law Appellants challenge provisions that make no distinction between liquor produced in New York and liquor produced out of the state: both may be shipped directly to New York consumers by licensed in-state retailers. See Granholm 544 U.S. at 487, 125 S.Ct. 1885; Healy v. Beer Inst., 491 U.S. 324, 335-37, 109 S.Ct. 2491, 105 L.Ed.2d 275 (1989); Brown-Forman Distillers Corp. v. N.Y.

State Liquor Auth., 476 U.S. 573, 582-83, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 276, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984). Appellants seek to mimic the concerns addressed in Granholm by contending that the New York law is invalid because it grants in-state retailers benefits not afforded to out-of-state retailers. This argument comes up short under Granholm for several reasons.

First, because in-state retailers make up the third tier in New York’s three-tier regulatory system, Appellants’ challenge to the ABC Law’s provisions requiring all wholesalers and retailers be present in and licensed by the state, N.Y. Aleo. Bev. Cont. Law § 100(1), is a frontal attack on the constitutionality of the three-tier system itself. However, the Granholm Court specifically acknowledged the vital role of the three-tier system in the exercise of states’

section 2 powers. The Court reaffirmed that the three-tier system is an “unquestionably legitimate” exercise of the states’ powers under the Twenty-first Amendment to regulate the importation and use of alcohol. Granholm, 544 U.S. at 488-89, 125 S.Ct. 1885. Appellants’ argument is therefore directly foreclosed by the Granholm Court’s express affirmation of the legality of the three-tier system. Appellants reply that the language in Granholm endorsing the three-tier system is merely dicta. In Granholm, the states explicitly argued that the challenged regulations were essential elements of the three-tier system.

They attempted to justify their regulations by citing prior Supreme Court cases that acknowledged the three-tier system as a legitimate exercise of state power under the Twenty-first Amendment. In reaching its holding, the Granholm Court noted that the challenged regulations were discriminatory exceptions to, rather than integral parts of, the underlying three-tier systems. See id. Had the three-tier system itself been unsustainable under the Twenty-first Amendment, the Granholm Court would have had no need to distinguish it from the impermissible regulations at issue.

As Judge Holwell stated in his opinion below, “if dicta this be, it is of the most persuasive kind.” Arnold’s Wines, 515 F.Supp.2d at 412. Second, New York’s ABC Law treats instate and out-of-state liquor evenhandedly under the state’s three-tier system, and thus complies with Granholm’s nondiscrimination principle. See Granholm, 544 U.S. at 489, 125 S.Ct. 1885. New York requires that all liquor — whether originating in state or out of state — pass through the three-tier system. N.Y. Aleo. Bev. Cont. Law §§ 102 et seq.

Alcohol sold by in-state retailers directly to consumers in New York has already passed through the first two tiers — producer and wholesaler— and been taxed and regulated accordingly. Requiring out-of-state liquor to pass through a licensed in-state wholesaler and retailer adds no cost to delivering the liquor to the consumer not equally applied to in-state liquor. Rather, the New York regulatory scheme mandates that both instate and out-of-state liquor pass through the same three-tier system before ultimate delivery to the consumer. This is in stark contrast to the challenged regulations in Granholm.

The New York and Michigan laws struck down by the Court in Granholm created specific exceptions to the states’ three-tier systems favoring in-state producers. 544 U.S. at 474, 125 S.Ct. 1885. This was exactly the type of economic protectionist policy the Commerce Clause sought to forestall, and where the Granholm Court drew the line. See id. at 489, 125 S.Ct. 1885. While the Twenty-first Amendment grants the states broad powers to regulate the transportation, sale, and use of alcohol within their borders, it simply does not immunize attempts to discriminate in favor of local products and producers.

Id.; see also Bacchus, 468 U.S. at 276, 104 S.Ct. 3049. The challenged regulations here are evenhanded and permissibly aimed at “combat[ing] the perceived evils of an unrestricted traffic in liquor,” rather than accomplishing “mere economic protectionism.” Bacchus, 468 U.S. at 276, 104 S.Ct. 3049. Thus, New York’s alcohol regulatory scheme properly falls within the state’s powers granted by

section 2 of the Twenty-first Amendment. Because New York’s three-tier system treats in-state and out-of-state liquor the same, and does not discriminate against out-of-state products or producers, we need not analyze the regulation further under Commerce Clause principles. Sections 100(1), 102(l)(a), and 102(l)(

b) of New York’s ABC Law are an integral part of New York’s three-tier system. Because New York’s laws evenhandedly regulate the importation and distribution of liquor within the state, we hold that they do not run afoul of the Commerce Clause. CONCLUSION Sections 100(1), 102(l)(a), and 102(l)(

b) of New York’s Alcoholic Beverage Control Law, instituting a three-tier system for the regulation of alcoholic beverages, do not discriminate against ouLof-state producers in violation of the Commerce Clause of the United States Constitution,

Article I,

Section 8, Clause 3, and are thus a valid exercise of the state’s rights under the Twenty-first Amendment. For the foregoing reasons, the district court’s order of October 1, 2007 granting defendants’ motions to dismiss is hereby Affirmed. . With the exception of wineries, see id. §§ 79-c, 79-d, all manufacturers' products must pass through the three-tier system. Manufacturers operating within the State of New York are required to obtain a license granted by the state, as well as distribute their products through licensed wholesalers and retailers. See id. §§ 100(1), 100(2).

Manufacturers operating outside of the state, and therefore not licensed by the state, similarly must ship their products to a licensed in-state wholesaler or retailer for resale to New York consumers. See id. §§ 100(2), 102(1). . The Granholm dissenters specifically endorsed the constitutionality of the three-tier system as well.

Id. at 495, 125 S.Gt. 1885 (Stevens, J., dissenting) ("Can it be doubted that a State might establish a state monopoly of the manufacture and sale of beer, and either prohibit all competing importations, or discourage importation by laying a heavy impost, or channelize desired importations by confining them to a single consignee?”) (quoting State Bd. of Equalization of Cal. v. Young’s Mkt.

Co., 299 U.S. 59, 62-63, 57 S.Ct. 77, 81 L.Ed. 38 (1936)); id. at 517, 125 S.Ct. 1885 (Thomas, J., dissenting) (affirming the existence of the “widespread, unquestioned acceptance of the three-tier system of liquor regulation”). . Appellants’ complaints of discrimination have somewhat of a hollow ring. Although they assert a willingness to comply with New York’s regulatory scheme if allowed to deliver liquor directly to New York consumers, this would be virtually impossible without either an absurd operational result, or a dismantling of New York's entire three-tier system.

For example, were they to comply with the existing system, Indiana-based Arnold’s Wines would be required to purchase its liquor inventory from New York wholesalers, only to ship the wine back across the country to New York consumers. See N.Y. Aleo. Bev. Cont. L. § 102(3-b). Even if Appellants were willing to live with this rather absurd arrangement, it would violate Indiana laws requiring licensed liquor retailers to purchase inventory from licensed Indiana wholesalers. See Ind.Code §§ 7.1-3-14-4, 7.1 — 3—15—3(a).

But even if Appellants succeed in their challenge to the in-state retailer requirements of New York, under existing New York law, Arnold’s Wines would not qualify for a retail license because multi-store operations are not eligible for retail licenses in New York. See N.Y. Aleo. Bev. Cont. L. §§ 63(5), 79(2). Of course, the multi-store operations restriction is written in the context of in-state retailers.

Ultimately, because it is demonstrably impossible for out-of-state retailers like Arnold's Wines to comply with New York's existing three-tier scheme, granting them the relief they seek would require us to invalidate New York’s three-tier system altogether.