STATE OF THE INDUSTRY:
CRAFT SPIRITS DATA PROJECT
GRAS, you know?
THE GRASS IS NOT
maximizing PROCESS EFFICIENCIES
BUILD A BETTER BUSINESS PLAN
Brand Design for the Spirits, Wine and Beer Industries.
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TABLE of CONTENTS A LETTER FROM THE EDITOR
THE CRAFT SPIRITS DATA PROJECT69 Craft distillers put up some impressive numbers
QUARTERLY GUILD REPORT
What’s going on, state-by-state and province-by-province
REBRANDING ADVICE FROM THE EXPERIENCED
When, why, and how?
AMERICAN DISTILLING INSTITUTE QUARTERLY REPORT
UNDERSTANDING HIGH-ESTERS RUMS
History, classifications, and considerations
Gin Summit, 2017 ADI Conference and more
ISSUES TO CONSIDER WHEN BUYING OR SELLING A CRAFT DISTILLERY
A natural part of the life cycle of any business
SCIENCE, IT WORKS…
Electrochemistry in action
‘WE SOLVE OUR OWN PROBLEMS’
WHY YOU NEED A BUSINESS PLAN84 And how to manage this living document
CRAFT ABSINTHE, TEN YEARS IN
THE 9 ATTRIBUTES OF HIGHLY SUCCESSFUL SPIRITS BRANDS
Spirit Hound Distillers of Lyons, Colorado
Reviving a centuries-old tradition
Brand Buzz with David Schuemann
CAUIM33 A legendary Brazilian spirit
CODE MYTHS & REALITIES OF SPRINKLER SYSTEMS37 Five sprinkler system myths tackled
USA TODAY’S 10BEST CRAFT DISTILLERY AWARDS
Logistics of a fan-judged competition
FINANCING YOUR INDIE BRAND
Get the money you need to start your distillery
Shaking things up with some cocktail history
At the 2016 Chicago Independent Spirits Expo
WOOD, SPIRIT OR ENVIRONMENT
What determines final product quality?
GET TO KNOW THE SOUTHERN AFRICAN CRAFT DISTILLING INSTITUTE
FEW SPIRITS AND THE FLAMING LIPS
Distillers in South Africa, Namibia and Zimbabwe unite
ASCENDANT SPIRITS of Buellton, California
ADVICE FROM SR. WHISKY MASTER STEPHEN BEAL
Considered by many to be the unofficial ambassador of whisk(e)y
HOW MANY BARRELS CAN WE CRANK OUT IN THE SHORTEST TIME POSSIBLE?57 Implementing process efficiencies to maximize production
A vacation in Brainville
Tackle franchise termination laws with confidence
Let's keep us and ours safe
CHARGING THE STILL
Methods of raising capital for your spirits business
ARTISAN STILL DESIGN
Alchemy Distillery of Arcata, California
FOREST AND FLAME
Forest stewardship and controlled burns
THE GRASS IS NOT GRAS66 The one-of-a-kind whiskey you will likely never taste
from the COVER
Alchemy Distillery in Arcata, California. Image by Amanda Joy Christensen. See their story on page 62.
Issue 17 /// Winter 2016 PUBLISHER & EDITOR Brian Christensen ASSISTANT EDITOR & SENIOR WRITER Chris Lozier CREATIVE DIRECTOR Amanda Joy Christensen SENIOR WRITERS Amber G. Christensen-Smith
CONTRIBUTORS Luis Ayala Dick Barrett Shawn Bergeron Renee Cebula Jeff Clark John Cox Brian B. DeFoe Andrew Faulkner
Harry Haller Patrick Heist, Ph.D. Paul Hughes, Ph.D. Barrett K. Lopez John McKee David Schuemann Gabe Toth R. Scott Winters, Ph.D.
ILLUSTRATOR Francesca Cosanti
PHOTOGRAPHERS Amanda Joy Christensen Lanette Faulkinberry Jonathan Fong
Patrick Heist, Ph.D. Emily Sierra
SALES & MARKETING Ashley Monroe ARTISAN SPIRIT is the endorsed publication of the American Craft Spirits Association. ARTISAN SPIRIT is a quarterly publication by Artisan Spirit Media. www.artisanspiritmag.com facebook.com/ArtisanSpiritMagazine
General Inquiries (509) 944-5919 Advertising (509) 991-8112 PO Box 31494, Spokane, WA 99223 All contents © 2016. No portion of this magazine may be reproduced without the written consent of the publisher. Neither Artisan Spirit Media nor ARTISAN SPIRIT magazine assume responsibility for errors in content, photos or advertisements. While ARTISAN SPIRIT makes every effort to ensure accuracy in our content, the information is deemed reliable but not guaranteed. We urge our readers to consult with professional service providers to meet their unique needs. At ARTISAN SPIRIT, we take the opportunity to enjoy many different craft spirits and adult beverages. However, it’s also our responsibility, and yours, to always drink responsibly. Know your limit, and never drink and drive. ARTISAN SPIRIT’s number one goal is to share and celebrate the art and science of artisan craft distilling. But please remember to follow all the laws, regulations, and safety procedures. Be safe, be legal and we can all be proud of the industry we love.
From politics to spirits and everything in between, 2016 was an intense year from start to finish.
WHAT NEW YEAR’S RESOLUTIONS SHOULD THE SPIRITS INDUSTRY MAKE HEADING INTO 2017? 2016 … wow, what a year! American voters (and maybe the candidates too) learned one thing … the importance of trust. Trust the polls? Trust the numbers? Trust the headlines? Trust history? Some trusted their hopes and maybe their wishes, and some trusted their dissatisfaction and maybe their anger. We all trusted in something, or more importantly in someone. Stephen R. Covey, author of "The 7 Habits of Highly Effective People" wrote this: "Trust is the highest form of human motivation. It brings out the very best in people." Years later, the author's son Steven M.R. Covey released his own groundbreaking work entitled "The Speed of Trust, The One Thing That Changes Everything." His subtitle says it best: trust IS the one thing that changes everything. The theme is obvious, and we can all gain from it heading into 2017.
There you are. On the floor. The calendar reads January 1, 2017. The dregs of the champagne have gone flat. The stale, mingled aroma of empty beer and liquor bottles create a palpable mung in the air. And you’re alone. Wishing people were there to help clean up, make a plate of bacon, and laugh off the night before. You, like the distilling industry, should focus on making a stronger, bigger community. The more of us there are, the more important it is we stick together as a group. At some point we’ll all need help … or some bacon. — Colin Blake, Moonshine University
With all of the competition and noise in the marketplace, both in the spirits industry and in competing alcoholic beverage categories, distillers should resolve to have laser-like focus on their brands. There are no shortcuts to the critical mass you need to succeed – brands are built one glass bottle at a time. — Rick Gibson, Owens-Illinois, Inc.
SPIRITS E PI
The craft spirits industry’s New Year’s resolution should be to continue to work together to determine how craft should be defined, while being inclusive of the successful producers and brands that have grown to be “too large for craft." These producers and brands find themselves at an awkward crossroads where they have grown to accomplish their dreams and now find themselves in a no man’s land between craft and the giants. Realizing these distillers have built awareness for everyone in the craft space would be wise, and finding a balanced place for them is crucial in my opinion. After all, what they have attained is the dream of many. The question of too small to be big and too big to be small will be a paramount challenge. Whether the goal of a producer is to be acquired or simply be a sustainable cash positive business, ultimately the goal should be about being inclusive and stronger together. The larger players have taken notice and a crowded marketplace of competition will continue to be increasingly fierce. Cohesive, intelligent thinking, and action at the guild, regional, state and federal levels will bolster everyone if done so wisely. Oh … and of course fantastic, disruptive packaging backed by great storytelling to set your brand apart from the competition. — David Schuemann, CF Napa Design
AN D ARTIS SP
ISTILLING & EDUCATIO TS OF INTEGRIT
Be worthy of trust, build a team that you trust, and then trust your team to deliver something that your customers will trust. Here’s to a GREAT 2017 – cheers!
— Pete Russell, G&D Chillers
WWW.ART ISANSPI RI TMAG.CO M
Each issue we take a moment to highlight and thank our sponsors. However, we often forget to mention that these companies are more than just industry vendors vying for attention. There are individuals at these companies that also act as advisors. Each one of them offers more to Artisan Spirit Magazine and the distilling industry than just monetary support or goods and services. They have also provided years of expertise, with the intent to help guide and grow our industry. As always, we are careful to guard the integrity of Artisan Spirit Magazine, which is why we continue to maintain a separation of “church and state” when it comes to content and advertising. Advisors are not directors, and we have been exceedingly lucky to find people and companies in this industry that respect that delineation. The distilling industry could probably survive without associations, guilds, or publications, but it couldn’t function without the distilling entrepreneurs or the suppliers that serve them. We are very thankful that these two groups have chosen to support what we do at Artisan Spirit Magazine.
WE COULDN’T DO IT WITHOUT EVERY SINGLE ONE OF YOU.
IL DIST PRO BY
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A LETTER FROM THE EDITOR: We are on the doorstep of another new year, and that means I get to embrace cliché statements about “new beginnings.” Four years ago, we experienced a new beginning with the birth of this publication when I waxed philosophic about how we “didn’t know what the hell we were doing” in the world of distilling. Two years later I re-affirmed that statement with a few minor updates, begrudgingly admitting that we knew a couple things, but were still proudly battling our ignorance. Artisan Spirit’s creative director (and my spectacular wife) Amanda Christensen says the time has come where I can’t claim ignorance anymore, and she’s right. A nationwide community of distillers have taken us under their wing and apprenticed us in their world. That doesn’t make us special, it just makes us more accountable to you and the industry. Finally, the “new beginnings” cliché also provides me with the flimsily-veiled excuse to brag about our new baby boy, Wilder Lee Christensen. He is our third son, but the first born into our extended distilling family. Say hi to your new friends and family Wild Man.
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As you read this issue, just picture us writing, photographing, conference calling, and editing with a newborn on our chest or sleeping sweetly nearby. Don't imagine the breastfeeding, crying fits, and diaper changes.
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Y L R E T R A U Q T R O P E R D L I U G
Magazine’s rtisan Spirit ort” Guild Rep “Quarterly and ox for state is a soapb share going on out what’s g guilds to b n a lli s ti w is e d n l ia inate provinc nd dissem had to say: success, a e g ra u o c what they is re e H ideas, en ods. istilling wo ck of the d in their ne
COLORADO COLORADO DISTILLERS GUILD The Colorado Distillers Guild held our main meeting of the year October 21 in Breckenridge. We are really excited to be up to 38 DSP members. We had Patrick Maroney, the director of Colorado Liquor Enforcement, and Jeff Lawrence of the WWW.ARTISANSPIRITMAG.COM
Colorado Department of Public Health and Environment both give presentations on ways that we can continue to work with them in a positive way. State senator Owen Hill (R) and state representative Dan Pabon (D) attended and received awards for being our champions on Capitol Hill in Denver. We also had our board elections, and all the standing board members ran unopposed and will be serving another term. The CDG has partnered with Bart Taylor
and Company Week/Brewery Week to produce Distillery Week, a weekly newsletter highlighting our members and industry partners. It will be a great way to showcase our member DSPs, raise money for the Guild, and help build key partnerships. Cheers, P.T. Wood President Colorado Distillers Guild firstname.lastname@example.org Wood's High Mountain Distillery, LLC
CONNECTICUT CONNECTICUT SPIRITS GUILD In its infancy, the Connecticut Spirits Trail recently launched our website ctspiritstrail. com and Facebook page “CT Spirits Trail.” The Trail was officially unveiled to the public at New England’s state fair — called the Big E (Eastern States Exposition). Hundreds of thousands of visitors to the Connecticut House at the fair saw our brochure for the first time. There we partnered with CT’s state tourism board and a craft beer tent to show off our map. The state has begun to excitedly embrace
FLORIDA FLORIDA CRAFT DISTILLERS GUILD Florida continues to make its mark on the craft distilling industry with new distilleries opening monthly. Manifest Distilling opened in downtown Jacksonville and currently offers potato vodka, with gin and rye whiskey on the horizon. Copper Bottom Craft Distillery opened its doors in early October in Holly Hill — making it the first legally-operated distillery in Volusia County since Prohibition. Copper Bottom spirits are handcrafted in
NEW MEXICO NEW MEXICO DISTILLERS GUILD Faced with a severe budget shortfall the New Mexico legislature met in special session in October 2016, and on the eve of the session a neo-Prohibitionist proposed a 25-cent "Drink Tax" which purported to help balance the state budget, fund alcohol abuse treatment and curb excessive
our efforts and we expect to receive statewide promotion from the state’s tourism website, local daily newspaper coverage, and industry publications. We will also be included in a local transportation company’s tour bus stops, which will include both CT beer trail and spirits trail members’ locations. We look forward to our first November/ December as trail colleagues, and we will take part in holiday-related events across our great state. From the CT Spirits Guild perspective, we will begin to work with the CT Small Brands Council, which collaborates with all aspects of our three-tiered system. Within those efforts, we will consider
how state laws can be modified to let us be competitive in terms of our tasting room offerings (currently we can only provide two ounces of our spirits to a visitor, and we can only sell a tour, not a cocktail). We might also like to pursue small amounts of sales at farmers markets. In future quarterly updates, I hope to be able to share more marketing details and legislative advancements here in CT. In the meantime, I hope you all have a great holiday season.
small batches using panela, an unrefined pure cane sugar, and they are open to the public for free tours and tastings six days a week. List Distillery in Fort Myers is another recent addition to Florida’s distilling scene. List focuses on local agriculture and will offer a variety of spirits including hazelnut liqueur, white rum, dark rum, vodka, gin, spiced rum, and coconut rum. The Sunshine State garnered some impressive national attention when St. Augustine Distillery was named Best Craft Gin Distillery in the United States and Wicked Dolphin in Cape Coral was named Best Craft Rum Distillery in USA Today’s
10Best Readers’ Choice contest. Looking ahead, distillers will continue to work with state legislators for upcoming law changes in 2017. “Florida craft distillers seek laws that will put our state on a level playing field with Florida wineries and breweries and other states that enjoy favorable laws like Colorado and New York,” explained Lissa McLaughlin, president of Florida Craft Distillers Guild. “Here’s to a new and exciting year in distilling!”
drinking. If implemented, this excise tax would have added over $5 to the bottle cost of spirits, which are already taxed by the state at $1.60/liter. Fortunately this ill conceived plan did not gain any traction; however, with the regular 60-day legislative session scheduled to begin in January 2017, and the state still in financial crisis, the New Mexico Distillers Guild held a summit with the heads of the state brewers guild and winegrowers association to strategize on lobbying and legislative initiatives. The
New Mexico Craft Beverage Association was formed to advocate for our common interests much like our individual guilds, and the NMDG hopes to enlist allied support for parity initiatives such as state excise tax reduction and retail reciprocity in the coming session.
Cheers! Tom Dubay Hartford Flavor Company President, CT Spirits Trail
Kara Pound Director of Communications St. Augustine Distillery
Dr. Greg McAllister Algodones Distillery, NMDG Sec’y/Treas. (505) 301-9992 email@example.com
NEW YORK NEW YORK STATE DISTILLERS GUILD After over a year and a half of design, data collection, and cooperation with Empire State Development and New York advertising agencies, the New York State Distillers Guild is proud to be launching its new consumerfocused distillery trail website. The new website will be dedicated to enhancing the craft spirit awareness and tourism of NYS Distillers Guild member distilleries. The online distillery trail divides the state up into six regions: Capital/Northern, Central, Finger Lakes, Hudson Valley, Western New York, and Metro NYC. Each region has its
NORTH CAROLINA DISTILLERS ASSOCIATION OF NORTH CAROLINA The Distillers Association of North Carolina (DANC) was delighted when the governor declared October “North Carolina Spirits Month,” adding further legitimacy and respect to an industry that sometimes struggles for recognition while laboring under the complexities of North Carolina’s stringent alcohol laws. October was also the first anniversary of the passage of the North Carolina Distillery
OREGON OREGON DISTILLERS GUILD The Oregon Distillers Guild has been busy over the last few months. ODG general membership approved a complete replacement of our bylaws. Though the initial ones served the guild well, updates were needed and an entire replacement
own distillery trail based on the member distilleries in that region. The website also has a filter program that can direct you to a distillery based on spirit types they produce and if the distillery has a tasting room or bar/ restaurant on-site. As 2017 approaches, we prepare for a legislative session already poised with changes and victories. The Class D Farm Distiller License will be strengthened with the added privilege of selling all NYS-produced alcoholic beverage types for on-premise consumption by the glass. We also expect the A1 license class to be allowed to sell its own products by the bottle and conduct tastings at their facility without an added permit or license. This January the NYS Distillers Guild will
host our fourth annual two-day conference at the Carey Institute outside of Albany, NY. The meeting will start mid-day on Tuesday, January 17th and conclude on the afternoon of the 18th. This conference is critical to our agenda for the next calendar year, having a safe and healthy forum for membership needs and opinions, and building the community to which we all belong. The conference is open to all of our member distilleries and associate member organizations. Check out the new website or drop us a line at nydistilled.com.
Sales Bill, which allows NC distillers to sell one bottle per customer per year. By all accounts it was a seminal moment in the history of North Carolina alcohol history. North Carolina hadn’t seen a legal bottle sold outside the ABC system since 1909, because NC’s prohibition started earlier than the national prohibition. The full impact of the bill is awaiting more stringent collection of data, however it is clear to all involved that NC spirits sales volume has increased at ABC stores, while distilleries also sell an impressive volume in their distilleries. The number of distilleries in NC has now risen to over 70, with many proprietors saying that they were waiting for
the bill to pass before making the investment to open their distillery. Existing operators say the bill had a tremendous impact on their operations and resulted in more jobs and more investment in their facilities. As our members deal with the increased operational pace of the fourth quarter, DANC is eagerly awaiting next year’s legislative session so it can build off of existing momentum and create an even stronger distilling industry.
made more sense. With this change, the Board will now be structured in zones to ensure statewide representation. In addition, a tiered dues structure will be created starting in 2017. Many other changes were included with this adaption and will help improve board functions and expand the guild membership. Also, TOAST 2017 (ODGsponsored spirits event) has been scheduled for February 18, 2017. This will include a
vendor fair for attendees held prior to the start of the event. This gives our sponsors the ability to communicate directly to our membership in a personal setting. Details can be found at oregondistillerytrail.com.
Cheers! Cory Muscato Lockhouse Distillery – Buffalo, NY Vice President – New York State Distillers Guild
Scott Maitland President - DANC Founder - Topo Distillery firstname.lastname@example.org (919) 280-5910
Ted Pappas Owner, Big Bottom Distilling, LLC President, Oregon Distillers Guild
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MEMBER OF ACSA: American Craft Spirits Association ADI: American Distilling Institute
SOUTH CAROLINA SOUTH CAROLINA CRAFT DISTILLERS GUILD South Carolina distillers recently collaborated to formalize the South Carolina Craft Distillers Guild and elect inaugural officers. The Guild is a nonprofit trade association focused on the promotion, regulatory and legislative needs of the South Carolina distilled spirits industry. “As this marketplace becomes more mature, and as consumers have taken a shine to South Carolina-produced spirits, it has become clear that working together to improve the regulatory environment, the
WASHINGTON WASHINGTON DISTILLERS GUILD The Washington Distillers Guild is electing new board members in November to begin their term in December. All seven positions are up for election, as current bylaws only allow one-year terms. The current board is proposing that the bylaws be amended beginning with this election to phase all officer positions to a two-year term. Three bills are being drafted for the next legislative session. They are:
SOUTH CAROLINA CRAFT marketplace, as well as the brand of DISTILLERS GUILD OFFICERS South Carolina spirits will benefit the businesses we operate, the consumers, President — Scott Blackwell, High Wire Distilling and the greater economy in the Vice President — David Raad, Six and Twenty Distillery Palmetto State,” said Scott Blackwell, Secretary — Steve Noblin, Rock Bottom Distillers newly elected Guild president and CEO Treasurer — Dickie Butler, Gorget Distilling Company of High Wire Distillery in Charleston. The South Carolina Craft Distillers Carolina is home to 34 federally-licensed Guild has a host of tasks in the distilleries. Consumer demand for locallycoming months: We intend to work with our produced, signature South Carolina spirits state legislators to improve the state of our has been the driving force behind this regulatory and legislative needs, establish a impressive growth. web and information presence, and map out For info, please contact Scott Blackwell at working with South Carolina’s tourism efforts. email@example.com or David Raad South Carolina distilleries have grown at firstname.lastname@example.org. substantially since the State Legislature passed measures in 2009 that lowered marketplace barriers and allowed smaller distilleries to flourish. Currently, South
WA distilleries and allowing a set of endorsements to be applied for giving special privileges. 2. Modifying the spirit sales tax
to be more competitive with all other states (WA has the highest spirit tax in the nation at 20.5 percent plus $3.7708/liter). 3. Creating
the ability for all distilleries to serve cocktails from their tasting room.
Three strategic initiatives have been launched: 1. Hiring an executive director.
1. Creating a standard license for all
WISCONSIN WISCONSIN DISTILLERS GUILD The Wisconsin Distillers Guild was founded in 2014 to amplify the energy of the state’s modern distilling industry. Members join together to promote the production of high quality spirits in Wisconsin, utilization of local ingredients, recognition of the Wisconsin distilling industry, and advocate for more
favorable federal and state regulations. The Guild welcomes licensed distilleries as full members, and offers an associate membership for supporting businesses looking to network with our members. The Guild also offers an enthusiast membership level for individuals with a strong interest in handcrafted spirits. The Guild’s website provides resources to member distilleries, people interested in opening new distilleries in Wisconsin, and vendors and service providers for
David Raad email@example.com
2. Hiring a firm to create the WA
Distillery Trail. 3. Creating
standing meetings between the WA State Liquor and Cannabis Board and the WA Distillers Guild to discuss legislation, rule-making, compliance issues, and training opportunities.
The new board will inherit all three of these initiatives and will prioritize them as they see best serves WA distillers. Jason Parker President Copperworks Distilling Co.
WISCONSIN DISTILLERS GUILD BOARD OF DIRECTORS President — Guy Rehorst, Great Lakes Distillery Vice President — Paul Werni, 45th Parallel Distillery Director — Nick Quint, Yahara Bay Distillery Director — Peter Nomm, Northern Waters Distillery Director — Matthew Rick, Infinity Beverages Director — Evan Hughes, Central Standard Distillery Secretary/Treasurer — Amy Czaplewski
distilleries. As distillers, we have common needs, goals and challenges. The Guild, through this site, provides advice and inspiration for people interested in our craft. Members gain access to the members-only portion of the website which hosts classifieds, forums, and critical updates about laws and regulations affecting Wisconsin distilleries. Please join the Wisconsin Distillers
Guild for the Third Annual Meeting at the Kalahari Resort and Convention Center in Wisconsin Dells on Sunday January 22, 2017, 1:00 – 4:00 PM. This is a great opportunity to meet with other leaders in the distilling industry, discuss topics that impact our businesses, and set priorities for the upcoming year.
For more information, wisconsindistillersguild.com.
Amy Czaplewski, firstname.lastname@example.org
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AMERICAN DISTILLING INSTITUTE Q U A R T E R L Y R E P O R T WRITTEN BY ANDREW FAULKNER
2017 ADI JUDGING OF CRAFT SPIRITS
GIN SUMMIT The American Distilling Institute (ADI) plans to hold a Gin Summit on April 1-2, 2017 in Washington DC. The Summit will cover the topics of gin terroir, water’s effect on flavor profile, American regional junipers, “When is a gin not a gin?,” contemporary versus classic, and the one-shot method versus concentrates. In addition to the many U.S. distillers that will be in attendance, The Gin Guild from the UK will make a stand on this continent, soliciting members for a worldwide brotherhood of gin distillers. The summit will occur the weekend before, and just down the road from, the April 3-6 ADI Conference in Baltimore, the largest gathering of licensed distillers in the U.S. ADI’s 2016 attendance topped out at 1,500 people, and approximately 2,000 are expected for 2017. For complete information about the 50 breakout sessions, dozens of workshops, vendor expo, slow distillation movement, public and trade tastings, luncheons, guild meetings, awards ceremony, learning, networking and fun, please go to www.distilling. com. Registration is now open.
Registration is also open for the 2017 ADI Judging of Craft Spirits, the largest and oldest judging dedicated to craft spirits. ADI expects 950 spirits to be entered from craft distilleries around the world. New for 2017, entrants can choose an optional add-on for chemical analysis and receive a certificate that is valid for all major retailers, most countries’ import/export, and tender purposes: a $700 value offered for $150 per spirit. The deadline for international spirits registration is January 13, 2017, and the U.S. distillery deadline is January 27. Deadline for receiving the spirits will be February 2, 2017. For submission guidelines, shipping details and more information, please go to www.distilling.com.
Andrew Faulkner is vice president of American Distilling Institute. Visit www.distilling.com for more information.
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Lifting your Spirits 21
ISSUES TO CONSIDER WHEN BUYING OR SELLING A CRAFT DISTILLERY BY MARC E. SORINI AND BARRETT K. LOPEZ
ne of the last things anyone thinks about when embarking on a new, exciting venture (like opening their own distillery), is how things will come to an end. The fun is in the journey, in the craft – and those are rightfully the focal points for entrepreneurs running their own craft distilleries. But, inevitably, the time comes for the next adventure, the next enterprise, the next journey. That time may come when an entrepreneur seeks to recoup the investments they have made in their business or wants to transfer that business to the next generation to carry it forward. No matter the driving force, there comes a time in the life cycle of every business that requires an entrepreneur to consider a sale or some other form of transaction. On the other side of the equation are those looking at the recent boom in craft distilleries and asking themselves: How can I get in? The number of craft distilleries has exploded in recent years. According to the American Craft Spirits Association, there are more than 1,300 craft spirits producers currently operating in the U.S. – more than three times as many as in 2007. The rapid growth in the number of craft distilleries and the sales of craft spirits has generated a corresponding growth in the number of opportunities available for potential buyers. There have been several high-profile acquisitions of craft distilleries in the past year, and we expect that trend to continue as opportunities proliferate. This article explores at a very high level some of the issues involved with buying or selling a craft distillery.
ASSETS VS. EQUITY – STRUCTURING THE TRANSACTION An owner generally has two choices in terms of how to structure the sale of a business: a sale of stock (or other, analogous equity interests) or a sale of all or substantially all the assets of the business. In a stock sale, the buyer steps into the shoes of the seller as the WWW.ARTISANSPIRITMAG.COM
Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He leads the Firm’s Alcohol Regulatory & Distribution Group, where he concentrates his practice on regulatory and litigation issues faced by supplier-tier industry members. His practice for distillers includes distribution agreements, distribution counseling and litigation, product formulation, labeling, promotional compliance, compliance strategy, and federal and state tax and trade practice enforcement defense.
owner of the business entity (e.g., the corporation, limited liability company, partnership). This means that all of the entity’s assets and liabilities (including undisclosed liabilities) stay with the entity and become the buyer’s responsibility, subject to any indemnities negotiated as part of the deal. Sellers like a stock deal because it allows them to walk away from the deal “clean,” leaving behind all of the assets and liabilities of the business. In an asset sale, the buyer and seller negotiate what specific assets and liabilities will be sold to the buyer and what assets and liabilities will remain with the seller. This clear division of assets and liabilities gives the buyer more certainty with respect to exactly what is and is not included in the sale. Though a buyer may prefer the certainty provided by an asset deal, the process is often NO MATTER THE more onerous than a stock deal. DRIVING FORCE, A buyer in an asset deal must THERE COMES A TIME be careful to ensure that all of the assets necessary to IN THE LIFE CYCLE operate the business as a OF EVERY BUSINESS going concern are included THAT REQUIRES AN in the sale. This includes negotiating the transfer ENTREPRENEUR TO of intellectual property CONSIDER A SALE OR (e.g., recipes, trademarks, SOME OTHER FORM copyrights) and the hiring of key employees. OF TRANSACTION. Tax issues also play an important (sometimes the most important) role in determining how a deal is structured. As a general matter, stock deals are beneficial to the seller because the seller is able to take advantage of the lower capital gains tax rate on the proceeds of the sale. A buyer, on the other hand, may prefer an asset deal because they get to take a step-up in the tax basis of the purchased assets.
This allows the buyer to realize tax savings in the future through depreciation and amortization deductions, as well as through lower taxable gain on those assets in a subsequent sale. As you might expect based on the descriptions above, typically a buyer prefers a stock deal and a seller prefers an asset deal when structuring mergers and acquisitions (M&A). But there are certain unique considerations that can create exceptions to the general expectation when a craft distillery is involved.
REGULATORY “ISSUES” – EVERYBODY HAS THEM Anyone who has run a craft distillery knows that it can require seemingly countless licenses, permits and approvals at the local, state and federal levels. It should be no surprise then that the same complex regulatory structure a craft distillery must navigate on a daily basis can play a significant role in determining how to structure a sale of the business. At the federal level, every craft distillery is required to maintain a Distilled Spirits Plant (DSP) Registration and Distillery Basic Permit issued by the Alcohol & Tobacco Tax and Trade Bureau (TTB). When engaging in a stock sale, the buyer can generally continue THE SAME to operate the business under the same COMPLEX Basic Permit and Registration that REGULATORY was in effect prior to the sale. The buyer has a limited timeframe STRUCTURE A CRAFT after the closing of a stock deal DISTILLERY MUST to file amendments to the Basic NAVIGATE ON A DAILY Permit(s) and Registration(s) that adds the information for any new BASIS CAN PLAY A officers, directors and owners SIGNIFICANT ROLE IN of the business. Barring any DETERMINING HOW issues that come up in processing TO STRUCTURE A that amendment (e.g., an officer, director or owner with a criminal SALE OF THE record or some other “red flag”), the BUSINESS. business should be able to continue operations as usual. In contrast, when a buyer purchases only the assets of a craft distillery, they generally must secure a new Basic Permit and DSP Registration for the business. This can result in a transition period where, technically, the business is not licensed to operate. Few buyers want to purchase a craft distillery (or any other business) only to learn that they have to shut it down for a month or more while waiting to secure the necessary permits. To alleviate this issue, the buyer and seller can negotiate an arrangement (generally known as a “Transition Services Agreement”) where the licensed seller continues to work at the distillery while the buyer secures the permits necessary to operate the business. But this type of arrangement raises a host of other liability concerns that can result in additional indemnification obligations by both parties – including the risk that TTB or state regulators will disapprove of the arrangement. Another approach to
managing the transition issue is to engage with TTB and state regulators early in the process to obtain pre-approvals of the new licenses (subject to the regulators’ willingness to cooperate) so that they can be issued at the closing of the sale. In addition to the federal permit concerns, the distillery’s state licenses will also likely need to be amended or transferred or new approvals secured in connection with the transaction. Because every state has its own regulatory framework, significant work is required to identify the requirements for each license in each state where the distillery is licensed. Sometimes those requirements align with federal rules, but often they do not. Working with regulatory counsel early in the process to understand the federal and state-specific issues that you will face when buying or selling a craft distillery can play a significant role in ensuring a successful transaction. Regardless what structure the parties agree to, all of the issues we have discussed so far can, and should, be anticipated and addressed well in advance to make sure the transaction goes off without a hitch. The key ingredient to that “perfect deal” formula is due diligence.
DILIGENCE – GETTING IT RIGHT THE FIRST TIME In an M&A transaction, the buyer will generally engage in a due diligence review of the business they are buying. The purpose of this review is to identify all of the assets and liabilities of the business, flag potential issues and make sure that the price is right. An entrepreneur selling a craft distillery can facilitate the transaction process by doing their own, internal due diligence review before ever engaging with a potential buyer. This can help prevent problems arising down the line that could result in downward adjustments in the purchase price or even stop the deal from moving forward. One aspect of selling a craft distillery that is no different from selling any other business is contract review. Buyers in asset deals should be on the lookout for “anti-assignment” clauses in the seller’s contracts. These clauses will typically either prohibit the assignment of the contract without the consent of (or notice to) the other party or prohibit any assignment at all. These clauses appear in supplier contracts as well as in co-pack and distribution agreements. Proactive sellers that conduct their own due diligence process before engaging with potential buyers can begin the process for getting the necessary consents or negotiating the necessary waivers to eliminate or reduce delays in the sale process. “Change in control” provisions present much the same obstacles in stock deals that anti-assignment clauses do in asset deals. These provisions typically will require that one or both parties to the contract seek the other party’s consent in the event they undergo
a change in control (such as a sale of the business). Buyers in stock d e a l s should also be a w a r e of antiassignment provisions that define an “assignment” in a way that includes a change in control of the business. Because of the complex regulatory framework that applies to distilleries, a seller should also do an internal compliance review to make sure that nothing comes up in the sale process that could stop the deal from moving forward. The seller’s compliance review should include: (a) making sure all state and federal taxes are paid in full, (b) ensuring all of the business’s licenses are active and have not lapsed, and (c) identifying all of the distillery’s licenses. A buyer will want to know exactly what licenses and permits need to be transferred when purchasing the distillery. Having a comprehensive list on hand when talks with a potential buyer begin can help a seller avoid unnecessary delays and frustrations later in the process. Buyers should also conduct some internal due diligence. A federal Basic Permit holder is required to list its officers, directors and owners as part of the license application process. Making sure that none of the individuals that will be listed will raise any red flags (e.g., due to an ongoing IRS investigation) is just one of the ways a buyer can ensure a smooth transition process for itself.
We have touched on several issues BUYING that can come up when buying or OR SELLING selling a craft distillery, but there A BUSINESS are several others that can have just as significant an impact on IS RARELY AN a transaction process. Buying or EASY ENDEAVOR – selling a business is rarely an PARTICULARLY NOT easy endeavor – particularly not when the business at issue was WHEN THE BUSINESS built as a labor of love by an AT ISSUE WAS BUILT AS entrepreneur with a passion for A LABOR OF LOVE BY craft spirits. Tensions can run AN ENTREPRENEUR high during a transaction, but ultimately everyone works toward WITH A PASSION the same goal. FOR CRAFT As craft distilling continues to grow, SPIRITS. it will attract even more investments from both large spirits producers as well as from investors with no ties to the spirits business. This presents challenges, but also provides great opportunities for the entrepreneurs who have led the way in making the craft spirits industry such a vital, vibrant part of the competitive landscape. Approaching a craft distillery transaction with the same diligence and care that goes into producing a quality spirit can, in much the same way, make everyone walk away feeling like a winner. Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He leads the Firm’s Alcohol Regulatory & Distribution Group, where he concentrates his practice on regulatory and litigation issues faced by supplier-tier industry members. His practice for craft distillers includes distribution agreements, distribution counseling and litigation, spirits formulation, labeling, promotional compliance, compliance strategy, and federal and state tax and trade practice enforcement defense. Barrett K. Lopez is an associate in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He is a member of the Firm’s Alcohol Regulatory & Distribution Group where he concentrates his practice on regulatory and general corporate issues faced by supplier-tier industry members. In addition, he advises clients in a broad variety of industries on corporate transactions (including mergers & acquisitions and securities offerings) and compliance matters.
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SCIENCE, IT WORKS… WRITTEN BY JOHN MCKEE
f you run a distillery, chances are in the last few weeks you received a text, link, email, carrier pigeon message, semaphore, or smoke signal from a family member, friend, customer, colleague, investor, detractor, or nerd, letting you know that a group of scientists at Oak Ridge National Labs (ORNL) has pioneered a novel way of making ethanol from CO2. Of course now you’re wondering why you run a distillery when all you need to do is attach a machine to the tailpipe of your 1982 416 Unimog Doka and just let the vodka flow. OK, before you get all stabby and decide that you made the wrong decision to get into making hooch, let’s break down what ORNL has done and translate that to our industry. First off, you have to be wicked smart to work at ORNL — like winning-Minesweeper-in-Expert-mode-after-drinking-a-12-pack-ofOlympia kind of smart. So the qualification here is that these folks know what they’re doing. But secondly and most importantly, they are a national lab. They have money to do some pretty amazing science with some really amazing equipment. Which is sort of the crux of why you probably don’t need to start looking for someone to buy your now-useless distillery using that olden-tyme technology. What they did was develop a novel way of using electrochemistry (EC) to encourage a copper catalyst to perform “CO2 Reduction” chemistry. This scientific process has been understood for a long time, and other metals like platinum, silver, iron and tin have also shown a capacity for converting CO2 to ethanol via EC. However, the most efficient metal for this catalytic reaction has thus far been copper. But, even saying that, until this process was developed, the efficiency of the conversion (even with copper) was super low. The new approach discovered by ORNL researchers uses monatomic thin films, which are comprised of layers of single types of atoms deposited on silicon wafers in high-vacuum, high-energy chambers.
The orientation of those atoms allow for unique things to occur, such as optical waveguides (basically directionalized light), and in this case the creation of ethanol from CO2. The current discovery is made possible due to the fact that the thin films developed for this process have tiny nanospikes of carbon that are covered in copper nanoparticles. To tie this to an analogy from our industry, think of these nanospikes as tiny Raschig rings and the previous EC technology as bubble-cap trays. Each technology works, but the Raschig rings have multiple orders of greater distillation surface contact than bubble-cap trays, meaning that they do more work with less total interior volume. So, they made a “copper-nanoparticle-carbon-nanospike-doped thin film” in their super expensive vacuum deposition chamber. They took that thin film, put it in some CO2 saturated water at room temperature, hit it all with some electricity and wham-o, they made ethanol at higher efficiencies than they had ever accomplished previously with EC technologies. This is really cool stuff, seriously, but you need to read their entire paper for the punchline in the conclusion which says that this technology “precludes economic viability for this catalyst.” In national lab speak: “It’s super cool … but not ready for primetime. It’ll be ready in 10 years with aggressive R&D and ready in 20 years with continued technological advances.” So, the long and short of this discovery and how it relates to you can be summed up by saying that science always wins — but in this case probably not before you’re retired and refitting the transmission in your Unimog so you can climb a tree with it. John McKee, along with his wife Courtney, are the owners of Headframe Spirits in Butte, MT. John learned all he knows about thin film deposition when he busted a silicon wafer in his dad’s lab at ORNL in the early ‘90s. He wasn’t allowed in again. For more info, email email@example.com.
Song, Yang et al. “High-Selectivity Electrochemical Conversion of CO to Ethanol using a Copper Nanoparticle/N-Doped Graphene »Electrode.” ChemistrySelect. doi:10.1002/slct.201601169. http://onlinelibrary.wiley.com/doi/10.1002/slct.201601169/full 2
A GREAT SPIRIT COMES FROM A GREAT STILL
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9 ATTRIBUTES OF HIGHLY SUCCESSFUL SPIRITS BRANDS THE
Like great entrepreneurs, effective leaders, influential individuals, and successful brands have a distinct set of traits that set them apart from the rest.
ompetition for market share in the spirits category has never been fiercer, making it more important than ever to assess whether your brand has the qualities necessary for success.
The following are the most common qualities of successful spirits brands:
The most successful spirits brands have a thorough knowledge of their target consumer demographics, interests, likes and dislikes, the best mediums to reach them with and what style of communication they best respond to. Armed with this knowledge, successful spirits brands are able to craft their products to appeal to the tastes of their consumers, customize their brand promise and finetune their brand voice and packaging to best connect with their consumers.
.DIFFERENTIATED & UNIQUE
Developing a unique brand is the key to successfully breaking through the competitive clutter. Differentiating your spirits brand doesn’t require that it be a completely new spirits beverage, but it
does require that something is special about the product. This could be the product itself — such as a unique flavor, production method, ingredients, or aging technique — or the brand promise, packaging, custom bottle or some other niche selling point.
Successful spirits brands don’t hope for success. Instead, they begin with the end goal in mind and tailor their day-today efforts in a direct path to accomplish it.
Passion is a crucial component to building a brand for success for the longterm. Passion is contagious. If leadership and brand leaders exude passion for their brands, everyone who interacts with them
will be affected, including the sales team and in-turn retailers and ultimately consumers. Consumers who are enthusiastic about a brand will become brand ambassadors, referring your brand to others which can lead to the Holy Grail — organic growth.
Great brands maintain both consistent messaging and a consistent experience for their customers. No consumer wants to repurchase a spirits beverage they enjoyed previously only to find the quality has waned. While staying relevant to consumers and the changing marketplace is certainly important, a certain level of continuity is crucial to meeting consumers’ purchase expectations and avoiding messaging in conflict with the consumers’ perception of a brand. As brands grow and mature, often
branding and packaging must evolve to stay relevant not only for core customers, but also to attract new consumers and ward off competitors. If messaging, branding and packaging are evaluated on a consistent basis, smaller shifts can be made, allowing for more continuity through the years, and avoiding the need for a complete overhaul.
You can have the most distinctive brand in the world, but if nobody has heard of your brand or knows where to purchase it, your uniqueness won’t matter. The most successful brands are extreme extroverts and leverage a wide range of channels to engage would-be consumers. This doesn’t mean you have to have a multi-million-dollar marketing budget to be successful. Both large and boutique spirits brands alike are saving money by leveraging the internet and social media. These channels offer the unique ability to leverage guerilla marketing techniques and interact directly with consumers.
values, attitudes, personality and how it resonates. They do whatever it takes to win the hearts and minds of their customers in a more intimate way.
.RELENTLESSLY COMMITTED TO IMPROVEMENT
Successful brands employ a clear brand hierarchy throughout their SKU offerings and tiers that are distinctive, yet fit together as a family and provide halo opportunities that reinforce overall brand equity.
Constant improvement is a necessity. Successful brands avoid complacency and embrace competition. Successful brands never rest on their laurels. They are constantly evaluating their brand packaging, communication strategy, product quality and sales channels to ensure their brands continue to be successful. Now go be successful!
Brands are only as good as the people behind them. Successful brand-proponents know their brand inside-out, and they know how their consumers view their brand: their brand’s image,
David Schuemann is the owner and creative director of CF Napa Brand Design. For more info, visit www.cfnapa.com or call (707) 265-1891.
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Craft Spirits Conference & Expo BALTIMORE
photo courtesy of Visit Baltimore
Our hotels and the Convention Center are located next to Camden Yard, in the vibrant Inner Harbor. We are working with the Maryland Distillers Guild — 15+ distilleries strong — and distilleries in Washington, D.C. to offer you an experience like no other! Stay tuned for upcoming information via ADI’s website and newsletters.
CAUIM W R I T T E N B Y H A R RY H A L L E R
I L L U S T R AT E D B Y F R A N C E S C A C O S A N T I
lcohol consumption is practically universal, and humans aren’t the only species that
have caught on: Elephants in northwest Myanmar occasionally run amok after feasting on fermented fruits, and Caribbean monkeys will steal cocktails from unsuspecting beachgoers. Alcohol also manifests itself in wonderfully unique and creative ways, which is the inspiration for our new series focusing on spirits from all four corners of the world — drinks integral to local culture yet hardly known beyond the village borders. Enjoy. Not legal in the U.S. for reasons which will become apparent, cauim is a Brazilian spirit which dates back long before the conquistadors arrived. Most commonly associated with the Tupinambá people of Brazil, the liquor existed in various permutations throughout South America. It is made from cassava, AKA tapioca. The root is peeled then sliced into small pieces, boiled, and left to cool. Once room temperature, the women of the tribe chew the slices of cassava (the women's saliva contain diastase enzymes which transform the root's starch into malt sugar, allowing the cassava to ferment). The chewed cassava is then spit out, cooked thoroughly, and placed in large terracotta pots to ferment. The resulting liquor, cauim, is a milky concoction sour to the taste. Traditionally, it was primarily consumed during festivities known as cauinagens. The two-to-three-day event proved so boisterous colonizers found their ability to control the natives during the celebrations absolutely futile. Unfortunately, they eventually found a way to turn this chaos into a tool, pitting drunken native against drunken native, furthering the European land-grab in the region. → WWW.ARTISANSPIRITMAG.COM
Today there is no commercially available option for cauim. However, if you venture beyond Lonely Planet and Fodors guides, you can still find hamlets where the inhabitants make it like just like their ancestors before them. Harry Haller is an independent consultant focused on working with sugarcanebased distilleries. He can be reached at 00harryhaller@ gmail.com or (310) 933-6430.
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CODE MYTHS & REALITIES of
fter reading the fall edition you understand how quickly a fire can occur in your distillery and you know that your distillery provides everything needed to allow a fire to prosper. You also know all about water supplies for your sprinkler system and the importance of having a good one. What you don’t know, however, is about the sprinkler system itself, so it’s time to continue this lesson. You won’t know how to install a sprinkler system when we’re done, but you won’t get taken advantage of either. Unlike the world of craft spirits … there can be some lessthan-honest people in the sprinkler system business! The right sprinkler system can save your life and your distillery, and it will also make your hard-earned investment comply with building and fire codes. Additionally, your insurance company will be happy that your building is sprinkler protected. The first thing you need to know is that all sprinkler WWW.ARTISANSPIRITMAG.COM
W R I TT E N BY S H AW N B E R G E R O N
systems are not alike, and although there are many different types only one is right for your distillery. Also, be aware there are a lot of myths about sprinkler systems that are just that — myths. Let’s get those out of the way so you’ll be more comfortable, or at least more knowledgeable as you move down the sprinkler system path.
Myth 1: A sprinkler system will pay for itself in savings on insurance premiums. So far in almost 30 years I haven’t seen proof of this happening. Your friendly fire and building officials will use this as a selling point all the time, especially when they’re telling you that you must install a sprinkler system in order to open your distillery, but I have not been able to substantiate those savings in real life. Interestingly, in recent months I’ve pushed a few insurance people on the whole building and fire code topic
and one actually explained “the (insurance) industry is just not that concerned until they get near a hundred-million dollars of protected value on a single property.” Wow, that’s a lot of zeros, and if your distillery is worth that, why are you reading this?
Myth 2: Every time a smoke detector goes off the sprinkler system is going to go off. No, no and NO! Your distillery will not have a deluge sprinkler system which in some instances will be activated by smoke detection. In the worldwide constructed environment, probably less than 2 percent of the sprinkler systems that are installed are deluge systems. When the smoke detector goes off in your distillery, go find out why, but don’t worry about grabbing the umbrella.
Myth 3: When the sprinkler system goes off the whole building will get flooded with water. Once again, no, no and NO! The last component in your sprinkler system, the part where the water is aimed at the fire, is the sprinkler head. Although your sprinkler system will probably have dozens of sprinkler heads, each head can only activate individually all by its littlesprinkler-head self. A sprinkler head is a loner, not a groupie, and really doesn’t care what the sprinkler head across the room is doing. They discharge one at a time, 99.9 percent of the time only when they should, and in most cases water discharge from a single sprinkler head extinguishes a fire.
Myth 4: Sprinkler heads spray super-heated steam scalding everything in its path. You’re killin’ me Smalls! The temperature of the water in sprinkler piping will range from just above freezing to perhaps hotshower temperature. If the water in your sprinkler piping has begun boiling and making steam, you and your distillery have more serious problems that are not related to anything I can help with.
Myth 5: Sprinkler systems can drown occupants in small rooms. You really need to stop trying to find the end of the internet! In the last edition I told you that one cubic foot of volume can contain 7.5 gallons of water. Let’s say your new tiny office is 8 feet by 8 feet with an 8-foot floor-to-ceiling height; barely room enough for a desk, chair, you and the first employee that you’re about to fire as you
caught them making weed-infused gin. During unpleasant conversation and for reasons unexplained, the single sprinkler above your desk goes off, spraying water everywhere, soaking everything in the room. If your tiny office is of water-tight submarine construction, and trust me it’s not, more than two hours will go by before your office is filled to a depth where a very small person will have to begin treading water. There’s a good chance two hours will be long enough to open the damn door and go shut off the sprinkler system. Sprinkler systems are not demonic, and I’m going to tell you they really are good for you; not like fruits, vegetables and yoga, but still good, and I hope you never get to really appreciate yours.
Unlucky 13 There are three water-based sprinkler systems recognized by the building and fire codes, and like most things in the code world they are identified mysteriously, intended to support the mystical and make code people like me look intelligent. The first two systems will never be appropriate for your distillery, so other than to make you aware of their identifiers and basic abilities they need no further discussion. If you receive a proposal from a sprinkler company to install an NFPA 13-D or an NFPA 13-R system in your distillery, throw the proposal into the shredder along with the contact information of the company that tried to sell that system to you. 13-D and 13-R systems are only for specific residential occupancies, and despite the fact that you sometimes sleep atop the fermenters to stay warm, your distillery is not a residence. The third type of sprinkler system is the one you need to know about and consider — the sprinkler
system of sprinkler systems, the Hercules of fire suppression, often referred to as a “commercial” system, but identified by the codes as a “13” system. What does the 13 stand for? Who knows? Thirteen is an unlucky number, and having a fire in your distillery is unlucky. Just go with it so we can talk about system details. As learned from past lessons you already know your sprinkler system needs a large reliable water supply. After the water supply your sprinkler system needs ways to control the massive flow of water that’s available, direct that water to the point of a fire emergency and deliver the water in a timely and reliable manner. This will extinguish the fire while simultaneously saving property and, if necessary, lives. Therein, the use of the word “lives” tells us the major difference between the three sprinkler systems: Only the 13 system is designed and installed with the recognized intent of being able to save both property and lives. The 13-D and 13-R systems are designed and intended only to provide additional time for the occupants of a building to exit the structure in a fire emergency, and afterwards the building can be reduced to charred remains when everyone is outside. Now that you know which system is “right” let’s talk about some of its more important details. To keep our sprinkler system scenario simple, we’re going to say that your water supply is the reliable municipal water company, and the water company has installed a massive 8-inch steel pipe into an always-above-freezing “sprinkler room” in your distillery. This water supply scenario takes us away from having to talk about fire pumps, which we’ll save for the future. The “always-above-freezing” comment is important, as a frozen water supply does some unfortunate things: First
and most important, it will not supply water to your sprinkler system if fire suppression water is needed. Second, we all know water expands significantly when it turns to ice, and when this happens inside a pipe the pipe almost always splits. In areas of below freezing seasonal temperatures, water-filled pipes that freeze do so in the early months of winter and stay quietly frozen, waiting for the sunshine of spring. Shortly after the songbirds migrate north, all hell breaks loose as the frozen pipe thaws and all that water that’s been held back by the ice flows through the cracks. It’s often impressive, and it always occurs at a really bad time somewhere near very expensive equipment. Lesson summary: Make sure your sprinkler room and wet system sprinkler piping never get below freezing. As explained in the cracked pipe scenario, if left unchecked, water flowing at full capacity from your sprinkler supply pipe will cause more harm than good. That’s why the first thing we do to the sprinkler system is control that water flow, and this begins at the system “riser.” The riser, once again a mystical identifier, is an intimidating looking assembly of (often) red pipes and sprinkler system components. The first component attached to that very big water supply pipe will be a valve, often a big valve that takes two hands to turn. This will be where the water supply to your sprinkler system can be shut off inside your building, but interestingly almost never is. You need to know where this valve is, however, and you need to practice opening and closing it. It’s not like any valve you’ve ever turned before, and you have to have the courage to grab onto this puppy and make it work. Don’t be intimidated, there’s nothing to break. Beyond that valve there will usually be a “backflow device” which prevents the cruddy water
that develops within sprinkler systems from flowing backwards into the water main contaminating your municipality’s water source. Your neighbors will not like you if backflow from your sprinkler system pollutes their bath water. After the backflow device there’s going to be an array of valves, gauges, switches and maybe a “dry valve.” If you have one of these it means you have a “dry” sprinkler system, a misnomer and yet another sprinkler system intricacy that you need to know about. Even though you have the proper 13 system, it can be a “wet-system” or a “dry-system,” so you need to know the difference and why one is right for your distillery and the other is not as much fun to own. Let’s say your distillery is in New England, Minnesota or Siberia. The rules for a proper 13 system say your distillery will be sprinkler protected “throughout,” which means every room, alcove, nook, cranny, crawl space, attic and loading dock will have sprinkler piping and heads. But it’s January and you cannot afford to heat every crawl space, attic or loading dock, so how do you prevent the frozen pipe scenario described earlier? That’s easy — your sprinkler contractor installs a dry sprinkler system, which despite being dry still extinguishes fires. It simply blows the fire out like a birthday candle … just kidding. If you own a dry sprinkler system, the supply piping throughout your distillery will never contain water unless there’s a fire. The dry system piping throughout the building will normally be filled with compressed air, or better yet nitrogen, either of which is compressed to the point where the gas has adequate strength to hold the dry valve in a closed position at the riser, keeping the massive quantity of available water out of the sprinkler system
piping. When a sprinkler head opens (we’ll discuss those details later), the first thing to discharge is the compressed gas that was holding the dry valve closed, which comes out in a rush. Shortly thereafter (and surprisingly quickly), out comes the water in a lovely predetermined pattern, often umbrella shaped, to snuff out the fire before your entire distillery makes its way to the evening news, yet another in the long list that have succumbed to flames. Yup, you’re going to have water damage, and if you move like a snail to shut off the water supply you’re going to have a lot of water damage, but you stand a very good chance of coming out of this alive, and you’ll likely be back up and running in a few days instead of perhaps never. What if you own a wet system? That’s easier. There will be no dry-valve at your sprinkler system riser, so therefore you’re sprinkler system piping will always be filled with water, ready to discharge as soon as a sprinkler head pops. Once water is flowing through the open head, functionally nothing changes, and remember, statistics kept by people that know tell us a single discharging sprinkler head almost always extinguishes a fire. If you didn’t already, now you understand the differences between a dry system and a wet system, and you understand that functionally they’re both wet. But should you choose one over the other? If you truly have the option, I think you definitely should. As detailed earlier, if your distillery is located where below freezing temperatures occur every year, and if you have unheated spaces that are going to have to be sprinkler protected, you’re going to have to commit to a dry system. If your distillery is located where the temperatures are always above freezing, I think you should go wet. Dry systems are simply
more difficult to own, sort of the like the difference between a moped and a Formula One racer: They can both go from home to the office, but the ride will be different. Why should you avoid a dry system? There are a few reasons. Dry systems are more complex, with their dry-valve and air compressor to keep the pipes full of compressed air, and they seem to require more regular monitoring. And despite our best efforts, that air often contains moisture which condenses inside the pipes. Over time that moisture usually begins to deteriorate the interior of the sprinkler piping, which can create havoc with your system. In some areas where “aggressive” moisture-induced deterioration occurs in sprinkler piping,
the pipes can deteriorate from the inside out very quickly, sometimes in just a few years. I’ve seen sprinkler systems that are 10 years old require re-piping. Also, there are tales that a dry system is not as good since it takes time for the water to get to an open sprinkler head allowing a fire to grow in size. Realistically, however, when properly designed this is not the case. The upfront investment and long-term costs of a dry system are simply more expensive than a wet system. What do future articles bring? We should probably talk about options for sprinkler piping materials and the sprinkler heads themselves. We should also talk about the necessary components of a sprinkler system
where the water supply is a cistern, as that means you’ll be the proud owner of your very own fire pump, yet another misnomer as it doesn’t pump fire. More things to keep your distillery code-compliant and safe. Until then, happy holidays and best wishes for a wonderful 2017!
Shawn Bergeron is an NFPA and ICC certified fire protection specialist and building official with Bergeron Technical Services in North Conway, New Hampshire. For more info or assistance call (603) 356-0022 or visit www.bergerontechnical.com. They will be happy to help you with your distillery no matter how near or far.
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n September 21, 2016, alcohol and service industry members and consumers converged at the Chicago Hilton Hotel & Tower for the sixth annual Chicago Independent Spirits Expo. Over 500 spirits were available to sample, and distillers, bottlers, distributors, importers and others had the chance to network, connect with their customers, and receive feedback about their brands and products. In addition to the tasting, VIP ticket holders, exhibitors, and media were able to attend informative afternoon sessions, one of which was the two-hour “Industry Roundtable Discussion.” There, suppliers, retailers, distributors, importers, mixologists, and journalists discussed the topics, trends, opportunities, and challenges of today’s market. To open the discussion, several of the panelists shared their impression of the current state of the industry, and Artisan Spirit Magazine editor Brian Christensen said that the craft distilling segment is evolving rapidly. He thinks that two of the most noticeable changes are the increasing volume of brown spirits that have had time to mature in large cooperage, and the increasing costs of starting a new distillery. “The innovation has always been there, but the age is now kind of catching up with the industry at this phase, and that’s exciting to see,” he said. “On the flip side of that, to start a new distillery is at a new phase. Before, the dollar amounts were high, but it wasn’t necessarily prohibitive to smaller operations. Now you need a pretty good chunk of starting capital.” Other panelists agreed that opening a new distillery is becoming more challenging, although with a quality-focused business WWW.ARTISANSPIRITMAG.COM
plan and adequate capitalization, they still think it’s possible. “As long as people are putting out good spirit there’s room for everybody,” said Few Spirits founder and American Craft Spirits Association (ACSA) president Paul Hletko. Beer and spirits writer Lew Bryson said it’s sometimes helpful to look to craft beer for markers of how the craft spirits industry is evolving. He explained that while the industries are different in many ways, he is seeing some of the same mileposts, though he thinks the timeline is compressed. He thinks that the success of craft beer encouraged distributors and retailers to adopt craft spirits fairly quickly, and that access to market likely accelerated the maturation of the industry. When comparing the two industries though, he suspects a correction may be coming. He explained that craft beer sales and public confidence dropped between 1996 and ‘99, something that did not crash the industry, but did level prior growth. “It was almost like it was catching its breath, and I think that’s probably what’s going to happen here,” he said. “It’s too solid a niche already — which is amazing — to go away, but some of the weaker players are going to get bumped out.” Bryson also thinks the grace period for the “it’s local” marketing platform has closed if the quality and value of that local distillery’s products are not in line with the competition. Other panelists agreed, noting that there are many educational resources distillers can access to learn how to improve their products. “At the ACSA one of our primary focuses has and will continue to be education: How do you make a good product?” said Hletko.
AT THE 2016
CHICAGO INDEPENDENT SPIRITS EXPO
WRITTEN BY CHRIS LOZIER
PANELISTS M O D E R AT O R :
EMILY PENNINGTON HOOD,
MANAGING EDITOR, WINE & S P I R I T S D A I LY
TOBY BEALL, F O U N D E R , TA I LW I N D S D I S T I L L I N G C O M PA N Y MATT BLAUM, C O - F O U N D E R
AND DISTILLER, BLAUM BROTHERS D I S T I L L I N G ; P R E S I D E N T, ILLINOIS CRAFT DISTILLERS A S S O C I AT I O N
LEW BRYSON, B E E R
AND SPIRITS W R I T E R , A U T H O R O F “ TA S T I N G WHISKEY”
BRIAN CHRISTENSEN, P U B L I S H E R A N D E D I T O R , A RT I S A N S P I R I T MAGAZINE
WINSTON EDWARDS, D I S T I L L E RY AMBASSADOR AND BRAND MANAGER, BALCONES DISTILLING PAUL HLETKO, F O U N D E R ,
FEW S P I R I T S ; P R E S I D E N T, A M E R I C A N C R A F T S P I R I T S A S S O C I AT I O N
MONIQUE HUSTON, D I R E C T O R O F SPIRITS, WINEBOW BRETT PONTONI, S P I R I T S
BUYER, BINNY’S BEVERAGE DEPOT
HENRY PREISS, F O U N D E R , I M P O RT E R , H P S E P I C U R E A N , P R E I S S I M P O RT S ; R E P R E S E N TAT I V E , A M E R I C A N DISTILLING INSTITUTE DAVE SCHMIER, C O - F O U N D E R ,
R E D E M P T I O N RY E ; C O FOUNDER, INDIE SPIRITS EXPO
DANNY SHAPIRO, M I X O L O G I S T,
PA RT N E R AT S E V E R A L R E S P E C T E D C H I C A G O C O C K TA I L BARS
BILL WELTER, O W N E R ,
J O U R N E Y M A N D I S T I L L E RY
SCOTT WINTERS, F O U N D E R , AMERICAN SPIRITS EXCHANGE 43
of new small labels, she feels like it would be a disservice to a supplier to accept their brand without being able to represent them properly. Other distributors agreed, and several emphasized the importance of the supplier-distributor relationship. Huston and others said they are looking for long-term partnerships with every brand they represent, and that brand must be willing to provide support by going on ride-alongs, working in-market, etc. If the brand is not able to do that, there are plenty of others that can. “It’s really about creating value that a distributor sees in you,” added Henry Preiss of Preiss Imports. “If you’re going to be in the best of the specialty distributors, the bottom line is they have to want you.” Scott Winters of the American Spirits Exchange has worked with thousands of brands, and he said that while finding distribution can be a big challenge, it also “presupposes you’ve gotten to a certain level in your business development, and are looking to expand into multiple states.” Winters says brands typically fail for reasons other than a lack of distribution, and those reasons often fall into three categories:
“But the problem is yes, we can present this material, but you can’t make somebody learn it.”
MAKING IT ON THE SHELF Binny’s Beverage Depot’s spirits buyer Brett Pontoni said they bet on craft spirits early in the game and he is glad they did: “Quite frankly from a big box retail perspective it made no sense whatsoever, from space allocation to everything else that was going on. It turns out in that case we made the big bet.” With so many new spirits on the market though, getting the bottles from the distillery to retail shelves is becoming more complicated for both suppliers and distributors. Even so, Pontoni says distributors that commit the extra time and effort to work with numerous small producers are often rewarded for it. “There’s margin in craft, and if I were a big distributor I would very seriously consider taking on a very solid craft spirits book,” he said. While craft may mean more work per tonnage sold, Pontoni said the margins are often better. Distillers on the panel agreed that their greatest challenge is often finding good distributors. The number of new products is crowding shelf space, and that is creating a lot of congestion for suppliers, retailers, and distributors — especially specialty distributors. “I probably have to turn down one to three portfolios a day at this point,” shared Winebow spirits buyer Monique Huston. She says it’s tough to do because many of the new products are very good, but since her sales representatives are already marketing lots
1. They don’t understand their product and who will buy it repeatedly.
2. They don’t understand the regulatory landscape of their state and the states they want to move into.
3. They get very excited about their product but don’t
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understand cash flow, inventory, and other expenses of moving into new territories.
PANELISTS’ CATEGORIES TO WATCH:
Tailwinds Distilling Company founder Toby Beall said their growth caught them by surprise, as well. RY E W H I S K E Y “Make sure you have enough money raised for your plan. You’re going to A M E R I C A N S I N G L E M A LT WHISKEY grow faster than you think,” advised Beall. “We’ve always been inside our GIN Panelists unanimously stressed the footprint trying to break out.” importance that suppliers not spread RUM For distillers in that situation, several themselves too thin, advising them to of the panelists suggested they consider AMARO make sure they can scale appropriately taking on new partners, though they BRANDY with increased demand as they enter need to make sure those partners share new markets. Winters said two critical the same vision for the brand. errors he sees expanding brands make is “It’s a very different decision that trying to support too many markets too everybody makes on their own on fast, and not accounting for the cost of producing and warehousing how to do that,” said Redemption Rye co-founder Dave Schmier. extra inventory to supply new markets. “Everyone has their own goals. What’s great about this event and Overall, panelists advised that suppliers need to be able to make all the people that exhibit is everyone has their own vision. Some the extra product, have the space to do it in, and have a good people, it’s purely about business, and some people it’s purely team that can accomplish that extra production — and they need about their passion and how do they sustain their passion and allow adequate capital to put all those pieces together. themselves to keep doing what they love. And for a lot of us it’s “Capitalization is the key,” said Hletko. “We had some errors in somewhere in between.” our forecasted demand, and that was very challenging and has led to long-term challenges for the business and continued hurt If you missed the Indie Spirits Expo this year, you can attend next year in feelings from many places, as well as other opportunities that have Chicago, Las Vegas, and New York. For show dates and more information visit gone away.” indiespiritsexpo.com.
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With over 30 years of experience, Boss Expos LLC is excited to announce a new opportunity for suppliers, service providers, wineries, breweries, distilleries, and cideries to come together and explore the newest trends, topics, and tricks of the trade. Here is what just a few Industry Suppliers are saying about the Exposition and Conference: “Mid America is starving for a trade show & conference to feed the rapidly growing craft beverage industry. So often the east coast gets attention for beer and spirits, the west coast gets attention for wine, but Mid America is booming with diversity in all the craft beverage industries. St. Charles, MO is perfectly located to support an event in this new hot spot for not only beer and wine, but for craft spirits as well.” Matt Haney, Hillbilly Stills & HBS Copper “We believe it is important to have a Mid America show for new and existing wineries to come meet with vendors and learn about new technology out on the market to improve their winery.” Matt DiDonato, Prospero Equipment
For more information on the Mid America Exposition and Conference, call 888-273-4533
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Southern African Craft Distilling Institute WRITTEN BY CHRIS LOZIER P H O T O G R A P H Y B Y L A N E T T E FA U L K I N B E R R Y
istilling is not a new industry in South Africa (SA): Some estate grape brandy distilleries are over a century old, and a cultural tradition of mampoer (unaged fruit brandy) distilling reaches back even farther. But with an amalgam of 26 liquor laws governing SA liquor production and sales, Southern African Craft Distilling Institute (SACDI) organizer Hendre’ Barnard says starting and operating a small distillery can be difficult. That’s why Barnard, SACDI founder Gert Bosman, and several other distillers saw a need to unify if they wanted to effect change. SACDI is a nonprofit formed in an attempt to improve the legislative, business, and consumer climate for the more than 50 small distillers now operating in SA, Namibia and Zimbabwe. The concept was formed in 2007, licensed in 2012, and this November they held their first annual conference in Centurion, Pretoria, which attracted more than 110 delegates. Two years ago, Barnard went to work for Bosman at his company Distillique, which provides training, consumables, equipment, and support to small SA distillers. In SA, home distilling is legal as long as the distiller and the still are WWW.ARTISANSPIRITMAG.COM
registered, so they had a lot of initial interest from hobby distillers. When those hobby distillers and others wanted to start their own commercial distilleries however, Barnard and Bosman said they got tangled in a mess of red tape. “From the beginning he (Bosman) saw the need for a representative organization for craft distillers in South Africa,” said Barnard, who tells that the current legislation was built to govern large liquor manufacturers, not small distilleries. “We knew that the only way this would change is by forming a united front.” That led to the inevitable day when Bosman asked Barnard to build and develop SACDI, and in July, 2016 they began to actively promote the organization. At the November conference, notable industry experts spoke on topics ranging from production to legislation, and distillers met to discuss the future of the industry, finalize SACDI bylaws, definitions, etc., and elect leaders. They hope to hold their first members-only spirit judging event and roadshows in 2017, and plan to hold the conference in different SA cities every year. Barnard describes SACDI as an independent organization that “will
be governed by Southern African craft distillers, while being administered by Distillique.” He modeled the organization after the American Distilling Institute, American Craft Spirits Association, the Scottish Craft Distillers Association, and other industry groups. In the future, Barnard hopes SACDI will be able to work in conjunction with these organizations and others, creating an international network of small distillers. He also hopes to foster reciprocal “certified craft spirit” marketing between countries.
DISTILLING IN SOUTH AFRICA In SA, spirits are sold by retailers, distributors, and manufacturers. Barnard says the government administers the excise tax and licensing, but does not sell spirits. As long as a microdistillery has the appropriate licensing they can sell directly to consumers for on- or off-premise consumption. The three-tier system exists only when practical, but it is not legally required. Currently, SA distillers are classified as either micro or macro manufacturers by the Republic of South Africa Department of Trade and Industry, with 2 million liters
absolute alcohol being the dividing line between the two. That means any small commercial distillery would be considered a microdistillery. But Barnard and others contend that the current 2 million liter cap is so high it exceeds what most distillers and consumers think of when they imagine craft spirits. It also sets hurdles for small distillers who have to comply with safety standards designed for operations much larger than theirs. “This is a challenge for craft distillers in urban settings as you want premises that are attractive, welcoming, appealing and secure in order to draw visitors,” explains Barnard. Since microdistillers are typically zoned as light industrial or agricultural, finding retail-friendly space is challenging, and Barnard says approvals from provincial liquor boards can take up to two years. To remedy this, SACDI hopes to create definitions which will separate craft distillers from the current microdistillery category. They will include limits and production methods that define craft distillers, distilleries, spirits, blenders
and producers, depending on what members feel is necessary. They hope those definitions will expedite the approval process for new distillers, create more transparency for consumers, and promote the unique products and methods of craft distilleries, among other things. Barnard says most people attribute the beginning of SA craft distilling to the launch of Inverroche Distillery in Still Bay about seven years ago. Inverroche made an international impact with their gin by using locally-harvested Fynbos that gave the spirit a distinct SA flavor. Other prospective distillers watched their success with interest, and in the last two years momentum has rapidly increased as more aspiring distillers consider the diverse products they can produce in SA. “South Africa has always had an abundance of raw materials to choose from for spirit production,” tells Barnard. “Grapes, fruit, grain, sugar cane, even massive quantities of blue agave — the largest outside Mexico. So we’ve always been pretty much self-sufficient in terms
of spirit production.” Barnard says that SA-produced spirits generally have a stronger presence in local homes, bars and restaurants than imports, and brandy is king. Currently, high-end labels are replacing value brands, and vodka and gin are the fastest growing categories. Interest in whiskey is growing, as well, though a three-year aging requirement for brandy and whiskey is delaying small distillers wishing to produce brown spirits. Driving this growth, Barnard believes, is increased consumer interest in independent ownership, production methods, sustainability, craftsmanship, and transparency. He says the growth of distilleries also follows a recent surge in craft breweries, of which there are almost 200 in SA now. “(SA consumers have) an appreciation for uniqueness and innovation, a desire to support local enterprises, a need for something different,” says Barnard, telling that consumers “want to know what they are paying for if they pay a premium.”
Benefits for SACDI Members: Marketing and promotional exposure Exposure to international buyers and distributors Partaking in local, provincial, national and international craft spirit competitions Access to "SACDI Certified Craft Spirit" certification Logistic (sourcing/ distribution) opportunities
Further, Barnard says that a changing political and socio-economic climate is also driving spirits sales. In the case of vodka, he believes much of the growth could be directly attributed to an increasing number of consumers who associate the clear spirit with a TV and movie lifestyle — and can now afford to buy it. This increased interest has elevated cocktail culture, as well, and now mixologists are using more SA-produced vodkas, gins, brandies, rums, and liqueurs, helping to drive demand for all spirit categories. Right now, Barnard believes any new SA-produced spirit of good quality will
Partaking in, and sharing of, experimental distilling results
Full supplier and buyer lists
Networking with other craft distillers
Bulk purchasing/import/ export opportunities
Continuous educational opportunities
Craft distilling conferences
The opportunity to influence liquor legislation
Regular craft distiller events Weekly featured members Distillers’ blog Freebies and promotional items from suppliers
succeed. With the formation of SACDI — and a plan to create provincial guilds, as well — he and others hope they will be able to create a more vibrant and profitable SA spirit market for producers of all sizes. If the U.S. is any gauge, large producers may also benefit from the new consumer interest the small distillers will generate. Like many U.S. distillers, SACDI members are also working towards an excise tax reduction, and Barnard is optimistic that it will happen, “based on the fact that our products are more expensive to produce, job creation, and that we are fulfilling one of the set goals of
Operating closely with strategic partners and experts in different fields Interaction and cooperation with other craft spirit representative organizations and institutes
the South African Department of Trade and Industry, which is to increase access to the liquor production industry.” SACDI has four membership levels ranging from approximately $36 to $393 U.S. after conversion from SA rand: Aspirant Craft Distiller, Commercial Craft Blender, Commercial Craft Distiller and Certified Craft Distillery. These categories and definitions may change depending on SACDI member desires.
For more information on SACDI, visit their Facebook page and website: sacdi.co.za.
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scendant Spirits is the first distillery in California’s Santa Barbara County since Prohibition. Open since 2011, head distiller Stephen Gertman has taken advantage of the wine country around him to create products from unique agricultural ingredients. When Stephen was 18 he traveled to Scotland, triggering a strong desire to learn about the art and science of distilling. However, prior to putting down distilling roots he started a successful career in television sales. By chance one day he saw a class from the American Distilling Institute was starting in two weeks. He reserved a spot in the class and put in his two-week notice at his television job. In another twist of fate he called a friend after the class to see if he could help at his distillery before Gertman started his
W R ITTEN B Y STEVEN SEI M PHO TO S B Y AM AND A JO Y C HRI STENSEN
own, and he learned that his friend had been injured. Gertman was more than happy to help at his friend’s business while his friend recovered. Ascendant’s location in California presents its own benefits and drawbacks that are unique to the state. Conserving water is one of Gertman’s big challenges, and he is constantly minding how to improve their processes. To save water, they’ve taken ingredients to another location out of state and distilled it there, then brought it back to store locally. The downside is that California’s new Type 74 license explicitly states that one must distill everything on-site, so Gertman decided not to apply when the laws recently changed. California also has the highest minimum wage in the country, WWW.ARTISANSPIRITMAG.COM
which means Ascendant is very particular about how many employees they hire. Gertman described the practices of many California winemakers specifically deciding that in some instances, automating is becoming more feasible than hiring more staff. He says that Ascendant is looking hard at making sure the distillery makes the best decisions for them in each case. Ascendant prides themselves on their ability to produce unique spirits, and their product lines exhibit that. Gertman experimented with several types of fruit when creating a citrus-flavored vodka before deciding on caviar limes, a variety that is filled with small, caviar-like fruit. Since it was important to them to only use real agricultural products, rather than infuse their vodka with artificial flavors, finding a unique fruit capable of making something tasty was a happy accomplishment. They were able to find someone in
the United States that produces the fruit as well, which has been important to the distillery in all of their products. For their Semper Fi corn whiskey, they had an unexpected hiccup when they applied for label approval. Their application was stalled by the TTB, and a phone call revealed that they needed to get permission to use the term from the Department of Defense. After one minor change and an offer to donate part of the proceeds to a veteran’s association, the name and label were approved with all appropriate permissions. In honor of its namesake the unaged whiskey is made with red, white and blue corn. The highlight of Ascendant Spirits’ portfolio is their Calyx gin. Taking cues from their state’s thriving wine industry, Gertman paired with sommelier Rajat Parr to make a gin inspired by winemaking methods. This gin is different in that, to quote their own marketing,
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it is “Made with a set recipe, but the Calyx flavor profile will differ each year depending on weather and climate, creating a distinct annual production of the handcrafted gin.” Similar to wine, each year’s edition will have a unique and nuanced flavor profile. They are currently conducting a lot of experiments, and they have plans to release several more specialty gins soon. For those thinking about entering the distilling industry, Gertman wants them to know, “I work all the time, all day.” And a large part of the job is not related to distilling, but instead to all the other things necessary to run a small business. Gertman explains that he was the least prepared for the sales and distribution aspects of the job. He also emphasized that consumers are not the only consideration — you must connect with bartenders, bar owners, retail purchasers, and more.
When asked about how he budgets for marketing, he said that there is never enough. There are lots of choices: TV, magazines, billboards, etc. Especially in California, which is such a large market, making the right marketing choices can be a big swing towards success or failure. Gertman said that his goal for the distillery isn’t to become mega-rich, but to keep investing to help the business produce more and more spirits (and find places to store it). He said “You just have to keep re-investing. You need more room for more barrels. And space is expensive in California.”
Ascendant Spirits is located in Buellton, CA. For more information visit www.ascendantspirits.com or call (805) 691-1000.
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Sr. Whisky Ma s t e r Stephen Beal WRITTEN
BY CHRIS LOZIER
an Franciscans who receive the Eucharist from Father Beal at Grace Cathedral know that he is kind, jovial, and well-spoken, but there’s one thing they probably don’t know: Father Beal is considered by many to be the unofficial ambassador of whisk(e)y. Stephen “Sr. Whisky Master” Beal is an ordained Episcopal priest; a spirits industry consultant; a Keeper of the Quaich (Scotch whisky master); a top-level spirits judge; a United States Bartenders’ Guild lifetime achiever; a Whisky Magazine hall of famer and Icon of Whisky; and a friend to his city’s homeless. He recently retired from a diverse career with Diageo, which took him around the world to represent brands like Bushmills, Crown Royal, and Johnnie Walker, and he is credited by some as one of the integral drivers of Bulleit’s success. “I’m not that big a deal,” said Beal when I called him, wondering why anyone would care to hear his story, but his friends and colleagues disagree. Beal didn’t start in this industry, but a chance phone call pulled him from his teaching position at a culinary institute to become one of the first Scotch whisky brand ambassadors. With his Scottish heritage, kilts in his wardrobe, and an appreciation for whiskey, he started with Diageo and stayed there for nearly 20 years, becoming a senior Master of Whisky. Though he’s retired from Diageo, he has never been busier. Working through
PHOTO BY J O N AT H A N
srwhiskymaster.com, he consults with distillers who want to build a brand or marketing program; offers advice to people interested in purchasing existing distilleries; writes and speaks about spirits for publications, radio, and special events; valuates collectible spirits for a specialty insurance company; and curates spirits tastings and team-building events for parties and companies. Beal also offers remote tasting and nosing services for distillers, and he receives so many samples that his house has become a UPS landmark. “I spend the better part of at least one day a week tasting samples that people send me,” he said. “It’s an in-house thing, I don’t review the samples and I don’t publish the results. I have a feeling sometimes my clients do this because they just need a second opinion to verify that their in-house people are on-track. Other times they just want a confirmation from someone who’s been judging whiskeys from around the world for the last 20 years and kind of knows what’s out there.”
the Need for Authenticity During his career, Beal has seen a lot of changes in the industry, one of the most influential being the increasingly fluid career climate and how it affects people. He says that when he started, the
only way to get into the alcohol industry was by joining a corporation, something that provided a long-term career. Now, that’s not so common. “Nowadays you’ll have 10 different jobs by the time you’re where I am,” shares Beal. “If you’re lucky you’ll have 10, probably more.” Beal says the change is broad-spectrum across nearly every industry. The world moves faster now, people move with it, and he says one of the many results of this movement can be seen in the growing consumer demand for authenticity. “Reality and authenticity and transparency are a really big deal to the up-and-coming consumers,” he said, explaining that people who are used to following jobs around the country — even the world — want something they can trust and connect with. “There’s a tremendous lack of roots, lack of authenticity in their lives,” he continues. “You may know you’re Irish, but you have no connection to it. There’s a real need for a sense of belonging to something. People are looking for authenticity — they want the story to be real.” That desire for truth is an integral pillar the future spirits industry will be built on, he believes, no matter the size of the distillery or brand. Beal says he’s surprised that some brands still don’t understand that.
“With the internet, with social media, that’s really important, because your whole reputation for who you are and what you do can go away in a minute,” he said. “People smell it — somebody will find you out because that’s what people do these days.” Beal says that applies to small distilleries, especially. He compares large brands and small distilleries to boats in an ocean storm. A large brand is like a battleship that can change course to weather the waves, whereas a small distillery is more like a little boat, where a wrong turn can be deadly. “I’ve always told people in the business, ‘Tell the truth about what you do: who made it, where you got it,’” Beal continues. By building their brand on the truth, Beal says distillers don’t have to worry about being mistrusted or sued, and they attract the growing number of consumers looking for authenticity.
Get Outside and Make Some Friends Beal has been with the San Francisco World Spirits Competition (SFWSC) since its
inception, he spends a month each year at the International Wine & Spirit Competition (IWSC) in London, and he is the U.S. chairman for Whisky Magazine’s World Whiskies Awards (WWA). He has also been asked to judge at the American Distilling Institute (ADI), American Craft Spirits Association (ACSA), and India’s INDSPIRIT competitions this year. “I’m probably going to Australia and South Africa this year to work with various competitions there, too,” he said. “Both of those places have very thriving independent distilling communities and I’ve watched their products get better and better every year.” In order to improve their products and techniques, Beal encourages distillers to send their products to competitions to get feedback from experts outside their distillery. Each competition he participates in runs differently and is thus interpreted differently by consumers and the industry. Beal said that distillers should understand how that translates to their goals before they enter. “When they give a medal at the IWSC it’s pretty tough,” he said. “But in San Francisco you might give quite a few medals, because you might have a flight of 10 bourbons, all of which are gold medal
quality, so it isn’t so much about being the best of the best. It’s about whether it’s good juice, really.” Beal says the good competitions are all valuable in their own regard, and recommends entering your spirits into every reputable competition you can afford. “If you don’t win it doesn’t matter,” he said, explaining that the value isn’t necessarily in the medal. “It’s a great way to get a gauge on what people think.” Beal says that industry and consumer shows also offer excellent opportunities to connect with other distillers and industry professionals and get feedback on your products. He started working with Whisky Live recently, and says he’s impressed by the opportunities events like that offer to young brands. “I encourage folks to get out and be part of that — you meet a consumer that’s very open to trying new things and adopting new brands and really learning about some of the more technical aspects of whiskey or other spirits,” he said. “What smaller producers really need is consumer feedback about their products. They need to be encouraged when the public loves their product, and they need to hear what people really think, because that’s the only way progress gets made. It’s how they improve what they do and focus their marketing efforts, as well.” Beal also advises distillers to get to know their competition, make friends with other distillers, and take technical production classes — all of which will increase their knowledge base and help them grow. “How we understand what we do is based upon other people and what they do, and a great way to learn about how to tweak your distilling abilities and your nosing abilities is to hang out with other people who do the same kinds of things and learn from them,” he said. “That’s one of the reasons I love the ADI is because it’s a great playground for doing that. You need to be in the company of professionals in an environment where you can give and take and talk and compare.” Aside from improving their products and skills, Beal says distillers can build their brands by participating in community events. He encourages distillers to offer
tastings at charity and benefit events, or donate distilling classes or tours for silent auctions. Beyond promoting their own brand, Beal says it also helps the community see local distillers in a positive light. Drawing from his experience as a priest, Beal says it takes an active effort to demonstrate that a distillery is beneficial to its community: “I do believe that drinking in moderation for most people is a good and probably healthy thing, but at the same time I think the industry has to be aware of their part in it all, and not only promote social responsibility and drinking responsibly, but also thinking responsibly and selling responsibly. I’m appalled sometimes at how much the industry celebrates over-partying, if you will, and how it glorifies something that contributes to the problem.” In response, Beal has helped to raise millions of dollars for charity by connecting the liquor industry to programs and causes that need funding. “I do a lot of that,” says Beal, “and it’s actually the most enjoyable part of what I do.”
Seeing the Future Another result of today’s hurried lifestyle, Beal speculates, is the tendency to rush spirits. He understands the desire for young distilleries to start out with small barrels, and he appreciates the creative potential small cooperage can lend a maturation program. That said, he thinks distillers who are serious about their brand’s future should not just hope to last long-term, but plan for it by filling larger barrels when they can afford it. “I’m very impressed if I see different sizes of cooperages and a concerted effort to try and look at where we’re going in the future with this,” tells Beal. “And I’ve tasted some very young whiskey that’s incredible, but if it were put in a bigger barrel for a longer amount of time it would be more than incredible, it would be world-class.” Those innovative spirits resting in barrels will change the industry in the future, just as the relatively new wave of small, independent distilleries has changed the current landscape. Beal says that creativity has made the industry even more fun. “I see people working, really trying to figure it out, and that’s the spirit that I love about independent distillers is that they are very creative,” he said. “That entrepreneurial spirit has taken people down the route of being a distiller as much as it does and used to, to be a winemaker, for example, or a craft brewer. I won’t say that doesn’t happen in Australia or Japan or somewhere else, because I do see similar sorts of phenomena, but I think in America it’s a particularly powerful thing, because in a way it’s part of the next frontier for us. If people find a way to build a rocket in their backyard and fly to the moon they’ll do it. Distilling is just a little more attainable.”
supercap.it Stephen Beal, Keeper of the Quaich, Spirits Ambassador to the World, and Whisky Magazine Hall of Famer can be found at www.srwhiskymaster.com.
IMPLEMENTING PROCESS EFFICIENCIES TO MAXIMIZE PRODUCTION, OR...
HOW MANY BARRELS CAN WE CRANK OUT IN THE SHORTEST TIME POSSIBLE? W R I T T E N A N D P H O T O G R A P H E D B Y P AT R I C K H E I S T, P H . D .
’ve worked with distilleries around the world, and from that experience I know that very few distilleries start with 24-7 production, and many have hours of operation that are relative to the amount of “free time” the owners/distillers have from their “other jobs.” This is especially true with smaller craft distilleries. Using our facility, Wilderness Trail Distillery in Danville, Kentucky, as an example, when we started in 2013 we were running a five day a week operation and averaging between 10-12 hours a day in production. Our system was to set fermenters and distill four days a week, which would give us one day for maintenance, grain receiving and paperwork. Our daily production was about one barrel a day from our “single batch single barrel” process, so in the beginning we made four barrels of bourbon per week. Fast forward to today and we are within one year of releasing our fully-matured (four-plus years) Wilderness Trail Kentucky Straight Bourbon. Looking at the projected demand (including reserved bottles, and thousands of cases requested by the distributors), turns out what we thought was a lot of bourbon (1,500 barrels-plus) is WWW.ARTISANSPIRITMAG.COM
only a drop in the bucket compared to the demand. That’s a great problem to have, so no complaints here. However, our current strategy to confront this problem is to use our knowledge across a world’s-worth of distilleries to pull out every stop and round out every corner of production to produce as much damn bourbon as we can with the equipment we have in as little time as possible. I hope to help you do the same in this article, where we will look at several areas of the process and how each one can be manipulated.
GRAIN QUALITY AND PROCESSING In a separate article (Artisan Spirit, Spring 2015, Page 82-85) we looked at process optimization in terms of maximizing proof gallons of alcohol per bushel of grain (also referred to as “yield”). All of those same concepts are important when optimizing your process, so refer to that article for more details. Since alcohol production is a direct
function of grain quality and starch content you want to make sure you are getting high quality grains with a solid starch content. We typically see 65-75 percent starch depending on the grain, corn having the highest and malted grains having the lowest starch content. There is another Artisan Spirit article that focuses on sugar utilization (Fall 2015, Page 87-91) if you need more details on starch or starch conversion. How the grain is prepared/milled is another factor. The ongoing debate about whether a hammer or a roller mill is better will forever endure, but we see good results in both scenarios when looking across many distilleries. The main goal is achieving a particle size that offers excellent conversion from starch to fermentable sugars (mainly glucose and maltose), which takes place in cooking/mashing. If you are milling and feeding the flour directly into a cooker, the speed at which your mill can process grain is a key factor in how quickly you can turn out a batch. For example, if you are adding 8,000 pounds of grain to a batch and the mill will only process 1,000 pounds an hour then it will take eight hours just to mill the grain. The
(FIGURE 1) Vendome copper pot still at Wilderness Trail Distillery.
obvious solution is to buy a bigger mill, but that’s not always possible or feasible. Another solution is to grind ahead of cooking. That way the milled grains are ready for addition and your cook time is less dependent on your milling speed. That is pretty much common sense, but I promise we will get more technical below.
COOKING AND MASHING
(FIGURE 2) Vendome continuous beer column at Wilderness Trail Distillery.
How quickly you can turn over a cooker is directly correlated with production speed, because you can’t start a new cook until your last cook is finished and the tank has been emptied. Big time killers in cooking/mashing are several fold. Distilleries cook mash in many different ways. Several will add the grains to water that is either ambient or 150 F and then heat it all up, sometimes to temperatures above boiling. Keeping track of cook temperatures is important for batch-to-batch consistency and energy savings. Depending on your method of heating (steam, electric, wood or other fire, etc.) this can take a long time. Again, we are trying to turn the cooker as quickly as possible. If you start with cold water it takes longer to heat (and more energy), so starting with warm/hot water saves time and energy, especially if you can get hot water by conserving heat from another area of production. We installed water coils in our stillage tank (which is normally around 200 F) so that we can generate hot water (>150 F) for filling the cooker. This saves a lot of time and also helps us recover some of the heat energy from the stillage. Rather than add any grains at this point, we steam the water and increase to our target
temperature of 192 F. At this point we cut the heat and no more active heating is applied during our cook process (another energy saving step). We know from experience that corn starch gelatinizes well at temperatures of between 175190 F, so we know we don’t have to maintain our starting cook temperature of nearly 190 F (and we certainly don’t need to go above that). When we add the corn the additional mass lowers the temperature of the mash naturally. However, afterwards we are still in the optimum temperature range for excellent starch conversion. There is a certain residence time required for starch conversion in cook, but keep in mind that every minute allotted for cooking is another minute added to turn over that batch. Choosing the shortest residence time that will get the job done and not leave behind unconverted starch is key to quick batch turnover. This will somewhat depend on the particular grain recipe, so use your best judgement and experiment to determine the best cook time for any particular mash bill. After corn, the next grain we add is wheat or rye depending on the mash bill, so cooling the mash to 145-150 F is another step that adds to our cook time. The time it takes to cool a cooker is directly related to your maximum temperature (starting from boiling compared to being at 170 F after the corn rest, for example), the capacity of your chilling system, and other factors. For example, there is a big difference in using incoming water (well or city water) versus chilled water. This will vary based on location, but here in Danville, KY our incoming water ranges from the low 40s F in the winter to over 70 F in the summer. To cool quickly you have to have WWW.ARTISANSPIRITMAG.COM
(TABLE 1) HPLC data from a finished fermentation destined for pot distillation at Wilderness Trail Distillery. Notice the higher ethanol concentration relative to the beer in Table 2 destined for column distillation.
a combination of suitable equipment (chiller system, for example) and implementation of other time-saving strategies. One such strategy is to short the amount of water at the beginning of the cook and use water additions as a means to cool. After a 45 minute to one hour rest, after addition of the corn, we use water to reduce to the appropriate temperature for the addition of middle grains (wheat or rye) and then finally the malted barley. This saves both time and energy. We’re heating less mass on the front end of cook and we are taking advantage of the water to cool our cookers more quickly (and with less energy) than if we cooled with our cooling coils/chiller system. The residence time for the middle grains and malt is another factor that influences cook time. Across multiple distilleries we have seen residence times with malt as little as 15 minutes (at 140-145 F), but more often we see residence times closer to 30 minutes for small grains and/or malt before the chilling process kicks in to get to temperatures suitable for fermentation. After the residence time allotted for our middle grains and malt we use chiller water for the final temperature step from 130 F down to 80-90 F (depending on the yeast strain and projected fermentation time). A few distilleries (some without cooling abilities) will let the cooked mash sit until it is cool enough to inoculate with yeast, which can take five hours or longer. If you have time to kill that can work, but if you are aiming for balls-to-the-wall production, residence time in cook is a major time sink and an important consideration when outlining your cook procedure.
Once the cook is finished we can move the mash to a fermenter, clean out the tank and begin the next cook. In a fully-optimized distillery, cooking the mash shouldn’t take longer than two hours total. Having a cook tank that is sized similar to the fermenters will prevent the need to do double cooks per batch. Temperatures in cook will also influence enzyme activity (malt-based and/ or commercial), so keep that in mind as you want to have a cook temperature that is adequate for starch conversion, is in the range that will promote high enzyme activity and is not so high (over 200 F, for example) that it will deactivate/denature the enzyme.
FERMENTATION When maximizing batch turnover, fermentation is by far the biggest time killer. It also dictates how many times you can use a fermentation tank in any given period. If you can finish a fermentation in 55 hours then you can get three fermentations per week out of a single tank (not counting time for filling or emptying the tank, cleaning and sanitation, or rinse-out). Not to mention the cost savings of using a single tank three times a week versus buying three separate tanks. Some distilleries report fermentation times as long as seven to nine days, meaning you have a single fermentation tank tied up for a week or more. This might be necessary if your flavor profile relies on a slow-paced yeast (like an estery ale strain), but when you want to determine just how much juice you can pump out of your distillery, a short fermentation time is important. This does
not mean you should end fermentation prematurely and leave behind unused (and valuable) fermentable sugar. Rather, devise a fermentation plan where sugars are consumed as quickly as possible, while maintaining excellent yields from a proof gallons of alcohol per bushel (yield) basis. Several factors are directly related to speed of fermentation, the most important being mash bill/recipe, Brix/gravity/sugar content, yeast strain, and temperature. There are other important factors, but we will focus on these to avoid going overboard on word count. The mash bill/recipe is important because it sets the table for how much fermentable sugar the yeast need to consume to finish fermentation. In fermentation, the more sugar that is in solution the longer it takes for the yeast to use it. Some of this is yeast strain dependent, which is addressed in more detail below. Maintaining a consistent gravity/Brix of the mash from one batch to the next is crucial for timing fermentation so you are finishing all available sugars, but not wasting time. In a well-thought-out process with optimized fermentations, if you have less than the target sugar (for example, you get 16 percent Brix, but were targeting 18 percent) you will make less alcohol per batch (fewer barrels of finished product per batch). If you have more than the targeted amount of sugar (aiming for 18 percent Brix, but got 21 percent) the yeast may not finish in the time allotted for fermentation, leaving behind fermentable sugars (decreased yield). We recommend pushing Brix as high as
(TABLE 2) HPLC data from a finished fermentation destined for continuous column distillation at Wilderness Trail Distillery.
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(TABLE 3) HPLC data from stillage from pot still versus column still distillations at Wilderness Trail Distillery. Notice the higher residual alcohol in the pot distilled stillage relative to the column still. DP4+
the equipment will allow without leaving behind fermentable sugar. As an example, when we are making mash for our pot still (Figure 1) we are targeting 18 percent Brix, which will yield about 10.3 percent ABV (Table 1). Our cooker tanks, fermenters, pumps and agitation equipment will handle the viscosity without an issue. We can also transfer the beer into the pot still and distill without issues. However, the new column system we are running, which has an 18-inch diameter column (Figure 2), won’t handle such high gravity beer, so the target Brix for our column-distilled mash is between 14-14.5 percent (Table 2). We get less ethanol per unit volume of beer from our column still recipe (Table 2), but the column still won’t handle the higher gravity pot still mash recipe, so that is an example of how there can be production limitations based on the equipment. The tradeoff being that we went from one barrel a day to two barrels an hour so we aren’t complaining, just noting that there are different dynamics between the two systems. There are many more details about sugar utilization discussed in our previous article (Fall 2015, Page 87-91). It should be noted that having a column still doesn’t necessarily equate to lower gravity beers, as some fuel ethanol producers run continuous beer columns that exceed 28 percent Brix with 35 percent solids. Of course, they are nearing 2,000 gallons of beer feed per minute, and have columns larger than corn silos! But we are focusing on potable alcohol and bourbon, so let’s get back to it. The yeast strain is also important relative to fermentation time as different yeast strains ferment at different speeds. When time matters, choosing the right yeast strain is important. Flavor is another consideration when choosing the proper yeast strain, which is a separate topic we discussed in
detail in a previous Artisan Spirit article (Winter 2014, Page 52-55). One other thing we will mention relative to yeast is that they give off a lot of heat during fermentation. The faster the strain, the quicker and higher the heat. The temperature increase needs to be mitigated through active cooling, which is often accomplished via cooling coils (or water jackets), similar to what we discussed above relative to cooling during the cook process. Temperature is a major determinant of total fermentation time, as well as production and yield. If we are running a fermentation over the weekend that will sit a little longer we will lower the temp to 78 F, for example, rather than our typical set temperature of 85-92 F (used when we want to minimize fermentation time; yeast strain dependent). The purpose is to slow the yeast down so that the sugars are used up more slowly, that way we don’t have a finished batch sitting in the fermenter for prolonged periods. There are a couple reasons to avoid finishing sugars too early. One is that when yeast use up all the sugars they start looking for another carbohydrate (energy) source, such as ethyl alcohol in finished beer. The yeast (and certain contaminating bacteria like Acetobacter species) consume the ethanol and oxidize it to produce acetic acid, better known as vinegar. The more oxygen that is present, the more readily this can occur. While this can arguably affect flavor (positively or negatively), reducing total alcohol in the beer reduces total production in that batch and translates to lower yields. If, on the other hand, temperatures are too high (over 100 F, for example) this can greatly affect yeast health (lower cell counts, budding and viability) and even cause “stuck” fermentations, where the yeast have stopped working and fermentation has stopped prematurely.
The negative effects of elevated fermentation temperatures are compounded when other stressors are present including abnormal pH, bacterial contamination, osmotic stress (aka “sugar shock”), nutrient deficiencies, and toxicities, to name a few. It is also important to note that different yeast strains have varying temperature tolerance, another consideration when choosing a yeast strain, in addition to their respective fermentation kinetics and flavor contributions. Another temperature-related consideration is ambient temperature of the distillery, which plays a role in fermentation thermodynamics. From temperature to yeast strains to sugar consumption, the overall process is tightly integrated. Contamination by bacteria and wild yeast is another major fermentation issue affecting yeast health and alcohol production. It is directly linked to cleaning and sanitation, which should be well thought out in the early planning stages of any distillery and taken very seriously. This topic was covered in detail previously in Artisan Spirit (Summer 2015, Page 66-69), which can be referenced for further information. Avoiding bacterial contamination boosts production and alcohol yields, and helps to avoid unnecessary stress on the yeast.
DISTILLATION Once we have completed fermentation in as little time as possible we need to get it out of the fermentation tank so it can be quickly refilled to start another batch. If using a pot still, the fermented “distiller’s beer” can be pumped straight to the pot and then heated and distilled. When using a continuous column distillation system, the beer is normally pumped into a tank called the “beer well.” The amount of time it takes to pump the material from the fermenter to the beer
(TABLE 4) Stillage analysis from another distillery showing poor ethanol recovery from a pot distillation system. SAMPLE ID
well affects turnover time. This should be considered early in the planning process when sizing fermenters and pumps. Also, how quickly can the beer be pumped from the beer well into the column? This will determine how quickly you will empty the beer well, which tells you when you can start pumping over the next finished fermentation. Beer feed rate is a function of column size, alcohol content of the beer, capacity of the beer feed pump, and column temperatures, among other factors. For example, our column still will handle about 10-12 gallons of beer per minute, so it takes about 6-6.5 hours to process 4,000 gallons of beer, which makes 10-12 barrels. There are several important factors
relating to distillation for flavor and alcohol content, but from a production standpoint we want to limit any loss of alcohol in the “stillage” (beer after removal of alcohol). In a pot still setup there is typically a loss of between 0.3-1 percent ethanol in the stillage. Considering a mash of 18 percent brix that would make over 10 percent ABV, having 1 percent left over in the stillage is over 10 percent loss of your total production per batch. In a column still, you would expect less than 0.2 percent ABV in the stillage, and it is often undetectable according to data from several distilleries (Table 3). It doesn’t do any good to leave alcohol behind in the stillage, and that’s a major target area for improvement in many distilleries.
CONCLUDING REMARKS We have examined several important areas of the production process and how to manipulate each to achieve maximum batch turnover with minimum fermentation times. Superior grain quality and processing, efficient cook procedures, optimized fermentation, and distillation all can be tweaked to achieve desired results. With bourbon demands where they are today, it’s a great time to crank up production and make as much as your process will allow. Patrick Heist, Ph.D. is chief scientific officer of Ferm Solutions, Inc. and co-founder of Wilderness Trail Distillery. For more information visit www.ferm-solutions.net or call (859) 402-8707.
Cooper’s Select Barrels Our Cooper’s Select barrel uses 18-month seasoned staves, a process that changes the oak chemistry, adding complexity and softness to the palate. Learn more about our Cooper’s Select barrel by visiting our website.
www.iscbarrels.com Chad Spalding • 270.699.1557 firstname.lastname@example.org
Whiskey Tango ALCHEMY DISTILLERY W RIT T E N BY AMBE R G. CH RIS T E NSEN-SM ITH
ou can hear the sound of yeast bubbling when you linger around the fermenters, busy doing their work just like Amy and Steve Bohner in their young Arcata, California DSP, Alchemy Distillery. The Bohners work comfortably around each other, moving in a silent tango of fluid movements while concocting their whiskey. The Bohners have worked together for nearly two decades at their own construction business, so they know about marital partnerships as it relates to working together. And that’s probably why starting a new distillery is working so well for them. Just as in their construction business, they’ve found their spaces and roles here. “I think the secret is to each figure out what your strengths and weaknesses are and what your niche is,” explains Amy. “When we’re working together there are not a ton of words about what
PHO TO S B Y AM AND A JO Y CHR ISTENSEN
“ When we’re working together there are not a ton of words about what we’re doing. We know what the steps are and what needs to be done. If he’s busy dialing in the boiler, I’ll get the hoses down, get the pump out. It’s like a dance.”
— AMY BOHNER WWW.ARTISANSPIRITMAG.COM
we’re doing. We know what the steps are and what needs to be done. If he’s busy dialing in the boiler, I’ll get the hoses down, get the pump out. It’s like a dance. I think the more you work together the more that you get that to be a seamless thing. We’ve just each found our role.” Distilling is new to the Bohners — they have been building their space and business for two years, and this is their first year in production — but they already have a following within their excited community. “We only have local distribution right now and it sold out in one day,” said Amy. “Our distributor has been doing this for 46 years and he said he’s never seen anything like this. We were thrilled.” Touring their facility, you can see how they keep “American Made” at the heart of their model. They proudly show off stickers that track where in the U.S. they purchased each piece of equipment, from a Vendome still out of Kentucky, to other pieces from Missouri and Montana. In addition to their equipment, the source of their ingredients also matters a lot to them. They can nearly always name the farmers that grew their grain, and they support the local grain economy by trying to source as much as possible from growers in their own Humboldt County, hence their brand name BOLDT. They are also
working on obtaining botanicals from Oregon for their genever style gin. The Bohners are using 483 pounds of milled grain (a process they complete themselves with a Sasquatch Mill) in each mash for their whiskey. Alchemy is currently the only distillery in the Humboldt area to make a craft spirit from grain to glass, and their 350 gallons of spent mash is very popular with a local pig farm. Amy laughs, telling, “The pigs know my truck now; they are so excited, they love it. They start butting up against the electric fence because they can’t wait for me.” Their gin spends about 50 days in a barrel, and they have whiskey aging, as well. However the lack of brown whiskey doesn’t seem to be a problem, and people say the white whiskey is great as is: “The clear whiskey is good in cocktails, but we’re kind of surprised that it’s pretty smooth drinking straight, too. Usually a clear whiskey is so strong, but we’re happy with how this turned out.” If customers don’t want to wait for their aged whiskey, Alchemy offers two-liter barrels they can purchase to age the spirit at home. They have also cleared a space in the warehouse to store barrels where Steve used to have band practice. Amy explains, “This used to be Steve’s jam space — he’s been in bands for 30 years — so there’s a crazy sound system, and we do plan on playing a lot of loud rock and roll for the barrels. We’re going to
get the liquid to vibrate, and we plan to get the booze into the char.” Getting the business up and running could have been quicker than the 18 months it took, but Steve says they are OK with the timeframe: “It took us probably a year and a half to build this distillery, because we did it all just us. We’re doing what makes sense and what’s efficient, but doing the work ourselves, that’s what allows us to do talks, giving tips about how to do it yourself.” The most daunting part of getting everything going was the federal paperwork. Once they got to the state and local level, it was a piece of cake. When they had their distillery checked off for meeting fire codes, things went ultra smooth shares Steve: “Having a 25-year relationship with the fire department really helps. They know our quality of work already from construction and it was no problem at all.” The Bohners say their community has been very supportive, telling that the distillery has been welcomed just as well as their contracting business was, and they were able to celebrate that support by including their Humboldt area farmers in their initial release party. People are always curious about their construction company, which Steve has run since 1988, and Amy has been working in for the past 15 years. Will they keep going knowing that both businesses take a lot of commitment? Amy explains, “We don’t plan on stopping
the construction side of our business anytime soon. It will probably be 10-15 years before we get there.” And while some construction companies are seasonal, theirs is not. “We have really good rain gear,” Amy says with a chuckle. “Sometimes it’s too wet for the job we need to do, but we work year-round.” This makes it challenging for them to plan around a production cycle. “Usually we’re 8-5 construction and then we open the door and start distilling. We are often here until one in the morning.” For now, they don’t see any need to hire employees for the distillery. With the small size, they are able to keep things up and running on their own, and Amy spends a lot of time there while Steve runs their construction business. The tango of running two businesses works well for the Bohners, thanks to their strong working relationship and their dedication to what they do: “We do go really hard on the weekend days, but some weeknights we are working in here, too,” Amy said. “But you know what? We’re young, we’ve got a lot of energy, we don’t have kids, and our businesses are our babies, so they get all of our attention. So it works.”
Alchemy Distillery is located in Arcata, CA. For more info visit www.alchemydistillery.com or call (707) 822-8013.
GRAS THE ONE- OF-A-KIND WHISKEY YOU WILL LIKELY NEVER TASTE WRITTEN BY CHRIS LOZIER
ou can make spirits out of rye grain, but you cannot make spirits out of ryegrass. Actually, that’s not quite true: You can make spirits out of ryegrass, just not legally, unless you can prove the grass is GRAS, an acronym used by the FDA which means Generally Recognized As Safe. If you have questions about that scenario, you’re not alone — Chris Beatty of Corvallis, Oregon’s Spiritopia Liqueurs had a lot of questions too, when his TTB COLA application for a likely first-of-itskind ryegrass whiskey was denied. The whiskey mash bill contained more than enough corn and wheat to qualify as whiskey, but it also included a fermented ryegrass wash made from the fructose-rich stalks and leaves of ryegrass, rather than rye grain.
“We got this note from the TTB that our formula was not approved, and it was basically one sentence saying, ‘Please submit FDA evidence that ryegrass is allowed in a human food,’” said Beatty. “I about fell out of my chair. There’s no existing proof that this is an OK thing to do. TTB deferred to the FDA to say that this is GRAS.” Every substance or additive used in food and beverage in the U.S. has to be recognized as GRAS or FDA approved as an additive, measures meant to ensure commercially-available consumables are actually safe to consume. There are separate lists for full GRAS approval, conditional approval, and prohibited substances, but unfortunately for Beatty, ryegrass has not been approved.
Every substance or additive used in food and beverage in the U.S. has to be recognized as GRAS or FDA approved as an additive. The Spirit Chemist Ten years ago, Beatty and three partners founded Trillium FiberFuels in the space where Spiritopia is located today. At the time, gas prices were high, and the Trillium crew was working on grants from the National Science Foundation, the Environmental Protection Agency, and the Department of Energy to develop enzymes to make ethanol from grass and wheat straw. Located in Oregon’s Willamette Valley, the ryegrass capital of the world, they had no shortage of supply. “Local growers produce more turf-seed and forage ryegrass than anywhere else in the world, and there are just a zillion tons of leftover straw that they didn’t know what to do with, so we were trying to convert that,” tells Beatty. “We also learned that when the ryegrass is growing, but before it has its seed head, it has quite a bit of sugar in it, mostly fructose.” Their work showed promise, but then “fracking” (hydraulic fracturing) hit the scene and became widespread. The price of oil dove to $40 a barrel, and interest in biofuel crashed with it. All the money — government and private — evaporated, and they closed the company and sold its assets. Beatty bought some of the assets himself, including two chromatographs — perfect for analyzing his liqueurs — and an extensive library of “super cool” enzymes. Then he started planning the distillery. Looking around at the burgeoning Northwest distilling industry, he saw that most new distillers were making vodka and gin, but he didn’t drink much of either spirit. Instead he prefers whiskey and liqueurs — two categories that also seemed to have more breathing room in the marketplace — so he started Spiritopia with the longterm goal of making and aging ryegrass whiskey, and the short-term plan of making liqueurs while it aged. The liqueur half of his plan has worked well, and Spiritopia’s ginger, apple, and pomegranate liqueurs are now staples at many respected cocktail bars in the region. The ginger has become their flagship, a product he worked passionately on mastering after trying another ginger liqueur in his father-in-law’s home bar. That one was good, but he thought he could make it better. “I adore ginger so I was very enthusiastic about the product, still am, so really that kind of took over the momentum of the business,” he said. Spiritopia also ages some of the apple eau de vie they make for the apple liqueur in the barrels Beatty originally purchased for the ryegrass whiskey. They market this as a “bourbon-style brandy” since the new charred American oak barrels give the 104-proof caskstrength spirit a unique whiskey-like nose, palate and color. The first brandy release was an experiment, but it was wellreceived so they plan to continue. Beatty says Spiritopia’s forced adaptation is a great lesson for new distillers, advising them to roll with the changes: “When you start a new company, things often have WWW.ARTISANSPIRITMAG.COM
to pivot, they often change. Now our business is very much focused on the liqueurs,” but he has yet to give up on the ryegrass whiskey.
Obtaining GRAS Recognition There are three ways food substances and additives come to be acknowledged as GRAS: They were either grandfathered in because they were widely acknowledged as safe before 1958, FDA has affirmed them as GRAS, or someone demonstrated the substance’s safety. Distillers and other manufacturers can, in theory, complete a Food Additive Petition to earn FDA approval for a substance or additive, but it almost never happens anymore because of the time and money required. The producer would have to fund all the necessary toxicology and safety studies (potentially millions), and wait for those studies to be completed by qualified firms and approved by the FDA (potentially decades). Unsurprisingly, few ingredients seem to be worth the hassle. Beverage alcohol attorney Marc Sorini of McDermott Will & Emery in Washington, DC says that besides being slow and expensive, trying to gain official Food Additive Petition approval can also attract political fanatics who bog the process down even more. For these reasons, he has never had a client pursue food additive approval through that route, but he has helped some obtain GRAS recognition through other channels. Sorini says one popular option is to submit to FDA a GRAS notice summarizing the company’s conclusion that the substance is GRAS, a “halfway measure” used informally for about 20 years which was recently codified. “It gives you a little bit of comfort because you go to FDA and you say, ‘Look I think this is GRAS, here’s a summary of my evidence,’ and FDA generally sends a letter back that says, ‘We looked at this, we don’t see anything that we disagree with, but of course all bets are off if we decide to come after you sometime in the future,’” Sorini explains. There are different ways to demonstrate GRAS status, too. If you are able to find historical evidence of a substance’s safe use, you can try to build a case on that. You can also demonstrate GRAS through a review of scientific literature or your own studies. Sometimes substances and additives are acknowledged as GRAS only when used in certain situations, like in baked goods, for example. A distiller could use that GRAS recognition to build a case that it would be safe in their spirits, too. Sorini says some of his clients have done that, referencing other industries’ GRAS lists to gain approval for their own products. The Beer Institute periodically compiled an Adjunct Reference Manual that acts as a quick-reference GRAS ingredients list, and the Flavor & Extract Manufacturers Association also has a good compilation. Sometimes accessing those lists is expensive, but it may be worth it.
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“Even if you have a pretty complicated gin charge with 15 herbs and botanicals, if you dig enough, it’s surprising how often you’ll find most of them somewhere or another have been established as GRAS,” tells Sorini. “The good news is there are resources where you can try to find where things have been found GRAS. In fact FDA tries to keep up with this,” and they have several GRAS databases on their website. For Beatty, though, he has yet to find any ryegrass GRAS listing, nor has he been able to find extensive historical evidence of safe ryegrass consumption. After several phone calls and emails with the FDA, it was determined that ryegrass would need to be studied for toxicology. “There were a couple of studies done in the 1970s where people were fed ryegrass protein when they were looking at annual crops that can produce protein for emerging countries,” he said. “There were no ill effects, but that doesn’t really qualify as a toxicology study, either.” Beatty plans to continue his research in hopes of building a case, but with a successful liqueur business it’s not a top priority. “If I got to a time where I had some money and energy to put into it, the way I would probably go about it stems back to what I used to do, which is writing research proposals to granting agencies,” he said. He also thinks it might be possible to find partners who would benefit from establishing ryegrass’s GRAS status. Those potential partners may be willing to co-fund research or assist him in obtaining grants to fund the studies. One of the unique things about Beatty’s case is that rye grain is GRAS, animals that eat ryegrass are GRAS, and several other grass species are GRAS, so it seems like it should be a no-brainer. But some grasses are actually GRAS-prohibited, like bison grass, which contains coumarin, a liver-toxic blood thinner. For distillers that want to get into the weeds with GRAS, Sorini recommends hiring a lawyer with FDA- and spirits-specific TTB experience, as well as scientific consultants who know how to move forward in an effective and efficient way. “When you do this kind of stuff, the lawyers can tell you what the legal standards are, but then you really need to have some technical experts assisting you in identifying what kind of studies might work and what might not,” he said. With so many distillers exploring innovative new products, there are sure to be more cases of formula denials due to the GRAS status of ingredients. But it is important to understand that the GRAS system is meant to protect everyone, including distillers, from harm and litigation. Beatty says that while he wishes he could move forward with his original ryegrass whiskey, he’s not upset with the TTB or FDA for doing their job. “I think they have pretty big challenges just keeping up with the growth of the industry,” Beatty said. “Whether they’ll get further down the list to things like this I’m not as sure.”
Chris Beatty is the founder and spirit chemist at Spiritopia Liqueurs. Learn more about Chris at www.spiritopia.com/ask-the-spirit-chemist. WWW.ARTISANSPIRITMAG.COM
CRAFT SPIRITS D ATA P R O J E C T I M A G E D ATA S O U R C E D F R O M T H E C S D P I N A U G U R A L C R A F T S P I R I T S E C O N O M I C B R I E F I N G
he distilling industry is expensive, highly regulated, and challenging to navigate, making progress hard-earned for craft distillers. And when it comes to changing legislation, raising capital, or otherwise trying to open, expand, or improve their distillery, convincing gatekeepers and regulators that lowering barriers will benefit them and their community is tough to do without data. “Craft spirits have been a very important part of the industry for the last 10 years, but there’s been a relative lack of actual data to prove it,” explains Paul Hletko, founder of Few Spirits (Evanston, IL) and president of the American Craft Spirits
Association (ACSA). That’s why ACSA, Park Street, and International Wine & Spirits Research (IWSR) launched the Craft Spirits Data Project in 2015, and now the results are in. Some of the key findings:
WRITTEN BY CHRIS LOZIER
The Project unofficially began at the Austin, Texas ACSA Convention in February 2015. ACSA leadership pitched the idea to Harry Kohlmann, Ph. D., co-founder and CEO of Park Street, a firm that provides back office, advisory, and working capital assistance to over 3,000 alcohol beverage brands. Kohlmann and ACSA worked to form a plan, and by October the Project was formalized. Kohlmann and Park Street worked on the Project pro bono from start to finish, ACSA sponsored it, set up meetings with TTB and others, and collected data from members, and IWSR provided data collection and processing in exchange for the right to
As of August, 2016 there were
1,315 active “project-defined” craft producers in the U.S. Those craft producers sold 4.9
million cases, with a retail value of $2.4 billion in 2015. Craft’s project-defined market share
climbed to 3 percent by value, 2.2 percent by volume in 2015.
NUMBER OF ACTIVE CRAFT DISTILLERS BY STATE AND REGION AS OF AUGUST 2016
4 13 5 16 17
18 12 25
1,315 TOTAL DISTILLERIES
sell their own private studies based on the Project. Other partners included TTB, Wine & Spirits Wholesalers of America (WSWA), American Beverage Licensees (ABL), National Alcohol Beverage Control Association (NABCA), Nielsen, Liquor.com, and Acturus. All the research gathered through August 2016 was included in the Project release this October. Periodic updates are planned for certain data categories, and a complete update and upgrade of the whole economic dataset will be released annually.
WHAT IS A CRAFT PRODUCER? In order to begin the Project, researchers had to define the “craft universe,” which was not simple given the many definitions of “craft.” “If everyone understands something differently, how do you measure it?” asked Kohlmann. He and other researchers surveyed consumers and industry members and compiled a list of state and guild definitions, and from the commonalities and ACSA’s guidelines they defined the universe like this: “For the purposes of the Project, U.S. craft spirits were defined as distilled spirits that are produced in the U.S. by licensed producers that have not removed more than 750,000 proof gallons (or 394,317 9L cases) from bond, market themselves as craft, are not controlled by a large supplier, and have no proven violation of the ACSA
ACSA’S CODE OF ETHICS "We operate in an honest, transparent and non-deceptive fashion. We inform consumers truthfully and accurately about the sources and methods used to make our spirits through our labels, materials and communications. We expect fair dealing and respect amongst members. We obey all federal, state, and local laws."
SMALL CRAFT PRODUCERS
Code of Ethics.” HAVE BEEN GROWING WELL While that definition will NUMBER OF SMALL PRODUCERS please some and upset others, NUMBER without a threshold the Project 1500 41.6% would have been impossible. CAGR 1000 “We took the criteria that are measurable, and put a 1067 500 831 598 couple of elements around it 415 254 188 0 with regards to the voluntary 2010 2011 2012 2013 2014 2015 disclosure,” explained Kohlmann. “And if somebody NUMBER OF CASES SMALL PRODUCERS 9L CASES (000) claims they’re craft, we 800 believe them until it’s proven 30.9% CAGR otherwise, if they are within 600 the certain boundaries that we 400 set.” 597 434 200 Also important, presenters 275 236 205 155 noted, is that this definition 0 was created only for the 2010 2011 2012 2013 2014 2015 Project, and it does not AVERAGE NUMBER OF CASES OF SMALL PRODUCERS validate a producer as craft for 9L CASES any other purpose. 1,000 -7.5% CAGR With the universe defined, researchers gathered data from 500 807 surveys, databases, guilds, 826 567 559 522 voluntary DSP disclosures, 459 0 and other sources, which gave 2010 2011 2012 2013 2014 2015 them a largely consistent and cross-referenceable overview but they do give some helpful delineation of the industry. by separating the producer universe “It took so much work to build up the trust into three categories measured by proof among all of our distillers to actually feel gallons removed from bond, which Project comfortable in providing this information,” researchers converted into 9-liter cases explained ACSA executive director Margie based on an 80-proof ABV average: A.S. Lehrman, who said that Nicole Austin, formerly of Kings County Distillery SMALL CRAFT DISTILLER (Brooklyn, NY), was instrumental in 1 - 10,000 pg facilitating that work. Lehrman says 1 - 5,258 cases that at nearly every step, people told them the Project was “impossible,” MEDIUM CRAFT DISTILLER but ACSA believed it could happen. 10,001 - 100,000 pg 5,259 - 52,576 cases While the data they gathered looked good, they wanted confirmation, so Lehrman reached out to TTB contacts she had developed working through Lehrman Beverage Law. The researchers sent TTB a large list of data and tax requests, and after several meetings and long negotiations TTB gave them a bracketed tax dataset, which has never been done before. The brackets are large enough to protect individual company tax data,
LARGE CRAFT DISTILLER 100,001 - 750,000 pg 52,577 - 394,317 cases
Once the Project crew obtained that tax data, they triangulated it against their own research and found that they had been about 95 percent accurate. “Without that tax data,” Kohlmann explains, “it would have been really difficult to feel comfortable about the quality of the data.” WWW.ARTISANSPIRITMAG.COM
MEDIUM-SIZE CRAFT PRODUCERS HAVE BEEN GROWING WELL
TTB plans to provide this bracketed tax data to the industry annually now, which the Project crew applauded them for. Lehrman and Kohlman say several people at TTB were extremely helpful, assisting in ways they were not required to.
THE CURRENT INDUSTRY LANDSCAPE As of August, 2016 there were 2,006 total licensed DSPs, 1,483 of which were project-defined craft producers. After removing the 168 in planning, it was determined there were 1,315 active craft producers in the U.S. That number was used for parts of the project, but much of the research is based on year-end 2015 data. At year-end 2015, there were 1,163 craft producers — 23 large, 73 medium, 1,067 small — and their sales were concentrated. More than 60 percent of total sales came from just 2 WWW.ARTISANSPIRITMAG.COM
AVERAGE NUMBER OF CASES OF LARGE PRODUCERS 9L CASES (000)
NUMBER OF CASES LARGE PRODUCERS
9L CASES (000)
9L CASES (000)
AVERAGE NUMBER OF CASES OF MEDIUM-SIZE PRODUCERS
NUMBER OF CASES MEDIUM-SIZE PRODUCERS
9L CASES (000)
CROSSED THE 3 MILLION CASE MARK IN 2015 NUMBER OF LARGE PRODUCERS
NUMBER OF MEDIUM-SIZE PRODUCERS
LARGE CRAFT PRODUCERS
As of August, 2016 there were 2,006 total licensed DSPs, 1,483 of which were project-defined craft producers. percent of the producers, while the small producers, who represent 91.7 percent of the craft producer universe, sell just 12.1 percent of the cases. For all three sizes, the number of producers and cases grew rapidly between 2010 and 2015, while the number of cases per producer decreased at a lower rate. Since more producers are entering the market, the average production per producer has fallen (down to 559 cases for small producers), which is natural given the often lower production of new entrants. Low average volumes also suggest that there is a lot of aging product yet to be
released. As those entrants increase production and release aged product, however, and as more entrants start out with larger production numbers, the average cases per producer volume should increase, and in some cases it already has. In fact, volume growth is expected to outpace entrant growth soon, which researchers call the inflection point.
WHAT’S NEXT? Between 2010 and 2015, the number of producers grew at an aggressive compound annual growth rate (CAGR) of 41.6 percent. In only five years, 959 new producers opened, 879 of which were small (91.7 percent), and 257 joined just in 2015. January through August, 2016 brought 152 new producers at an annualized growth of 19.6 percent, which projects nearly 1,400 total producers by year-end. Using that projection, the five-year CAGR
CRAFT COULD CONTRIBUTE MUCH MORE TOWARD FRAGMENTATION IN FUTURE YEARS
the entire spirits market. While 9L CASES (MILLIONS) craft’s volume U.S. MARKET SIZE 2015 - 2020 CAGRs market share is SCENARIOS FOR 2020 2.2 percent, the value is 3 percent, Craft beer market share today, 11% meaning the 25.6 Growth at constant CAGR of previous average price per 5 years reaching a 7.1% market share bottle is higher 39.0% and consumers are Growth at ½ CAGR of previous 5 years willing to pay the 16.5 reaching a 4% market share difference. Craft spirits Growth with market for a constant 27.4% retail sales were market share of 2.2% 9.4 $2.4 billion in 2015, the 13.7% 5.2 4.9 majority of which 1.5 1.0% (approximately 3.2x $1.3 billion) likely 2010 2020 E 2015 went to taxes based on ACSA’s estimate that taxes typically account for 54 will actually be higher than 41.6 percent percent of spirits prices. Most of that tax between 2011 and 2016. is Federal Excise Tax (FET), and according That growth percentage should to ACSA, “a craft spirits producer pays 5.4 decelerate though, even if the number of times more FET than a craft brewer, and new entrants remains steady or increases, 16.4 times more FET than a small winery, simply because the dataset it getting larger for equal quantities of beverage alcohol.” and shows less change. Assuming the Beyond sales and tax revenue, craft current 19.6 percent rate, the number of producers are pouring a lot of money into producers would reach 2,847 by 2020, their communities, investing $299 million but many speculate that a more reasonable in 2015. Average investment per producer estimate may be around 2,000. is $256,000. In the future, focus may shift from The craft industry also has more than the number of producers to the volume 12,000 full-time employees now, two-thirds produced. The graph above provides of which work at production facilities and projected scenarios of what future growth tasting rooms while the other third works could look like in terms of market share. in the field. On average, each producer Project researchers believe that market employs 9.2 people. share will likely grow from the current 2.2 “The employment in this industry has percent by volume to between 4 and 7.1 doubled in the last two years,” said percent by 2020 (potentially 16.5 million Kohlmann, who explains that based on cases), though of course anything could a market-share-to-employee ratio, craft happen. For reference, craft beer held producers often employ at least 100 times about 12 percent of the beer market at more people than large industry members. year-end 2015 according to the Brewers “If you think about being a regulator Association. and thinking about job growth … this is an engine,” he said. “This is not just craft distilling, this is all kinds of local businesses, and you look at all kinds of Project data supports the popular belief fast-moving goods here, this is a playbook that craft spirits have helped to drive to create employment here in the United premiumization, a trend that has affected States.”
SOCIAL AND ECONOMIC IMPACT
MARKETS ARE SIZE-DEPENDENT The leading market for a craft producer seems to depend on their size. For large producers, out-of-state markets account for 55 percent of sales. Exports also play a role, and of the 523,000 cases exported by craft producers in 2015, 95 percent came from large producers. Medium producers do well with out-ofstate sales too, but in-state sales account for the majority of their business at 59 percent. The other 5 percent of the export market was theirs. For small producers, in-state sales are crucial, accounting for 92 percent of their business. Further, a quarter of all small producer sales occur at the DSP, emphasizing the importance of tasting room sales. “We know that direct sales are incredibly important for the small craft spirits producer,” said Lehrman, “so this gives new evidence for DSPs to go into the state and help push legislation that can make a difference for them to be able to have bottle sales at their tasting room, and also perhaps liberalize some of the tasting room rules.”
BEYOND THE NUMBERS Craft producers, retailers, and wholesalers were surveyed for the Project, and their answers offer insights into the current state of the industry and what to expect in the future. The majority of producers said they were not satisfied with current legislative efforts, commonly citing tax reduction, increased efficiencies, and reduced regulation as focus areas. Many are frustrated by the lack of parity with other beverage alcohol producers, some expressed dissatisfaction with the performance of their wholesalers, and some plan to shift their sales focus from off-premise accounts to on-premise. Wholesalers largely said craft producers should target on-premise markets first, then move to independent off-premise, and two-thirds said they would spend more time selling their product in-market
if they were a producer. The majority of wholesalers also anticipate more brand fragmentation, and believe the majority of leading craft producers will be acquired by large spirits suppliers within 10 years. Wholesalers, on-premise, and offpremise retailers had different advice for craft producers, but they all agreed on two things: Producers need to focus on making fewer, but higher-quality, products, and they need to offer more support to their wholesale and retail partners to increase consumer pull. According to consensus, craft producers may be wise to focus on on-premise accounts, concentrate their efforts on making high-quality, recognizable products, and spend more time and resources encouraging people to buy those products.
MOVING FORWARD “Having practiced in the area of alcohol law, I will tell you that what we are doing today makes a great impact,” said ACSA’s Lehrman at the Project’s October release,
“at a level you might not even think of.” In light of the Craft Spirits Data Project’s findings, it is clear that craft spirits producers are generating a great amount of social and economic benefit in their communities, states, and country. And considering that half of the 1,315 craft producers are located in just 10 states — states that were willing to revamp Prohibition-era legislation earlier than many others — the numbers suggest that improving the business climate for craft spirits producers creates much more economic value than stifling their growth with oppressive regulation and taxation. As craft producers expand, they will generate even more jobs and revenue, and create additional business for their local farmers, contractors, design firms, and other providers. Speaking alongside Lehrman, Kohlmann, and other presenters at the October release was past ACSA president Tom Mooney, coowner and CEO of House Spirits Distillery (Portland, OR). Mooney called the data “astounding, even at this very early level,”
saying the industry is even bigger and more influential than he and many others thought. “As all of you are either a craft distiller or know a craft distiller, you’ll know that we’re not short on opinions, but at some point you need some data to back up those opinions,” Mooney said with a laugh. “With this data, we can go to the world, whether it’s to our commercial partners, or our legislative affairs efforts in Washington, or at the state level, or at the city level, and really address those remaining obstacles, that if taken out of the way will cause some of the data you see today to very quickly become twice, three times, four times what we’re seeing — in terms of industry impact, in terms of jobs, in terms of investment — all things that the economy needs and that the consumer is driving.” A free copy of the October Project briefing is available courtesy of ACSA, IWSR, and Park Street. Find it at www.americancraftspirits.org under the “Media - News” section or by emailing email@example.com.
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REBRANDING ADVICE f ro m t h e ex p e r i e n c e d WRITTEN BY CHRIS LOZIER
hen Josh Mayr and his three friends purchased the then two-year-old Wishkah River Distillery in Aberdeen, Washington, rebranding was their first order of business. “The branding was nice, but it was elegant, and I don’t think any one of us has been described as elegant in our entire lives,” Mayr said with a laugh. “It just did not fit our style.” Mayr and crew kept the existing name, which honors a nearby river, but said the imagery needed an update to better suit them and their working-class logging town. They started the rebranding process in June 2012, and after six months they had a new brand they all loved … until now. Four years later, Wishkah River Distillery is rebranding again, although for different reasons. The themes and imagery they chose last time worked well, so they will
PHOTOS PROVIDED BY WISHKAH RIVER DISTILLERY
retain many of the same elements, but the packaging is being overhauled to save the distillery money on glass, labels, and other logistical expenses. Rebranding is not uncommon for distilleries, and Dan Matauch of Flow Design, a Northville, Michigan packaging and branding firm specializing in alcohol beverage brands, says businesses young, old, large, and small rebrand for many different reasons. “If they’re pretty new and things aren’t working for them, maybe they need to reevaluate what’s working, what’s not working,” begins Matauch. “If they’ve been established for a while, they might want a refresh.” Distilleries often rebrand because something has gone wrong or sales are dropping, but not always. Sometimes WISHKAH RIVER DISTILLERY'S ORIGINAL BRANDING PHOTO BY AMANDA JOY CHRI STENSE N distilleries with healthy sales rebrand just WWW.ARTISANSPIRITMAG.COM
to stay fresh, hold an edge over competitors, or accelerate the growth of already-successful products.
WHY REBRAND? Rebranding isn’t necessarily inevitable. Your distillery may be successful from its launch until you retire thanks to the great quality, price, and value of your products. But experts at marketing, branding, and retail firms largely agree that brands do not have the lifespan they used to. In the past, consumers had strong brand loyalty, but now many people are loyal to categories like whiskey or gin, not necessarily brands. Further, many people are drawn to markers that stretch across categories, like handmade, craft, sour mash, terroir, etc. If someone likes distilleries that use ingredients unique to the region where they were made, they are going to seek out products in any category that meets that description, whether it’s gin made with Utah-foraged juniper or brandy distilled from Georgia peaches. Fortunately, your distillery and products have their own unique markers that consumers are looking for, and good branding will tell that story. “Your consumers want to feel a certain way when they choose your product,” explains Mayr. He says your brand and design is the best chance to convey that feeling when people are scanning the shelves. During Wishkah River Distillery’s first rebrand, they asked themselves what people wanted to feel when they chose their brand. They picked the traits that naturally fit their personalities, locale, the product
inside the bottle, and how it was made. When they built the brand around those elements, Mayr says the increase in shelf pull-through was almost instantaneous. “You’ve got to look at your demographic, what your product is, what price point you’re selling it at, and your story,” explains Matauch. “And you’ve got to convey that through branding and design.”
WHERE DO YOU START? If you are considering a rebrand, both Matauch and Mayr have the same advice: Hire a reputable design firm with spirits branding experience, and hire them at the beginning. “There are companies out there that specialize in spirits design,” said Mayr. “They’re familiar with TTB and COLA, they know what they can and cannot do on spirits labels.” Distillers usually think that hiring a professional firm will be expensive, but Mayr says distillers often actually pay more for an inexperienced firm or family friend that makes TTB-related labeling mistakes that have to be corrected. Each revision
costs the distillery more time and money. Matauch says the least expensive, least stressful, and highest-yielding approach is to hire the right firm at the beginning of the process. If you spend three months developing brand and design elements on your own just to abandon them later, you
REASONS TO REBRAND INCLUDE... DESIRE TO STAY FRESH SOMETHING HAS GONE WRONG HOLD AN EDGE OVER COMPETITORS SALES ARE DROPPING ACCELERATE THE GROWTH OF ALREADYSUCCESSFUL PRODUCTS 75
cannot get that time back. Sometimes Matauch sees distilleries that design each of their products to look like a separate stand-alone brand, but he does not recommend it. He says that tactic works for well-established brands, but often not for small distilleries. He says your distillery is your brand, not your vodka. “I think the distillery brand has to be a relevant item on the labeling,” he explains, telling that it leads to more product experimentation. “When your products are out on the shelf they’re not going to be in the same area. Let’s say they really love your bourbon — if they see your logo prominent on the front of your vodka they might buy that bottle, too.” Once you fully develop your new brand, Matauch advises implementing it through the brand packaging first before worrying about merchandise or anything else. That way you can judge the reception immediately through positive or negative sales and feedback and make revisions if desired.
FORM AND FUNCTION Matauch says any rebrand should consider not only the look of the packaging, but also the function and congruity. He says distillers usually start with stock bottles, then look at custom bottles as they grow. If you execute this well, you can order larger quantities of glass, closures and labels and reap the benefits of bulk pricing. “You could do it all in one bottle, or you could have a bottle for clear spirits and another for brown spirits,” tells Matauch. Either way, if your design is orchestrated in a way that limits the variety of packaging styles you have to buy, you are going to save money and your brand presentation will appear more cohesive. That’s why Mayr says they are taking this second rebrand slowly, planning what they want each individual product package to look like with one important goal in mind: streamline the glass. “I know now what I should have known then,” says Mayr. “I’m looking to find more
congruency in the type of glass we use. That would allow me to stack my orders in a manner where I’m getting discounts on volume across the spectrum of my products rather than by each single product. Glass is expensive.” When buying glass you typically get what you pay for, and it does play a large role in your packaging presentation. That said, there is nothing wrong with saving money by buying in bulk. Planned carefully, a rebrand will not only increase sales, but save money, as well. “It’s not just, ‘Hey, I want our bottles to look prettier than they do.’ Everybody wants that,” said Mayr. “This is going to save us money, because what we’re doing now just doesn’t make sense. I think it’s a win-win.” Wishkah River Distillery is located in Aberdeen, WA, wishkahriver.com. Dan Matauch of Flow Design can be reached at (248) 349-7250 ext. 22 or at email@example.com.
RUMS W R I T T E N B Y L U I S AYA L A
sters are of great importance in the distilled spirits industry because they provide complexity and diversity of aromas. They can be formed during fermentation (either through different yeast metabolic paths or through oxidative contact with ambient or introduced air), and also during aging (straight oxidation). For these reasons, most non-neutral spirits, and all aged spirits, should have at least a trace of esters, with very old (aged over 10 years) spirits having a substantially higher concentration than their younger counterparts. To say that a spirit is “high esters” however, without quantifying the types of esters involved, is akin to saying that the culinary world is divided into “spicy” and “non-spicy” food, without specifying what we consider spicy.
Which rum producing countries are well-known for high-esters rums? Esters that are formed during fermentation can be separated from ethanol through the careful application of distillation and condensation principles. With this thought in mind, we could say that anyone who ferments sugars into alcohol is producing esters. In the world of rum, however, a high-esters rum is not one that involves high esters during fermentation, only to have those esters stripped out during distillation; a high-esters rum is one that retains a high level (more on quantification later on) of esters post-distillation. Many large distilleries remove esters, along with other fractions, from their distillate. The removed esters are usually sold to the pharmaceutical and cosmetic industry to be used in a variety of ways, including as a solvent or as an intermediary ingredient. In Jamaica, however, some distilleries deliberately leave high levels of esters in their rums, which results in very fruity and aromatic profiles not usually found in rums from other countries. But if you leave too high a concentration of esters in a rum, you’ll find that it quickly goes from fruity and aromatic to intensely solvent-like (similar to fingernail polish remover or permanent WWW.ARTISANSPIRITMAG.COM
All aged spirits will have esters, and those with more esters will tend to have a complexity dimension not found in their younger or unaged counterparts 77
marker). So how high should the concentration be? To answer this question, we need to go back in time to find the reason that prompted the creation of this style of rum. For many years, Jamaican distillers found fertile markets for their rums in Germany. In the early to mid 20th century, however, the German government imposed a very heavy tax on the importation of rum (among many other goods), and this tax meant that imported rum would be prohibitively expensive. Rather than losing the business, one of the head chemists working for the Jamaican government devised a way to produce a very high-esters rum that could be imported by the Germans in small volumes. It would then be diluted with domestically-produced neutral spirit to impart a strong rum flavor. The resulting beverage is known as Rumverschnitt or Rum Verschnitt, and it is the reason behind the high-esters movement.
Classifications Once the high-esters “rum concentrate” was created, it was necessary to define it in quantifiable terms in order to maintain the quality and deliver consistent goods to the clients. The following categories were defined, each involving a different concentration of esters (the concentrations listed are in mg of total esters per 100 ml/AA): >> “Common Cleans”: 80-150 mg >> “Plummers”: 150-200 mg
>> “Wedderburns”: 200-500 mg >> “Continental Flavoured”: 500-1,700 mg Just to put things in perspective, even at the “Common Cleans” level, a high-esters rum can be unpalatable to most consumers, so you can imagine what it would be like to taste the other rums with higher concentrations. Just keep in mind that their intended use was as concentrates that would be used to impart rum flavors to larger volumes of neutral alcohol.
The Dunder Connection So, how did the Jamaican rum producers manage to create rums with such a high ester content? To answer this question we must understand that esters are derived from carboxylic acids. If we are aiming for high concentrations of esters, we must first have a high concentration of carboxylic acids. We can achieve this through a very long fermentation time, but also through the addition of a highly-acidic compound. Because rum, by definition, has to be produced from the fermentation of sugarcane or any of its derivatives (cane juice, high test molasses, virgin honey, panela, piloncillo, guarapo, molasses or crystallized sugar), the highly-acidic compound must also be produced from sugarcane: Welcome to the world of dunder! Dunder, a Jamaican term used to refer to a highly acidic substance obtained from the spent wash or vinasse from the distillation of rum, is the key to the production
of high-esters rums. Typically, oxidation ponds are used to satisfy all the COD (chemical oxygen demand) of vinasse in the rest of the world, and the oxidized vinasse can be used for irrigation or safely dumped into a body of water as a source of nutrients for the aquatic flora and fauna. But dunder pits are actually fed sugars (typically in the form of molasses) to keep alcoholic fermentation going. Because of the need to keep adding fermentable sugars to the dunder, having and maintaining a dunder pit becomes a very expensive operation, one only justifiable through the sale of highesters rums at an equally high price.
So, should small craft distillers produce high-esters rums? Finding and filling needs are keys to successful commercial enterprises. In the case of high-esters rums, filling the German demand for Rumverschnitt was key. Nowadays, however, the market for high-esters rums at bottle-proof strength is somewhat limited. If a craft distiller happens to identify a niche market and is able to produce (and maintain) good high-esters rums for that market, then the answer is a resounding yes. However, if the desire to produce a high-esters rum is limited to a notion that this type of rum is selling like pancakes, then I would recommend additional research to validate the assumption. There are also two very important reasons to consider not producing high or very-high esters:
First, the process of forming esters from carboxylic acids can be reversed when blending high-esters rums with other rums or with water (as in the case of proofing down the rum prior to bottling). If the pH is increased enough through the addition of neutral or alkaline water, the esters may become dissociated and may separate into their originating alcohols and carboxylic acids. Second, most esters are not very soluble in water, meaning that at lower proofs, when the water-alcohol mixture has more water than alcohol, they may lead to cloudiness in the spirit, which can be very hard/expensive to treat (and the treatment always involves the removal of said esters!).
Conclusion Esters are excellent sources of aromas in a distilled spirit. All aged spirits will have esters, and those with more esters will tend to have a complexity dimension not found in their younger or unaged counterparts. This, however, does not mean that the higher the concentration of esters the better! So study your target market, validate your assumptions and plan to produce only what you know your consumers want and are asking for. Cheers! Luis Ayala is editor of “Got Rum?” Magazine and founder of The Rum University. Visit www.gotrum.com or email firstname.lastname@example.org for more information.
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SPIRIT HOUND DISTILLERS
‘WE SOLVE OUR OWN PROBLEMS’ WRITTEN BY GABE TOTH
P H O T O G R A P H Y B Y E M I LY S I E R R A
hen Craig Engelhorn co-founded Spirit Hound Distillers in Lyons, Colorado, he didn’t know a lot about making whisky, but he was sure of one thing: He was going to do it his way. “I had no distilling experience — I was tempted to get a heavy hitter in here, someone from an established distillery,” he said. “After thinking about it, I decided I want this to be our whisky, and have creative control and learn from my mistakes. I’m pretty much self-taught. It was kind of fun, and it worked out well.” He understood the fermentation side of things from his years as the original brewer at Oskar Blues Brewing Co., which is also where the idea first struck him: “I was making a Scotch ale, and I thought, ‘Man, we could make a Scotch-style whisky out of this.’ That’s sort of where this all started.” The idea percolated for several years after he left the brewery in 2004. He banded together with a few other Lyons residents who were looking at opening a distillery, and they started shopping for equipment from brand-name still manufacturers, which turned out to be cost prohibitive. “We looked at all of those, and they’re just so expensive,” said Engelhorn. “I told my partners, ‘If you buy me some copper, I’ll just build one.’ I learned how to pound sheet metal and learned how to weld copper,” and he eventually crafted their 15.5-gallon gin pot still, an 800-gallon pot still for stripping, and a 150-gallon finishing still. “All the stills we’re using in production, we built … we solve our own problems.” They got brewing equipment from Rock Bottom Brewery in Cleveland, and started “essentially making a Scottish-style ale without any hops,” he said. “Our approach is a bit different because I come from the beer world. I have a kettle and a boil, which is unusual.” Their flagship is a straight malt whisky, in part because of the twoyear “straight whisky” age requirement. “It was a way to force us to keep our fingers out of the stuff,” he said. He doesn’t source his spirit, and insists on 53-gallon barrels. Spirit Hound’s whisky hews closely to
“I used to tell people that alcoholic beverages like me to make them. I can’t explain it any other way.” — Craig Engelhorn SPIRIT HOUND DISTILLERS
the all-malt Scotch tradition. “I feel personally that the best way to have a solid business is to have a quality product. Corn’s great for sugar and all, but we don’t make corn beer,” Engelhorn said. His whisky is spelled without an “e” in part because that’s how the federal government spells it, but primarily as a nod to the spirit he’s inspired by. “It has a little bit of character like a Highland Scotch.” All of their malt comes from Colorado Malting Company, which accommodated them in adjusting how much peat smoke Spirit Hound’s malt received. It’s Colorado whisky from grain to glass. “It’s nice to work with the small guy, and they’ll tailor their product to your needs,” Engelhorn said. In addition, he has a White Dog whisky, gin, sambuca, Mountain Bum Rum, and he also blends Richardo’s Decaf Coffee Liqueur. “We decided to go the route where we have some clear spirits, those products we can produce and get onto the shelves quickly,” Engelhorn said. “Our gin recipe is basically my second attempt. I made a batch and liked it a lot. I tweaked it, and liked it even more. I used to tell people that alcoholic beverages like me to make them. I can’t explain it any other way.” “We’re playing with a couple of other products, as well,” he said. “We’ve held a few barrels back. We’re only four years old. We don’t have a four-year whisky, I don’t know what that’s gonna’ be. We’re putting up a four-year rye whisky. I’m super excited about the rye.” Currently, Spirit Hound’s whisky is all bottled as a single barrel. When he has people in for tastings, he’ll provide samples of four different expressions plus their white whisky, all of which are made using the same recipe. “As we move to the future, I might sit down and try to develop our house flavor,” he said. “For me, whisky’s the passion. Malt whisky is where we started, it’s our flagship product.”
P H O T O S C O U RT E S Y O F S P I R I T H O UN D DI ST I L L ERY
A BASEMENT FULL OF MUD As with all new businesses, Engelhorn and the Spirit Hound team faced WWW.ARTISANSPIRITMAG.COM
plenty of hurdles getting started and established. They had to learn about distilling, figure out their recipes, and settle on the flavor profiles for their spirits. And then, less than a year after opening, there was “the great flood of 2013.” In early September of that year, Lyons and nearby Boulder were hit by a 1,000-year storm, receiving nearly as much rain in a week as they would normally get in a year. Flooding isolated Lyons, destroyed dozens of homes, and left the devastated town without utilities for months. “We’d been in business for eight months, and we wound up with a building with 18 inches of water and mud,” Engelhorn said. “There were moments where I thought, maybe we’re just not going to make it. The equipment was OK. We lost some finished product — bags of malt and raw materials.” He stayed at the distillery during the worst of the storm, putting on his rubber boots — which came just above the water level — to assess the situation. Pumps were submerged and would be fine after cleaning, tanks were alright, but there were six whisky barrels on racks and one rum barrel. “The bottom two barrels, barrels one and two, were in a few inches of water, and the rum barrel was on the floor, maybe half submerged,” he said. “I looked at the rum barrel, sitting on the floor in the water, and my gut reaction was, ‘Oh God, we’re gonna’ lose all that.’” Luckily, they bottled the spirit five months later, and had the local fire department sign the first two cases to be auctioned off. “We
decided to use it as a vehicle to support our community,” he said. “They lost a building in the flood, they kind of became our charity of choice. We gave them bottle number one, which hopefully the chief enjoyed.” While the distillery weathered the storm, it did put a big dent in their production. “Because of the flood, between barrel six and barrel seven there was seven or eight months delay,” Engelhorn said. Holding back barrel number one, in 2015 he released their first batch of five barrels, dubbed “flood-proof.” They threw a big party at the distillery with food trucks, bands, a cigar bar, and park space rented for camping and parking. “It was in August, nearly two years after the flood, and the community rallied around that,” Engelhorn said. “I was a little nervous. It seems like a whisky party could be a disaster, but we had no problems. I think it exceeded their expectations. It turned into a record sales month in one day.” Spirit Hound sold 500 bottles that day out of a total run of 1,400. Engelhorn had to stop bottle sales after a few weeks so that they could keep it on at the tasting room. “That kinda’ stretched it out almost until the next release,” he said. “We’ve built a little bit of a pent-up demand,” and he expects the demand to be there as he continues to ramp up whisky production. “This has been a great year. We’re seeing a lot of traction, and we’re thinking about other markets to enter,” he said. “Part of trying to grow in an organic fashion is being able to back it up. It’s hard, because small business cash flow limits what we can support.
And how do you predict in three or four years what your sales might be?” Engelhorn says the local response has been wonderful, telling that bottles “fly off the shelf.” Right now, their bottles are sold in the tasting room and at on- and off-premise accounts statewide. Measured growth is the goal, though. Engelhorn has seen breweries and distilleries that grew so rapidly the businesses turned into stressful nightmares, and he’d much prefer to grow organically to fit their market. “I’d like to continue to grow, and I don’t know what our upper limit might be,” he explained. “We just have to do it as we can afford to. We can grow quite a bit without having to rip everything out. The bottom line for me is, I want to keep making sure we continue making a top-quality spirit.” He’s still staying connected to his roots, too, working with local breweries on a variety of projects. “When we first started, we brewed a wash at Upslope in Boulder,” said Engelhorn. “We would load up a local guy’s biodiesel-powered truck with grain, and haul an empty bulk milk tank over there. Once we had some empty barrels, we got them over to (Upslope). They did a Scotch ale with some peat smoked malt and aged it in two of our barrels.” BJ’s Brewing has a dortmunder double alt in two Spirit Hound barrels, too, and City Star Brewing has beer aging in rum and whisky
barrels. They also had Engelhorn distill some raspberry wheat that was brewed for a national women’s brew day. “The spirit that came out of it was phenomenally interesting,” he said, noting that they’re not done yet. “We have some other collaborations in the works.”
Spirit Hound Distillers is located in Lyons, CO. For more information, visit www.spirithounds.com or call (303) 823-5696.
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WHY YOU NEED A BUSINESS PLAN WRITTEN BY JEFF CLARK
f you are planning to expand your existing distillery or open a new one, your first step should be to develop a comprehensive business plan. Any business project that requires a substantial financial investment and is expected to return a profit should produce a business plan before spending any money. Failing to plan means that you are planning to fail. Your business plan is your blueprint for creating profitability and success. Without a detailed blueprint, how do you know what you are building? Here are five important ways a business plan can help you succeed.
IT ASSERTS THE FEASIBILITY OF YOUR PROJECT.
A well-crafted business plan requires you to think through and document a range of logistical requirements for your project in order to establish its viability and ascertain its likelihood of success. Your business plan will answer certain market-related questions such as: product are you crafting, »»What why is it unique and what are the demographics of those who will want to buy it?
will you distribute your product: »»How direct to consumer, direct to retail or via the three-tier system?
price points and product »»What categories will you be competing in?
is your competition and how do »»Who you plan to market your business? regulatory considerations do »»What you face? »»How will you measure success? »»Who’s your management team? much capital do you need to »»How complete your startup or expansion project?
are the projected monthly »»What income and expenditure figures for your business upon completion of your project? By carefully researching and documenting the answers to these questions in your business plan, you gain an understanding of the true potential of your company and can initiate your project with greater confidence.
IT ESTABLISHES A BASIS FOR NEGOTIATING WITH LENDERS AND INVESTORS.
Most likely you will need a significant amount of capital in order to start or expand your distillery. The business plan forms the basis for negotiations with potential lenders or investors. It details your business objectives, market research, and plans for staffing, marketing, and cash flow management. If thoroughly researched, it provides a foundation for determining the potential value of your business, and
conversely, the level of risk your lender/ investor would be undertaking in funding your project. When selecting your lender, look for a lending institution that is familiar with the spirits industry, as they are more likely to understand your specific situation and financial needs. Additionally, lenders who specialize in the distillery category may be able to help spot potential flaws in your rationale or project calculations, possibly saving you valuable time and money in initiating your distillery buildout. The same holds true for potential investors. Do they understand the spirits industry and the ramp up time involved (especially if you are aging spirits, which may delay the return on their investment)? “Impatient” capital is not a good match for a long-term endeavor.
EXPECTATIONS FOR 3 ITCASHSETSFLOW MANAGEMENT. The business plan is a living document that should be updated periodically to reflect changes in the company vision, circumstance and cash flow projections. As a living document, it also serves as a guideline for cash flow management, identifying funding resources and projected outflows for the business over a period of several years. Understanding the cash flow of your business allows you to respond more quickly and appropriately to market trends and opportunities. You are also better positioned to plan your next WWW.ARTISANSPIRITMAG.COM
stages of growth. As with any major business initiative, you will undoubtedly run into surprises along the way. How will you retain shelf space if your sales skyrocket and you cannot produce enough product? What if your distribution channels are not timely in selling your product, thereby reducing cash flow? Your business plan should provide spending parameters and account for contingencies to ensure adequate funds are preserved for critical investments that will support your distillery’s ultimate success.
IT SERVES AS AN IMPORTANT COMMUNICATIONS TOOL.
Many small business owners find there are times when they need to effectively communicate the mission and expectations of their company to customers, suppliers, attorneys, distributors, and other third parties. The business plan, partially or in whole, provides a thorough overview of your company’s vision for its future. It can therefore be a valuable tool for giving employees a broad view of the company, educating key partners and suppliers about the scope of the business, and informing financial supporters of your specific plans for future success. Again, the business plan can be considered the blueprint for that success, describing in detail what it will look like and how it will be built.
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IT DRIVES YOU TO FOCUS ON 5 YOUR DISTILLERY’S FUTURE. Whether your vision is to run a small, profitable local distillery or become a leading industry competitor, the only way to ultimately control the outcome of your business undertaking is to plan for it. In the end, this may be the greatest value offered by your business plan. By documenting your ideas and strategies – what you want to see happen and how you plan to get there – you are taking control of your future and placing the power to direct the final outcome in your own hands. By comparing actual results to projections, you receive a perspective for making educated decisions going forward. These are just a few of the most important reasons for creating a business plan. You might also consider the benefits your business plan can provide in outlining specific objectives for managers, key investment decisions such as whether to rent additional space or distribute, valuing your business for estate planning and tax purposes, or defining your personal exit strategy. Developing a thoughtful business plan can help you focus your vision for the future and positively impact your level of success. If you haven’t already done so, get started on your distillery’s business plan today. For instructions on how to write your business plan, look for our second article in this series called “How to Build a Sound Business Plan for Your Distillery” in the next issue. Jeff Clark is craft distillery domain expert at Live Oak Bank. Live Oak Bank is the second largest Small Business Administration (SBA) lender in the United States and the top SBA lender to craft brewers nationwide in 2015 – Member FDIC. WWW.ARTISANSPIRITMAG.COM
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Reviving a Centuries-Old Tradition
CRAFT ABSINTHE TEN YEARS IN W R IT T E N
G A B E
T O T H
A decade after being legalized,
absinthe remains a misunderstood spirit for many Americans, but that’s not stopping craft distillers in the United States from reaching back hundreds of years to revive and reinvent it. Some, such as Philadelphia Distilling Company’s Vieux Carré, and Cascadia Artisan Distillery’s (Bend, OR) Vilya Spirits Absinthe Verte and Absinthe Blanche, are strongly tied to the Old World traditions. At Philadelphia, distiller Bill Tambussi said they have some deviations from what would have been standard in 1850, but added that “we want to make sure we keep everything true to what the spirit is. We import all but three ingredients from the Alps.” In addition to the “holy trinity” of grande wormwood (Artemisia absinthium), green fennel and aniseed, they also added star anise to the initial infusion/distillation, bringing a richer anise character and more anethole, the chemical compound which gives anise and fennel their signature flavor and creates the cloudiness, or louching, that occurs when absinthe is diluted. “That helps a lot — ours is a lot more naturally sweet and not as bitter as the old stuff,” said Tambussi. They also add an extra, nontraditional type of artemisia — genepi, more commonly used in the alpine herbal liqueur that bears the same name — to the final coloring infusion, along with petit, or Roman, wormwood (Artemisia pontica), lemon balm and mint. “Our amounts of lemon balm are a little higher,” Tambussi said. “You can really get some of that lemoniness at the end from the secondary maceration. We use two types of génépi. One is grown in France, and there’s a farmer down in Virginia who grows the other, so we use an American genepi, also. There’s a slightly different flavor. It’s all about doing it the traditional way, trying to match old-school with new-school.” At Cascadia, formerly Ridge Distillery, it’s been about the botanicals from the beginning. Owner and distiller Jazper Torres said he and a group of friends, including co-founders Julie and Joe Legate, began learning about absinthe and its ingredients about 10 years ago, and started studying what was growing wild in Montana. Their curiosity turned to the cultivation of various botanicals, which became Ridge Herbs. “We were all kind of getting interested in absinthe together, and we were ordering it from Europe and dabbling in it, trying some really good stuff and some really bad stuff,” Torres said. As a naturopathic doctor, he was already familiar with some of the traditional ingredients. “I have a lot of background in herbs, and we discovered that there was wormwood growing in Montana,” he said. “We started researching other alpine herbs. It did start with the herbs, but there was always a curiosity there,” which turned into Ridge Distillery. After the Legates decided to take a step back, and another distillery asked him to change the name, Torres opened Cascadia Artisan Distillery in Oregon. Their green and white absinthes are sold under the name Vilya, which is Slavic for woodmint. “Pretty much everything that we do, we just read the books and tried to find out what the old masters were doing,” he said. “Some simple things that just make a huge difference in the final product. Someone from then could come in and mostly know how to do everything. We don’t have expensive stills, we don’t have expensive equipment. Not taking shortcuts makes a big difference.” — TODD LEOPOLD He uses a variety of botanicals that the Legates still grow in Montana, and is in LEOPOLD BROTHERS
“ For me,
personally, it’s enjoyable to make. It has such a long and interesting history. These old traditions are fascinating.”
“ Old traditions
are wonderful, but it’s the duty of the artisan distiller to create new traditions, or at least not to stick to old traditions just because they’re there.” — LANCE WINTERS ST. GEORGE SPIRITS
the middle of transitioning the growing operation to an area outside of Bend with a similar altitude and growing conditions. Between the two locations, they have genepi, grande wormwood, petit wormwood, lemon balm, costmary, angelica and elecampane. His fennel and green anise also come from other suppliers in Oregon. “There are more ingredients that go into the blanche than the verte, so there’s complexity there, but it takes a seasoned absinthe drinker to get it,” Torres said. The blanche includes genepi and is very fennel- and anise-forward. “With blanche in general, being not quite as traditional, we have a little bit more leeway there. It has its own unique history,” he said. “Blanche I never offer with sugar, because it has so much of that anethole coming across.” With the verte, “there’s going to be more earthy, buttery, citrusy herbal tones that come across. That creamy sweetness is moved to the back a little bit more, and doing our tastings we do offer a little sugar with it. They’re really two very different products, and the sugar with the verte really does give you three very different tastes.” For Todd Leopold of Denver’s Leopold Brothers, the opportunity in 2007 to create an absinthe for production was enough reason to develop one: “For me, personally, it’s enjoyable to make. It has such a long and interesting history. These old traditions are fascinating.” Leopold takes a nonstandard approach by resting the finished absinthe in used chardonnay barrels, and he also imports pisco, a South American brandy, to use as its base. It’s distilled to a lower proof than the traditional grape base used in France, leaving a touch more character in the spirit. “I just think the mix of fruit and floral notes you get is great,” Leopold said. “It’s very wormwood-forward. I wanted to make something that was traditional enough, but find an interesting way to get there. Everybody’s going to do some different things, and that’s good for it. People are trying to find something unique.”
A BREAK FROM TRADITION Other entries in the craft absinthe market, including St. George Spirits’ (San Francisco) first-on-thescene absinthe verte and Letherbee Distillers’ (Chicago) barrel-aged absinthe brun, are respectful of the old ways, but clearly break from tradition. Brenton Engel, founder of Letherbee Distillers, makes his absinthe in a strictly old-school way until the final stage, when he takes a singularly American approach to finishing it. “It's a marriage of a couple classic French recipes,” he begins. “We use only the ‘holy trinity’ of absinthe herbs — anise seed, wormwood, and fennel,” adding, “To my knowledge, it is the only absinthe in the world that is aged just like bourbon in new charred American oak barrels.” While there are distillers in the U.S. and Europe using barrels to rest or store their absinthe, he is looking for a truly unique expression. “I assume in any European barrel-aged absinthes most of the barrels used are: 1. French/Hungarian oak. 2. Used many, many times. 3. Not charred.” he said. “We wanted to really put an American stamp on it … In a large way, the decision to barrel-age our absinthe was directly inspired by Tad Seestedt and his Ransom (Old Tom) gin. As a bartender, I loved Ransom gin. It was a perfect gateway to gin for whiskey drinkers. Naturally, we see our absinthe in many a Sazerac cocktail.” “Ours is definitely a reaction against the overly-sweetened, syrupy, anise-bombs of the absinthe world,” continues Engel. “We don't add any sweetener and we highlight the grassy and floral notes of distilled wormwood. While anise is the most obvious aromatic, we keep it all reigned in to balance the charred oak of the barrel.” He said working as a bartender with fresh ingredients was an inspiration for what he went on to do at Letherbee: “Working behind the bar at a restaurant offered me the opportunity to use ‘food’ ingredients in our cocktail program. It was a very farm-to-table restaurant and highlighting fresh seasonal ingredients was the highest priority of the owner-chef. I fell in love with making bitters, tonics, syrups, etc. The witchcraft behind it all is a very satisfying mixture of art and science … At Letherbee, we focus on booze made with
botanicals. Absinthe being one of the underrepresented classics, we couldn't pass it up. Hopefully, we offer a product that helps get people interested in absinthe's variety, history, future, etc.” At St. George Spirits, coming out with the first domestically-produced absinthe in nearly a century didn’t mean their recipe development was stuck in 1912. Master distiller Lance Winters had been experimenting with herbs on a lab still for quite a while, focusing on developing and elaborating on the anise character with unique additions. “The sweet fennel character is always going to be there because of the core botanicals,” he explained. “The overarching flavor is coming from anethole, and there are a lot of other plants that create anethole. Being able to put tarragon in the mix, and opal basil, they both have an anethole character but they also have their own character.” Winters describes the flavor profile as a Venn diagram, with anise character as the overlapping factor, and other ingredients bringing their own subtle but distinct notes. “You’re making a broad flavor profile that all has a common meeting point,” Winters said. He uses a chardonnay brandy for the base, and substitutes star anise for green anise. Both choices bring their own unique touch of citrus. He said the original experiments weren’t intended to lay the groundwork for a new product, but to play with ingredients and see what works and what doesn’t. He started with a very old recipe that had been reprinted in a magazine, made it, and started elaborating on it. It helped him and the St. George staff improve their understanding of how to balance ingredients, lessons they applied to gin and aperitivo. “Old traditions are wonderful, but it’s the duty of the artisan distiller to create new traditions, or at least not to stick to old traditions just because they’re there,” he said. “I take the same approach with this as I do at home in the kitchen. I’ll start with a good recipe, and then learn how to make it my own.” “The real purpose for there being distillers like St. George Spirits is to shift the paradigm from what’s on the market right now,” Winters continues. “You don’t do that by making what’s already available … There’s a balance of big loud flavors that balance in a well-crafted absinthe. The things that we do in our lab rarely have anything to do with what can or should be sold at any given point. It’s really about what guides our passion in this.”
A TOUGH SELL Whether it’s a strict classic, a bold new American take, or, most likely, something in between, craft distillers are producing absinthe because of their passion, sometimes as a pet project. For most, it’s a stable but lowvolume mover. “For us,” said Leopold, “it’s been one of our steady sellers, and steadily increasing.” However, he said most distillers will describe their stock as “manhole covers.” “They’ll just sit and sit. They won’t move,” he said. “Absinthe is a niche within a niche ... I certainly would think long and hard about entering the market.” He notes the price point — in the same range as a good single malt whiskey — as a hurdle for sales, given that the botanical load is “through the roof.” He still believes that it has potential for strong growth, though: “The market is going to change. It’s still in its infancy. We’re still just scratching the surface. It’s wide open, in that there are hundreds of thousands of bars and WWW.ARTISANSPIRITMAG.COM
“ The market is a
little different than, say, your gin or whiskey market. There’s not as many pure-absinthe cocktails. Black licorice flavor isn’t liked by everybody, so your market’s not as widespread as you might find when you look at traditional drinks over in Europe — ouzo sambuca, raki — they’re all that black licorice flavor. It used to be their medicine. There isn’t as much exposure to that flavor over here.”
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restaurants. If they all start pouring Sazeracs and Death in the Afternoon” it will lift all boats. Philadelphia’s Tambussi sees a limit to cocktails pushing absinthe growth, but said the flavor and lack of understanding seem to be bigger hurdles where he is: “You get a lot of people that are intrigued by it. There’s not too much education on it here, you get people on tours going, ‘Oh, absinthe, I’m going to hallucinate.’” “The market is a little different than, say, your gin or whiskey market,” he continues. “There’s not as many pure-absinthe cocktails. Black licorice flavor isn’t liked by everybody, so your market’s not as widespread as you might find when you look at traditional drinks over in Europe — ouzo sambuca, raki — they’re all that black licorice flavor. It used to be their medicine. There isn’t as much exposure to that flavor over here.” Torres at Vilya has seen a definite change in the market when working events in the Pacific Northwest instead of Montana. He sees more curiosity and intrigue from tasters and would-be customers, but overall demand remains “relatively small.” “It’s certainly not our careers, it’s our hobby,” he said. For Engel of Letherbee, using the traditional louche method is an effective way to drive sales: “I actually think the theater of using absinthe fountains is probably the easiest way to pique someone's interest in the whole thing.” At St. George, Winters saw a dip in sales after the initial rush following legalization, but has since seen their numbers recover. “Maybe we established a foothold in the market really nicely as the first domestic product on the market,” he said. “The sales in the first year were huge, and then they tapered off. Since we developed our own sales team our numbers are back up to what they were.” “As far as the consumer goes and the bartender goes, it’s been really well received. It’s probably one of the top domestic products,” he said. When they were preparing to release it in 2007, he saw the extent of misinformation that existed — and largely still remains — for the average consumer. “We’re 10 years into absinthe being legal in this country, and there are still people who don’t understand that it’s real absinthe and it’s legal.” “People were showing up thinking that they were going to hallucinate, and they were lined up at our distillery,” Winters said, explaining that he feels spirits in general remain very misunderstood. “I think people are willing to learn. The biggest impediment to growth is bad absinthe. You can say that with any category, but I think absinthe is higher on that scale. I think it’s about getting good absinthe to people’s palates before they get polluted by those products.” Gabe Toth is a distiller and former craft brewer with a passion for fermenting and transforming ingredients, which also extends to sausage and meat curing, cheese making, and pickling. He can be reached at email@example.com.
U S A T O D AY ’ s
10Best Craft Distillery Awards Distillers and consumers often have different perceptions of the value of spirits awards. What happens when fans are the judges?
his past summer, USA TODAY chose craft distilleries as the focus for their 10Best Readers’ Choice awards, a competition where consumers vote for their favorite restaurants, travel destinations and more. Since USA TODAY is a well-known mainstream media brand reaching millions of people, the featured craft distilleries — and the craft distilling industry as a whole — received a significant boost of exposure. Over 163,000 votes were cast during the four-week competition, spread throughout five categories: gin, rum, specialty spirit, vodka and whiskey. Artisan Spirit Magazine editor Brian Christensen and several other spirits industry experts each chose 20 craft distilleries per category, then the 10Best team narrowed their selections down to the final 20. Distilleries were allowed to promote the competition and encourage their fans to vote, but they could not offer any incentives.
W R IT T E N
C H R IS
USA TODAY 10Best Readers’ Choice Category Winners: GIN
“In other competitions, you’ll see nominees giving away prizes or other incentives in exchange for votes,” said Readers’ Choice production manager Lydia Schrandt. “This type of practice isn’t allowed in our Readers’ Choice contests, and we’ve disqualified nominees in the past after discovering such practices.” Schrandt says people respect the 10Best because it’s not a pay-to-play competition. The crew doesn’t solicit nominees from PR companies or similar firms, and a business cannot buy their way in. Competitors have to be nominated (usually anonymously) by industry experts, then they are reviewed by the 10Best team before they are allowed to participate. “Our editors’ goal is to highlight the best of the best in each category, regardless of what those businesses
St. Augustine Distillery St. Augustine, FL
Wicked Dolphin Rum Cape Coral, FL
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St. Louis Distillery St. Charles, MO
Balcones Distilling Waco, TX
are or are not willing to pay,” said Schrandt. “Often there are thousands of options, so getting recognized in the top 20 is already a significant achievement.”
Encouraging Fans to Vote
Let us do you a FLAVOR
Between mopping up after Hurricane Matthew and getting back to business, St. Augustine Distillery’s director of communications Kara Pound said it’s too early to tell how being selected as 10Best’s “Best Craft Gin Distillery” will affect their sales, but she and the crew are certainly proud of the title. “We’re a close-knit group, we’ve all been building this company together over the past two and a half years, so it was nice to be recognized for all of the hard work that we’ve done,” she said. Pound manages social media for the distillery, which has a lively tasting room in St. Augustine, Florida, a bustling tourist destination. Due in part to all their foot traffic, they have over 20,000 followers on Facebook and a mailing list which includes nearly everyone who has visited the distillery. That wide reach is part of what helped them win the 10Best, but Pound believes fans were also encouraged to vote because they were approached in a measured way. “I sent two emails asking our guests who had already toured our distillery and were familiar with our brand and our spirits to consider voting,” tells Pound. She also created two unsponsored Facebook posts which were shared frequently, but those were the only four electronic communications St. Augustine Distillery had with fans asking for their votes. Pound believes limited, intentional contact is actually more effective than constantly prodding fans to vote. She advises other distillers to communicate with their fans the same way they want companies to communicate with them. “People start unfollowing you if you’re posting too much,” she explains, emphasizing the importance of not straining the relationship a distillery has with their fans. “I think there’s absolutely a limit.”
Choosing a Credible Competition
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Pound says that being selected for the 10Best was an honor, and she thinks general consumers likely trust the USA TODAY 10Best brand more than they trust accolades from industry competitions they aren’t familiar with. “What the industry considers to be impressive or eye-catching might not be for a consumer just walking into a liquor store,” she explains. That said, St. Augustine Distillery does see a lot of value in entering reputable industry-centric competitions. “We are selective — we definitely choose competitions that have credibility,” she said. The St. Augustine crew typically asks distributors, suppliers, and other industry peers if a prospective competition is credible before entering. Pound recommends other distillers do their due diligence, as well. “In this industry, everybody has an awards competition WWW.ARTISANSPIRITMAG.COM
nowadays,” she continues. “Do your research before you’re paying money and sending your spirits.” While most of the spirits competitions distillers enter are governed by selected judges, other fan-based competitions like the 10Best also exist. To decide what level of credibility fan-based voting competitions have, look into their rules regarding competitorvoter relationships, and see if there are checks in place to ensure the voting is genuine. At least one distiller competing in the 10Best was approached by businesses offering to sell them thousands of votes at a time. This is something 10Best does not allow, and they have ways to police it. “With online voting, there’s always a risk of fraudulent votes,” Schrandt explains, telling that they use IP address markers and other methods to suppress cheating. “We monitor all votes to validate they are coming from real readers.” Schrandt says they also monitor online commentary. Readers can write what they wish in the comments sections, but when it becomes offensive and combative the 10Best team does step in to moderate.
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Good Results In addition to the exposure generated by the voting, the competitions were featured on the 10Best website, in USA TODAY’s print edition, in USA TODAY Travel, and through local Gannett news networks around the U.S. During and after the competition, unaffiliated local news networks and tourism bureaus also boasted about local featured distilleries, creating an even wider reach. The 10Best team also created additional content to promote the competitions. They published an article about how small distillers are shaking up the industry, created a video guide about American whiskey, and made videos featuring cocktail recipes and mixology techniques. Of the 20 distilleries chosen for each category, the top 10 were ranked according to their vote results. Each of the entrants has the option of using the USA TODAY 10Best logo on their packaging and in their marketing. Distillers must pay to license the logo, and rates vary depending on use. Distillers and consumers often have different perceptions of the value of spirits awards, but since the fans ruled here — instead of potentially unknown spirits judges — the response from both consumers and distillers has been very positive. After the voting ended, many of the featured distilleries responded warmly via social media thanking fans for their votes. Pound said being featured was an exciting affirmation of St. Augustine Distillery’s work and vision. And since the people they reached out to for votes were actual fans, she says the win is very special. “Everyone we touched and asked for support are people who are familiar with our brand and our story,” she said. “I think there’s a lot of hometown pride for it.”
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Financing Your Indie Brand WRITTEN BY STEVEN SEIM
t the Chicago Indie Spirits Expo in September, several industry experts hosted a panel regarding brand financing. Panelists included:
Lew Bryson beer and spirits writer
Paul Hletko American Craft Spirits Association (ACSA) president and Few Spirits (Evanston, IL) founder
Josh Morton Barrow’s Intense Ginger Liqueur (Brooklyn, NY) founder
Scott Winters founder and CEO of The American Spirits Exchange, Ltd.
Dave Schmier co-founder of Redemption Rye and co-founder of the Indie Spirits Expo This experienced and diverse group gave advice and answered questions related to gaining funding, things to be aware of, and creative ways to get the money you need to start your distillery. The panel started by reiterating a point which Have a very clear goal is always important: Have for your business. a very clear goal for your business. Clarity is the key regarding investors. The more details the better, so that any potential investor can know exactly what you’re offering and the chances of making a return. Panelists then covered less common ways to finance a distillery. Purchase order factoring was described by Winters as the option to borrow against your own shipped product. The advantage is that you get paid for a product on day one instead of waiting for normal payment later. The cost of the loan is the trade-off for the faster payout. Barrel financing was also discussed, and one panelist commented
that they had yet to see really successful returns from this practice. Since banks don’t have the proper permits to sell alcohol, it can sometimes be difficult to find those who are willing to take your barreled product as collateral. Some banks don’t want to take on the challenge of handling alcohol if a debt defaults. Regardless of what kind of financing your business ends up using, many on the panel agreed that it will usually be necessary to offer personal assets and guarantees as collateral, so you’ll have to think very seriously before pursuing those means. Many young distilleries can take Take advantage of various advantage of various local city or state programs. local city or state programs meant to help small business. Help for altering a building, local marketing, networking, and more are all available through many local organizations. In some places the Department of Agriculture will guarantee up to 95 percent of a loan if a business is on farm land and uses resources from that state. One panelist also recommended leasing equipment instead of buying, which can help lessen upfront costs. While it may not be best for your business to lease a still, leasing less crucial equipment like a forklift can help save money over buying. When asked about the process of deciding a breakdown of percentages in equity for initial investments, Hletko described the method he used when starting. While you can never be sure of how a business will grow, he decided on an amount of business that he hoped he would be at in 10 years. Estimating how much it would cost to do that much, which is largely a guess, led to the dollar figure he started with. From that number he decided on debt versus equity versus personal loans and the structure of the business. Hletko also described the process he’s gone through of finding money after some success. Being named Craft Whiskey of the Year by Whisky Advocate meant a big surge of new orders that Few Spirits wasn’t able to fulfill right away. Showing a bank almost $1 million of unfulfilled purchase orders made it a lot easier for Hletko to find banks willing to lend. WWW.ARTISANSPIRITMAG.COM
Hletko also described the differences between starting a distillery a few years ago versus now. Because of changes in pricing, competition, the number of people entering the business, and the new variety of business models, Hletko said he wouldn’t start a distillery today with less than 10 times the money he started with just a few years ago. The panel discussed awareness of how much a person can invest before it may be necessary to add their name to your DSP license application. Usually, the threat of any legal responsibility (or liability) of having your name on the license deters people from wanting to invest too high a percentage, which is useful for any owner to help keep percentages favorable. This is also useful if friends or family want to invest; mentioning the extra paperwork will usually keep someone from offering to meddle too much. In regards to relying on your local state Rely on your local state guilds for help and guilds for help and advice. advice, the panel all agreed that it was important. Besides the ability to help any one specific distillery, guilds are important for helping to change laws that benefit the industry altogether. Two states right next to each other can have laws so varied that a successful business plan in one will fail in the other. The ability to sell to retailers and consumers, for example, can be a big difference in revenue. In fact, the panel mentioned examples of people who actually moved to another state just to open their distillery, so it is a possibility to be aware of. Morton, who recently gained capital through A successful crowdfund crowdfunding, said that campaign can raise besides securing the money and pubilicity. money, a business can take advantage of the publicity that comes with a successful crowdfunding campaign. Many of the 350 people who contributed to his crowdfund might not have known about his brand before, but now they’re all like brand ambassadors. When someone asked about concerns regarding tied-house laws, the panel didn’t think that should stop anyone from crowdfunding. There are some options if anyone is concerned however, including creating a separate LLC in order to receive the funds, or to only crowdsource a specific aspect of a business, such as marketing. While asking for money likely won’t be your favorite part of owning a distillery, it is almost always essential, and there are many people who can offer help and advice. If your distillery is in need of capital, don’t hesitate to reach out to organizations in your city, and keep in touch with your state guild.
Distillery start-up costs have changed in the last few years.
If you missed the Indie Spirits Expo this year, you can attend next year in Chicago, Las Vegas, and New York. For show dates and more information visit indiespiritsexpo.com. WWW.ARTISANSPIRITMAG.COM
s ’ t a wh shakin’?
WRITTEN BY RENEE CEBULA
n the 1934 movie “The Thin Man,” sleuth Nick Charles (played by William Powell) instructs a group of bartenders on how to properly shake different cocktails: “See the important thing is the rhythm. Always have rhythm in your shaking. Now for a Manhattan you shake to a fox trot time; a Bronx, to a two-step time; for a dry martini, you always shake to waltz time.” Modern mixologists might not agree with Charles’s rhythmic recommendations, but all would vouch that a good cocktail shaker is essential. Mixing of drinks, after all, implies some method of combining spirits and ingredients. America’s first mixed drink was the punch, dating back to the 1600s. Ingredients were combined in a large bowl, and usually stirred. The easy-to-recall ingredients “one of sour, two of sweet, three of strong, four of weak," made rum punch the drink du jour of Colonial America. Cobblers, cups, flips, noggs, fizzes, juleps, shrubs, slings, smashes, and toddies rounded out the genres of mixed drinks into the 19th century. If your preference was a drink shaken, the method was to have two tumblers or metal cups with handles (often tankards), one of which held the ingredients while the other was empty. Bartenders poured the concoction back and forth between the two, sometimes even making an arc called a flare, which brought the tradition of showmanship into mixology. The 19th century ushered in the professionalization of the bartending trade, and the first published bartending guide arrived in the hands of eager bartenders in 1862. Jerry Thomas, considered the father of American mixology, had crisscrossed the country bartending in hotel bars from New York to San Francisco to New Orleans. While bartending in San Francisco, Thomas became famous for his Blue Blazer, a flaming concoction which leveraged the flare in a big fiery arc as it passes from one cup to the other. By the mid-1800s, ice harvested from frozen winter ponds and transported by railroad entered the bar scene, and a new genre of drink was introduced: the cocktail. In his 1862 bartending guide, Thomas explained, “the ‘Cocktail’ is a modern invention, and is generally used on fishing and other sporting parties.” This new age of professional bartending and the introduction of cocktails intersected with the era of innovation and invention in America. Electricity was lighting up cities across an expanding nation, people were communicating via
telephone, and revolutionary steelmaking processes were reshaping cityscapes with tall skyscrapers. At home, domestic life was changing with the emergence of household timesaving devices. At fancy downtown hotel bars and workingman’s saloons, innovations were impacting the bartending trade, as well: The popularity of cocktails demanded a more efficient method of shaking for busy bartenders. In December 1872, William Harnett received a patent for his apparatus for simultaneously mixing six drinks on a turntable. Between the 1870s and 1920s, dozens of patents were issued for cocktail-related tools and equipment, with the majority pertaining to the shaking of drinks. While there are many different cocktail shakers, they all fall into three categories. The Boston shaker, sometimes favored by professionals, consists of a pint glass and tin tumbler. Cobbler-style shakers are three-piece setups that include their own strainer, and they are most common in the home bar. The French shaker consists of two tins, and they are also a favorite of professional mixologists. The 1920s Prohibition era was the golden age of cocktail shakers. All sorts of shapes, sizes, and types were created for bartenders and common folk, alike. It was the birth of the home bar, where cocktail shaking skills and drinking rituals were as much symbols of the Roaring ‘20s as was the flapper or the Model T. When Prohibition ended in the mid-1930s, cocktail shakers continued to evolve, with dozens more patents issued — many with mid-century modern designs. This all leads to the question: Why are some cocktails stirred while others are shaken? Stirring versus shaking is about chemistry. The rule of thumb is stir for spirit-to-spirit, and shake for spirit-to- juice, egg, or dairy. When shaking, the idea is to quickly move the contents inside the shaker from one end to the other. This complex movement allows air to be incorporated, resulting in an ice-cold frothy libation. Much like what you do at your artisan distillery, this marriage of skill, proper tools, and quality ingredients is what craftsmanship in a cocktail is all about. The birth, evolution and purpose of the shaker is an excellent opportunity to talk cocktail history with your customers. Consider providing them with information about what cocktails can be made with your spirits, and pair that with a bottle and a shaker. If the law allows, boxed sets containing your spirits, a shaker, and a collection of cocktail recipes make excellent gifts, and may be just the thing to get your clientele shaking for the holidays. Renee Cebula is a cocktail historian. She is the owner and curator of Raising the Bar: Vintage & Badass Barware. FB: Raising the Bar Northwest, Insta/Twitter: badassbarware, raisingthebarbarware.com. WWW.ARTISANSPIRITMAG.COM
WOOD, SPIRIT OR ENVIRONMENT
What Determines Final Product Quality? W R I TT E N BY PAU L H U G H E S , P H . D .
A question commonly posed by distillers and consumers alike is, “What are the relative contributions of wood and spirit to the final quality of a matured product?” To be fair, there is some sophistry here, not least as to what the category of “matured product” is (e.g., whiskey or brandy or tequila?), and whether there is a blending operation involved to create the final brand. For the purposes of this article though, I will restrict the discussion to whiskeys. It should be noted here that I do not intend to wade into the debate about an exact percentage contribution of each to final whiskey quality, for the simple reason that I do not think that this can be anything other than a subjective answer. A car cannot
function without wheels or an engine, it needs both. So both wood and spirit are needed to create what we call whiskey. Before I move on though, if you are tempted to put numbers to this, bear in mind that there is a third factor that needs to be considered — that of the local environment. It is well known that factors such as local temperatures and temperature cycling, humidity, air changes per hour in the warehouse, and the design and construction of warehouses all contribute to variations in the trajectory of in-cask spirit maturation. Indeed, recognition of this is reflected in the typical maturation conditions that prevail in the UK and the U.S. The former generally (but not always) aim for an initial 63.5 percent ABV at cask-fill, WWW.ARTISANSPIRITMAG.COM
recognizing that the percent ABV will decrease over time as ethanol is preferentially lost under the relatively humid Celtic conditions that prevail year-round. The latter aim for a maximum fill strength of 62.5 percent ABV, prescribed on the basis that water losses outweigh those of ethanol in the less humid climes of the U.S., so that ethanol levels increase in-cask during maturation. The more rapid evaporation of water from casks under conditions of modest humidity can seem counterintuitive. After all, at 62.5 percent ABV, a cask will contain around 37.5 percent (v/v) water, and the latter is less volatile. But this shows the limitations of using volume fraction as a measure of concentration. Chemists have long viewed concentration using the SI unit the mole. This is merely a multiplier for the number of molecules present, but it is very convenient. For instance, a two-ounce pour of neutral alcohol might contain around 1.2 moles of alcohol, or, in number of molecules, around 800,000,000,000,000,000,000,000 (8 x 1023) alcohol molecules. The latter is cumbersome, so in this context the mole is a much preferred alternative unit! The relevance here is that an ethanol molecule weighs around 2.5 times that of a water molecule, so one mole of ethanol weighs in at around 46 g, while one mole of water weighs a mere 18 g/l. Put another way, 37.5 percent (v/v) water in a liter of spirit is a little over 20 moles, whilst a liter of 62.5 percent ABV ethanol is around 11 moles, so water is more concentrated. This higher concentration translates into more rapid evaporation under a given set of environmental conditions, so it is primarily humidity that controls the relative losses of ethanol and water from the cask. We should also note here that studies attempting to evaluate the relative contributions of cask, spirit and environment to product quality relegate the environment into third place. However this should be interpreted with care, as at least one of these studies was performed in Scotland, where climatic conditions are relatively constant over the year, so that there are few â€œextremesâ€? with which to compare. To come back to the relative contributions of spirit and wood to whiskey quality, it is useful to consider the composition of the spirit, the wood extractives, and the physical characteristics of the wood that also contribute to aspects such as oxygen ingress. The new make spirit itself should contain very little in the way of non-volatile constituents, given that it has undergone a distillation.
WWW.ART ISANSP IRITMAG.COM â€
Nevertheless, there is an appreciable amount of copper found in new make spirits, anywhere from 1-6 mg/l. Also, any minerals present in the water used to reduce new make spirit down to cask fill strength will contribute to the levels of non-volatiles in new make. We will return to the potential relevance of copper content later. There are a wide range of volatiles present in new make spirit, whether it is made by pot or continuous distillation. Beyond ethanol there are the so-called major congeners (i.e., compounds that occur at concentrations around 1 mg/liter pure alcohol), mainly comprised of higher alcohols and the esters ethyl acetate and isoamyl acetate, although the analysis of the major congeners also usually detects methanol, acetaldehyde and acetal. There are also a plethora of minor congeners. These comprise a wide variety of chemical entities at lower concentrations. Again they are mainly alcohols, fatty acids, esters, aldehydes and other oxygenated organic compounds. If peat is used then there will be a range of phenolics, including phenol itself, alongside methylphenols (cresols), methoxyphenols (guaiacols), vanillin and eugenol. It is worth bearing in mind here that the levels of some of these phenols are also affected by their extraction from the oak cask during maturation. This is perhaps not too surprising, as the phenols in peat come from lignin that was historically part of the woody stems of plants and trees before peat formation began to occur. These components, deriving from the spirit, can change in concentration throughout the maturation period. Both evaporative losses and oxidation rely on the porosity of the oak cask. Oxygen that diffuses in through the joins of the oak staves induces chemical oxidation in the spirit. The mechanisms for this are not clear, although it has been shown in some systems that copper (II) can cause oxidation of phenolic compounds, generating hydrogen peroxide, which is an oxidizing species in its own right, and causing the reduction of copper (II) to copper (I). Although molecular oxygen from the air is not invoked in such a process, copper (I) will need to be regenerated to copper (II) to keep the oxidation catalysis going. Does oxygen function in this way in a cask? It seems plausible, and there is certainly enough copper and time to make the chemistry feasible. In any case the availability of oxygen seems to be essential, with anecdotal evidence indicating that sealing casks results in an unsatisfactory spirit maturation. It seems winemakers
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have come to the same conclusion, with techniques such as microoxygenation being employed to accelerate wine maturation. Of course for a flavor change to be evident there needs to be a change in the levels of chemical entities that cause a given flavor perception. On balance it is fair to say that the flavor changes that occur during maturation are positive. So for instance, some sulfur compounds, such as dimethyl sulfide (DMS; sweetcorn aroma) and acrolein (partly responsible for fiery attributes of new make spirit) are lost, whilst others, such as some fruity esters, are by the reaction of ethanol with acids leached from the cask. Of these three examples, the loss of acrolein does not necessarily invoke interaction with the cask, but the other two do. Two other features should be considered here. First, the whiskey sensory experience is also affected by color perception. Color does not generally distill, so all of the color in a “brown” spirit such as whiskey comes from a combination of color extraction from the cask and, depending on the final product, the addition of spirit caramel (E150A). This brings me to my second point, which is that the contribution of extractives (flavors and colors) from the cask is dependent on the degree of char in the original cask and how long it has been used for spirit maturation. Both sensory inputs will influence a consumer’s appraisal of final product quality. Generally, the more contact a cask has with interred spirit, the less extractives that remain in the wood. In contrast, the overall porosity of wood to vapors leaving the cask and oxygen entering can arguably be expected to be essentially time-independent. So the balance of flavor and color development (extractives versus oxidation) can be expected to shift as the cask is used for successive generations. Indeed, many Scotch whisky producers blend a range of different casks (e.g., second-fill and third-fill bourbon) to both improve product consistency and achieve the desired flavor balance in the product. So, having asserted that the environment plays a relatively small part in the overall maturation trajectory, what can we conclude about the contributions of wood and spirit to overall whiskey quality? From the cask perspective, we need to think in terms of both the chemical activity of the casks (whether, for instance, it is the absorption characteristics of char or extractives from the wood), and its porosity to liquids evaporating from the cask and oxygen moving into the cask. Both elements appear to be essential for satisfactory maturation. In terms of the spirit, whilst maturation generally results in the loss of undesirable components and the development of desirable attributes, this cannot be considered to be black-and-white. So, when making whiskey we should not rely on the curative aspects of maturation, but rather think in preventative terms, creating the best new make that we can. Careful attention to fermentations (temperature, yeast strain, etc.) and judicious cutting of the heads and tails will undoubtedly augment the final quality of the resulting whiskey. Paul Hughes, Ph.D. is assistant professor of food science and technology at Oregon State University in Corvallis, OR. For more information visit www.oregonstate.edu or call (541) 737-4595. WWW.ARTISANSPIRITMAG.COM
A vacation in Brainville
FEW SPIRITS AND THE FLAMING LIPS A VACATION IN BRAINVILLE
WRITTEN BY AMBER G. CHRISTENSEN-SMITH PHOTOGRAPHY BY AMANDA JOY CHRISTENS
“When you get the opportunity to combine your love and passion of music with your love and passion of spirits, it’s just a good fit.” — PAUL HLETKO
“When you get the opportunity to combine your love and passion of music with your love and passion of spirits, it’s just a good fit.” — PAUL HLETKO
I first heard of The Flaming Lips in 1995. I was a Senior in high school with an insatiable desire for weird music, weird fashion, and just plain weird stuff, and hearing “She Don’t Use Jelly” kind of hit me hard in the weird. So when I saw a psychedelic bottle screaming at me, and I found out it was a marriage between Paul Hletko’s Few Spirits and The Flaming Lips, I was intrigued to put it mildly. Apparently, I’m not the only connoisseur of weirdness out there — Hletko rides the train as well. A long-time lover of music and a guitar god in a former life, Hletko is not only the American Craft
Spirits Association (ACSA) president, but also the founding father of Few Spirits. Recently, Hletko was able to create a love child that smashed together his worlds of spirits and music when friends of his helped him link up with The Flaming Lips to brand a special rye whiskey honoring the band. “It just kind of worked out,” said Hletko. “When you get the opportunity to combine your love and passion of music with your love and passion of spirits, it’s just a good fit. It’s been pretty fun.” While we’ve seen collaborations and celebrity endorsements of WWW.ARTISANSPIRITMAG.COM
spirits before, we haven’t seen that much happening with music and craft distilling yet. Hletko was able to take the collaborative spirit of music and find the harmonious chord, combining his musical and craft distilling passions. His enthusiasm for the project is apparent as he describes how exciting it is to come up with something new and different with a band: “We pulled the barrels aside and played the music to the barrels for a few months. Yeah, it’s a little silly, but also a little fun.” After some brainstorming, the band chose Few’s rye whiskey, and Hletko explains, “It’s our flagship—it was something they were interested in.” It was a classic pick that they were able to smallbatch and specialize to both Hletko and The Flaming Lips’ liking. Few Spirits was also able to work with Justin Helton, the artist who created many of The Flaming Lips’ album labels. Helton has also worked with other artists such as Andrew Bird, Foo Fighters, and The Avett Brothers to name just a small sampling. Few Spirits worked with Helton for much of the interaction as he is wellconnected to the band. In the end, The Flaming Lips and Hletko were able to meet at the Soho House Chicago for a memorable release party. Hletko comments, “It was really fun to see people interact with the band.” The community, it seemed, was just as excited about the partnership as Hletko.
THEY’D TAKE ME I CAN TELL… While it can be exciting to think of combining two passions and collaborating with a celebrity in some fashion, there are some things you should consider. There are many logistical challenges when taking on an endeavor such as this, not the least of which is consulting with lawyers about contracts. That said, a project like this can strengthen your brand by showing your innovation and creativity. “It’s not an easy thing to tackle, but it’s quite fun,” says Hletko. “We’re excited to share that. The more fun we have, the more fun the consumers are having.” The negotiations took about one year and were not small-scale in relation to the project. From his experience with this negotiation process and others, Hletko offers advice: “The key is to make sure everyone is on the same page so there are no hurt feelings. Be upfront and honest from the start — do good business, and it will happen. If you’re playing games, you’re going to lose.” Hletko seems to have no regrets with doing this project and says he may have a couple others in mind. Being a small-scale specialty distiller, he doesn’t feel this is something to build a business on, but it does give a person a chance to explore and be creative. So, can we get The Flaming Lips to headline ACSA's annual convention? Hletko laughs, “There’s a zero percent chance.”
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Damn it, Paul. Few Spirits is located in Evanston, IL. For more information visit www. fewspirits.com or call (847) 920-8628. WWW.ARTISANSPIRITMAG.COM
FR AN CH I SE S TAT E S WRITTEN BY R. SCOTT WINTERS, PH.D.
ranchise states are confusing. Whether you’re new to the industry or a long-time veteran, the complications, myriad rules, and extensive limitations associated with franchise law make wholesale relationships in such states scary. Of all the questions and inquiries we get from suppliers — distillers, importers, wineries — those about franchise law are in the top 10, and often laced with the most anxiety:
>> Does the state I’m about to sell into have franchise laws?
do I handle my wholesale relationship in a franchise state?
the oft dreaded, “I want to change distributors in a franchise state, what do I do?”
In this article I hope to demystify franchise law, highlight those states that have franchise restrictions for distilled spirits, provide some general guidelines for how to proceed with your wholesaler, and review what options you have, should you wish to stop working with your wholesaler. Franchise laws — more accurately “franchise termination laws” (or referred to by some critics as “monopoly protection laws”) — are state-level laws that protect the business interests of in-state wholesalers. They are designed to prevent a supplier from terminating the in-state wholesaler except for “good cause,” a notoriously ambiguous set of criteria that varies by state and often explicitly precludes performance criteria (we’ll come back to “good cause” shortly). WWW.ARTISANSPIRITMAG.COM
Franchise laws are often coupled with the assignment of an exclusive territory to the wholesaler, meaning that one and only one wholesaler can be appointed to represent a brand in a given territory; the alternative, that a brand may be represented by more than one wholesaler in a given territory, is referred to as “dualing.” Moreover, franchise laws follow the brand, not merely the supplier. Therefore, if a brand transfers ownership, then the new owner remains bound to the original wholesaler. Similarly, if there is a product line extension of the brand, then it too must go with the original wholesaler. One can’t merely launch a derivative product to circumvent franchise law and change the wholesaler. The net effect is that a brand gets locked to a wholesaler and the supplier has very limited options for termination. You’re probably asking how any of this is legal — doesn’t it violate antitrust law? Well, you are not alone in thinking that. However, franchise laws are protected from antitrust challenges since they are in the state’s interest (Mendelsohn, 2011). Like them or not, these laws are ubiquitous in one form or another, and they are unlikely to change anytime soon. Currently, about 14 states have some form of franchise law for distilled spirits, another half-dozen or so for wine, and nearly all states have franchise laws for beer distribution. So, for distilled spirits this means that just under 50 percent of the open states (those that don’t have state-level control of distribution for spirits) have franchise laws. As you expand, you will almost certainly encounter franchise law issues sooner rather than later. So, why would a system that appears so restrictive to suppliers arise? States started to adopt franchise laws in the
1960s through the 1970s in response to wholesaler demands. This time period was before the era of wholesaler consolidation which characterizes our current distribution landscape. At the time, bargaining power resided with large — very large — suppliers. Wholesalers who spent considerable time and effort building the distribution network, educating retailers and consumers, and promoting a brand were disadvantaged by the constant threat of having such investments undermined if they could lose their distribution rights at any time. In fact, a number of wholesalers claimed that such capricious termination had negatively affected their livelihood. In order to protect their business and investments, it was argued, they needed to be protected from unilateral termination. A second argument occasionally raises its head to justify the continuation of franchise laws. Since the nature of franchise arrangements leads, in theory, to increased consumer prices, then this serves as a deterrent of unbridled marketing to and consumption by consumers, and thus helps to protect the public’s welfare. It’s a bad argument for a litany of economic and legislative reasons, but it is still argued nonetheless. The consequences of franchise laws are twofold: an increase in price of the product and an inability of suppliers to properly align incentives with wholesalers. If you can’t terminate your wholesaler, then you lose the leverage to hold them accountable for their performance. Douglas Whitman, in his book “Strange Brew: Alcohol and Government Monopoly,” provides a very lucid summary of the dilemma. Since both the supplier and the wholesaler can raise prices to increase
NOTES While not explicit, only one wholesaler can be named as the primary source. Termination requires a hearing and determination by director of Alcoholic Beverage Control Division. *While there is no explicit provision, the state has guidelines regarding a supplier's termination of a wholesaler. Any contract between supplier and wholesaler must be submitted to the state during the brand approval process.
Termination: requires notification to the Department of Consumer Protection for evaluation. If there is a written contract, then it needs to be submitted to the state during the brand approval process. Dualing is discouraged but possible if certain circumstances are met.
Termination: Department of Revenue will decide at its discretion and may choose to hold a hearing.
Termination: 30-day filing requirement.
Termination: written request to commissioner at least 60 days before proposed date. Provisions for calculating “reasonable compensation” due to a terminated wholesaler in absence of good cause. Termination is only by approval from the state commissioner.
Termination: No specific provision, but must provide 30-day notice to wholesaler and Alcohol and Tobacco Tax Bureau.
Termination: copy to Commission at least 120 days. Commission will determine if good cause exists.
Possibility to specify more than one wholesaler if in the contract. Termination: 60-day notice.
Contract required. Termination: notice to the Commissioner. Termination: 60-day notice.
their profit, they will. The resulting increase in cost to the consumer will lower demand. The dilemma is that the loss of customers (lower demand) is felt by both the supplier and the wholesaler, whereas the increased profit margin aggregates to only one party, presumably the wholesaler due to the lack of in-state competition. The means to address this is through the supplierwholesaler contract. But, if a contract can’t be terminated by the supplier, then it has no teeth and the supplier is at a disadvantage.
GOOD CAUSE All franchise states allow the supplier to terminate the contract with “good cause.” However, what constitutes good cause varies tremendously between states and is itself a notoriously fuzzy and ambiguous set of standards. The interpretation common across most states is that good cause refers to either: bankruptcy of the wholesaler, the sale of most of the assets of the wholesaler, or repeated violations by the wholesaler of state or federal laws. After these, the states vary widely. For example, many states exclude failure to meet performance criteria as good cause, while a few states explicitly include performance criteria. Georgia, for example, includes a provision for a wholesaler’s failure to meet sales volumes consistent with those of other wholesalers of the brand, and Massachusetts precludes preferential selling of a brand’s competitors. Therefore, knowing the extent and limitations for each individual state becomes critically important. Although I’m frequently skeptical of supplier-wholesaler contracts, in franchise states they can be very important. In fact, some states require them, such as Tennessee, while others require their inclusion as part of the brand registration if they exist (e.g., Delaware). In franchise states they are worth the effort. In the absence of a clearly worked out contract, then the
supplier is subjecting themselves to the state’s legal system’s interpretation of the law, which otherwise will conservatively interpret language favoring the in-state wholesaler. Since important concepts such as performance measures, distribution exclusivity and even the definition of a brand (as opposed to a label) can vary widely between states, it is helpful to have these spelled out in the contract in such a way that aligns with the state’s laws and regulations. This last point is worth mentioning again: any contract must follow the state’s laws and regulations. If the state does not permit performance clauses to justify good cause termination, then they will not be honored even if they are in a contract that both supplier and wholesaler have signed. So, the often self-congratulatory solution of adding a performance clause to a contract with a release-letter addendum is nothing more than an illusion. Such provisions, if not legal in the state, will be thrown out by the state court in the event of a dispute. Knowing this, a wholesaler may happily sign such a document acknowledging the supplier’s ignorance. Should you desire to terminate your wholesaler relationship due to good cause, the process is generally the same for all states. First, you must provide the state alcohol regulatory board or commissioner advance notice of the request for termination, which ranges from 30 to 120 days. Approval of the termination will be at the sole discretion of the board based upon the evidence you provide meriting good cause termination as outlined in the state’s law and your contract. Often the state’s evaluation takes the form of a hearing. The wholesaler has a right to respond (i.e., challenge or appeal) to the supplier’s request. Given the complexities of the termination process, generally the best solution is to first try to negotiate a written release letter from the wholesaler. Depending on your relationship with the wholesaler, such a release may only require a candid conversation about your goals relative to their performance, and a payment to compensate them for the termination, or to buy-back unsold inventory. In the worse case scenario, if you want to change distributors and they are unwilling to release the brand, but you cannot show good cause, you only have one option: leave the state’s market for a couple of years, then return with a new wholesaler after a period of no sales. R. Scott Winters, Ph.D. is Founder of The American Spirits Exchange. For more information, visit www.AmericanSpiritsLtd.com or email Scott@AmericanSpiritsLtd.com.
er Rum J sum
Mendelson, Richard. “U.S. Wine Law: An Overview.” Wine in America: Law and Policy. New York: Wolters Kluwer Law & Business, 2011.
Mendelson, Richard. From Demon to Darling: A Legal History of Wine in America. Berkeley: University of California Press, 2009.
DeGalan, Suzanne. “Surviving Distributor Power Plays.” Wines & Vines August, 2016.
R UM F EST
Whitman, D.G. Strange Brew: Alcohol and Government Monopoly. Oakland: The Independent Institute, 2003. Wine and Spirits Wholesalers of America. www.wswa.org. WWW.ARTISANSPIRITMAG.COM
SAFETY ||||||||||||||||||||||||||||||||||||||||||||||||||||||| WRITTEN BY DICK BARRETT |||||||||||||||||||||||||||||||||||||||||||||||||||||||
istilleries can be dangerous places. In recent years, there have been fatalities (Silver Trail Distillery), injuries (Twister Distillery), and equipment/building damage (Tuthilltown) due to incidents that were preventable. We all know our insurance and worker’s comp rates are very high. This should cause all distillery owners and employees to consider what can be done, even beyond the required regulations and laws, to make our facilities safer. Within our industry, safety culture, engineering, explosion proofing, maintenance, and shared expertise should all be considered. First and most important, distillery owners must promote a “Culture of Safety.” This means that we must stop production whenever we sense something is not normal. It is much safer to figure out what is different and restart a run than make poor decisions while the still is running. We should avoid shortcuts (standing on stools, letting the still run unattended, not using correct personal protective equipment, etc.), and not ignore proper equipment training. Everyone needs to know what to do when something goes wrong, and new employees should have significant experience before being allowed to run the still by themselves.
PREVENT CARELESS MISTAKES There are engineering changes that can be made to equipment to increase safety. Here are some important ones to consider: mechanical stops to »» Add valves to prevent them from being turned to unsafe positions or combinations. an over-temperature »» Add sensor/control to the outlet of the product condenser which will shut off the heat source if the temperature gets too high. a flow sensor to »» Add recognize when cooling is interrupted. code and number »» Color valves so process sheets are unambiguous to help prevent mistakes.
One good practice to institute is a weekly safety walk-around, where different people look for issues each week. Insist on using process procedures with checklists, and ensure key items are initialed as they are completed to prevent anyone from skipping steps. It is also important to encourage all employees to bring up safety concerns and offer safety ideas. Extended explosion protection beyond current legal requirements can also make your facility much safer. Explosion-proof lighting is often expensive, so it tends to only be purchased where required. Consider buying used explosion-proof lights and extending the area protected. Make sure only non-sparking pumps are purchased, so no one can accidentally run alcohol through the wrong type of pump by mistake. Purchase a CO2 detector for the fermenter area, and make sure that adequate explosion-proof ventilation is used. For safety over time, maintenance is key. Regularly tighten all connections on the still. Purchase an inexpensive handheld ethanol detector and use it any time the still is taken apart to check for leaks on reassembly. Check that components that are purchased are correctly rated and appropriate for use in a distillery. Recently WWW.ARTISANSPIRITMAG.COM
some people have reported still pressure relief valves that were not correct for the application, which can be deadly. Another good safety practice is to keep the production area clean and organized. Part of the cleaning process should include routinely inspecting equipment for signs of wear, leaks, etc. Putting maintenance items in a scheduled program (e.g., check oil in gearboxes, change batteries in devices, put water in fork truck batteries, etc.) is a good way to prevent equipment from creating safety issues. Also, don’t hesitate to take advantage of industry expertise. Before building out your distillery, join your state’s distillers’ guild and visit as many distilleries as you can to get their ideas on how to make your distillery safer. Take advantage of local architects, fire departments, fire inspectors, insurance company experts, and contractors to evaluate your facility, and shamelessly steal best practices. Some additional recommendations: an HVAC contractor with strong engineering/safety »» Hire expertise. your boiler in a separate room with positive air »» Install pressure. a minimum 10-foot electrical clearance from the still »» Keep and other alcohol sources. electrical outlets 5 feet above the floor, and don’t use »» Install extension cords. »» Install a well-designed sprinkler system. fork truck safety, and emphasize extra care around »» Teach tanks. safety cages around tank outlet valves to prevent »» Install accidental damage. consideration of the routing of electrical lines and »» Careful transfer hoses is important as slips and falls are a common injury problem.
key phone numbers so that people can be reached »» Post quickly. a Safety Emergency Plan and review it regularly to »» Have prevent a small problem from becoming a big problem. Laws, building codes, and regulations are important, but not always sufficient to ensure safety in distilling facilities. It is in our best interest to do further safety improvements to earn our distilleries the best safety record possible. In the long run it will save us money, pain, and maybe even our lives or the lives of people close to us.
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Dick Barrett is a whiskey engineer at Black Button Distilling in Rochester, NY. For more information visit www.blackbuttondistilling.com or call (585) 730-4512. WWW.ARTISANSPIRITMAG.COM
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CHARGING THE STILL METHODS OF RAISING CAPITAL FOR YOUR SPIRITS BUSINESS WRITTEN BY BRIAN B. DEFOE
n my article last quarter, I discussed some common mistakes made by early-stage entrepreneurs and how to avoid them. One of those mistakes — not taking advantage of potential funding opportunities — forms the springboard for this installment. Specifically, in this article I will explore some typical (and some not-so-typical) avenues for funding your spirits business, as well as legal issues that may arise during the process. With that in mind, let’s consider some ways to fund your shiny new business.
BE INDEPENDENTLY WEALTHY. There is an old adage to the effect that the easiest way to make a small fortune is to start with a large one. There is a lot of truth in this, unfortunately, in that it tends to be much easier to spend cash than it is to generate it. But the fact remains that if you have access to ample capital at the outset, your business is more likely to succeed than if cash is scarce. Even if you are independently wealthy — or maybe especially if you are — the truth underlying the joke means that you may not want to personally fund all of the
By personally funding it you’ll have the opportunity to make all the decisions and retain absolute control over your brand. But you will also have all the risk.
business’s needs. Sure, by personally funding it you’ll have the opportunity to make all the decisions and retain absolute control over your brand. But you will also have all the risk associated with the venture. And while you may be pretty confident that your new signature-brand, spaghetti-squash-infused whiskey is going to be the next big thing in bars across the country, what if it isn’t? Do you want to bear all the risk? And maybe more importantly, isn’t it possible that you’d benefit from getting others involved in a way that might just stop you from taking delivery of all those gourds? Having someone else kick in some of the capital can be helpful not only by keeping your fortune from dwindling too quickly, but also for the side benefit of making sure that you’re tempering your passion a bit by considering the views of others. This is particularly important if you’re thinking that the way you’ll fund your business is by funneling all your life’s savings into the endeavor. If you’re putting all your eggs in this particular basket, you owe it to yourself to make sure you’re not blind to significant problems in your business plan. Having other people invested in your business (both emotionally and monetarily) can make that happen. Also, don’t underestimate the benefits that others may bring to the table in terms of their industry contacts or expertise. After all, your ultimate objective is to make the business a success and there is certainly nothing wrong with leveraging others’ talents (along with their financial strength) in service of that goal. WWW.ARTISANSPIRITMAG.COM
LEAN HEAVILY ON CREDIT CARDS.
It seems that not a day goes The entrepreneur using by without our family receiving credit cards to finance the an invitation to apply for a new new or growing business credit card. In fact, at least one should simply be aware of them was addressed to one that the cost of easy credit of our sons (who at the time was in third grade). I await is expensive credit. the day when the post office delivers an application addressed to one of our dogs. The number and variety of credit cards available to U.S. consumers and businesses is staggering, and seems unlikely to decrease anytime soon. Setting aside policy questions and concerns about the broader economy, the availability of easy credit has been a tremendous benefit to many small businesses. But it does not come without potential complications. First among those is the question of personal liability. In most cases, the thoughtful entrepreneur will not have started a business in her own name. Rather, she will have formed a corporation or limited liability company and will want to operate the business through that structure so that she can avoid personal liability for obligations of the business. But of course the banks issuing credit cards rightfully want to be repaid. As a result, the fine print in the agreement for a credit card issued nominally in the name of a small business will often provide that the individual holding the card (e.g., the owner of the business) is ultimately liable for repayment of any obligations incurred on the card. In essence, the business owner using a “corporate” card is providing the issuing bank with a personal guarantee. Again, this is not necessarily a bad thing, but the entrepreneur needs to be aware of this fact so that there are no surprises when it’s time to pay the bill. As a secondary matter, the entrepreneur using credit cards to finance the new or growing business should simply be aware that the cost of easy credit is expensive credit. Most commonly, the interest rates associated with these cards (absent a teaser or introductory rate) will be quite high. The savvy entrepreneur uses this type of credit wisely and sparingly, and will most commonly want to keep from carrying a balance if at all possible.
TAP FRIENDS AND FAMILY FOR CASH.
Your parents gave you life. Is it really that much to ask that they also help give life to your business? Possibly. In all seriousness, soliciting funds from friends and family is one of the most common ways to gather initial startup financing. In many respects, it is also one of the riskiest. Before we get to the risks, however, remember that owners of significant equity stakes in
Soliciting funds from friends and family is one of the most common ways to gather initial startup financing. In many respects, it is also one of the riskiest.
spirits businesses may require vetting with the TTB and state liquor authorities. So before you accept capital from friends and family — or any other party — in exchange for a stake in the business, make sure you’re prepared to address those requirements. Assuming you’re ready to call your cousins and hit them up for cash, let us consider the potential legal risks. When entrepreneurs solicit funds from friends and family, they rarely take the time to appropriately document the transactions that follow. This makes intuitive sense, in that the entrepreneur who thinks her mother is likely to bring legal action against her for breach of fiduciary duty is unlikely to solicit funds from her mother in the first instance. But the slim possibility of future legal action between the parties is not the only consideration. Instead, the entrepreneur should be thinking about how the transaction will impact future efforts to obtain investment in the business from third parties, and even how the transaction may impact the value of the business in connection with a future sale. By failing to observe traditional corporate and legal formalities associated with taking in the investment (even if it is coming from friends and family) the entrepreneur is giving a prospective future investor or purchaser a reason to discount the value of the business. For this reason, the decision to eschew corporate formality in a friends and family deal can be a false economy. By cutting corners and saving costs at this stage the entrepreneur risks a reduction in future value. Of course, legal risks aren’t the only consideration when tapping friends and family for capital. The savvy entrepreneur will also think through the potential ramifications of the investment on her relationships with these folks. Business can be difficult, and many relationships have been soured as a result of disagreements in the boardroom. Before you call your in-laws in an effort to raise the cash needed to buy that new bottling machine, consider the potential change to Thanksgiving dinner conversation if your business struggles. You should not take investment from anyone with whom your relationship isn’t strong enough to survive the failure of your business and the loss of their money. At least not if you hope to continue that relationship.
COURT A FEW OUTSIDE INVESTORS.
Assuming you’ve already solicited An entrepreneur friends and family and they’re now who wants to screening your calls, you might next sell shares in her consider raising business capital distillery corporation from outside investors. But before is offering a security. you start dialing for dollars, you need to be aware of some meaningful legal What does it mean considerations. (Note that these if you’re offering restrictions aren’t limited to soliciting a security? investment from unrelated third parties, they technically also apply to soliciting friends and family for investment. That said, entrepreneurs often begin to focus on these legal requirements once soliciting true third parties, and I’ve yet to see an entrepreneur sued by her mother for securities fraud.)
First, you need to understand the concept of a security. Under state and federal law, a “security” can be a share of stock, a promissory note, a warrant or any number of other items. A security can also be found in an “investment contract,” which is a catch-all concept intended to cover essentially any situation in which one party gives value to another party, with an expectation of profit to result primarily from the efforts of that second party. Using this investment contract analysis, items as disparate as orange groves, chinchillas and emus have been determined to be securities. Critically, the determination that something is a security means that there is an entire body of state and federal law applicable to the sale of that item. An entrepreneur who wants to sell shares in her distillery corporation is offering a security. Similarly, the entrepreneur who wants to sell membership interests in her distillery limited liability company is also offering a security, assuming that the buyer will not be helping to run the business. And the entrepreneur who offers to sell a particularly special bottle of hooch by assuring the buyers that the bottle will increase in value may also be offering a security. What does it mean if you’re offering a security? Well, under U.S. laws every sale of a security is either 1. Registered; 2. Exempt from registration; or 3. Illegal. The first option tends to be prohibitively expensive in the context of small offerings. The third option also tends to be rather expensive, and unwise. That leaves us with the middle path and the need to structure an offering so that it complies with the requirements for an exemption from registration. Luckily, several exemptions are readily available. The most commonly used exemption from registration is found in Securities and Exchange Commission Regulation D, Rule 506. Under Rule 506, an issuer of securities can avoid registration for an offering of any dollar amount (i.e. an offering of a potentially unlimited size) so long as two basic conditions are met. First, the company must conduct the offering without engaging in a general solicitation. That means that the company is prohibited from advertising the offering or soliciting investors with whom it has no prior relationship. Second, the company must sell only to investors who are “accredited” for purposes of U.S. securities laws. For individual investors, being accredited means having a net worth (excluding any equity in the investor’s personal residence)
of at least $1 million, or having individual income of at least $200,000 (or joint income with the investor’s spouse) in each of the last two years — with an expectation of continued income at or above that threshold. Of course, if you’re a connoisseur of governmental regulations (and if you’re in the hooch business you probably are), you’re probably scratching your head at the idea that any regulation could be so simple. Your suspicions are justified: there are additional requirements that may apply and prohibitions that come into play. So with any potential offering the prudent entrepreneur will want to be sure that she obtains competent legal advice about these requirements — as well as any additional legal requirements that may apply based on the domicile of the business or state of residence of the investors.
COURT A LOT OF OUTSIDE INVESTORS.
In light of the legal challenges (and Crowdfunding potential control concerns) that follow avenues allow the from selling securities to raise capital, entrepreneur to in recent years a number of alternative solicit relatively approaches to raising capital have small amounts of hit the market. Broadly described as crowdfunding, these avenues allow the funding from a entrepreneur to solicit relatively small large number of amounts of funding from a large number funding sources. of funding sources. At the time of this article, the two most frequently used platforms for crowdfunding are Kickstarter and Indiegogo, each of which has been involved in raising millions of dollars for new and developing ventures. In most cases, the folks providing funding aren’t investors, they’re customers. That is a distinction with a difference, because most crowdfunding sites try to avoid the application of state and federal securities laws to the transactions they facilitate. Avoiding securities laws means that the individuals putting in cash can’t have a reasonable expectation of profit or an increase in the value of whatever they receive in exchange for their contribution. So a traditional crowdfunding launch from a hooch company may promise contributors goods or services (e.g., shot glasses or distillery
tours) in exchange for the donation — but not stock or something that would constitute the investment contract discussed above. Kickstarter’s rules prohibit offering alcohol as a crowdfunding perk — but Indiegogo lets participants go a step farther and offer contributors vouchers that can be redeemed for spirits. So, in essence, an Indiegogo campaign can be used to pre-sell spirits not yet in the bottle. Of course, a company might want to be able to solicit and receive equity investment from a large group of far-flung investors — even individuals who may not qualify as accredited investors — each contributing a small amount of the capital needed by the business. If that is your idea of a perfect situation, then you’re in luck. With the passage of the Jumpstart Our Business Startups (JOBS) Act of 2012, Congress attempted to put this in motion. The JOBS Act contemplates that businesses will be able to solicit investment in just this fashion. At the same time, however, JOBS Act equity crowdfunding will require a company soliciting and receiving investment to jump through some significant administrative hoops, so this isn’t to be undertaken without study. While a full discussion of the nature and extent of the administrative requirements would require several pages, hooch companies considering this path should, as an initial matter, be aware that an equity crowdfunding offering may only be conducted with the assistance of either a registered broker-dealer or through a registered funding portal. In addition, completion of an equity crowdfunding offering will subject the business to periodic financial reporting obligations with the Securities and Exchange Commission on a go-forward basis. Ultimately, only time will tell if equity crowdfunding will become a viable option for entrepreneurs seeking capital for their ventures. For smaller offerings, the requirements may simply be too onerous to justify the use of this mechanism. But with the change in the law many industry participants are bullish that this is the wave of the future. In fact, as of the time of this writing, Indiegogo is launching its own equity crowdfunding platform. If it succeeds in making equity crowdfunding as accessible as Kickstarter and Indiegogo have with respect to reward-based crowdfunding (i.e., non-equity crowdfunding), this may soon become part of the standard playbook for entrepreneurs seeking capital.
MEET A FEW BANKERS.
Startup ventures are typically Asset-based lending frustrated when they try to obtain will not be available bank financing, but slightly more to every distillery established ventures frequently stocking away whiskey benefit from strong relationships for the future. with bankers. In the context of spirits — where stock often needs to be stored and aged for several years prior to sale — this benefit can be particularly strong when the business is able to collateralize the barrels as they age. Of course, asset-based lending of this type will not be available to every distillery stocking away whiskey for the future. Most (but not all) banks will want to see that the spirits being aged will have a ready market once bottled. So the best terms will be available to those producers with recognizable brands and a track record of sales. Of course if a producer has a recognizable brand and a track record of sales, you might argue that it has no real need of the banker’s services. There is some truth to that, but being able to use the aging spirit to secure good terms for working capital or a revolving line of credit can be a tremendous benefit. This is obviously not an exhaustive list of the means of funding your shiny new hooch business, but these approaches give you a fighting chance of meeting your business’s needs for capital. With some luck, appropriate funding, and by avoiding as much as possible the mistakes commonly made by entrepreneurs (discussed in my last article in the Fall issue), you stand a decent chance of building value in your business and in your brand. With that value comes opportunity not only to become the next king or queen of the spirits world, but also the chance to expand, acquire other spirits brands, or harvest the value by selling your business to an acquirer. Brian B. DeFoe is a business lawyer at Lane Powell, where he focuses his practice on helping companies in the customer-facing industries of hospitality and retail. Brian can be reached at email@example.com, via phone at (206) 223-7948, or on Twitter @BrianBDeFoe. Visit www.hoochlaw.com for more thoughts on spirits and the laws that govern them. This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers.
ARTISAN STILL DESIGN
WRITTEN BY AMBER G. CHRISTENSEN-SMITH PHOTOS PROVIDED BY ARTISAN STILL DESIGN
he distilling industry has changed so much in the last five years that it’s easy to forget how far small distillers and their suppliers have come. It is still by no means an easy industry to break into and succeed in, but not all that long ago prospective distillers faced many more challenges than they do today — one of the most prohibitive being the limited options for stills that offered both performance and affordability. During that era of rapid evolution, distilling enthusiasts Neil Robinson and Steven Cage recognized the growing number of distillers looking for something that fit both their needs and budget. At the time, most other players were manufacturing stills that were very high quality, but also relatively expensive. Cage and Robinson researched how to create stills that would be able to meet the performance and flavor needs of craft distillers for a lower price, and they founded Artisan Still Design (ASD) to serve that market. Part of their formula for cost savings was to manufacture the stills overseas, and Robinson and Cage ran into issues at first convincing customers that saving money did not mean they had to sacrifice value. Outsourcing isn’t always the most popular manufacturing process for small businesses and craft distillers that are seeking “homegrown” quality. As they progressed and their products received positive reviews however, Robinson and Cage were able to convince their clientele that they could meet their needs: “It really took life in 2010 when we first attended an ADI event,” shared Robinson. From that entry point, their business began to grow, and Robinson learned a lot in the beginning about the ins and outs regarding what distillers did and didn’t need, especially when it comes to flavor. “All stills will give a bit of its own character to the spirit being produced,” he explains. “A traditional pot still should give you a bolder flavor as compared to a still with columns and plates. But that line between what a still should do and will do is becoming blurred. You can have a full-flavored spirit come off a plated column if you have the right equipment.” One of the keys to Robinson’s philosophy for manufacturing stills at a lower price point is a conservative approach to copper. He knows that copper is important in a still in order to catalyze sulphur compounds, but he also believes that the amount can vary and still
create a suitable spirit: “Copper is seen as the must have, and for some this is true and for others not so much. You need copper in your still, that’s not the question; the question is how much copper do you need?” Robinson is of the mindset that you can create award-winning spirits even if your still is not made completely out of copper. He thinks the most critical design consideration is knowing just where the copper should go. Further, Robinson shares that a still design need not be “overly extravagant,” it should be elegant yet simplistic.
EVOLVING WITH THE INDUSTRY ASD is influenced by the market needs of customers and their own creativity, and they have found that each creation is part of their WWW.ARTISANSPIRITMAG.COM
own evolutionary process. And as part of the evolutionary process, they are starting to bring their designs and productions back home. “We are in the midst of a transition to bring all our designs back ‘in-house,’ and have begun building our systems in Mobile, Alabama at our new facility and showroom,” said Robinson. ASD has a number of wellknown distilleries around the country now representing their products. “Most, if not all, the distilleries or distillers that represent ASD and our equipment were customers first,” Robinson explained. “They can give first-hand experience to their transaction, including the good and the bad. They have years of experience not only using the equipment, but producing awardwinning products, consulting for other startups, and generally helping us maintain a quality product.” Each representative for ASD is a valued expert on the team. When distillers reach out to ASD, Robinson says they welcome collaboration and creativity from first contact, telling that “a lot of communication of ideas, wants and needs” are discussed. After a system is decided upon and the order is placed, the equipment is built and communication continues with updates of the process. “Once the system is finished and shipped, installation can be performed by the client in most cases, but we do offer the service to install when needed,” said Robinson. ASD enjoys helping with the installation and in providing on-site training. “We’ve found that those customers that allow us to train them on the system tend to have fewer mistakes and get off the ground quicker than those that go it alone.” Robinson says they treat clients the way they themselves would want to be treated, and offer good warranties and support. They currently have a 30 percent customer return rate for additional
purchases, and Robinson says it makes him “happy that they trust us enough to come back.” Robinson finds his inspiration anywhere and everywhere, and he is constantly thinking of new ideas: “While most may take a walk in a beautiful park to relax their mind, I drive to an industrial complex area, or hardware store, or anyplace I think can give inspiration to keep my passion alive and well.” With sales doubling in the last year, that passion and vision is paying off. “The industry is growing at an extremely fast pace,” Robinson reflects. He notes that competition and customer demands are increasing. However, he has also noticed that same competition separates those that are only in it for the money from those that are in it because they are passionate about distilling. “Our goal has always been to bring high quality, crafted equipment that is not only affordable, but also beautiful,” Robinson shares. “We make sure our best work is what always leaves our facility. By giving the customer what they expected and a bit more, we feel we are serving the industry well.” With growing success, Robinson and Cage are adding a new facility and employees to their production line. Their goal is to create an area where customers can visit and get to know them and their process. When shopping for a still, Robinson reminds new craft distillers to do their research: “Only caring about the price, by only watching your dollars and cents, can force you to make a decision that seems like the right direction, but often it’s not. Research will help you compare apples to apples, not apples to oranges.” For more info on Artisan Still Design visit www.artisanstilldesign.com or call (251) 308-2484.
WRITTEN BY JOHN COX
Now fire is being used again in controlled burns to clear the understory and allow recruitment. 116
FOREST AND FLAME time will soon come when we shall “T he have to take special pains to secure
and encourage the growth of white oaks, as we already must that of chestnuts for the most part.” Those words were written by Henry David Thoreau in 1850. Industrialization and blight would prolong his prophecy by denuding the woods, and subsequently create an environment in which oak would become more dominant. Now almost 170 years later, it may be time to heed the naturalist’s words. Last issue we talked about the history of the North American forest, specifically that of the eastern U.S. Fire played a great role in first it’s disturbances, then later in the 20th century by its suppression. Now fire is being used again in controlled burns to clear the understory and allow recruitment. Controlled burns, while common in the West, are slower to take hold here in the East. I decided to visit a local burn site in my area that was under the management of The Nature Conservancy. We were directed by Gabriel Chapin, a forest restoration ecologist and fire manager with the Conservancy in New York, to a location on the Shawangunk Ridge. The ridge
is part of the Appalachians and home to one of the country’s largest chestnut oak (Quercus montana) stands. The burn was conducted in 2014 on the south side of the trail we were on. Downhill of us was the burn site, and to our right, uphill, was untouched forest . The uphill understory was dense with huckleberry and mountain laurel. There were many large trees filling the canopy and not many saplings. The dense understory also made it hard to determine if there were tree sprouts. The slope downhill had a sparse, leaf-covered understory, and we could see many oak stump sprouts and saplings populating the area. It was late October, and the red leaves of the oak were easy to spot. Many of the leaf peepers who visit our area claim it’s at its peak when the maples are yellow and bright, but for oak lovers nothing beats the burgundy-colored leaves on a white oak late in the season. The oak recruitment we saw was healthy, with a variety of chestnut, white and mixed oaks. “Oaks need fairly specific conditions to successfully establish new healthy, young trees,” Chapin told me. “Natural processes like fire make conditions more favorable by exposing soil for acorns to germinate, and a lot of light for growing.” WWW.ARTISANSPIRITMAG.COM
The openings in the canopy then allow already established saplings to graduate to the overstory. The results we saw were impressive, and on both sides of the trail we could see the difference in the recruitment of sprouts. This sort of stewardship is rewarding, but we only see it here on public land and preserves. Meanwhile, more than 70 percent of our forests are privately owned, and that’s where timber practices come into play. Timber harvesting has changed drastically in the last 50 years. Modern engineering has created machines that are a long way off from the days of horse teams pulling fallen logs out of the woods. These versatile machines can enter forests and perform selective cuts, or what’s known as highgrading. This practice removes only the most economically valuable timber, often with little regard for the future of the rest of the stand. Dr. Charles D. Canham, senior scientist at the Cary Institute of Ecosystem Studies, explains, “Many oak forests are logged either too lightly — ‘high-grading’ of individual large trees, creating only very small openings in the canopy — or too intensively — clearcutting of all trees, leaving no nearby seed trees. Good oak regeneration requires more deliberate harvesting to create large enough openings to produce adequate light for sapling growth, while still close enough to seed trees to allow new seedlings to establish.” When harvesting oak, determining the condition of the area
regeneration is a concern we as an industry should
acknowledge and educate ourselves about.
you are cutting is important to regeneration. If there are plenty of seedlings, “group selection” is a useful technique. Selection cutting (not to be confused with “selective” cutting) can help mimic larger disturbances, and is usually done on two-acre groupings. If there are a lack of seedlings, “shelterwood harvesting,” while more time consuming, can help establish a particular species without planting. It requires several thinnings and eventual overstory removal. Controlled burns and the aforementioned harvesting methods can be expensive, and they require trained individuals and foresters to monitor and maintain. So what can you as a distiller do to help maintain a more sustained forest, one in which oak can thrive? First, contact your cooper and ask if they provide sustainable certification from the Forest Stewardship Council (FSC ) or certification programs like American Tree Farm System (ATFS) or Sustainable Forest Initiative (SFI). You can also register for Chain of Custody certification with the PEFC (Programme for the Endorsement of Forest Certification) by visiting PEFC.org. Oak regeneration is a concern we as an industry should acknowledge and educate ourselves about. Thoreau wrote those opening words shortly before his death — it’s important that we don’t wait till the very end to heed his warning. John Cox is owner of Quercus Cooperage in High Falls, NY. Visit www.qcooperage.com for more information.
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