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January 22, 2018 – A crackdown by British Columbia’s liquor enforcement agency targeting the Scotch Malt Whisky Society’s four partner bars has turned into a political hot potato, complete with criticism from BC politicians and an online “#freethewhisky” petition campaign.
Andrew Weaver, the leader of the Green Party in British Columbia’s Legislative Assembly, blasted the government’s decision to raid the four bars and seize their bottles of the Scotch Malt Whisky Society’s whiskies following a Twitter campaign from whisky lovers demanding a change in provincial laws.
Weaver’s Green Party is a partner with the New Democratic Party in the province’s coalition government. British Columbia Premier John Horgan, the leader of the NDP, has not yet addressed the issue, and spokesmen for the Ministry of the Attorney General have declined all interview requests since the raids. The Liquor Control & Licensing Branch is part of the Ministry, but spokesmen claim the Attorney General has no role in the branch’s enforcement actions.
Thursday, LCLB inspectors and police raided Fets Whisky Kitchen in Vancouver and The Grand Hotel in Nanaimo, along with The Union Club and Little Jumbo in Victoria. The agents seized 242 bottles of Scotch Malt Whisky Society whiskies from Fets and 11 from The Grand Hotel on the grounds that the bars had acquired those whiskies illegally from the two private liquor stores in British Columbia that carry SMWS whiskies. According to local news reports, Little Jumbo’s owners had removed its SMWS whiskies from the premises earlier this month after hearing reports of a similar enforcement action against another local bar. The private Union Club has not commented on whether it had any whiskies seized.
Susie Sirri, the operations manager of The Grand Hotel, was in Vancouver when she was notified of the raid at her family’s hotel in Nanaimo. The hotel had joined the Society’s ranks of partner bars in 2017, and had not built yet up a large inventory of SMWS whiskies.
“I ended up going to Fets Whisky Kitchen to see the liquor inspectors there,” she said in an interview. “When I walked in, I recognized the two gentlemen that were confiscating the bottles and I said ‘you look very familiar,’ and they said ‘well, that’s right…you helped us when we were at your hotel a week ago asking you about Scotch Malt Whisky Society in plain clothes.” Sirri said the inspectors refused to explain why they didn’t discuss the issue with her at that time, but said she was told that there was a “big investigation and they couldn’t say anything.”
The crackdown came just as one of British Columbia’s largest whisky events of the year was getting underway. The Victoria Whisky Festival attracts whisky lovers from around North America, and has become regarded as one of the world’s top whisky events because of the variety of whiskies available to taste. That changed following the crackdown, as exhibitors scrambled to adjust their plans out of fear that the province’s liquor inspectors would conduct a similar crackdown at the festival.
“We’re just pouring what we’re allowed to pour,” said Gordon and MacPhail’s Richard Urquhart. Urquhart had flown to Victoria from Scotland for the festival, along with a series of meetings in other Canadian cities. The family-owned company has been a longtime supporter of the festival, and has presented a number of rare whiskies in previous years. This year, Urquhart and his colleagues had to cancel a master class scheduled for Saturday because only one of their whiskies (the Benromach 10-year-old) is carried in the provincial stores. They had planned to open a 1972 Strathisla and a 35-year-old Benromach for the master class and Saturday night’s consumer tasting, but left both bottles sealed on the table next to a sign explaining the situation.
Other exhibitors took a similar approach, with Jonathan Bray of Calgary-based Secret Spirits keeping all of his whiskies closed for the night while explaining the issue to consumers. The Scotch Malt Whisky Society was forced to cancel a Friday night tasting for around 80 people, along with two master classes on Saturday, and had also brought in the Society’s global brand ambassador from Scotland to meet with members and consumers during the weekend. Kelly and Rob Carpenter, who own the Canadian brand of the Society, have pledged to make up any shortfall in the festival’s contributions to two local charities caused by the cancellation of their events.
Under British Columbia law, bars and restaurants are required to purchase alcohol directly from the British Columbia Liquor Distribution Branch, and are not allowed to buy from the province’s privately-owned liquor stores. The requirement dates back to before the province legalized private liquor stores, which must still order all of their whiskies through the provincial system. While those stores are allowed to place special orders for whiskies not carried in the province’s BC Liquor Stores, bars and restaurants are limited to only what the BCLDB chooses to stock in its inventory. That same requirement extends to special events such as the Victoria Whisky Festival, though no inspectors were openly visible at the event during the weekend.
“I really would like to know some of the reasoning behind why they did this,” said festival attendee Tim Vickers as he pointed to a pair of Springbank single malts that were on display but not available to taste. “Why now, after ten years of not enforcing this law, why now?” Other attendees expressed similar frustrations with the government crackdown as well. “It’s not a tax issue, because the taxes are paid, but it seems to be regulators flexing their muscles unnecessarily,” said Dave Mason of the West Coast Whisky Society in Vancouver.
The Grand Hotel’s Susie Sirri pointed out that the government crackdown unfairly targets only one specific whisky brand and the limited number of bars that offered it. “What about the bars that are carrying all of the specialty gins or the specialty vodkas … are they going to close down Gastown, are they going to close down all of the other bars that each have a bottle of whatever? I mean…every bar in British Columbia is carrying something from a private liquor store to stay competitive.”
This story will be updated with additional information as necessary. WhiskyCast has requested an interview with spokespersons for the Ministry of the Attorney General, and that request has been declined for now.
Links: Scotch Malt Whisky Society Canada | BC Liquor Control & Licensing Branch | BC Liquor Distribution Branch | Fets Whisky Kitchen | Little Jumbo | The Grand Hotel | The Union Club | Victoria Whisky Festival | Secret Spirits
January 20, 2018 – British Columbia regulators are drawing fire from whisky lovers following a crackdown on Scotch Malt Whisky Society bottlings at four bars in Vancouver, Victoria, and Nanaimo. Agents from the province’s Liquor Control & Licensing Branch raided Fets Whisky Kitchen in Vancouver, Little Jumbo and The Union Club in Victoria, and the bar at the Grand Hotel in Nanaimo Thursday, seizing the entire inventory of SMWS whiskies from each bar. All four bars are “partner bars” with the Society’s Canadian chapter, and obtained their whiskies through SMWS-affiliated privately-owned liquor stores in Vancouver and Victoria.
British Columbia controls the distribution of alcoholic beverages in the province through the government’s Liquor Distribution Branch (BCLDB), through which the privately-run stores are allowed to place special orders for whiskies and other products not carried in government-owned liquor stores – such as the SMWS whiskies. However, bars and restaurants have long been required to buy alcoholic beverages directly from the Liquor Distribution Branch, and are limited to those products the government agency’s liquor buyers choose to carry.
“We’re still very confused, as our partner bars are, about what has led to this,” said Rob Carpenter, who owns the SMWS franchise in Canada with his wife Kelly. “We haven’t been given a lot of information by the Licensing Branch as to what was behind all this, so we’re still a bit in the dark about it.” Carpenter confirmed that all of the confiscated whiskies were imported legally into British Columbia through the BCLDB and all taxes were paid. “Kelly and I, as operators of the Scotch Malt Whisky Society in Canada, are legally registered in British Columbia as liquor agents, so everything about this in terms of how the bottles were brought in and taxes are paid is absolutely legal,” he said. None of the bars have been told whether they will face additional sanctions, such as fines or license suspensions, in connection with the raids.
While the total value of the seized whiskies is not available, Fets Whisky Kitchen owners Eric and Allura Fergie estimated the value of their 242 seized bottles at $40,000 CAD ($32,000 USD). In a post on the bar’s Facebook page, the Fergies posted photos of three government agents using a ladder to remove the SMWS whiskies from the bar’s shelves. Allura Fergie told CBC that “they came in … said we had illegal product on our shelves and they were going to confiscate it.” The Fergies and the Carpenters have retained a lawyer to appeal the seizures, and are hoping to get the whiskies returned to each of the four bars.
The Liquor Control & Licensing Branch is part of British Columbia’s Ministry of the Attorney General, and is operated separately from the Liquor Distribution Branch. Spokesmen for the Ministry declined requests for interviews, but provided WhiskyCast with this statement via email Friday.
“The LCLB operates independently in terms of the General Manager’s supervision of licensees, and enforcement decisions cannot be directed by the Attorney General.
- All liquor products sold by a hospitality customer (bars and restaurants) must be purchased through the Liquor Distribution Branch and must be documented in the establishment’s liquor register, this includes liquor transfers. Hospitality customers must make all their purchases through either the LDB’s Wholesale Customer Centre (WCC), in a BC Liquor Store (BCLS), or via direct delivery by an authorized manufacturer.
- Where products are sold via direct delivery, the manufacturer acts as the LDB’s agent in selling the product. These products must also be clearly documented in the liquor register. The liquor register must be available for inspection at all times.
- The Liquor Control and Licensing Branch (LCLB) cannot comment on compliance measures taken against establishments. As part of its regular operations, the LCLB performs inspections and follows up on complaints received about establishments. An inspector may seize product in an establishment if the inspector believes that it was unlawfully obtained or kept for an unlawful purpose. The LCLB does not release private information about any licensee.”
The raids were conducted just as the Victoria Whisky Festival was getting underway at the Hotel Grand Pacific. The annual festival, which draws distillers and whisky lovers from around the world, has built a reputation for offering rare and unique whiskies while complying with the province’s regulations, and organizers scrambled to make sure exhibitors were fully compliant. A SMWS “Grand Tasting” scheduled for Friday night and two master classes scheduled for Saturday were cancelled with ticket holders to receive a full refund, and the Society’s booth at Saturday night’s tasting festival will be empty.
“For us, we’re very disappointed…we love this festival,” Rob Carpenter said. The festival donates all of its profits to two local charities, and the Carpenters have pledged a donation equal to what the charities would have received from ticket sales for all three tastings.
As word of the raids spread around the Hotel Grand Pacific, other exhibitors pledged their support to the Carpenters and the Society’s partner bars. Jonathan Bray, the owner of Calgary-based importer Secret Spirits, was heavily critical of the province’s actions and planned his own protest for the Saturday night tasting.
“This festival, I’m focusing on Ohishi Japanese Whisky and Hyde Irish Whiskey, both of which are registered and there are purchase orders in place for the province of British Columbia, but they are not yet here, and they are not going to be supplied by the government stores,” Bray said. “They’re only going to be available for private stores, and that makes it illegal for me to showcase them at this festival, so my table is going to have all of these glorious whiskies displayed and the bottles are all going to be closed. You can come and talk to me about them, you can touch them, feel them, look at the label, read the label, but you can’t drink them.” Bray hopes attendees will be upset enough to contact their provincial legislators and demand changes in the law, which he says has not been widely enforced for at least the last ten years.
WhiskyCast’s Mark Gillespie is at the Victoria Whisky Festival, and will update this story with additional information as necessary.
Links: Scotch Malt Whisky Society Canada | BC Liquor Control & Licensing Branch | BC Liquor Distribution Branch | Fets Whisky Kitchen | Little Jumbo | The Grand Hotel | The Union Club | Victoria Whisky Festival | Secret Spirits
January 19, 2018 – Corby Spirit and Wine claimed top honors at the 2018 Canadian Whisky Awards, winning both Canadian Whisky of the Year and Distiller of the Year. During the awards banquet held at Victoria’s Hotel Grand Pacific as the kickoff to the Victoria Whisky Festival, J.P. Wiser’s 35 took the coveted award as the Canadian Whisky of the Year – presented to the highest-scoring whisky following blind judging by an 11-member panel of more than 80 different whiskies.
“We are ecstatic, we are pleasantly surprised, we are humbled … there are so many amazing, different Canadian whiskies that were released this year (during 2017),” said Dave Mitton, Corby’s global brand ambassador for the Pernod Ricard unit’s Canadian whisky portfolio. Mitton and his colleagues also accepted the Distiller of the Year award for Corby’s Hiram Walker & Sons distillery in Windsor, Ontario, where the J.P. Wiser’s 35-year-old whisky was distilled. The winning whisky was part of the 2017 Northern Border Collection Rare Releases series, which also included Lot 40 Cask Strength, Pike Creek 21-year-old Speyside Cask Finish, and the Gooderham & Worts Little Trinity 17-year-old three-grain whisky. The Wiser’s 35 and Lot 40 Cask Strength were two of Corby’s nine entries to receive gold medals out of a total of 22 awarded. Diageo’s Crown Royal came in a distant second with four gold medals for various expressions.
“Extremely tight competition – whether it was the closest or not I can’t remember from previous years, ” said Canadian Whisky Awards founder Davin de Kergommeaux. “I can tell you this, the competition was fierce this year…some whiskies that might have won gold in other years, this year they were pushed down to silver because there were just so many other whiskies that were so good.” While de Kergommeaux did not disclose the runners-up in the overall scoring during the ceremony, he did announce that the difference between the top three whiskies was .04 of a percentage point. The judges also awarded 24 silver medals and 39 bronze medals.
In its first year of competing in the Canadian Whisky Awards, Two Brewers, the single malt whisky produced by Yukon Brewing in Whitehorse, Yukon, took home a gold medal for its Peated Single Malt, while founders Bob Baxter and Alan Hansen won the Microdistillery of the Year Award for Two Brewers. The pair started their brewery in 1997 and bought their still in 2009, but did not release any of their whisky until 2017.
“We’re so fortunate that we have a brewery, so we didn’t have to rush anything to market,” Baxter said after the ceremony. “We thought when we started ‘we can wait three years, that’s all good, not a problem,’ but when we tasted it we thought – ‘ahhh, it’s going the right way, but it’s not ready…what’s one more year, and then another and another,” he said. In the end, the youngest of the seven whiskies Baxter and Hansen have bottled so far is seven years old, with their eighth release scheduled to make its debut this weekend in Victoria. The Two Brewers whiskies are available only in British Columbia and Alberta, and will be listed soon in Quebec’s SAQ provincial stores.
De Kergommeaux also honored three retiring leaders of the Canadian Whisky industry with lifetime achievement awards. Vicky Miller has been the chief blender for Black Velvet whisky in Lethbridge, Alberta for many years, while Rick Murphy and Jim Stanski are retiring after years of managing Alberta Distillers in Calgary and the Hiram Walker Distillery respectively.
A complete list of awards and medals can be found at the Canadian Whisky Awards web site.
Editor’s note: WhiskyCast’s Mark Gillespie has served as a judge in all eight Canadian Whisky Awards competitions.
January 2, 2018 – As a journalist, I spend much of my time covering news that has already happened. There isn’t always as much time to anticipate who may or may not “commit news” in the short-term future, and of course, it’s risky to commit predictions to paper – or pixels – for public consumption. On New Year’s Day, one of my Twitter followers, Dave Parker (@MaltTroll), challenged me to do just that, though.
Now, it would be easy to come up with a humorous and possibly even snarky list of predictions, and I’ll even admit that I thought of a few. The hard thing is to come up with ten serious predictions and be able to back them up with logical reasons for each one.
Some of these may not happen until 2019, and some may not happen at all, but I have a bit of a track record for this stuff. Back in 2010 during a session at the World Whiskies Conference in Glasgow, I predicted that one of Scotland’s major distillers would invest in the U.S. craft whiskey sector within five years. My reasoning was based not on the emerging consumer interest in small-scale distilling, but because an investment in a U.S.-based distillery would allow a Scotch Whisky maker to experiment with new product development while neither affecting current production nor running afoul of the laws limiting Scotch Whisky production. Several months later, William Grant & Sons acquired the Hudson Whiskey brands from Tuthilltown Spirits and went on to buy the entire company in 2017. My only regret is that I’ve forgotten the name of the other panelist who laughed at that prediction and promptly bet me £100 that it wouldn’t happen – I’ve never been able to collect on that bet.
That said, here are my ten predictions for what may – or may not – happen in the whisky business during 2018.
1: Whisky prices will continue to go up worldwide as demand increases, especially for rarer expressions.
This one’s a no-brainer, given that whisky prices have been increasing consistently over and above the rate of inflation as worldwide demand for whisky continues to grow. The corollary is that the number of consumers who complain about rising whisky prices will also continue to grow, and I’ll address that later.
2: We’ll see several more acquisitions of small distilleries by the industry giants, but the trend will expand even more outside the USA.
Most of the recent acquisition spree took place in late 2016, with deals closing or being announced in early 2017. Möet Hennessy’s July purchase of Woodinville Whiskey Company in Washington was the only major U.S. deal of the year, but I wouldn’t be surprised to see three or four craft distilleries change hands this year once the impact of the new U.S. tax reform legislation on corporate finances becomes clearer. We don’t have a good handle of how much cash U.S.-based companies like Sazerac and Brown-Forman may be holding overseas for tax reasons, and the changes to the tax code designed to repatriate some of those funds might spur some acquisition deals.
3: Those acquisitions will not just be complete buyouts, but minority investments designed to hedge their bets for the future.
Diageo (Distill Ventures) and Pernod Ricard USA (NBV Investments) both have in-house units looking for investment opportunities in the craft distilling sector. Until now, most of Diageo’s investment has been outside of the U.S., with minority stakes in Denmark’s Stauning Distillery and Starward Distillery in Australia. NBV Investments was responsible for the Smooth Ambler acquisition in late 2016. While that was a complete buyout instead of a minority stake, it was structured in a similar fashion with co-founder John Little remaining in place after the sale closed.
The best example of this in 2017 was Bacardi’s move to acquire a minority stake in Ireland’s Teeling Whiskey Company along with the U.S. distribution rights. That deal gave Bacardi a piece of the growing Irish Whiskey market to go along with its Scotch Whisky (John Dewar & Sons) and Bourbon (Angel’s Envy) portfolio.
4: The flavored whiskey craze will finally start to die (and not too soon!).
Really, folks … how many more flavored whiskey ideas are left, and is there any evidence that consumers are actually moving up from flavored whiskies to “real” whiskies? There will always be a place for them, but this is one area where whisky makers can learn from the vodka sector. Too many flavored products cannibalize the market and confuse consumers, and if there’s one thing the whisky industry needs to avoid, it’s creating any more consumer confusion. We already have enough trouble getting whisky newcomers to understand the difference between Scotch, Bourbon, and “Whisky” – and people who ask for a “Japanese Scotch.” That leads us to…
5: The push for an official “American Single Malt” designation will gain some momentum outside of Washington, but will be caught up in the Trump Administration’s deregulatory push and not be approved this year.
Given that the Trump Administration’s current policy is that “two existing regulations need to die for every new one that’s approved,” I don’t see this happening in 2018. We’ve already seen examples where the Treasury Department’s Tax & Trade Bureau process for approving new American Viticultural Areas (AVA) for winemakers has been affected by the policy. Only one new AVA was approved in 2017, and according to Wine Searcher, 18 more are waiting for final approval, with some on the waiting list since 2015. Given that the TTB has not yet opened a formal rulemaking proposal to add an American Single Malt standard to the Standards of Identity list for whiskies, I don’t see this happening until at least 2019.
6: Look for some of the whisky makers that released no-age-statement whiskies several years ago to gradually bring back 10 or 12-year-old editions as maturing whisky stocks catch up.
We’ve already seen at least two indications of this. Chivas Brothers recently indicated that it will gradually start to reintroduce The Glenlivet 12-year-old single malt in many global markets where it was replaced in 2013 by the no-age-statement Founder’s Reserve. In addition, when it introduced the Ballantine’s Single Malt Collection this fall, all three malts from Glenburgie, Glentauchers, and Miltonduff carried 15-year-old age statements, when it would have been just as easy to introduce them to the market without an age statement.
It’s probably still too early for Nikka to start bringing back age-statement whiskies after supply shortages forced it to replace the entire range with no-age-statement whiskies a couple of years ago. Other distillers that made similar moves are likely to start using age statements as soon as they can.
7: Exports of Bourbon and Tennessee whiskies will continue to expand in 2018, but begin to slow down late in the year when the U.S dollar gains strength against the British pound and Euro as the Brexit breakup deadline gets closer.
There’s one word that describes the Brexit mess right now, and it begins with “cluster…” Great Britain’s exit from the European Union comes in March of 2019, and there has been little progress toward a resolution on post-Brexit free trade between the two sides. The markets despise uncertainty, as we saw in June of 2016 when the pound crashed following the U.K.’s Brexit vote. Without some form of a trade agreement in place by the current deadline this autumn, don’t be surprised if the currency traders respond by switching to U.S. dollars in a search for stability (though the U.S. midterm elections in November will bring their own concerns about stability). The pound’s post-Brexit vote crash against the dollar led to increased Scotch Whisky exports to the U.S., while raising prices for Bourbon and Tennessee Whiskey exports to Great Britain. While American whiskey exporters can count on selling to more markets than just Great Britain and Europe, both represent a significant percentage of annual export sales and a late-year slowdown in shipments is not out of the question if currency markets swing on political issues.
8: The long-predicted shakeout in U.S. craft distilling will largely be avoided because of the cut in Federal Excise Tax that should help struggling distillers. Those that do go under would have done so with or without a tax cut because they weren’t financed well to begin with.
While the overall tax reform legislation signed into law just before Christmas has plenty to criticize, depending on where your individual priorities lie, there is no question that small distillers benefitted the most from changes to the tax code. Yes, the big distillers will gain from saving almost $1.1 million dollars in tax on the first 100,000 proof gallons they remove from bonded storage for sale each year, but for distillers that sell millions of cases of whiskey each year, the tax savings will be a blip on the radar for the accountants.
Until now, small-scale distillers have been counting pennies while they wait for their whisky to mature, only to be hit with a whopping tax bill as soon as they’re ready to start selling. For a craft distiller who only removes 25,000 gallons of whisky from bonded storage in a year, the tax bill will drop from $342,500 to just $67,500. That $275,000 in savings could mean the difference between a profitable year or another year of losses for many small-scale distillers.
9: Whisky sales in the USA will show slight gains in 2018, but increasing competition from tequila and other brown spirits could be a sign that prices are rising too fast for consumers.
Never underestimate the fickleness of the American consumer. Brand loyalty – especially in the drinks business – is a fantasy, and most people are looking for something new and unusual to drink. They want bragging rights in their circle of friends for being the one to jump on a new trend first, and that’s part of the reason for whisky’s booming sales over the last decade. Given that prices are rising for most whisky categories – especially the premium ones – the point is coming where more consumers will be priced out of the market and start to look for alternatives. While they may switch from mainstream brands to craft whiskies for the “artisan” or “local” flair, many craft whiskies already are priced at premium levels that could discourage some consumers. That opens up a market for producers of tequila, rum, brandy, and other brown spirits to come in at lower prices and take some of whisky’s market share.
10: Look for several of the small distillers in Scotland that have opened in the last 3-5 years (or are being built now) to merge their business operations as a way to save money and create economies of scale for purchasing grain, barrels, bottles, and other commodities.
At least a dozen new distilleries have opened in Scotland over the last three years, and as many as ten more may open this year. Their backers are betting on continued growth of Scotch Whisky sales globally, but the annals of Scotland’s history are filled with stories of distilleries that went under because supplies exceeded demand…and the costs of doing business greatly exceeded revenues.
Here’s another area where distillers might want to remember the past. Back in 1877, six of Scotland’s major distillers merged to form the Distillers Company Limited, which went on to become the dominant force in the Scotch Whisky industry for many years and is one of the ancestors of today’s Diageo. In 1966, the three families that dominated Ireland’s whiskey industry realized they needed to merge together to succeed or all three would fail separately. They formed Irish Distillers, paving the way for the eventual comeback of the Irish Whiskey sector, and their successors are now sharing best practices and techniques with many of Ireland’s startup distilleries.
While each of the small-scale Scottish distillers have their own style of making whisky to meet the expected demand, their chances of future success could be greatly improved by teaming up on the business side. A consortium of small distillers might well be able to negotiate better prices for barrels, grain, bottles, and other commonly-used supplies and services. In addition, shared back-office functions could cut the costs for all members, along with providing technical support and mutual assistance as needed. Distillers have a long tradition of helping each other out when needed, and if investors are willing to put their egos aside, a partnership like this might lead to greater profits in the future.
There are plenty of other predictions that could have been added to this list, such as increased expansion in visitors centers and tourism, along with the overall expansion of distillery capacity, but there also remain plenty of questions to ponder. Will the growth of Taiwan’s Kavalan and other “world whiskies” pose a serious challenge to the industry’s longtime leaders? Will craft distillers continue to increase market share by attracting new consumers, taking sales away from larger brands, or will they feed off each other by competing for the same share of the market? Are we oversaturated with whisky festivals around the world? Will Jim Murray pick a Scotch Whisky as his Whisky of the Year in the 2019 Whisky Bible?
Right now, I’m guessing “maybe,” “all of the above,” “possibly,” and “who cares?” Apply them to those questions as you see fit.
Editor’s note: This commentary reflects Mark Gillespie’s opinions exclusively, and the views expressed here do not necessarily reflect those of WhiskyCast or its sponsors. Our policy is to label commentary as such to avoid confusion with the news stories presented on WhiskyCast.com. All photos ©2018, Mark Gillespie/CaskStrength Media.
Irish Whiskey’s history has been written over centuries, but Carol Quinn has the unique task of preserving the history that was actually written down. The professional archivist has spent the last five years cataloging more than two centuries’ worth of historic documents, photographs, and bottles from the distilleries that joined forces in 1966 to form Irish Distillers – and she’s barely getting started. The stories hidden away in the Irish Whiskey Archive tell more than just the facts and figures … they give today’s whiskey lovers a glimpse of the people who helped put Irish Whiskey on the map.
Editor’s note: Production support for this episode was provided by Irish Distillers Pernod Ricard. In accordance with our ethics policy, WhiskyCast retains full editorial control over the content of this episode.
Links: Irish Distillers
December 20, 2017 – While the controversy continues to rage over the Republican tax reform legislation that received final Congressional approval Wednesday, the spirits industry is claiming a long-sought-after victory. The final package includes tax changes distillers had been trying to accomplish for years, including a reduction in the Federal Excise Tax (FET) that puts craft distillers on a level playing field with small-scale brewers and winemakers.
However, there appears to be some reluctance to crow about what some observers have called the “only progressive element” of the legislation. In its news release issued late Wednesday evening, the American Craft Spirits Association made note of the controversy over the larger tax reform package, which gives corporations and businesses a permanent income tax cut while limiting tax changes for individuals and families to a two-year period before Congress would have to renew them.
“Though the overall tax bill may not have been met with universal support, the originally-filed Federal Excise Tax reduction bills in both the House and Senate garnered tremendous bipartisan support with endorsement by more than two-thirds of the House and a majority of the Senate,” the ACSA’s news release noted. Lawmakers essentially folded the “Craft Modernization and Tax Reform Act” that benefits distillers into the larger package, cutting the excise tax rate distillers pay on the first 100,000 proof gallons of spirits removed from bonded storage for sale each year. The reduction cuts that rate from $13.50 per proof gallon to $2.70, while the higher rate remains in place once the 100,000 proof gallons limit is reached.
While the impact of that cut will benefit the nation’s larger spirits distillers, small-scale and “craft” distillers will have a proportionately larger benefit, since relatively few of them will reach the threshold for the higher tax rate under the new law. For instance, a craft distiller that removes 25,000 proof gallons of spirits from bonded storage a year would owe the federal government $342,500 in FET on those spirits under the current rate – the same amount as distillers who sell millions of proof gallons of whisky or other spirits each year. Under the new law, the excise tax on that 25,000 proof gallons of spirit would fall to $67,500 – a difference of $275,000.
“I just had an email from a craft distiller today saying ‘this is a real game-changer for us’,” Mark Gorman of the Distilled Spirits Council told WhiskyCast in a telephone interview. “If you’re selling 100,000 gallons, and that’s still a pretty small distillery, although it’s bigger than most craft distillers are now, you could save over a million dollars a year in Federal Excise Tax costs. Every distiller we’ve talked to, every distiller that’s a member of ours insists that those savings will go back into new equipment and new people to help make more of whatever it is they make,” he said. The Council represents many of the nation’s largest spirits producers and distillers, along with a large number of craft distillers.
The American Craft Spirits Association is the largest trade group representing craft distillers, and ACSA President Mark Shilling of Treaty Oak Brewing & Distilling in Texas echoed that optimism in the association’s news release. “With this change our industry will see immediate benefits, including the ability to hire more Americans and increase production with new equipment. We look forward to reinvesting these critical and long overdue savings into growing our workforce, production capabilities, and tourism experiences and supporting local agriculture,” he said.
However, the tax breaks for the spirits industry will also expire in two years unless Congress acts to extend them or make them permanent in the future. The two-year period was set in order to make the estimated overall $1.5 trillion cost of the package work within Senate rules and allow it to pass with a simple majority vote instead of requiring support from 60 Senators to end debate and move to a final vote. Gorman indicated that the industry’s lobbyists will continue to push Congress to make the changes permanent.
The legislation also gave distillers two additional benefits. They will now be able to move bottled spirits between two bonded warehouses without having to pay the Federal Excise Tax immediately, giving distillers the flexibility to move spirits before delivering them to a distributor for sale. The second provision allows distillers to deduct the interest payments on maturing spirits – a provision Kentucky distillers have been fighting for for many years.
“The easiest way to explain this is to think about if you’re a homeowner and you’ve got a mortgage on your house,” said Kentucky Distillers Association President Eric Gregory. “Every year, you can deduct the mortgage interest on your taxes. Unfortunately, if distillers capitalize their barrels, then they can’t deduct that interest on those until the barrels are actually dumped…and the blessing or curse of Kentucky Bourbon is that you can’t produce it overnight, so you’re tying up important capital for six, eight, ten, twenty years.” According to Gregory, a number of the larger Kentucky distillers have used some of their maturing whiskey inventory as collateral for financing, just as a homeowner can borrow against the equity in one’s home.
“We are building as fast as we can in Kentucky to meet the overwhelming global thirst for our amber nectar…and we can’t build warehouses fast enough to handle all the new juice,” Gregory said. “With this money now coming back into the distillers, we’ll be able to reinvest that money, and hopefully provide more Kentucky Bourbon for the world to enjoy for the coming years.”
If you’re watching this while sipping a dram, raise a glass to the world’s farmers – because without the grain they grow, there would be no whisky for us to drink. We’ll visit the Hiram Walker & Sons distillery in Windsor, Ontario, which uses around 100 million metric tons of grain each year to distill its Canadian whiskies, and we’ll meet “The Gatekeeper.” Kristy Fregonese is in charge of the distillery’s grain supply, and it’s her job to make sure that every one of the 2,700 truckloads of corn, barley, rye, and wheat that arrive at the distillery over the course of a year meet the distillery’s strict quality control standards.
Links: Hiram Walker & Sons
December 19, 2017 – The stories of friends deciding to open their own distilleries are almost legendary. For John Cooper and Herman Mihalich of Dad’s Hat Rye in Pennsylvania, it was old college friends bonding over homemade beers and talking about Herman’s family history in distilling. Tuthilltown Spirits founders Ralph Erenzo and Brian Lee originally planned a rock climbing facility at their farm in update New York, but after local officials rejected that idea, they decided to turn one of the gristmills at the farm into a microdistillery. At Sweden’s Mackmyra Distillery, it was friends having a few drams in a hot tub after a day of skiing.
There are nearly 1,600 craft distillers in the U.S., according to the American Craft Spirits Association, with more being licensed each month. The ACSA’s most recent economic impact report shows craft distillers accounted for $3 billion in retail sales during 2016 with annual growth of 25 percent each year, and it’s now common to find “craft” whiskies alongside the industry’s biggest names at many U.S. retailers today, along with a growing export market. Craft distillers have also been credited with helping persuade state lawmakers to open up opportunities for “artisan” distilling on a scale not seen since the end of Prohibition. The phenomenon is not limited to the U.S., though, with small-scale whisky distilleries popping up all over the world.
Defining a “craft distiller,” however, is something akin to former Supreme Court Justice Potter Stewart’s famous 1964 opinion in an obscenity case: “I know it when I see it.” There is no official definition for a “craft distiller,” and the two main groups representing small-scale distillers have different standards. The ACSA limits voting membership to “independent, licensed distillers annually removing fewer than 750,000 proof gallons from bond (the amount on which federal excise tax is paid).” On the other hand, the American Distilling Institute’s certification standards limit the term “craft distiller” to those with annual sales of less than 100,000 proof gallons and less than 25 percent ownership by other alcoholic beverage industry members. A number of states have set their own definitions, usually based on annual production and mandating that a certain percentage of grain and other raw materials come from within the state.
However, meeting the standards for federal and state distillery licenses is just the beginning, and the “peer to peer” forum on ADI’s web site is full of ads from distillers looking to sell off stills and other equipment. That’s because there’s a jungle full of potential pitfalls that small-scale distillers face on their road to profitability, along with a mountain of paperwork. Smooth Ambler Distillery co-founder John Little cited that paperwork as one of the reasons he and his investors decided to sell the West Virginia distillery to Pernod Ricard last December, since it gave them access to the industry giant’s resources in compliance, human resources, and other areas that distracted them from distilling on a daily basis.
“They have so many resources in all those areas that it actually enables us to be better distillers and run our business more efficiently, and that’s the part that really excites me as a small business owner,” said Little, who stayed on to run Smooth Ambler as a subsidiary within Pernod Ricard USA’s NBV Investments venture capital unit. Little and other craft distillers have been open with us in the past about a few of those pitfalls, and if you sit around the hotel bar at a craft distilling conference, you’re likely to overhear tales of woe ranging from malfunctioning stills to problems with distribution. When it comes to money, though, they’re likely to clam up. That’s because most small-scale distilleries are set up as privately-held corporations with little or no disclosure requirements, making their financial records are as much of a secret as their mashbills – or in some cases, the actual source of their whiskies.
Making the transition from a “craft distiller” to a larger player in the whisky industry is more difficult, though, and there are three ways of doing it. One can sell the business to one of the industry’s giants, as Little did. One can find private investors to buy a large share of the company, though that often comes with a loss of control over the business – as Balcones Distilling founder Chip Tate found when his majority shareholders forced him out of the company following a very public series of disputes in 2014. Tate took the money from his buyout and founded the Tate & Company distillery in Waco, Texas, and as he told WhiskyCast in a December 2014, put his name on it to “avoid any confusion in the future about who’s going to be working there for a long time.”
The third option is to bypass private investors and “go public” by offering shares of the company on the stock market. As of now, Portland, Oregon-based Eastside Distilling is the only small-scale distiller with shares trading publicly on NASDAQ (ticker symbol EAST), and just like every other publicly-traded company in the U.S., must file regular disclosure reports with the Securities and Exchange Commission.
“That’s the advantage of being a public company, and it’s also the disadvantage,” says Eastside CEO Grover Wickersham. “The advantage is that anyone can step up and buy our stock – they just have to call their broker (and) place the order, and anyone can sell our stock – they just have to follow the same process.” Wickersham, a longtime investor and portfolio advisor with past experience in taking small companies public, is also a former SEC staff attorney and branch chief, giving him a view from both sides of the regulatory picture.
“We have liquidity for our shareholders, but the price we pay for that is that we have to comply with the U.S. Government rules for public disclosure – we have to have audited financial statements, we have to file audited quarterly reports, we have to file interim reports when there’s (a) material development, and that’s something obviously a private company doesn’t have to do,” he said in a telephone interview. For instance, Eastside filed a routine “Form 8-K” disclosure in September of 2016 after master distiller Melissa Heim told a local TV station that the distillery had just shipped its single largest order ever to a distributor on the East Coast. That news had not been previously been disclosed to the markets or in a news release, and it’s the kind of thing a privately-held craft distiller would be able to brag about at will without going to the hassle of filing a report with the SEC.
Eastside Distilling was founded in 2008, and has been a publicly-traded company since 2014, when founder Lenny Gotter and company president Steven Earles worked out a deal to go public by acquiring a small publicly-traded interactive media company and merging Eastside into it. After a series of private stock placements with investors following the transition, Gotter left Eastside in September of 2016, followed by Earles two months later. Since then, Eastside has been active in the acquisition market under Wickersham’s leadership. In May, Eastside bought Oregon’s Big Bottom Distilling from founder Ted Pappas with plans to run it as a standalone unit while incorporating its spirits into Eastside’s distribution system. In March, Eastside bought Portland’s MotherLode Craft Distillery, which provided both distilling and bottling services for other craft distillers in the Pacific Northwest, and is integrating its operations into Eastside’s own distillery in Portland. In both deals, Eastside completed the acquisition with shares of the company’s stock instead of an all-cash deal, giving the sellers the flexibility to divest their shares at will or acquire new ones while becoming part of the Eastside team.
Last month, the company announced a joint venture with country music star John Rich to create a series of spirits to be sold under Rich’s “Redneck Riviera” lifestyle brand, and Eastside will open an office in Nashville, Tennessee to handle sales and marketing for the brand. According to Wickersham, the venture is unlike other celebrity-linked spirits brands in that Rich is an equity partner with Eastside and not merely collecting a licensing fee for his brand.
“John Rich is an amazing, amazing guy and we’re really excited to be hooked up with him,” Wickersham said. “He’s personally going to go out and meet the major customers … he’s very committed to working really, really closely with the distributors, he’s gonna go on the road – fire up his bus – we’ll pay the diesel, but he’s going to be doing ten-city tours, he’s going to be absolutely 100 percent invested in seeing that brand succeed.”
“A few years ago, I started really putting that brand out around America, with footwear, with live nightclubs…got one in Vegas and one opening in Nashville,” Rich told Portland’s KGW-TV in an interview last week. “It was time to do a whiskey, and some of the greatest whiskey makers in the world live right here in Portland … so about seven months of back and forth from Portland to Nashville, they came to my house, I’m out here now, and we went back and forth and came up with this final blend,” Rich said. Eastside’s Travis Schoney (a distant relative of John Rich) created the Redneck Riviera whiskey, which will debut initially in the Southeastern U.S. over the winter. According to Wickersham, Eastside will disclose some terms of the agreement with Rich in its fourth-quarter earnings report to the SEC, but has filed a request for permission to redact some specifics of the deal as proprietary information.
Last July, Eastside filed with the SEC to raise $6.9 million in capital by selling additional shares to investors. In what’s known as an “S-1 form” at the SEC and a prospectus to potential investors, Eastside’s owners outlined their growth strategy for the future along with the potential risks they face, as required by federal law. The list of risk factors appears to be daunting at first glance, and covers a wide range of possibilities from relationships with distributors and suppliers to a history of operating losses and the potential need for additional capital in the future. The offering was also part of Eastside’s transition from trading on the “over-the-counter” market to the much larger NASDAQ exchange, which has a stricter set of standards for companies to be listed.
“I don’t think anybody who’s in the craft distilling business would be surprised by any of the risks that we disclose,” Wickersham said, while pointing out that getting an accurate picture of Eastside’s finances requires a more detailed analysis than what is shown in its S-1 form. “I think anybody looking at our current balance sheet thinks we’re pretty strong … we’re pushing $10 million in equity … our last report was $4 million in cash, we have at cost a couple of million in bulk spirits, which everyone in the business knows for the most part are going up in value, and most of our debt is long-term debt … we don’t have an excessive amount of trade debt, so actually, I think we’re in pretty good shape,” he said. “We’re only at a $20 million market cap, so if we knock it out of the park, I think there’s a real upside … and we have a lot of shots on goal, to mix our sports metaphors, we have a lot of shots on goal with our different products.”
Listen to Mark Gillespie’s interview with Grover Wickersham:
One of the major ongoing expenses Eastside has faced is the need to invest in building up its brands as it expands distribution outside of its home market in Oregon. Earlier this year, the company teamed up with Sandstrom Partners, a branding and design firm based in Portland that has done extensive design work with Diageo’s Bulleit Bourbon and other major spirits brands, while adding Sandstrom president Jack Peterson to its board of directors. Their first project was a re-branding of Eastside’s Burnside line of whiskies that debuted in October with new packaging to go along with a complete re-working of the whiskies themselves led by the team of master distillers Melissa Heim and Travis Schoney. While Sandstrom accepted a combination of cash and Eastside shares in its compensation package, Wickersham called it a strategic investment in the company’s future. “Most people in the business realize that you do have to spend a lot of money to develop brands, but when you have a payday when you sell the brand if you’re successful, then the paydays can be very large,” he said noting this year’s acquisition of Casamigos Tequila by Diageo from founders George Clooney and Rande Gerber for $700 million in cash and up to $300 million in performance-based incentives.
However, it must be noted that doing deals and raising capital isn’t as simple as issuing more shares of stock. Keep in mind that every time a company issues new shares of stock, that dilutes the value of the shares held by current investors. While Eastside is too small to sell bonds – essentially borrowing money from investors – on the publicly-traded bond market, the company has been able to sell bonds to institutional and private investors on three-year terms for around six percent interest.
That’s a lot more attractive than financing a distillery startup on one’s personal credit cards, as more than one distiller has done. Rachel Gardner and Pia Carusone didn’t quite resort to that when they founded Republic Restoratives Distillery in Washington, DC, but as Gardner said in an interview, they made almost every possible mistake when they started.
“Unfortunately, most banks don’t see whiskey in a barrel with its accruing value as something that is really a commodity that you can monetize and collateralize, so early on, we got a little big for our britches, I suppose … went to banks and said ‘hey, we need two million dollars,’ and they’d say ‘that’s hilarious … come back when you’ve made ten million dollars.” They eventually funded the distillery with a successful crowdfunding campaign supported by nearly 600 individual donors, and were able to take that success and persuade several small venture capital investors to come on board with startup funding.
“Just like everybody else, we’re going bill to bill, and we’re just hoping to keep the lights on,” Gardner laughs.
Editor’s note: This is an updated version of a story published in July that was withdrawn because we felt it did not meet our own editorial standards. At the time, Eastside Distilling was in the middle of a required “quiet period” during its July stock offering, and was prohibited by federal regulations from publicly discussing its finances or responding to our request for an interview. For that reason, we were not able to include the company’s explanation of its potential risk factors or other mitigating information. We would also like to note that the audio interview with Grover Wickersham included with this story is the complete interview, with only minor edits that did not affect the editorial integrity of the interview. In addition, this story was also updated to reflect the change in Eastside Distilling’s ticker symbol to EAST as of January 4, 2018, and that EAST began trading in 2017 on the NASDAQ exchange instead of the “over-the-counter” market.
December 17, 2017 – Guinness World Records has declared a Scottish hotel’s whisky bar as having the “largest whisky collection available for sale.” The Glenesk Hotel in Edzell, Angus started building up its collection after Dylan and Alena Wren bought the hotel five years ago. At the time, the hotel had around 200 whiskies available at the bar, but as of September 28, it stocked 1,031 different whiskies – according to Robert Fleming of Angus Dundee, who logged the inventory and certified it in the hotel’s submission to Guinness World Records. According to The Drinks Business, the previous record of 800 different whiskies was held by the Millionaire’s Casino in Ayrshire, Scotland.
Not so fast, whisky lovers. There’s more to the story than this, and while an inventory of 1,031 different whiskies is certainly impressive, it’s just a starting point for a handful of other whisky bars around the world. After the original round of stories on the new “world record,” we started checking with some of the likely contenders among whisky bars known for their extensive collections. For instance, the Jack Rose Dining Saloon in Washington, DC. While owner and longtime whisky collector Bill Thomas was not available for an interview, the bar’s social media team responded to our inquiry.
As of publication, the Jack Rose web site currently lists 2,687 different whiskies available. However, that number may well be dwarfed by the inventory at the Artisan Restaurant in Wishaw, Scotland, where owner Derek Mather started receiving comments on his Facebook page as news of the Glenesk Hotel’s record spread. According to Mather, the Artisan has 3,450 different bottles on hand as of today, of which 2,240 are currently open.
“Quite a few people know how much whisky we’ve got in the restaurant, which is obviously always growing – there’s always deliveries coming in,” Mather said in a telephone interview for this week’s WhiskyCast. “I knew about the old Guinness book record of being 800 bottles, but I’ve never done anything about it.”
Mather told WhiskyCast one of his customers contacted Guinness World Records with questions about the new record, and received a response outlining how to submit an application to break that record, which he shared with Mather. However, Mather will not be attempting to challenge the Glenesk Hotel’s record for a simple reason: money.
“There’s lots of costs involved, apparently, one being £6,500 GBP plus VAT ($8,658 USD) for an adjudicator to come out and count the whisky,” he said with a laugh. In addition, Guinness World Records charges an additional monthly licensing fee of £3,000 GBP ($3,996 USD) in order for a record holder to be able to use the Guinness World Record logo and other trademarks to promote its record in advertising and other forms of media.
“That’s a lot of whisky to buy for the bar, so I’d rather buy whisky,” Mather laughed. “I’d rather invest that money in buying whisky and letting my customers drink whisky that they probably wouldn’t be able to get their hands on otherwise. A lot of people who frequent the restaurant come to me because they might have a bottle in their collection, but I’ll probably have it open … so rather than them open it, they’ll come and try it here, and then if they’re happy with it, most of them that I know of have opened their bottles.”
WhiskyCast contacted the Glenesk Hotel and spoke briefly with operations manager Samuel Allen, who was quoted in The Drinks Business article. However, Allen cited company policy and referred us to the hotel’s public relations firm, Granite PR, to arrange an interview. Granite’s Graeme Forbes declined to make anyone from the hotel available for an interview, saying it had closed for the festive season and would not reopen until early January, but noted in an email that the hotel plans a celebration of the world record shortly after the holidays with “appropriate PR and media activity around this date.” For that reason, we do not know whether the hotel’s owners paid the £6,500 fee for an adjudicator to visit the bar and certify the inventory, or whether Robert Fleming of Angus Dundee served in that role – either paid or as a volunteer. However, the hotel’s web site currently displays the Guinness World Records logo on its home page, which would indicate that the owners have paid the required licensing fee.
However, Guinness World Records spokesperson Kristen Ott responded to a WhiskyCast inquiry about the costs for submitting a world record with this note via email:
“Guinness World Records would like to clarify that all record claims can be processed from beginning to end free of charge. We receive over 40,000 applications annually, 96% of which are processed free of charge. Anyone who wishes to break a Guinness World Records tile must first apply for the record through our website. Our standard application is free of charge and is reviewed by our Records Management Team within 12 weeks.
In addition to our standard free record processing, we offer a range of paid for services, including research into appropriate records and on-site record verification from a trained Guinness World Records representative. However, these services are not necessary to complete record processing.
We welcome an application from anyone wishing to attempt this record title.”
In a separate email, Ott indicated that Guinness World Records does not charge record holders a licensing fee to promote a record in its advertising or social media, unless the record holder wants to use the trademarked Guinness World Records logo. In that case, the actual licensing fee would depend on the type of promotion, with, according to Ott: “for example a multi-month TV advertising campaign is much larger than a week long social media campaign.” We have requested a follow-up interview to get more clarification on this subject.
The Guinness Book of Records was first published by Dublin’s Guinness Brewery in 1954, and was owned by Guinness until 2001, when Diageo sold the Guinness World Records unit while licensing the rights to use the Guinness name. It is currently owned by the Canadian-based Jim Pattison Group, but remains based in London.
Editor’s note: This story has been updated with additional information from Guinness World Records.
George Washington’s original whiskey distillery at his Mount Vernon estate in Virginia operated from 1797 until shortly after his death in 1799. In 2007, the restored distillery began producing rye whiskey using Washington’s original recipe. Ten years later, distillers from around the United States gathered at Mount Vernon to celebrate – and make some whiskey.
Editor’s note: Some production support for this episode was provided by the Distilled Spirits Council. In accordance with our ethics policy, WhiskyCast retains full editorial control over the content of this episode.