Last year I scheduled two vacations for the Summer. One was for my fraternity’s biennial convention, which for 2012, was in San Antonio during mid-July. The second was for a three day Kothe workshop in Chicago at Koval Distillery. The two were not supposed to have anything to do with each other.
So I’ve attended every single Phi Psi Grand Arch Council since 1988. 2012 was no different. With less than two weeks to go, I received an e-mail about a whisky tasting that would be held, with proceeds going to our educational foundation. Although a fellow Phi Psi, I had never met the gentleman running the event. His name is Russ, so I knew that I’d be in good hands. My namesake is also a Certified Specialist of Spirits with over 25 years of professional experience in the alcohol beverage industry. Well, I’m going to open a distillery in Brooklyn because that’s what I decided to do. He knows the business. Texas Russ agreed to meet with me after the whisky tasting.
So I told Russ about me plan. He liked it and said that my passion for the project was apparent. The next evening he ran into me. Russ said that he thought some more about my plan and that he loved the idea. This might not seem like much, but his words of encouragement have often been the wind behind my sails to move this project forward. Whenever doubt sets in, I think about how Russ, someone with extensive marketing and sales experience in this industry, loved my idea. My idea is validated.
Now it’s the third Thursday in September and I fly into Chicago. I’m a day early for the Kothe workshop. A fraternity brother from my chapter at Florida State, who I haven’t seen since the early 90s, picks up my arrival from Foursquare. “Lunch...?“ I soon met up with Matt at a Giordanos and told him about the Distillery that I’m going to open. Matt is not from Chicago. He was there on business for his advertising firm. Matt liked my idea, and he really liked the passion that I brought to it. It was great seeing Matt again. I left stuffed with stuffed pizza, and with my advertising guy.
Friday morning is the beginning of Kothe’s three day workshop. Attendees are mostly from the U.S. There are also aspiring distillers from Canada, Ireland and Chile. This is not a hands-on class where we actually make spirit. This is a class both about the process of distilling, and the business of distilling.
Over the three days, Robert Birnecker of Kothe and Koval, spoke through most of the classes. He was very informed, and conducted the classes in a way such that I left far more informed than when I arrived. We learned about all of the technical steps of making distilled spirits, including potential pitfalls. Other sessions covered equipment, and designing the distillery,
A session, run by an insurance agent, covered insurance. Another session run by Sonat Birnecker Hart, which was eye opening, covered distributors. One of the most important things that I learned about distributors is that they just distribute. They don’t promote products. Distillers have to do that.
But the biggest takeaway for me came from the session run by a TTB agent. For those who don’t know what the TTB is, it is the (Alcohol and Tobacco) Tax and Trade Bureau of the United States Department of the Treasury. That’s right, booze is not regulated by the FDA. It’s regulated by money people, and they take their money very, very seriously. This was a very enlightening part of the workshop. I came away with the impression, which has since been reinforced, that the TTB, and its agents, are honest brokers. They are not against distillers. They are willing to help distillers comply with the TTB. But at the end of the day, they work for the United States Department of the Treasury.
As the TTB agent spoke, I was rethinking my business plan. To get a Distilled Spirits Plant (DSP) permit, a lot of paperwork has to be done. But before the paperwork can be submitted, a place of business must be in place. And the major equipment must already be purchased. Then the application can be submitted. Some call this “the rent tax.”
And we learned about applying for a TTB Certificate of Label Approval (COLA.) First you get familiar with the Beverage Alcohol Manual (BAM.) Then you apply, preferably online. All alcohol sold to consumers must be in a TTB approved container with a TTB approved label. Period.
Then there is tax revenue. The alcohol is always recorded. It’s recorded coming off the still. It’s recorded going into a cask. It’s recorded being removed from a cask. It’s recorded going into a bottle, and within two weeks of that, tax revenue is paid to the Department of the Treasury. There are some exceptions to how it’s being presented here, but this is basically it.
While all of these things are being done with the Federal Government, a DSP permit is contingent on compliance with all state and local laws and regulations.
The previously mentioned “rent tax” is made worse by the lead time for stills. Kothe, as of this writing, has a seven month wait, and that’s one of the shortest around. I’ve read that Forsyths has a 14 month wait.
A few of the people that I met at the workshop seemed to become very ambivalent about starting a distillery as the workshop progressed. The barrier of entry is very high, which is bad because it makes opening a distillery more expensive. But because the barrier of entry is so high, the marketplace won’t get flooded so fast, and that is good. As I leave Chicago, my head is full of new, and very valuable information. This will be harder than I thought. I’ve never written a business plan, and have never raised capital for a new business. I’ll need to raise a lot of capital, and I don’t know how. I’ll just have to figure out how because I'm going to open a distillery.