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How to Start a Distillery

Craft distilleries are following close behind breweries, which have multiplied across the U.S. and changed the drinking landscape throughout the country. The number of craft distilleries in the U.S. grew 15.5% in 2018 to 1,835 distilleries, according to the American Craft Spirits Association. The American craft spirits market reached $3.7 billion in sales last year.

Oliver Mulligan established Great Wagon Road Distilling in Charlotte, N.C., in 2005 and opened an accompanying bar, The Broken Spoke, in late 2015. At a time when breweries dominated his city, The Broken Spoke’s menu of spirits, wine and beer was a welcomed alternative, Mulligan said. Today, the distillery and the bar, which operate as separate businesses, see growth each quarter.

“For groups that wanted wine, wanted a cocktail, or craft beer, it was refreshing,” he said.

Keep reading to learn what it takes to start a distillery and if the business is right for you.

What to consider before starting a distillery

Opening a distillery can be a substantial undertaking because owners will have to navigate both federal and state requirements, in addition to local rules that may be imposed by their city or county. Here are a few factors to consider before jumping in.

Legal requirements

The rules and regulations surrounding distilleries vary widely in each state, said Brad Plummer, director of communications for the American Distilling Institute and a distiller in his own right. “You might as well be talking about 50 different countries,” he said.

At the federal level, a singular organization, the U.S. Alcohol and Tobacco Tax and Trade Bureau, licenses the operation of distilleries. But at the state level, said Plummer, the selling of your spirits is regulated state by state, and sometimes even by several government entities within a state.

In California, where Plummer operates his distillery Coastal Spirits, distillers need a manufacturers license, a license to use a still and a license to possess distilled spirits in a warehouse, among other distillation-related activities.

The state also regulates the distribution and sale of spirits. Some California distilleries can sell bottles directly out of their own warehouses, while others must distribute to businesses that are licensed to sell spirits, Plummer said. Certain licenses also permit distilleries to have a tasting room where customers can drink spirits made on the premises, he said.

“Who are the people in the middle of producing your spirits and getting it into the hands of customers? Those are determined at the state level,” Plummer said.

Make sure you comprehend how your state regulates the production and sale of spirits, so you have a clear understanding of how your distillery could make money in the future.

“It’s all about the approach,” Plummer said. “Know your state and know what’s possible.”

Expenses

Equipment, ingredients, permits and the building itself can add up to a multimillion-dollar investment if you want to open a high-quality distillery, Plummer said. Most distillery owners have an angel investor or backer funding the business, as costs could be as high as $4 million to $6 million.

“I don’t see anybody bootstrapping themselves anymore,” Plummer said. “It’s a capital-intensive business.”

There are many costs to cover before your first spirits are ready for sale, Plummer said, especially if you make liquor that requires extensive aging, like whiskey.

“It’s going to be many months if not years from the first idea to the first bottle of booze,” he said. “And you’re going to be hemorrhaging cash the whole time.”

To fund both The Broken Spoke and Great Wagon Road, Mulligan raised $2.1 million in private investments. The revenue from the bar funds the distillery, he said. After two years in business, Mulligan said he’s now treading water and expects to begin generating a profit at the five-year mark.

Mulligan initially turned to private investors because the business lacked the cash flow most banks and lenders look for when approving borrowers. In addition to lack of cash flow, the length of time it takes for a distillery to turn a profit may also be a concern for banks. Once your business becomes profitable, you could obtain financing from a lender specializing in the industry, such as Live Oak Bank, which provides loans for wine and craft beverage businesses.

“Banks loan money based on your cash flow and not on your dream of running a distillery,” he said.

7 steps to get started

Once you’ve decided to take the leap, here are a few steps to follow when starting your own craft distillery.

1. Find educational opportunities.

Mulligan found his way to distilling through his family history. Mulligan’s late grandfather illegally distilled spirits in Drumlish, Ireland, and ran into trouble with the law, but his misfortune inspired Mulligan to start an above-the-board business.

“There’s a long history of illicit distilleries in the family,” Mulligan said. “It was bound to come out of me.”

Unfortunately, his grandfather passed away when Mulligan was young and couldn’t teach him the art of distilling. Mulligan instead took distilling courses at the Spirits Institute Puget Sound, which awards a craft distilling certificate to those who complete the program. Mulligan also attended a workshop with a master distiller at KOVAL distillery in Chicago.

“Working in an actual distillery is the best experience you can get,” Mulligan said.

The American Distilling Institute also offers hands-on workshops at various locations teaching distilling, packaging and marketing of craft spirits. Attending trade shows or conferences in your area would also help you meet other industry professionals, Mulligan said. Additionally, the American Craft Spirits Association supports state distiller guilds across the country. Find your local organization here.

2. Choose a location.

No matter where you choose to house your distillery – whether it’s a new building or an existing space – you would need approval and a certificate of occupancy from your city or county, Mulligan said. All buildings, other than single-family dwellings, require you to get a certificate of occupancy before using the space. Plus, cities may place further restrictions on alcohol-related businesses — for example, when Mulligan first started making spirits, distilleries were relegated to the industrial areas of Charlotte. But while abandoned warehouses and mills may have character and atmosphere suitable for a distillery, they typically require a major upfit.

Before you can be approved for a certificate of occupancy, the building would need to meet safety requirements, Mulligan said. You may need to add features like a sprinkler system or air conditioning units, which could become a large expense.

“Bringing the place up to code is really tough,” Mulligan said. “There’s a lot of big-ticket items in there.”

3. Decide what spirits to produce.

Great Wagon Road produces three whiskeys and two vodkas, and Mulligan is developing a gin. Although whiskey is the distillery’s bread and butter, Mulligan said he received advice to make a clear spirit to sell while the whiskey ages. Great Wagon Road’s whiskey ages for about two to three years, he said, while vodka doesn’t need to age.

The type of liquor you want to distill would also determine what type of still you’d need to buy. A still is essential to the distilling process, as it alternately boils and cools liquid to create a high-alcohol spirit of your choice.

  • Column still: Produces spirits with 95% alcohol by volume (ABV), and higher
  • Pot still: Produces spirits with 60% to 80% ABV

Whether you use a pot or column still would depend on what kind of spirits you plan to produce — for example, vodka can have an ABV between 40% to 95%, while whiskey could hover in the 36% to 50% ABV range.

Mulligan uses a hybrid still that can produce all types of spirits. Hybrid stills are becoming more common among craft distillers, as they allow for flexibility in product.

4. Buy equipment.

Before you can apply for permits or register the distillery with the TTB, you first need to have your equipment in place, Mulligan said. The TTB requires serial numbers of all machinery used in the distilling process and a description of your production procedures.

 “They’re not going to go through the trouble of reviewing a lengthy application unless they know that you have the money to do it and pay them taxes,” Mulligan said.

Like beer, spirits are created in system that ferments and transfers liquid. In addition to the still mentioned earlier, here are other pieces of equipment necessary to complete the distilling process:

  • Boiler
  • Mash tun
  • Fermenting tanks
  • Pumps
  • Bottling equipment

If your spirits need to age and mature, you would also need to purchase casks or barrels to store the liquid for an extended period of time.

5. Obtain federal and local permits and licenses.

As discussed earlier, you need to register your distillery with the TTB to operate. Free applications are available online. After applying, you would receive a permit from the TTB to operate a distilled spirits plant as an alcohol producer and manufacturer.

Your TTB application would call for information about your equipment, general premises and people involved with the business. Every owner, partner, director, manager, officer or stockholder with more than 10% of shares would need to complete a personnel questionnaire as part of the permit application.

You would also need additional state permits to conduct business, which could come with a cost. North Carolina, for example, requires business owners to obtain an authorization of distillery permit to transport ingredients, manufacture liquor and sell or deliver spirits; that permit costs $300. Any additional permits that your county or city requires would be an extra expense.

6. Define your brand.

With so many well-known spirits brands lining the shelves, it may seem daunting to compete in the market. Consider relying on your personal connection to the business to develop your branding, Mulligan said. For instance, some Great Wagon Road spirits are named after Mulligan’s relatives, including his notorious grandfather.

“Every spirits brand has to have a story,” Mulligan said.

Your distillery name can be separate from the branding on your bottles, Plummer said. For instance, Plummer’s distillery is Coastal Spirits, but he sells his products under the name Farrallon, including Farallon Gin and Farallon Vodka. Mulligan also has separate branding for each product from Great Wagon Road – Rua Whiskey, Quinn’s Carolina Whiskey and Drumlish Whiskey, as well as Salamander Vodka and Ban Vodka.

If you wanted to sell off one of your product lines in the future, it would be easier if they were named separately, Plummer said. However, it may be more expensive to develop several brands and more difficult to gain brand recognition. Whichever strategy you choose, though, you would need to stick with it and build awareness of your distillery or your individual spirits among consumers.

“Are you going to be a house of brands or a branded house?” he asked. “Once you get in, you’re locked in.”

7. Sell your spirits.

As noted earlier, your method for selling liquor would depend on your local requirements. In some states, distillers could focus on developing a retail presence and getting their spirits into liquor stores, bars and restaurants, Plummer said. In other states, you may be able to sell directly from your warehouse or tasting room.

Distributing to restaurants and bars would be an efficient way to gain regional name recognition, Plummer said, as customers may become familiar with your brand on cocktail menus. However, your ability to distribute would depend on the laws in your state, Plummer said. In North Carolina, for instance, distillers must distribute to a wholesaler, who can then sell to retailers.

Is a distillery right for you?

The competition is increasing in the distilling industry, putting pressure on businesses to meet a high bar of expectations. To be successful, new distillery owners should prepare to heavily invest in quality equipment and effective marketing strategies, Plummer said.

“As the competition stiffens, so do the stakes in how you masterful you have to be,” he said.

For those new to the industry, Plummer recommends hiring a consultant who could make sure you don’t miss any regulatory steps and help with your production strategy, he said. It would be another expense added onto an already hefty investment, but a consultant could put you on a faster path to success than if you launched the business on your own. Citrus Distillers in Jacksonville, Florida, provides full consulting services, including help with state and federal licensing, starting at $10,000.

“The scale of payout is huge,” Plummer said. “But the scale of money to get in and be successful at it is also huge.”

Contract distilling may also be a possibility in your state. You could find an existing distillery to develop a recipe and produce spirits for you, then bottle and label the spirits with your own branding, Plummer said. This would be a low-cost way to enter the industry. Once you’ve grown the business, you could then establish your own distillery and begin producing your spirits independently, he said.

But if you’re set on opening a full distillery, be prepared for the commitment. Mulligan works nearly every day of the week to keep the business running, but he said that it all pays off when he sees customers enjoying Great Wagon Road spirits and making The Broken Spoke part of their weekends. And their lives, too — three couples have even gotten married at the distillery.

“If you want to do this for a living, you’ve got to go in with both feet,” Mulligan said. “Give it all you’ve got.”

 

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