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  • Writer's pictureKarl Loepke

Should I Start a Distillery?

Years of drinking, tasting, blogging, touring distilleries and annoying your friends has all led you to this moment. Do I continue down this path of fun and discovery, or do I take this passion and try to turn it into a business? If you are crazy enough to actually consider taking a dive off the deep end, allow me to offer some brief insight into what starting a distillery entails (at least to begin with)....

At first, it's not that daunting a proposition. In fact, it's exciting to think about! Everyone drinks. How hard can it possibly be? Let's examine it.

First, there are the typical mechanics of starting a business that you must muddle through: deciding on/naming/creating a Corporation or LLC, drawing up documents, finding a location, writing a business plan, securing funding (if not self-funded), etc. But what nobody tells you is how the industry itself works. It's nothing less than one of the most ridiculously fractured, over-regulated and competitive industries in the United States.

That giant red flag aside, let's say you've got your business/brand name all picked out. And it's freaking AWESOME. Hold on partner!! If you haven't done so, check with US Patent and Trade Office online that this name (or something "similar" enough) has not previously been trademarked by another company, however indirectly, as mine was. For these legal concerns, it's helpful to have a lawyer fluent in trademark law (and the resources to pay for it!). If your awesome business/brand name was previously trademarked by a distillery, winery or even a brewery, then you may be out of luck. It's still a possibility if it's a vaguely similar business like a brewery or winery, but you will have to reach out and try to work out a coexistence agreement (as I did). Or worst case, you will have to come up with a new one. Let's just assume you got one that nobody else ever used, then it's on to finding a space to buy or rent in a town that will allow you to open a distillery.

Location isn't necessarily everything, but it certainly helps, especially if you want to open a badass tasting room. I opened Skeptic Distillery in a terrible location for foot traffic, but you have to make the best of your situation, whatever it is. The trade-off is my rent is reasonably low, I have a large space, and my town is super easy to work with. Some towns/cities will be exceptionally difficult to work with, requiring board meetings, endless inspections, you name it. Others will welcome your venture and roll out the red carpet. Perhaps they'll even give you a grant to get started. I didn't have this luxury, but you might if you look hard enough. Just be careful not to bury yourself in a giant monthly lease just for a great location, unless you're swimming in funds or got a massive SBA loan you need to burn through.

So you're building a swanky distillery, you figured out what you want to distill and ordered a super expensive, gleaming copper still from Vendome or somewhere for half a million bucks or more, or you found a ratty used one to try and repurpose. Or maybe you built one, as I did. Whatever you do, you're on your way! The next step is permitting.

The permitting process with TTB is free. This is where the simplicity ends. The manner in which you're required to describe your business property and delineate equipment, tanks, processes, locations of this or that, is downright archaic. But once you get this all submitted, hopefully correctly, months later you'll receive your basic permit. Remember, you're technically not even allowed to distill legally until you receive it. What this means is that if you are a law-abiding citizen, then you can't even figure out if you're good at distilling until you've already sunk your life savings into this venture! How ridiculous is that? While I wouldn't recommend breaking the law to find out if you're any good, you may want to at least consider doing it covertly on a small scale for R&D purposes (you can actually apply for an R&D lab exemption if you're concerned), as it doesn't really get any easier from here on out.

After you get the basic permit from the TTB, you can apply with your state for a distillery permit. This usually costs a few thousand bucks (EVERY YEAR!!), but it varies state to state. In fact, every little thing varies state to state! There are franchise states (if you sign a distributor, you're married to them for life), control states (govt bureacracy and lunacy in selling there) and free states (the most straightforward situation). Be sure you pay attention to this before signing up with any distributor. Regardless of what you want to do, you will need a distributor sooner or later, so accept that the 3-tier system is here to stay and try to work within it.

Anyone in this business will tell you that it takes around 5 years to start making money. Sometimes it's a little less, sometimes you never make money, but that's a good rule of thumb. Expect to LOSE MONEY during the first few years. Everyone's situation is different, but there are so many idiotic restrictions on liquor sales. Advertising online is extremely difficult to navigate. Google allows it, and Facebook/IG to some degree, but pretty much everywhere else won't let you, and the policies that allow it don't always make sense. In fact, they rarely make sense.

Now for the pros... This is an extremely fun industry to be in, with great people that you'll meet and relationships that will last well beyond the business side. Once you're in it and people know you, a lot of down the road opportunities will open up. Building a business and brand is super rewarding, and this is a business that can potentially scale massively. If you can build your business to 25,000 cases per year or more, one of the big massive brand groups is likely to come knocking. Buyouts here are crazy, on average 16x revenues. Not EBITDA, REVENUES!! There's interesting reasons for this, but this blog is getting a bit long so I'll leave you with this: It ain't easy, but nothing worth doing ever is.


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