Distillers, now taking advantage of liberalized laws, celebrated their progress at the inaugural New York Craft Beverage week in November. However, despite the toasting and tastings, tensions are quietly rising among New York state spirits distillers, as they continue jockeying for more freedoms from the legislature in Albany.

 

Pressure is growing as different classes of distiller license holders are hoping for greater economic gain in the form of new laws to be introduced in the next legislative session slated for January. Craft breweries and wineries have long established their viability to operate within New York; however, the new players on the scene are the distillers. And although the roughly 30 distilleries are entering the week’s festivities united under their New York State Distillers Guild banner, tension is already building along license classifications, which the governor and the legislature will use to determine who gets a bigger slice of the economic pie.

 

Class D license holders, also known as farm distillers who produces spirits with New York based agriculture, want the right to sell directly to retail customers and avoid the distributor model. Class A distillers, producing spirits like rum and liqueurs, want the right to sell to retail customers at their own distilleries through additions like tasting rooms.

 

Craft distilling has seen rapid growth over the last decade both nationally and within New York State. Small businesses in the state have been clamoring to take advantage of the legislative changes introduced by Governor Cuomo, beginning in 2007 with the Farm Distillery Act, that have made start up costs and licensing fees far more manageable for those hoping to get into the imbibing business.

 

Today craft-brewing makes up roughly 20% of all sales, while craft distilling stands at a meager 3%, highlighting the possibility for growth in the market, and in what appears to be a direct response, the number of distilleries has grown steadily since the laws were changed.

 

Within New York State the number of distilleries has doubled to nearly 200 since the revisions in Prohibition-era laws in 2007. Not all distilleries are seen equally as they are distinguished by their license classes.

 

Each classification has different rights under the law depending on the nature of the product and its production process. The two major classes which are at odds in the state are Class A and Class D. The Class D Farm Distillery license has had many benefits added to it in recent years, such as tasting rooms; the option for a satellite location and the ability to sell other New York made beverages onsite. In Exchange the distiller must adhere to the state’s mandate that it use 75% New York agricultural in the product, a strict cap on production of no more than 75,000 gallons annually and the inability to distribute directly to consumers.

 

As the law stands now, Class A license holders are not bound by those restrictions because they are not able to acquire their materials from in-state sources. An example is the production of rum, which requires sugar cane, an ingredient that cannot be sourced with in the state of New York. While they have more freedom in their production process they are very limited in their ability to sell, which narrows their options for generating revenue.

 

There are possibilities for greater tax breaks and the lifting of restrictions in the next legislative session but it is a matter of priority and lobbying. According to guild President Cory Muscato, as cooperative as the legislature has been they have made it clear that any changes will be introduced piece meal over time.

 

 

In order to stay in the race for market share in the craft spirits business, all distillers are in agreement that they will need more of a cash flow to reinvest in growth, and this belief has been a source of unification despite differing license classes. Many of the distillers agree that tax breaks, similar to what wineries and breweries already enjoy as established contributors to the states economy, will be a solid step in the right direct for their businesses.

 

No distiller was willing to provide exact numbers, however, all of those interviewed for this piece estimated saving of tens of thousands of dollars in annual taxes if they were granted parity with wineries and breweries. This would be seen as a major source of reinvestment, if secured.

 

“Obviously there’s a long distinction between beer wine cider and hard spirits in the American legal structure around alcohol, and certainly post prohibition the legal landscape for wine and beer started to open up long before we saw this string of more recent changes on the spirits side, said Michael Kinstlick, CEO of Coppersea Distilling, which produces organic whiskey in the Hudson Valley. “And I think it makes sense to give small producers the same benefits that small wineries and beer makers enjoy now.”

 

 

The guild was created as a way to build a common voice among the different license classes within the distilling business. In recent years they have successfully lobbied for greater opportunities under the law for Class D distillers, like the addition of tasting rooms, a revenue stream that accounts for nearly 30% of total income for some distilleries. With those benefits having passed through legislation there have been some Class A license holders who have expressed disappointment and feelings of neglect due to the guild’s apparent focus on the Class D farm distilleries.

 

“In a way the guild has let us down, as we supported them fully in their changes to the law that benefited them and their license classes, with the promise that we will be taken care of in the future,” said Josh Morton founder of Barrows Intense ginger liqueur in Brooklyn. “Now that they got what they wanted they are not focusing on us in the same way.”

 

According to Guild President Cory Muscato, the guild took a definitive stance in their last meeting pledging to focus on Class A license needs, primarily the ability to sell their products onsite and offer tasting options to customers. While many Class D holder are on board with shifting focus to Class A needs this session, there are some who believe that Class A producers should not be allowed any more parity under the law unless they are forced to adhere to the same quantity and agriculture restrictions.

 

“These Class A license holders, are crying crocodile tears. I’m sorry, but if you’re making rum in New York with a Class A license, because you can’t get sugar cane in New York to make your rum, well then maybe you ought to think about making whiskey from New York grain and not going out of state for your materials,” said Kinstlick of Coppersea Distillery.

 

While the guild is still insisting a united front among distillers, these divisions along license classification lines may prove to be a larger issue going forward as businesses expand and mature and compete for more of the market share. The legislative session in January will determine the next shake up in the craft beverage industry, but until then we can’t know for sure if those changes will break in favor of Class A holders, because while the guild can only lobby for change, the legislature still holds the final say.

 

“There’s progress on a number of different bills but predominantly those that have a say voted to focus on adding benefits onto the A license so we are lobbying as a board for that,” said Muscato. “Ultimately it’s not up to me, we’ve worked very closely with [the legislature] a lot over the last four years but you never know, ever, but we really hope to bring it forward in the next session.”

 

With a great deal of change and potential growth on the horizon, distillers have made it clear they will do what is in the best interest of their businesses in the long term, under their license classifications. For now, as their whiskeys age and their spirits ferment, distillers are eagerly awaiting January for the next legislative session to see what, if any, benefits they stand to gain.