As the American whiskey boom steamrolls into its second decade, it’s not always easy to recognize the benefits of legislative changes trickling down from Frankfort and Washington, D.C. A host of updates to spirits regulations made in the past few years have added momentum to the surge in brown spirits sales and boosted distillery profits, even as whiskey insiders consider the potential impact of recently imposed tariffs to Kentucky’s signature spirit (more on that later). Legendarily disgruntled distillers whose angst is fair given massive taxes on their products are now thanking lobbyists like the Kentucky Distillers’ Association and Kentucky politicians for recent efforts to help their industry.
Consumers are winners in this, too: Enjoying those cocktails following a distillery tour? Thank Bluegrass legislators for ending the law prohibiting them in 2016. And how about the Vintage Spirts Law passed in 2017 that allows you to resell your whiskey “dusties” to retailers? Isn’t it cool that as of this year, Bourbon Trail visitors can ship bottles bought at distilleries directly to their homes? And while we’re thanking legislators, don’t forget your congressmen and senators in D.C. who convinced their peers to slash federal taxes on the first 100,000 proof gallons produced each year.
The Kentucky Bourbon Festival, the state’s official bourbon festival, attracts more than 50,000 visitors from around the world to Bardstown for events such as tastings, concerts and the World Championship Bourbon Barrel Relay. The 27th annual festival takes place September 12–16, 2018.
Not so long ago, Kentucky was known globally for Col. Sander’s famous fried chicken, but today, said Heaven Hill Distillery president Max Shapira, it’s known for bourbon.
“That change didn’t come by accident,” Shapira said. “We couldn’t have done what’s happening now without … changes at the federal, state and local levels of government. Many think the government stands in the way of progress, and some of that’s true, but in this particular instance, it’s provided a superstructure for our industry’s growth.”
Oh, ‘pour’ bourbon!
Nine years ago, about 400 whiskey industry members poured bourbon onto the steps of the state capital building in protest of a proposed 6 percent sales tax on every bottle of spirits purchased at retail. Kentucky Distillers’ Association president Eric Gregory remembers how distillers ranted, at the time, over a seventh tax being levied against their products. Soon after, KDA’s membership sought to create a new strategy that helped legislators see bourbon as more than a beverage.
“Bourbon is about far more than drinking; it’s about jobs, investment into businesses and tourism,” Gregory said. “We had to change the discussion from bourbon being something sinful and worthy of increased taxation to bourbon being the signature product of Kentucky.”
“Bourbon is about far more than drinking; it’s about jobs, investment into businesses and tourism.” — Kentucky Distillers’ Association president Eric Gregory
He said the shift began a long-term and positive relationship with the general assembly, and that the subsequent passage of so many beneficial laws proves their efforts worked.
“Our officials have finally embraced bourbon as a business,” Gregory said. Even small changes, such as the transportation cabinet buying road signs directing tourists to Kentucky distilleries, are as significant as the continued shift from dry to wet counties in Kentucky. “We’re down to about 25 dry counties now, which is way down from 80 when I started in 2008.”
Not surprisingly, the combination of increased spirits sales and evolving laws has nearly every whiskey maker on an expansion tear. Buffalo Trace alone has committed to spend $1.2 billion over the next 10 years to increase production and an expanded visitor experience. The Frankfort-based company, along with Heaven Hill and Woodford Reserve, is building warehouses capable of holding about 50,000 barrels each—at least twice the size of many existing warehouses. In recent years both Maker’s Mark and Heaven Hill have added a third massive column still, while Four Roses added a second.
Kentucky’s craft distillers have done exceptionally well by pivoting quickly to take advantage of changing laws. Spots like Jeptha Creed in Shelbyville were designed to host, feed and water visitors, as well as host crowds for special events like its Jammin’ at Jeptha Friday night concerts, which has drawn crowds as large as 500.
Robert Downing, lead distiller at Barrel House Distilling Co. in Lexington, mixes and cooks corn for the distillery’s Rockcastle Bourbon.
Barrel House Distilling in Lexington’s Distillery District has tallied equally amazing headcounts, said partner Jeff Wiseman. Thirty-thousand visitors from 30 countries and all 50 U.S. states have toured his small operation since it opened 10 years ago. He’s since added Elkhorn Tavern, which draws customers from other food and drink operations inside the repurposed Pepper Distillery on Manchester Street.
Wiseman lauded national lawmakers for lowering the per-proof-gallon federal excise tax on spirits this year from $13.50 to $2.70 for the first 100,000 proof gallons made. Few craft distillers will ever reach that number, but by comparison, it’s about eight days combined production at Jim Beam’s two plants. According to Buffalo Trace master distiller Harlen Wheatley, the tax savings will free up $5 million a year, which will cover the cost of its mammoth new 7-foot-diamater column still.
“Those savings are huge to us,” Wiseman, of Barrel House, said, adding that those dollars included money for a larger still and 1.5 full-time employees on staff. “We’re putting everything back into the company to expand it.”
Andrew Buchanan, owner and distiller at Hartfield & Co. in Paris, Kentucky, never imaged he’d see his new cocktail bar, Prichard & Bail, so crowded so quickly. A string of 20-hour days “left me trying to figure out how I’d get any sleep,” plus it affirmed customers wanted his and other craft distillers’ whiskeys in their drinks. He credits changes in legislation for the bar (located above his distillery) as well as the launch of a mobile bar for festivals.
“What’s happened in the past two years has made it possible for me to run three separate businesses out of one,” he said. Legislators “don’t have the white-knuckled resistance to changing alcohol laws like they used to.”
Determining the toll of new tariffs
When news spread that President Donald Trump’s proposed tariffs on foreign steel production could lead to retaliatory tariffs on American whiskey, Gregory said he and his membership were blindsided.
“My first reaction was, ‘Wow, we’ve made it. We’re being used as pawns in a trade war,’” he joked. “My second reaction was just, ‘No, no, this isn’t good.’”
According to Gregory, exports of just Kentucky bourbon have risen an average of 10 percent for each of the past five years, totaling $450 million in 2017. And while that’s roughly one-sixth of the estimated total sales of all whiskey made annually in Kentucky and Tennessee, no one wants bourbon’s international growth trajectory stunted just as it’s ramping up.
Hoping to minimize any tariff impacts, the KDA hosted the W9 Spirit of Collaboration Summit in Louisville in July, gathering representatives of distillers from Europe, Japan, Scotland, Ireland and other nations hoping to avert a crisis. Historically, open trade agreements have boosted global whiskey sales significantly.
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Representatives from nine of the world’s leading whiskey associations met recently in Louisville to discuss the potential impacts of tariffs on the international whiskey trade.
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Hosted by the Kentucky Distillers’ Association, the group also planted an American white oak tree to symbolize the industry’s sustainability and growth.
“That’s why we started expressing concern when our industry was caught in the middle of this dispute, threatening historic growth and harming longstanding partnerships,” Gregory told the gathering.
Many distillers we contacted were reluctant to discuss tariff concerns, though in a statement issued by Brown-Forman, the company believes initial impacts in European Union markets will see a 10 percent price increase placed on each 700 millileter bottle of American spirits shipped there after implementation of a tariff. The company added that rumored 25 percent increases are not expected.
While Heaven Hill’s Shapira said his company hasn’t firmly determined the impact on his company’s products, he said every distiller he’s spoken to wants to see a return to “free and open trade [of whiskey] that’s equitable to everyone.” He also hopes that the increasing popularity and recognized quality of American whiskeys will buoy their sales regardless of tariffs.
“We’re hoping the consumer abroad will recognize American whiskey as an iconic product of the United States and continue to buy our whiskey,” he said.