|10/4/2012 11:00:00 AM|
The Rise of the Micro-Distillery
The Control State: Part II
by Andy O’Brien
|Keith Bodine of Sweetgrass Farm Winery & Distillery in Union prepares another shipment of gin, which he will drive to Augusta, sell to Maine Beverage, buy back, and then get paid for — a requirement for alcohol distilleries under Maine’s control state system. Photo by Andy O’Brien|
|Full disclosure: When Andy O'Brien served in the 125th Legislative Session, he submitted a bill to allow distillers to pay the alcohol bureau the difference between the retail price of the manufacturer's product and the price that the alcohol bureau pays the manufacturer for the product, rather than requiring the manufacturer to deliver the product to the state warehouse and purchase it back for retail sale. It was unanimously voted down.|
Although historically Maine has favored a tight rein on the sale and distribution of alcoholic beverages, in recent years the state has experienced a revival of locally crafted fermented beverages. That revival did not happen by accident. Small alcohol manufacturers spent many years lobbying public officials to pass legislation to provide some wiggle room in Maine's alcohol regulatory laws that were passed in the wake of Prohibition's repeal.
For wine and beer, Maine has a "three-tier system," in which the manufacture, distribution and sale of those beverages are kept separate. Generally, beer and wine producers are prohibited from performing all or even two of those functions, but there are exceptions to the law.
In 1983, Bob Bartlett, of Bartlett Winery in Gouldsboro, wrote Maine's first farm winery law, which allowed small wine makers to manufacture and sell their product right off the farm, rather than being required to sell through a distributor. That was followed by a series of legislative actions that allowed wineries to ship their wine by mail and serve on premises, under specific guidelines.
Maine's craft wine industry has since blossomed. There were only two wineries in 2000, and now there are 23 wineries in Maine, with eight in the midcoast region alone.
The 1978 decision to repeal a federal prohibition on homebrewing eventually brought many microbrewers to market as well. That was followed by a series of pro-microbrew initiatives on the state level. Provisions put into Maine law allowing breweries to obtain microbrew licenses to serve on premises and for those producing under 50,000 gallons to self-distribute have also aided this renaissance in Maine microbrews. Maine now ranks as the fifth highest state in microbreweries per capita.
A logistical and cash-flow nightmare-
However, for distilled spirits, like gin and vodka, there's still a rough regulatory road to go.
Maine is one of 18 "control states," in which the state has a monopoly over the distribution and sale of distilled spirits. This means all spirits have to go through Augusta - where liquor is stored and prices are set through negotiations with the director and deputy director of the Bureau of Alcoholic Beverages and Lottery Operations (BABLO). The directors then present their price recommendations to a five-member commission for final approval before the spirits make it to store shelves. This is why the prices of hard liquor are the same no matter where you go in the state.
For large manufacturers, that doesn't pose such a big problem, but for smaller distillers, like Keith Bodine of Sweetgrass Farm Winery & Distillery in Union, who have been allowed a special license to sell straight from the distillery, it's a headache.
"Under the law, I can be a manufacturer and I can also be a retailer, but I'm still required by law to physically transport my stuff through the wholesaler, Maine Beverage, to sell it and buy it back," says Bodine. "It's just the law, and there is no reason for it."
For example, when Bodine drives his Back River Gin up to the Pine State Trading Co. warehouse in Augusta, he unloads the crates to be distributed to agency liquor stores and leaves the rest of the crates, those that he intends to sell straight from the farm, in the truck. All of the gin, including that which is still in his truck to go back with him to the farm, is now considered the property of the state, even though no money has yet been exchanged. Maine Beverage then gives Bodine eight days to pay them for the gin. After that, Maine Beverage sends a purchase order every two weeks for the gin sold to the farm and to other retailers. The company then has another 30 days to pay Keith for the product he made, sold to the company, and then bought back. It can take between two weeks and a month for the check to arrive.
Keith sums it up: "It is a logistical and cash-flow nightmare."
Tim Poulin, the deputy director of BABLO, says he understands the quandary, but sees no real way around it.
"It doesn't make sense if you think about it logically," says Poulin. "It sounds bureaucratic, but the state has a monopoly on the business, so if we let the monopoly loosen, then we lose control of the system."
Also of concern for consumers and producers is the fact that BABLO determines which products can and can't be sold in the state. A recent notice from the Bureau stated they would begin to "remove weak/slow-moving [units] from the system on a regular basis" and improve "access and visibility of the most popular/hot spirit brands." This measure rubbed Bodine the wrong way.
"What if I have a product that I may only sell 20 cases of in a year?" he asks. "But I might have a customer base that wants that weird product."
According to Poulin, BABLO has recently become a little more fussy about what products they choose to sell in the state. He estimates that the Bureau rejects about 12 items a year.
When considering a new product, the staff and commission will look at the gross profit margin, how the company intends to promote the product, and whether there's a market for it in Maine. In the past, the Bureau has also expressed concerns over the high level of proof of a locally made liquor, which they decided to make available only at the discretion of the director. A vodka called "Loopy" raised red flags because they thought the name might attract underage drinkers, and the shape of a bottle they considered "profane" was accepted, with the stipulation that the bottle stay in the box.
In addition to the barriers intrinsic to a control-state system, starting a micro-distillery takes a substantial investment. The federal government requires that people must own their equipment before applying for a license. Unlike brewing beer or wine making, home distilling is still illegal under federal law, so distillers can't legally do any experimenting before applying for a license unless they enroll in a distilling program or work for another licensed company first.
In spite of the formidable challenges, like the farm wineries and microbreweries before it, the micro-distillery industry has experienced a boom in the past 10 years.
According to the American Distilling Institute, in 2003, there were only 40 licensed distillers in the US. Now there are about 250 craft distilleries spread across 45 states. Currently there are six in Maine alone, including Sweetgrass. In recent years, several states have loosened regulations to help make it easier for micro-distilleries to set up shop. In Vermont, micro-distillers came together to form the Vermont Distilled Spirits Council, which successfully lobbied to allow small spirits manufacturers to bypass the state's controlled distribution system and simply sell straight to customers from the distillery, as well as at festivals and other events.
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