Magazine September/October 2015

Small-Batch Spirits

September/October 2015 Issue

The Arkansas craft liquor market is growing slowly
compared to the rest of the country, and local distillers say one
reason is because they face more restrictions than
the state’s wineries and breweries.
Photograph by Janet Warlick

 


Cover Story:  Part 1 | Part 2 | Part 3


Top Photo: Rock Town Distillery – The manufacturer was the first legal distillery to open in Arkansas since Prohibition and remains the largest spirits producer in the state.
When Rock Town Distillery opened in 2010, it became the first legal distillery in Arkansas since Prohibition. But, in the past five years, only a few others have set up shop.

Rock Town founder Phil Brandon said even though his business is growing, he’s surprised more distilleries haven’t opened despite a nationwide craft spirits trend.

He attributes the slow, industrywide growth to lack of awareness, high federal excise tax rates and the absence of cohesiveness among distillers in lobbying for better laws.

Arkansas has four liquor manufacturing/distilling permit holders. Besides Rock Town in Little Rock, others include Gassville’s White River Distillery in Baxter County and Newport’s Arkansas Moonshine Inc. in Jackson County. Core Brewing and Distilling Co. in Springdale recently added a distillery.

Core will make whiskey, brandy and rum, in addition to beer, with products available this fall, said sales manager Jonas Dunnaway.

Economies of Scale

Rock Town products — whiskey, vodka, gin, rum, bourbon and moonshine — are available in 15 states and the United Kingdom.

In 2011, Brandon helped change state law to allow distilleries to sell by the bottle on-site, seven days a week. However, unlike breweries, distilleries cannot sell products by the drink on-site and are not able to self-distribute.

“Those are the kinds of things that hamper our growth as a small business,” said Brandon, who uses Moon Distributors locally. “I’d like to get some more laws changed so that we could have similar standing to what the breweries and wineries have.”

Brandon said he pays more in federal excise tax each year than he pays in salaries for himself and his six employees. He explained that brewers receive a discount for production up to a certain level, but distillers of all sizes pay at the same rate.

“Economies of scale come into play,” he said. “If you’re Jack Daniel’s spitting out hundreds of thousands of gallons a day, and we’re doing tens of thousands of gallons a year, it’s a little bit different.”

Distillers pay $2.50 per proof gallon, plus 20 cents per 9-liter case, in state excise tax, which distributors pay on the wholesale level, and $13.50 per proof gallon in federal excise tax. A proof gallon refers to 1 gallon at 100 proof, or 50 percent alcohol; tax rates are adjusted depending on a product’s alcohol content, according to the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury.

Rock Town is likely the largest spirits producer in the state. In 2014, it produced about 8,000 cases — a mix of 4.5-liter, 9-liter, 10.5-liter or 12-liter cases — and, Brandon said production is already up 30 percent, year over year. He declined to provide total production by gallon.

By comparison, White River Distillery produced about 125 cases, or around 300 gallons, in 2014, said co-owner Gary Taylor, explaining that their cases contain 12 750-milliliter bottles. Products include a 90-proof corn whiskey that also comes in two 60-proof flavors: cherry pie and apple pie.

According to Bud Roberts, director of the state Alcoholic Beverage Control Division, distilleries are not required to report their production levels.

Locally Grown

Determining the economic impact of distilleries is also difficult, Roberts said. In addition to taxes paid and employees hired, Brandon and Taylor say they also source local ingredients and other products.

Taylor, who was licensed in 2012 with his son, Jon, said his company uses locally grown corn.

Grains used in Rock Town spirits — corn, wheat and rye — come from northeast Arkansas, Brandon said. He also sourced local barley and sorghum for some yet-to-be released products.
Jon Taylor said local, small-batch distillers focus more on detail and quality, but success depends on visibility.

Brandon said lack of awareness is his main competition, though about 75 percent of his sales are in Arkansas. Increasing production would help, he said.
“If I could make more, I could sell more,” he said, noting that access to capital is his biggest barrier to growth.

“We’re constrained, and we can’t grow. Everything that’s trying to grow Arkansas’ economy is tech related. For me, as a distiller, which is a traditional business — and, at the end of the day, we’re a manufacturer — there’s very little assistance, if any, for a company of my size.”


Cover Story:  Part 1 | Part 2 | Part 3

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