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The ABCs of Spirit-Making 

Distilleries advocate for changes to laws they argue stunt their ability to grow.

click to enlarge Reservoir Distillery

Scott Elmquist

Reservoir Distillery

There's nothing quicker about liquor when it comes to getting it to market and to consumers. Distillers are often downright steamed about the sluggish pace of policy changes as they watch wineries and breweries boom with on-site sales.

Hard liquor, it turns out, is … hard. Or at least subject to far more stringent requirements and regulatory oversight than beer or wine.

"We feel like we have handcuffs on with what we're not allowed to do," says Christine Riggleman, the distiller and chief executive of Silverback Distillery in Afton. "We'd like to achieve parity with breweries, cideries and wineries."

The number of licensed distilleries in Virginia hovers somewhere north of 60 and growing, according to the Virginia Distillers Association. That's compared to more than 262 breweries and 300 wineries in the state. Not all booze is created or regulated equally, and being tougher on the hard stuff is a brutal hangover from Prohibition. To this day, it remains a class six felony in Virginia to make hooch at home without an state-issued license. That's even if it's just a Mason jar of the old medicine for your gramps.

The Virginia Department of Alcoholic Beverage Control plays an outsized role as both distributor and retailer in our state. And the revenue generated as a control state is hard for Virginia to part with when it means easy money into public coffers. Former Gov. Bob McDonnell's plan to privatize the liquor monopoly evaporated after legislators were too enamored with keeping the steady flow of liquor profits.

"It's about survival. We have an amazing amount of awards and credentials," says Riggleman about Silverback Distillery. "We had to be creative and expand out of state to be able to keep up with demand and survive."

Silverback expanded its operations into Pennsylvania, where authorities have made it easier to operate than Virginia, the birthplace of American spirits. In Pennsylvania, Silverback can keep most of the profits on bottle sales. The taxes are also a fraction of Virginia's, and the distillery can have as many as four remote tasting rooms on the same plant permit. For those of you wondering, Pennsylvania is also a control state that tightly regulates booze. Riggleman estimates she could sustain one 200-acre farm if she was able to operate at full capacity and invest more of the profits into the business's growth.

Virginia laws and regulations governing the production and sale of hard liquor are limiting growth potential in the distilled spirits sector. The state's liquor monopoly exacts 54 percent of each onsite bottle sale as Caesar's tribute. A distillery can only serve up to three ounces of liquor to any patron on a single day -- which was a hard-fought change, Riggleman says. That puts a limit on the ability for distilleries to spur their own growth through the kinds of festivals and parties that turn alcohol-based tourism into a profitable venture at wineries and breweries. And those sample bottles? Distilleries have to pay full markup to the ABC on their own booze rather than sample at production cost.

"In Richmond, people are fairly used to the brewery experience, which differs from what we can offer," says Nick Vaughan, whiskey development director at Reservoir Distillery. "We are an ABC store. People are limited in how much they can taste with us on a single day. We only offer the product that we make. We usually have to educate customers that we are not exactly like any of the neighboring breweries that they may have just left, when they enter our store."

Efforts to chip away at the matrix of regulations have found resistance from restaurant associations, which don't want to complete with distillers for profits if they become de facto bars. The state's liquor monopoly also worries about causing such a significant fluctuation in revenue streams. A Senate proposal would have allowed distillers to retain the ABC markup on their on-site sales — state senators passed the bill, but it went on to wither in the House appropriations committee.

For distillers, paying fewer taxes would also enable them to provide their surrounding communities with greater investment.

"We generate a lot of free tax money and could do a lot more for the state if we paid less per bottle sold from our on-site store," Vaughan says. "Any additional money that we bring into our store is going to stay in the city and state. We would be able to hire more people from the area, give the store a face-lift to ensure that more people can come through the store, and increased sales would lead to increased production, which means we'd spend more money on Virginia-grown grain, bottles from Richmond and wood from Virginia."

Advocates of staying the course on current regulatory schemes mention the safety concerns of an increased liquor flow to the roads and human health. Money concerns are also a problem for the state, which has no compelling incentive to offload revenue that it can almost always rely on. In good times or bad, people drink.

A reasonable person would hope there's some way to balance these interests — economic development with public safety and fiscal sanity. For now, distillers remain at a clear disadvantage as the state's regulatory system keeps some of their potential bottled up.

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