My brother, who lives in North Carolina, tipped me to a story in the News & Observer about a new micro distillery that is being proposed for Chapel Hill. The distillery's proprietor, Scott Maitland, operates a local brew pub called Top of the Hill. The article was written by a News & Observer staff writer, Jesse James DeConto. It was published today. You can read it here.
I wrote to Jesse the following:
I enjoyed your article about Scott Maitland’s proposed distillery and micro distilleries in general. I am a writer who specializes in American whiskey and I have been following the development of the micro distillery industry with interest.
Mr. Maitland may have given you the wrong impression about North Carolina’s liquor laws. Everything was explained correctly, but it gave the impression that North Carolina is unique, or at least unusual and out of the mainstream in its approach. North Carolina is a control state but the issues Mr. Maitland complains about are pretty much universal. In both control and license states; the producer, distributor and retailer must be separate entities. There can be no cross-ownership. Producers may not sell directly to retailers. Each state is slightly different, and the differences can make you crazy, but the three-tier distribution system is the norm in all 50 states. The exception is control states where the state is both distributor and retailer (for off-premise sales). The state can do cross-ownership but non-state entities cannot.
In Kentucky and Tennessee, where 99% of America’s whiskey is produced, if a distillery wants to sell its products to tourists in the distillery’s gift shop, it must sell them to a distributor, who sells them back to the retailer entity the producer has established. In Kentucky and Tennessee, the state made a special exception to the cross-ownership prohibition to allow even this, since in this case the producer is also the retailer. Most states also exercise some control over prices at every level.
It’s all about taxes. Every state, as well as many cities and counties, takes a big rake off of all distilled spirits sales. Distilled spirits, dollar for dollar, are one of if not the most heavily taxed consumer product on the market. This is not unique to North Carolina. Every distiller’s biggest tax payments go to the federal government through a tax on production known as the Federal Excise Tax. In North Carolina, that mark-up between what the ABC pays the producer and what it charges retailers is essentially tax.
Mr. Owens, who I consider a good friend, can also be very misleading on this subject. His emphasis on brewing as a precursor to whiskey making is his personal vision, not universally shared. Among all of the Master Distillers at the major American whiskey producers, only one has ever worked as a brewer.
If you follow Bill’s point of view a little further, he believes micro-distillers should make malt whiskey, not bourbon or rye, because malt is the easiest grain to ferment and distill, and because you can even buy wash from a brewery and avoid fermentation altogether. Bill takes these positions despite the fact that they are contrary to 200+ years of American whiskey-making tradition.
Feel free to contact me if you’d like to go into this further.