Friday, January 29, 2016

Hoarders. Prohibition Whiskey Edition

Front of box with bottle
showing through cutout.
Throughout Prohibition (1920-1933), legal whiskey was available to everyone. All you needed was a prescription from your doctor. Some doctors refused to write them, but many believed (as many do to this day) that drinking whiskey was beneficial to health. Bakers could also buy liquor legally, since they couldn't very well be expected to make a rum cake without any rum.

Prohibition proponents didn't like these exceptions but accepted them in the spirit of compromise. Remember compromise?

There were limitations, of course. Doctors could write no more than one prescription per patient per month. This is very stingy. Few of my drinking friends could make one pint of whiskey, albeit at 100° proof, last for a month.

Yet some people made them last for almost 100 years.
An actual prescription
It went something like this. With the prescription from your doctor (a serial-numbered, government-issued form printed on banknote paper), you went to your neighborhood pharmacy, where they sold you one pint of the whiskey of your choice. Many of the same brand names you knew before 1920 were still available. The typical Prohibition pint is a flask-type pint bottle in a box, usually cardboard, sometimes metal.

Another reason for the medicinal whiskey compromise was that it gave distillers something to do with all of the whiskey they made before 1920 but couldn't legally sell any other way.

Back of box
Especially in the early days of Prohibition, the medicinal whiskey exception was also a hole through which clever bootleggers such as George Remus literally drove trucks. Remus bribed federal officials to get medicinal whiskey withdrawal permits for the pharmaceutical wholesalers he controlled, which he presented to the distilleries he also owned, allowing him to remove barrels by the hundreds. It was all legal on paper. Once the whiskey was in his possession he didn't bother with prescriptions, pharmacies, and special packaging. He sold it however he could.

That aside, millions of Americans legally bought whiskey from retail pharmacies such as Walgreens, by prescription, so much so that by 1929 the government had to allow several distilleries to make whiskey again, as the whiskey made before 1920 was nearly gone.

As dear as whiskey was, however, many people who went to the trouble of obtaining prescriptions and buying the whiskey never touched it. They never even took the bottle out of the box. They put it in a drawer or a closet and forgot about it.

Why? One assumes they just thought it was something good to have in case they or someone they knew needed it. Bottles turn up all the time. It is rarely a cache of them. It is usually one bottle that someone tucked away for an emergency that never came. Perhaps by the time whiskey became legal again, in 1933, many of them were already forgotten. We'll never know.

How much are they worth today? It is impossible to say. To accurately assess the value of anything you need a reliable record of recent sales of that same or similar objects. Secondary market whiskey sales aren’t reported, a pre-condition for accurate assessment, because all such sales are illegal.

Anyone who claims to be able to accurately assess Prohibition pints or any other collectible whiskey is either a liar or a fool.

Because they are so common, Prohibition pints are probably worth less than you think. When they sell at the annual (legal) auction to benefit the Oscar Getz Museum of Whiskey History in Bardstown, Kentucky, it is usually in the low hundreds, but most of the bidders there are mindful that they're making a donation to the museum, which may bid things up beyond their true value. It's impossible to say for sure.

Saturday, January 23, 2016

What New Hell Is This?

Have you ever tasted corn whiskey? Most whiskey drinkers have not. It is a peculiarly American product. The unaged version is considered whiskey nowhere else. It has been around forever but never has been very popular.

Heaven Hill is the only major distillery that makes and sells corn whiskey. Georgia Moon is their main unaged corn, Mellow Corn is their aged product. Other distilleries make corn whiskey for use in other products, such as blended whiskey, but they don't sell it as such. This corn, like the 'Indiana bourbon,' was undoubtedly made at MGP in Lawrenceburg.

Many micro-distilleries that sell so-called 'legal moonshine' actually sell corn whiskey. Ole Smoky's unflavored 'moonshine' is corn whiskey. Their flavored moonshines are vodka.

Corn whiskey is made from a mash that is at least 80 percent corn. The rest can be any other grain, or it can be all corn. It is the only unaged product that can be labeled as 'whiskey,' but only in the United States. It must come off the still at 80% ABV or less. If aged, it must go into the barrel at 62.5% ABV or less.

If aged, corn whiskey must be aged either in new uncharred oak barrels, or used barrels. Since bourbon and rye must be aged in new charred barrels, every distillery has lots of used barrels, so that's how corn whiskey is almost always aged, when it is.

Unaged corn whiskey tastes like bourbon new make, which it essentially is. Aged corn tastes a little bit like tequila. Either way it is hot and harsh and very vegetal. Like anything else, some are better than others.

Why the primer on corn whiskey? Because the rumored next release in Diageo's Orphan Barrel program contains corn whiskey, probably a lot of it.

At this point, all we know is what you can read on the back label above. It says the product is a mixture of 39 percent 17-year-old Kentucky Straight Bourbon Whiskey (KSBW) and "61 percent 4-year-old corn whiskey and Indiana bourbon." How disingenuous to tell us exactly how much 17-year-old bourbon it contains, but fudge on the exact mix of corn whiskey and Indiana bourbon. One assumes it's a lot of corn.

One report said the MSRP will be $55.

All of this comes from random posts on the internet, nothing is official although presumably the labels are authentic. Other than what is on the back label, there are no tasting notes. Maybe it's wonderful. The problem is, everything else in the Orphan Barrel line so far has been KSBW at an advanced age. This product leads with its 17-year-old KSBW component and hopes you won't notice the indeterminate but surely very large corn whiskey component. 

This sneaky maneuver is par for the Orphan Barrel course, as recounted here and here. The market has gotten crazy, so maybe people will pay $55 dollars for a Frankenstein's monster whiskey like this. Stay tuned.

Thursday, January 21, 2016

A Healthy Bourbon Business Is Good for All of Us

This week, Heaven Hill's Elijah Craig dropped its 12-year old age statement. Both Fred Minnick and Bernie Lubbers wrote about it.

The loss of age statements is mourned by bourbon enthusiasts for good reasons. We like information and age statements on labels, because they are regulated by the government, are generally trustworthy. A label age statement tells you the age of the youngest whiskey in the bottle, which is almost surely most of the whiskey in the bottle, so it's useful information. Heaven Hills says that Elijah Craig going forward will be "a composite of 8- to 12-year-old barrels," and I'm sure that's a true statement, but if it's not on the label you can't hold them to it. And since the youngest whiskey in the bottle is no longer 12-years-old it's a downgrade no matter how you look at it, yet the price remains the same.

I'm cynical by nature but as I get older I try even harder to find silver linings. I think there is one here. As American whiskey consumers, we are met with higher prices, frequent out-of-stocks, degraded products, and other irritations. What could possibly be good about that?

Like those other afflictions, the need to stretch limited stocks of older whiskey indicates a robust market and a healthy business, in which demand is out-stripping supply in just about every category. If we like bourbon and like having a bourbon marketplace in which just about every variation on the theme is available, this is the price we have to pay.

At least for now. The aging cycle means you can't ramp up bourbon availability as quickly as you can vodka but you can ramp it up over time. Because of the huge investment required, bourbon makers are cautious, but they are investing. As this becomes the new normal, availability should get better.

Consider what the bourbon market was like 40 years ago. Sales were plummeting, brands were disappearing, producers were merging, and the product was blah, pretty much all the same. Producers considered it a commodity. They were making it as cheaply as they could so they could sell it as cheaply as possible. It was a race to the bottom and a good time to drink scotch.

Today, while your favorite brand may be in occasional short supply, you have plenty of choices. Bargains are rare but depending on what you like, you can still buy a lot of very good bourbon for less than $35 a bottle. And when it comes to 'what you like,' it's pretty much all out there for you. If it's in short supply now (like bourbons aged 12 years or more), wait a while. When the business is as healthy as it is now, producers feel good about producing a lot and letting more of it get very old.

Despite the problems, it's a great time to be a bourbon fan.

While I'm referring you to recent articles, Kevin Smith has a good op-ed piece in the Louisville Courier-Journal today about what Kentucky's government needs to do to keep bourbon booming. Smith now has the awkward title of vice president of Kentucky Beam Bourbon Affairs at Beam Suntory, but I remember him as the master distiller at Maker's Mark. He may be a corporate spokesperson now but he's not a bullshitter. He makes a strong case.

I assume the bourbon barons are a little nervous right now. When Smith writes, "we’re pleased that the recent growth of the bourbon industry has been built in a spirit of true partnership with the commonwealth," he is largely talking about the previous administration, of Steve Beshear (2007-2015), a Democrat. Kentucky's new governor is Matt Bevin, a far-right Republican. While you may think of Republicans as pro-business, and Bevin ostensibly is, his base includes many social and religious conservatives who are stridently anti-alcohol. Beshear cut a lot of ribbons and handed out a lot of plaques to bourbon folks. Bevin will be watched closely and nervously, both for his actual policies and for the optics.

And while we're at it, Steve Coomes and I share both a love for Kentucky country ham and admiration for Jay Denham, a master butcher, curer, and entrepreneur who experienced a recent setback with the USDA. As people like Kevin Smith work to elevate Kentucky's bourbon business, Jay Denham is similarly dedicated to elevating the region's production of artisanally cured meat. Those are both names to watch.

Saturday, January 16, 2016

Diageo Fires Back at Latest Deceptive CAMY Report

Earlier this month, new guidelines for drinking and health issued by England's Chief Medical Officer made headlines. The gist is that there is no safe level of alcohol consumption. The chief health officials of no other major country have gone that far, although America's Centers for Disease Control and Prevention (CDC) launched a strident anti-alcohol crusade a few years ago. Other non-governmental groups such as the Center on Alcohol Marketing and Youth (CAMY) have been at it for years, marshalling reams of junk science to support their outrageous claims.

I have written before about neo-prohibitionists and their dishonest attacks on the alcohol industry. I've been particularly disturbed by the CDC because of its important role in preventing and containing epidemics. I hate to see its reputation degraded because of one official's misguided personal agenda.

Rational people can see through this junk science based on their own experiences of friends and family who have enjoyed moderate alcohol consumption for a lifetime without adverse consequences. It is estimated that fewer than 20 percent of people are predisposed to alcoholism, the other 80+ percent can enjoy alcohol without issues, yet there have always been puritans afflicted by, as Mencken wrote, "the haunting fear that someone, somewhere, may be happy."

I considered writing something about the current spate. Happily, I don't have to because Guy L. Smith, Executive Vice President, Diageo North America, has issued the following excellent statement about the latest CAMY atrocity.

David Jernigan and his ‘research’ group, CAMY, have once again exposed the venerable Johns Hopkins University to embarrassment over CAMY’s biased and shoddy research. Using taxpayer dollars, Jernigan and his group have launched a decade long war against the alcohol industry, exclaiming through salacious headlines that alcohol marketers are intentionally targeting youth through their advertising. By funding this report, the Centers for Disease Control and Prevention veers sharply away from their long history of basing activities and pronouncements on solid science. Alas, in this case the CDC is perpetuating junk science.

One recent report from CAMY cited that U.S. youth watching television were exposed to alcohol advertisements daily, a 71% increase from eight years prior. The problem CAMY has, and the source of embarrassment that Johns Hopkins should feel for allowing CAMY to leverage the Johns Hopkins name, is that the scaremongering implied by this research simply doesn’t square with the facts.

Intuitively one would expect that, as underage exposure went up, so would underage use; in fact, this is precisely the point that Jernigan is attempting to make. However, government data repeatedly shows underage use is going down – steadily down – not up. In fact, just last month the Federal Government’s ‘Monitoring the Future’ survey, which measures underage drinking rates, revealed that the use of alcohol by American teenagers had reached its lowest point since the study began in 1975.

If Jernigan is correct, and underage exposure to advertising is indeed going up, then one might reasonably conclude that increased exposure is then leading to decreased use. You didn’t read that wrong, but it bears repeating. Assuming Jernigan believes underage drinking is bad, then following his own logic, CAMY should be arguing for increasing underage exposure, since underage use is going down. 

There lies the Catch 22 in which propagators of junk science often find themselves. When ultimately faced with accurate data and actual facts, their attention-grabbing press releases lead to absurd conclusions. What is truly unfortunate is that institutions that lend their credibility to the likes of CAMY find their own reputations tarnished when the real motives of these ‘researchers’ are exposed.

Friday, January 15, 2016

Bacardi Southern Glazer's Deal Rocks Three-Tier System

Ever since the repeal of Prohibition in 1933, the American beverage alcohol industry has operated with what is called a three-tier system. The tiers are retail, wholesale, and production. Many industries have the same thing but the alcohol system is unique because it is mandatory. All three tiers are licensed and those licenses say producers may sell only to wholesalers and retailers may only buy from wholesalers. You can’t cut out the middle man. Cross-ownership is also prohibited.

Producers, obviously, are essential. Somebody has to make the stuff. Similarly, you must have retailers. The question is always with wholesalers. Do we really need them? Big chain retailers especially question their value. Big chain retailers would prefer to buy directly from producers. The producers would prefer that too.

Another aspect of the system is that it is controlled by the states. If I’m a retailer in Illinois, not only must I buy from a wholesaler, it must be an Illinois wholesaler.

Why? Because the system is all about control. Okay, taxes and control, but control is a big part of it. States feared they would have trouble bending big, national or international producers to their will. An in-state wholesaler, with valuable in-state assets, should be reasonably easy for the state to reach. That is the fundamental justification for the three-tier system.

That background brings us to two major and related news stories. First, the merger of two large multi-state wholesalers, Glazer and Southern, to form a national wholesaler. Second, the announcement that Bacardi is giving all of its business to that new combine.

It’s pretty obvious that the first event occurred to make the second possible. Although a big producer like Bacardi (second only to Diageo) would prefer to eliminate the wholesale tier altogether, dealing with one wholesaler for all of its U.S. and Canadian business is the next best thing. For even more convenience, both companies are based in South Florida.

But wait a minute, aren’t wholesalers supposed to be state businesses? Isn’t the whole idea of the system to force Bacardi to do business with 50+ state wholesalers?

Although Southern Glazer’s (the new name) is the first truly national wholesaler, both Southern and Glazer’s have been huge multi-state operators for a long time. The other big wholesalers, like the other recent mega-merger of Wirtz and Charmer, do the same thing. The state-by-state rule, as well as the no-cross-ownership rule, has long been a legal fiction. Yes, they have offices, warehouses, inventory, and a legal entity in every state, but they are a centralized, national business in fact. Everything else is window dressing.

Does a big change like this, made entirely within the established legal framework, make the three-tier system more beneficial, or more ridiculous? Big chain retailers are cheering. Although they’re not dealing directly with Bacardi, this is arguably the next best thing. Wholesalers who lost Bacardi business are griping, so are smaller producers.

It’s interesting to note that the business Bacardi is assigning to Southern Glazer’s is worth $1.3 billion. That represents only 7.6 percent of Southern Glazer’s business, so they can’t be perceived as Bacardi’s ‘captive’ wholesaler. They have too many other producers to keep happy. So what’s next? Wirtz Charmer is primed for a Diageo or a Beam Suntory to follow Bacardi’s lead. Will they? The answer isn’t obvious. This isn’t a clear slam dunk for anyone. Plenty of perils await.

Tuesday, January 12, 2016

Constellation Buys into Nelson’s Green Brier

It was announced yesterday that Constellation Brands has acquired a minority interest in Nelson's Green Brier Distillery through its investment unit, Constellation Ventures. The Nashville distiller and non-distiller producer (NDP) will continue to operate independently, according to the company.

Constellation Brands launched Constellation Ventures in August of last year to identify small-scale investment opportunities related to ‘innovative concepts’ and ‘emerging categories.’ Its first investment was bottled cocktail brand Crafthouse Cocktails (Charles Joly’s operation).

Constellation, known primarily for wine (Robert Mondavi) and imported beer (Corona), also has a small spirits portfolio (Svedka Vodka, Black Velvet Canadian Whisky, Paul Masson Brandy). It used to have a much larger spirits portfolio and owned the Barton 1792 Distillery in Bardstown, and Glenmore in Owensboro (both Kentucky, of course). It sold those facilities, and a bucket full of ‘value’ brands, to Sazerac in 2009.

Nelson's Green Brier is known primarily for Belle Meade Bourbon, an NDP product made with whiskey sourced from MGP of Indiana. They started distilling in mid-2014 with a 750 gallon hybrid still from Vendome, and can fill about two barrels a day. Nothing they sell now was made by them.

Nelson's Green Brier is run by two descendants of Charles Nelson, who founded the company in 1860. Belle Meade was one of his brands. Nelson's Green Brier was a major whiskey producer until it closed in 1909. (Prohibition came early to Tennessee.)

"Nelson's Green Brier Distillery brings together two of today's hottest trends in spirits - whiskey and craft," said Bill Newlands, executive vice president and chief growth officer of Constellation Brands. Newlands joined Constellation about a year ago from what is now Beam Suntory. He was running Beam’s North American business unit but left after the Suntory acquisition.

This deal is similar in some ways to Bacardi’s acquisition of Angel’s Envy and also to Luxco’s investment in Limestone Branch. As in the case of Angel’s Envy, Green Brier’s main asset is a successful NDP brand, and like Limestone Branch with Yellowstone, which Luxco transferred to Limestone as part of the deal, the Nelsons have an authentic family history linking them to whiskey-making in Tennessee and the Belle Meade brand.

In the press release, Newlands also says, "The entrepreneurial spirit that made Nelson's Green Brier Distillery great nearly 150 years ago is winning accolades and enthusiasts again today. Constellation Brands' support of this entrepreneurial spirit will help Nelson's Green Brier Distillery accelerate growth as they continue to re-introduce these unique whiskies."

Charlie Nelson, CEO of Nelson's Green Brier Distillery, added: "Nelson's Green Brier Distillery was an established whiskey business pioneered by our great-great-great grandfather, and we are honored to continue his legacy.

"With the support and business acumen of Constellation Ventures, we are eager to progress to the next level in re-establishing our family business while building a strong portfolio of whiskeys."

Wednesday, January 6, 2016

Luxco to Build Major Bourbon Distillery in Bardstown This Year

According to Luxco President David Bratcher, the company is very close to "putting a shovel in the ground" for its first distillery, a bourbon distillery in Kentucky. Similar in size to the one Diageo is building for Bulleit in Shelby County, it will add significant new bourbon production capacity to Nelson County, which already claims the title of 'Bourbon Capital of the World.'

If all goes according to plan, Luxco will break ground in March. The new distillery will be on E. John Rowan Boulevard (KY 245) at County Road 1001, northeast of downtown Bardstown. Locals will know the location as the Ballard property. It is not far (as the crow flies) from Bardstown's other big, new distillery, the Bardstown Bourbon Company, which is in the Nelson County Industrial Park, east of the Martha Layne Collins Bluegrass Parkway. That plant is nearly complete.

Joseph & Joseph is designing. Buzick will build it. Vendome will make the stills.

The maximum potential capacity of a bourbon distillery is determined by the diameter of its column still, which in the case of Luxco's new place will be 36 inches. Typically, a new distillery will build up to its maximum still capacity by gradually increasing its milling, cooking, and fermentation capacity, until it operates virtually around the clock except for maintenance breaks. Luxco will follow that pattern, so it may be years before it maximizes its still at about two million proof gallons a year.

Luxco intends to build seven warehouses on the site, each with capacity for 20,000 barrels.

Luxco is not a newcomer to the bourbon business. The St. Louis-based rectifier and bottler has been a non-distiller producer (NDP) of bourbon for more than 50 years. It owns several significant if not major national bourbon brands such as Yellowstone, Ezra Brooks, and Rebel Yell. "We really believe in bourbon," says Bratcher. "Bourbon is here to stay."

With bourbon booming and every existing distiller operating at or very near capacity, it is becoming more difficult for NDPs such as Luxco to acquire even new make in sufficient volume to fuel growth. Luxco needs to control its own destiny if it wants to grow its bourbon business. It needs its own distillery. Similar to another Nelson County distiller, Willett, Luxco has been buying bourbon for many years. Luxco presently owns about 75,000 barrels of aging bourbon, now in storage at its various producers. This inventory has allowed it to create Blood Oath, a super-premium bourbon that combines 12-year-old and 7-year-old stock, and also to upgrade the Yellowstone brand with the new Yellowstone Select release.

Although there is still some of it in the pipeline, the bottom shelf Yellowstone expression was discontinued in May of last year. The revitalized Yellowstone brand is being run by Steve and Paul Beam out of Limestone Branch in Lebanon. Luxco acquired a 50 percent interest in Limestone Branch about a year ago.

Bratcher originally envisioned a modern, top quality production facility without any frills. He cared about making bourbon, not entertaining visitors. He was persuaded otherwise and now the plan calls for a first class visitor experience, membership in the Kentucky Distillers' Association, and participation in the Kentucky Bourbon Trail. The property already includes a beautifully restored historic home built in 1806.

It has been clear for a year or more that Luxco wants to expand its bourbon footprint, but building a distillery is a huge step.

In 1992, when Diageo (then the United Spirits division of Guinness) rebuilt the Bernheim Distillery in Louisville, several company executives opined that it would be the last new bourbon distillery ever built in the United States. That seemed plausible in 1992 but it only took 20 years, a blink in bourbon time, for that prediction to fail.

How much capacity is too much? That depends a lot on India and China, and continued vitality here at home. Bratcher and the Lux family, which owns Luxco, are betting on Kentucky, Bardstown, and bourbon. Good for them.