This year signaled a new era for local small-batch distillers. Assembly Bill 1295, also known as the Craft Distillers Act of 2015, went into effect on January 1, reversing archaic liquor laws that date to the early 1930s.
Under the Act, distillers may now apply for a license to sell up to 2.25 liters per day to customers who have participated in a tasting. The license is only available to craft liquor distillers who produce less than 100,000 gallons of distilled spirits annually with the exception of brandy, which is made from fruit and therefore falls under wine regulations. San Diego County is home to about 10 distilleries (currently operating under Type-04 license) that will be eligible to apply for the Type-74 license, along with another 120 or so throughout California.
Prior to the ruling, distillers were forbidden to sell products directly to customers due to Prohibition-era state and federal tied-house laws and California’s “three-tier” system. The system strictly separates production, distribution, and retail sales in order to prevent vertical integration (when the supply chain of a company is owned by that company), an arrangement that foments monopolies and made it possible for suppliers who operated their own distribution to report theft as a means of accounting for black-market sales. Today, the regulations serve as an outmoded hindrance to small-batch distillers.
“This historic legislation changes Prohibition-era laws for craft distillers to reflect the modern marketplace,” Assembly member Marc Levine (D-San Rafael) said in press release, “AB 1295 allows craft distillers to operate in a similar manner as wineries and breweries under existing law. This bill helps craft distillers to be competitive with large out-of-state distillers. Growth of the craft distillery industry means jobs in our local communities.”
Levine authored AB 1295, a revision of AB 1233, the latter of which contained language that could have led to legal ambiguity.
“By giving craft distillers the same privileges as wineries and breweries, thousands of jobs will be created and California brands will be able to compete in the international marketplace,” Cris Steller, executive director of the California Artisanal Distillers Guild, said in the release.
The act is a boon for local distillers, many of whom have been ramping up production in anticipation of AB1295 since it was approved by governor Jerry Brown on October 8.
2739 Via Orange Way #110, Spring Valley
“We’ll be able to make three times the profit selling in-store for the same price you’ll find in the market because of mark-ups that we have to give up for distribution,” says Bill Rogers, founder of Spring Valley tasting room Liberty Call Distilling, LLC.
455 54th Street #102, Valencia Park
It’s a warm January afternoon and Bill has 110 bottles of spiced rum ready for in-store sales on a table next to his copper still, where distiller and former neighbor Luke Oskam of Kill Devil Spirit Co. (now located near Euclid and Market) is running an experimental batch of neon-green peppermint liquor.
“At the end of the day, we’re always bottom rung,” says Luke, whose distillery was the first licensed facility in San Diego County since Prohibition. “Distributors get the most because they’re guaranteed their money regardless of whether retail makes the money back.”
“We’ve gone through a few distributors and it doesn’t matter who it is, you’re always the salesperson,” says Bill. “It’s up to you to get sales.”
For small-batch distillers like Bill and Luke, who operate at high start-up costs with very gradual return selling a few hundred bottles a month, being able to vend spirits directly to customers not only allows them to turn a sustainable profit at prices equal to or less than retailers, it gives them the option of circumventing distributors for at least a portion of their sales. However, with the exception of San Diego Distillery and pending East Village distillery You & Yours, most distilleries continue to rely on distributors for the bulk of their sales, despite drawbacks.
“Most distributors won’t take a chance on you unless you have proof of a year of sales,” Ray DiGilio of Kill Devil told the Reader in 2014. “But you can’t apply for licensing until you have your equipment in place. So, you apply for state licensing first, then federal. Then you can run your still and make a hypothetical product, until you finally get label approval. It’s pretty easy to get a basic permit to distill, but label and formulation approvals take another year or two. The rule of thumb is, expect to be rejected the first time. The approval process is very nitpicky. The worst part about it is that you’re sitting on that equipment and plant for over a year without any revenue.”
It was with similar obstacles in mind that Casey Miles of the California Spirits Co. (San Marcos) pitched the idea of a local distribution co-operative to the San Diego Distillers Guild. The guild, made up of nine San Diego distilleries, retailers, and suppliers, rejected the idea, owing to their already tenuous relationship with distributors and the fact that the guild is focused primarily on public awareness. Regardless, Casey pushed ahead to form a co-op of six distillers who provide cross-promotional pamphlets to clients, buy supplies collectively in bulk, and share space on a homemade display case designed to highlight local spirits at retail shops.
Bill has one such wooden-crate case in Liberty Call’s utilitarian tasting room.
“We hit up all the major chains with these,” Bill says. “Instead of having to hit up six different suppliers with six different orders, they can just go through the co-op, get everything in one package, have information on everybody, with a display case for free. We still have to go through distributors, and they like it because now they have one package to deliver.”
The co-op also makes packages for bars to easily stock a full variety of spirits from local distillers.
“The other distillers in this region aren’t my competition; Bacardi is, or Captain Morgan,” Bill notes. “Kill Devil isn’t my competition.”
The next legal hurdle that distillers face is being able to distribute their own products without having to win over the compliance of a major distributor.