It pains me to say that I'd have to leave our home state, but if things don't change,
I'd like to keep our business, and if we want to keep our business, it won't survive here
if the laws don't change.
It's hard to articulate how divisive the alcohol debate was in our country.
It is a system that is deliberately designed to limit the sale and distribution of alcohol
in order to prevent the, uh, feared social problems.
The people that are most hurt by the current system are two people, two entities, the consumers
and then also the people that are producing and actually making the alcohol products.
They face a lot of times really burdensome paperwork regulations, really high markups
from state taxes that make their products more expensive for people, limit their ability
to sell directly to people.
Most every law or regulation that looks archaic that if you say, "They do what?" is there
because somebody wants it there for their economic interests.
I can't underscore how much laws have changed.
The laws on alcohol today are totally different than they were 40 years ago, and I predict
40 years from now, they're going to be different than they are today.
Alcohol has got a history.
You have two Constitutional amendments on it.
The first was the 18th Amendment banning alcohol.
That was a one size fits all and it says, "No alcohol."
That was a failure, and as a result, after, uh, several years of, uh, lots of controversy,
they, uh, passed the 21st Amendment.
An important part to remember about the 21st Amendment is Section 2.
Section 2 grants the right to the states to regulate alcohol, and as a result, we have
50 different state markets for alcohol, not a national market for alcohol.
And as a result, you're going to have different laws in each state, but that's by constitutional
design.
It's the only product in the Constitution that has its own Constitutional amendment
govern the regulation of it.
In 1933, when they repealed prohibition, John D. Rockefeller commissioned a study to come
up with some recommendations as to how the states and the federal government should regulate
alcohol going forward to try to avoid reversion to the wild west saloon days that had preceded,
uh, the prohibition era.
Rockefeller was one of the leading proponents of, you know, prohibition.
He was a big funder of the groups that were pushing, uh, to get rid of alcohol, but he,
uh, in a very public letter in the New York Times said, you know, "I pushed for prohibition
and the 18th Amendment and I was wrong.
We need to legalize it, but regulate it."
And he didn't stop there.
He funded this study.
A book called Toward Liquor Control that was, uh, published in 1933 at the behest of, uh,
John Rockefeller, and that book kind of set up a lot of the model of that system that
states then took and implemented, and, uh, ran with.
And actually all the states eventually adopted a version of that model.
So they created a three tier system, which basically, uh, says you can't be both a manufacturer
or wholesaler and a retailer, so that, uh, is still in place virtually everywhere in
the country.
The first tier is us.
We make it.
The second tier is, you know, the wholesalers.
They transport it.
The third tier, the retailers.
It was designed to do two things, prevent the return of the saloon and encourage temperance.
The idea was we want to tamp down this industry to keep people from, you know, getting drunk
and raising hell, so it has done that fairly well.
One of the difficulties with that is whether that middle tier should be legally mandated,
or whether it should be something that, uh, is more voluntary.
In a voluntary open market, the three tier systems are just a natural part of the market.
It ... The distributors are very helpful in getting products to market.
In a mandated three tier system, it locks opportunity, it locks entrepreneurship out,
it inconveniences consumers.
I believe in the three tier system if we were to use it on a, uh, on a market level.
I don't think it should be mandated.
If distributors are that needed, well, I'll go hire one.
I don't want to buy a bunch of trucks, right?
I don't want to go out and do the distribution myself and set up a distribution center.
I don't want to do that.
I like making it, and I like getting it out so we can sell it in retail.
I would use a distributor if I thought that I was getting a fair price for my FOB and
they weren't trying to screw me.
Wholesalers help, you know, alleviate problems for a variety of issues.
For example, taxation.
Many states make the wholesaler pay for it as a point of entry when they come into the
state before it could be sold at retail.
Making sure the products are approved.
Making sure it's not, uh, some product that's, you know, illegal or forbidden or illegally
made.
They can tax anybody in the business.
It doesn't have to be through a wholesaler or whatever.
If people are going to abuse alcohol, they're going to do it in either system, but what
this system does is it prevents people who want to appreciate, who want the specialty
products, people who want to innovate, and it just undermines the marketplace for that.
Uh, I don't see any reason, safety reason, for the government to be involved.
Tier two in Virginia is broken.
We need to have the freedom of choice to use whatever distributor that we want and do our
negotiations directly with them.
Wholesale and retail of distilled spirits in Virginia is conducted by the Department
of Alcoholic Beverage Control, so we only have basically two tiers.
You've got the manufacturer and you've got ABC.
They limit our staging, they limit our commission, and they can arbitrarily pick what stores
we're in and how much we can sell out of those stores.
So it's not the three tier system that's the problem for us.
The problem for us is the fact that due to the control system, our guys are unable to
make sales directly, uh, themselves to retail.
A control state is where the government controls, uh, how it's sold, right?
And a license state is where they license private parties to sell.
So, like, New York licenses liquor stores to sell liquor only, but in Virginia, the
government sells liquor, and then in other states, the supermarket can sell liquor, everybody
can sell liquor.
As to, um, the issues of the control states, um, they provide a lot of revenue for the
state, and they provide a lot of access.
I think there's, uh, there's a lot of folks that you could talk to that are small producers
that love the control states, and the larger producers may not like the control states,
because they lose shelf space to these unproven smaller guys versus the larger guys.
The segment of the industry that has the most negative, uh, impact from the, uh, design
of the system is the distillery industry.
The distillers are still suffering from the 1933 idea that we should make it harder to
get, uh, distilled spirits and easier to get beer and wine, so their taxes are higher,
they have fewer privileges.
The number of outlets for their products are smaller than beer and wine, so everything
is stacked against them.
We knew how much we were going to have to pay when we distributed to the headquarters,
but we were not aware of the cut that they take, um, out of the distillery tasting room.
Wineries, breweries, cideries, they don't have to pay anything.
We have to pay 54 percent of every bottle, and so that is very costly and is very burdensome
to us.
There's not really a rational reason for things to be treated differently.
The presumption is that spirits are more dangerous, um, but you can abuse any type of alcohol,
and if somebody is going to abuse it, they're going to abuse it, right?
The reason we have all these laws, it started with the temperance movement.
The reason really is to protect certain interests, so once these laws got into place, um, for
instance, spirits are sold in some places in government stores.
Well, the reason is because the government wants to make the money.
It's not because it's a more dangerous product.
A control state makes it harder, but if control states like Pennsylvania have been able to
figure it out, you would think Virginia could figure it out.
So within Pennsylvania, we're allowed to have five remote tasting rooms, and so we don't
have to have full production facilities with those remote tasting rooms.
We can just have a tasting room to provide an experience for our customers.
We can sell bottles, do cocktails, and educate them about our products, and spread the word
on Silverback.
They also were allowed to sell bottles at festivals.
Um, we're allowed to give tastings at festivals.
We're allowed to sell at farmers markets.
Yes, we need some laws, but, yes, let's make it profitable for the distilleries to come
here.
You know, agri-tourism is very big right now.
People want to go on road trips and try the local beer or try the local, you know, distilled
spirit, um, and a lot of states have, uh, really severe limits on that.
You know, you might only be able to try three ounces of a spirit while you're there.
Uh, you might only be able to buy one bottle of, uh, of booze while you're there.
You can't buy any more than that.
You know, the fact is alcohol is unique.
Alcohol is an intoxicant.
Alcohol, uh, can be abused.
According to the Centers for Disease Control, not me, the Centers of Disease Control say
88,000 people a year die from alcohol.
That's twice, uh, what the amount of deaths from opiates that everyone is talking about,
so we can't lose sight of that.
If you were a consumer and your main interest was this is, uh, what I buy and this is how
much it costs me and this is how many outlets I have to purchase it, then the alcohol regulations
probably don't, uh, do much good for you, because they're designed to make alcohol more
expensive, uh, so that to discourage people from excess consumption.
On the other hand, if you're a taxpayer who is either a non-consumer or a, uh, moderate,
uh, occasional consumer, it's probably been pretty good for you, because, uh, the system
makes a lot of money.
Uh, ABC transfers hundreds of millions of dollars to the general fund every year.
If you didn't have those hundreds of millions of dollars coming from ABC, then they’d
be looking for that money in income taxes or some other sort of revenue streams.
One third of Americans don't drink.
Two thirds do, but even at that two thirds, there's only a few that drink regularly.
Some just have a few.
Often the alcohol debate is pushed by folks that are in the industry or are, you know,
drink more than the vast majority of voters.
There's certainly a role for government to play.
I don't think a lot of people are anxious to go back to the, you know, black market
of moonshine, for example, where people could actually get hurt with, uh, certain kinds
of alcohol.
Um, and it's just, kind of, what is the best, most rational system for the government to
get involved?
I love what we've created here.
We have 14 international awards.
For a craft distillery, that's unheard of.
We work really hard.
We work 12, 16, 18 hour days sometimes to produce a great product for customers and
to keep up with the demand.
I don't mind doing that.
I love what I'm doing.
I am passionate about it, and I talk to everyone, but the fact that you have to give so much
of your profits away, it just ...
It's regulated.
It doesn't move as fast, maybe, as other industries, but coming in with a bull in a china shop
approach isn't, uh, isn't good for a consumer.
It's not good for public health.
It isn't good for the regulatory goals of the state.
We created a system and people made economic assumptions and investments based upon the
system that was created, and as those investments have grown and, you know, they become a part
of the system, there are people who, uh, don't want to see, uh, pieces of it change.
So everything goes back to money.
It's not quality of product.
It's not whether we're protecting the public welfare and health of the great state of Virginia.
What it comes down to is beer, wine and cider have a much easier getting their product to
Virginians than I do, and their taxes are much less.
That means that I am always swimming uphill in this state.
And, you know, limiting people's ability to be able to directly sell products to consumers
is a huge handicap on those businesses.
That's how these craft distilleries actually market their products.
They don't buy, you know, TV spots.
You know, they're not, you know, in the Super Bowl like Budweiser is.
They're actually trying to get people to come and actually taste their products and want
to buy more of their product, and the fact that we actually prevent them from doing that
is just an incredible barrier to them expanding in the marketplace that I don't think you
really see in almost any other industry.
A lot of critics say that somehow the system keeps out new entrants to marketplace and,
uh, the facts just don't support that at all.
The number of permits for distilleries, wineries, and breweries continues to skyrocket up.
Specifically in the case of distilleries, in 2010 there was roughly 500, and now in
2017, there's over 2,000.
That's a fourfold increase in just seven years.
Uh, there are new breweries and distilleries opening up every day, and, uh, bringing a
lot of excitement to the category.
There is a lot more exciting things happening, and I think that's just, really, the American spirit.
It's not any thanks to the regulations.
The climate is incredible.
The water that we have here off of our property, the grains that Virginia farmers provide for
us, the fact that I think we've got the best distiller in the world, right, with my wife
and with my daughter.
That's fantastic.
I think, however, the business climate in Virginia is abysmal.
You know, especially for distilleries, the regulatory burden is pretty onerous.