The American 3-Tier Alcohol System

Here in Canada, craft distillers are lucky in that in most jurisdictions you can hand-deliver a case of your product to pubs, bars and restaurants. Not so in America where the 3 Tier system dictates that the craft distiller must pass his product to a wholesaler who in turn places the product with retail end users.

Buy why? Where did this all come from? I recently stumbled upon a white paper that explained all that to me. In a nutshell – it goes like this.

In the 1930s, when it became apparent that President Roosevelt was intending to repeal Prohibition, one John D. Rockefeller moved swiftly. Rockefeller was a tee-totaller and very opposed to the evils of drink. He used a sum of his own money and hired two people to compile a report on how to control alcohol. The report was ultimately titled “Toward Liquor Control”. The two people whom he hired to write the study were Raymond Fosdick and Albert Scott. Together they traveled across the USA, across Canada and through Europe talking to Governments about alcohol.

Rockefeller then used his influence in Washington to make sure politicians read the report. What emerged from his efforts was the 3-Tier system of liquor distribution. Such is the Rockefeller influence.

Throughout the ensuing decades, this report has come under fire and the 3-Tier system has been challenged in law courts. The argument most often used in courts was the Commerce Clause in the US Constitution. However, in the case of alcohol, the social bias adopted by the judges on benches was one of – let’s not treat alcohol as a commodity that is freely and openly traded. The Commerce Clause was regarded as “dormant” in the case of alcohol. All of this came to a head in the 2005 case of Granholm v. Heald. The Supreme Court ruled that individual States cannot offer special treatment to craft wineries. This line of legal thought has now been extended to craft distilleries by the look of it. In other words – if it is good enough for ABC Craft Distilling then it also applies to Jack Daniels and Smirnoff and all the other big boys. This explains why some States are so reticent to ease up on arcane restrictions that are hobbling craft distillers. They can’t ease up and give special treatment to craft for fear of being off-side re: Granholm v. Heald.

Get set for more challenges though. The big commercial distillers are intent on getting their product into big box stores (Wal Mart, Costco etc..) without going through the 3-Tier wholesaler middleman. The big boys want distilled alcohol to trade like a commodity item, not like the socially abhorent demon drug that it is made out to be now.

You can be rest assured that right now some lobbyist is having dinner with some politician in Washington and the 3-Tier system is being discussed. I am not sure what will happen to craft distillers if the big boys can somehow sidestep around the 3-Tier system and get product into big box stores cheaper. The Wal Mart model for everything from floor cleaner to cans of tomato sauce says that when things trade like commodities usually the small maker of said products gets squeezed pretty hard.

Booze-Infused Ice Cream – update

Just a quick update to advise that I am now several iterations into this grand experiment. What I can now tell you is that there is a major textural difference once you start to ease away from coconut milk and move towards Coffee Creamer (18% milk fat) and Whipping Cream (35% milk fat). I am now using higher milk fat product in my ice creams (and no more coconut milk) and am quite enjoying the texture and flavor. You will never get the texture as good as a store bought ice-cream because…remember…you are adding booze which contains water. All too often we forget that a bottle of spirits is 40% alcohol and 60% water. The water content does make for some ice crystals in the ice cream.

Booze-Infused Ice Cream

Looking for a unique treat to see you through the rest of Summer? How about booze-infused ice cream?

Here is the procedure I followed recently to make my own.

In a small bowl, collect the yolks of 3 eggs. Add some sugar to this bowl. I used 3/4 of a cup, but you can reduce that if you wish. Mix/whisk the contents of this bowl together.

At my local grocery store, there was coconut milk in cans from Thailand. In the refrigerated section they also had larger containers of what they were calling Coconut Beverage – which to me looked like coconut milk, so that’s what a bought. Besides it was cheaper in price…

In a saucepan on the stove, add 2 cups of Coconut Milk/Coconut Beverage.

To the saucepan add 1 cup of Half & Half cream.

Add 1/2 tsp Vanilla

Toss in a wee pinch of salt.

Slowly heat the saucepan. As the liquid gets warmer, take a few Tablespoons of it and add it to the egg/sugar bowl. This is called “tempering” and serves to slowly raise the temperature of the yolk/sugar mix to prevent the yolk from cooking.

Slowly dribble the warmed, tempered yolk/sugar mix into the heating contents of the saucepan. All you are looking to do is bring the saucepan to a low simmer (not a boil). Stir frequently as the saucepan heats.

At the simmer point, turn off the heat and place the saucepan in the fridge to cool.

Once cooled, add 5 Tablespoons of your favorite booze. I used some coffee / maple syrup Moonshine I had sitting on my shelf. Stir well.

Now, place the saucepan in the freezer. Every 30-45 minutes, open the freezer and stir the contents of the saucepan. After a couple hours, you will notice that the liquid is starting to set and firm up.

After several more hours, it will indeed have set up and you have booze-infused ice cream. No fancy ice cream making machine. Just a bowl, a saucepan and a freezer. That’s all !

If you are looking for a creamier version, consider using more cream and less coconut milk.

Enjoy !!

Gluten Free Spirits – Are They Really Gluten Free?

The stuff that we call Gluten is actually 2 proteins – gliadin and glutelin. Gluten is the stuff that gives fresh baked bread its wonderful elasticity. But, Gluten can also attack the lining of the small intestine causing nausea-like symptoms in some people.

In theory, any distillate coming off a still should be gluten free because the gliadin and glutelin molecules are of such a size and of such a low vapor pressure that they should not be able to travel through the distillation columns in a distillery operation.

So why then do some gluten-sensitive people claim that certain Vodkas cause them to feel ill? This is a question that the scientific community is grappling with. In our 5-Day Distilling Workshops we have had a number of Celliac sufferers who have made themselves ill by sampling Vodkas – so I have seen this phenomenon in real time. Evidently, some small bits of gliadin or glutelin are managing to get through the distillation process by hitching a ride on the back of an ethanol molecule. But how? And why do only some Vodkas present a problem to Celliac sufferers?

Gluten content in distilled alcohol is measured by the ELISA Test ( Enzyme-Linked Immuno-Sorbent Assay). In this test, a sample of the solution (ie Vodka) to be tested is exposed to an enzyme which causes a color change in the solution being tested. The extent of the color change is proportional to the amount if gluten present. The problem is, this test is generally regarded by authorities ( ie Canada Food Inspection Agency) to be inaccurate. Hence, in Canada it is the duty of the alcohol maker to ensure his product does not pose a health risk to people. In other words, label your Vodka gluten free, but be sure to tell each and every purchaser that there still is a chance for them to have an adverse reaction if they are a Celliac sufferer. Apparently about 10% of Celliac sufferers will experience a reaction if they consume even tiny amounts of gluten. In the USA, the TTB states that in order to be gluten free, a spirit must have less than 20 ppm gluten. But, with the ELISA test being subject to inaccuracy, it is not possible for a distiller to know with certainty what his gluten levels are.

To this end, there is now something called the R5 competitive ELISA test being advanced as a more accurate way of determining gluten. Apparently the R5 test can detect down to 3 ppm gluten.

So, if you are a Celliac sufferer, and you are shopping around for craft distilled products and find some that are labelled gluten free, just remember, that claim of gluten free has not been ELISA test verified. You may experience an adverse reaction. Sample the spirit in small quantity. If you do not encounter symptoms, then that spirit is one for you. If you do feel poorly, then that spirit is not the one for you.

Has the Bubble Burst ?

In the 5-day distilling Workshops, I like to show the parabolic growth curve of craft distilling start-ups. I repeatedly caution that as a former stock broker, I am wary of things that go parabolic. I point out, usually to glazed-over eyeballs in the room, that the cheap-money, stupid-money Central Bank policies of the current time are fueling all things parabolic. Back in the 60’s and 70’s we had various fads. Today, fads have been replaced by short term parabolic bubbles all fueled by easy credit. With the stroke of a pen right now, I could mortgage my house. With one phone call I could drain my investment accounts. With that money in hand, I could easily find some flimsy financial institution to lend me even more. I could then go on to launch a craft distillery. Experience? Recipe development? Marketing strategy? Hell – who needs any of that when you have a bagful of money!

I am not then shocked to see on average two craft distillers a month in the USA going under. I watch the discussion forums on-line and it pains me to see people obviously going through angst as they liquidate equipment and even barrels of product. The bubble has burst. The wave has crashed over the bow.

So what to make of it all?

My message is simple. A bursting bubble is a good thing.

Remember way back in the 90’s when the Nasdaq tech bubble broke? Did all tech firms go under? No – they did not. The smart ones actually benefited by acquiring the assets of the failures. Remember the 2008 sub-prime mortgage implosion? Remember the more recent oil price implosion? In both these cases, the smart players who saw the trend changing were able to capitalize on the failures of the weak players.

And so it shall be with craft distilling.

Thinking about starting a craft distillery are you? Good! Now – relax and take a breath. Your timing is fortuitous. The urgency for fast action is off.

Take the time to develop recipes. Take a 5 day course! Take the time to develop a sound marketing plan and brand image. Look for used equipment that is being liquidated. Even if you have to store it for a while somewhere – no worries. The craft beer brewing movement went through a multi-year pause in the late 90’s as the first parabolic wave broke. Then, the marketplace caught up, the consumer became more savvy and a new phase of growth unfolded.

I suspect we will see something similar in craft distilling. There will be now a multi-year pause in net numbers of craft distilleries. Th weaker players with their poor recipes, poor websites, poor brand image and inferior equipment will be flushed away like grain kernels down a floor drain. But, the strong will survive. The consumer will catch up and eventually a new growth wave will unfold. To those aspiring new entrants that properly prepare for this new wave – the benefits will be many. It is just unfortunate that so many rushed in so fast on this initial parabolic wave and are now getting hurt. But, such is the nature of our fast money, stupid money economy. As the old saying goes….caveat emptor.

Craft Distilling – What is It?

In the 5 Day Distilling workshops that I am involved with, I waste little time on Day #1 in posing a philosophical question to the class. The question – “What does it mean to be a Craft Distiller?”.

As the week progresses, answers slowly start to materialize. By week-end, the consensus emerges that a Craft Distiller is a person creating something unique that a customer typically would not find on offer from one of the big, multi-national purveyors of distilled spirits.

This inevitably then leads to the very tricky subject of commercial alcohol or as it is often called Neutral Grain Spirit (NGS). Are you a craft distiller if you make use of NGS that comes from a large ethanol distillery such as Commercial Alcohols in Tiverton, Ontario or Western Bio-Fuels in Unity, Saskatchewan? Tough question.

Various Provinces in Canada have already dealt with this issue, while some have given it a wide berth. British Columbia, for example, says to be a craft distiller you must manufacture your alcohol from B.C. grown agricultural goods. So – that’s pretty clear. NGS is not allowed at the craft level. Alberta has placed a limit on how much NGS a craft distillery can employ and I do reckon that amount to be 20% of your distillery output. Manitoba and Ontario have also placed similar limits. Quebec allows for exclusive use of NGS to make craft distilled products, although they are now tightening the noose as it were with tax incentives to those who manufacture their alcohol from Quebec grown agricultural produce. The Maritime Provinces to the best of my knowledge do not have clear policies yet on the use of NGS.

And this brings us back to Saskatchewan where I continue to draw fire from the craft community for comments I leveled a couple years ago in which I made it clear that I was opposed to the use of NGS at the craft level. In fact, it seems fair to say that I am downright reviled in Saskatchewan for this NGS position. Good thing I have thick skin. You see, Saskatchewan allows for the full use of NGS by craft distillers. What prompted this policy shift, I do not know and I doubt that I will ever be enlightened on the matter by the good folks at SLGA.

I also seem to be drawing heavy artillery bombardment of late from one particular craft distillery in Saskatoon for my open encouragement that people contemplating becoming craft distillers ought to practice making alcohol at home first. This is a position that I will not recant any time soon. The irony of this situation is the image on the front cover of my self-published textbook that I use in my classroom teachings bears the image of this very distillery! This book continues to sell all over the world and thus de-facto is providing free, very positive, publicity to this distillery. I even use products from this distillery in my classroom tastings and people comment very warmly on how well their products taste. Maybe it is time for a change of artwork on the textbook cover? Maybe time to revamp my tasting lineup?

I have seen far too many people rush out of the 5 Day Distilling Courses and dive off the deep end of the pool. They end up buying sub-standard equipment and in many cases wrong equipment. And what’s worse, they end up producing sub-standard spirits that verge on undrinkable. What’s even more troublesome, they quickly find that they have amassed huge debt-loads and are faced with an uncertain financial future. Had these folks followed my advice and actually done some home experimentation, they very likely would have discovered that distilling was not for them. They could have avoided the precarious debt position they now find themselves in. On the flip side of this argument, those that have taken the 5 Day Course and have actually taken the time to play at home on a small still are now off to a glorious start producing some top-shelf products.

But – back to the main topic of NGS. I continue to grapple with the NGS question here in this Province that allows for its exclusive use. I have watched other jurisdictions and lobby groups also grapple with the issue. I have taken careful note as to how others have dealt with this thorny issue.

After much thought and careful consideration, as of here and now I would like to go on the record as saying… I am content with the use of NGS or any other 3rd party alcohol provided that the craft distiller in question makes open, honest, transparent explanation (when and if asked by a customer) as to the use of such alcohol. A little bit of open transparency won’t hurt you – will it? Explain to the inquiring customer that although the alcohol may have come from somewhere else, you the craftsman have taken it through additional processing steps and even some carefully created flavor formulation steps to produce a product that is otherwise unavailable from the big multi-national players. Keep the customer educated, and they will develop brand loyalty towards you and your craftsmanship abilities.

I would also like to go on record as saying…it is my strong wish that the regulators at SLGA take a page from the Quebec (RACJ) playbook and extend a small tax incentive to any craft distiller who manufactures alcohol from locally grown materials With the precarious budget situation in Saskatchewan these days, I am not holding my breath waiting for such a policy change. But – no harm in asking for it…

Readers of this blog post are invited to call me directly to openly and transparently discuss any of the above comments and positions.

Rum – Sidestepping the Canadian Definition

In the 5 Day Workshops I assist with at Urban Distilleries in Kelowna, BC we spend a chunk of time digging into the legal definitions for the various spirit types. For example, Rum is defined as being made from sugar cane and its products (ie molasses) and aged in small wood containers (less than 700 Liters in size) for 1 year. Obviously placing any distillate in a wooden cask will cause a coloration change in the distillate. So how then is White Rum created? My answer used to be that in all likelihood the casks being used were very old and quite spent. Any trace amounts of color change were then filtered out prior to bottling. But, I have found a more elegant way and Captain Morgan White Rum (marketing tagline = finest Caribbean Rum) is an example of this lawyer-assisted elegance. Captain Morgan appears to have sidestepped the CRC section 870 definitions and leaned towards the 2005 Spirit Drinks Trade Act. This Act says that if one imports Rum distillate from a Commonwealth Caribbean nation and blends it with other Rum distillate from another Commonwealth Caribbean nation and then proofs to a drinkable strength with water, the resulting product can be called Caribbean Rum. No mention of 1 year of aging is there? And what about the White Rums ( ie Lambs) that do not bear the moniker “Caribbean” but are White nonetheless. Sure, maybe these Rums are passed through old, spent casks. But, I have found a clever way to sidestep the issue here as well. The USA Rum definition is similar to that of Canada, except nowhere in the USA definition is there mention of aging in a wooden cask. So, if I were seeking to make White Rum for sale in Canada, I would distill it in the USA and proof it to a drinkable strength. My Canadian corporate entity would then bring the product into Canada. Simple.

I find it sad that our legislation has so many loopholes that favor the large corporations. I further find it sad that we have the CRC 870 definitions and the 2005 Spirit Drinks Trade Act working at cross purposes to each other. I would be curious to see what would happen to a small micro-distiller who tried to emulate the above described tactics being used by the big corporations. I somehow doubt all would end well. It is time in Canada to clean up and rectify the definitions. As I am on record as saying – I like the USA definitions in 27 CFR Chapter 4. They are clearly stated and there is no ambiguity. This framework is a good starting point for a Canadian definition overhaul.

Craft Distilling on the Big Island – final thoughts

Finally at last I managed to track down one of the Liquor Distributors here on the Big Island. Now, I can piece together some rough numbers. Let’s suppose that with freight costs factored in, a 1000 L tote of NGS could be landed in Hilo for $6.60 per Liter. Let’s suppose that such a tote will generate 3100 bottles (750 ml size) of 40% Gin. Botanicals will cost $0.25 per bottle. Bottles, labels, caps will be a landed cost of $4 per bottle. Federal excise tax in America will be $2.15 per bottle. Summing up we have NGS at $2 per bottle, Botanicals at $0.25 per bottle, Bottles etc… at $4 per bottle, Excise Tax at $2.15. This gives $8.40 per bottle. Now add in fixed costs of Utilities, Rent, Insurance and possible bank loan payments all together totaling $3 per bottle. Let’s suppose I want a profit per bottle of $5. Now we are at $16.50. The Liquor Distributor will take a 30% cut so he will place bottles into grocery stores etc at $21.45. The store owner will add his margin of 30% which makes a bottle worth $28 to the retail consumer. More expensive than a lot of big commercial products on the shelf – but not at all unreasonable.

So, if my goal is to keep myself occupied (and having fun) while in Hawaii for several months each year, I would certainly make an economic argument for producing several thousand bottles of unique Gin in Hilo.

Craft Distilling on the Big Island – the research continues…

Today I made the trip over to Hilo. The entire Big Island is one County and Hilo is the seat of Government for what is called Hawaii County. I took a new way across to Hilo – the Saddleback they call it. Instead of the scenic route around through Waimea, the Saddleback cuts 52 miles across the island. And for the record – I thought it was pretty scenic. I could see way off in the distance the observatory buildings way up on Mauna Kea. Once in Hilo I met with the Liquor Commission folks who were very friendly. I explained my idea of bringing in bulk grain alcohol from the mainland and re-distilling it with a “secret” recipe of botanicals (including some that grow on the Big Island) to make a craft Gin that it uniquely Hawaiian. They were grateful to learn how Gin is distilled and I was happy to explain it to them. Next, I stopped in at the Liquor Distributor in Hilo, but the people I needed to see were out. No worries – I will get in touch with them later. Next I found my way to Mehaha (Hawaii N’ui) Brewing. Loved the Double Red Belgian Style Ale. And as someone who is always on the hunt for unique growlers, I just had to have a stainless steel 64 ounce unit to take home to Canada.

So, the research continues. I am still a wee bit worried when I see grocery stores reducing the shelf space for distilled spirits – but I still think a uniquely Hawaiian Gin will be accepted by the marketplace.

I will give another update in my next blog….In the meanwhile, if this idea of a craft distillery on the Big Island intrigues you – we need to talk….

Do Your Due Diligence…First…

Thinking about starting a craft distillery can be chock full of emotion. Think about it – you…your own business…a gleaming Copper still…you making alcohol….

But, in my opinion, the emotion should be checked at the door. It is critical to keep your head screwed on while your fully contemplate a craft distillery.

As I pen these words, I am in Kona, Hawaii and yes the thought of a craft distillery here has got my mind racing. So, over the past couple days, I checked my emotion at the door. I screwed my head on and decided to take a trip to the local grocery store. There are some 2 million tourists that come to the Big Island every year. Surely the grocery store must be a treasure trove of valuable data, not to mention unique spirits?

But here is the reality that slapped me in the face.

Rum – surely the tourists must be drinking gallons of Rum? Maybe not. Sailor Jerry Rum (not made by a Sailor at all…but rather made by proofing down industrial Rum distillate in Edison, New Jersey) was on sale for $16 (all prices quoted herein are 750 mls), marked down from its regular $30. A Hawaiian craft distilled Rum was slashed to $11 from its regular $23. At a regular price of $23, I fail to see how the distiller is making money. Captain Morgan ($18), Don Cristal from Puerto Rico ($15),Whaler’s (made in Bardstown, Kentucky $18), Kraken ($20), Mt. Gay (Barbados $23) and Myers ($20).

Vodka – ahh yes that mixture of ethanol and water that is so highly over-rated. A craft Vodka made from pineapple slashed to $20 from its regular $26. At $26 – again after stripping out Federal Excise taxes, cost of bottles, labels, corks, boxes, materials, labor, debt payments, rent payments, profit margin for the distributor, profit for the grocery store – the poor craft distiller is sucking wind. Other Vodkas I saw were Stoli ($22), Tito’s ($22), Absolute ($26), Smirnoff ($18) New Amsterdam ($18), Grey Goose (slashed from $45 to $26). Not a pretty picture at all…

Whisky – maybe the tourists are drinking Whisky? At these prices, there should have been riots in the store as customers fought each other to get a bottle. Crown Royal (the pride of Canada $19.88), Dickel Whisky ($20), Jack Daniels ($20), Jim Beam ($17), Maker’s Mark ($34), Wild Turkey ($27). How would a craft distiller making whisky even compete at these price levels?

Gin – maybe that’s the answer? Ohhh here we go again….Bombay Dry ($23), Bombay Sapphire ($19), Sapphire East ($19), Tanqueray $33. How would a craft distiller making good Gin compete with prices at these levels?

But, then I noticed something. Beer….lots of it…lots of people buying it….and a typical 6-pak was $13-$15. Hawaii is a hot climate. People in hot climates drink beer. People might drink a mixed cocktail, but beer goes down cold and is refreshing.

Next, on my due diligence trip is to meet with the Hawaii Alcohol Commission next week. I plan to fully review with them the entire craft distilling landscape state-wide. I will post another blog next week with my findings.

Meantime, my emotion remains tucked away and my head remains screwed on.