Want to Start a Craft Distillery? Consider This

Before you dive down the rabbit hole of excitement dreaming up your flavor profiles and tasting room themes, distillers need to get their legal ducks in a row. There are three main hurdles for starting a craft distillery that you should consider before diving into the deep end with your ideas.

1. Laws and Regulations

Each state has its own laws and regulations. But before you start managing your state regulations, you have to get through the federal mountain of red tape first. Expect a thorough background check on anyone planning to open a distillery, including your family. You have to be squeaky clean for this. The questions won’t end there either. They will want to know your business plan, the kind of security you plan on having, and what safeguards you’ll have against theft. The person starting the distillery may even have to provide proof that they are indeed the ones opening it and not serving as a front for someone else.

States are a little more lax, but they can still have their own hoops they want you to jump through. States like Washington are friendly and welcoming to new distilleries, and go out of their way to attract new ones. By contrast, states like Tennessee have made it extremely difficult for craft distilleries, up until the last few years. Make sure you have a clear understanding of all the red tape involved with state and local regulations. It can be a complex web, so an attorney isn't a bad consideration.

2. Taxes

The Federal Excise Tax (FET) is something you must contend with multiple times per year and your documentation has to be squeaky clean and 100% accurate. Depending on your expected revenue, you'll need to file every quarter or twice a month. Your records must be kept for at least 3 years, so don't forget to pay the state or feds, or you could be a prime target for a lengthy audit, or worse.

3. Distribution

In most parts of the US, a craft distillery is going to be forced to play the three-tier distribution game. This means that alcohol producers are not allowed to sell directly to retailers. The reason is to prevent producer owned retailers from having an unfair competitive advantage. Since it's creation it has turned the nation’s distributors into powerful gatekeepers who can determine who gets to have a spot in the liquor market. The distributors really only have their own interests at heart. All you need to do is show them that there is a good market for your product and always sign a contract.