Crafted deal would give Virginia’s growing distillery industry more to pour
RICHMOND — After Mike Troxel and Josiah Tillett drank two ounces of Silverback Distillery spirits, they ordered another round.
But the Nelson County distillery denied them service, not because they were troublesome customers or overly intoxicated, but because they reached the limit Virginia distillers who craft bourbon, whiskey, vodka and gin may serve a person per day.
The Libertarian-minded Lynchburg-area activists inquired with owner and weekend barkeep Denver Riggleman, sparking a conversation about what they see as market-squeezing regulation on liquor not wrapped around craft brewers and vineyards down the road.
“They’re basically being forced to breathe through a straw,” Troxel said on a recent visit with Riggleman and Tillett to Richmond where they attempted to sway legislators to deregulate the growing industry.
As distillers carve their niche in the market, they’re also finding their way in the law, following vineyard owners, craft brewers and cider makers before them.
In Richmond, Riggleman, a spirited entrepreneur, ran into the will of an incremental democratic process, a tradition of regulating liquor and other alcohol separately, and the brawny alcohol lobby — beer and wine wholesalers, restaurants and other craft businesses.
Craft beverage producers compete face-to-face in concentrated pockets such as Nelson County’s Route 151, where Blue Mountain, Wild Wolf and Devils Backbone breweries stand on the same road as Silverback, five wineries and a cidery. The Virginia Distillery Company opened in the county in November.
They challenge restaurants and bars for a night out — and larger businesses such as Anheuser-Busch InBev for a night in. Beer and wine sales must pass from producer to store shelf by way of a middleman distributor.
Unlike distilleries, there are no per-drink limits on restaurants, bars, breweries and wineries. Restaurants and bars, however, must bring in 45 percent of their revenue from non-alcoholic items, and are prohibited from serving anyone who appears to have had too much alcohol.
“It’s a stunningly free-market issue,” Riggleman said of his mission to deregulate distilleries. “I don’t see that there’s any issue, but we ran into a buzz saw. … It just feels like I shouldn’t be fighting for something that, in a capitalist system, should be common sense.”
Since the General Assembly convened in mid-January, representatives of the alcohol industry have been negotiating with lawmakers in their offices and elsewhere. Like other lobbyists and advocates, they gather at the back of committee hearings prepared to testify and to help make sure their bills pass.
One result is matching bills working their way through the House of Delegates and Senate to allow distillery customers to buy another ounce per day, bringing the total to three.
Riggleman left the General Assembly salty after hoping for more sweeping changes.
The lobbyist representing Silverback and about nine other distilleries was content with the compromise for this round.
“If you think about it, it’s big business and everybody’s got their own piece of the pie they want to protect and advance. Whether it’s true or not, there are people in — like, for example, the beer and wine industry — who it may not be in their best interest for the spirits business to advance quite as fast,” said Curtis Coleburn, the Virginia Distillers Guild lobbyist and a 20-year legislative liaison for Virginia’s Department of Alcoholic Beverage Control. He retired as the ABC’s COO in 2014.
Currently, distilleries act as agents for the ABC as part of a system built during the transition out of Prohibition. When Silverback sells a bottle of booze it distills on premises, the business sends all proceeds to the ABC. At least a month later, the ABC returns about 46 percent of revenue.
A bill carried by Del. Nick Freitas, R-Culpeper, to undo this system died in subcommittee moments after the phrase “fiscal impact” was muttered. It would have cost ABC coffers $1 million in Fiscal Year 2017, according to the ABC. In the bill’s impact statement, the ABC said that loss could grow to $3.5 million per year by Fiscal Year 2022.
The three-ounce bill includes provisions allowing distillery tasting rooms to pour full-ounce pours, instead of just a half-ounce at a time.
“This allows us to give you a proper Bloody Mary or a proper Tom Collins,” Riggleman said.
Across the Capitol building, Sen. R. Creigh Deeds, D-Bath County, and Sen. Tom Garrett, R-Buckingham, are co-patroning the three-ounce compromise. The bill recently passed the Senate Committee on Rehabilitation and Social Services.
“The legislative process is a compromise. Everybody walks away with a little bit of what they want, and not everything. That’s what I think this compromise represents,” said Phil Boykin, lobbyist for the Virginia Beer Wholesalers Association. “I get it, they want it all yesterday.”
From 2010 to 2015, the number of licensed distilleries in Virginia grew from 14 to 35. The number of distillery stores rose from three to 14 in that time.
In late January, the ABC announced distilleries could host events, such as wedding receptions and parties. They must be conducted by a third party, so any alcohol sold by the distillery must be bought before closing for the event. The distiller may not sell from its store during the event.
Negotiations are expected to continue once the General Assembly session ends in preparation for next year.
“You make incremental steps. Alcohol is one of those things where the legislation kind of creeps along,” Coleburn said.
All the while, Democratic Gov. Terry McAuliffe and many Republican representatives in control of the legislature talk about building a new Virginia economy that does not rely so heavily on direct and indirect federal government spending.
The rural craft business clusters, such as Nelson County, are points of agritourism drawing people into the commonwealth and communities where they spend money at hotels, restaurants and gas stations. The craft beverage industry is “growing by leaps and bounds” in cities and rural areas, according to Secretary of Agriculture and Forestry Todd Haymore.
Impact is felt from farm to glass as many craft producers, such as Silverback, look to buy Virginia ingredients, Haymore said. Main components — such as wheat, rye, corn and barley — grow well in Virginia, as do natural sweeteners such as honey and strawberries, Haymore said. He said growers generally are expanding, not changing commodities.
“I view it as all encompassing. I want more people to visit our wineries, our distilleries, our cider makers, our craft beer makers. I want more sales in state. I want more sales out of state across the nation, and I want more sales in the global marketplace,” Haymore said.
“We want to be the preferred East Coast destination for craft beverages.”