(Courtesy of the Jacksonville Business Journal) — As co-founder and now CEO of the St. Augustine Distillery, Philip McDaniel figured out that before he could even open his doors on the tourism/manufacturing/retail business, he was going to need some changes from the state Legislature.
Less than 10 years ago, McDaniel and his partners were finalizing a business plan for the new venture located just off the established tourist route in downtown St. Augustine.
The expectation was that the distillery and next-door bar/restaurant — owned and operated by another partnership and now run as the Ice Plant Bar — would attract visitors who would sample the craft spirits and then hit the gift shop to take home a bottle or two.
It was a solid plan. Unfortunately, it wasn’t legal at the time for distillers to sell their product directly to customers. All sales had to go through a distributor and then to a store.
“We went ahead, honestly, not really fully understanding all the limits to it,” McDaniel told the Business Journal. “We looked down the street and said, ‘The (San Sebastian) Winery can sell their wine; we’re going to sell our spirits.’
“All of the sudden the lawyers we were working with were like: Not so fast. You can’t sell direct to them.”
That system as it existed would take too much revenue from a craft distillery like the one McDaniel was starting. He said the numbers just wouldn’t work for him.
The only thing to do was get the law changed.
McDaniel and others worked at it and eventually convinced lawmakers to allow distilleries to sell two bottles a year to individuals. It was enough to convince McDaniel to open the doors and also to start making bourbon, which takes years of aging before it’s drinkable (and saleable).
Since that time, McDaniel has been instrumental in getting the laws loosened even more while being careful not to alienate distributors and retail interests.
Remaining an advocate for the craft industry overall and not just his distillery, McDaniel was recently named chair of Distilled Spirits Council of the United States’ (DISCUS) Craft Advisory Council.
According to a release, council was created “to represent craft distillers’ positions on key policy issues at the federal, state and local level, as well as to help guide DISCUS’ craft distiller-focused programming and benefits.”
McDaniel said it’s extremely important to keep lawmakers focused on how their actions can affect small distilleries.
The situation in Florida a decade ago is a good example of how outdated laws can hamper an entire industry. McDaniel said there were only four or five craft distilleries when he was working to get the St. Augustine business started.
“And they were all just struggling,” he said. “They had no benefits, and they had no way to really make any money other than selling it the traditional way where you make the bottle, sell it to a distributor who sells it to a retailer who sells it to a consumer.
“If you stop and look at the revenue opportunities there, it’s a very difficult, very hard road.”
Distilleries already received one benefit from the Congress just before the year ended: permanent excise tax relief granted to them in the federal stimulus package.
According to the Kansas City Business Journal, the law included a permanent extension of the excise tax relief created in the Craft Beverage Modernization and Tax Reform Act, which was part of the Tax Cuts and Jobs Act of 2017.
If Congress had not acted, excise tax relief would have expired Jan. 1. Craft breweries would have faced a 400% increase in excise taxes, and craft distilleries would have faced a 100% increase.
The next big issue in McDaniel’s mind is opening more states — especially Florida — to direct shipping to customers. Lawmakers have already made several concessions to those in the business of selling alcoholic drinks due to the Covid-19 pandemic.
“It’s a huge thing right now, especially during the pandemic,” he said. “Many states are relaxing the laws.”
McDaniel understands that retailers and distributors might not like the infringement into their territory, but he said it could end up benefitting everyone.
“Our point has always been: Look, allow us to do this in the beginning and as we create customers, if you carry these products in your stores, then they’re going to come to you,” McDaniel said.
Shipping products to customers is far from the cheapest way to do business, so McDaniel said a few sales by mail will not have a big impact on retail stores. But that extra revenue could really help small distilleries.
“Although we’re in ABC (Fine Wine & Spirits) and we’re in Total (Wine), not all of my products are in all of those stores,” he said. “And if I have somebody who wants to get one of my rare bourbons, or if I have a special-finish product, they’re not always carried in those retail stores.”
Eventually, McDaniel said he thinks Florida will get to the point of allowing mail order liquor sales — at least in a limited capacity.
“It would be great if we could get that done,” he said. “In Florida, it’s going to take some time. It’s a very sensitive issue with our distributor and retail partners. I understand that. “But at some point, we’ve got to advance the ball and modernize Florida’s rules.”
Photo courtesy of St. Augustine Distillery