But, the distilling market is not growing as quickly as the beer and wine markets. The TTB approved more than 700 new wineries and 300 new breweries last year, but less than 20 new distilleries. Most of those new distilleries are concentrated in California, Oregon, and New York.
There are several factors crippling the creation of new distilleries. Home distilling is illegal, unlike home brewing and winemaking, and there are far less people who know how to distill. The cost of the manufacturing license itself is another hindrance to new distilleries. Then there are the overwhelming issues of distribution and customer education. On top of those issues are the additional taxes distillers pay that beer and wine producers do not.
License Fees
New York is one of the states that has seen the most growth in distilleries. Why? Because In 2002, New York introduced a small producer license for spirits; the cost of the new license was one fifth of previous cost. There is no federal category for a small distilled spirits producer, and, neither is there one in most states. The license fee for a distilled spirits manufacturer, in most states, is at least double, if not more, than the cost of a brewery or winery license.
Distribution
Washington State saw an increase in new distilleries after a 2008 change in the state laws allowing spirits manufacturers to serve samples to customers directly, and to sell directly to customers for off premises consumption 2 liters per day. Before that change, all sales had to occur in liquor stores. In most states, all spirits must be sold in liquor stores. Producers must sell to a wholesaler, which then sells to the liquor store. Eighteen states operate state run liquor stores, making it even harder for small producers to sell their products.
Customer Education
Customer education is a problem arising from spirits manufacturers’ limited distribution options. Since spirits must be sold only at liquor stores in most states, small producers are unable to offer samples and tastings. It’s much harder to sell a $30 bottle of brandy to someone that has not tasted the product than to someone who has.
Taxes
Sales and excise taxes on distilled spirits are far higher than on beer and wine. The IRS alone collects $13.50 per gallon on distilled spirits. Compare this to the federal excise tax on beer and wine: $0.23 per gallon for cider; between $1.07 and $3.40 per gallon for wine (depending on the alcohol content); and $0.23 or $0.58 per gallon for beer (depending on how much beer the brewery makes). The states also each collect much higher excise and taxes on distilled spirits.
The states that have changed their archaic laws to allow more options for distilleries, have seen growth. As laws do change, however slowly, we may one day see the same exponential growth in craft distilleries.
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