According to Arthur Hartunian, it’s easier to operate a microdistillery in socially conservative Utah than in California.
Hartunian is president of the California Artisanal Distillers Guild, a collective of beverage makers taking aim at the Golden State’s byzantine hard-alcohol laws, some of which are downright counterintuitive. For example, distillers cannot sell their product directly to consumers. With one kind of license, a type 4, they can offer tastings, but they can’t charge for them. This creates a scenario akin to walking into Russian River Brewing Company, sampling a very small amount of Pliny and then being told that nobody can order a pint, or visiting a winery tasting room and being barred from buying a bottle of wine.
“It’s been extremely crippling to my business,” says Marko Karakasevic, owner of Charbay in St. Helena and another member of the guild. “This year is our 30th anniversary. For 30 years, I’ve never been able to sell a single bottle to anyone coming to our distillery.”
Instead, California distillers are bound to what’s known as a three-tier system. They sell to distributors. Distributors sell to retailers and bars. Bars can then serve the vodka or scotch to the fair consumer. All these middlemen increase costs, and for makers of hard alcohol, cutting out these middlemen is illegal.
Partially, this is due to a well-meaning but antiquated bit of legislation left over from Prohibition.
“A lot of the social problems that led to Prohibition were the result of cross-ownership,” says Matthew Botting of the state’s Alcohol Beverage Control, describing a time when temperance leagues targeted saloons for the commonly attendant gambling, prostitution and theft.
Coming out of the national dry spell, states like California imposed regulations that, in the ’30s, made cultural sense, the idea being “to mitigate the relationship between alcohol manufacturers and retailers, to limit the economic motive of retailers to sell as much alcohol as possible,” Botting says.
But fast-forwarding 80 years, a simple question must be asked: If liquor laws for winemakers and brewers have changed, why not for distillers?
Higher alcohol content is a factor, according to the ABC. But there’s something else causing this lopsided regulatory system, which even the state regulator describes as “restrictive.”
“The wine industry has a strong economic industrial base,” Botting says.
According to Botting, this simply means that the wine industry “has more political influence. We [ABC] don’t go out to the State Legislature. It’s an industry-driven legislative process, and [the wine industry] has been more involved in that process over the years, and thus has affected more change.”
The microdistillery industry, on the other hand, is still small; according to Hartunian, there are only around 30 craft distillers in California.
“It comes down to money,” Hartunian says. “If you’re bigger, you can make more changes that will benefit your industry.”
Hartunian says that several bills have been crafted to address the three-tier system for distillers in the past, but none has even made it to the floor for a vote. He believes national distribution companies like Southern Wine & Spirits, which reported $9 billion in revenue in 2011, have a vested interest in keeping the system intact.
The guild is currently backing AB 933, a bill introduced by Assemblymembers Nancy Skinner and Isadore Hall, which would allow distilleries to operate tasting rooms that charge for samples. The bill does not delve further into the three-tier system.
“The three-tier system is fine,” Karakasevic says. “We need our distributors, but the reality is that microdistilleries are businesses and should be able to sell their own product. So let me have my products available to taste and let me sell them, and therefore pay my distributors more money.”
Hartunian says the guild envisions a California-sourced microdistillery scene, in which Golden State farmers and distillers work together to create a product that is completely California-made. To help in the legislative process, the guild has contracted with lobbying firm DiMare, Van Vleck & Brown, which represents companies that aren’t exactly players in the go-local scene; the firm also represents Safeway and multinational manufacturer Siemens Corporation, among others.
“They have good relationships with the distributors and are able to make our pitch,” Hartunian explains. “We have the need for an experienced, well-connected lobbying firm to help us navigate some of the political waters that we don’t have experience in, being a smaller, younger industry.”
As it is now, he says, “we’re unable to help [our distributors] help us. We want to apply the business model that has worked for wineries and breweries. Distillers are getting the short end of the stick.”