Bill on governor's desk would increase the limit from 35,000 to 100,000 gallons of spirits a year
By Greg TrotterChicago Tribune
Soon, makers of craft spirits in Illinois might be able to produce significantly more booze with a single state license, but not all craft distillers are raising a glass to honor the occasion. Senate Bill 2797, passed by both the House and the Senate last month but not yet sent to Gov. Bruce Rauner, would allow those licensed as craft distillers in Illinois to make up to 100,000 gallons of spirits a year, up from the 35,000 gallons a year per license that's currently allowed. But it also would close a loophole in the existing law that doesn't explicitly prohibit distilleries from holding multiple licenses at different locations as a way to produce more spirits.
This bill — sponsored by state Sen. Heather Steans, D-Chicago — would cap total production at a threshold that's still well beyond what many Illinois craft distillers are making. The increase would directly benefit the Ravenswood-based Koval Distillery, one of the state's largest craft distillers, which is looking for a larger facility in Chicago to consolidate and grow its operations.
But it would “cramp” the business plans for Few Spirits in Evanston, a Koval competitor that's currently producing about 70,000 gallons under two craft licenses, said Paul Hletko, Few Spirits founder.
“I think it's going to stink when one of the largest craft distillers in Illinois has to close its doors to the public,” said Hletko, referring to his own business.
Hletko's said the bill's cap on total gallonage likely would force him to eschew the craft license in favor of a noncraft distiller's license, which doesn't permit tasting rooms or tours. Ultimately, the growth of the business is what's most important, Hletko said.
Sonat Birnecker Hart, Koval president, also is trying to grow her business, which is why she advocated for the production increase. Like Few, Koval makes about 70,000 gallons a year under two craft licenses, she said. But Hart is hoping to bring those operations under one roof, while retaining a tasting room to attract tourists, and wanted her investment to be protected by law.
Hart maintains that other distilleries, and not just her own, will eventually benefit from the increase.
“This is a fast-growing industry. A distillery can grow very fast in a short amount of time. ... This is a significant win for all the (craft) distilleries in Illinois,” Hart said.
In Illinois, there are 28 craft distiller licenses currently issued, said Terry Horstman, spokesman for the state Department of Revenue. The tax revenue generated from these businesses is still relatively small but is growing quickly. In 2011, craft distillers generated about $7,420 in state sales taxes and liquor revenue taxes, according to state data. By last year, that number had grown to almost $154,400.
Those running these businesses are also quick to point out that, like craft breweries, distilleries also produce jobs and tourism dollars.
Nationally, there are 1,280 producers of craft spirits, the most since Prohibition, according to a study conducted by the American Craft Spirits Association, International Wine and Spirits Research and import company Park Street.
From 2011 to 2015, launches of spirits marketed as “craft” increased 265 percent globally, a craze driven by the U.S. market and, in particular, millennial consumers, according to a recent report from market research firm Mintel.
But what does it even mean to be a craft distiller? Depends on whom you ask and where you do business. In contrast to the craft beer industry, which has one generally agreed-upon definition of what it means to be a craft brewer, the definition of craft distilling is more fluid, varying state by state depending on the regulations.
“Craft” has become a meaningless term, said Brenton Engel, owner of Letherbee Distillers, which is based in the Ravenswood industrial corridor.
But Engel nonetheless had strong opinions on what craft isn't.
“I think 100,000 gallons (a year) is an absurd amount to produce and still call yourself a craft distiller,” said Engel, whose distillery produces about 7,000 gallons a year.
Engel noted that the proposed increase to production in Illinois is happening while the American Craft Spirits Association is lobbying for the federal excise tax on distilleries to be lowered for the first 100,000 gallons produced and bottled each year. Engel called that lobbying effort “greedy” and “distasteful.”
Hletko, who's also president of the board of directors for the national craft spirits group, said it's all about establishing “parity” with wine and beer, which are taxed at lower rates.
The Illinois Craft Distillers Association, a fledgling trade group with 22 members created in 2013, had hoped to secure state legislative victories that would more directly help the smaller distilleries, said Matthew Blaum, president of the board of directors for the association.
In a first-time lobbying effort, the group pushed two separate bills this session. Both bills sought to raise the amount of product that can be sold on-site at distilleries and permit distillers to sell their spirits at events like farmers markets, among other provisions.
But those proposals ran into a “buzz saw” of opposition from the more established wholesalers' lobbying groups, Blaum said.
So the craft distillers group instead merged its support with the Steans bill, which does establish tasting permits for distilleries to give samples at farmers markets and other events.
“The biggest thing we accomplished was just being heard and recognized for the first time,” said Blaum, co-founder of Blaum Bros. Distilling Co. in Galena.
Under the so-called three-tier system for alcohol in Illinois, each tier — manufacturers, distributors and retailers — maintains its independence. Manufacturers sell to distributors, who sell to retailers, who sell to consumers.
Changing liquor laws often requires reaching compromise with the Wine and Spirits Distributors of Illinois, a powerful, long-standing trade association funded by the two largest wholesalers in the state — the Wirtz family's Breakthru Beverage and Southern Wine & Spirits.
Suffice to say that self-distribution for small distilleries, which is also on the wish list for the Illinois Craft Distillers Association, will be an uphill battle.
Karin Matura, executive director of Wine and Spirits Distributors of Illinois, said her organization's excited about the growth in craft distilleries — and willing to review and change antiquated laws as needed — so long as that growth includes working with wholesalers to distribute product. Matura said her association supported Steans' bill because it did just that.
“The three-tier system works and it allows for craft distilleries to grow,” Matura said.
Noelle DiPrizio, co-founder of Chicago Distilling Co., had her first taste of how Springfield works, which she described as “eye-opening.”
In addition to her job as vice president at the distillery and raising two small children, DiPrizio served as the de facto lobbyist for the craft distillers group this legislative session.
“What I learned is things can change in a matter of seconds down there (in Springfield),” she said.
DiPrizio said she's excited about the proposed change in law, which she believes will eventually benefit more distilleries than just Koval.
And with one legislative session under her belt, she's optimistic about future changes to state law that will benefit smaller distilleries. Next time around, though, the craft distillers group hopes to hire a full-time lobbyist.
“The growth of craft distilleries (in Illinois) has been exponential,” DiPrizio said. “We have an organization now. We have needs.”