LEXINGTON, KY.: Kentucky’s bourbon industry is in the middle of its biggest expansion since Prohibition, building $300 million in new distilleries, warehouses and tourist centers, and filling a million barrels annually. But the future of bourbon isn’t big. It’s small.
Small craft distillers in the state will soon outnumber the big ones, if they don’t already. New spirits makers are setting up shop almost monthly: At least nine new craft distillers received licenses or announced plans to build this year alone, including Wilderness Trace Distillery in Danville, Ky., which recently celebrated its grand opening.
With the addition of Wilderness Trace, there are now as many stops on the craft tour as on the original Kentucky Bourbon Trail, which focuses on the big guys.
The bourbon boom has come full circle, back to small startups, which is what Jim Beam, Brown-Forman and Heaven Hill once were.
“They’ve definitely come to Kentucky,” said Eric Gregory, executive director of the Kentucky Distillers’ Association. The KDA has 16 members, with two more in talks to join soon, he said.
“By the end of the next year, we could have 26,” Gregory said.
The problem, he said, is that other states want them, too, and are willing to give small distillers economic advantages.
Now the big distilleries are angling products into the craft space.
“The American populace is interested in exploring right now. The epicenter for experimentation is not the big guys; it’s the little guys,” said Dave Pickerell, who was the master distiller at Maker’s Mark for 14 years. In the past five years, by his count, he has helped at least 40 small distilleries get up and running and has consulted on about 80, including several in Kentucky.
Many small Kentucky distillers — including the people behind Old Pogue, Willett, Limestone Branch, Silver Trail, Wilderness Trace, Peerless and Angel’s Envy — have family history in the distilling industry.
Others — including M.B. Roland, Corsair and Barrel House — jumped on the distilling revival.
Everybody brings something new.
The small distillers have come up with products that push the boundaries of bourbon and whiskey — including Corsair’s cheekily named Insane in the Grain 12-grain whiskey and M.B. Roland’s Black Dog, a white whiskey made from corn that has been smoked like dark-fired tobacco.
Several Kentucky distillers, including Barrel House and Wilderness Trace, are experimenting with locally grown sorghum to create spirits that redefine rum.
Many have returned to bourbon’s roots with white whiskey or flavored moonshine.
“Innovation is part and parcel of what the craft movement is about,” Pickerell said. “People have asked me: What are the unifying factors of people starting crafts? It’s a passion for craft distilling, and that’s it.”
From 2008 to 2012, the number of craft distilleries nationwide grew by 125 percent, said Thomas Hogue of the U.S. Treasury’s Alcohol and Tobacco Tax and Trade Bureau, known as the TTB. That tops the 40 percent increase in wineries and the 60 percent increase in breweries.
“This industry is going gangbusters,” Hogue said.
There are 300 to 400 small distilleries around the country now, producing moonshine, gin, vodka, bourbon, rum, brandy and more. The American Distilling Institute, a trade group for small distillers, predicted that there will be 600 to 800 craft distillers in the United States and Canada by the end of 2015.
Compared to the big distillers, the amount that crafts produce is small — but it’s growing.
According to the Distilled Spirits Council of the United States, craft distillers bottled 700,000 nine-liter cases in 2010; by last year, that had grown to 1.2 million cases, a 71 percent increase in less than two years.
One reason Kentucky, the birthplace of bourbon, lags behind: The tax structure isn’t as friendly as other states, including Oregon, Washington, Colorado and New York, Pickerell said.
“If you’re a distilled spirit in Kentucky, you get hammered on taxes,” he said. One of his craft clients considered locating in Louisville, Ky., but ultimately went elsewhere.
“New York is at the top of the list. Almost overnight, New York went from two to 32 distilleries,” he said. “New York has gone overboard at making it easy and relatively inexpensive to start up a craft distillery.
Putting up spirit is costly in resources.
“That’s the whole conundrum if you’re a small distillery: You can only put away what you can afford,” said Paul Tomaszewski, distiller and co-founder of M.B. Roland in Pembroke, Ky., just north of Nashville, Tenn. “It’s an investment business. Whether you want to make a barrel a day or 20 barrels a day, something has to pay for that.”
Open four years now, M.B. Roland has successfully juggled those decisions well enough to outgrow its first 100-gallon still. Two new ones being installed over the winter will more than quadruple capacity next year.
But releasing an aged product will be several years away.
There is another way: buying whiskey from someone else.
Tomaszewski and his wife, Merry Beth, decided not to buy other distillers’ bourbon, but he admits that it’s tempting from a business standpoint.
Most Kentucky small distilleries haven’t been around long enough to age much bourbon, which generally takes four years.
Tomaszewski said the bottom line is, “If you get your hands on a bottle of Kentucky bourbon, it’s made or sourced from one of the main distillers. That’s starting to change. But it will be a few more years before that starts to happen in a large amount.”