Farm to flask: Inside the world of craft distilling by Melissa Locker @FortuneMagazine January 7, 2015, 11:18 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Tom Burkleaux got his license to distill in 2004 and has been making his New Deal vodka ever since. His company, New Deal Distillery, has grown steadily since then, adding products such as an award-winning spicy vodka, called Hot Monkey, a sweetly spicy ginger liqueur and a well-regarded gin to their liquor line-up. Over the last decade, the company has grown to include more than two dozen employees. This year, Burkleaux expects the company to ship 7,000-10,000 cases of hand crafted liquor to five states and three foreign countries. The company has been regularly hitting the black. New Deal Distillery is no longer a small, scrappy start up. But Burkleaux won’t quit his day job. In fact, he barely pays himself a salary. “It’s a labor of love,” said Burkleaux in an interview with Fortune. “After ten years I could probably pay myself, but I want to continue to invest in the company and grow it to the level I think it can be at.” Burkleaux’s love affair with liquor making started when he found a new home in the land of all things DIY: Portland, Ore. “Living in Portland absolutely inspired this endeavor,” said Burkleaux. “If I had lived in L.A. I would never have given it a second thought. But here, the craft brewers really paved the way, so I thought, why not?” Once inspiration struck, Burkleaux founded the business on a bare bones budget. “We made a personal investment of $3500, and we bootstrapped our way up from there,” he said. “Being resourceful is the thing I am most proud. Doing it with nothing.” A bootstrap business plan requires some creative thinking to get the product in front of consumers. “We don’t do any real ad buys, because traditional advertising doesn’t really work for us,” said Burkleaux. “Instead we have Distillery Row. It’s a physical location, and you can sell from there, as it’s licensed as a state liquor store. That’s a direct-to-consumer marketing tool.” Distillery Row is a collaboration between a handful of craft distillers all housed in a warehouse-filled section in Portland’s industrial district. They make everything from gin to whisky to absinthe and aquavit. It has become a must-visit tourist destination in a city known for craft food and drink. Not that anyone had really planned for that to happen. “Like most things in Oregon, it was completely organic,” said Burkleaux. “In Oregon, craft brewers always worked together. They never looked at themselves as competition, but as a cooperative who are all working together to grow an industry that wasn’t there before. That’s what we’re trying to do with distilling, too.” During Burkleaux’s decade in the industry, he’s seen some big changes, including the advent of mixology (as opposed to “just” bartending—a mixologist is a more rarified version of a bartender, who views his work as an art form, shunning well drinks and mixers out of a hose and opting for carefully selected ingredients), a steady influx of market competition and more vendors willing to tailor their products to the needs of a craft distillery, but the most useful change has been a growth in distribution channels. “There’s finally starting to be effective distribution for small craft products. It’s a very necessary piece for the growth of our industry.” said Burkleaux. His company does 80% of its sales inside the state of Oregon, but that isn’t entirely by choice so much as a side effect of working in an industry governed by what Burkleaux calls “a patchwork of post-Prohibition laws” that make it difficult for craft distilleries to sell their products. “I can’t do direct sales anywhere in my state,” Burkleaux said, noting that he can distribute his products to some states, but not others. “States have differing rules ranging from no sales to those states that are willing to work with specific distributors and some even allow individual sales.” Interstate sales are a challenge for craft distillers, and one that seems to make Burkleaux appreciate the growth in his industry. While some producers would simply see growth as an influx in competition, someone as collaboratively minded as Burkleaux appreciates that he works in an industry that is finally getting big enough to start throwing its weight around. “I’ve learned more about politics doing this than I ever did in my life,” said Burkleaux who has worked with the Oregon Distillers Guild to change local laws to make them more favorable to craft distillers. Not that government regulations have hampered New Deal’s growth, it just hampers, say, this reporter’s ability to buy a bottle of the company’s ginger liqueur for Christmas. “For the most part, legal issues haven’t been the issue,” said Burkleaux. “It’s keeping up with demand.” “It’s not micro-distilling any more,” said Burkleaux. “It’s craft. It’s got the heart and soul, and it’s owner operated—but it’s not small.” In addition to the gin, vodka and liqueur offerings, New Deal is branching out into small-batch bourbons, ryes and single malts, too. “Don’t expect us to look like Kentucky or Scotland any time soon, though,” said Burkleaux. “We’re going to do new interpretations of that category.“ That’s something that King’s County Distilling understands. It has been carving out a niche in the crowded whiskey market for over four years, shipping out bottles of its moonshine in its minimalist packaging from its warehouse in Brooklyn, New York. Luckily, the whiskey world is something that founder Colin Spoelman knows well, as he hails from bourbon country. “I grew up in Eastern Kentucky, which is moonshine and coalmining Kentucky, and when I was in high school we would go to a bootlegger to buy alcohol,” he explained as to how he got his start in small-batch distilling. “Brooklyn is a pretty different scene. There’s a bar on every corner, so you never have to go to the bootlegger.” Watch more about whiskey from Fortune’s video team: Spoelman started bringing bottles of moonshine back to Brooklyn as souvenirs and realized that people were very interested in the product. He began making moonshine in his apartment, which he now knows is illegal, but it let him work through the processes and ingredients until he realized that he could make a “pretty decent” hooch in his apartment kitchen. While his first batch of moonshine didn’t pass muster, and now sits in the company’s tasting room as a relic, Spoelman decided to go into business for himself and went about acquiring the necessary federal and state licenses. Kings County has a so-called “farm distillery license” from the state of New York, because 75% of their ingredients come from inside the state. The farm license lets the company have a tasting room and sell directly to customers from its shop. The distillery is ensconced in the Brooklyn Navy Yard near the site where some Irish distilleries operated back in the 1800s. While Spoelman admits that the obliquely hip Brooklyn aura that surrounds his product may have added to his company’s success, he thinks it’s actually the city, not the borough that’s to thank. “It’s not just a Brooklyn thing,” he said. “It’s a New York City thing. It gives us a different audience, because it’s such an international city and there’s a lot of tourism here. Tourists find a reason to come visit the distillery and those are people who might not end up in Central Kentucky.” “We’re part of the community in New York City,” said Spoelman. “People buy our product not just because they appreciate that it’s good whiskey, but because it’s supporting the community.” He’s also very appreciative of the State of New York’s support for small craft distillers. “Having the state be so supportive and even pushing the boundaries on our behalf has been great,” said Spoelman. While the business is growing, with distribution in New York State, Connecticut, New Jersey, Texas and the UK, Spoelman, like Burkleaux, still has a day job, although he has now moved to part time. Like New Deal, Kings County Distilling is making money, but it’s all reinvested back into the business. Any profits the company ears are used to increase production down the line, with an eye on the long-term health and growth of the company. Whiskey needs to age, which means putting whiskey into barrels now so that the business can grow down the road. “We’re putting into barrels about twice the whiskey that we’re pulling out of barrels,” said Spoelman. “We’re anticipating that down the road the business will be twice as big.” For now, though, that investment means Spoelman is keeping his day job. “The benchmarks for quitting my job keep coming and going,” Spoelman laughed. “We’re about to raise more money to expand the business, so maybe I can once and for all leave my day job. But, I kind of like my day job!” Up in Maine, Luke Davidson was able to make distilling his day job a few years back. Maine Craft Distilling was established in late 2011. After signing a lease in April 2012, Davidson made running the company his full-time job from then on. Davidson had no experience in distilling, but he wanted to combine his farming background and his love of food into some sort of value-added product to appeal to the food scene growing around Portland, Maine. Craft distilling spoke directly to that interest. Since Maine has a similar climate to Scotland, Davidson set about creating a Maine whiskey. “I quickly realized that we couldn’t just make whiskey—or it’s much harder to—and we needed to create some other products while the whiskey aged,” said Davidson. The company quickly padded their offerings with rum, gin and a barley spirit, that Davidson describes as a “combination of vodka and white whiskey.” Davidson didn’t have a background in distilling, because in a chicken-or-egg regulatory feedback loop, you can’t distill without a license, so you can’t practice distilling either, meaning you may never figure out if you actually want to pony up for a license. While Spoelman bootlegged in his living room, Davidson found a legal workaround. “I practiced with ethanol,” he said. “I had a fuel producers’ permit, which allows you to make ethanol on the farm. In essence and process, making ethanol is more or less the same thing as making Scotch. I built a small ethanol-producing still and practiced and once I was confident that I could do the process, I got a distilling permit.” As he learned, Davidson also reached out to the distilleries that he admired and asked for their advice. “They were very open to sharing information,” said Davidson, who also found a lot of support in Maine’s foodie community. Working with local products, Maine Craft Distilling now makes a carrot liqueur that Davidson describes as “a vegetal Campari or Fernet,” as well as a blueberry moonshine, which is a big seller for the company. Unfortunately if you want to purchase the product you will have to go to Maine and some corners of Massachusetts. “The State of Maine is a control state, meaning they are our distributor,” said Davidson. “We sell our products to the State of Maine and then they sell our products to restaurants and liquor stores. It’s onerous and arduous, but it’s what we have, so we have to work with it.” More recently, the company has been able to set up a retail location in their distillery, which Davidson says is new for the State of Maine, but the process is still burdensome for a growing company. “We have to drive our product up to the State’s warehouse, sell it to them and then buy it back on the spot, and bring it back to our store to sell it out of our store,” said Davidson, who thinks the Kafkaesque nature is because distilling is so new to the state, which is home to only eight distilleries, six of which are fully active. “When we started, the state didn’t even have paperwork for us to fill out to reflect what we were doing. They would just cross ‘brewery’ off and write in ‘distillery,’” said Davidson. “A lot of the laws are old holdover laws from way back,” he explained, noting that local distillers are working with the state to change the laws. They are forming a guild and are already starting to see progress in making Maine a friendlier place distill. It’s a challenge, but Davidson is up to it, especially because he doesn’t have a day job.