Craft distillers continue push for regulatory changes as they slog through pandemic

Still facing market pains ushered in by the COVID-19 pandemic, Michigan small craft distillers continue to lobby for looser state liquor control laws to help their businesses be more nimble and profitable.

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After scoring a victory in early 2021 with the passage of bills that allowed craft distillers to self-distribute products in limited fashion, the industry is eying additional legislation as it heads into the new year.

Distillers are keeping close tabs on House Bill 4842, which would slash product markups for small distilleries that use Michigan grain in their products. To satisfy this criteria, the bill would require 40 percent of the base distillate to be distilled from grain grown and harvested in Michigan.

As the wholesaler of all spirits, the state requires a profit of 51 percent to 65 percent on all products. But for distillers that meet the criteria under the bill, that profit would be slashed down to 32.5 percent.

The bill, which cleared the House on a 90-17 vote in June, had been introduced twice before and cleared the Senate both times. With no turnover in the Senate since then, Jon O’Connor, president of the Michigan Craft Distillers Association and co-owner of Long Road Distillers LLC in Grand Rapids, expects to see the bill become law.

“We have enthusiastic sponsors and hope that in the first month of the year that we’ll get it out of the Senate and to the governor’s office and hope that she gives it a good hard look and a signature,” he said. “We think that would be a huge win for Michigan distillers.”

Another bill of interest for small distillers is H.B. 5595, which was introduced this month and would allow spirit makers to sample and sell at farmer’s markets. The bill has not been reviewed by committee yet.

With Michigan being one of 17 control states in the country, in which the state serves as the wholesaler and regulator of all things liquor, these new laws would make an already-tough regulatory climate a little less daunting for small craft distillers — and at a time when they need it most.

“Unless we completely dismantle the current system of distribution, I don’t think we’ll ever have parity with some of our surrounding Midwestern states,” O’Connor said. “But, the idea of reducing the mark-up that the state charges to Michigan small distillers if they commit to using Michigan agriculture, I think that puts us in a position to be one of the most favorable control states in the country for small distillers.”

Making a list
While self-distribution and other COVID-era legislation have made it easier for small craft distillers to maneuver, the business climate in a control state continues to be inherently slow and cumbersome.

“I would say the legislation that has been passed has certainly helped during COVID in getting them new avenues to distribute their products. But I will say I’m hearing a lot of complaints about liquor control — and I have my own complaints about liquor control — being fairly anti-business or (the state) doesn’t understand the delays they cause and hurt small businesses,” said Joe Infante, the head of the alcoholic beverage regulation team at Miller, Canfield, Paddock and Stone PLC.

“Everything takes too long,” he added.

While craft beer, wine and cider makers are much more nimble with the ability to brew, keg, distribute and sell one-off brews on a whim, the same process might take a distiller a year or more.

Michigan’s delisting process is another contentious issue facing state distilleries. If certain products listed in the state’s catalog of available liquor do not reach a minimum threshold in sales, that product will be cycled out of the ecosystem and ineligible to return for 12 months.

For instance, products with a shelf price of less than $100 must sell 12 standard cases or otherwise be removed from the state’s listing.

This is especially problematic as the closure of tasting rooms and restaurants levied a significant blow to sales for many distilleries.

“It seems counterintuitive — if a distributor wants to have products and is willing to carry them and distribute them, why should it be any of the state’s concern about how many products are for sale?” O’Connor said. “The state doesn’t even touch those products. They might be the wholesalers of spirits, but it’s not their trucks or warehouses that are getting products to market.”

Tom Borisch, co-owner and general manager of Kentwood-based Wise Men Distillery, echoed those sentiments.

“I’ve petitioned to them that they’ll maybe let small Michigan distillers not be subject to that and they’re obviously not interested in that at all,” Borisch said.

Supply chain woes persist
Wise Men operates two tasting rooms in downtown Grand Rapids and Kentwood and distributes around the state, including at major retailers like Meijer and Walmart. Borisch said that the most disruptive problems involve the supply chain, especially glass.

“There have been a few times when we’ve had to delay product because we couldn’t get glass for it,” he said. “And then, when we do find it, we have to over buy. In house, it takes up a lot of floor space.”

All market challenges considered, Borisch and his industry brethren sounded optimistic when looking ahead into the new year.

“I’m optimistic. I don’t know if I’m optimistic because I think we’ll get help from the state, but the craft spirits industry in Michigan is really on the upswing,” he said. “When we finally get done dealing with all the ramifications of the last year and year and a half, I think it will be a lot of blue sky.”