Sheehan & Associates, P.L.C.

Locals could make Michigan 'craft distillery epicenter'

When most people think of microdistilleries, they don't picture Michigan, let alone Detroit. However, thanks to a few motivated entrepreneurs and some changes to Michigan law, the area has some thriving distilleries, with more on the horizon. The Michigan Liquor Control Commission had nine applications for microdistiller licenses in 2013. One owner wants to make the state a "craft distillery epicenter."

The regulatory changes included a drastic reduction in the cost of a microdistiller license from $10,000 to just $150. Further, microdistillers no longer need a Class C liquor license if they want to sell their alcohol on the premises. Finally, they can now sell alcohol that is not fruit-based.

While the regulatory changes occurred in 2008, it takes time - and capital - to get a microdistillery up and running. The Two James Distillery, which debuted in Corktown in November, is reportedly the "first legal distillery to open within Detroit's city limits since Prohibition." One of the owners of Two James, which includes a tasting room for its vodka, gin and bourbon, says that you need to spend at least $1 million "to be large enough to get a good economy of scale." However, with his hundreds of retail customers, he hopes to make that much his first year.

Another local distiller, whose Valentine Distilling Co. has been in business since 2011, notes that the trajectory of his growth coincides with the area's increasing demand for craft liquor. He has grown from making $250,000 his first year to an anticipated $8 million in the upcoming year. He is investing $2 million to grow his manufacturing capability for his vodka, gin and whiskey.

A group that includes attorneys, an accountant and a microbiologist are planning to take advantage of Detroit's "renaissance" and open their distillery in the Eastern Market district this year. Not all local distillers believe that it's possible to compete with distillers around the world without contracting with larger, more established companies. However, the owner of Valentine Distillery says that if Michigan's distillers can produce quality products that rival or surpass those of other distillers, they can be a success while remaining local.

As these new businesses open and grow, it is essential that their business planning includes a strong team of legal, business and financial advisors who can help them make the most of their investment and help Michigan become a center for "artisan spirits."

Source: Crain’s Detroit Business, "Spirits boom: Local microdistillers benefit from law changes, thirsty buyers" Nathan Skid, Jan. 12, 2014

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