Tom Eblen

Tom Eblen: Distillers take steps to keep Kentucky's spirits monopoly

Alltech CEO Pearse Lyons, left, showed Maker's Mark President Bill Samuels a rendering of what his company's expanded distillery building beside the Kentucky Ale Brewery off West Maxwell Street would look like when built.
Alltech CEO Pearse Lyons, left, showed Maker's Mark President Bill Samuels a rendering of what his company's expanded distillery building beside the Kentucky Ale Brewery off West Maxwell Street would look like when built.

For a century, Kentucky seemed to have a virtual lock on two signature industries: horses and bourbon.

We have heard a lot about what is happening with the horse industry. Other states are luring away Kentucky's Thoroughbreds with breeder incentives and higher race purses, mostly subsidized by casino gambling.

Things have been different with bourbon. The past three decades have seen a bourbon renaissance with big Kentucky distillers successfully selling new premium-priced brands to a growing international market of spirits connoisseurs.

But just as craft brewers are taking a bigger slice of the beer market, craft distilleries are the hottest trend in liquor. Kentucky's spirits monopoly is threatened because many of these small distillers are setting up shop elsewhere.

The Kentucky Distillers' Association has taken a couple of steps to support craft distillers in the state — and to try to attract more of them. "Our craft distillers are very important to what we're doing as a state and as an industry," said KDA President Eric Gregory.

The association decided, after 131 years, to admit craft distillers as members. The first is Alltech, the biotech company that brews Kentucky Ale and recently branched into distilling. Alltech last year began selling a malt whiskey, Pearse Lyons Reserve, named for the company's founder and chief executive. It also makes a bourbon-and-coffee drink called Bluegrass Sundown and is working on a bourbon.

Later this year, Alltech will begin construction of a distillery building beside its brewery, off Maxwell Street west of downtown Lexington. It also has created a charming visitors center in a former ice house.

A few blocks west on Manchester Street, Barrel House Distilling Co. is making Pure Blue vodka and waiting for its bourbon and bourbon-barrel rum to age. Corsair Artisan Distillery in Bowling Green makes a range of spirits including Vanilla Bean Vodka and Pumpkin Spice Moonshine. MB Roland Distillery near Hopkinsville makes corn whiskey, spiced rum and flavored moonshines. It also has a bourbon on the way.

The KDA also wants to help craft distillers — and its other members, too — by cutting the industry's state taxes. Kentucky has the nation's highest distillery taxes.

"That's the big issue," said Bill Samuels, president of Maker's Mark Distillery in Loretto. "I know most of the craft distillers around the country, and they just laugh when you talk about Kentucky."

Kentucky is the only state with an ad valorem tax on spirits aging in barrels. Distillers don't want to repeal the tax because the money goes directly to counties where they operate. But the KDA is backing legislation to provide a credit to offset the tax.

"The main thing it would do is give us a fighting chance to compete for craft distilleries," Samuels said. "If you're starting off a craft distillery and you have problems with cash flow anyway — where you make it and you don't sell it for five, six, seven years — the last thing you need is for it to be taxed like a finished product when it's not a finished product."

Kentucky has lost 20 percent of its total manufacturing jobs since 2000, but distillery employment has grown by 6 percent during the decade, to more than 3,200 direct and several thousand more spinoff jobs. That's according to an economic impact study the KDA commissioned last year by University of Louisville economist Paul Coomes.

Samuels said Maker's Mark employment has grown more than 40 percent in the past three years, from 80 to 117. Multimillion-dollar facilities expansions are under way at Maker's Mark, Heaven Hill, Jim Beam and Wild Turkey distilleries.

"I think the legislature needs to think about us as a signature industry rather than a demon," Samuels said. "And then I think we could continue to serve the commonwealth with lots and lots of jobs and taxes."

Kentucky now makes 96.5 percent of the world's bourbon whiskey. "If we don't get a lot of these new craft operators, it's going to be a whole lot less than that," Samuels said. "When something gets going, people are willing to take risks and invest. And bourbon's going. So why not keep it here in the commonwealth?"