A fair shot: Micro-distillers seek small changes to IA liquor laws

By Paul Brennan | Iowa Watchdog

DES MOINES, Iowa — Running into a combination of bureaucratic inertia, big-money special interest influence and ignorant state legislators is enough to make anyone want a stiff drink.

Iowa’s micro-distillers must be sorely tempted to grab a bottle off their production lines as they push for minor changes in the state’s liquor laws, making it easier for them to market their products.

Iowa’s micro-distilleries, which the state defines as distilleries that produce “less than fifty thousand proof gallons of distilled spirits on an annual basis,” are much more heavily regulated than its breweries and wineries.

Every ounce produced in a micro-distillery must be accounted for.

“We’d like some sort of equality,” Joseph Dehner, a master distiller who runs Dehner Distillery in Clive, told Iowa Watchdog as he explained why the state’s micro-distillers have become politically active and are supporting two bills in the Legislature. The distillery makes corn and “spiced” whiskies.

HF 2173 in the Iowa House and SF 2175 — the corresponding bill in the Senate — would allow micro-distillers who have the proper permits to sell their products by the glass to people who visit their distilleries. It would also permit micro-distilleries to sell up to 12 750 ml bottles of their products to a customer.

Neither bill is likely to pass this session.

Under current law, micro-distilleries can serve samples of their products to visitors — no more than 2 ounces apiece. A micro-distillery can sell just two bottles to a customer.

The state’s breweries and wineries don’t operate under such tight restrictions.

Neither bill would do anything to change the three-tier distribution system for liquor, in place since 1934. In that system, a bottle of alcohol goes from the manufacturer to a wholesaler to a retailer.

Breweries and wineries can work with the wholesalers of their choice, but Iowa has just one wholesaler for distilled spirits — the state.

A distillery must send its products to the Alcohol Beverages Division warehouse in Ankeny. The ABD then adds a 50 percent markup to the product. A retailer buys the product from the state, then adds its own markup.

Even products micro-distillers can sell to visitors must first pass through Ankeny before returning to the distillery.

The state’s micro-distillers don’t have a problem with having their products make that roundtrip or paying the 50 percent markup to the state. They just want to ease regulations on their interactions with visitors.

Allowing customers to try your product before they buy it is more important to a micro-distillery than to a brewery or winery, Dehner said.

“It’s hard for an individual to lay down a $20 bill or $30 on something when they have no clue what it tastes like,” he said. “That’s a much bigger commitment than buying a bottle of craft beer or an inexpensive bottle of wine.”

Selling your products to visitors is important.

“On average, 30 percent of a micro-distillery’s business walks in the front door,” Dehner said.

A report on micro-distilleries issued in January by the Alcohol Beverages Division agrees with Dehner about the importance of customers visiting the distilleries.

According to the report, micro-distilleries “often rely on foot traffic to create brand awareness.” Offering samples and retail sales to visitors “are integral to their success,” the report says.

The ABD sees the growth of micro-distilleries as helping other parts of the state’s economy. In addition to getting their raw materials from local sources, micro-distilleries are also seen as potential tourist attractions.

The ABD is working with the Iowa Economic Development Authority to develop a tour of the state’s micro-distilleries, similar to the Kentucky Bourbon Trail.

Still, when it came time for the ABD to take a position on HF 2173 and SF 2175, the agency declared itself “undecided.”

The Iowa Wholesale Beer Distributors Association, on the other hand, is anything but uncertain.

The IWBDA, which has a great deal of influence in the Capitol and is a generous donor to political campaigns, has led the opposition to the two bills.

“We are vehemently opposed to how HF 2173 and its companion bill in the Senate would undermine the three-tier system,” Sheila Douglas, executive director of the IWBDA, told Iowa Watchdog.

Asked how the bills do that, since any bottles the micro-distilleries sell would still have to pass through the ABD warehouse first, Douglas said, “The bills would create a new license to allow the distilleries to sell (by the glass) for consumption on the premises as well as (12 bottles), and that blurs the distinction between manufacturers and retailers.”

The two bottles micro-distilleries can now sell to customers each day apparently isn’t enough to cause an unacceptable blurring of the distinction between manufacturers and retailers.

“We have no problem with that,” Douglas said. “We want the micro-distilleries to succeed.”

But the two-bottle limit does more than just restrict potential sales by micro-distilleries. It also inhibits their ability to introduce customers to their products.

“As things are currently, if you make four different products and a customer wants to buy a bottle of each, he can’t. He can only buy two,” Dehner told Iowa Watchdog. “He’d have to come back the next day to buy the other two. It doesn’t make a lot of sense.”

The opposition from the IWBDA didn’t come as surprise.

“We knew it was going to happen,” Dehner said. “They’re looking after their own interests. I’m not sure why they see us as being in competition with them, but they do.”

What Dehner did find surprising was that many of legislators he spoke with didn’t seem to understand either state regulations as they are now, or how the bills would change them.

“I really thought that if you were going to vote on a law, you would have understand what was going on first,” he said.

Such an attitude reflects a lack of familiarity with the political process, but that’s starting to change.

Late last year, the state’s micro-distillers formed the Iowa Distillers Alliance. Dehner describes the organization as “a guild.”

“It’s something to give us a face,” he said, “to show that we are organized.”

Not only organized, but increasingly politically active.

At the beginning of the legislative session, the IDA had only one lobbyist. It now has three.

“We’re not giving up,” Dehner said. “This is important to us.”

Contact Paul Brennan at pbrennan@watchdog.org

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