In New York, a Microdistillery Brings Cheer to the Local Economy

Ralph Erenzo didn't want to make booze. But he didn't have much choice.

As Tuthilltown Spirits' spokesperson Robin Hayes tells it, the distillery's story began in 2001, when Erenzo bought 36 acres of land in Gardiner, N.Y. Located near the Hudson River and Minnewaska State Park, the small farm was well situated for hikers and mountain climbers, and Erenzo planned to open a bed and breakfast. Unfortunately, his neighbors weren't eager to see their tiny town overrun by outdoorsmen and took him to court. Two years later, his bank account had dwindled, and he was down to the last eight acres, having sold the rest to pay his lawyers.

Desperate to turn a profit on the rapidly shrinking farm, Erenzo asked the town's enforcement officer what he could legally do with the property. New York state law allows farms to operate small wineries, so the officer suggested that Erenzo try his hand at winemaking.

Ultimately, though, Erenzo did him one better: A 2002 New York State law, based on the winemaking license, allowed farms to operate small distilleries with a maximum yearly output of 35,000 proof-gallons of liquor. Partnering with former engineer Brian Lee, Erenzo became one of the first New Yorkers to take advantage of the new law, and Tuthilltown Spirits was born.

Being Neighborly

One requirement of the farm distiller's license is that 50% of the distillery's raw materials have to be grown in New York state. Given Erenzo's disputes with the neighbors, one might think that Tuthilltown wouldn't be eager to work with local farmers, but the opposite was true. In the seven years that it has been in business, the company has formed a very close relationship with nearby growers, and Tuthilltown Production Manager Joel Elder estimates that 85% of the company's raw materials -- including corn, potatoes, wheat, rye and apples -- come from farms located within three miles of the distillery.

The only major item that Tuthilltown doesn't locally source is malted barley, a problem that Elder laments: "It's nearly impossible to find a good malted barley source in the U.S., and shipping from American farms is expensive." In fact, Elder notes that the cheapest, most local supplier is in Canada: "It's closer than American producers, costs less to ship and has a comparable price."

The barley problem has thrown a serious wrench in Tuthilltown's plans to locally source all of its ingredients, but Elder has a solution: "We want to start growing our own barley or encourage a nearby farmer to start growing it." Not only will this help maintain the company's "locavore" ideal but it'll also help the surrounding economy, an issue that's very important to Tuthilltown.

Elder emphasizes that "Our heart is with local agriculture. Any development at our company is tied to local agriculture and the local economy."

Building a Distillery, Expanding an Economy

Elder insists that "involvement with local growers isn't a marketing strategy. It's a survival strategy." In addition to cutting shipping costs and increasing freshness, it has given the distillery an amazing level of control over its ingredients. For example, when Tuthilltown wanted to experiment with open-pollinated heirloom grain, it contracted a local farmer, agreeing to absorb the costs of the attempt. "By subsidizing the experiment," Elder notes, "we gave them enough confidence to try a project that might not pan out."

These types of relationships have had a long-term effect on both the distillery and its neighbors. While Tuthilltown makes liquor from local apples, Elder notes that the McIntosh, Gala and Empire apples that nearby farmers grow aren't ideal for its uses. When a local orchard expressed an interest in developing an organic, self-picking operation, Tuthilltown convinced it to start growing heirloom apple species that were more suitable for its spirits.

Elder notes that the move "Helped the farmers and helped us. We got the apples we wanted, and they were able to develop a lucrative operation."

A Deep-Pocketed Partner From Scotland

Tuthilltown has also brought outside capital into the region. Recognizing that it needed to improve its cash flow if it hoped to grow, it agreed to partner with William Grant and Sons, the Scotland-based premium liquor company that owns Hendrick's gin, Glenfiddich Scotch and Stolichnaya vodka. Impressed with Grant's lineup and struck by its commitment to quality, Tuthilltown sold its popular "Hudson whiskey" line to the larger company. Under the terms of the agreement, Grant owns the brands, but Tuthilltown will continue to produce them.

While the Grant deal helped Tuthilltown to slightly upgrade its facilities, Elder points out that its biggest impact has been the massive increase in cash flow. "Previously, we were able to work when we could afford to procure ingredients," he notes. "Now we can distill constantly."

On a larger scale, the relationship between Grant and Tuthilltown has also poured money into the local economy. It has funded Tuthilltown's experiments with local farmers, and the distillery's increased production has been a boon for the area's growers, whose grains feed the company's cookers and stills.

Stop By and Visit

Now a significant economic force in the area, Tuthilltown has also built a stronger relationship with its neighbors. Perhaps the greatest sign of this increased friendliness lies in the distillery's growing popularity as a tourist site. In 2009, following years of lobbying, the New York state legislature passed a law allowing microdistilleries to host tasting rooms and offer tours. To celebrate, Tuthilltown invited the public to the distillery, where fans had the opportunity to harvest rye and see where the grain is transformed into liquor.

In the year-and-a-half since the tasting room law passed, Tuthilltown has drawn whiskey afficionadoes from around the world. But what effect has this stream of tourists had on the sleepy town that once fought against Ralph Erenzo's small bed and breakfast? "So far," spokesperson Hayes laughs, "There has been no word from the neighbors."
See the full Special Report:
From Prohibition to Microdistilleries: Changing How America Drinks
How New York's Microdistillery Law Is Building a New Industry
Pennsylvania's Small Liquor Makers Bottle a Heritage
Colorado's Microdistilleries Follow an All-American Path View all Articles » Bruce Watson is a features writer for DailyFinance, focusing on the political and cultural effects of economic events. A contributor to Military Lessons of the Persian Gulf War, A Chronology of the Cold War at Sea, the Journal of American Philosophy, A Cafe in Space, and the forthcoming Peanut Butter, Gooseberries, and Latkes! He has also worked as a research assistant in the British House of Commons and at the United States Naval Institute.

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How New York's Microdistillery Law Is Building a New Industry

"If you're thinking of starting a distillery, here's a tip: Don't put it on the second floor of a building with nice wooden floors," Calvin Spoelman laughs. "Sometimes, the sour mash spills and burns the wood."

The 31-year-old Spoelman knows what he's talking about. The New York-based architect is also the owner of Brooklyn's King's County Distillery, the oldest legal whiskey distillery in New York City. This April, it will celebrate its first birthday.

A Kentucky native, Spoelman has long been fascinated with "moonshining and distilling culture," but he found that New York was sadly lacking when it came to distilling. Following a few successful experiments with what one might call "informal, extralegal alcohol production," he decided to see what he needed to do to create a legal distillery.

Partnering with his college roommate, David Haskell, he was surprised to discover that New York offered a special, inexpensive permit for small-batch distilleries. To qualify for the license, which the state launched in 2002 and expanded in 2007, the pair had to go through a quick interview, pay a small fee and agree to source half of their ingredients from New York farmers.

"It was actually serendipitous," Spoelman remembers. "Originally, we used a generic flake corn, but we started using organic corn that was grown near the Finger Lakes. It made a big difference, and the finished product tasted much better."

The Distilling Promised Land

Depending on whose estimate you use, somewhere between 150 and 250 promising microdistilling startups are operating in the U.S. right now. Of these, New York has roughly 18, putting it in a close contest with Oregon as the top state for small-batch distillers. Given the Western state's reputation as a hotbed for microbrewers, it's not hard to see why Oregon would be so popular with microdistillers as well. Some beer makers, like Ashland, Ore.'s Rogue brewery, have even made the transition from brews to booze. Distilling since 2003, Rogue has built a slate of seven highly regarded rums, gins and whiskies.

New York's preeminence is more of a quandary. After all, while the city was once home to hundreds of breweries, wineries and distilleries, prohibition wiped out the industry. Later, when the microbrew boom hit in the 1980s, high rents made it difficult for beer makers to get a toehold in the city. Today, one of its few successful alcohol producers is Brooklyn Brewery, which opened in 1986. Initially based in Upstate New York, the company moved to a Brooklyn factory in 1996.

The company's founder, Tom Potter, is also emerging as one of the driving forces in New York City distilling. Although his New York Distilling Co. won't begin making alcohol until later this year, it's poised to be the biggest alcohol producer in the city. Potter has high hopes: "We have a 1,000-liter distilling system. Ultimately, we hope to produce 500 to 1,000 cases per month."

In addition to Potter's and Spoelman's operations, Brooklyn is also home to microdistillery startups Breukelen Distilling, which makes a gin, and Van Brunt Stillhouse, which plans to open later this year. Some might argue that the distilling community is getting overcrowded, but Potter thinks the city is fertile ground. "I think the city can support multiple distilleries. It will ultimately have several 500 to 1,000 liter distilleries."

Locavores Take to the Bottle

A big part of New York's distilling promise lies in its growing love for locally produced foods. Potter notes that one of Brooklyn Brewing's biggest challenges in the mid-1980s lay in the fact that New Yorkers could get great food from around the world. "Twenty years ago, New Yorkers were less interested in locally made products. We're an international city, and people were interested in the best international brands." He notes, however, that "within the last five to 10 years, New York has embraced local products with joy. They're willing to spend more for good, locally produced foods."

This wave of "locavorism," which helped Brooklyn Brewing become profitable, continues to expand. In addition to several greenmarkets that feature regional produce, other food startups -- like pickle and chocolate producers -- have found that New Yorkers are eager to support local companies.

While regional pride can certainly account for some of New York's microdistilling growth, the lion's share of the credit should go to New York State's class D distilling permit, an inexpensive license that has made New York one of the easiest areas to start a distillery. It was the success of a 1976 farm-winery law, which paved the way for New York's now-strong winery industry, that led the state legislature to created the distilling permit in 2002.

Under the licensing law, small-scale liquor producers are allowed to make up to 35,000 proof-gallons of liquor per year, can give tours and are allowed to operate tasting rooms. As an added benefit to the state's agriculture industry, the law requires distillers to source at least 50% of their ingredients from New York farms.

Small-Batch Distilling Can Work

Almost as soon as the initial law was passed in 2002, some upstate farms began small-scale operations, generally making unaged corn whiskey and vodka. One, Tuthilltown Spirits, quickly moved on to bourbon and rye whiskies, quickly producing small-batch liquors that captured worldwide interest. In 2009, soon after launching its whiskey line, Tuthilltown partnered with international distilling company William Grant and Sons of Scotland to open its ryes and bourbons to international distribution.

In addition to producing first-class liquors, Tuthilltown showed that small-batch distilling could work in New York, a lesson that dozens of other entrepreneurs have heeded.

Some analysts have argued that small-batch distilling in America is roughly where microbreweries were in 1985, but Potter disagrees. "Actually, it's more like 1988," he laughs. "In 1986, I attended a craft brewer's convention in Portland. At the time, there were 25 small brewers from all around the country. They represented all the breweries out there."

By comparison, he sees today's microdistilling industry as much more robust: "Every major metropolitan area has a distillery up and running, and many cities have more than one."

Building a Staff

It remains to be seen if Potter's optimism for New York's distilling future will bear fruit, but Spoelman's operation showcases the promise that distilling holds for the city. Less than a year ago, King's County Distilling was little more than an idea and a small amount of funding ("Roughly the price of a small car," Spoelman jokes) that the two owners had managed to cadge together from family and friends. Today, it's a thriving small-batch distillery -- a "nanodistillery," in Spoelman's words -- that provides income for upstate corn farmers and delight for New York-area liquor fans.

Kings County is also becoming a small employer in the area: To keep up with demand, Spoelman and his partner have hired a staff of five employees to keep the stills running all week. Still, the future is uncertain. Spoelman worries about competition in the New York market and notes that "If we get much larger, we'll either have to hire someone to promote our whiskies, or we'll have to work with a distributor."

In the meantime, the stills are running, and the liquor is selling.
See the full Special Report:
From Prohibition to Microdistilleries: Changing How America Drink
Bringing Cheer to the Local Economy
Pennsylvania's Small Liquor Makers Bottle a Heritage
Colorado's Microdistilleries Follow an All-American Path View all Articles » Bruce Watson is a features writer for DailyFinance, focusing on the political and cultural effects of economic events. A contributor to Military Lessons of the Persian Gulf War, A Chronology of the Cold War at Sea, the Journal of American Philosophy, A Cafe in Space, and the forthcoming Peanut Butter, Gooseberries, and Latkes! He has also worked as a research assistant in the British House of Commons and at the United States Naval Institute.

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View the original article here