Christine was about three quarters down the path of opening Silverback [distillery] when reality started to sink in. Operating a distillery in Virginia was going to be a lot different than she thought. Virginia is what’s called a control state, which is just a fancy way for saying that the state government itself controls all liquor sales throughout the state. That means that you only could purchase liquor in state owned ABC stores, which are staffed and operated by state employees. In 21st century America, it might seem a little odd to have to go to a government run store to buy anything, but it gets even weirder. If Christine wants to sell bottles of her spirits to visitors and customers at Silverback, she technically also has to become an ABC store. Now the details get a bit complicated, but the bottom line is that while Christine and her staff handle all the legwork for their on-premise bottle sales, the Virginia, ABC is still the boss and they like to charge Christine a lot of money to sell her own products.”

Christine Riggleman, CEO and master distiller at Silverback Distillery, is one character listeners will meet in the first episode of The Right to Drink, where expert and host Jarrett Dieterle explores why, exactly, your craft cocktail is so expensive. (Hint: The answer starts with a g and ends with overnment.)

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Transcript:

Jarrett Dieterle:

Imagine you just walked into your favorite bar. It’s nice to imagine, right? Go ahead. Take a moment and really let yourself picture it. Say, it’s late summer. It’s 90 degrees out. You’re drenched, exhausted. But when the bartender asks, “What do you have,” you smile. You order your old standby, a negroni. You take that first sip and it’s just what you remember. Those was bitter notes, Campari blending perfectly with herbal gin and sweet vermouth. It’s so good, you order another and maybe even a third. But when you go to leave, the bartender slips you have the check, 60 bucks and that’s before tax or tip. You’re surprised but she kindly informs you that they’ve had to double the price of your favorite cocktail, but why? Well to keep up.

Jarrett Dieterle:

She tells you that the administration has targeted imported liqueurs from Europe, like Campari, for higher tariffs. It costs a lot more for the bar to buy the spirits that go into your drink. So that means that you, the customer, also have to pay a lot more now. But what else goes into making our favorite craft beverages $8 instead of $4, or worse yet $20 instead of $10? It’s not money greedy companies really trying to jack up prices on us humble consumers, so what’s the real reason? Well, our old friend, the government has a lot of explaining to do.

Jarrett Dieterle:

I’m Jarrett Dieterle, author of Give Me Liberty and Give Me a Drink. And this is The Right to Drink.

(signing)

Jarrett Dieterle:

Hey everybody. And welcome to the show where we talk about drinking and everything else that gets in the way. Today, we’re going to look into why your drink costs what it does. And before you ask, yes, $20 negronis could really become a thing. Earlier this year in fact, Bloomberg published an article with ominous warnings about $20 negronis in our future. It sounds hyperbolic, but the Trump administration was considering raising tariffs on European liquors and spirits. And on and off for the past year, they’ve threatened to do so by as much as a hundred percent, which would double the cost of those products overnight. That means that a drink like on a negroni, which can’t really exist without at least a couple imported spirits could jump from you guessed it $10 to $20.

Jarrett Dieterle:

So yeah, tariffs are a bummer and they definitely raise the price of our favorite craft cocktails and drinks, but they’re not the only thing that hurts our wallets when it comes to enjoying a delicious libation. Tariffs, get the news, headlines, slide, everything involving the Trump administration these days, but governments across America at the national state and even local level enforce tons of head-scratching laws and rules when it comes to alcohol and every time a rule exists, even if it’s a really arcane rule, the rule has to be complied with and compliance costs money, which ultimately means a more expensive cocktail.

Jarrett Dieterle:

The interesting thing is most of the laws don’t really seem to accomplish much. Sure alcohol can be dangerous when it leads to things like drunk driving, but the vast majority of rules we have around alcohol exists just because. Because they’ve been around forever and because we, consumers don’t even know they exist. But the people that make alcohol sure do. They live it every day. Take Christine Riggleman, founder and CEO of Silverback Distillery in tiny Afton, Virginia. Silverback has a hardware shelf full of award-winning distilled spirits. I personally recommend their Strange Monkey Gin and their story is one of good old fashioned, inspiring American entrepreneurism.

Christine Riggleman:

So basically the origin story is we went to Scotland and we went to a family trip and we only went to one distillery, but I fell in love. Absolutely fell in love. My family is often the tasting room and I’m going, Oh my gosh, what does that machine do? What does that machine do? And what happens with this? And you can tell the tour guide was really irritated. He was like, we got to go back to your family, but it just wouldn’t leave me.

Jarrett Dieterle:

After returning home, Christine decided to move back home to Virginia and start her own distillery. Ultimately, all three of her daughters joined the family business and today Christine and her oldest daughter, Lauren are the master distillers at Silverback. In fact, they’re the only mother daughter distilling team in America. But ironically, Christine’s forced to spend as much time keeping up with Virginia’s alcohol laws as she does making hooch.

Jarrett Dieterle:

Christine was about three quarters down the path of opening Silverback when reality started to sink in. Operating a distillery in Virginia was going to be a lot different than she thought. Virginia is what’s called a control state, which is just a fancy way for saying that the state government itself controls all liquor sales throughout the state. That means that you only could purchase liquor in state owned ABC stores, which are staffed and operated by state employees. In 21st century America, it might seem a little odd to have to go to a government run store to buy anything, but it gets even weirder. If Christine wants to sell bottles of her spirits to visitors and customers at Silverback, she technically also has to become an ABC store. Now the details get a bit complicated, but the bottom line is that while Christine and her staff handle all the legwork for their on-premise bottle sales, the Virginia, ABC is still the boss and they like to charge Christine a lot of money to sell her own products

Christine Riggleman:

They said, Oh, by the way, out of your tasting room, we’re going to take 54% of every bottle you sell. And we went, wait, what? You know you don’t do anything here. You don’t do any advertising for us. You don’t physically help us. You know, like why would you, what, what entitles you to 54% of our profit?

Jarrett Dieterle:

Yeah, you heard that right? By the time you add up the fees and taxes, ABC charges distilleries, it amounts to over half the money Christine gets from each bottle sale. That means that every time Christine sells say a $20 bottle of gin, she only gets to keep $9 and 20 cents. But making craft alcohol is time consuming and expensive and earning under $10 per bottle, and that’s before deducting costs like overhead and employee salaries, makes it very difficult to make ends meet. And again, the state isn’t really doing much to actually help Christine with her on-premise bottle sales.

Jarrett Dieterle:

But the end result is that it raises the cost of our favorite craft beverages. Christine was recently able to reduce the state’s cut to 34% rather than 54 for her on premise sells but it’s still a big burden on her business. The situation is similar for off-premise sales at the state run retail stores. You know those government stores I mentioned earlier? There the government decides what products get sold in those stores and essentially makes decisions that can make or break a small distillery depending on whether their products get accepted. They also get to decide how much those products sell for.

Christine Riggleman:

Cause you have to present to them when you have like a new product line and stuff, you have to, and you want to distribute to their state stores. You have to present to ABC. They only have three, I think, times a year that you can present to them. Just because you present it to them, doesn’t mean they’re going to take or accept your product. I have people calling and crying, saying I did three products that they already did. They already created, they already aged. A distillery it’s not just, “Oh, Hey, I think about this. And I can do this in a week.” Like it takes time and money and patience and years usually to develop these products and they presented it to them and they refused all three products. And they’re like what am I going to do with it now?

Jarrett Dieterle:

So that means that we have the government, not the marketplace deciding how much product should cost rather than basing the cost of bourbon on, I don’t know how good it tastes, how popular it is. We have a small government committee deciding how much it costs. And once again this usually means more expensive alcohol. According to a 2010 analysis by the Washington post, a $25 bottle of liquor in Virginia, on average, only costs $20 nearby Maryland. We’ll break down why Virginia and other States have laws that raise the cost of our huge next.

Jarrett Dieterle:

If you’re interested in the things we’re talking about on today’s podcast, be sure to check out my new cocktail book, Give Me Liberty and Give Me A Drink, provides a rollicking recipe pack tour of America’s most insane and laughable booze laws. Give Me Liberty and Give Me A Drink as available from all major and independent bookstores. Also be sure to check out drinksreform.org, a website and weekly newsletter from the R Street Institute, which covers the intersection of alcohol and our legal system.

Jarrett Dieterle:

So, okay, by this point, if you’re anything like me, you’re probably asking how does Virginia justify these types of laws and do other states have rules that raise the cost of my favorite craft cocktails? For the latter question, the answer is easy. Yes, nearly every state in America has examples, quirky and nonsensical alcohol laws that hurt producers and customers and raise the price of our booze. One of my favorite examples is Massachusetts’ ban on happy hours. If ever there was a smoking gun example of how a law can directly lead to more expensive cocktail it would be a law that literally bands alcohol discounts. We’ll get into more of these laws in future episodes so don’t worry. There’s going to be plenty for us to talk about on this podcast, but in the meantime, to answer that first question, what possible reason to states have from forcing these types of alcohol laws? I turned to someone who had know. Teri Quimby actually served as a former alcohol regulator when serving as a commissioner on the Michigan liquor control commission. So why are alcohol laws the way they are?

Teri Quimby:

I think there are several issues. One is the older laws and regulations trying to fit something new in and something new, something innovative. And that is one of a regulators toughest questions to answer is how do you fit something new into something that’s kind of an old system most of the time.

Jarrett Dieterle:

Teri hits on an important point. Most of our rules and laws about alcohol drive from the immediate post Prohibition era, which makes them over 85 years old after Prohibition was repealed. And the federal government got out of the business of booze, it simply transferred authority to state and local governments. And just because Prohibition was relegated to the dustbin of history, anti-alcohol busy bodies, didn’t just disappear overnight. Temperance forces instead shifted their focus from Congress to the states. In fact, some states remain completely dry for decades after Prohibition. And even today there are over 80 completely dry counties in the United States spanning across 10 states. Heck even Jack Daniels is technically still distilled in a dry county, although naturally it has an exemption. But even the states that didn’t go fully dry after prohibition, they still enacted systems for regulating and controlling alcohol.

Jarrett Dieterle:

Some states became control states like Virginia in nearly every state in the country introduced what’s known as the three tier system for alcohol distribution. It’s as tedious as it sounds. But what it means is that producers, wholesalers and retailers of alcohol all have to be legally separate entities. That means, for example, a distillery can make spirits, but it can’t just sell them however, it pleases. It usually has to first sell the spirits to a wholesaler, who then turns around and sells it to a retailer. And finally mercifully the booze can be sold to us consumers. The upshot is the alcohol industry has spent past 80 plus years trying to reform the system so people like Christine can actually sell their own alcohol at their own distillery. And it also means that every tier of the system, they take their own cut, which you guessed it, means more costs, more markups and higher alcohol presence. There’s been some progress in reforming the system, but it’s been slow as Teri puts it.

Teri Quimby:

I think part of the rationale for, for any changes for anything in alcohol is simply we’ve always done it that way. It’s working just don’t change it. And again, I think that there’s a lack of dialogue of discussing alcohol issues. And I personally think the more discussion that can occur on any issue, alcohol or not, it is a good thing. Bring people together, have discussions, figure things out. When it comes to defending this I think that the arguments are mostly the system is in place to prevent the ills of long ago from happening.

Jarrett Dieterle:

Those long ago ills Teri is referring to trace back a really long time. After Prohibition there were only a few mega producers of alcohol and the concerns that we were headed straight toward a monopoly ridden marketplace, where a few massive national distillers or brewers made all of our alcohol and then also owned all the bars and retail stores. The result might be that in some locales, there would only be one option when it came to what you drank. That’s why the government decided to step in with things like control states and the three tiered system. But the problem with this rationale is that isn’t really relevant to today’s marketplace. We’re in the middle of a craft spirits boom, a time in which we have thousands of craft alcohol producers making tens of thousands of different products. Any trip to the beer aisle in your local grocery store tells you that. It means that we’re in a situation where antiquated laws are governing marketplace that has changed immensely.

Teri Quimby:

So much of the time it’s getting through that day and as a regulator of all of the applications, all of the issues. The system becomes you keep doing, what’s always been gone instead of saying, wait a minute, why are we doing this? And do we have to do it this way? Is there a better way? If there’s not a better way, then fine keep doing it.

Jarrett Dieterle:

In other words, momentum. That’s how it’s always been done. So the train keeps chugging along. Even when former regulators like Teri think the system could be improved. No, one’s asking the key question: why? Why does this law exist and should it and if so, could we at least make it work better?

Teri Quimby:

We should be able to sit down and talk about it and figure out how can everyone get to the point they need to be here, right? From a health safety, welfare standpoint, governmental interest, taxes collected, and try to do that for the benefit of all. We’re all in this together. Your regulators should not have as their goal to see how many violations can be issued in a day or a week or a month. Regulators should want compliance in the first place. And part of that is clarity. Everybody should understand what the target is and know how to meet that target with conduct.

Jarrett Dieterle:

You won’t hear any disagreements from Christine in her view. Virginia’s government too often seems determined to play the role of antagonist instead of cooperator.

Christine Riggleman:

Instead of like walking hand in hand with us, it seems like they’re always trying to catch us or ding you, or do undercover stings. It just seems like they’re always trying to take you down to the principal’s office instead of like work in tandem with you.

Jarrett Dieterle:

Think of that. Cooperation, working in tandem, finding a better way. While it might seem like we’re far away from that ideal when it comes to alcohol and our legal system, the fact that people like Teri and Christine exists, should at least give us a little bit of hope. If more people both inside and outside the alcohol industry start sitting down and figuring out how to come up with a smarter setup, things might start looking up and Hey, price, that cocktail could even start dropping instead of increasing. It’s nice to imagine, right?

Jarrett Dieterle:

I’m Jared Dieterle and I wrote today’s episode of the show, The Right To Drink is produced and edited by Greg Benson, host of the Speakeasy and Backbar, a new podcast coming soon from the Heritage Radio Network. The music is written, produced and recorded by Jessica Lee Graves. And the cover art for the show was created by Ann Phelan. And I’d also like to thank Bill Gray and the R Street Institute, as well as today’s guests, Christine Riggleman of Silverback Distillery and Teri Quimby. If you enjoyed today’s show, be sure to check out my new book, Give Me Liberty and Give Me A Drink as well as drinksreform.org. Our next episode, we’ll take a scandalous, dive into beer labels and swear words. So be sure to join us right back here in two weeks for more about drinking and everything else that gets in the way.

(Singing)