We appreciated the News Tribune’s coverage of the important issues facing microdistilleries in Duluth and across Minnesota (“Duluth microdistilleries brace for ‘perfect storm’,” Dec 9). Local spirits manufacturing creates good jobs in Minnesota, adds value to Minnesota agriculture, and contributes to the tourist economy.
However, if our legislators do not act, both at the state and federal levels, our many impacts on the local economy may be lost.
The “three-tier” alcohol system was created more than 80 years ago to establish order over an unruly system, to maximize tax revenue, and, frankly, to balance the interests of business and organized crime. In the many decades since, influential manufacturing and distribution companies have built an adversarial system that only works for large companies. Small craft producers are legally required to work with these powerful interests — though we are small fish in a very large pond. The multinational spirits companies continue to merge and acquire brands, stockpiling cash and control. The distributors constantly consolidate, creating enormous portfolios and minimizing competition.
In this context, local craft spirits can only continue to succeed through changes to federal and state law, similar to the laws that enable craft beer and wine to flourish.
At the federal level, craft beer and wine have been successful because of tiered taxation, meaning lower taxes on production under a certain volume. For the last two years, craft spirits have benefitted from a tax reduction modeled on the permanent tax structure for beer and wine. But that change was temporary, and on Jan. 1 our federal excise tax will go up 500%, a financial hit that seriously threatens the future of craft distilleries.
A proposed law, the Craft Beverage Modernization and Tax Reform Act, would make that tax reduction permanent. This bill has a record 315 cosponsors in the House and 73 in the Senate. On Tuesday, a one-year extension passed in the House, which must be voted on by the Senate by Friday. We welcome its passage, but urge Congress to make it permanent so we can plan for the future.
At the state level, craft beer and wine flourish because states have created modern laws that give customers access to buy their products directly. Minnesotans are familiar with laws around taprooms and growler sales. These laws have not only allowed craft producers to succeed but have helped them build valuable higher-end brands for distributors and retailers to sell. We have consistently advocated for similar changes for craft spirits as members for six years of the Minnesota Distillers Guild.
We often hear from state legislators that we shouldn’t push for change because, “You knew what you were getting into when you went into this business.” We did know what we were getting into then, but that is not the environment we are in now. In the intervening years, laws have changed nationwide. Minnesota has gone from being an average state for a business start like ours to one of the least favorable, creating a serious disadvantage to local microdistilleries.
Minnesota has the fourth-most-restrictive consumer-access law in the country, allowing consumers to buy only one 375-ml bottle per person per day from a microdistillery. A law allowing the sale of up to 4.5L per person per day, without restrictions to unusual sizes of bottle, would be fair to consumers, enable us to build our brand, and create new value for the distribution and retail tiers of the system without impinging on sales. In other states, raising allowable sales from distilleries has shown to increase revenue for local retailers as well.
Local alcohol production, distribution, and retail are good for our community and our state. Between antiquated laws that penalize small players, increasing pressure from multinational companies, the incredible consolidation of distribution, the impact of national chains, the threat of alcohol sales at convenience stores, and Minnesota’s state laws falling behind those of surrounding states, this vital local economy is at risk.
We urge our national senators and members of Congress to pass the Craft Beverage Modernization and Tax Reform Act permanently. At the state level, we implore our legislators to pass the bill proposed by the Minnesota Distillers Guild that would improve consumer access and provide room to grow for microdistilleries.
And we ask the public to call and email your representatives. None of these issues are particularly partisan, but they do depend on legislators feeling pressure from constituents. Vikre Distillery; the 35 people we employ; the retailers, bars, and restaurants that sell our products; and the distributors who sell and deliver our product all need your help.
Joel and Emily Vikre own and operate Vikre Distillery in Duluth’s Canal Park. They wrote this for the News Tribune.