Brent Stephens graduated from law school in 2005 and practiced law for several years, always keeping an eye on the changing landscape of distilling regulations in his home state of South Carolina. Once South Carolina joined the numerous other states that have eliminated the outdated legislative remnants of the Prohibition era, making the operation of a craft distillery possible, Brent bid farewell to the billable hour and founded the Charleston Distilling Company. As with any business operating under newly enacted legislation, Brent has faced a number of challenges and surprises along the way.
Q: How did you go from practicing law to establishing a distillery?
A: Shortly after graduating law school, I decided that I wanted to get serious about my dream of distilling liquor on a micro-level. However, the laws in effect at that time, most of which were left over from the Prohibition Era, made it all but impossible to operate a craft-spirit distillery. These laws not only made it difficult to distill, they were largely protective of the business interests of liquor distributors and retailers. For example, in most states a distillery was prohibited from selling directly to the public and instead was required to sell to distributors who sold to retailers that sold to the public. This resulted in the distilleries realizing a fraction of the profit that would otherwise be realized if permitted to sell directly to the public. Additionally, at least in South Carolina, the cost of obtaining a license from the state was prohibitive for someone interested in micro-distilling.
Q: What prompted the change in legislation and how did it make Charleston Distilling Company possible?
A; Although the distilling industry is largely regulated on a federal level, state legislation regulates an individual’s ability to distill and sell spirits. Following the lead of many states on the west coast, South Carolina’s major changes took effect in 2009, and laws specifically addressing “micro-distilling” (defined as, “a manufacturer who distills, blends, and bottles alcoholic liquors on the licensed premises in this State with an alcohol content greater than seventeen percent and who produces a maximum quantity of 125,000 cases per year at the licensed premises”) were enacted. The annual license fee was reduced from $25,000 to $2,500, paving the way for micro-distilleries to begin operations. Additionally, micro-distilleries were allowed to provide tastings and sell to the public with certain exceptions. All tasting and sales are required to be held in conjunction with a tour of the distillery, they may occur only between the hours of 9 a.m. and 7 p.m., Monday through Saturday, and we are limited to dispensing no more than three one-half ounce samples per person per day.
Q: What types of obstacles did you encounter in establishing a business under these newly-enacted laws?
A: Any business is going to face obstacles in the formation stage, and usually at multiple levels, from municipal government to state agencies. In addition to having the typical hurdles, I quickly realized that I would need to be prepared to educate everyone from local zoning administrators to the agents from our statewide law enforcement agency about the operation and application of these new laws. More times than not, the officials with the power to approve our business license, or sign off on code compliance, were not familiar with the new laws. They did not know exactly in which of the existing categories we should be placed. Were we a liquor store? Were we a bar? In reality, we are neither, and I got accustomed to operating in a gray area with ability to set somewhat of a precedent.
At one point, an agent from the South Carolina Law Enforcement Division, which is responsible for approving the facility, came down to inspect the distillery before opening to the public. He was literally walking around reading a printed copy of the new statutes, trying to figure out how to apply them to what he was seeing.
Q: Where do you see this industry down the road?
A: The micro-distillation legislation has made the industry a reality, but it still has a way to go. Some states simply modeled their micro-distillation laws after micro-brewing legislation and liquor store regulations, resulting in laws that do not quite fit the realities of micro-distilling. For example, we are limited to selling three 750-ml bottles per customer per day. While the amount is quite liberal compared to that of other states, the requirement that we only sell in 750-ml bottles is limiting, and not well-suited for a distillery that may want to produce liqueurs and other specialty spirits that are typically sold in smaller format bottles. Additionally, we are prohibited from using any types of mixers in our tastings, which means that we can only offer straight spirits. This is also rather limiting, as many of our guests do not typically drink straight vodka or gin. I am currently working with local legislators to draft a bill that would revise the existing laws to give micro-distillers more freedom to be creative and showcase their spirits in ways that meet the public demand.
Q: Do you have any advice for attorneys representing businesses operating under “new laws”?
A: Just as with anything else – do your research. I spent several years going around the country to learn not only the craft of distilling, but also to see how the somewhat varied legislation played into the operations of craft-distilleries. That research paid off when it came time for me to get Charleston Distilling permitted and ready to open to the public. Having a knowledge base as to how these laws are applied in other jurisdictions certainly lent itself to a smoother process all along the way.
It is also useful to get involved in the legislative process and industry-specific organizations that will keep you informed about what is going on in other jurisdictions. Likewise, establishing rapport with local politicians and government officials is key to success. Keep them in the loop and invite them to see what is going on. Educate them and let them see that your business, or your client’s business, is a valuable addition to the community.
About the Author
Elizabeth Palmer is a shareholder with Rosen, Rosen & Hagood, LLC, in Charleston, SC, where she practices business and commercial litigation, employment law, and education law. She can be reached at epalmer@rrhlawfirm.com.