Sonoma County craft distillers poised to benefit from on-site sales

Craft distilleries on the North Coast are poised to take advantage of a new state law that gives them the ability to sell their products on premise just like wineries and craft breweries, which have used direct sales to attract walk-in business and retain customers.

The new law, signed by Gov. Jerry Brown last week, will provide an economic shot in the arm to the booming spirits industry in Sonoma County, where there are roughly a dozen distillers operating or planning to open.

It also complements a burgeoning local cocktail scene in places such as Spoonbar in Healdsburg and K&L Bistro in Sebastopol and new businesses such as Batch Cocktails, a consulting and catering company formed by two local bartenders.

“I think the change that this will bring will be unprecedented in California,” said Timo Marshall, co-founder of Spirit Works in Sebastopol with his wife, Ashby. “This will be huge for us.”

In fact, Spirit Works, located in The Barlow, is hiring two more people to add to its current staff of eight to take on new business. It could increase revenue by 30 percent based on projections from states where distillers are allowed to sell on premise, Marshall said.

The new law is set to go into effect Jan. 1. It is the result of a compromise by the bill’s author, Assemblyman Marc Levine, D-San Rafael, and the politically powerful wholesaler industry, which was concerned that it could harm the Prohibition-era, three-tier distribution system still in place, as well as wholesaler profits.

Distillers currently can only serve tastings and must refer consumers to retail locations if they want to purchase their products.

The new law allows distilleries to sell up to three 750 ml bottles per customer per day on site. In addition, they can open an on-site bar or restaurant and have tastings where they make cocktails and mixed drinks, opening up the opportunity for events.

“Instead of tasting straight gin, we can actually do small samples to make some gin cocktails,” Marshall said.

The new law would create a new craft distillers license that would be available for those who produce less than 100,000 gallons annually - the equivalent of about 42,000 cases. The state has an estimated 50 distilleries, but industry officials expect that number to grow, especially with the new law.

Craft distillers represented less than 1 percent of the spirits shipments in California last year, according to an analysis of state Board of Equalization tax records by industry consultant Jon Moramarco. Still, even that small share represented a 40 percent increase over 2013 shipments.

Michael Griffo, who opened Griffo Distillery in Petaluma this year with his wife, Jenny, welcomed the new law and its implications for his business and craft distillers.

“It’s great news,” he said.

The couple primarily are focused on production and distribution, and they were able to get their gin into local stores last month. They would like to eventually open a tasting room as more revenues come into their business, especially as it is located in an area that receives considerable foot traffic with three craft breweries, including Lagunitas Brewing Co., nearby.

Distillers that sell to customers on site under the new law still will be required to go through wholesalers when selling to retailers or restaurants. Wholesalers had lobbied for that provision.

Local retailers aren’t expected to suffer a significant sales decline as a result of the new law because they already are used to wineries and craft breweries selling their products on premise, said Jason Schneider, general manager for Bottle Barn in Santa Rosa.

“I don’t think it will cut into our sales,” Schneider said. “I think it’s increasing the whole pie for everyone.”

Craft distillers are nearing about 10 percent of the spirits stock at Bottle Barn, Schneider said, a growth primarily fueled by vodka and gin, with shelves featuring local producers such as Spirit Works, Griffo Distillery, and Sonoma Brothers Distilling Co. in Windsor.

“It’s become a huge category, even though the percentages are still pretty small,” Schneider said.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter ?@BillSwindell.