Whiskey Business

The regulatory ordeal of the American micro-distiller

Ernest Scarano produces 100 gallons of rye whiskey in a year—roughly what a big producer spills in an afternoon. (Chris Langer)

The Ernest Scarano Distillery is located in a 120-year-old barn outside Fremont, Ohio, a town of about 17,000 that’s home to several cutlery companies and a ketchup factory. When I visited in the fall, I noticed that the open barn door had a chain hung across it with a sign reading Bonded Area. Ernest Scarano, the owner and sole employee, told me that he needed to see my ID before I could come in. “The bonded area is for the feds,” he explained, as if the web of state and federal regulations governing liquor production were the most natural thing in the world. “The permitted area for the state of Ohio is the entire barn.” I fished out my driver’s license, and while he logged my information into a notebook, I admired the quiet emptiness of the surrounding cornfields. I felt like a bit player in a film about some rural bureaucratic dystopia.

In the early 19th century, some 14,000 distilleries across America were merrily operating, sending up little dogwood-blossom puffs of smoke in the hills and imbuing cities with the aroma of fermenting grain. Then came Prohibition. Nearly everyone shuttered in 1920, and few returned after Repeal in 1933—a generation of skilled distillers had been skipped, and the new distribution channels established by Congress favored large producers. Big Liquor elbowed its way up to the bar, and smaller distillers couldn’t find a seat.Eight decades later, micro-distilling is making a comeback: dozens of new small-scale producers fire up every year, fueled by a do-it-yourself culture, their hopes in many cases hitched to the “locovore” movement. At the end of last year, some 860 distillers held federal licenses.I’d sought out the Ernest Scarano Distillery because it was the smallest commercial distillery I’d heard of, and I was curious about the mechanics and economics of such micro production.

Scarano’s business plan calls for producing about 100 gallons of rye whiskey every year, or roughly what a large liquor producer spills in an afternoon. Scarano, a 60-year-old with a neatly trimmed gray beard, has studied theology, worked for the Detroit diocese, and owned a telephone-installation business. When he decided he was getting too old for 40-foot ladders, he opened a small shop called Mantiques. (“Classic guy stuff,” he said, such as antique tools, vintage chain-gang outfits, and old well pumps. “No teacups or anything.”) Inspired by a rye he’d tasted a few years earlier, he took up distilling on the side. “I’ve had four or five careers in my life,” he told me, “and I wanted one more.”

Craft distillers not only need to be knowledgeable in such arcane matters as the esoteric habits of yeast and the miraculous properties of copper; they also must be deft in navigating the complex regulatory geography. (As I once heard a tour guide at the Wild Turkey distillery explain: “How do you make bourbon? You take some moonshine, put it in a barrel, and add a bunch of federal regulations.”)

Scarano unlocked an inside barn door to show me the horse-stall-size space where his rye was aging in small casks. “When you put it in, you have to pay an intake fee, and then you have to pay a storage fee, and then you have to pay an outtake fee,” he said. Transporting the liquor—which in Scarano’s case involves moving the whiskey from this stall to a retail counter about 50 feet away—triggers a minor avalanche of additional notifications and paperwork, exacerbated by the fact that Ohio, as a “control state,” holds a monopoly on the sale of liquor. This means Scarano has to “buy” the liquor he’s made himself from the state before he can resell it to customers.

Scarano is currently making two cask-strength ryes, including a “mellowed moonshine” called Whiskey Disk, which he “rests” for a year, six months of it in 15-gallon casks custom-made from local hickory. He said he’s sold about 45 bottles to date. Also in the pipeline is an aged rye called Old Homicide—the name comes from a bottle of hooch featured in a Three Stooges film—which won’t be released until the summer of 2014. It is currently aging in casks of charred Minnesota oak, their bungs literally sealed with red tape.

Scarano has no idea how this latter experiment will turn out. “It’s a real roll of the dice,” he said. “There’s probably $150,000 in product there. And it could be total crap.”