Virginia: Fighting for booze equality on ‘Alcohol Alley’

Source: R Street

Kevin Kosar

February 27th

On paper, Silverback Distillery in rural Afton, Virginia, should be considered an All-American success story. The husband-and-wife team of Denver and Christine Riggleman opened Silverback in 2014. Denver previously served in the U.S. military and eventually became a successful businessman, while Christine is one of the few female master distillers in an industry largely dominated by men.

Unfortunately, operating their business has forced the Rigglemans to come face-to-face with a government-imposed regulatory nightmare. While Silverback’s various spirits have received 11 international awards to date, it is treated as a second-class citizen in its home state.

Silverback is located along Virginia’s renowned Route 151, which has been informally dubbed “alcohol alley” for its many drinking venues. In addition to Silverback, the route features five wineries, three breweries, and a cidery. But because Silverback is a distillery, Virginia law imposes a stifling array of high taxes and burdensome regulations on it from which its brothers-in-booze are largely exempt.

On a recent trip through Virginia, I had the opportunity to talk with the Rigglemans about their story and how it led to their fight for alcohol equality. After moving from place to place for Denver’s military career for more than 20 years, Christine said it was “her turn” to choose where they would settle down, and she picked her home state of Virginia. During a visit to Scotland, she “fell in love” with the idea of opening a distillery back home. “I wanted to be a producer, and I wanted to fill a gap,” she said.

But the fairy tale was quickly upended. “About 75 percent down the path of building and opening the business, we realized what we were in for in Virginia,” Denver noted. The barriers and obstacles the commonwealth forces distillers to endure are almost too numerous to count. Even as their spirits began racking up awards, the Rigglemans grew ever more frustrated with the red tape they faced.

First, there are the frighteningly high taxes and mark-ups. Virginia ABC-the state’s government-operated liquor retailer-marks up each bottle of booze sold in Virginia by an incredible 69 percent, in addition to tacking on excise and sales taxes. All told, the government takes about 54 percent of the purchase price of every bottle sold, causing Virginia to have the third-highest liquor taxes in the country. Put another way, a bottle of booze that a distillery wants to sell for $12 will end up costing consumers around $25. Virginia breweries face much lower state taxes; their tax rates are right in the middle nationally.

The Rigglemans said that after one of Silverback’s best months, they were ultimately only able to keep about $26,000 of the $57,000 they made in on-premise bottle sales. Denver has calculated that, for the past two years of sales in their on-site tasting room alone, they have paid $308,000 more in taxes than they would have if they had located in nearby Pennsylvania. As he puts it, “That’s real money to real people.”

If this was not bad enough, distillers don’t even get to keep their share of the money upfront. Even for bottle sales in their on-site tasting rooms, distilleries must send the proceeds to ABC, which then returns the distilleries’ share after a month or so. Unsurprisingly, this can create significant cash-flow problems. Silverback will periodically purchase up to 20,000 empty bottles at a time for bottling, at a cost of up to $90,000 per order. According to Christine, she and Denver have spent “many late nights pacing the halls of our house” waiting for ABC finally to send back their share of the sales money and worrying about whether they will have enough cash on hand to purchase another round of bottles.

Perhaps most arbitrary of all, Virginia distilleries are severely handicapped in their ability to offer and sell samples of their spirits to visitors. Until recently, they were allowed to offer only up to 2 ounces of booze to on-site customers (barely more than a single shot of liquor). Breweries and wineries, on the other hand, face no limits on the amount of booze they can give to on-site visitors. That inequity prompted the Rigglemans to seek legislation to equalize distilleries’ treatment under the law. But after formulating legislation that would create true alcohol parity in Virginia between distilleries, breweries, and wineries, the Rigglemans and other Virginia craft distillers ran into a special-interest buzz saw. The most they could ultimately achieve was a minimal raise in the serving limit, to 3 ounces.

The state beer lobby is very influential in state politics. According to Denver, beer lobbyists informed him they would continue to oppose all efforts to treat distilleries equally to breweries. He added that one beer lobbyist flippantly told him: “we will allow you to grow your business incrementally,” but not enough to pose a competitive threat to beer. Another said Silverback was just “collateral damage” and that the beer interests would continue a public-relations campaign to ensure that hard liquor was always known as “demon water” in Virginia. The beer lobby is so powerful in Virginia that it essentially has veto power over any changes to state liquor laws, Denver said.

Distilleries have proven unable to compete with the breweries in the political-contributions game. Not only does the state’s nascent industry have less money to throw around, but several state politicians have told distillers that accepting political contributions from the industry would risk losing their beer-lobby donors. This has made other Virginia distilleries reluctant to get involved in the political gamesmanship needed to reform state liquor laws. Denver and Christine said some of their fellow Virginia distillers are considering expanding distribution in foreign countries like China rather than trying to expand their presence in the hostile environment of their home state.

But the Rigglemans are determined to speak up and fight back. In fact, Denver has become so fed up with the system that he has decided to launch a bid for Virginia governor to disrupt the current status quo in Richmond. But the family doesn’t relish the fight, speaking with deep emotion and a marked sadness about how they’ve been treated by their home state. “We put our life savings into this,” Christine said, “but I’ve actually apologized to Denver several times for choosing to come back home to Virginia to start this business.” For someone who has found her calling in being a master distiller, Christine cannot understand why Virginia treats her business so poorly. “I mean, we run a distillery, it’s not like we are into crime. We are doing a good thing, providing a service people enjoy. Just look at the people out in our tasting room, and see how happy they are.”

In a state where the politicians constantly wax poetic about the virtues of job creation and the so-called “new Virginia” economy, Virginia’s oppressive liquor laws have prevented Silverback from growing to the point where Christine can even draw a salary from the business, despite working constant 90-hour weeks. Denver has had to keep up his consulting business on the side to bring in additional income. “ABC has let me down, my home state of Virginia has let me down,” said Christine.

This couple’s experience with the American dream has been anything but smooth. They simply want a level playing field and to be treated the same as their booze-making competitors. But if past experience is any indication, Virginia’s government and political officials will continue to let them down.