Friday, 18 February 2011

Stifling innovation

Kiwis often express incredulity when I tell them how much worse regulation can be in the States as compared to here.

Kiwi vodka company 42 Below started out when a guy named Geoff built a still at his house and started distilling his own vodka. He started inviting friends around, then started selling to friends who owned bars. That turning out well, he decided to go pro: quit the day job and focus on vodka. About eight years after starting up his home brew still, he's bought out by Bacardi. Awesome success story.

Now consider how things would have turned out had he started in the States.
I was talking with a buddy of mine last night: a lawyer currently working for the state, getting his MBA on the side. He’s been researching the possibility of setting up a distillery firm, and we talked about it for close to an hour. Very interesting stuff, and he’s got some great ideas for how to break into the market and his unique angle.

But the funny part is that probably 45 minutes of that hour was spent talking about his strategy in light of the manifold regulatory hoops and tax laws he has to navigate. Between licensing and taxes, which as you can imagine for hard liquor are absurd, his business model is 100% dominated by meeting the requirements of the state. Some examples: before you can boil an ounce of alcohol, you need local, state, and federal licensing in place. You can’t get the federal until you have the state and local in place, and getting all three takes anywhere from 8-24 months. The problem is that to fill out the paperwork you have to have the facility, equipment, stock, etc. all in place and ready to go; you can’t fill out paperwork for a nonexistent distillery. So he’s looking at having to hold a facility with the equipment for two years while the feds sit around.
Sure, things vary state by state. And Maryland is pretty bad. But you have to break the law if you want to start up as a distiller in Maryland:
While he’s got some good ideas for recipes and techniques, he’s never actually distilled liquor himself because that’s also very illegal in MD. Here’s the one place where he will probably have to break the law, though, because if he’s not allowed to distill until he’s got a permit, and if he can’t get a permit unless he’s got everything ready to go (and is thus paying for it), just when is he supposed to get the knowhow to produce a decent batch of alcohol? So I think he’s going to get some equipment, put it in his basement, and during the two years it takes to get official approval get a few recipes and techniques perfected.
Bootleggers and baptists. In this case, the big guys get regulations that keep out new entrants; the baptists get their usual jollies.

We don't know how lucky we are in this country! We don't know how luuuuccckkyyyyy we areeeee....

1 comment:

  1. I realize I am commenting many months after the post, but on the Discovery show Moonshiners, the main guy is contemplating the same thing. The distilled spirits industry needs a massive wave of deregulation, including allowing for distillation of personal quantities like a gallon. We have a lot of microbrewers, maybe microdistillers someday.