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Make Me Smart with Kai and Molly

Episode 136: VC hype vs. Wall Street

Oct 22, 2019

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Marketplace Tech

Running a distillery is whiskey business

Marketplace Contributor Sep 7, 2015
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Tennessee is known for its whiskey — in particular, Jack Daniels, the most popular American whiskey in the world. Until recently, it was one of only three distilleries in that state. But a 2009 change in liquor laws allowed whiskey distilleries like SPEAKeasy to open throughout the state.

These startup distilleries face a problem according to Jenny Pennington, one of the founders of the Nashville-based distillery. Pennington says it costs a lot to produce whiskey. You have to buy the equipment, the barrels, the space to keep them. And getting that whiskey to market takes a long time. The whiskey sitting in SPEAKeasy’s warehouse will age several years before it goes on the shelf.

“Every time you lay down a barrel of whiskey, you’re pretty much writing a check and, you know, just putting it on the shelf for four to six years — however long you’re going to age it,” she says.

So as a faster form of payment, SPEAKeasy has branched out and started making vodka.

“It’s wonderful because you can make vodka today and it’s ready for the market tomorrow,” Pennington says.

This kind of business model isn’t just happening in Tennessee, says Clay Risen, author of “American Whiskey, Bourbon & Rye: A Guide to the Nation’s Favorite Spirit.” The number of distilleries have boomed nationwide, but he says it’s tough to get started if you only want to make aged whiskey.

“If you’re looking to get investors, it can be very hard to convince people that, ‘Hey, I’ve never done this before, but you should give me money because it’s going to pay off,'” Risen says. So, as alternatives, “you could do rum, you could do gin, you could do vodka, you could do unaged whiskey.”

Charlie Nelson, who owns Nelson’s Green Brier Distillery in Nashville, had a hard time getting funding from investors. Instead, he says, “my family and I, we decided to put up everything that we owned to guarantee a loan.”

Now, he’s putting away a couple of barrels of whiskey every day, using his great-great-great-grandfather’s original recipe. As it ages, he’s selling an unaged version in to bring in some cash.

Everything about this business, Nelson says, requires a lot of patience. “And if you rush it, you might make a mistake.”

His whiskey should be ready for market next year. By that time, more Tennessee companies may have joined the slow and steady race.

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