What's the actual process for sourcing spirits from another distillery?

[GreenVelvet]

Hi all. I know a lot of startup distilleries these days source their early product while putting down their own barrels, however I was wondering what the actual process is for buying barrels of product from other distilleries. I'm assuming you need to have a DSP license (or be working with a licensed DSP) in order to purchase and take delivery of the product and pay the taxes. Is it okay to just call up a distillery asking if they have stock they're willing to part with? What actually happens in-between "Sure we have barrels available" and receiving said product?

My plan is to essentially start a local blending house where I can blend, bottle, and sell product that I source from across the US (focus on being a locally serving business first and foremost). I'd like to have it licensed as a DSP to allow me to warehouse/bottle/manage COLA etc, but would I need other licenses to be purchasing/receiving spirits from other business (and potentially internationally)?

[Alex_Sor]

On 6/17/2021 at 1:41 AM, GreenVelvet said:

Hi all. I know a lot of startup distilleries ...

I don’t understand a little what will be your benefit?

When buying ready-made drinks from others (alcohol), you will already pay someone (the Drink Seller) for the product itself + all the Seller's local taxes that they will pay in their state.

Then you will have transportation costs, which will also fall on you.

And only then can you get the drinks (alcohol) and start the mixing process.

Well, then you will have to add your earnings (profit) to the price that you have already received as the "entry price".

This is a very long way

and your profit will be much lower than if you yourself built a distillery and yourself were engaged in the production of drinks and mixing them.

If you are interested in my opinion, then I think that the path that you want to go is ineffective (in terms of profit in money).

[daveflintstone]

Alex you are wrong.  Your assumptions are wrong.  Your understanding of the process in the US is wrong.

Sourcing whiskey in the US can be a very profitable business.  

[dhdunbar]

You make application to TTB for a federal basic permit as someone who warehouses and bottles, and to register the DSP as a warehouseman and processor who bottles.  You do that on a single application using permits online.   TTB sorts the data into the permit and registration applications.

If you want to obtain spirits from another DSP, you make an application to receive transfers in bond (no tax paid) from each of the DSP's from which you want to receive the spirits.  If you know the persons from whom you want to receive the in bond spirits, you may make application for transfers in bond when you submit the application to become a DSP.

The business model wasn't complicated until Congress made some changes to the tax laws.  There is a reduced rate of tax on spirits that you process other than bottling. Taht is up to 100,000 pg.  The changes were a curveball, because bottling was a processing operations and so it used to qualify the spirits for the reduced rate.  However, from the plain language of the law, it appears it no longer does.  And basrrel aging isn't processing.  TTB has not issued its temporary regulations or announced rule making.  They have to do that soon.  I've been on TTB's case, a bit, about getting the rules out soon, because the rules on taxes take effect 1/1/2022 and people have to be making business plans.  That is less than 6 months away.

I do not know who put the bee in congresses bonnet about only allowing the credit on spirits you produce or process other than bottling, but I must believe that it came from industry sources, since congresspersons do not understand that level of detail.   Somone, that is, wanted to get an economic advantage over blenders, etc.  the regulatons are full of that.  It's the reason that whiskey standard of identity are such a damned mess

If you want to use imported spirits, then you must either become an importer - get a basic permit as an importer -  or hire an importer to do it for you.  

If you would like to discuss this further, send me a personal message.   I'm retiring but do not intend to become unavailable to talk with those who need help or advice.

And for the record, Mr. Flintstone is right.  You can make money bottling other people's spirits.  People were doing that well before I started getting involved in alcoholic beverage businesses some - say it ain't so but it is - 50 years ago come September.  Blending is an art too.