Joint Venture with local Brewery

[JakeH]

Hey all,

I wanted to see if any of you have had experience or any potential success stories in starting up a distillery as a joint venture with an existing brewery?  I've been researching several models and this seems to be the lowest barrier to entry.  The venue already exists, hopefully they have production capacity available to produce your wash.  Meaning all you should need is the actual still and associated equipment, barrels, etc. It would mean I would be able to focus solely on distilling and building the brand, potentially even tagging onto the success of their beer products if it made sense.   

From a capital perspective and from a mutual support perspective it is definitely attractive.  Just looking to see if anyone else has done it and how it all worked out.  

 

[bluestar]

You can do this. Although we did not start up doing that, and we still produce the majority of our spirits from grain-to-glass, so to speak, we decided to work with a local brewery to have them produce the wash for our malt whiskey. This arrangement has worked well for us. You treat the beer as materials for TTB production reporting, and you have to check with your state for how they want you to report the beer transfer and taxes.

[Foreshot]

If you search the forums you'll see the technical details on the transaction for the TTB. It's simple.

Good luck!

[JakeH]

Thanks guys.  Definitely helpful, lots of good stuff on here if you know what you are looking for that's for sure.  

 

[captnKB]

This approach can definitely work. A big challenge many breweries face is adequate space for enough fermentation, so make sure this brewery you are planning to work with will be able to feed you enough wash/beer to keep you distilling regularly. Also check with your state authority on this approach. Ive seen a few states where it was not allowed to distill wash/beer from a brewery

[Foreshot]

Others can chime in on this but I believe that the key is if the brewery pitches yeast or not. Once yeast is pitched it becomes something different to transfer as it would be considered beer at that point and tax would have to be paid. I'm doing the same thing with a brewery down the street from me. They will do my mashing but I will pitch yeast and ferment at my DSP. For wort it's considered raw material like grains. 

[JustAndy]

We've had breweries produce wash for us, and so have many of the distilleries in my area. The trouble gets to be finding a reliable partner, as wash production doesn't make the brewery much $$, so as soon as they have the opportunity to make (and sell) finished beer instead they will drop you to do it. I don't believe you need to pay any taxes if yeast is pitched, if there is alcohol in the wash when you move it you need to do a transfer-in-bond just like receiving wine. Easier to assume no alcohol has been created and it is raw material. 

[dhdunbar]

You can receive beer removed from a brewery without payment of tax.  The answer to that is found in the brewery regulations, not part 19.  "Sec. 25.201  Removal by pipeline.  A brewer may remove beer from the brewery, without payment of tax, by pipeline to the bonded premises of a distilled spirits plant which is authorized to produce distilled spirits and which is located contiguous to the brewery."  Yea,I know, pipeline, etc.  As I think I've explained on another thread in the past, at least once., the brewery regulations are hopelessly out of date on this.  A brewery can remove to any distilled spirits plant and it need not be done by pipeline.  The law on that change in 1997, or sometime around then, removing the adjacent and pipeline restrictions.  

26 USC 5222 (b)(2) - Under such regulations as the Secretary may prescribe, fermented materials to be used in the production of distilled spirits may be received on the bonded premises of a distilled spirits plant authorized to produce distilled spirits .... beer conveyed without payment of tax from brewery premises, [or]  beer which has been lawfully removed from brewery premises upon determination of tax.  The without payment of tax provisions is the one you would want to use.  The after payment of tax was used to receive, on DSP premises, taxpaid beer that had been removed from sale because it had spoiled or had exceeded its age date, , allowing it to be distilled for use, generally, as industrial alcohol.

The DSP then follows the rules at 19.296, etc...