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To call brewing, distilling and the at large alcohol industry the quote unquote spirits business makes it sound almost celebratory, almost religious in nature, and certainly fun.

And all of those things are true.

However, don't underestimate the highly competitive nature of it, as it faces some of its strongest trade and production headwinds over the last several decades.

Hello, welcome again to the most widely watched and the longest running dialog on Carolina business policy and public affairs seen across North and South Carolina for more than three decades now.

Thank you for supporting this program.

As we head into the holidays.

Alcohol sales are popular, but as popular as past years, trends tell a different story.

And what is different this year and going forward?

Well, as it turns out, there is a lot different.

We have a panel of experts in the business, and we will unpack the issues and begin right now.

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Welcome to brighter banking.

And, Martin Marietta, a leading provider of natural resource-based building materials, providing the foundation on which our communities improve and grow.

On this edition of Carolina Business Review, Christina Hall, Ashley of Ginger revenge, Bruce L Tyler from Weldon Mills Distillery LLC, Trey Boggs from Palmetto Distillery, and Matt Bowes of the Southern Growl Beer Company at South Carolina Brewers Guild.

Hello, welcome again to our program.

I almost want to say Happy Holidays because I know this is a good time for y'all, but welcome.

Glad to have you back.

Trey.

You were here a few years ago when we wanted to unpack what was going on and spirits and alcohol.

And then a minute.

Yeah, yeah, it's been a minute, but we're glad you're back.

Christina.

We're going to start with you for, for better or for worse.

But that's because you're your closest.

So, more breweries have closed than open now, is that is that a trend?

Is that.

Well, it's a trend, but clearly.

Is that does that spell something different?

Well, I think the industry has changed a lot over the last decade.

We opened our business about ten years ago.

And, you know, at that time craft beer was booming.

Craft cider was booming.

But, you know, consumer demographics have changed a little bit.

Nonalcoholic has become a lot more common.

We also see THC and CBD beverages.

So there's just a lot of change in the industry right now, not to mention the impact of the pandemic.

Yeah.

Jeff is at a tipping point.

Wait a minute.

did I get that right?

Yeah, bro.

Sorry.

You know, all these things run together.

Bruce, is it a tipping point?

Do you see this opening?

Closing?

You know, from my perspective, I feel there was a slight market adjustment with the growth of all the breweries and then the recession of it.

But I feel like that kind of stabilized on the brewery side.

We on the distillery side, we have that growth that the breweries had ten, 15 years ago.

So we're still on a trajectory up.

But that's also being stifled by the market conditions that you just mentioned.

This is is this is this a, is this a maturing of the industry?

I mean, that's exactly what I was thinking.

The brewing and distilling industry has absolutely matured.

And we're not in the boom phase anymore.

And part of that maturing industry is sure some places are going to close.

So the places that the breweries and distilleries that are going to stay open are the ones that are committed to curating, the customer experience and really, making our taprooms, desirable place where people want to come and celebrate.

And they truly are that community gathering spot.

And if you don't put a priority on the community and being a part of it, well, people aren't going to come out.

They can see straight through that, is there?

Trey, is there a difference between distilling the the liquor business, the brewing business?

Do they track each other pretty closely?

Well, taxes are a lot higher.

We get slaughtered.

That jar, you know, between the distributor, the retailer, and then you pay tax on your income to come in and buy.

I pay tax on getting it to the distributors.

A lot of tax.

And 15 years ago, when we started selling, I was first legal moonshine.

You could make it fast enough.

And I think this Mark Cuban said it best.

You got imitators -- or you got innovators, imitators and idiots.

And the pod just kept getting smaller and smaller.

And just because you could Google a cookie recipe don't make you Betty Crocker.

You know, there's an art there.

There's an art to what they do is art.

What you know, we all do.

And if it's good, if you got a great location, high traffic, then you're going to move product whether it's bad.

But if you're in the middle of nowhere, you got to make a good product.

You know, Matt, you said something interesting,.

Christina, I want to bring you back into this because you're from Asheville, and Asheville is classically known as a community of gathering for better or for worse.

It's where things happen, where people get together.

Is the business that you're in more about, you just call them pubs and they are called pubs, but it's a public house.

It's a gathering.

It's a community center.

Is that is that core to what you do?

Absolutely.

I mean, community is a huge part of what we do.

And, you know, we wouldn't have survived the the pandemic and hurricane Helene without our community.

So it's a gathering space for people.

It's where people can connect.

I mean, they're coming in to experience our products, to experience community together.

And Asheville's really well known for that.

Does, Bruce.

Yes, sir.

Not Jeff.

Bruce is the distilling?

Is the spirits?

Is the bourbon?

Is the Scotch?

Is the whiskey business?

Is it the same?

As a beer business?

No, I mean, it's different in that we have consumers there, some overlap on consumers, but we have different kind of consumers.

A great case in point is during Covid, you had this massive bourbon boom, right?

And you had these folks going out chasing these Bourbons and and collecting them.

And, and there was a huge increase in production.

And now post-Covid, you had this big bump on the on location side of things, but now we're catching up to all of that.

Covid production is now coming mature.

So now there's a lot of bourbon on the market.

Our variables are a little bit different.

Our distribution is a little bit different.

So beer and wine, they have different distribution rules.

Liquor especially in North Carolina we're controlled state.

So we've got to go through the state here.

And we have a warehouse that we have to go to.

We have to compete to get listed.

We also have to get our own products placed in each of the stores.

Whereas in Virginia, you know, you go to Virginia, you get a product listed, there's automatic placement.

We've got to go back in North Carolina for placement.

Fortunately, most of the ABC store managers and general managers are great to work with.

They want to give North Carolina products a shot, and a controlled state is a great place as an incubator for distilleries.

But our getting our products to market is pretty difficult because at the end of the day, those stores still need to be profitable and a North Carolina product doesn't sell like a national product because national products have millions of dollars getting in, getting into the marketing aspect of that so you can make the best thing in the world.

For instance, with every spirit we make best bourbon, best tequila, best best vodka, best gin, best flavor of each of those categories.

Right?

We we know we make a great craft product.

We're going up against millions and millions and millions of dollars of marketing.

So it's tough to let people know that we have a really good product.

When you hear Bruce talk, you're in South Carolina.

He's talking about North Carolina.

Is there a lot of the same applicable headwinds or is it easier in North Carolina?

No, way harder.

You get so many different counties versus South Carolina.

When you're in, you're in, you know, North Carolina.

We've got so many people it well back up in 2013 and 14, we went across 26 states and Canada.

Over in the UK, we're going to lose our mind because we're not Jack Daniels.

We're not Jim Beam, you know?

we've got a little bitty small company and we're just trying to spread ourselves.

Then we just reversed or like there's millions of people coming right here to the Carolinas because we're just so dang friendly.

I said, sell them a bottle of moonshine.

Yeah.

Well, versus a Laffy Taffy or a hermit crab in Myrtle Beach, why not give them a jar of Moonshine.

So we sell a lot less is more and so.

But it's what every all of us have in common is getting your name out.

Because nobody knows where you are, who you are.

Unless they try.

They're not going to know where you are.

Yeah.

And in North Carolina we're, you know, still prohibitive state our our statute first says it's prohibited unless you get approved.

I mean and if you look at the traditional mindset was beer is food, wine is sacramental, and liquor is the devil, Right?

So we're having to overcome that from the liquor side of things.

It's very, very difficult.

Plus we have a 30% tariff on our products.

It doesn't matter if it's a 150, $200 bottle or a $25 bottle.

We have a 30% tariff.

Okay.

That's an excise tax on that.

Now, beer and wine, they have a proof gallon.

So that's based on your proof, which is more in line with the federal government and which is how we all and the industry track our taxes.

But in North Carolina, with that 30% excise tax on our liquor, you can make the same proof product.

One is a higher quality, but you're getting charged 30%.

This is not a court of law, but do you want to take any issue with what the what the liquor guys are saying about?

Yeah, absolutely.

And I don't disagree.

They are paying more money.

But I says brewers also are.

Yes.

In South Carolina.

Well I keep saying the excise tax on beer it is per gallon but it's $0.70, $0.77 per gallon in South Carolina, which ranks US fifth nationally and North Carolina is sixth nationally.

The liquor, excise tax is even higher, and it's still ranked similarly.

Yeah.

Compare that to say, cigaretts, which are $0.57 excise tax per pack compared to the national average, which is $2 per pack.

So, you know, it definitely seems like there's a Mitch amidst a mix match of, what we, the industry, craft consumers are interested in and what the, you know, legislature is actually putting forward and how they're tax.

Yeah.

Let me stay with that.

Christine.

Does Matt bring up a good point in the probably not a fair way to say it, but is that because the cigaret lobby was way ahead out in front of a liquor in the beer lobby?

I mean, it's hard for me to say.

You know, I think we all struggle with the impact of the layers of taxes that we pay.

Right?

Excise is just like one piece.

But that's not surprising, though, right?

You knew that going into this business, that it was going to have that kind of headwind.

Absolutely right.

Yeah.

And I mean, the excise tax is a small piece of the overall, you know, pie.

But again, like I said, our breweries are taprooms are the community gathering spots and a savings where we can get it, especially towards tax dollars, is going to be reinvested into the taproom, which means reinvest it into bartenders, cooks, having local musicians out to perform in our taprooms, having local artists host community classes.

Those are the things that we do in our tap rooms.

And where else are you going that does that?

So why are we, as breweries, being treated differently than a restaurant or bar right up the road?

Those open and close all the time and people don't make a big deal about it.

But when a brewery closes, oh, it's a bubble.

It's a boom.

It's it's coming to an end now.

It is a maturing industry.

There are challenges, but there is a bit of a double standard.

So Bruce said something about tariffs today, and tariffs of course Trump administration has been famous for for applying tariffs in a new way.

And then you've got Canada, opposing any kind of import from us spirits or beer.

Talk about a little bit about the tariff and about the import for, the lack of imports into Canada.

Yeah.

Canada.

And you're getting it to those guys.

We only have a small amount that goes over there.

You know, you really spread yourself really thin, but, you know, there's no way to go over there and do a liquor store rotation over there.

They drink in pubs, you know, whereas here we go to liquor stores for the most part.

But we really focus on South Carolina.

If there's other states that put in orders will support those, will do, you know, events worthwhile doing them?

But in the beginning it was just spreading yourself like a shotgun.

You know, you just couldn't control the chaos.

And what about the tariff?

What about the larger tariffs.

The ones.

You know.

So so the larger tariffs, when we look at tariffs that affects our inputs.

Right.

Because a long time ago with globalization the world decided to make China its manufacturer.

Right.

So with that we might have a U.S.

manufacturer that we're sourcing stuff from.

But a lot of their stuff comes from China, their parts or this, that and the other that help, you know, help them manufacture our inputs, bottles, caps, labels, whatever the case may be.

So we do have a trickle down effect of that coming to.

And some of those inputs are increasing in price.

But overall I feel that that has less of an impact on us than our excise tax and our taxation.

You know, we get taxed on everything.

We have a chance that cherries taxed on if, if we, every, every, the federal government gets for every, every bottle we produce, every gallon that we produce, they get their taxes, the state gets it's 30%.

We pay payroll taxes, we pay all of these taxes.

And if we're lucky enough to make any money on the back end of that, that's taxed as well, right?

So it is a highly taxed, highly regulated industry.

We're all on the craft side of it.

We're all same team, same fight.

We're just trying to get a piece of that bigger pie.

But those different things such as taxes, cost to market, customer awareness, those things impact us more because we're dealing with such a smaller scale.

We're just small businesses, right?

We've invested our money into these businesses trying to survive in an industry that's built for the big boys.

Yeah, three tier system really has an effect on that, right?

Three tier system is was designed a long time ago to actually kind of preserve us.

So the three tier system, when you're dealing with alcoholic beverages, you have to have a separation at your manufacturer, your wholesaler, your distributor and retailer.

So they designed that because back in the day, you know, pre-prohibition what you had was the big manufacturers pressuring the retailers and having their own tied houses, bottle shops, that they were creating all this predatory practices to get people to buy more alcohol, created a bunch of drunks, created all these problems.

Then you got prohibition that came afterwards and said, okay, when we come out of prohibition, let's change this up a little bit.

Create a three tier system, say throw another tier in there, which is the distributor.

And that distributor became this big, huge monster unit of itself.

And so this three tier system that was supposed to help the smaller guys be more competitive, actually push the smaller guys down, because for us to get picked up by a big distributor, that's not an easy thing to do.

All right.

Let let me let me zoom out a little bit.

Let me go here to the brewing side and ask you this.

There are two big macro things going on.

The fact that, adults are not drinking as much.

There is a drop in that.

And then the other thing is there's cannabis infused beer now.

So with those two very what seemed to be large, long tail dynamics, how does that change your strategy about brewing and distributing and selling?

Yeah, I mean, I think a lot of breweries are diversifying and, you know, becoming beverage companies and making different types of beverages, whether it's hard seltzer, whether it's THC or CBD infused products, nonalcoholic products to try to appeal to a wider consumer base.

With our business making our ginger beer, it's not a common product.

And we kind of have decided to stick with that.

We make a few nonalcoholic products.

It's important for us to offer that to, you know, our consumers in our in our tasting rooms for that community aspect.

But I think, I think, you know, berries are really trying to figure out how to appeal to the different consumer tastes right now.

And people used to be kind of like, I'm a spirits drinker, I'm a wine drinker, I'm a beer drinker.

And now it's kind of all over the map.

Yeah, it seems like the end product.

Let me stay with you on this just for a second.

The nonalcoholic product has a THC infusion.

That's that's becoming part of it.

So it's almost like I'm not going to drink the alcohol part, but I'm pardoned for the phrase.

But I'm still going to get a buzz when I drink this.

And are you seeing that?

Yeah.

It's both.

I think it's people who are who are choosing nonalcoholic, you know, functional beverages that might have health aspects, our potential health aspects.

And then there's, you know, the other side, which is kind of THC, CBD, you know, there's a little bit of a wild West right now, you know, a lot of innovation happening.

But there's also, you know, attempts at regulation to to make sure that people are staying safe.

And so there's just this a lot of, you know, innovation and disruption happening.

In North Carolina.

Especially in North Carolina.

Carolina, with their pants down on that.

One.

We're gonna.

Matt, THC cannabis infused Wild West.

Is that a good one?

Yeah.

I mean, you know, personally and from our perspective at the Southern Ground, our flagship is beer.

That's what we're based on.

We were talking about being in advance this round.

We've got four of 204 in the world.

And explain what a cicerone is.

Basically to beer expert.

So it's the three of four.

There's a there's four levels total.

We have, three advanced this runs, which is the third level.

It's an eight hour exam that involves tasting, demonstration, history, brewing and pairing and kind of everything.

And I knew guys in frat houses in college just runs.

It's like it's drinking and thinking.

We we all are very similar.

So kind of hard to practice when you're doing that as a shotgun thing.

But we our business is beer.

So even with more challenges and diversification in the market, we're going to stick with beer.

Beer is the oldest alcoholic beverage in existence.

You know, there's a reason that it's still around and it's not going anywhere anytime soon.

We did see, a huge boom in the industry, a lot of people getting into it, starting as home brewers and thinking they can move into the manufacturing and the commercial side of things.

Sometimes that works, sometimes it doesn't.

It's a very complicated business with very slim margins that you have to be educated on the business side of things in order to succeed.

But, from the educational side of things, it's important for us to know our beer, take a test, and have that certification, because we want to make sure we know when objectively good beer is in order to make subjectively good beer again.

I'm not going to ask it.

Well, but I think you're going to understand, is a THC cannabis infused beer a fad?

You know, do you see it becoming a big thing, or is it going to be?

Oh, by the way, we do have this, you know, this redheaded stepchild here.

Right?

Yeah.

I mean, we'll we'll definitely see, you know, everything kind of competes, with with the other segments of the market, from beer to wine to, ready to drink cocktails, which is really the big thing that the canned cocktails, and THC.

Absolutely.

I think, here in the next couple of years, we're really going to see more of a crackdown on the, legality of serving THC because you can serve a THC beverage or delta nine derived THC beverage in a taproom.

And serve people alcohol, and then allow them to leave your taproom and go out and drive.

So, I think we're going to see more of a crackdown on that.

We personally do not, sell any of the THC beverages because of that viability reason.

But, yeah, it's definitely eating into some of the market share of beer, but you gotta make good product and you gotta have people desire it.

Now, on this, it's not like THC and marijuana came out of nowhere.

It's always been around.

It was here back when we were colonies.

It was before we were a country.

Right, folks were using both hemp and marijuana, THC back in the day.

Then it became regulated and illegal in a lot of places.

Now there's an emergence coming back.

However, during that time, people were still using it.

You're going to have folks with preferences.

Right now it's opening up like North Carolina.

They didn't regulate it.

So when the federal format came out, they got caught unaware.

And now now there's now you got to technically, legally.

And this is why Governor Stein got upset and came out and said, you got a five year old can come up to a counter and buy a pre-rolled thc cigaret, right.

Or a THC drink.

So, this is just it's wide open.

It's new, it's fun.

It's great.

You know, it's like ozempic you got a lot of kids and China take ozempic and eat gummies instead of drinking at restaurants.

This stuff is all going to work itself out, and it'll have its place in the market.

Beer has its place.

Wine, liquor.

People have their preferences and everything will correct.

I believe in the law.

So it's early days.

Kentucky's done a pretty good job at the Bourbon Trail.

Yeah.

Can you do that?

Absolutely.

Can the Carolinas do that?

Perhaps started in the Carolinas?

Yeah.

Bourbon did very welcome to call it.

We can call it anything.

Call anything.

South Carolina, North Carolina.

Yeah.

They work together all the way through Virginia, and tie everybody together because that's if you don't have a great location, but you get a great product, people can't find you.

And that's back to what he was saying earlier with the three tier system is not just the bottleneck of the wholesale or the distributor is we're paying outside salespeople to go help them move our product or it's going to sit there.

And so it's got to be some type of minimum to where the little guys can have a chance, whether to go sell direct to the stores and then the big guys or there's not so much in the warehouse.

I remember when we first started 15 years ago, I walked into this, the VP of I won't say the name distributor, and, I'm thinking I've got lightning in a bottle.

Everybody needs it.

And I'm thinking, how many tractor trailers do you want, sir?

And he sit back and he goes, son, I got a warehouse full of dreams behind me.

And not only just crush my soul, but I was like, so you're not going to buy a tractor trailer?

I got a real eye opener to how much warehouse and how much space and storage, and they're bottlenecked.

I mean, and then that was 15 years ago.

Now it's only worse because the pies chopped up so many more times, especially in North Carolina, North Carolina, you know, $1.9 billion market last year.

Right.

They're making the money to pay for a new warehouse.

They don't have a warehouse.

They put another warehouse in.

So products getting touched five times.

But what effect that has had on the local products is that said well guess what.

There's no new listings.

You can't bring a new product to the market.

You just can't.

And the ones you have, you've got to be able to sling it more.

So we've got it.

We got about a minute and a half left.

You're expecting the holidays to be good for sales this year comparatively hopefully.

I think you know in Asheville in particular, we're really hoping for a strong fall season.

Since, you know, so many businesses were drastically impacted by Hurricane Helene beyond that.

And not not to minimize that, Christina.

Beyond that, do you see fall season in in western North Carolina mountains.

Better than last year?

I'm very optimistic that will be better than last year.

Matt, what about you?

Yeah, I absolutely think it's going to be better this year.

Than previous years.

One, it's been several years coming off of, you know, Covid and all of that, but also with the increase of tariffs on foreign goods, people are going to want to buy local things.

So we are all stocking up our merchandise in our tap rooms, and making sure that there's, there's things that people can take home and, and give out Christmas gifts.

So.

Absolutely.

Yeah.

Thank you.

And you know, I want to say this because this is no small thing, but you all travel.

Every one of you travel to get here.

So we're grateful for that because that's you've took it taking a day out to do that.

So thank you for driving in because I know you all did and we all know how traffic is around the metros these days, so we appreciate that as well.

But thank you.

Jeff.

Not Bruce.

Bruce, not Jeff.

Thank you.

Either way.

I'm good.

Trey, good to have you back again.

And I saw you your product.

So thank you.

Drink that will make more mess.

Matt, nice to see you.

Christina, thanks.

Thank you.

Till next week I'm Chris William.

Goodnight.

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