Small Craft Distillery Discusses Uphill Battle with Reg Compliance
By Emily Theroux, Public Affairs Assistant
As the federal watchdog for small businesses in regulation, Advocacy makes a priority of visiting small businesses and hearing both their successes and challenges with federal regulatory compliance. Understanding the concerns and needs of small business owners in various industries is a crucial part of accurately representing the nation’s small businesses in the federal government.
On April 11, several interagency attorneys toured Murlarkey Distilled Spirits, LLC, a small craft distillery located in Bristow, Virginia. Founded in 2013 by cousins Thomas Murray, Mike Larkin, Jim Larkin, and others, the small craft distillery is the first of its kind in Prince William County. Despite craft distilling being a new venture for all founders, Murlarkey has already seen some great success with its products. Its ‘Divine Clarity’ Vodka recently won a gold medal at the Annual Craft Spirits Conference and Vendor Expo in Baltimore.
Above: Murlarkey Co-Owner Jim Larkin (far right) explains how various natural flavors are infused into the spirits during the distilling process. From left to right: Advocacy Interagency staff Janis Reyes, Stephanie Fekete, and Dave Rostker.
While the Murlarkey story is ultimately one of success and continuing growth, the team is no stranger to uphill battles and near debilitating setbacks.
“Most companies don’t make it,” CEO Thomas Murray explained. “If you don’t have a lawyer to decipher regulatory compliance and legal requirements, all of your time is consumed trying to figure things out for yourself, rather than focusing on developing your product.”
While many small businesses face similar challenges, the small craft distillery industry is further burdened with leftover post-prohibition-era rules resulting in a complicated business process.
“Most of our issues come from state regulatory compliance,” said Murray. “In the state of Virginia, a craft distillery has to have an Alcoholic Beverage Control (ABC) license to obtain stills. However, you must own stills to obtain an ABC license. It’s these types of difficulties that can end a business before it even gets started.”
In addition to navigating the many obstacles of state requirements, Murlarkey also has to comply with federal rules and regulations from the Department of Treasury’s Alcohol, and Tobacco Tax and Trade Bureau (TTB). Mike Larkin explained that there is no guidance for how to achieve full compliance with all federal regulations in this rising industry. The team agreed that extensive legal assistance is required to properly implement even the simplest of provisions, let alone to fully understand the complicated ones.
Above: Larkin discusses the different distilling processes for various spirits. Small craft distilleries often encounter regulatory compliance issues when obtaining licenses to operate stills.
Another area of difficulty the team faces is tax compliance. They explained that their product is taxed on every proof gallon, even if the gallon is experimental and not intended for sale. A proof gallon is a gallon of liquid that is 50 percent alcohol with an adjusted tax depending on the percentage of alcohol of the product. This tax is extremely burdensome and falls heavily on the producer. Murlarkey suggests the TTB look into providing tax breaks or incentives for small distilleries trying to break into a market dominated by a few major brands. The team commends TTB for its accessibility and increased online assistance services.
As developers of the craft distillery industry in Virginia, the Murlarkey team aims to pave the way for future distillers so that they might face fewer setbacks. While the founders of Murlarkey, Distilled Spirits, LLC take great pride in their success story that beat the odds, they will continue to face challenges in regulatory and tax compliance until some breaks are made for small businesses in the growing industry of craft distilling.
Emily Theroux is the Office of Advocacy’s public affairs assistant and can be reached at email@example.com.