Washington state distilleries are caught in a classic Catch-22 that could prevent them from qualifying for much-needed coronavirus aid from the U.S. Small Business Administration (SBA).
To be eligible for the SBA funding, at least 33% of a tasting room’s profits must come from on-site sales such as tastings, cocktails or food. The catch: Washington state law prohibits the same businesses from making more than 30% of their profits from on-site sales.
“I really don’t think they intentionally said, ‘Hey, let’s figure out a way to hose distilleries in the state of Washington,” U.S. Rep Derek Kilmer said of the SBA rule. But that’s how it’s working out, he said.
According to the Washington Distiller’s Guild, the state is home to more than 100 distilleries, making everything from single malt whiskey to gin. Seven of them, including Heritage Distilling Company of Gig Harbor, are in Pierce or Thurston counties.
Heritage co-founder Justin Stiefel says he hasn’t bothered to look into the SBA program because he knows he can’t qualify.
“I would love to be able to access these funds,” Stiefel said. “I could accelerate my growth, I could bring back some folks that we had to lay off, we could make some investments in equipment and get ready for when the economy fully reopens.”
But so far, he said, “I haven’t even started to calculate it, because right now there is no point. I don’t qualify, so I don’t have time to spend the staff time and resources to calculate what would happen because right now we’re working on other things.”
At issue are grants from the SBA’s Restaurant Revitalization Fund, meant to address the loss of business from the COVID-19 pandemic.
Kilmer, a Democrat who represents the 26th District, sent a letter to the SBA requesting a change to the rule. It was co-signed by members of the state Congressional delegation from both parties, including U.S. Senators Patty Murray and Maria Cantwell.
“In view of this misalignment between state law and SBA criteria, we fear that Washington state distilleries will be ineligible from accessing [Restaurant Revitalization Fund] relief — which they so need and which the American Rescue Plan was designed to provide them,” the lawmakers wrote in the letter.
“We just have followed up to request a meeting with the SBA administrator. We’re continuing to put a full court press in the hopes of getting this fixed,” Kilmer said in an interview Wednesday.
Stiefel said the SBA rule could also impact businesses, including his own, in other states as well.
“Other states, like Alaska, distilleries are limited to three ounces per serving per day per customer. There is no way a distillery can generate 33% of its revenue on that small of a volume,” Stiefel said. “In Oregon, we have a distillery in Eugene, state law caps us at two and a half ounces per day. We don’t generate 33% of our revenue in the Eugene tasting room in the on-site tasting room. California is the same way.”
The impact could hit not just distilleries, but the broader industry. Stiefel is concerned that wineries and breweries will also be hurt. There are more than 900 wineries and 375 breweries in Washington, according to state commissions.
“The impact is going to be felt across the broader adult beverage space,” Stiefel said. “It’s just not the reality of the industry.”
Steifel said his own business is in pretty good shape. “We feel as though we have got access to resources to figure out what is necessary to stay alive,” he said. “But many in the industry don’t have the infrastructure that we have.”
Kilmer’s letter, with its bipartisan support, “sends a strong message,” Stiefel said.
Among other members of Congress who signed on are Democrats Suzan DelBene, Rick Larson, Pramila Jaypal, Kim Schrier, Adam Smith and Marilyn Strickland, and Republicans Jaime Herrera Beutler, Dan Newhouse and Cathy McMorris Rodgers.
Kilmer said the intention of federal relief was clearly meant to go to distilleries and that changes need to be made to make sure that can happen.
“What congress did was set up the program. It was a recognition that a bunch of small businesses, particularly those businesses where people consume food and beverage, have been really crushed by this pandemic,” Kilmer said. “In the American Rescue Plan, congress included this called the Restaurant Revitalization Fund and it actually mentioned by name distilleries as eligible entities for this help. They also have been very negatively impacted by this.”
“As we’ve spoken with folks about it, this is a pretty common-sense thing.”
“This is about jobs,” Kilmer said. “I could take you community by community in the district I represent. These are by and large small, family-owned businesses that provide important jobs.”
“We’re going to keep pushing so the relief that is needed by these small businesses gets there.”