Before I jump in, some people have articulated that selling or trading whiskey for collectability is perfectly legal.  I don’t agree, but I’m not giving anyone legal advice, and if any reader has questions about it, I encourage consultation with counsel.

With that out of the way, I was asked recently, by someone who had already heard that selling Bourbon on the secondary market is illegal, whether tradingbottles could avoid those problems, and it got me thinking about how to fix the secondary whisk(e)y market in the United States.  Then yesterday and today, the secondary market was rocked when Facebook shut down popular Bourbon trading and sale groups, emphasizing for me that there needs to be a legal outlet for selling and trading rare bottles.

Spirits are highly regulated, of course, and can only be sold in accordance with state regulations, which most often involve the “three tier” system of producers, wholesalers, and retailers.  Those regulations have driven whiskey sales into an unregulated secondary market.  While secondary market sales occur everywhere that Bourbon enthusiasts outweigh supply, sellers are taking a risk that somewhere, some day, local authorities will decide to enforce laws that make these types of sales illegal.  In Kentucky, for example, KRS 243.020(1) requires a license to sell alcohol under any circumstance whatsoever:  “A person shall not do any act authorized by any kind of license with respect to the manufacture, storage, sale, purchase, transporting, or other traffic in alcoholic beverages unless he or she holds the kind of license that authorizes the act.”

The Kentucky statute does not expressly use the words “trade” or “barter,” so some consumers might stop there, without checking the definition section applicable to Chapter 243.  The definitions provide that the word “sale” “means any transfer, exchange, or barter for consideration, and includes all sales made by any person, whether principal, proprietor, agent, servant, or employee, of any alcoholic beverage.”  KRS 241.010 (49).  In other words, at least in Kentucky, trading Bourbon is just like selling it.  The realquestions are whether the authorities will ever care about small-scale consumer-to-consumer selling and trading, and whether the risks – like being the test-case or getting a fake – are worth it.

Minor reforms in existing laws could provide a relatively simple solution.  Yesterday I suggested to a Kentucky State Senator that Kentucky could leap to the forefront of a new white market by creating a legal, taxable, verifiable clearinghouse for the sale of rare whiskey.  A new category of license could be created to permit sales from non-licensed people to a clearinghouse licensee, which could verify and authenticate the bottle, and then sell or trade it in an online market (we might have to change shipping laws, too, but let’s take this one step at a time).  Authenticity and purchase prices could be determined by trained examiners, and other proof of authenticity (like an original retail receipt) would help consumers demand the best price for their Pappy Van Winkle, Willett Family Estate, and other hard-to-find limited edition whiskeys.

This would allow consumers – and even the dreaded “flippers” – to sell without violating the law, and it would reduce every black market buyer’s very real concern of counterfeit whiskey.  Plus, clearinghouse licensees will be competing against each other on both paying top dollar to acquire the best selection of rarest Bourbon, and on the prices they charge for re-sale, along with competing on managing those margins and training employees to avoid fakes.  This combination of the free market and sensible regulation would bring the secondary market out of the shadows and Facebook wouldn’t have to aggravate its users by closing private groups.

What do you think?  Could this work?

When families have members in the same line of business, it’s natural to compare and rank them, sometimes unfairly.  Despite his success, Eli will always be the “Lesser Manning;” due to his lack of success, Daniel will always be the “Lesser Baldwin;” and Zeppo will always be the standard-bearer as the “Lesser Marx.”  This is especially inevitable when one family member excels in the spotlight, like Peyton, Alec, and Groucho.

The Samuels family is one of Kentucky Bourbon’s Royal Families, with commercial distilling beginning with Taylor William “T.W.” Samuels in 1840, and farm-distilling before then, as early as 1783.  The Samuels line of commercial distillers is unbroken through six generations:  T.W. Samuels (1821-1898), William I. Samuels (1845-1898), Leslie B. Samuels (1871-1936); Taylor William Samuels, IV (“Bill, Sr.”) (1911-1992), Taylor William Samuels, V (“Bill, Jr.”), and Rob Samuels, even though Prohibition and breaking off to form Maker’s Mark both resulted in some down-time.

According to the National Register of Historic Places application for the T.W. Samuels Historic District, T.W. Samuels had a younger cousin in the business, W.B. Samuels.  W.B. Samuels started the W.B. Samuels & Co. distillery in 1869, located at Samuels Depot on the L&N railroad, a stone’s throw away from the T.W. Samuels Distillery.  Samuels Depot has other fame (or infamy) as the final hideout for Frank James before Sheriff T.W. Samuels arranged for him to surrender at the end of the Civil War.  Decades later, a trio of cases from the early 1900’s – Edelen v. W. B. Samuels & Co., 31 Ky. L. Rptr. 731 (1907), T. M. Gilmore & Co. v. W. B. Samuels & Co., 135 Ky. 706 (1909), and W. B. Samuels & Co. v. T. M. Gilmore & Co., 142 Ky. 166 (1911) – tell the story of the demise of W.B. Samuels & Co. after W.B.’s death.

W.B. died from typhoid fever in July 1902, at which time the stock in his company was transferred to his wife and his son.  His wife and son continued to run the distillery, but apparently haphazardly.  So in 1906, they agreed to sell their aging Bourbon, the distillery property, and the business itself, through a Louisville broker, T. M. Gilmore & Co.

However, almost immediately, they had seller’s remorse and tried to find a way out of the deal.  Their solution was to argue that W.B.’s widow (referred to only as “M. A. Samuels”) was strung out on drugs and didn’t have the capacity to enter into a contract.  Specifically, they argued that M. A. Samuels “was in poor health, and had been for some time, was much of the time confined to her bed, and … was so weakened and enfeebled by the continued and protracted use of morphine that she did not know and understand what she was doing.”

Despite the apparent truth that M. A. Samuels had been addicted to morphine for many years, and despite testimony from physicians of her mentally-weak condition, M. A. Samuels testified herself that “she knew and understood what she was doing” when she signed the contract with T. M. Gilmore & Co.  As expected whenever a star witness contradicts the defense raised by her own attorneys, the court ruled in favor of the broker.

The W.B. Samuels & Co. distillery was eventually sold and later was dismantled during Prohibition, never to return.  Despite extensive searches in public online resources, I could not find any photographs of W.B. Samuels & Co. distillery or the man behind it, so if it weren’t for these lawsuits, the W.B. Samuels side of the family would have been completely lost to history, and we wouldn’t be able to contrast them with the rock-star side of the family.

The process of converting grain into distilled spirits requires a tremendous amount of grain, and therefore, creates a significant volume of “slop” – the material remaining after fermented mash has been distilled – as a byproduct.  A more attractive name often used after most of the water is removed from the slop is “distillers grain,” or the more Agri-Science-sounding name of “distiller dried grains,” with its acronym, “DDG.”

Although most of the starch is removed from the grains, practically all of the protein, fat, and fiber remain in the slop.  (Slop is alcohol free, so the laugh-lines used by some tour guides about “very happy cattle” are just jokes.)  Slop from a traditional Bourbon mash bill will have a higher fat content because of the corn, and therefore, slop from early Kentucky distillers became recognized as a valuable source of livestock feed.  With the high capacity of today’s distilleries, anyone who has taken a tour has probably heard that the distilleries allow local farmers to haul away distillers grain, free of charge, for their use in feeding livestock.

In the early days of farmer-distillers, distillation runs were small enough that the slop could be used for the farmer’s own livestock.  Even as distilleries grew into commercial enterprises, they often maintained livestock as a secondary source of income, or leased adjoining land to farmers, and used their built-in supply of slop for feeding the livestock.

However, as America and distilleries continued to grow together, and as the pace of distillation increased with larger stills and the introduction of column stills, the production of slop outstripped the immediate needs of the distiller, and sometimes of the local community.  Slop was often piped into waterways or sewers, or retention ponds overflowed into waterways, polluting rivers, killing fish, and creating an awful stench.  This put Bourbon on the front line of conservation and preservation efforts in the early 1900’s.

As early as 1904, in addressing slop from the Peacock Distillery in Bourbon County that polluted “Stoner Creek,” the Court of Appeals of Kentucky ruled that “Every person must use his own property and conduct his business with regard to certain rights of his neighbors.”  Peacock Distillery Co. v. Commonwealth, 25 Ky. L. Rptr. 1778 (1904).  Theories of land-use rights in the United States had previously stressed the right of landowners to use their land and resources however they saw fit; Peacock Distillery shows the emerging trend that balanced individual rights with the common good.

Kentucky Peerless Distilling Co., which was recently reborn in Louisville, gave its original home of Henderson, Kentucky, its share of water problems in the early 1900’s.  As explained in a trio of cases, City of Henderson v. Robinson, 152 Ky. 245 (1913), City of Henderson v. Kentucky Peerless Distilling Co., 161 Ky. 1 (1914), and Kraver v. Smith, 164 Ky. 674 (1915), Kentucky Peerless and its owner, Henry Kraver, were accused of polluting Canoe Creek with distillery slop so severely that “the waters of the creek were thereby made so impure as to render them unfit for use as stock water, cause them to emit foul odors, and so poison the atmosphere surrounding the creek as to endanger the lives of each of the [plaintiffs], his family and stock, make their houses at time uninhabitable, and depreciate the value and use of the real estate along and contiguous to the stream on which each resides.”

Similar lawsuits were brought against the Eminence Distilling Company in Henry County (Thomas’ Adm’r v. Eminence Distilling Co., 151 Ky. 29 (1912)) where a boy’s death was blamed on falling into and accidentally swallowing water from Fox Run Creek, the Commonwealth Distillery in Fayette County (Kentucky Distilleries & Warehouse Co. v. Commonwealth, 24 Ky. L. Rptr. 2154 (1903)), and the Walsh Distillery in Bourbon County (Commonwealth v. Kentucky Distilleries & Warehouse Co., 154 Ky. 787 (1913)).

 Despite some missteps along the way, early Bourbon distillers proved that they could handle this major environmental risk.  And today, while the primary use for slop is still livestock feed – which distilleries can probably claim is the greenest solution of any industry in response to such a voluminous byproduct – Bourbon distilleries are still innovating.  For example, Maker’s Mark uses slop as a resource of renewable energy, through an anaerobic process that converts the organics into biogas, which is used as fuel for its boilers to offset natural gas usage by up to 20%.  With innovation like this, we can expect Bourbon distilleries to be leaders in sustainable industry.