Bees, Bourbon and Business

Amid 55-gallon drums of raw honey, shelves of specialty mustards and jellies and straws of flavored honey stacked inside Honeyville’s facility north of Durango, four oak barrels hold something a little bit different – bourbon.

The barrels and the golden liquid inside are the property of Honey House Distillery, a separate business co-owned by Honeyville owners Danny and Sheree Culhane, their son Kevin Culhane and a friend, Adam Bergal.

After 2½ years of planning, experimenting and tasting, the distillery is swinging into production mode. It rolled out its first batch of honey bourbon whiskey in January using, of course, Honeyville’s honey.

The company rolled out the whiskey during St. Patrick’s Day weekend at the Irish Embassy Pub, and began selling its first 500 special-edition bottles at the Honeyville store this week.

Kevin Culhane and Bergal will be the first to admit that there is one key element absent from their setup.

Stacks of 55-gallon drums of honey wait to be used in specialty products such as jams, jellies and sauces at Honeyville. Now, a separate but related business, Honey House Distillery, will use the honey to make honey bourbon.

They have yet to purchase a still to distill the whiskey, so for now they are importing bourbon from a distiller in Kentucky.

They are in the process of designing the $200,000 custom-made copper still, but quickly found out that getting a loan to buy the device was next to impossible until they had established a capable, revenue-generating business.

The multi-year aging process required for bourbon means they’ll have to import the whiskey for at least the next three years, but they plan to start self-distilling and selling other alcoholic beverages sooner.

Their plan to install a still is also contingent upon Honeyville completing a new facility that will replace its current building, Denny Culhane said.

The new building will be three times the size of the old one and will allow for Honeyville and Honey House Distillers to expand their operations. It will include a tasting room for the distillery, he said.

The business’ owners believe Honeyville and Honey House Distillers will help each other by attracting a broader base of customers than one business could have done on its own.

Bergal and Culhane said they expect their retail profit margins to be about 52 percent on bottles of bourbon sold at Honeyville.

Just getting to this point has been a lesson in patience and perseverance, Kevin Culhane and Bergal said. They decided to plunge into the distillery 2½ years ago, and have had to wade through a mountain of paperwork and statutory requirements, Bergal said.

“I realized why many people aren’t doing it,” he said.

Adam Bergal, back, and Kevin Culhane, co-owners of Honey House Distillery, are blending bourbon with honey. Honeyville eventually plans to build a new home, three times the size of the current building, to house both Honeyville and Honey House Distillery.

Federal law requires distillers to have their entire operations production-ready before they are issued a distilled-spirits plant permit, which means startups have a lot of up-front costs, said Andy Causey, vice president of the Colorado Distillers Guild.

The licensing process also requires distillers to post a bond equal to the amount in excise tax that they would have to pay on all the alcohol stored in the distillery. And the excise-tax system isn’t tiered as it is in the brewing industry, meaning the smallest distilleries pay the same tax rate as the largest ones, Causey said.

State licensing procedures also are extensive, requiring state approval of all information on the product labels, Bergal said. It took a year to get both licenses.

A spirit such as whiskey adds another challenge because the aging process means a distillery can’t begin generating revenue on its product until several years after it starts operations.

“With our Double Diamond whiskey, we will have paid for ingredients, labor and production of whiskey almost two years before (we’re) able to sell that whiskey,” said Causey, who is the president of Downslope Distilling in Centennial.

Everything involved in the process means startup distillers need to be prepared for a lot of preliminary work.

“I remind people to keep their day job because it’s going to take you two years to open,” said Bill Owens, president of the American Distilling Institute.

Such challenges haven’t hampered a growing number of startup distilleries in Colorado and nationwide.

The craft distilling industry has soared during the past several years, with almost 500 distilleries slated to open by the end of the year, Owens said.

Owens said the craft distilling industry is growing at 30 percent annually, bounding ahead of the craft-brewing industry that logged a 15 percent growth by volume in 2012.

Adam Bergal, left, and Kevin Culhane, co-owners of Honey House Distillery, are blending bourbon whiskey with honey from Honeyville.

There are 42 distilled spirits plant permits in Colorado of which more than half have been issued in the past four years, Causey said.

The freedom to experiment was one element that attracted them to distilling, Culhane and Bergal said. They’re already thinking beyond the honey-bourbon blend.

“With the distillery, the sky is the limit in terms of creativity – how you ferment, the blend, what you ferment it with,” Culhane said.

Next, the men said they have their sights set on a wildflower gin.

ecowan@durangoherald.com