Garrard County Distilling foreclosure not a product of industry softness

Wow, that happened fast!

According to a story in the Lexington Herald-Leader, Garrard County Distilling Co., (GCDC) a massive $250 million operation in Lancaster, Ky., is in receivership after only 14 months in operation. These are are but a few of the painful details reporter Janet Patton provided in her story about the company’s unfolding saga:

• Owners of the idled distillery, Atlanta-based Staghorn, owe Truist Bank $26 million, which sought a circuit judge’s help to appoint an emergency receiver.
• Staghorn has consented to the receiver, Aurora Management Partners Inc., which will take over the distillery, whose assets, according to Truist Bank, are “rapidly diminishing” because of the shutdown.
• Even worse, the distillery has an unpaid six-figure property tax bill, and unpaid contractors are filing liens on the property. 

$250 million committed and in just 14 months, it’s bankrupt! So what caused this rapid collapse? Soft sales in American whiskey? Over-extension on its investment? Hubris? Ignorance?

The answer is potentially a blend of all four with heavier doses of the latter two.

For sheer cost perspective, let’s make some easy comps:

Heaven Hill Distilleries planned to spend $135 million on its new Bardstown whiskey plant, but in the end, spent $200 million. Whiskey making began there a few weeks ago and the company will enter its 90th year of production later this year.

One of the world’s largest spirits companies, Pernod-Ricard, committed $250 million to building a Lebanon, Ky., distillery for Jefferson’s Bourbon. That plant is expected to be finished later this year.

In other words, well-heeled, big and veteran whiskey makers committed $200 million to $250 million dollars to new distilleries. Yet amid bourbon’s boom, a complete newcomer sits down at the table and matches their bets.

Risky, right? Put that way, it’s easy to ask, “Who didn’t see this coming?”

The general observer, for one. Staghorn built the 50,000-square-foot distillery quietly, without fanfare in Lancaster, Ky., a rural town with a population of about 3,900. As the distillery went up and rickhouses were constructed, GCDC sourced whiskey from Wilderness Trail Distillery to get products on shelves while its own whiskey was made (using two 45-foot-tall, 36-inch-wide column stills, no less) and aged.

In the Kentucky distilling community, news travels fast and gossip and hunches follow close on its heels. But only a few knew any details about “that big distillery in ‘Garrad’ County.” (Yep, that’s how it’s pronounced: you harden the G and drop the second R.)

As happens, the more that The Herald-Leader reports, the more people are talking, which brings us back to ignorance and hubris. By some accounts, the distillery’s owners were in over their heads financially and professionally. Despite other successful business ventures, they lacked distilling industry knowledge.

Of course, this isn’t the first case of outsiders viewing American whiskey making as a great business venture, jumping in and struggling, and we know it won’t be the last. But more commonly, those who’ve failed didn’t put a $250 million bet on the table.  

Which brings up another question: How many lenders have committed so many millions of dollars to start-up distilleries like this one? Will bankers who’ve enjoyed successful relationships with distilleries for years now think twice or thrice about lending to new enterprises, especially given the current pace of sales in American whiskey and general business paranoia regarding tariffs?

They know their business far better than I, but it’s likely that “caution” is more than a byword in these interesting times.

Until then, to anyone willing to enter the whiskey business with a new and turnkey distillery, one is soon to come on the market for a bargain price.