The Samuel Adams of whiskey

Americans' new obsession: Craft whiskey
Americans' new obsession: Craft whiskey   

When Ralph Erenzo and Brian Lee started making small batches of whiskey in a Gardiner, New York, barn in 2005, the craft spirits industry in America didn't really exist.

"There were only about 10 small distillers in the country when we started," said Erenzo, co-founder of Tuthilltown Spirits, makers of Hudson Whiskey.

Flash-forward 10 years, and there are now more than 700 small distillers in America, according to the Distilled Spirits Council of the U.S.

American Whiskey makers have experienced a resurgence in recent years. In 2014, distillers generated nearly $2.7 billion in revenue, up from $1.5 billion when Tuthilltown started putting whiskey in barrels.

"It's been a pretty incredible journey," said Lee. "We were out there ahead of the pack. "

Although Erenzo and Lee have become elder statesmen of the craft spirits movement, they never had any intentions of making whiskey at all.

Erenzo bought a parcel of land in the small upstate New York town of Gardiner in 2001 with dreams of opening a campground for rock climbers who flock to the area to scale the nearby Shawangunks Mountains—the so-called Gunks—which is one of the premiere climbing areas in the country.

"There were neighbors who did not want him to have a bunkhouse with a bunch of drunk, crazy climbers living in this bucolic little spot," said Lee.

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So the pushback crushed Erenzo's dream, and he was left with a beautiful property and no idea what to do with it. While researching other uses for the land, Erenzo discovered there hadn't been a distillery in the state of New York since Prohibition, and he had a pretty good idea why: "The fee for a distillery permit was $60,000, and that's before you make a drip [of whiskey]."

But Erenzo was in luck. "The State of New York had passed a new distillery-class license into law, and it lowered the fee to $1,500 for three years. And so when I looked at that, I thought, I could make whiskey."

Hudson Whiskey
Source: CNBC

Brian Lee worked in the television industry building broadcast facilities, including the one at ESPN, and had recently earned his MBA from Fordham University. One of the case studies he did was about Samuel Adams beer, one of the best known craft beers in America. When Erenzo told him about his distillery idea, Lee already knew it could work.

After the partnership was formed and Lee mortgaged his house, the pair started distilling what would become their first batches of bourbon for their Hudson Whiskey brand.

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Lee stayed in Gardiner and took care of the technical work of turning locally grown grains into whiskey, while Erenzo hit the road selling it from the trunk of his car throughout the state.

"I could walk in the liquor store and walk right up to the front desk," he said, recalling his unique sales pitch. "I'd say, 'I'm not a liquor salesman. I made this. And I always got a sale.'"

Erenzo said selling the whiskey got easier. "Once it hit the press that whiskey was being made again in New York for the first time since Prohibition, we hit the ground running."

As Hudson garnered industry awards and word and distribution of Hudson Whiskey spread, the big spirits companies took notice, and William Grant and Sons—the largest family-owned scotch maker from the U.K.—paid a visit to Tuthilltown.

Tuthilltown Spirits production
Source: CNBC

"William Grant was looking for an American whiskey, and the authenticity of the brand ... and the press that we had gotten appealed to them," said Lee.

In 2010, William Grant bought the Hudson Whiskey brand, but Erenzo and Lee still make and bottle the whiskey at Tuthilltown Spirits distillery, using locally sourced materials.

"It turned out to be, you know, a really great relationship that helped grow the brand quickly. The brand is still authentic. It is still made here."

"It was the first American whiskey to be picked up by a major important house. So that was a signal to the industry," said Erenzo, adding, "It was a signal to the industry that craft distilling had arrived."

Just a decade after Ralph Erenzo and Brian Lee figured out how to make whiskey, Hudson has become an internationally-known brand sold in 12 countries, including the U.K., and the distillery has become a tourist destination. Now on the same property where Erenzo's neighbors didn't want rowdy climbers visiting, there is a tasting room, a restaurant and plans for a bed-and-breakfast.

Today, Tuthilltown Spirits is one of the largest craft distilleries in the country and employs 60 people. The private company won't disclose sales, but it has had a big impact on the local economy. "It's great," said Erenzo of the success. "I'm enjoying the hell out of it."