The Bluegrass Institute has serious concerns that competitor states are aggressively working to undermine Kentucky’s status as the world’s bourbon capital. We discussed in a post last week the negative effect the bourbon barrel tax is having on the next generation of distilling entrepreneurs getting their start here.

Economist Paul Coomes, emeritus professor of economics at the University of Louisville, calculates the state’s distilling industry produces $8.94 billion in total economic output, supporting 22,540 jobs with an annual payroll of $1.23 billion. However, according to Coomes, “due to the enormous rise of craft distilleries in other states, Kentucky’s national share of distilling jobs has slipped from 43 percent to 30 percent from 2001 to 2020.”

Coomes argues, “other states are taking notice of the distilling industry with now more than 2,200 distilleries operating in the other 49 states. Those states offer a variety of incentives and privileges making it attractive to lure what was once a Kentucky dominated industry.”

Last week’s post shared the fact that 11 states have more distilleries than Kentucky. The website Statista reports that five of our surrounding states — Tennessee, Illinois, Virginia, Missouri and Ohio — have more craft distillers than we do.

According to the American Craft Spirits Association (ASCA), the number of active craft distillers nationally grew 17.3% from 2021 to 2022. (Texas’s growth was 28.1%; California’s 18.4%).

Between June 2021 and June 2022, the number of licensed distillers in Kentucky went from 110 to 120 — 9% growth. [Note: That figure includes both Class A and Class B distillers, which are characterized by a different production threshold than the ASCA’s craft distiller definition].

We acknowledge these aren’t perfect comparisons. However, there’s enough here to argue to policymakers that entrepreneurs in this sector possibly face a more challenging business environment in Kentucky than other states.

Smaller distilleries — the “start-ups” of today — can become tomorrow’s growth stories.

Wilderness Trail opened in 2013 in Danville. Last November, the company was sold in a deal valued at $600 million. Successful entrepreneurs create wealth and opportunity. Kentucky needs more of it, not less.

These startups that produce bourbon must pay taxes on their aging barrels — unfinished product — for years before putting their first bottle of bourbon on the shelf. Realizing this during their planning stages, it is safe to assume startups are increasingly choosing other states.

In addition, the Kentucky Bourbon Trail Craft Tour draws visitors and their discretionary spending to areas outside the central Kentucky bourbon region. Last month, the Columbus Dispatch highlighted Old Pogue in Maysville as a compelling reason for visitors to spend some time in that Ohio River town.

Kentuckians hear all the time from Frankfort that the state’s competitiveness is central to changes to tax policy. A consistent message from the Bluegrass Institute has been to focus on the critical role entrepreneurs and small businesses play in driving economic growth.

There are viable ideas out there for how to move forward in an equitable manner on the barrel tax. The General Assembly should make it a priority to tackle this issue before going home.