How Michigan’s Control State Model Helps Craft Distillers Grow

We recorded this episode on location at the Michigan Craft Beverage Summit in Muskegon, bringing in three voices who live this every day: Richard Anderson (Iron Fish Distillery), Jon O’Connor (Long Road Distillers and president of the Michigan Craft Distillers Association), and Larry Cekola (Imperial Beverage, one of Michigan’s Authorized Distribution Agents). Together, we unpack how the MLCC’s control state structure intersects with the three-tier system, why listing and access-to-market matter, and what equal access looks like for retailers across the state.

We also get practical about distribution reality: delivering spirits across two peninsulas, through snowstorms, and into remote communities, with a requirement to serve all 83 counties every week. Then we zoom out to the business side, including self-distribution as a learning tool, the tasting room license as an entry point, and how the Qualified Distiller Program changes the economics for producers who use Michigan grain. If you care about craft spirits, alcohol regulation, or how supply chains shape what ends up in your glass, this conversation connects the dots.

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The MLCC On The Road podcast is brought to you by the Michigan Liquor Control Commission (MLCC).  For more information on the MLCC, please visit our website at www.michigan.gov/lcc.  To submit a question or idea for a podcast topic, please email mlccinfo2@michigan.gov.

The mission of the Michigan Liquor Control Commission is to make alcoholic beverages available for consumption while protecting the consumer and the general public through regulation of those involved in the sale and distribution of these alcohol beverage products.

Transcript

Welcome From Muskegon Summit

David Marvin 0:00

You're listening to the MLCC On the Road Podcast, brought to you by the Michigan Liquor Control Commission, with hosts Sarah Weber and David Marvin. Welcome back to the MLCC on the road podcast. I'm David Marvin, and with me today is Sarah Weber. And we are literally on the road today over in Muskegon, Michigan, where we are at the Michigan Craft Beverage Summit that is put on by the Michigan Craft Beverage Council. And it's a several-day summit that brings together suppliers and wholesalers and retailers. I think there's a few of them running around here too, and other people in the industry that are involved in making and selling and distributing alcohol around Michigan. And we have a couple special guests, actually, three special guests that are joining us today that we're going to talk a little bit and expand on an earlier episode that we did about the control system and control states. And today we have Richard Anderson, who is a co-founder of Iron Fish Distillery. We have Larry Cekola from Imperial Beverage. And we have Jon O'Connor from Long Road Distilling.

Meet The Distiller And Distributor Guests

David Marvin 1:10

And gentlemen, I would like to have you just give a brief introduction about yourselves so that we can get a kind of an idea of where you're coming from before we get to some questions. And so, Richard, I would like to start with you.

Richard Anderson 1:20

Well, sure. Richard Anderson, uh co-founder of Iron Fish Distillery, recently went through an ownership transition. So I guess you can count me as recently retired. And uh of course, that's uh that's that came after entering the business into my retirement back in 2016. And so um Iron Fish is a uh farm distillery in northern Michigan, uh just south of Traverse City.

Jon O'Connor 1:43

Uh yeah, Jon O'Connor. I'm the uh co-owner and co-founder of Long Road Distillers in Grand Rapids, Michigan. We were the first uh legal distillery in the city uh in its history, uh big beer town, but nobody had made distilled spirits uh in Grand Rapids uh when we started. Uh we're we're a grain-to-glass distillery focused on uh producing everything uh that we make from raw ingredient to finished product, uh utilizing Michigan's abundant agriculture at every possible opportunity. And uh yeah, I also have the privilege of serving as the president of the Michigan Craft Distillers Association, where I get to work alongside uh craft distillers throughout the state and uh in you know celebrating and advocating on our behalf to keep our industry thriving.

Larry Cekola 2:22

I'm Larry Cekola with Imperial Beverage Company. We are a wholesaler. We originally started as a beer distributor back in 1933 and added wine and non-alcoholics in the 80s, uh, went statewide in the early 2000s with beer and wine, and then uh got involved on the ADA side, representing the state of Michigan as the wholesaler of spirits in 2017.

David Marvin 2:45

Jon, you mentioned you are the president of the Craft Distillers Association, so you're representing a number of distilleries around Michigan. I actually looked at some numbers earlier today, and I think we're up to almost 150 licensees. Now that there's other businesses that may have one or more licenses. So you represent probably a number of those in your

Why Control States Can Help

David Marvin 3:05

association. As a distiller in Michigan, as a craft distiller or just a distiller in general in Michigan, what is your experience with our control state system that we have here in Michigan? And do you have any insights for folks that would be coming into the industry, what they should be expecting?

Jon O'Connor 3:21

Yeah, I think when you uh when you start a business like this, I think one of the benefits of Michigan is the fact that we have the tasting room license that's associated with our manufacturer's permit that allows us to sell direct to consumer uh in you know at at our brick and mortar establishment. And I think that's how a lot of you know myself included got started, that you know, we were able to produce on site and start uh you know selling bottles to go to people as they after they enjoyed a cocktail at the at the bar. Um and then and you know, knowing that's that was an easy point of entry. And when it made sense and uh the opportunity presented itself uh to find a a distribution partner, we could, you know, we we had a uh uh essentially a guaranteed path to market. I think that was one of the big benefits of of the you know the system in Michigan is that um you know I I could work with one uh one partner being the state, who then I could work with one partner to then deliver it in the in a distributor. And uh if I had a product that I wanted to take to market, I I could do so. It wasn't it wasn't a decision of a private entity to say, no, we you can't sell that or we don't want this product. If if I you know put the effort into creating it and wanted to list it and and have it offered for sale, it was going to go to market. On the flip side of that, as a retailer, you know, they all have equal opportunity and equal access to be able to buy my products. It's not uh you know, it's not allocated to a certain store or a certain uh account or a certain region. No, it's it's if it's in the book, anybody can get access to it. And so you know it really let us have an opportunity to you know let our brand be in the world, and uh, you know, anybody has the equal access to be able to purchase it when they when they choose to do so.

David Marvin 4:47

Richard, do you have any any additional insight on that?

Richard Anderson 4:50

We're a beneficiary of it for sure. And in fact, actually, I don't think I really fully appreciated the benefit of being an entrepreneur in the craft beverage space, operating within the three-tier system, operating within a control state structure. We wrapped our head around it, we're trying to figure it out, but as we've expanded to other states uh which have different rules, and some of which are not control states, and talking to the entrepreneurs and the businesses in those states, um, I I literally do not believe we would we'd be employing the number of people we employ today. I do not believe that we would have the breadth of distribution that we have today. And I think that from a standpoint of starting a craft enterprise in Michigan, there are enormous benefits of having a control state structure, primarily that access to your product in a state that's got two time zones and takes 15 hours to drive across and getting one bottle to Copper Harbor or five cases to total wine. This structure, I think, has been very favorable to growing businesses in Michigan.

David Marvin 6:02

Larry, you're on the delivery side of it for us.

How Michigan’s ADA System Works

David Marvin 6:05

And so just for those who are listening that uh may not have caught the earlier episode about our control state system here in Michigan, there are three what we call authorized distribution agents. And those three ADAs, as we call them vernacularly, they are wholesalers that deliver some do wine, some do beer. You guys do wine wine and beer and beer. And beer. Uh, and they also then have taken on the spirit distribution for the state. And they are our official agent of the state of Michigan. In Michigan, all the spirits that are sold to retailers are initially purchased by the MLCC, the commission, and then they are distributed by our ADA partners. And Larry and his family and his company, uh Imperial Beverage, they are one of those three ADAs. Larry, from your perspective, how does the ADA system assist our in-state suppliers? And then we have a lot of out-of-state suppliers also. How does Michigan compare to some of your counterparts in other states?

Larry Cekola 7:05

So, yeah, Michigan, I mean, uh, really, it's a control state, but I would describe Michigan as an open state uh from access to market. I think both what Richard and Jon talked about is a huge advantage in Michigan. Spirits has access to market. The state does not limit how many products are brought into the state, how many products are listed with the state. Many other control states do limit that. And to get into a state in those other control states is very difficult. So although we're called a control state, we're also a uh a version of an open state. Part of the requirement, there's only three ADAs in Michigan. Uh, one of the requirements is that we deliver to every county every week. And so any customer in the state that orders a case of liquor uh gets a delivery every single week. And uh Richard referenced Copper Harbor all the way at the tip of Keweenau Peninsula. It is um, yeah, it's a 12-hour drive from my warehouse. So, and we deliver there every week and take care of any customer who needs spirits. Uh, we also go to market with beer and wine in the same territory. We're able to handle that from both sides. And so we we do deliver beer and wine to every customer every week in every county, 83 counties in the state of Michigan. So the two go hand in hand uh when you look at that front.

David Marvin 8:16

And just for a point of reference, we're recording this in late March of 2026. And I have to imagine Copper Harbor would be a rough place to get to this week. We had a significant snowstorm uh last week where uh there were uh three to four feet of snow that the upper peninsula got.

Richard Anderson 8:35

And so that was driving up whiskey demand. Uh yeah, I'm pretty sure whiskey demand went up uh during the city.

Larry Cekola 8:43

We gotta get those trucks unstuck and get them up there. Say two days before the storm and two days after the storm, liquor sales went through the roof. Uh yeah. Um but yeah, we do deliver um through, I mean, all the way up to Keweenaw Peninsula last week with that big snowstorm mainly hit, I mean, Marquette, the middle of the state. Um, Keweenaw wasn't actually that bad last week, but where our warehouse is in Ishpeming, we got about 40 inches and 36 hours. So it's amazing what our team does up there every week to keep the trucks running. We deliver, uh we

Weekly Delivery Across 83 Counties

Larry Cekola 9:15

deliver four days a week, and we've only shut down one day in the last I've been doing this 35 years, and we only shut down once, and that was because temperatures were negative 40. You guys might remember that year. Um, and we were worried about product freezing on the truck. We have four warehouses across the state, three in the lower peninsula, one in the upper peninsula, and that gives us the ability to cover every single county no matter the weather conditions.

David Marvin 9:38

And that is something for retailers that are listening to this or people that are interested in getting into the retail space. When it comes to spirits, uh, the law says that the state, through our ADA partners, must deliver once a week, and it's free delivery if as long as you order at least one case. That's a pretty good deal. It's an amazing deal, actually. Uh, where other states are not that way. And also, you mentioned, Larry, the the number of products. Uh, last time I checked, we have about nearly 16,000 SKUs. So there's some of those are the same brand, just in different sizes. But compared to some other states, that is just a huge number. Uh, that's what we always talk about, is there, and I think you guys have hit on this, is that that barrier to entry is not there. You can be a local hometown, homegrown distillery, make a product, and we're gonna carry it. And that's that's a pretty awesome thing where there's gonna be businesses out there that may never have that option to get into those um uh markets and and onto shelves of of some pretty big stores. And that's what we joke around about is you go to the soda pop aisle and there's two or three brands. You go to the spirits aisle, and there's hundreds of brands that you can see here in Michigan. And that's not just with spirits, but that's wine and and beers also. And that's that's a testament to how that that system is working.

Richard Anderson 10:56

Case in point, um, operating a business in Michigan, obviously there's pressure points, and you're trying to learn how this system actually works, and you get with a great ADA that helps you navigate all of that. But once we started looking at outside markets, that's when I really started appreciating what was going on. And to your point, if we were um in North Carolina, even if we were there starting an enterprise or were in Michigan exporting product to North Carolina, the control state there through the ABC stores actually restrict the number of brands. It's contained to X number of brands, and then you have to go through quite a process to actually list your product. If you're in Utah, if Utah is not doing a call for entries of bourbon in 2026, and you happen to start a company that wants to be in that market, you can't even submit it. And so I'm glad that we have our footing here. We understand our local market, and it gives us the depth to

Open Market Access Versus Other States

Richard Anderson 11:55

be able to then absorb the learning curve that it takes to get into other states. And what we're learning is it's not as friendly.

Sara Weber 12:02

When everything went down when Engler privatized everything, who would have known at that point in time that the impact it would have on the businesses here in Michigan? Because it just changed our model slightly enough to where anybody new wanting to come in and do anything has that ability to do so versus some of the other states that you've mentioned. And you know, there's nothing wrong with their control models. I don't want to, I'm not, you know, we're not bagging on anybody in North Carolina, we love you. Um but our system is very different. You know, we're still a control state, but we have more of an open market for our our businesses to be able to go in and compete.

Jon O'Connor 12:40

And I think it's interesting, you know, again, as a as a craft producer, I think across the adult beverage sectors, when you you look at craft, I think part of the thing that drives it is innovation and being able to do things that might not be like proven products or proven have proven market appeal. And so uh, you know, I can if I create something in my at my distillery and I want to make five cases of it, I can still go to market with it and people can still have access to it. There's enough hurdles and barriers to entry to getting a spirits product to market with label approval and formula approval and state approval. And I those things all take time. But when the product actually comes to life and it's in a bottle, I know it's going to be able to go out the door and allows us to like actually try things and you know, some of them are more successful than others, but at least it it's not a barrier to innovation and lets us do one-off products and get them out to a retailer that might want to support them or uh you know, get a get an interesting spirit product into the hand of cocktail bars that are willing to play with those types of products and make weird drinks with them that might catch on. And some of those things have paid off, where we've done something at a small scale one time, and then the next year you you make five times as much because people got excited about it when you got it out in little bit, bits, and increments.

Richard Anderson 13:50

The way in which the current regulations set the tone in Michigan has created, I think, a fair amount of openness by the distributors to understand that craft brands need time to sell directly to the consumer through their tasting room. That craft brands need flexibility to do some self-distribution. They understand that if we do that, there's a chance that that'll go past that. And then through sheer convenience and economics, that proof of concept then goes on the truck. And I believe this is still the case, but in Minnesota, it is against the regulations for a distillery in Minnesota to actually sell more than two bottles. You can only sell two bottles, and that's because their distribution tier wants to have a monopoly on distribution. But for that industry, it's so short-sighted because what essentially that attitude is doing is it's unwittingly muting the growth of that industry. And so our peers in Minnesota are hamstrung. And if we just happened to be in a state that has that kind of regulation, we wouldn't be half the company we are today.

Larry Cekola 15:02

I was going to add in on that, Richard, uh, as a distributor, the

Innovation Through Tasting Rooms

Speaker 3 15:05

wholesaler tier of that three-tier system, the fact that beer, wine, and spirits in Michigan can self-distribute is a huge advantage to us. We look at it as it's a wonderful thing. You learn the industry, you learn the nuts and bolts about how distribution works. So when you come to a distributor, when you go to talk to a wholesaler, you understand what they're going through and what they're living through every day. And it makes our relationship a lot stronger. Also, kind of back to Sarah's question on Engler earlier, uh, beer and wine, because the three-tier system and wholesalers, I think beer and wine have have always traditionally had a huge advantage with access to market. I mean, back in the late 80s, early 90s with the craft beer boom, it was the fact that they could get their products on the shelf. Uh uh, you mentioned the pop aisle. It's, I mean, there's three suppliers down the pop aisle. Uh, down the beer aisle, wine aisle, spirits aisle, there's hundreds and hundreds of suppliers. And that access of market was there for beer and wine. And then, because we used to have state stores on spirits, and when Engler changed that, uh, and really it opened the door to what'd you say, 16,000? 16,000. 16,000 skews in Michigan. I don't know many states uh in the country, if there are any states in the country that have met that many spirit skews available uh to the end consumer. And that gives the distillers uh the ability to, yeah, make some cool things, make something, only make five cases, see what happens. It might work, it might not work. That's the beauty

Self-Distribution And Craft Growth

Speaker 3 16:35

and evolution of craft and why it's so strong in Michigan.

David Marvin 16:39

Richard, as a a craft distiller here in Michigan, there was recently, in the last five or six years, some legislation that came through that allowed for the self-distribution that Larry was mentioning, and also the qualified distiller program that allows for essentially a tax break, if to summarize it simply. How is that affected from your perspective? Uh, Iron Fish, but also the craft distilling industry here in Michigan.

Richard Anderson 17:05

You know, it's interesting for us because we started in 2016. We were actually Imperial's first spirit brand. So when they got their ADA, we were the first spirit brand to be carried by Imperial Beverage. So we didn't really have the benefit of growing our company through self-distribution because that rule wasn't in place at this at this time. So ironically, for us, uh at least my view, having grown into a statewide brand that's recognized statewide and has a fair amount for a craft brand, a fair amount of distribution and brand uh recognition. I always uh told our team um we want to put everything through the ADA because it's the most efficient. It's how we want to actually run the business. But I have to say, if I were starting now, uh that's exactly what I would do. That's exactly how I would learn the business. That offers you the flexibility to build strategic relationships and focus on the ones. I always say that a local retailer who's who's showcasing your spirits are your biggest advocate for growing the brand. They're the shelf talkers, the owners of those liquor and retailers. Um that's how I think at this point our size is such that even if we're doing a single barrel, I think our pattern has been let's put it through distribution. In the United States, up until this legislation, New York state was the nation's leader in supporting craft distilleries. And they had a law that was interesting, requiring a certain amount of grain content in order to get your license to actually distill. So if you wanted a license to be a small craft distillery in New York, you had to have a certain over a three-year period. I don't know what the law is now, but when it was first founded, uh you had to have a certain percentage of New York grain within a three-year period. This

Qualified Distiller Program Tax Relief

Richard Anderson 18:55

dialogue in Michigan has happened much later. It wasn't a precursor to being able to get your license. In the state of Michigan, we created an incentive for craft distilleries to lower the state markup in alcohol tax or bottle sales tax if a distillery uses at least 40% Michigan grain in the content of the spirit that's being sold under that price. What that really does is change the economics of craft distilleries, which are very, very, very capital intensive. I always tell folks as they're walking through Iron Fish Distillery with an inventory of 3,000 barrels of whiskey, competing with Kentucky and Scotland and Ireland and needing to age that. So think about this. We've made all those barrels, we've paid all the labor, we have all that overhead, we're sitting on, and we can't sell what we make. So uh the state coming in and saying, okay, here's a way we can actually change the equation so that you can actually get into the market and be financially viable through this grain qualification program where a bottle that has 40% Michigan grain can qualify for the markdown.

David Marvin 20:07

Having been to Iron Fish a number of times, there's all those beautiful fields you've got around there. Do you guys work primarily with local farmers or are you getting a lot of grain from across Michigan?

Richard Anderson 20:17

So we've been very intentional about where we buy grain from. That doesn't pencil out to be the best economics from a commodity standpoint, but um, one of our biggest growers of rye grain is in the Garden Peninsula of Michigan. Uh we intentionally buy from the Ron Collins farm in Garden. We also buy grain from grain or farm uh down south, quite south from us, and all points in between. So if you think about Iron Fish has it's about, here's the what's interesting about the grain

Michigan Grain, Barrels, And Terroir

Richard Anderson 20:45

ratio. It's about an acre of land for every barrel of whiskey. So it's very, very grain intensive. And so we only have 80 acres there, and we have 3,000 barrels of whiskey. So you can do the math. The 80 acres is where we really focus on our estate products, where our mad anglers have have the estate grain in it. But we're also making a lot of whiskey from grain from other farms, and uh we buy about a million pounds of grain a year, and we're only growing about 80,000 pounds. That's enough for about a thousand barrels.

David Marvin 21:15

Those are amazing numbers. I never would have thought that much grain goes into something.

Richard Anderson 21:20

It's actually a ratio of alcohol to volume. So our percentage of alcohol in a bottle by volume is much higher. So it just takes that much more grain to ferment in order to get the ethanol that actually ends up in the barrel. So I would say that we were really looking for what could be a catalyst for the growth of this industry so that we can stay in pace with Colorado, which is a great, great program, great craft culture, uh, New York, uh, and I think Michigan's uh there.

Larry Cekola 21:49

Well, I was gonna add a couple things on Richard's comment. Uh, first of all, not only were did we get in this business together, because they were our first distiller, as we were their first wholesalers. Or their only wholesaler for that matter. And we learned a bunch along the way. I went to their five-year anniversary, and it was something that Richard actually said to me as these barrels, um, I mean five years ago is when they laid these barrels down. And this is the first time that they had been able to sell their own juice. So for the first five years of a bourbon distiller, they're buying and selling juice because it takes five years for that investment to turn. And that's just your first turn. Many of those barrels are seven, eight, ten, twelve-year barrels. Those just sit and sit and sit. And so the profitability model of a small distiller is very difficult. Um, so this grain bill did a hu a huge advantage to Michigan distillers and their ability to be profitable and uh and grow and be in existence in a decade from now.

Richard Anderson 22:49

And the great thing is it's bringing together, and this is what I think our advantage in Michigan is bringing together farmers and distilleries in ways that are showcasing the Michigan terroir of our region. We're releasing a whiskey that is 100% hazlet rye, grown on our farm, went through MSU trials. We understand that grain because of the research that was going on at MSU. We love the flavor profile, we understand the yield. And so this connection between the research that's going on at MSU, the grain, the grain bill, and our whiskey and what it tastes like is, you know, I don't think there are other states that are doing that. And then through the three-tier system, we can get it up to Copper Harbor.

Final Thanks And MLCC Website

David Marvin 23:29

Gentlemen, thank you for joining us today. This has been fantastic to sit and talk with you for a little bit and learn a bit about your businesses and how uh you guys partner together and how we can be partners as the commission with our distillers and our uh ADAs. Uh, thank you for being here and sharing your expertise. And we will look forward to talking to you again on the MLCC on the road podcast. The MLCC on the road podcast is brought to you by the Michigan Liquor Control Commission. For more information on the Michigan Liquor Control Commission, please visit our website www.michigan.gov/lcc. Thank you for listening.