We shipped our first bottles in 2013 and for the first few years we focused on product development, our production process and improving the quality of our whiskey.  Remember we said we were science geeks.  We had patient investors and we all wanted to do things right.  

In 2017, after our first crowdfunding and some capacity expansion, it was time to focus on revenue and start positioning for an exit.  In 2017 our revenue grew by over 61%. 2018 should be another banner year with at least one new whiskey release and entry into some additional categories.  It will be an exciting year.  

The more people we get to try us, the faster we grow.  Typically, that means feet on the ground, in-person sales into bars and restaurants, promotional spending to get the right shelf space and menu placement and then maybe, just maybe that translates into sales off a retail shelf.  It’s very expensive, all the big players are competing the same way and in all the same places.  They all have budgets that can blow us away.  We’re taking a different approach.

We still need people to try us but there’s a more efficient and cost-effective way.  We’re actively event partnering with charities and special interest groups that range from a local chapter of the American Heart Association to a group from the United Auto Workers and a well known “animal rescue” society.   We’ve multiplied our exposure, helped build awareness and certainly influenced purchase at retail.  We now have a dedicated internal team that focuses on converting incoming requests for donations to active sampling participation at their events.

There’s more of course.  We have regular distillery tours; open house events and we’ve even hosted a few concerts.  Importantly we’re partnering with craft brewers to collaborate on both new products and leverage social media.  I should also mention that with the efficiencies we have on the production side, we can price competitively with the larger brands.  That’s important when you are sitting next to them on a retail shelf.

We’re also leveraging our new SmokerBRIX™ product, initially a production by-product, it’s the wood we use to make our whiskey.  Cubed and cut to size for the whiskey process, bourbon infused, they’re perfect for the barbeque and smoker space.  The key is that with some overlap in our target consumers and even more event partnering, combined with the right sort of promotion and marketing, they help us sell more whiskey while the whiskey helps us sell more BRICX.  

We started selling SmokerBRIX™ on January 1, 2018. We have an e-commerce website (www.smokerbricx.com) and we’re also in over 150 brick and mortar retail accounts. Revenue is still a fraction of what we get from whiskey but it’s picking up fast.

Again, we pack these BRICX wet. They're packaged in clear but alcohol-safe plastic containers, and they're sealed, so you can keep all the aroma, flavor and moisture in. It’s a great looking package but what’s amazing is when you open it up and get that first burst of aroma.  The product sells itself.

In the current market, you can get pellets and chips, both of which are dry. Even the chips that have been produced from whiskey barrels, there's really no alcohol or flavor left in them. All they have is a big, well-known brand name on the package. If it's simply a barrel that somebody takes apart and cuts, you're going to have a little bit of flavor from the inside surface of the wood, but if you cut open one of BRICX, it's wet all the way through.

In the retail environment, there's always what we call a “sniff jar.” We encourage people by saying, "Smell me." That converts a sizable percentage of people who are new to the product. When they use it then, they find that, again, there’s this great, bourbon aroma from the smoke. Whatever you're cooking, whether it's ribs, chicken wings or sausage, you get a great layer of bourbon flavor, plus the natural flavors of the wood. 

It can be hickory,sugar maple, black cherry or oak, everyone is different. Remember also that since we’re using the various woods for whiskey production, everything is hand selected.  When we use apple, for instance, chances are, we select the tree, we cut it, we know exactly what sort of wood we’ll get from it. We're only using the best wood to make our whiskey, which is then the wood that goes in the SmokerBRIX™ -- unlike other companies, which say, “This is our scrap wood. This is wood that we got from urban trees that we put through a chipper." The only other thing besides the wood in those containers is our bourbon, and that's different from any other product on the market.

Part of our R&D for this product was developing a scalable solution. It’s part of our intellectual property, so I can’t offer details, but if we need to produce more wood than we currently do from our whiskey production, we can scale that.

Let’s first define what a custom whiskey is.  If you ask that question at one of the large distillers, a lot of them will say sure, we can do that.  They’ll pull out a couple of barrels, let you sample each one and then allow you to pick “your own” barrel.  At some places they might even blend from two or three barrels and give you a chance to put your name on the bottle.  Other distillers are happy to put a “custom label” on a fairly standard product, they’d still call it a “custom whiskey.”  We can do better.

Because we use such a variety of woods, we can put together uniquely different finishes, authentic custom “micro-batch” blends that taste distinctly different than what you might have to choose from at a typical distillery.  We’ve done this for bars, restaurants, corporations, non-profits and recently even a group of friends who got together at our distillery and blended a wide range of finished bourbons.  They bottled exactly what they wanted, and the group is already talking about their next run.

Right now, the custom runs are still a relatively small percentage of our revenue, probably less than 15%, but I think it's a tremendous opportunity for us.

We keep this pretty close to the vest but certainly we’ve made a series of incremental improvements which translate into better tasting products.  Some of it is simply evolving the parameters in which we use that technology; adjusting pressure and vacuum levels, dwell times, pressure change rates, oxygenation levels and other process variables. 

One of the core benefits from this technology is that we can test quickly, fail fast, modify right away and test again.  We do this daily and it pays off.

Over 85% of our revenue comes from consumer purchases at retail liquor stores and as we shift to a more event focused sales and marketing strategy that number will get bigger.  On-premise bar and retail revenue has lower margins and it’s harder to maintain.  Let the big players pay to play if they need to, it’s not our game.  

Distribution now covers sixteen (16) states.  We do exceptionally well in Ohio of course but also states like Massachusetts and Connecticut.  We just added California, Maine, and West Virginia but it will take time to get product onto the shelves.

Europe and Asia are in flux with discussions (and action) around tariffs and push-back we’ve gotten from the Scotch Whiskey Association.  They’re still great opportunities for us but there’s a lot of work to be done.

We’re a premium product, that means discretionary income.  Our demographics skew somewhat younger, mostly male but with an increasing percentage of women. People try us because they want something different, something that tastes goods and something with a unique story to share.  The whiskey market is growing, especially in all the premium categories with consumers hungry for small-batch, upscale brands.  That works for us.  Traditionalists still aren’t happy about what we do, but they aren’t our market.

On the shelf, we compete with mainstream brands like Knob Creek® and Woodford Reserve®.  We price competitively with those brands which means we’re typically at an advantage with respect to smaller craft brands.

There are, of course, some other players in the technology space but our process remains faster and certainly more flexible with respect to finish aroma and flavor.  There are other companies using ultrasonic applications and ultra-violet light that can smooth the edges off an older product that work rather well, especially vodkas and other clear spirits. Other distillers are cutting grooves on the inside of their barrels or simply using smaller sized barrels; they both add surface area.  Others have turned to playing loud music near their barrels which help facilitate fluid movement.  

Early on, some people lauded us, while others called us heretics. There’s certainly less of that then there was at one point. I think part of that is because we had been winning more gold medals and double-gold medals. I also suspect that they were surprised when we were named  Whiskey Distillery Innovator of the Year.
 
There are still some places where we get more pushback. For instance, the Scotch Whiskey Association has pushed back against us hard. I think it's amazing that they even know our stuff, so I take that as a good sign. But they've pushed back hard. They wrote multiple cease and desist orders because they were upset that our whiskey was less than three years old, and they've got some provisions in the laws that don't allow you to call something a whiskey. So we’ve had trouble in Europe. Once the tariff chaos settles down we expect to release a new product into the EU. I think it's going to be very interesting.

I think what's breaking through the clutter, to some extent, is the fact that we make bourbons finished with the other woods. If you're looking at a line of whiskeys, the only way they differentiate is by brand name and by age. Sometimes they put it in a port barrel, and then they jack the price way up. 

We're the only ones who say, "You know what? Here's a bourbon, a classic bourbon, but we finished it with black cherry wood and we did it without sugar, without syrup, and without artificial flavor and color. It's got some unique flavors to it.”  That makes it interesting.

Beyond that, we work hard to have more people taste our products. We want them to be looking for Cleveland Whiskey when they come in the store.  When people get to taste one of our whiskeys, we have a pretty good conversion rate.

We’re also using SmokerBRIX™. Imagine a display that holds both the SmokerBRIX™, which are clear containers of this wood that's soaked with bourbon, and right next to it, you have bottles of bourbon that are finished with that respective wood -- that really helps sell the whiskey. Of course, the whiskey then, in turn, helps sell our SmokerBRIX™. We've got this great leverage back and forth that I think is going to drive some real accelerated growth.

Solid research.  We hired an outside firm, did more than 600 interviews around the country and the “Cleveland” brand tested. We had multiple names to test but the Cleveland name did best in markets like Boston, Seattle, Los Angeles, Dallas, and Chicago. People said that Cleveland to them stood for something that was authentic, genuine, hardworking, entrepreneurial, and edgy. The numbers certainly supported the decision but when they said "edgy", I said, “Let's put it on the bottle.”  

I suspect that, in the next three to five years, we’ll be acquired by one of the large players. Our technology, our reputation for innovation and our products are compelling. The tires are already being kicked, and we certainly know which players are keeping an eye on us. We're trying to get our profile to the point where we have a good valuation. It’s possible that, when we reach that point, maybe we buy out some smaller distillers and create our own larger organization.  

We’ll see what happens, but I think it’s important for us is to be well positioned for an acquisition. Whether we go through with that or not, that'll be something else. I want us to be at that point as a company. Steady revenue growth, a move into profitability, continued awards and some truly unique and interesting products.  At that point, we’ll also being doing more internationally. It’s been a challenge for us, but we're moving in the right direction.

There’s detail on this in our investment documents but our focus is on continued growth for the company.  That means expanding capacity, additional distribution, new product development, technology research and improvements, increased operating capital and continued investment in our team.  We’ll put it to good use.