Since the craft segment has officially become a contender in the beer category—capturing 17.2 percent of total beer sales in 2013, according to the Brewers Association—producers with long-established brewing credentials are adding a new skill to their repertoire. Noting the rise in demand for artisanal products of all kinds and drawing on experience, brewers are turning to distilling to extend their footprint. Although there are just a handful of dual producers right now, those numbers are growing.

Diversifying into spirits is a natural progression from brewing—a step that some brewers take after making beer for a decade or more. Many start by simply experimenting on homemade stills. Milton, Delaware–based Dogfish Head Small Batch Spirits has been using the same ad hoc “Frankenstill” since founder Sam Calagione began making Brown Honey rum, Jin gin and Blue Hen vodka ($30 to $40 a 750-ml. bottle) in 2002. The still’s tiny size is one reason the company’s spirits are rarely seen outside Delaware. They’ve been so successful, however, that this winter Dogfish is installing two 500-gallon pot stills, along with a 26-foot column still, that will increase capacity tenfold and enable wider distribution.

Brett VanderKamp, who cofounded Holland, Michigan–based New Holland Brewing Co. in 1997, experimented with distilling on a pot still made out of an old soup kettle. “We still use it today,” he says, although now it serves as a test still. “At New Holland, it’s always been about getting our hands dirty and about exploring, creating and pushing the limits of what we could discover and what we could do.” Today, New Holland makes several varieties of whiskey, including its Zeppelin Bend single malt, Beer Barrel Bourbon, Bill’s Michigan Wheat, Malthouse and Walleye Rye expressions, along with Freshwater Michigan rum, Knickerbocker gin, Dutchess vodka and Clockwork Orange liqueur ($29.99 to $49.99 a 750-ml. bottle).

As the first craft brewery to begin distilling spirits two decades ago, San Francisco’s Anchor Brewing Co. has Fritz Maytag—who revived the century-old company in 1971—to thank for his forward thinking. He established an in-house distillery in 1993, and when the company first released its Old Potrero rye whiskey in 1996, few distilleries of any size were making the spirit and almost no one in the United States was drinking it. In addition to several Old Potrero whiskies, Anchor now makes Junipero and Anchor Old Tom gins, Genevieve genever, Hophead vodka, and the seasonal Christmas spirit, which is distilled from its Christmas ale ($30 to $70 a 750-ml. bottle). “We’ve had quite a history of following our interests,” head distiller Bruce Joseph notes. “I think it comes through in the products—that we do something because it appeals to us on some level and not just as a response to the market.”

San Diego–based Ballast Point Brewing & Spirits—which makes Three Sheets rum, Old Grove gin, Fugu vodka, Opah herbal liqueur, and Devil’s Share moonshine, malt whiskey and Bourbon ($20 to $80 a 750-ml. bottle)—has done the same. “It’s been a real grassroots start to the distillery, just like with the brewery,” explains cofounder Yuseff Cherney. “We didn’t go out and solicit a bunch of investors or try to do what the market was dictating. We just wanted to make some stuff that we like to drink, which is the same philosophy we have behind the brewery. We make what we like and hope that others will follow.

Challenge Accepted

Blazing a trail against the odds fits neatly into the craft brewing narrative, and many brewer-distillers have embraced the challenges that accompany such a move. Scott Maitland founded Top of the Hill Brewery & Restaurant in 1994 in Chapel Hill, North Carolina, and branched out into organic spirits under the Topo label in 2012. The brand includes a vodka, a gin, a moonshine and the recently launched Eight Oak Carolina whiskey ($21.95 to $29.95 a 750-ml. bottle). While well-versed in the regulations surrounding brewing and on-premise sales, Maitland found the laws for distilled spirits much more complicated, especially in a control state. And expanding beyond North Carolina presents new hurdles. “With beer, typically a distributor will operate in multiple states, and it’s pretty easy to roll things out,” he explains. “It’s much different with spirits. The rules about how you can market and advertise are completely different. There’s no way to simply roll it out. You’ve got to work with every state individually.”

On top of regulations, packaging, and pricing and volume parameters, brewers who make brown spirits also have to manage a new time line. “Aging spirits is a hard business to get into because you make whiskey and then you wait,” Anchor’s Joseph says. And predicting market trends several years down the road is a skill most brewers haven’t cultivated. “You have to think way out about trends,” Ballast Point’s Cherney notes. “In craft beer, a lot of companies release beers weekly or biweekly—and it’s really difficult to do that with spirits. It’s much more of a long play.

Building On Success

One challenge that many dual producers haven’t had to face is raising capital. With a revenue stream from the beer side of the business, they’re able to devote time and resources to distilling without worrying about bringing in cash from the outset. “I don’t know how you could affordably do it without already owning a brewery, something that was able to help with cash flow or just really deep pockets,” New Holland’s VanderKamp admits. Cherney agrees, pointing out that an existing form of income facilitates production of mature spirits. “If you don’t have a brewery and you just open up a distillery, it’s very difficult to get on your feet,” he says. “You have to start by selling unaged product.”

A steady income stream isn’t the only benefit an established brewery can provide. Equipment that can do double-duty also helps. “Our distillery is located within a new, state-of-the-art $51 million brewery, and the front side of making spirits is basically making beer,” Dogfish Head’s Calagione notes. “So we’ll be using our world-class quality control lab and yeast growing facility not just for our brewery, but for our distillery as well.”

Brewing skills that producers have honed from years of making beer also have an impact on the distilling process. “Critically tasting was a skill that we’d always worked on,” Anchor’s Joseph notes. “You make beer and you taste it critically to see what you like or what you want to change. We carried that over to the whiskey.” Many brewer-distillers ferment at cooler, brew-level temperatures to create a cleaner flavor profile before distillation even begins. “Any brewer worth his salt knows that fermentation is both a science and an art,” Topo’s Maitland says. “Everyone wants to focus on the distillation process, but just as important—if not more important—is the fermentation process, which creates the actual alcohol to begin with.”

Consumer Cultivation

When it comes to selling two different products with the same name, retailers and on-premise operators notice that brands’ established beer reputations are piquing consumers’ interest in their spirits. Hi-Time Wine Cellars in Costa Mesa, California, sells Ballast Point’s beers and spirits, both of which are sought out by beer fans, according to spirits specialist Linh Do. “What I notice is that beer drinkers definitely get intrigued by the spirits and seek them out, especially the Devil’s Share whiskies,” she says.

With five locations in Philadelphia, New York City and Jersey City, New Jersey, the Barcade concept focuses on craft beer and spirits, including offerings in each category from the same producer. Although 75 percent of sales come from beer, co-owner Paul Kermizian notes an increasing engagement with spirits. “We definitely get a lot of people who are surprised to see spirits from New Holland or Anchor,” he says. “They may be really into craft beer and might not pay that much attention to spirits, so they don’t even realize what these breweries are doing. It’s always a cool thing for our bartenders to talk about these products and educate people.”

Brewer-distillers agree that consumer education remains key to their success. “When craft brewers started 25 years ago, it was pretty easy for customers to see that the product we were making was different,” Topo’s Maitland says. “When you put an IPA in front of somebody who was only drinking an American light lager, they immediately recognized that it was a different product.” With spirits, figuring out what distinguishes them can be trickier. “The problem is that if you look at a bottle of industrially produced vodka next to ours, it looks exactly the same,” Maitland explains. “The one advantage is that if I can get product into people’s mouths, I can win.” Ballast Point’s Cherney notes that the differences between craft- and mass-produced Bourbon are more blurred. “That’s where educating people in terms of the process comes in,” he says. “We’re using pot stills, which allows us to make more intensive cuts to remove the harsh compounds you might get from an industrial column still.”

New Holland’s VanderKamp sees learning about craft spirits as a joint venture with consumers.  “We’re beer guys—that’s how we evolved,” he says. “So we’re taking our fans and our customers along with us on this journey of discovery as it relates to spirits.”