As Colorado's craft spirits market began to boom, Smiley observed a noticeable gap. "They had a craft, local alcohol section and under whiskey, there would always be Stranahan's, vodka would be Spring44, rum would be Montanya, but then tequila would be Patron or some non-Colorado made craft brand," he says. "So for me it was a massive gap in the market that needed to be filled for a locally made tequila."
So Smiley opened the nation's first all-agave distillery. "I can't legally call our product tequila," he says of State 38's three varieties of agave spirits: clear Blanco, Reposado (aged in white oak barrels for two months), and the premium Anejo (aged for 12 months).
State 38 also makes vodka and gin. "We have the world's only agave-based gin and we have the world's only agave-based vodka," Smiley says. The gin is flavored with Colorado juniper berries hand-picked by Smiley and his family on the Western Slope.
The organic blue agave comes from a farm in Jalisco, Mexico. "It's a fair trade certified farm, which is a big deal for me," Smiley says. "It costs a lot extra to buy fair trade [agave], but it ensures that all the workers and the farm I buy from in Jalisco get paid a fair wage. That matters a lot to me and it matters a lot to my consumers."
The spirits aren't the only thing handcrafted at the distillery. Smiley also builds the stills -- and most everything else -- himself. "We have a new 250-gallon still I just finished building from an old milk pasteurization kettle from a farm in Chicago," Smiley says. "Everything that's built here, distillation, fermentation, and the entire tasting room, from laying the floors to the bar to cutting every square of the tin ceiling, I did myself." It's a true labor of love -- "and a lot of other emotions," he laughs.
Being the only all-agave distillery in the U.S. has garnered State 38 a lot of attention, but that will change with the release of two grain-based whiskeys on May 13. While Smiley plans to continue producing agave spirits, the skyrocketing cost of agave has cut deeply into his margins. "It was a tough choice to migrate away from agave, but at the end of the day, I need to make money," he says.
The new whiskeys, a small-batch bourbon and a Scottish peat-smoked variety, are fermented and distilled on grain, meaning the grain is left in the wort. "We not only ferment on the grain, which is rare, we also distill on the grain, which pretty much nobody does anymore," Smiley says. "You're going to get a lot of the original grain characteristics."
Another unique selling point: State 38's whiskeys are mellowed to the music of Pink Floyd. "I'm such a Floyd fanatic," Smiley says. "It's the most phenomenal music I ever heard in my life. There's so much meaning behind the story and the words. The rhythm is like the pulse of your heart. I've got a big subwoofer and we've got these big speakers. After hours, we just crank that puppy up with Pink Floyd."
Challenges: Production. Despite the new 250-gallon still, State 38 struggles to keep up with demand. "Every week, there's a product that we run out of," Smiley says. "We just can't keep up with it." The ever rising cost of agave is another challenge.
Another challenge: the potential ballot initiative for the November election would allow grocery stores to sell full-strength beer and eventually wine and spirits. Many craft brewers and distillers, including Smiley, are wary of the initiative. A small startup can't produce the volume of product required to get on the shelves of a large grocery chain, he says. "We really want it to not pass because the small liquor stores, we really care about them, they help sell our product and have helped get us in the market."
Opportunities: Distribution beyond Colorado's borders. With his spirits currently at over 500 locations in Colorado, Smiley has been approached by out-of-state distributors. "I'd love to get into Texas and California at some point, but those are big markets," he says. "I'm already not keeping up with demand right now."
Needs: Staff and storage space. While State 38 is currently seeking more space to store barrels, Smiley recently hired two new employees. "I'm finding it's a little bit easier," He says. "There are people who are really interested in the industry, who've seen the boom in the industry, and want to be a part of it."