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Montanya Distillers

by Eric Peterson on December 13, 2018, 07:34 pm MST

www.montanyarum.com

Crested Butte, Colorado

Founded: 2008

Privately owned

Employees: 25

Industry: Brewing & Distilling

Products: Rum

Founder and CEO Karen Hoskin is guiding her craft rum distillery to dynamic growth and a growing exports business.

After working in branding and marketing, Hoskin was ready for a change. She went on vacation to Central America with her husband, Brice, in early 2008 and started a conversation that ultimately led to Montanya. "I said, 'I'm really burnt out doing this for other people's dreams. I want to do it for our own brand. We spent almost a week and a half talking: 'What do I love?’"

In the end, the answer was right in front of her. "I was sitting there drinking a rum cocktail at that moment," says Karen. "I've had a love affair with good rum for 25 years."

Her favorite before Montanya: Ron Zacapa from Guatemala, which ages in barrels at an elevation of 7,500 feet above sea level. Karen came home and launched the distillery in Silverton (9,308 feet above sea level), then moved the operation to Crested Butte (8,885 feet above sea level) three years later.

"Altitude affects every step of the process from start to finish," says Karen. Less oxygen makes for slower, better fermentation, and the temperature fluctuations cause the pores in the oak barrels to open during the day and close at night, imbuing more flavor than barrels in, say, Cuba or Puerto Rico.

During distillation at altitude, notes Karen, "We have better temperature regimes because of our elevation. It allows for less risk of over-caramelization and burning the wash. That's the reason most people avoid open-flame distilling, which is what we do."

Growth has typically ranged from 25 to 75 percent annually as the staff grew from 11 employees in 2014 to 25 today.

"Our ability to have a tasting room was huge for us to get through the first five years," says Karen. "We got the benefit of the pathway that the craft beer world paved for us."

Montanya Rum is available in Platino Light and Oro Dark (as well as Exclusiva and Aniverseria, each aged four years or more and available only in Colorado and the tasting room, respectively) and 44 states as well as Europe, Asia, and Canada. Colorado is the top market, but Europe is gaining quickly.

Most distillation takes place in Montana's chic tasting room on Elk Avenue in downtown Crested Butte. Aging, distribution, and some distilling take place at a second industrial location south of town.

Sustainability is at the forefront of the business plan. Non-GMO unrefined cane sugar is sourced from a family co-op in Louisiana., and the distillery buys carbon offsets but doesn't use plastic straws or throwaway cups, amid a long list of green initiatives.

Karen says Montanya recently became the first craft distillery in Colorado to get a B Corporation certification, noting, "It's an incredibly rigorous process." The company's score was considerably higher than the two other certified craft distilleries in the U.S.

Now she's looking to take the company to another level with a unique financing mechanism. "We are becoming a community-owned company," she explains. "We own 80 percent of the company and we're interested in decentralizing that."

She initially had a different model in mind: "We looked long and hard at becoming an employee-owned company. I've been incredibly inspired by what Kim Jordan did with New Belgium at about the same size."

However, she notes, "I couldn't find a way to put an ESOP together. The big hurdle is buying back out the shares of employees who leave."

Montanya had taken on investors before, with a minimum north of $25,000. Most people "didn't want to come in at that level," says Karen.

It follows that Montanya will start selling $1,000 shares at a "grassroots level" in early 2019, she says. "Our goal is to ideally raise about $750,000. I would sell up to a $1.5 million stake in the company. It's exactly what we need to get to the next phase of growth."

The Hoskins will maintain at least 50 percent of the company and be the proxy voter for community investors. "It's an equity deal. It's not like Kickstarter, where you chip in $250 and get a bottle of rum. They're going to become a class of owner."

It's open to a broader community than Crested Butte: "They could be second homeowners. They could be from Denver. But they can't be alcohol beverage industry individuals." The investment round should close by spring 2019.

The strategy is based on the unique logistics of craft distilling, which isn't a good fit with most traditional financing models. "I don't borrow from banks anymore unless it's a revolving credit line, but even those are ill-suited for what I do," says Karen. "The only option I have is selling equity in the company."

In the end, it's all about supporting increasing demand. "We just had a huge third quarter," she says. In 2018, "We pretty much doubled our sales volume and it has potential to go higher than that."

Challenges: Aging spirits for a year-plus presents issues with cash flow. "All of our rums are aging longer, including Oro and Platina," says Karen. "Cash flow is a challenge with operating the company. . . . There's nobody in the world who pays me for rum I'm going to be making in a year, or two, or three. I'm on the hook for all that production before I see a single dollar."

"We have a great crew," she adds. "The challenge is having feet in the ground in other markets." Reps in some markets "are reliably a colossal disappointment."

Opportunities: Exports are booming for Montanya. Since 2016, a partnership with A & S International sends barrels of rum to Spain for distribution in Europe that are botted in Jerez, "the center of the sherry production region," says Karen. "There's tons of infrastructure. . . . They take our rum and it gets bottles in one of the small bottling houses in Jerez."

It's a turnkey deal, she adds. "There's no need for a distributor in the EU. [A & S] is compiling a portfolio of American craft spirits. We won the rum category."

A & S gets Montanya on the shelves of some of the best markets in Europe. "We're cultivating relationships with these really beautiful, high-end stores."

The end result: European sales have surpassed those in every state but Colorado. "Very possibly in the next 12 months, the EU will be bigger than Colorado," adds Karen. "It's a big deal and it's getting bigger."

Online sales are also on the rise through a number of retail partners. "I don't need any help from a distributor. I can do it remotely wherever I am," she says. "People are really shifting how they buy alcohol. They want it delivered to their door, and they want exactly what they want."

The ability to track marketing and other data is huge. "With a small mom-and-pop shop in LoHi, I can't know if someone made it there [based on a campaign]," she says. "That's really powerful for me."

Needs: Montanya is in expansion mode, and that means all of the above. "I need lots of people to pony up and become an owner," says Karen. "I need help with my job. I need to produce more rum, which is both infrastructure and labor. And I need to continue our brand development efforts in more markets. . . . That takes money, it takes time, and it takes showing up with rum and making cocktails."

"I need human beings in more markets working directly for me selling rum," she continues, whether they're multi-brand freelancers or employees. "They need to be quality, and they need to be self-motivated."

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