‘Like money laundering:’ Thousands of new bourbons sold via Ky. spirits law loophole

A Kentucky law designed to legalize vintage bourbon sales has unintentionally opened a thriving but legally questionable loophole for new, highly sought-after brands.

Private citizens who have access to limited-release bourbons resell them — at times by the 12-bottle case, thousands of bottles altogether over the last five years, according to state records — to stores, where collectors and tourists pay much higher prices in a kind of bourbon arbitrage.

Some people sold multiple times, always expensive current releases: One man sold five cases of Weller Special Reserve, a case of Weller Antique 107 and half a case of Weller Full Proof in May 2021 to one store in one visit. Then came back in June with four more cases of Weller Special Reserve.

Another sold at least 22 times in 18 months, bringing Blanton’s, Weller, E.H. Taylor, Eagle Rare, Old Rip Van Winkle, Pappy Van Winkle and similar brands to the same Lexington store. In a six-month stretch, he sold almost 600 bottles, including 40 bottles of Blanton’s in one March 2022 trip.

These aren’t “dusties” turning up in grandma’s attic, unless grandma owned a liquor store. So where do the bottles come from? Some may be coming from out of state, insiders say.

Is it legal? Some stores have been operating under the assumption that if the bottles were legally acquired and the sales are reported, then yes, based on wording in Kentucky’s statute.

But that may not be how the Kentucky Department of Alcoholic Beverage Control sees it. ABC commissioner Allyson Taylor said in an interview with the Herald-Leader that she could not speak to the legality of the volume but some of those bourbon sales could be illegal. “I wouldn’t be able to tell you without the specifics of each bottle,” she said.

But others were more blunt.

“This is not what I thought the Vintage Spirits law was about. There is nothing ‘vintage’ about either Weller or Blanton’s,” said whiskey expert and writer Chuck Cowdery.

Cowdery compared the large sales to “money laundering for bourbon.”

“The big sellers are big players on the secondary market, I assume, who are ‘cleaning’ their inventory, likely accumulated from all over the country, through the few places where it’s nominally legal,” Cowdery said via email.

“These big sellers are not accumulating those quantities one bottle at a time. ... They’re getting cases directly from stores or distributors. Just as a observer of the industry, I would like to know how unlicensed individuals get very hard-to-find current releases in case quantities. But does that indicate anything untoward? I can’t say.”

What are vintage spirits sales?

When Kentucky’s General Assembly passed HB 100 into law in 2017 to allow “vintage” spirit sales, proponents hailed it as a chance for Kentucky to have the best “bourbon libraries” in the country.

It lets bars, restaurants and stores legally buy bottles from private citizens but they must report the purchases and must label the bottles with a special sticker so potential customers know that what they are buying came from outside normal distribution channels.

But the Kentucky statute left a loophole on what is “vintage” by allowing stores to buy any bottles “not otherwise available” from Kentucky wholesalers rather than specifying an age.

“The Vintage Distilled Spirits law is meant to provide to the industry things that are not available from a wholesaler,” Taylor said.

Whether an individual bottle meets the legal definition depends in part on whether it was available from a wholesaler at the time of purchase, she said.

So if a store calls the wholesaler and says, “Can I get a bottle of XYZ bourbon today?” and the answer is no, then it’s legal to buy it from someone who walks in off the street? Maybe.

“There’s a lot of situations where things are happening that are illegal. There’s a huge secondary bourbon market just out on the Internet, one person’s just selling a bottle of something to somebody else. And those are also things that we investigate,” Taylor said. “That’s not vintage distilled spirits that just black market alcohol sales.”

No one has requested an advisory opinion, which would be legally binding, on purchases of current releases, according to Kentucky ABC.

Thousands of bottles of Weller, Blanton’s

That has left a gray area, a lucrative niche market in supplying bourbons that are in high demand: Two current brands of Kentucky bourbon account for nearly a third of all the sales under Kentucky’s vintage spirits law since it went into effect in 2018: More than 2,400 bottles of Weller and about 2,000 bottles of Blanton’s changed hands in the last five years this way.

Both are Sazerac brands made at the Frankfort, Kentucky, distillery and CEO Mark Brown said, after reviewing the scope of the sales of his brands, that the law needs to be changed to protect bourbon drinkers from price gouging and counterfeiters.

“We want consumers to be able to buy our products at the manufacturers’ suggested retail price,” Brown said.

Taylor, the Kentucky ABC commissioner, said that the Vintage Distilled Spirit law has been a “huge boon for Kentucky.”

But she also confirmed that it has resulted in multiple ongoing investigations in alcohol sales, one of which was the recent raid on Justins’ House of Bourbon.

In January, Kentucky alcohol authorities raided Justins’ House of Bourbon locations in Lexington and Louisville while officials did the same at a Washington D.C. warehouse used to ship spirits ordered online via BourbonOutfitter.com.

No charges have been filed, but on May 10 Justins’ owners agreed to admit to two alcohol violations and pay $3,000 in fines to the D.C. alcohol board. It’s unclear what other legal action the spirits retailer may face after a months-long investigation involving Kentucky, D.C., Pennsylvania, Texas and federal alcohol regulators.

The D.C. raid found hundreds of potentially illegally transported bottles of bourbon and federal officials “voluntarily detained” bottles of Blanton’s that may have been improperly imported from the Netherlands, which was identified in documents as a potential source of counterfeit bottles. A federal investigator, who said an agent already was working in Kentucky on counterfeit Sazerac bourbons, told D.C. officials: “Sazerac product is more lucrative than heroin right now.”

In a mid-May interview with “Whisky Advocate,” owners Justin Thompson and Justin Sloan said that the bottles had been released by federal alcohol authorities and had “been cleared for commerce.” They did not respond to a request from the Herald-Leader for comment.

But other questions remain.

Kentucky ABC officials also seized “numerous bottles of bourbon and other items of evidence ... associated with suspected improper purchasing and sale of these products.”

Months later, the state has not released a citation listing the alleged violations or what was seized.

“The investigation related to Justins’ House of Bourbon is extensive and ongoing,” said Kentucky Public Protection spokeswoman Kristin Voskuhl. “All seized evidence is in the custody of the ABC.”

Voskuhl said the state does not comment on ongoing or possible investigations.

“The KY Department of Alcoholic Beverage takes very seriously its duty to regulate and enforce the law related to the trafficking of alcohol,” she said in a statement. “Any violation of our laws is concerning, investigated fully, and addressed appropriately. These investigations are often very complicated, requiring extensive investigative efforts and can sometimes lead to the discovery of other illegal behavior.”

Justins’ House of Bourbon raid eye-opening for other stores

Retailers say the rules can be confusing. Brian Dickens, a certified bourbon steward who owns The Barrel Market at The Summit at Fritz Farm, said the raid at Justins’ was eye-opening. He said that he contacted the local ABC office and sat down with them to make sure he understand the rules. Turns out he didn’t quite have everything right.

“I was not aware, for example, that on a bottle of vintage spirits I have to have a sticker that says that,” he said. He’s had stickers made and placed them on vintage bottles.

He also said he wasn’t aware that he was required to report to the ABC all purchases. “I was told I just needed to have a log available,” he said.

Although his Lexington store is stocked with hundreds of bottles of bourbon, before March very little of it had been reported to the ABC under the Vintage Distilled Spirits law.

Dickens said that he likes the law, which gives his business enough room to obtain bottles like Pappy Van Winkle, Blanton’s, EH Taylor and more that he’d never be able to get for customers otherwise. Some he buys from his distributor and some from private collectors.

Dickens said that much of it he bought directly from the distillery or at other liquor stores, and those purchases don’t have to be reported.

Dickens said he’s worried that changing the law could drive the secondary market back underground, to risky transactions that would forfeit state sales tax.

“It would mean people wouldn’t get a lot of bourbons that they want. You go into liquor stores around town today and you won’t be able to find a single bottle of Blanton’s, a single bottle of Pappy,” Dickens said. “You know the numbers, you’ve read them recently on how many people are visiting the Kentucky Bourbon Trail. And we get tons of tourists, out-of-town people, that come in … there’s no place that they can go to get a bottle of what we consider fine and rare.”

Except for a few stores in the “amber triangle” of Lexington, Louisville and Norther Kentucky.

Shannon Smith, co-founder of Revival Vintage Spirits & Bottle Shop in Covington and a city commissioner, is also an attorney practicing in alcohol law who has clients facing confusion over the law.

“Like most everything there is room for improvement,” Smith said. “I have seen inconsistencies in what constitutes a vintage distilled spirit. Ninety-nine percent of Revival’s product is undoubtedly not available through a wholesaler. What we do use a wholesaler for is our barrel picks. But there are questions out there as to whether something is available through a wholesaler.

“For example, generally, the Buffalo Trace Antique Collection comes to shops each year through a distributor but you cannot get a 2016 William Larue Weller, arguably one of the best. You can get a present year’s (version.) But different release years are a product of a variety of ever changing variables from weather to master distiller to age.”

Clarity around that particular issue would be helpful, she said. “But the law itself has helped make shops like ours a unique tourist destination and we are thankful for it.”

Some ‘dusties’ are being sold under Vintage Distilled Spirits law

The Herald-Leader wanted to find out who was buying, who was selling and what was changing hands.

Through open-records requests, the Herald-Leader compiled a database of sales reported to the Kentucky Department of Alcoholic Beverage Control.

The records show that the new state law has been popular with bourbon-centric bars and retailers: More than 14,200 bottles were sold to more than three dozen retailers under the Vintage Distilled Spirits regulation over the last five years since the law went into effect.

Some sold were the “dusties” or older bourbon bottles that collectors covet, such as the collection that Perry and Kerry Trouberman of Petersburg, Ky., inherited from his late father, who worked at an insurance company.

“These were given as gifts at Christmas. And they weren’t drinkers and we weren’t really either,” Kerry Trouberman said. Then a friend saw an ad in a newspaper looking for vintage bottles. A buyer from Cork ‘n’ Bottle came to their house and bought 41 bottles of bourbon in 2018.

“They were going to do a speakeasy, so companies could bring in bigwigs and do tasting in Crescent Springs. We got quite a bit for it, I was kind of shocked,” she said. “It wasn’t doing us any good sitting in the basement, so we thought, yeah we’ll sell it.”

Collectors such as Larry Rice, former owner of the Silver Dollar bar and restaurant in Louisville, also welcomed the new law as a way find and share a passion for vintage spirits. Rice transferred more than 50 bottles from the 1940s, 1950s, 1960s or even older to the bar, which he recently sold, according to the state records.

He bought his collection over decades, he said, hunting for unsold stock in old liquor stores. “I thought it was good thing for bourbon in general ... it brought a lot more bottles out and stories too,” he said.

But many bourbon sales are current bottle releases

But many of the purchases at other stores are not vintage at all. Thousands of bottles are current releases including Blanton’s, Weller, Buffalo Trace, Pappy Van Winkle, Old Charter, Rock Hill Farms and more.

That didn’t surprise Rice.

“I know for a fact that there’s a market for (the recent releases of in-demand bottles such as Weller and Blanton’s),” he said. When bottles are hard to find, people will pay premium prices, he said. Those bottles “sometimes can sell for 100 times the MSRP (manufacturer’s suggested retail price.)”

That creates a huge potential market.

Craig Rupprecht, general manager of Neat Bourbon Bar and Shop in Louisville, said that he often gets visits from “the ones I call ‘trunk slammers,’ with a trunk full of bottles they are looking to unload.”

Neat focuses on vintage whiskeys rather than current releases, although Rupprecht said they occasionally will buy them. But within limits.

“I have guys coming in very frequently ... Weller is a prime example. Ohio seems to be flush with Weller, and you have guys who will grab some and come and want to sell it,” he said. “For Buffalo Trace Antique Collection or Pappy, we would only buy from individuals we know very well. And we know the chain of custody. Because of the counterfeiting shenanigans that have gone on, and we don’t want any part of that.”

At the request of the Herald-Leader, whiskey expert Cowdery looked at what the top 25 sellers unloaded in the last five years — more than 5,000 bottles.

“True ‘vintage’ is stuff like pre-1987 Old Grand-Dad. You’re not seeing that here,” Cowdery said. “What you’re seeing is ... case quantities of current releases that are in hot demand on the secondary market. Kentucky’s system is apparently so wide-open that people are able to legitimize what would otherwise be transactions of questionable legality.”

No recent reports from Justins’ House of Bourbon, state says

Justins’ House of Bourbon opened in 2018 in Lexington with the private collections of owners Justin Thompson and Justin Sloan as inventory, according to records provided to the state.

Thompson and Sloan reported transferring to the store more than 200 bottles they owned in February 2018, and in 2019 Justins’ House of Bourbon bought more than 1,000 more bottles to sell.

While some were vintage bottles, most were more recent releases, many in-demand brands such as Pappy Van Winkle, Blanton’s and Weller and include some curiosities.

Justins’ HOB reported buying 130 mini bottles of WL Weller Special Reserve from one seller at one time.

Another person sold Justins’ more than 150 bottles of Sazerac brands, including nearly 100 bottles of Old Charter, one of the Frankfort distillery’s lower profile brands.

After 2019, the state records did not show any sales to Justins’ House of Bourbon under the vintage spirits law although the store remains open.

Neither Thompson, Sloan or their attorney, Tom Bullock, would comment for this story.

Another big ‘vintage’ buyer: Bourbon Creek

Justins’ HOB was not alone in expanding purchases to recent releases.

In the last few years, a river of Blanton’s, Weller, Eagle Rare and E.H. Taylor bottles poured into Bourbon Creek, which now has locations in Lexington, Louisville and Nashville.

The Fayette Mall store made more than 300 separate purchases in just over two years, altogether more than 4,500 bottles from 2021-March 2023 from individuals, according to reports to the state.

Few purchases were vintage collections of one-time sellers. Instead the store often bought from the same sellers over and over. One man sold bottles to Bourbon Creek at least 21 times.

All are hard-to-find and expensive bourbons. And almost all made at Sazerac’s Buffalo Trace Distillery in Frankfort.

Why Weller, Blanton’s bourbon aren’t always in stores

If there are thousands of bottles of Weller and Blanton’s floating around, why isn’t it on the shelves at your local liquor store?

Because the gray market has created a price incentive to siphon it away: Stores that get allocated bottles know that they will sell for far more on the secondary market than the suggested retail price.

No sellers will talk on the record but insiders say the stores sometimes sell to a middle man, at a premium, instead. The middle man, in turn, gets a higher price from a bourbon-centric store store, which marks up the price again. That’s how a bottle of Blanton’s with a suggested price of $80 ends up on the shelf at $250 or more.

Biggest vintage sellers won’t talk

Multiple attempts to talk with some of the biggest sellers in the database on the record were unsuccessful.

One seller named Shawne Mingua declined to comment. Asked how he collected the more than 360 bottles of Weller and Blanton’s that he sold to Bourbon Creek, Mingua said: “I collect it for many years from liquor stores, that’s all I really care to say.”

Whiskey collector Adam Herz, who is well-known for outing counterfeiters, has some ideas on where this Kentucky bourbon comes from.

“There are guys who drive around all day vacuuming up every limited release they can find. Some cover multiple states in what can be a full-time job. People like these store-vacuuming mega-flippers are why ‘the secondary market’ can be a hated thing. It also taints all the other enthusiasts who are actually about trading and appreciating what’s inside the bottle,” Herz said. “So, where are the bottles of current releases coming from? Stores, and very motivated people who’ve made it their job to buy limited releases en masse to flip.”

The quantities being sold are “pretty ridiculous,” Herz said after looking at Kentucky’s numbers. “The law enabling all that was well-intended, it’s just being twisted by some people to their benefit and the detriment of everyone else. But that’s not really a bourbon problem. It’s a politics problem, a law-writing issue. Laws are often flawed and refining them is part of the process.”

Mark Thomas, who is the managing partner of Bourbon Creek, which is owned by his wife, Camille, declined to talk about specific sales.

“If you’ve done an open records request then you’re aware ... we report everything to ABC that we purchase. If there’s anything they want us to be doing differently I’m sure they would let us know,” Mark Thomas said via text.

Thomas also apparently is one of the biggest sellers to his own store; according to the state’s records, from June 2021 to May 2022 he sold Bourbon Creek at least 180 bottles, including 14 bottles of Blanton’s Gold, two bottles of Blanton’s Green, 106 bottles of Buffalo Trace and 24 bottles of Bourbon Cream.

Thomas said that sometimes people tell him they live near the Buffalo Trace Distillery in Frankfort and have accumulated a stash to sell for a rainy day.

Sazerac knows this: Buffalo Trace puts out one “allocated” release (read: limited supply) in its distillery gift shop every morning. Buyers over 21 can buy one bottle per brand every 90 days.

Many mornings, customers are waiting at the distillery parking lot in their cars before dawn. When the gift shop opens, they buy whatever they can and walk out with a box of bourbon that they can probably sell elsewhere for double the gift shop price.

Some of the “flipped” bourbon ends up online in members-only bourbon groups on social media. Some of it ends up in stores like Bourbon Creek and Justins’ House of Bourbon.

“We probably turn away 75 percent of the offers that are out there,” Thomas said. “We can’t purchase as much alcohol as people are trying to sell.”

‘We provide a service’

He said that the legislation, which went into effect in 2018, is working but said that some stores use it to gouge bourbon tourists.

“Whatever I buy I mark up 30 percent or $25 a bottle,” Thomas said. Other stores go much higher, he said.

“Our stores in my opinion provide a service, a convenience fee. If you do it responsibly, then yes it can be a great opportunity for business and customers,” Thomas said. “But you have to take it upon yourself to comply. A lot of stores get lazy or don’t do it properly, and ABC investigators have a lot bigger fish to fry.”

He thinks the secondary market has been a big win for Sazerac, despite the company’s periodic warnings about fraud.

How to spot counterfeit Pappy and other pricey bourbons, from an expert

As far as questions about counterfeit bottles go, Thomas said that “if there’s ever a question I turn it away.”

Another big winner, Thomas said: The state of Kentucky, which gets sales tax twice and the second time on a much higher price.

“The state is making a fortune off of all this high-end bourbon,” Thomas said.