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Brown-Forman Wins Latest Round in Whiskey Rebellion

By Rich Duprey – Mar 27, 2014 at 2:51PM

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Resolution of the feud over the best way to make the state spirit delayed to some other day.

Like the Hatfield-McCoy feud, the warring over a protectionist whiskey law passed in Tennessee at the behest of Brown-Forman (BF.B 0.17%) has been sharp and bitter. While politicians just shelved its repeal to a later date, giving the distiller another win in the whiskey rebellion, it's likely going to lose the war as the legislature seems willing to water down the law or repeal it altogether. 

Source: Jack Daniel's.

It was a silly hornet's nest to stir up from the beginning. Brown-Forman, which manufacturers the incredibly popular Jack Daniel's whiskey, already accounts for 90% of all whiskey sold in the state. With global sales of the spirit soaring 30% in the first nine months of fiscal 2014, the distiller greedily sought to crush its rivals completely by having the legislature adopt a so-called standard of identity law that circumscribes how Tennessee whiskey is made.

Just as sparkling wine can only be called "champagne" if it is produced with grapes from the Champagne region of France, and bourbon whisky can only be distilled in the U.S. (and primarily in Kentucky at that), the state legislature codified Jack Daniel's Lincoln County process of making whiskey, which filters straight bourbon whiskey through charcoal into single-use charred oak barrels, an aging process that takes the edge off  bourbon's otherwise harsh taste. 

Brown-Forman further sought to alienate its rivals by deploying jingoistic rhetoric and warning that "foreign countries" would water down a distinctly American product.

Source: George Dickel.

That was a not-so-veiled shot at primary rival Diageo (DEO -0.27%), the U.K.-based distiller that owns the rival Tennessee whisky brand George Dickel, a spirit with an American pedigree every bit as storied as Jack Daniel's, though it uses the more traditional "whisky" spelling. Diageo hit back at the protectionism Brown-Forman pushed and sought to have the legislature repeal or rewrite the law. While state lawmakers initially took up the measure, they agreed to table it till after the legislative session ends after facing new pressure from Brown-Forman.

Diageo voiced support for the delay because it will ultimately allow the rest of the industry to have input into the creation of legislative language. That's a less than optimal outcome, since distillers should be free to experiment as they see fit, but at least it is a better outcome than leave a law on the books that only benefits Brown-Forman.

For all of Brown-Forman's fomenting about foreign intrigue, it's the international spirits giant Diageo that is standing up for American craft distillers who like to experiment with flavors and processes to create new enhancements. They're no less makers of "Tennessee whiskey" because they don't strictly adhere to Jack Daniel's methods of production.

Investors may just want to raise a glass of George Dickel to toast the spirit of competitiveness that will come out of this feud, as well as the prospect of ending hostilities between the warring factions. 

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Diageo (ADR). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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