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Balcones Distilling moving forward with $15 million move with or without founder

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When Waco business leaders toured the future home of Balcones Distilling last week, excitement hung in the air along with the heady aroma of malted barley.

Color renderings showed a $15 million renovation of the Texas Fireproof Storage building at 225 S. 11th St. with three-story copper stills and outdoor grain silos. Production is set to begin by October 2015 to meet pent-up demand for its whiskey and other spirits.

A tasting room would draw tourists, and a rooftop water tower would punctuate Waco’s skyline with the brand of one of America’s most prestigious craft distillers.

But conspicuously absent from the celebration was the man who founded the company in 2008 and until this fall was synonymous with it.

In fact, a temporary restraining order in effect since August prohibits company president and board member Chip Tate from going near the building or talking to the staff of the company after he engaged in a dispute this summer with investors. Those investors have sued to make his departure permanent.

In his first media interview since the conflict began, Tate told the Tribune-Herald on Friday that his return to Balcones is unlikely if it remains under the majority ownership of PE Investors LLC, an Oklahoma equity firm that entered the scene in February 2013.

Judge Jim Meyer of the 180th District Court will hear arguments Nov. 7 on whether the company followed its bylaws in suspending Tate. Another hearing is set for Nov. 20 on the temporary restraining order, which was modified this week to be less restrictive, allowing him to talk to the media.

The investors allege that Tate threatened them, failed to show up for board meetings and acted against the company’s best interests.

Tate hasn’t given up on returning to the business he founded if PE Investors were to give up its share.

“The simplest thing to say is that I don’t know what’s going to happen,” he said. “The most important thing for me is that I want to make whiskey.

“It’s like getting a divorce. You can yell and scream at each other and have World War III, or say, ‘Hey, this isn’t working out — one of us needs to leave and one of us needs to stay.’ It would be great to get back to Balcones. If I can’t do it there, then I’ll do it somewhere else.”

Bold personality

The conflict has set off debate and speculation in the world of whiskey connoisseurs, among whom Tate is known for his bold personality and perfectionism. Tate went to Scotland to apprentice at a scotch distillery and returned to Waco to hand-build his equipment and bring the first post-Prohibition Texas whiskey to market.

Dave Broom, in a Sept. 11 blog for the magazine Whisky Advocate, called Balcones “one of the flagships of the U.S. craft scene internationally” but wondered about its direction.

“What further complicates matters where craft distilleries are concerned is that they are not just buying into a brand, but a highly personalized vision,” he wrote. “Without Chip Tate, is there — can there be — a Balcones?”

For the employees now running Balcones — most of them trained by Tate — the answer is yes.

Company officials note that Balcones whiskeys blended since Tate’s departure won top awards at the Whiskeys of the World competition in September.

Meanwhile, Balcones is still facing runaway demand despite the legal drama.

Distillery manager Jared Himstedt said Balcones can meet only 10 percent to 12 percent of the orders for its spirits, with about 4,000 cases to be shipped this year.

Currently, the distillery is crammed into a 2,000-square-foot former welding shop in the shadow of the 17th Street rail overpass.

The new facility, a 1923 brick-and-concrete warehouse with 65,000 square feet, will dwarf the old one and will feature giant stills imported from Scotland.

Within a few years, as whiskeys are aged and ready for shipment, sales will increase more than tenfold, Himstedt said.

Himstedt said the expansion will also allow the company to branch out into new products. Currently, the company makes a scotch-like single-malt whiskey, several blue corn-based whiskeys and a spirit called Rumble, made from figs, honey and turbinado sugar. Himstedt would like to distill bourbons and possibly rye whiskeys.

“When you’re only supplying 10 percent of demand, any day you don’t distill something people are demanding — that’s a hard call,” he said during a tour of the new facility. “It will be a lot easier here.”

Hard to find

Balcones products are found at a few Waco bars and sporadically at local liquor stores.

“It’s relatively hard to get,” said Brett Jameson, owner of Dichotomy Coffee and Spirits on Austin Avenue. “We always have an order in, and we usually have it in stock, but most of the time we can’t get it.”

Dichotomy only sells Balcones as part of a three-drink “flight” or sampler for $22, but Jameson said he would sell more if he had more.

Spec’s liquor store on South Valley Mills Drive can’t keep Balcones products on the shelves, store manager Corey Shaw said.

“We ask for it twice a week, knowing full well it’s not going to come in most of the time,” he said. “We get calls about it multiple times a day.”

Himstedt said the legal conflicts have slowed the expansion project, but it’s moving forward full speed now. The investors last month decided to fund the $15 million project with their own money, and it’s now fully financed.

Himstedt said employees of the company have creative control over the product and continue to take a craft approach to it, using small barrels and using smell and taste to blend the whiskeys to perfection.

Winston Edwards, the company’s “brand ambassador,” said what makes Balcones distinctive is the human touch, as well as insistence on expensive grains and high-quality oak barrels.

Most of the whiskeys are aged for less than two years, first in small barrels, then larger ones, stored in the warehouse without climate control.

“One advantage in Texas is that we have a lot of temperature swings,” Edwards said. “Part of what speeds up the aging process is the breathing of the barrels. As they heat up, the pores open up and suck the spirit in, and when it cools, they contract, forcing the spirit out and pulling the flavor compounds out.”

Himstedt, who has been distillation manager from the beginning of Balcones, said he works with people who have “great palates” and can participate in refining the taste of the whiskey.

“In some ways it’s become a lot more communal,” he said. “We’ve taken a team approach to things that had one person doing them before. That process is kind of nice.”

Tate declined comment on whether the product has maintained its quality since he left.

“I was the one who did all the creative production, recipes and blending,” he said. “Obviously, someone else is in control of that now. I’m not sure who that would be in terms of skill set.”

Tate’s attorney, David Clouston, said Tate was not just a company president but a visionary.

‘Most passionate guy’

“I see him as the most passionate guy I’ve ever run into as to what he does for a living,” he said. “It seems hard to believe that anyone could replace that with his integrity and passion. It’s hard to believe it would be possible without him.”

The expansion itself was the brainchild of Tate. To fund it, he brought in outside investors starting in 2010 and gradually reduced his share of the company to 27 percent. Tate alleges that one of the investors misled him by failing to disclose that he was bringing in the Oklahoma private equity group.

Tate says the investors now in charge of Balcones falsely accused him of threatening them, and that he tried to work out conflicts calmly.

“There’s not a shred of truth in anything they said,” Tate said. “Most people understand that things like that can be exaggerated, but I don’t think most people imagine it might be made up.”

He said that if he doesn’t return to Balcones, he might be open to a settlement that involved him being compensated for his share in the company and then released from a noncompete clause, allowing him to set up another distillery.

Still, he said it’s hard to watch Balcones move forward without him.

“I designed all the equipment, made and blended all the whiskey,” he said. “It’s heartbreaking, it’s deeply disappointing. It’s very upsetting.”

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