The COVID-19 pandemic has brought rapid change and challenges to Ontario’s thriving alcohol industry. In a new series, TVO.org is speaking with stakeholders to understand how different parts of the sector are reacting to the pandemic. Today: Geoff Dillon, president of Dillon’s Small Batch Distillers, in Beamsville.
Matt Gurney: So, as always, let’s just start at the beginning — tell me about your business.
Geoff Dillon: We are one of Canada's premier craft distilleries. We're down in Niagara; we opened up in 2012 as one of the first craft distilleries in Ontario. We opened up to make use of local ingredients near here. The grapes, the fruit, the grain, all local ingredients: grain to glass, it’s all local. We do everything right here. We turn it into unique spirits. We've been doing that for years now, and we’re having a great time just creating new, fun, interesting products and getting it to people.
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Gurney: I hope you don’t mind a personal question, but what led you to this? When did you decide you wanted to make locally sourced spirits? There are not a lot of you in Ontario. It’s very new.
Dillon: Well, it’s definitely getting easier! I was in university for biochemistry, kind of following in my dad's footsteps. He is a professor in biochem, but he also was obsessed with Scotch whisky his entire life. Since he was in university, he's been collecting single-malt Scotch, and so I grew up around an enormous amount of spirits. I always thought this was super interesting. And then, in university, I just fell in love with distilling. It was a bit of beer making, and I did some winemaking, but distilling was just a whole other level. And nobody was doing it. Especially in Ontario. I was just sitting there, and I suddenly knew. I knew what I wanted to do. My wife was in school — she was heading off to med school — so I knew that we'd have somebody in the family with a secure job down the road. So I decided, I'm just gonna sell my house and take everything I got and throw it at this and take a big shot.
Gurney: That’s fascinating. I want to jump in, though, because, a few times there, you’re alluding to something. You say it’s getting easier. You said no one in Ontario was doing this. I don’t know much at all about your industry, but I know enough just from general news reading that it really only got off the ground in very recent years. It had been regulated to death before that. I know that’s not what we’re supposed to be talking about today, but can you tell me a bit about that? You started in 2012. What changed eight years ago that let you do that?
Dillon: Nothing. The only thing that changed eight years ago was I figured out a way around the rules. [laughs]
Gurney: Oh, man. Go on.
Dillon: Look, there are two problems in Ontario. One is taxation. Taxes on spirits are enormous. It’s a real barrier to entry — taxes are like 300 per cent. I make $10 on a $40 bottle of gin sold at a government store. That was a problem and remains a problem. But the main thing was a rule in Ontario that any distiller needed to use a 5,000-litre still. And that was crazy.
Gurney: Okay, I’m sorry, I’m interrupting again, but just because I don’t know anything about this stuff — I’m assuming 5,000 litres is big? Like bigger and more expensive than you need when you’re starting out?
Dillon: Right. Exactly. A 5,000-litre still is what you’ll see at the huge distillers in Scotland, places that have been open for centuries and export all over the world, selling hundreds of millions’ worth of product. A still that big is millions of dollars of capital outlay upfront, before you fill a single bottle. For us, most of what we make, we use a 450-litre still.
Gurney: So when you wanted to start in 2012, the rules required you to spend money on a still that was — what, 12 times larger than you needed? And, presumably, about that much more expensive. But you found a way around this.
Dillon: As a pipe dream, I reached out to all the still builders in the world. There were 12 at the time. And I explained that Ontario required us to have a 5,000-litre still. But I asked them, since we’re going to need a big holding tank for our mash anyway, could we put a still on the tank? And maybe the still wouldn’t work that well, but if we put it on top of the tank, we could probably check the box with the Ontario government and get a licence. And a company in Germany, CARL, one of the oldest still makers in the world, listened to my idea and said, well, sure. Why not? Let’s try it. So they put a still on top of a 5,000-litre stainless-steel tank. It took them 11 months to build it, and it’s an amazing still — very simple to operate. And it worked. Ontario gave us our checkmark, and we were in business.
Gurney: [laughing, a lot] Okay, so I just want to confirm this. I want to make sure I have this right. You found a loophole and were able to design a reasonably sized still for your needs, but it was attached to this monstrously sized holding tank. But it was enough to convince the province.
Dillon: Well … yeah. That’s it. And it let us grow for six years without having to add anything else. It’s our mash tank. It’s our stripping still. It’s simple and was a lot cheaper than any of the other options, because we just added a big steel tank. And it’s the best piece of equipment we have.
Gurney: And since then, things have gotten better?
Dillon: Yeah, on the regulation front, especially. About four years ago, we were on a committee with the provincial government, and we helped push an effort to eliminate the rule about needing a 5,000-litre still. That was about four years ago. That rule no longer exists. All the new distilleries probably don’t even know it used to exist. You can have a 10-litre still on your desk at home and send some to the government for testing and get a licence. You don’t need big equipment, which is why we’ve seen 30 or so new craft distilleries opening in the last few years.
Gurney: And that explains the craft-spirits renaissance in Ontario.
Dillon: Exactly. And, on taxation, we've made some progress. Nothing revolutionary, but some progress on that. So stuff we sell out of our own distillery retail store here, we get a better margin than at the LCBO. Not much of a break there. But that's more of a grind. You're just constantly working with the government trying to try to change that.
Gurney: Okay, wow. I didn’t imagine your backstory would be that interesting. But that’s amazing. Let’s get back on track, though. Assume I know absolutely nothing about your business. How do you take a handful of grain and turn it into something that you sell in a bottle?
Dillon: Spirits are a distilled product. So we're kind of like a brewery and a winery. We have both a wine licence and brewing licence. To make whisky, we're taking grain, and, for us, it's 100 per cent Ontario rye. We're taking grain; we're mashing it; we're fermenting it. The exact same thing that anybody making beer would be doing. They would just be using different grains. You're breaking down the starch in that grain. You're throwing in yeast. You're letting it ferment for a few days. The yeast eats your sugar and turns it into alcohol and carbon dioxide.
By the time you're done fermenting, we've made basically a beer. We don't use hops. That's kind of the only real difference. We don't need hops to preserve, and the bitter flavour doesn't go well with distilling. We're just taking grain, putting in water, and mashing and fermenting. And then the big difference is we then put it into the still. We heat it up; we boil it. And the beautiful thing about ethanol is it boils at a lower temperature than water. So water boils at 100 degrees Celsius. But ethanol boils at 78.4 degrees. So the stills are just a tank with a steam jacket on it, usually copper. There is a pipe coming out the top, or “the helmet,” and the pipe goes to a condenser, and we're just boiling or catching that steam that coils off of it. We cool it back down in the condenser. Whatever we cool down, that's what we’re keeping. At the end of a distillation run, we've filled a still with beer, we've boiled it, we've taken all the alcohol out, and we've left most of the water behind.
Gurney: And you make different products — whisky, gin. And I’m guessing that’s just variations in ingredients and processing.
Dillon: Right. It's a great question, because we take Ontario rye, and we turn it into our gin, and we also turn into a rye whisky. It's the exact same ingredient as the base. But something like a gin, say, you're going to distill it a whole bunch of times. You want to make it super clean and neutral. You don't want to taste whisky in the gin. So you distill it over and over until it's all pure ethanol. We distill it all the way up to 95.2 per cent. And then we put it back in the still and do a final distillation, but this time, we have our flavouring. So for our gin Seven, we have seven botanicals. We grind those up and put them above in the steam column, above the spirit in the helmet. And we're boiling this nice neutral alcohol a final time. And, this time, that alcohol is boiling, that's steam climbing up and dancing over those botanicals, pulling out the flavours, mainly juniper, and then going into the condenser and coming out as a freshly made vapour-distilled gin.
For whisky, you don’t have those extra flavours, and you want to keep the flavour of the grain. You mash your rye and put it in the still, and you distill it. For us, we distill it twice, to 70 per cent. That other 30 per cent isn't just water. It's thousands of other compounds that are the flavours that came from that grain. A whisky, because it's dark, it's aged, it sits in a barrel. It goes into an oak barrel and sits there for a number of years to let those flavours mature, to be pushed and pulled in and out of the oak, and, with temperature changes, it matures into whisky.
Gurney: So we’ve covered the origins and the process. Tell me more about the business — before the pandemic, what was business like?
Dillon: Our biggest customer by far is the LCBO. We sell in every province in Canada at this point. So most of our liquor boards, we sell to. We sell in the States, five or six states, and a couple other countries. Restaurants are huge for us. In the GTA, I hazard to guess most of the top 200 restaurants in Toronto would have us on their bar — some Dillon product. So I'd say liquor boards are 50 per cent, and maybe 25 per cent of sales goes to restaurants, many in Ontario, and then another 25 per cent is our own retail. We are kind of like a winery down in Niagara. You can come in. Not now, obviously! But, normally, you can hang out and have a tour. Now it's more of a pop-up shop, which is actually incredibly efficient. We love it. We also sell online.
Gurney: What has the pandemic meant for you?
Dillon: April was the craziest month of my life. On March 13, we put on social media that we were still open that weekend, but we weren’t sure how long we’d be able to stay open. And I mentioned, oh, we made some little bottles of hand sanitizer, and it’s free. I added a little aloe to ethanol and put it into tiny little bottles, 30 millilitres, because I’d heard that people were having a hard time finding any. I got a call on Saturday morning — I just live next door. And my staff told me, we’re out. It’s gone. So I went back and made another 500 bottles. By Sunday, we’re out of those. So we made another thousand. They sold out. By Monday, we had so many hospitals asking for some. Doctors. Fire stations. Police services. We wanted to keep it quiet. We were not licensed to sell hand sanitizer. It’s a long process to get approval for that.
But the word began to spread. We didn’t want it to! [laughs] Doctors were asking. More police. And I said to my staff, look, there’s huge demand. And we have a huge building full of alcohol, and I’m laying off staff because we have nothing to do. So why not do something with this? We posted on social media of us using the bottling line, putting 65 per cent alcohol into bottles with the worst, crappiest labels. We printed them off ourselves. And we sent it all to hospitals. And after that social-media post … complete mayhem. In just a few weeks, Health Canada completely changed their process. The approval process took five days. We were approved by the end of March. April hit, and now we’re selling a million dollars’ worth of sanitizer, but we did it for free. It went all across Ontario. And it got crazier. Some days, we’d have a thousand cars in our lot. We couldn’t handle it; we didn’t know what to do. For a month, it was working 20 hours a day. Just madness. A month of that. We had 10,000 orders in four days. We’d normally have five or 10 orders. We turned into a distribution centre. It was crazy.
Gurney: Before we go on, I just want to note a story within a story here. It took you years to get the alcohol regulations in Ontario reformed. To get the size of the still reduced and work on taxes. But then the pandemic hits, and you get a medical-product licence from Health Canada in five days. It shows you how terrified the government was that we were caught without essential supplies.
Dillon: Yeah. Well, also, I was just giving it away for free, so what could they really do?
Gurney: Let me ask you a technical question. With the equipment you have on site, and the materials you normally use, how hard was it to switch from making craft spirits to hand sanitizer?
Dillon: Not at all. We distill ethanol. And ethanol seems to be the best way of killing this thing. It’s the medical ingredient that everyone needed, and we were sitting here with a bottling line we added two years ago, a new still we put in last year … it was stuff that was going to allow us to scale up our own production in the long run, but, all of a sudden, we had to get it all going at 100 per cent. In a week. The difference to make sanitizer was adding just two components. We added 1.5 per cent glycerine, just vegetable product, as a moisturizer so you don’t dry out your hands. And we added a little hydrogen peroxide. So we had to find those two components. And then we just added it to our alcohol. Bottles were hard. We had spray bottles, but they’re harder to find than diamonds now. So we used wine bottles, spirits bottles. Twenty-five wineries down here donated their own bottles and glass to us so we could keep bottling. Caps, too. Anything they could spare. We’ve been using whatever we could get because everything else was gone.
Gurney: How is your supply chain? Is it holding out?
Dillon: Our agricultural inputs are local. We use Ontario fruits, Ontario grains. But I hadn’t thought about that until I asked, so I’m going to call them today. [laughs] The challenge for us was just a packaging issue. Spray bottles or the little plastic squeeze bottles that you can have in your pocket, no one had those. They were gone. But everyone has some at home, right? So we could use our own spirit bottles and tops, and people could fill their own small bottles at home.
Gurney: I want to ask you a technical question again — I don’t know how your machinery works. If you’re making gin today, can you make sanitizer tomorrow?
Dillon: We had had a good run earlier this year, so we had a warehouse full of spirits in March. We were able to move everything to making sanitizer. In April, we started making spirits again, because we were giving the sanitizer away, and we had run out of the spirits. We did 50,000 750-millilitre bottles of sanitizer, and I’ve made sure we still have some. We have supply here. If you need it, you can get it. But we’re back to spirits production now.
Gurney: If you needed to make more sanitizer — starting from zero, just the raw ingredients — how long would that take?
Dillon: I’d say about two weeks. The processes take time, so, yeah. We could start a batch today and bottle it in two weeks.
Gurney: Geoff, as we talk today, Ontario is slowly opening up. Phase 1 is underway. God willing, it goes great, and we defeat the virus and life goes back to normal soon. But if this grinds on, what is that going to mean for your business?
Dillon: We lost a big chunk of it with all our restaurant friends closing down. I'm excited we’re reopening. I would like this thing to be over so we can open up as soon as possible, because I'm okay with where my business is right now, but I don’t know how long this is sustainable for everybody. We did really well with sanitizer. It felt good to help a lot of people. But I'd like to get back to normal and have all our friends back to business. Because they are our friends. We care about them. But they’re also our marketing! We don’t have a PR agency or a marketing budget. It’s good for us to have our product in Toronto’s best and coolest restaurants. They’re the ones who got our name out there the last eight years.
This interview has been condensed and edited for length and clarity.