How Spirit of Texas Bought $500K of Retail Whiskey for $40K and Took a Deal

Alright, we are here just North of Austin, Texas at the spirit of Texas brewstillery run by three friends

that we've started with rum. We've now have rum and whiskey and we're craft brewing beer.

Now they're on the hunt for cash.

We stepped into a loophole in the market by purchasing this whiskey from a distillery that's going under.

There's auction sites for bankrupt breweries.

Yes.

The question is, I write a check to help them grow quicker?

I'm looking around $100,000 I buy more barrels from other distilleries that are going under for very low prices.

Is there a lot of that opportunity, though?

There is. Yes.

I love buying distressed assets, especially when they're alcoholic. Hey.

How are you guys? Good. Nice. I'm Nathan.

Nice to meet you. I'm Shaun Siems.

Shaun, good to meet you. Good to meet you.

The crew? This is my crew.

I'm Nathan. Paul Gray. Paul, very nice to meet you. Hello?

Hello. I'm Danielle.

Danielle, I'm Nathan. It's really good to meet you. It friends, co founders? What's the story?

This is my sister, Danielle.

Okay. Danielle, Shaun, sisters. And what's Paul's relationship?

Been very good friends of Shaun and his wife for going on twelve years now. I spent thirty years in the tobacco business, retired from that, went to Shaun and said, You need a sales manager. I don't want to quit working. Let's make this happen.

Why did you know that he needs a sales manager? Because he he was the only one.

He's got another full time job as well. So he's trying to do two jobs. Didn't have a salesman.

Are you guys full time today or is it still part time?

These two are full time.

Yeah. I also rent a ranch and I have a 10 year old. Oh my lord. I'm very stretched. We do it because we totally believe in the product.

What is the product? Products.

Products. Yes.

What is the product?

So we are a brew distillery here. We've started with rum. We now have rum and whiskey. We're craft brewing beer. So in college, rum was always one of my favorite spirits. And so I decided to start with, a rum. I actually started with the darker rum. This is a rum that we wanted to incorporate Texas into it, so I thought, what better than to add some

Texas pecans?

Pecan tree rub?

Think so.

These were your first?

These were our first.

Okay. And what year did you open this location?

2009.

Do you guys remember total revenue in 2009?

Didn't hit the market till 2010.

Okay so no revenue in '29?

No revenue in 02/09. 2010...

Under $200,000

Yes. It was probably closer to like $60,000.

60,000?

So we had a very small distributor, which was a friend of mine. Immediately after that, we basically signed on with a national distributor.

What year was that?

Two thousand and

twenty twelve distributor comes on. Do they, you know, sometimes these guys promise the world they do like zero sales.

They They move the did in the beginning and then it just kind of started getting to the point where it was...

You're too small for them. They make more money from other clients. Why would they give you the time of day?

We're competing with the biggest brands out there.

Okay so what were total sales in 2012? Did you still flat or grow a little?

In 2012 we did grow a little. It was probably about 150 ks at that point.

What year did Paul join the business? Paul, what year did you join? 2023. And what sort of scale was the business before Paul joined? Like 2022 total sales, do you guys remember?

Stagnant for a very long time, around a couple of 100,000.

Okay.

Built this tasting room, doing the event venue, doing the retail sales, putting in the brewery, selling glasses of whiskey, right? And so I'd rather sell hundreds of cases of whiskey.

Most of your sales are now happening here. People are walking in and leaving with a Yeah, product

since COVID it really has kind of converted that model for us. Paul's out there doing everything he can to help us to get in these markets and get in new stores. And our distributor is just kind of blowing them off, right? He's going in picking up accounts, handing them over to our distributor and saying, Hey.

Close them.

Yeah, go close them. And they're not even following up. So where are you?

You fired that distributor right So

we fired that distributor, moved on to a smaller one.

Are they doing a good job?

No. Mm-mm.

Nope. They went and picked up some other accounts in other states, and they kind of put all their money and time towards that.

They're distracted. Yes. Okay.

Biggest part was when we were switching from that large distributor to a smaller distributor, and we tell the big distributor, okay, you're fired, you're not helping us. They basically went and told all their accounts, oh, this company is dissolving, they're no longer going to be available. They So cancel all of our SKUs and all the stores that we had already gained, almost a thousand stores that we were in.

So immediately what I had to do was put emails together and email 500 stores.

Blast it.

Yeah. We're not out of business.

So the strategy now though is mainly Paul. Yes.

And the nexus.

And the nexus. And that's something new that we just started this year.

What's the nexus?

It's called Bottle Nexus. They're a national company and they do online sales.

It'll be huge for us to have a nationwide distributor like that because right now with our distributor, we can only sell in Texas.

But a key part of your business model is getting people to come here in person. Pivots happen all the time. These guys went from focusing on distribution to focusing on actually in person direct to consumer experiences. If you had a big pivot, let us know in the comments below. Maybe we'll show up on your doorstep to make a deal next week or next month. This feels more Charlie in the chocolate Factory back here.

Very much so. Yeah. This is our distillery. This is where the magic happens. So we've got 600 gallons worth of capacity here. We're actually installing a second still right now.

What does this cost? How much did you spend on all this equipment back here?

Tens of thousands of dollars. Yeah. Everything starts back in this Latina tank.

Okay.

Right? So this is a fermentation vessel for our rum. We start with molasses and water and yeast. It takes us about fourteen days in the Latina tank. That pumps into the still here. We boil. The distillation is separating alcohol from water. And so the vapor, as it touches the copper, it condenses, drips down, and causes another distillation. Highest proof alcohol vapor comes up and over down into

what's called, the condenser.

Mhmm. So am I understanding this correctly, that huge massive thing turns into just this much smaller amount?

Yes. We're separating the alcohol. So we're taking 10% alcohol, turning it into 80% alcohol. After that, it goes into the Konex boxes you saw out back. Okay. That's where all of our barrels are.

How long does it stay in the barrel?

Anywhere from six months to eight years.

Wow okay bottles you showed us at the beginning that you have bottled how many of those come out of one cycle

Out of a single batch Little over 600 bottles.

600 bottles? Yeah. Okay. Yeah. You know, do you generate revenue back here at all?

It's mainly the bottle sales that we're doing at our tasting room.

My point that I was getting at though is most people wanna buy an experience. You're trying to pull people in here. Right. Do you... Is this part of a tour that you offer? It is. Like, I mean, this is ultimately what you want people to see. Right. It makes them feel connected to you in a story.

Right.

How do you make them feel what you just made me feel?

We do tours on Friday nights and Saturdays.

What are you charging for these tours?

So our tours are $10 per person.

Okay. And when you look at last year's total sales, what percent of those sales would you say came from tour revenue?

Maybe 1%.

Oh, so it's a small...

Very small percentage. I

feel like that is a massive opportunity that you're missing.

I think so.

I think people would pay a lot for... Because this is like you can't get this anywhere else at a general... A generic, you know, other place to buy beer. Right.

So... This is our... What we call our tasting lounge. We host lots of events in here. We do a monthly comedy show. We run karaoke up here, the live bands. We do private events.

If people wanted to rent out this space for a night for a couple hours, what would they pay?

We charge, dollars 100 deposit and then we do three hour minimum a at $100 an hour.

That feels cheap to me.

That's great. That's for the lounge. If they want to rent out the entire space, then we'll do 500.

This is our back area. We host anywhere from 50 to 200 people back here at these events.

Okay. So Danielle, tell me about the largest event you ran and did it drive real revenue that So,

we just got done hosting midget wrestling.

What? Which was amazing.

Well, the last thing I expected to hear going in this was midget wrestling. Not even one of those words. Midget people wrestling would have been a long shot. Okay. I'm just shocked.

They came and set up a ring. We had about 200 people here. Major. And then we we had a couple food trucks come in. They all make their own revenue. So the only thing that we were making is our our drink sales.

How much did you make that night?

We did $4,000 in two hours.

Was that your most successful two hours ever?

For two hours yeah.

PSR is your best seller right? Walk me through the margins on a PSR sale.

We're basically all in at $4.37.

Okay. What's it retail for?

Retails for 20

Those $7.90 sound like good margins to me.

They are.

If we go through the distributor then then we sell it a lot less than that.

About half price.

About half

the value.

So $13. Yeah. This is another argument for owning our customer relationship directly. Our margins will be much higher. Yes. Absolutely. Alright, Shaun. How do we break how do we break a million of sales in a year?

This is Spirit of Texas bourbon Mhmm. That we're... Have collaborated with a distillery out of California. Mhmm. We're looking to launch this new brand this... Later this year. Mhmm. This is something that I want to take all over the nation. We did land a deal with Carnival Cruise Line. Okay. And our Silver Rums have been over on the Carnival Cruise Line now for a few months.

I mean, that feels like a very big deal.

It does.

When you sign with somebody like a Carnival Cruise, is that like... You know, are they committing to, like, a $100,000 worth of spend or 5,000 worth of spend?

We are on their shelf, as one of their premium rums, but we're not necessarily on their menus. So to get the menu placement, that's where you're gonna be doing the hundreds of thousands of dollars in spins.

Why would they... I mean, you guys are a small operation out of Pflugerville and North Austin. Why would they give you a yes when you're competing with these other massive brands that give them millions of dollars of business? Why would they give you a chance?

Carnival went to Kira Sam, the distributor, and said, we want a rum out of Texas on this ship. Why? Because it's a maiden voyage out of Galveston. Okay. They were starting here in Texas. She literally googled spirits in Texas. Boom. And we Here we go.

Good SEO. Have rum already on the cruise ship. Yes. Correct. You wanna now get this on the cruise ship. Correct. Why do you think this will get you to millions of sales and the rum hasn't got you to millions of sales?

Everybody likes whiskey. Even people that don't like whiskey like whiskey.

Okay. I think we stepped into a loophole in the market by purchasing this whiskey from a distillery that's going under. I literally was able to purchase those barrels of whiskey for what it cost me to purchase the barrels empty.

Oh, love this story. Wait, how so did you know that this other place is going out of business?

Because I follow a bunch of auction sites.

Seriously, that's what you do. Yeah. There's auction sites for bankrupt breweries.

Yes.

I mean, look, anytime I see a way to trade a dollar to buy ten years, that's a great investment because you can't buy time. This is buying time.

Yes.

Absolutely. Because the age is what drives up the value. Right. So what did it... Can I ask you, what did it cost you to buy a bankrupt distillery? Are we talking, like, $10? Because it was That's about about $40,000. Okay. About $40,000 flash

And it's about retail over $500,000.

I think, I think that math works. So If you can sell it.

Oh, it'll absolutely It'll sell. I won a bronze medal at the Texas Whiskey Festival.

For this?

For this.

Here we go for that. So the only problem is is, you have very limited supply, and there is no supply chain after it. It's like, you can wait eight years.

Right. Mhmm. So that means I buy more barrels from other distilleries that are going under for very low prices. And now we have different batches of distilleries.

Is there a lot of that opportunity, though?

There is. Yes. Especially right now.

Really? Yes. Unbelievable. Oh, love I love buying these distressed assets, Especially when they're alcoholic.

We've got enough product that would get us at least through a year and a half to two years.

So you said you'd have no problem selling this. Are you saying you still have to invest a lot of money to market it or would it No, sell by

would still need to market Okay. Yeah. I mean, it it will sell itself when people taste it, but you still gotta have people in the market doing the tastings. You gotta have Paul out there pushing it into product... Into stores.

This won't sell itself unless you get people to taste it once. The only way for you to do that is to get them to come in here or hustle you around Carnival Cruise. I don't like investing in things where there's a third party we have to rely on. I want to bet on you three. Yeah. And we have full control. So what we have control over is getting people here.

Marketing to get here.

So they can taste it directly. You can tell a story and you sell it.

Get it on the Nexus and do it nationwide.

Yeah. Yeah. Or on the website. Yeah. So I'm totally cool with both of those strategies. If you think their opportunity right now is to go buy distressed assets, other things that are going under that have barrels in the backyard, eight years aged, we can't buy time. This is a rare case where you can actually use money to buy time.

I see the same thing happening with some of the other distilleries in Austin, where they produce small batches, they launch it, they sell out within minutes on their website.

That's what you want. Absolutely. You want to drop it, but it has to be a rare story and it has to feel like a piece of art that you can't get unless you take action right now. Have you already thought about this? Can you make it easy for me? Is there a specific dollar ask you have?

I'm looking around $100,000 Okay.

And if I wrote a $100,000 check today, how would you pay me back or what would I get for that money?

You willing to do equity or I could do some payback? Okay. Are you interested in any equity?

I'd be interested in both. So how would you... I don't know how these kinds of brands are valued. What would you value the equity of the business at today?

I do have some other silent partners.

Okay these are maybe like investors that helped you in a rough time? Yes. Do you have any of their debt on the books?

We have a line of credit.

Are we talking $10, a $100, a million?

Under 100 probably.

Under 100? There's tons of assets around here. Mean this is expensive equipment. What's that balance? It's got to be above 1,000,000.

Probably pretty close to that.

So you have under a $100,000 of debt against over a million dollars of assets. Yeah. Is that a true statement? Yeah. I'm trying to figure out a way to write you a check where I don't have to worry about stuff I don't understand. Like, what actually is the right product decision? I don't know.

You're right.

I don't know if you're gonna sell a lot of us on your website or getting a carnival cruise. But if you've got a million dollars of assets sitting on the balance sheet, I don't have to be a smart guy to say, look, I'll lend you a $100,000, collateralize it two x. So go find $200,000 worth of equipment. If you don't pay me back on time, I take the equipment. You're gonna be very incentivized to pay me back on time. I don't have to worry about the product strategy or the future revenue growth because I can just... I know what my downside protection is.

Sure.

I'll just give you an offer so you can react to it. Yeah. Okay. $100,000. Okay. In exchange, that'll be collateralized with $200,000 worth of equipment as downside protection. And what we need to figure out is how cheap or expensive do I make that money for the business and how many months do I give the business to pay it back. And those two questions are really directly correlated to what is the use of funds and we want

to match the payback to the revenue generated from the use of funds. How many months or years would you want to pay back the $100,000 based off whatever you're going to invest it in?

I'll give you $100,000 today and you pay back $130,000 in the next twenty four months. Do you have a use of funds that you could take $100,000 today and make more than $30,000 over the next two years? If the answer is no, then we have no deal. I mean it's impossible.

Yeah. Think the $100,000 is what it's going to take just to kind of get Make that happen. Yeah, to make this happen. Then looking at the marketing behind it, I mean we almost need another 100 ks at that point.

So take $200,000 x 1.3x, it should be $260,000 So it's $10,000 a month of debt service if you take that deal from me. No. The question is, can you invest it and generate more than that monthly? Then you're in the money. If you're not, you're not in the money, and I'm taking over equipment in the back. Right. You're getting $200,000 today. What could you do with $200 today?

Lots of marketing, lots of advertising. Would would there be a way for us to be able to start the payments later?

The longer my principal's outstanding, the more risk I'm taking because time is risk. Correct. So if you want a longer payback or payment holiday, I'll just make my money slightly more expensive.

Okay.

But I'm willing to do that if if it's really important for you to have no payments the first couple months.

It is really

Okay, then I'll give you a six month payment holiday, but now the repayment's 1.375 over twenty four months. You're paying $15 to get six months of no payments. You can say no, mean, right? But you can also counter opportunities like this don't come along all the time. So do the best job you can. What are you thinking?

Yeah. Think the now money is gonna be the most important thing.

While he's thinking YouTube, help out. Help him counter. Leave a comment below. What would you counter with here?

200 what we need? Would that get us there?

I think we at least need 200 in order to get us there.

I don't know where the hell there is. You keep saying there, but I'm trying to figure out what there means.

You're talking a million dollars in sales,

That's got, so you think you can spend $200 and get to a million of sales,

Maybe not the first year, but it would directly within four years we could be there.

I'm going to walk away if you don't counter or say yes or no in thirty seconds.

It's on you, Shaun.

My gut is telling me that we should do it.

Do we have a deal?

Do we have a deal?

I would say yes.

I would say yes too.

Shaun, let's get to work. Let's do it. Alright. Thanks, man. I'm excited. If you guys liked that deal, remember, new episodes drop every Wednesday. Click here to subscribe so you don't miss out. Also, wanna see more deals like this one? Click here to see the next deal immediately.