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Investment Terms

Security Type: Promissory Notes (Revenue Sharing Interests)

Round Size: Min: $50,000; Max: $1,070,000

Interest Rate: Revenue sharing agreement which provides the investors 10% of the Company’s gross revenue, up to the repayment amount of 1.5x of their investment

Length of Term: Until the repayment amount of 1.5x investment is repaid

Conversion Provisions: None

Company Highlights

  • In 2016, the company generated a net profit of $263,658, up 34% from 2015 net income
  • Year-to-date, as of April 2017, the company has generated a net profit of $37,531, an increase of over 43% from the same period last year
  • Bar Club membership has grown to nearly 2,000, which, at $320 per year for a membership, equates to nearly $640,000 in annual recurring revenue
  • Plans to build out a full kitchen to qualify as a “bona fide eating place” as categorized under the California Alcoholic Beverage Control Act; this means it will be able to serve cocktails, beer, and wine any time of day and offer a new cocktail and food pairing service
  • Awards include:
    • Platinum Medal (2012 SIP Awards): Distiller's Blend Napa Vodkai
    • Platinum Medal (2009-2010 World Spirits Competition): Meyer Lemon Liqueurii
    • Gold Medal (2011 SIP Awards): Napa Vodka – Distillers Reserve Vintage 2008iii
    • Gold Medal (2010-2011 World Spirits Competition): Napa Vodka – Vintage 2008iv
    • Gold Medal (2010 SIP Awards):  NapaCello Meyer Lemon Liqueur XOv

Perks

*You are investing in debt securities in this offering. Perks are meant to be a thank you from the company for investing. The perks below are NOT inclusive of lower dollar amount perks. Investors outside of the US will have to pay for shipping separately.

$250: One complimentary tasting and tour at either location and $10 off towards spirits purchase.

$500: Two complimentary tastings and tours at either location and $10 off purchase towards spirits.

$1,000: Four complimentary tastings and tours at either location and $20 off purchase towards spirits.

$2,500: A complimentary Bar Club membership for one quarterly shipment. Includes a complimentary tastings and tour for four people, plus 25% off spirits for duration of membership (three months).

$5,000:  One complimentary Bar Club membership for six months (two shipments). Includes all the Bar Club benefits such as unlimited complimentary tastings and tours for membership and one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events.

$10,000: One complimentary Bar Club membership for one year. Includes all the Bar Club benefits such as unlimited complimentary tastings and tours for the member and a guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS one (1) ticket to NVD’s special BACK LOT launch party.

$25,000: Two complimentary Bar Club memberships for one year or one membership for two years! Each membership includes all the Bar Club benefits such as unlimited complimentary tastings and tours for member plus one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS two (2) ticket to NVD’s special Back Lot launch party.

$50,000: Four complimentary Bar Club memberships for one year or one for four years! Each membership includes all the Bar Club benefits such as unlimited complimentary tastings and tours for member plus one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS two (2) ticket to NVD’s special Back Lot launch party.

Company Summary

Opportunity

Napa Valley Limoncello Company LLC (d/b/a Napa Valley Distillery) (NVD) focuses on creating innovative distilled spirits that are primarily sold directly to consumers, which is uncommon in California. Taking a page out of the wine industry playbook, the company has improved upon the direct-to-consumer model by offering ways for consumers to tour, taste, learn about, and purchase craft spirits directly from the distillery. Family-owned and -operated by Arthur and Lusine Hartunian, Napa Valley Distillery was founded on one basic principal: Make it different !

Its creativity is driven by two questions: Why and why not ?

  • Why do the same as others?
  • Why not make it different?

Since founding NVD in 2009, Arthur and Lusine have been instrumental in the California craft spirits industry. Arthur was the founding President of the California Artisanal Distillers Guild (CAGD). Under his leadership, the guild lobbied for California Bill AB 933, which gave California distilleries the ability to operate tasting rooms. The bill was enacted into law in September 2013. The CAGD also successfully lobbied for the passage of the Craft Distillers Act of 2015, which now allows small California artisanal distilleries to host private events, have a restaurant, serve cocktails, and sell directly to consumers on site.

NVD’s first product was a Limoncello-inspired Meyer lemon liqueur that was blended from local Meyer lemon peels. Today, NVD offers a wide range of small-batch and limited-release spirits and cocktails and has two locations in the Napa Valley area: the main 12,000-square-foot production facility with a tasting salon and event center as well as a separate vintage bar shop and tasting room located inside the Oxbow Public Market in downtown Napa.

Product

NVD is probably best known for creating Napa Vodka – a handcrafted vodka made with single vintage Napa Valley Sauvignon Blanc wine grapes that was named as one of the Top 50 Spirits in the World by Wine Enthusiast when it was released in 2011.vi NVD currently makes over a dozen small-batch and limited-release spirits, including brandy, gin, rum, vodka, whiskey, and bourbon, as well as barrel-aged craft cocktails made from premium California brandies and all-natural ingredients.

NVD’s specialties are its oak-infused cocktails that replicate alcoholic drinks that were made and served in the U.S. as far back as the early 1800's. NVD handcrafts each recipe using its own craft spirits, all-natural ingredients, and handmade bitters. The ingredients are mixed together in small batches and infused with oak. It is this special aging process that allows the ingredients of the cocktail to truly infuse and intensify, allowing the cocktail to take on the complex characteristics of the oak. The end result is a smooth and elegant cocktail reminiscent of an era long gone by.

NVD cocktails include:

  • Mint Julep – The Kentucky Derby classic with California character. Infused with real organic chocolate and pineapple mint leaves.
  • East India – A lost classic from 1850, NVD uses its own California brandy, California curacao, and real organic blackberries.
  • Manhattan – A true American classic, NVD handcrafts each batch using the original Pre-Prohibition era recipe, which calls for American Rye Whiskey instead of Bourbon.
  • Negroni – The perfect pre-supper cocktail from the late 1800's. Created in Florence, Italy, by Count Negroni, NVD puts its own California twist to it by using handcrafted blood orange bitters.
  • Old Hollywood – This one goes back to late suppers at the Brown Derby on Hollywood & Vine. The base is made with gin, but the rest is Hollywood confidential and very hush hush.

NVD also sells over 400 different cocktail bitters, syrups, shrubs, and other cocktail essentials from around the world. Visitors can get a complimentary tasting of any of these cocktail essentials at the NVD shop.

Bar Club Membership

NVD Bar Club members get up to 25% off four quarterly shipments of spirits and cocktail essentials. Each shipment contains over $100 worth of products, including NVD's seasonal craft spirits, unique bitters, exotic cocktail ingredients and garnishes, barware, a newsletter, and recipe cards.

Other benefits include:

  • 15% to 25% off everything sold in the Tasting Salon and Vintage Bar Shop, excluding vintage barware
  • 25% off all online purchases (for both shipping and pick-up orders)
  • Complimentary shipping on most online orders over $125
  • Two complimentary tasting flights per membership when you visit the Tasting Salon in Oxbow Market, Napa
  • Invitations to exclusive Bar Club Member events
  • Invitations and discounts on tickets to Napa Valley Distillery events
  • Invitations for special educational classes, workshops, and seminars hosted by Napa Valley Distillery
  • Access to NVD Cocktail Whisperers and Personal Shoppers for corporate and private events

Distillery & Grand Tasting Salon

The Distillery and Grand Tasting Salon is fully open to the public. Distillery operations are located on one lot with two separate industrial buildings (Building A and Building B) that encompass 12,000 square feet and 35 parking spaces. NVD provides tours and tastings on site, which has helped drive retail sales and Bar Club memberships. Reservations are required, and the location is open Monday, Tuesday, Thursday, Friday, Saturday, and Sunday from 11 a.m. to 7 p.m. (6 p.m. Sunday).

Oxbow Public Market Tasting Room and Bar Shop

NVD operates a satellite distilled spirits tasting room and bar shop in the Oxbow Public Market located in downtown Napa, California. At this facility, visitors can sample and purchase NVD’s locally made craft spirits and artisanal cocktail bitters or browse through other bar essentials and novelties for sale. The Tasting Room is open Monday through Saturday (9 a.m. to 8 p.m.) and Sunday (9 a.m. to 7 p.m.). Reservations are required from Friday to Sunday.

Use of Proceeds and Product Roadmap

If the minimum amount of $50,000 is raised, net proceeds will be used primarily for equipment purchases and expansion construction. At the maximum amount of $1,070,000, additional uses of net proceeds include, but are not limited to: marketing, future wages, repayment of debt, research and development, general working capital, and reserve capital for other contingencies.

NVD plans to build out a full kitchen and operate a small restaurant in its main location. By having a kitchen within the distillery, Building A will become a “bona fide eating place” as categorized under the California Alcoholic Beverage Control Act. This means NVD can serve cocktails, beer, and wine any time of day and not just during private events. This kitchen will also enable the company to offer a new cocktail and food pairing experience.

NVD also plans to develop an additional tasting bar, hospitality lounge, and event center in the second building (Building B) within the main location.

Additionally, the company plans to increase production of its current line of products and develop additional craft spirits. NVD intends to increase wholesale sales with distributors in California and New York. It also plans to pursue additional export opportunities. To increase production and distribution, NVD will need to purchase additional equipment and raw materials and hire additional production staff. 

Business Model

NVD wholesales its products to bars and distributors and sells them directly to consumers via four separate retail channels: 1) bottle sales out of its two locations (Distillery and Tasting Salon), 2) annual Bar Club memberships, 3) website sales, and 4) private events. NVD also operates consumer distillery tours and instructional tasting experiences out of both its locations and operates an event center out of the main facility.

  • Bottle sales: Individual 375 ml bottles generally retail between $20 and $40
  • Bar Club: Members receive four shipments per year and are billed $320 annually or $85 quarterly (does not include tax and shipping)
  • Distillery Tour and Grand Salon Tasting: $30 per person with reservations available for up to 35 people
  • Oxbow Tasting Room Craft Spirits Tasting Flight: $15 per person with reservations available for up to 12 people

User Traction

NVD plans to expand its distribution internationally and already has distribution relationships in China and Canada.

The company’s Bar Club membership has experienced notable growth; its membership has grown to nearly 2,000, which, at $320 per year for a membership, equates to nearly $640,000 in annual recurring revenue. Further, membership is increasing by roughly 100 new members per month. New members historically have come from the Distillery tours and tastings, the Oxbow bar shop, or online channels. Club members are located in 45 of the 50 U.S. states but reside predominately in California (64%). Following California, the most significant memberships come from Texas (5%), Florida (3%), and Illinois (2%).

Historical Financials

In 2016, NVD generated over $1.8 million in total sales, up roughly 28% from 2015 sales. The company’s gross profit surpassed $1.2 million in 2016, up 31% from the prior year. In terms of revenue and gross profit, each quarter in 2016 was higher than the corresponding quarterly performance from 2015.

In 2016, the company generated nearly $800,000 from sales at the Oxbow Tasting Room and Bar Shop, down slightly (~5%) from the prior year. The second highest revenue source was the Bar Club, which generated over $673,000 from membership dues, up nearly 48% from the prior year. Other sources of revenue included website sales, Distillery & Grand Tasting Salon sales, over-the-phone sales, private events, marketing partner revenue, and wholesale distribution.

In 2016, operating expenses totaled just over $882,000, up 28% from 2015 operating expenses. Payroll, the largest line item, experienced the largest year over year increase, rising roughly 62% to reach $236,331. Costs related to the company’s expansion, which included opening the event center and tasting room at the Distillery, were also notable expenses in 2016.

In 2016, the company generated a net profit of $263,658, up 34% from 2015 net income. NVD was profitable in each quarter last year, though most of its profit came in the fourth quarter during which it generated over $129,000 in net income.

As of April 2017, NVD has generated year-to-date (YTD) sales of over $596,000, up roughly 34% from the same period last year. YTD operating expenses have totaled $306,666. The company has generated a YTD net profit of $37,531, an increase of over 43% from the same period last year.

Industry and Market Analysis

In 2016, retail sales of U.S. distilled spirits were estimated at nearly $78 billion. Supplier (wholesale) sales to retailers increased 2.4% year over year to reach 220 million cases in 2016, worth $25.2 billion. This marked the seventh consecutive year that distilled spirits has gained market share relative to beer.vii Further, the distilled spirits market has been primarily driven by growth in high-end premium and super premium products – bottles that retail for at least $20.

In 2016, vodka accounted for almost one-third of total spirits volume with 69.8 million cases sold. Total vodka sales generated $6 billion in revenue. Revenue from super premium vodka (bottles that retail for over $30) rose 13.1% year over year to reach $1.3 billion (6.3 million cases). There were 48.4 million cases of North American whiskey sold in 2016, worth $5.7 billion. Super premium American whiskey volumes increased 11.8% (to 2.1 million cases), while revenue jumped 13.5% year over year to $467 million. High-end premium American whiskey volumes rose 5% (to 10.4 million cases) and revenue rose 5.7% to $1.8 billion. Rye had the largest sales volume increase in 2016, growing nearly 17% year-over-year to 785,000 cases.viii

Local distilleries have contributed to the overall growth in the distilled spirits market. In 2015, the craft spirits industry generated roughly $2.4 billion in retail sales, with volume growing at a compound annual growth rate of 27.4% between 2010 and 2015.ix From 2010 to 2015, the number of craft distillers grew at a compound annual growth rate of 41.6%. As of August 2016, there were 1,315 craft distillers active in the U.S., with the largest concentrations in the West (mostly in California, Washington, and Colorado) and the South (mostly in Texas). Based on a compound annual growth rate of 19.6%, the number of craft distillers could surpass 2,800 by 2020.x

Out of those 1,315 craft distillers, 91.7% are defined as small producers. Yet, because small distilleries produce limited quantity of spirits – usually single batches at a time – they accounted for just 12.1% of the craft spirit cases sold in 2015. For these small distillers, generating revenue on premise (at the distillery) is especially important, as on-site sales make up 25% of their revenue on average. Of small craft producers’ revenue, 67% is generated within the distillery’s state of operation, but outside the premise.xi

Thanks to a recent state law, the craft distillers market is poised for additional growth in California. The Craft Distillers Act of 2015 (AB1295), which went into effect January 1, 2016, created a new license (Type-74) specifically for California artisanal distilleries producing less than 100,000 gallons of distillate per year. The law permits these types of distilleries to host private events, have a restaurant on site, and serve cocktails. The new law also allows direct-to-consumer sales; prior to the law, purchasing a bottle at a distillery in California was illegal unless there was an on-site liquor store owned and operated by a third party who was required to deliver from its own supply held in an off-site warehouse.xii

Competitors

The spirits industry is intensely competitive and, with respect to craft spirits, highly fragmented. While thousands of independent craft distilleries remain spread across the U.S., there have been some notable acquisitions by larger spirits producers. Below are some notable acquisitions:

Jim Beam: Founded in 1795, Jim Beam is one of the world’s oldest and largest producers of bourbon whiskey. After seven generations, Jim Beam has become one of the most recognized bourbon whiskeys in the world.xiii The company produces whiskey made from rye, barley malt, corn, and a secret in-house yeast to provide the consistent Jim Beam flavor. The whiskey is then double distilled before being finished in charred oak barrels.xiv In 2014, Japan’s Suntory acquired Jim Beam for $16 billion, naming the division Beam Suntory.xv

Angels Envy: Founded in 2010, Angels Envy is a small batch craft distiller focused on whiskey, with its primary product line being Kentucky Straight Bourbon. The handcrafted bourbon is made in batches of only eight to 10 barrels and finished in port wine casks. Unlike most traditional brewers, Angels Envy is sampled in each step of the finishing process.xvi In 2015, Angels Envy was acquired by Bacardi for about $150 millionxvii but continues to operate in the same fashion before the merger. In 2014, Angels Envy sold 45,000 cases and, around the time of the acquisition, sales were projected to reach 65,000 cases in 2015.xviii

Buffalo Trace: With a history dating back to the late 1700’s, Buffalo Trace Distillery is a Kentucky-based bourbon whiskey distillery. In 1992, the Sazerac company purchased the distillery and renamed it Buffalo Trace Distillery (from George T. Stagg Distillery).xix The distillery became the first American distillery to win Whisky Advocate’s “Distillery of the Year” award in 2000. In 2013, the distillery became a National Historic Landmark.xx

High West Distillery: Founded in 2006, High West Distillery produces a core line of whiskey blends, limited-release whiskeys, and barrel-aged cocktails. The four core High West Whiskey products are American Prairie Bourbon, Double Rye!, Rendezvous Rye, and Campfire, a blend of Scotch, bourbon, and rye whiskeys. In October 2016, Constelland Brands, the largest U.S. alcohol maker, agreed to acquire the distillery for $160 million.xxi High West sells approximately 70,000 cases annually.xxii

Smooth Ambler Spirits Co.: Founded in 2009, Smooth Ambler is a distillery based in the Greenbrier Valley of West Virginia that uses local resources to craft spirits, including gin, vodka, rum, and whiskey. In 2016, Pernod Ricard, the maker of Absolut Vodka and Jameson Whiskey, acquired a majority stake in the distillery.xxiii

Tuthilltown: Founded in 2005, Tuthilltown is New York’s first whiskey distillery since prohibition, based in the Hudson Valley. Using ingredients from local farmers, it produces a vodka line and a Hudson Whiskey line, which are each made by hand one at a time.xxiv In 2010, this craft disillery was acquired by William Grant & Sons.xxv 

Locally (Napa and Sonoma areas), there are several independent craft distilleries that potentially compete with Napa Valley Distillery. These include, but are not limited to:

  • Charbay Distillery & Winery: Located in Helena, California, founded in 1983, and produces whiskey, tequila, vodka, rum, brandy, and other spirits.
  • Hanson Spirits: Located in Sonoma, California, founded in 2013, and produces flavored artisan organic vodka.
  • Prohibition Spirits Distillery: Located in Sonoma, California, founded in 2009, and produces whiskey, rum, gin, brandy, Limoncello-inspired spirits, and other specialty spirits. Also has a distillery tasting room.
  • Spirit Works Distillery: Located in Sebastopol, California (Sonoma County), founded in 2012, and produces vodka, gin, sloe gin, and whiskey. Also has a distillery tasting room.
  • Sonoma Brothers Distilling: Located in Windsor, California (Sonoma County), founded in 2012, and produces gin, vodka, whiskey, rye whiskey, and distiller’s reserve brandies and white whiskey. Also has a tasting room.
  • Sonoma County Distilling Co: Located in Rohnert Park, California (Sonoma County), founded in 2010, and produces rye whiskey, wheat whiskey, and “West of Kentucky” bourbon whiskey. Also has a tasting room.

Executive Team

Arthur Hartunian, Co-Founder, Proprietor, and Master Spirits Maker: Arthur’s introduction to spirits and cocktails started in his teens. As a native Armenian, having wine, brandy, and other spirits around the dinner table was part of the family culture. It wasn’t until at the age of 21 when he took a job as a paralegal in a prominent Hollywood, California, law firm that his love affair for cocktails began. While having cocktails after work with his bosses, Arthur’s interest grew. He became extremely passionate about craft cocktails and began to educate himself through dozens of books and experimentations. Over the next 25 years, his passion eventually grew to an obsession, with a goal to make the best and most unique spirits in the world. Arthur is responsible for creating the company’s entire product portfolio and personally manufactures many of NVD’s spirits to this day. From spirit formulations and label design to production and marketing strategies, Arthur is passionately involved. As a result of his commitment to grow and protect California’s craft spirits industry, Arthur is well-known and respected by his industry peers. He was the founding President of the California Artisanal Distillers Guild. Under his leadership, AB 933 was enacted into law, allowing all California distilleries the ability to operate tasting rooms. This was the first supplier-side spirits law change in California since the repeal of Prohibition.


Lusine Hartunian, Co-founder and Retail Store Manager: Lusine has been passionately involved in just about every aspect of the company since its start in 2009. From peeling lemons with Arthur and their kids for the company’s first batch of Limoncello to now serving as Retail Merchandiser, Lusine’s talents and undying commitment have helped make Napa Valley Distillery one of the most unique places to visit in Napa. An accomplished designer, Lusine has been instrumental in helping create labels, store design, and build the overall company image. She is also a chef and enjoys preparing food and pairing food with NVD spirits and cocktails. Lusine owns and operates Napastak Napa Valley, an epicurean boutique located inside the Oxbow Public Market.



Ian Winget, Director of Consumer Sales: After his two-and-a-half-year stint in Queensland, Australia, where he earned his Masters of International Business, Ian settled in Napa and found employment in direct-to-consumer marketing at a notable sparkling wine house in Yountville, California. There, he honed his skillset as he took on additional responsibility managing the ecommerce and wine club department. In 2013, Ian launched his own locally produced cocktail bitters company ─ Napa Valley Bitters ─ and began his career at Napa Valley Distillery. At NVD, Ian took the reins of the newly launched website, ecommerce channel, and helped launch the Bar Club in the U.S.



Paul Martin, Lead Brand Ambassador: Paul has been a beverage alcohol industry professional since 2008 having worked in production, bottling, tasting rooms, and cocktail education. He has been with Napa Valley Distillery since 2013 as tasting room manager and was recently promoted to Lead Brand Ambassador, leading tours, tastings, and events. Prior to joining NVD, Paul was the tour guide and tasting room commander at St. George Spirits in Alameda, California.


Investment Terms

Security Type: Promissory Notes (Revenue Sharing Interests)

Round Size: Min: $50,000; Max: $1,070,000

Interest Rate: Revenue sharing agreement which provides the investors 10% of the Company’s gross revenue, up to the repayment amount of 1.5x of their investment

Length of Term: Until the repayment amount of 1.5x investment is repaid

Conversion Provisions: None

Endnotes

i. https://sipawards.com/content/results/sipawards2012results.pdf

ii. http://www.prweb.com/releases/2010/12/prweb4137494.htm

iii. https://sipawards.com/content/results/sipawards2011results.pdf

iv. http://www.prweb.com/releases/2010/12/prweb4137494.htm

v. https://sipawards.com/content/results/sipawards2010results.pdf

vi. http://www.winemag.com/wp-content/uploads/PDFs/Top50_Spirts.pdf

vii. http://www.discus.org/2016AnnualEconomicReport/

viii. http://www.discus.org/assets/1/7/Distilled_Spirits_Industry_Briefing_Final.pdf

ix. http://www.prnewswire.com/news-releases/study-finds-more-than-1300-active-craft-spirits-producers-in-us-300346618.html

x. http://www.americancraftspirits.org/wp-content/uploads/2016/10/CSDP-10182016FINAL.pdf

xi. Ibid.

xii. http://www.sfchronicle.com/food/article/New-law-could-spark-golden-era-of-California-6807615.php 

xiii. http://www.jimbeam.com/en-us/make-history

xiv. http://www.jimbeam.com/en-us/behind-the-bourbon/process

xv. http://www.bbc.com/news/business-27233882

xvi. https://www.angelsenvy.com/whiskey/

xvii. http://www.chicagotribune.com/business/ct-changing-spirits-industry-0911-biz-20160908-story.html

xviii. http://www.kentucky.com/news/business/bourbon-industry/article44565777.html

xix. http://www.sazerac.com/BuffaloTrace.aspx

xx. http://www.buffalotracedistillery.com/unmatched-history?start_year=1900#

xxi. http://fortune.com/2016/10/05/constellation-brands-craft-whiskey-high-west/

xxii.http://www.cbrands.com/news-media/award-winning-high-west-distillery-joins-constellation-brands

xxiii. http://fortune.com/2016/12/08/pernod-ricard-smooth-ambler-deal/

xxiv. http://www.tuthilltown.com/history/

xxv. https://www.eater.com/2016/9/12/12716090/craft-spirits-conglomeration