GRAND RAPIDS — An interested investor led Charter Capital Partners to form a small fund for investors to put money into a craft distiller.
Charter-HN Spirits Fund LLC recently closed on the first $785,000 raised from 14 investors, according to a regulatory filing with the U.S. Securities and Exchange Commission. The fund, consisting of individual investors and family offices, reported that it wants to raise a total of $2.5 million.
Charter-HN Spirits Fund is the first foray into the craft distilling industry for the Grand Rapids-based investment bank and was set up for a specific investment, Managing Director Dale Grogan told MiBiz. The fund has already invested in three separate brands of spirits produced by the out-of-state craft distiller that has ties to Michigan.
“One of our investors said, ‘I was approached to invest in this business. What do you think?’ It turned out we knew some of the players, so we did some diligence and then went out to some other selected investors and there was in fact, as we suspected, an appetite,” Grogan said of investing in craft distilleries. “We’ve been looking at the craft space for several years and this one just happened to check all the boxes.
“There’s some cachet in the craft spirits industry right now.”
Grogan likens emerging interest in investing in craft distillers to that of craft breweries years ago as they emerged, grew and quickly established a role in the marketplace. Several craft brewers, such as New Holland Brewing Co. LLC, have since extended into craft distilling.
“Certainly in Grand Rapids, there’s a heightened sense of understanding about craft because it was initially the beer business, but we’ve seen a lot of these folks have also gone into spirits. New Holland is one that has had success on both sides of that ledger, both with their beer and their spirits, and other groups are doing the same,” Grogan said. “I think this space is going to be very hot for the next few years, and like anything else, it’s going to be execution to get to scale.”
An annual report published by the American Craft Spirits Associations shows that the number of craft distiller across the U.S. grew 15.5 percent in a year to 1,835 as of August 2018, the most recent period for which data are available. The association reported that sales for craft distillers in the U.S. grew 29.9 percent from a year earlier to $3.7 billion.
Some of the interest in craft distillers has come from investors “who missed out on the craft business space (with beer) saying, ‘Here comes spirits. I want to be investing in that,’” Grogan said. Whether Charter Capital pursues additional investments in the spirits industry, either through Charter-HN Spirits or a separate fund, remains “to be determined,” Grogan said.
“It’s a function of, is this industry going to continue to see growth on the craft side? I think the answer is yes. All of the metrics suggest it, but it’s also: Is there investor interest?” Grogan said. “We have three assets in the portfolio now. If we find others, and we’re looking, we may add those in or it might be a separate entity.”
Amid solid growth and interest is a highly regulated industry that requires “tremendous discernment, lots of diligence and understanding of the market” before investing, Grogan said.