The move is part of a broader plan to streamline operations and reduce expenses.
Heritage Distilling Company, Inc., a wholly owned subsidiary of Heritage Distilling Holding Company, Inc. (Nasdaq: IPST), just announced a major restructuring of its operations. The company will close all five of its retail tasting rooms in Washington and Oregon and transition to third-party contract production effective December 31, 2025.
Strategic Move to Cut Costs and Increase Profitability
The company expects the restructuring to lower annual operating expenses by more than $5 million and accelerate profitability within its craft spirits business. Heritage will focus on its higher-margin direct-to-consumer (DTC) business, expanding wholesale sales, and growing its partnerships under the Tribal Beverage Network (TBN) program.
“This was an extremely difficult decision and one we did not make lightly,” said Justin Stiefel, Co-Founder and CEO of IP Strategy. “But changing consumer behaviors, increasing costs and recently-enacted and proposed taxes at the state level made future investments in this part of our business operations unsustainable.”
Market and Policy Challenges Drive Decision
The decision follows a strategic review by company leadership and advisors in light of challenging market conditions, regulatory burdens, and new state taxes. Stiefel noted that rising taxes and blocked legislative efforts to align taxation on low-proof ready-to-drink cocktails with beer and wine contributed to the move.
He added, “With the largest tax increase in state history now going into effect, and more already being discussed for next year, we determined that the path to profitability and growth for our spirits business in the current environment is not feasible.”
Impact on Employees and Customers
Heritage Distilling plans to give employees and customers time to prepare for the transition. A “Last Call” celebration will take place through the end of 2025 to thank loyal customers and club members. Employees will be offered severance packages of four to eight weeks of pay based on tenure, payouts for accrued sick time, and continued health coverage through the end of the separation month.
“Unlike many companies that close abruptly, we wanted transparency,” said Stiefel. “We are committed to treating our employees with respect and gratitude, offering a severance program far more generous than what is typical in our industry.”
Financial Impact and Cost Savings
Heritage expects the operational restructuring to reduce annual spirits revenue by approximately $3 million, offset by more than $5 million in expense reductions. This includes eliminating $1.1 million in unabsorbed production overhead and reducing working capital needs by more than $2 million annually. The savings come in addition to $19.3 million in liability reductions and over $2 million in annual interest savings following a recent private investment in public equity (PIPE) transaction.
The company also anticipates recording one-time charges related to the sale or write-off of assets and leases associated with the closed tasting room operations.
Future Focus: Brand Development and Partnerships
Following the transition, Heritage Distilling will focus on brand development, new product innovation, expanding its DTC sales, and strengthening wholesale distribution. The company also plans to continue building relationships with Native American tribes to expand its TBN-branded tasting rooms in and near casino locations.
“For more than a decade, Heritage Distilling tasting rooms were places for friends and family to gather,” said Jennifer Stiefel, Co-Founder and President. “We wanted to give our customers and club members two months of lead time to plan their final visits and thank the staff who helped them along their customer journey.”
New Business Segment: Story $IP Validator Program
In addition to its spirits operations, Heritage Distilling has developed a new digital asset segment through the Story $IP token validator program. The company currently holds 53.2 million $IP tokens and operates as the largest validator on the Story $IP protocol, unlocking more than 80,000 tokens per week with gross margins above 95%.
Image Credit: Heritage Distilling Co.
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