The Creation of Concentration Warehouses and Their Impact on the American Whiskey Trade

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The Concentration Act in 1922 was likely the most important piece of legislation after the Volstead Act to shape the future of America’s distilling industry. Understanding why it was enacted and who and what influenced its passage helps to paint a clearer picture of how the industry would develop over time, both during and after Prohibition. The powerful few, at the expense of the many, used the tools that had been honed by the Whiskey Trust in the years before Prohibition to guide legislation and shape a new distilling monopoly for themselves after Repeal.    

Between 1917 and 1920, many of the distilleries in the country were forced into bankruptcy. The Food and Fuel Act, passed in August 1917 to preserve grain stores for use in the war effort, effectively shut down whiskey production across the country. That same week in August saw Congress also pass a resolution calling for national Prohibition. With the inevitability of Prohibition on the horizon, distillery owners began dissolving their businesses and attempting to sell off their remaining stocks of whiskey. While very little whiskey was being made between 1917 and 1920, millions of gallons were consumed, and thousands of barrels were strategically being bought up by companies looking to consolidate their property. As stocks were moved around and distilleries liquidated their assets, the nearly 800 US bonded warehouses that existed in 1917 was reduced to about 300 by 1920. As Prohibition went into effect, however, many partially filled warehouses remained on properties owned by companies that were now out of business. Smaller distilleries, even those determined to maintain their properties, were without permits to sell medicinal whiskey and, therefore, without income. This left them unable to properly staff their warehouses with guards, leaving large amounts of whiskey easy prey for thieves. Even if independent warehouse owners wanted to move products to a safer location, much of the whiskey being stored was held in bond for businesses, banks, or private individuals and could not be disposed of without the bond holder’s help or permission. The permits issued by the government in 1920 and 1921 allowing transportation of bonded whiskey were being stolen and/or forged by more enterprising criminals. Barely two years into Prohibition, it was clear that a solution must be found on how, at the very least, to manage the nation’s 300 or so bonded warehouses containing approximately 70 million proof gallons of alcohol (approx. 40 million gallons of that was whiskey).

This warehouse crisis revealed another of the many flaws in the design of the Volstead Act. It certainly exposed how little the current lawmakers understood about the liquor industry. Before Prohibition, licensed distilleries held the illegal trade of liquor in check with the help of government law enforcement. One could not have been successful without the other. The whiskey men consistently aided the US government in crafting the laws streamlining the collection of excise taxes. The US Department of Internal Revenue collected over half of the country’s income from its licensed distilleries and liquor firms. One of the most sought-after positions in government was that of an excise officer whose job it was to safeguard the integrity and purity of products stamped with the government’s approval. The absence of the delicate balance that had been at play between distillers and lawmakers became very palpable as soon as that relationship had been instantly severed with the enacting of the 18^th amendment. The sources for nearly half of the government’s income through excise taxes were gone, and the federal government was left to figure out how to manage the industry on its own. The old alliance between liquor interests and the government was sorely missed as warehouse robberies became commonplace, illegal liquor traffic increased exponentially, and the costs of maintaining government bonded warehouses became unsustainable. The US government was not able to manage the trade without the help of their partner distillers.

On February 17, 1922, as part of the treasury department’s appropriation bill, the Concentration Act was signed into law. It was devised by the Department of Internal Revenue and the Prohibition Commissioner with the input and influence of some of the country’s largest holders of whiskey stocks. The act was understandably not well received by the nation’s whiskey warehousemen, but the Supreme Court upheld court decisions across the country that ruled against frustrated owners. The justices agreed that the owners of liquor stored within government bonded warehouses were not allowed access to it. This was particularly egregious because the government had always mandated that distillers build their own warehouses at their own expense to store liquor under the government’s supervision. While this expense was justifiable while the government’s gaugers were acting in collaboration with distillers, the sudden ultimatum given by the government to surrender the contents of their warehouses was indefensible. Even so, the courts decided that the only liquor allowed to be removed from these warehouses were those being sold to licensed wholesalers of medicinal liquor. While a person may have owned the liquor for years and held bonds for it, the liquor was not technically in their legal possession and, therefore, only the government was entitled access to it. Bondholders could go on paying for the whiskey’s storage fees and agree to pay taxes on it, but there were no assurances that the liquor would ever be in their possession again. It was argued by many distillery owners that the law allowing this seizure of warehoused property was unconstitutional, but the Department of Internal Revenue insisted that the act of Congress gave the department every authority to do so. While smaller distillery/warehouse owners fought the measure, the large companies supported it- not only because it put them in a stronger position as the largest bond holders of whiskey stocks, but also because it made the country’s privately owned whiskey stocks vulnerable and potentially attainable. They saw the possibilities behind the Concentration Act. After all, being in possession of the country’s whiskey, even if it was as a steward for the government, could potentially put it all under their own roofs and under their control.

Legal arguments against the constitutionality of seizures slowed the enacting of the law early in 1922, but the Prohibition Commissioner expressed his trust in everything moving forward as planned in every one of his newspaper interviews. The Concentration Act’s main purpose was the save the government money and ensure that taxes were still collected on all liquor sold through legal channels. It allowed spirits to be moved for bottling and storage and empowered the Department of Internal Revenue to ensure the payment of taxes on the spirits. Distillers were encouraged to bottle their spirits before shipping so taxes could be assessed and paid and stamps could be placed on bottles. (See entry on the bottle monopoly)

Once discussions began in Washington in early 1922 to assess the status and conditions of the hundreds of warehouses across the country still holding barrels of aging whiskey, powerful interests immediately sent in their lobbyists to influence the decisions being made. Most liquor interests in a position to affect any government decisions were those under the control or influence of the reformed Whiskey Trust. They “kindly” offered to cover the costs for the transportation, management, and safekeeping of the country’s whiskey in their own warehouses. With their lawyers, these “leading distillers” convinced the US government to consolidate the contents of approximately 300 of the nation’s remaining bonded warehouses into less than 30 locations. The assistant to the Prohibition Commissioner, Millard F. West, explained in March of 1922 that he had met with distilling interests in Kentucky and that they “concurred with him on the feasibility of the plan” to consolidate much of the country’s whiskey in Louisville. He went on to say that “Louisville, having more large and strong warehouses than any other city in the country, probably will become one of the country’s principal concentration centers.”  That summer, even after admitting to having made tentative plans, the Prohibition Commission announced that it would be accepting applications from warehousemen interested in acting as a concentration site.

The remaining distilling interests across the country knew they needed to apply immediately for the privilege to act as a concentration warehouse if they had any hope of remaining viable. About 75-80 applications were quickly sent in for approval, but only 24 of those were initially chosen. 26 were chosen in the end. They were*:

12 of the 26 that were chosen were based in Kentucky. The lawyer handling the interests for the concentration warehouses (Levi Cooke) made it clear in his deposition to Congress in 1927 that many of the locations chosen were made for the purpose of distribution. This implies that the decision was based not on which locations held the most whiskey or which locations were more central, but on which locations suited the needs of the companies most willing to pay for the guardianship of the consolidated whiskey. In fact, early in 1922, the Prohibition Commissioner admitted that the concentration warehouses should be located where the needs for medicinal whiskey was greatest which were mainly in the north and west. The government, in its quest to save money, was content to allow the corporations most willing to take the burden off them to assume the role of “custodians” for the reserve of pure medicinal whiskey. It is anyone’s guess how the applicants were chosen, but the concentration committee members made it clear that applicants must meet “technical qualifications” where necessary. The commissioner of Internal Revenue explained to reporters that the locations chosen by the prohibition commissioner to act as consolidation warehouses would be “on the basis of location, security, capacity, transportation, bottling capacity, charges for storing and bottling, and any other related charges.” It seems clear that the government’s decisions on where to place concentration warehouses were heavily influenced by those willing to offer the most money for the privilege. It is no wonder that the Whiskey Trust gained the upper hand in these negotiations and that the location choices reflect that influence.

Not all distillery warehouses were immediately emptied after the 1922 Concentration Act. The Gwynnbrook Distillery in Owens Mills, Maryland, for instance, was not moved to Baltimore Distilling Co’s concentration warehouse location until August 1924 under heavily armed guard. The owners of the distillery held out until the cost to store their goods in Baltimore matched that in Philadelphia. Many sheriff sales were held by the owners of the concentration warehouses to sell off barrels owned by bondholders that hadn’t paid their storage fees and/or taxes on bonded spirits. Presumably, a large amount of these stocks were purchased by the owners of the concentration warehouses.

In January 1927, the Committee of Ways and Means for the House of Representatives convened to discuss the options available in maintaining the United States’ supply of medicinal spirits stored in concentration warehouses. They intended to craft a “bill to conserve the revenues from medicinal spirits and provide for the effective government control of such spirits, to prevent the evasion of taxes, and for other purposes.” Between 1.5 and 1.6 million gallons of whiskey were being consumed per year by hospitals, pharmacies, and other legally approved buyers, so the supply of medicinal whiskey had been understandably dwindling.

Later that same year and in response to these deliberations, the company known as the American Spirits Manufacturing Company, which was the most recent reincarnation of the infamous Whiskey Trust, purchased the assets of 5 major concentration warehouse locations: R.E.Wathen & Co., Hill & Hill Distilling Co., F.S. Ashbrook Distilling Co., E.H. Taylor & Sons and the Baltimore Distilling Company. Already in possession of the Kentucky Distilleries and Warehouse Company’s concentration warehouses at Elk Run (the largest of the consolidation warehouse sites with approx. 60,000 barrels, twice as much as other locations), they now controlled most of the whiskey in Kentucky. The American Spirits Manufacturing Company consolidated their expansive holdings and restructured itself under a new name…the American Medicinal Spirits Company. The American Medicinal Spirits Company now controlled half of the whiskey stocks in Kentucky and nearly 30% of the total whiskey in the United States.

With about 9.5 million gallons of whiskey remaining by 1929, only about 5 years of whiskey remained when taking soakage and evaporation into account. New whiskey would need four years to achieve the medicinally acceptable designation of bottled-in-bond, so the time had come to be proactive. In fact, written into the Volstead Act was a clause calling for a renewal of whiskey stocks when the medicinal supply got too low. The situation raised the question of who should be responsible for fulfilling the medicinal whiskey needs for the country? Should the government embark into the distilling business itself? Should a handful of distilleries be entrusted with the task? The predicament was a similar one to the question of who would be allowed to maintain concentration warehouses. The question always came down to “Who would be the most advantageous choice for the government?” The Prohibition Commissioner explained,

“The bureau of prohibition will proceed to act upon applications submitted by concentration warehousemen who now hold in bond the existing stocks of medicinal liquor and who are distillers or successors to distillers for permits to manufacture whiskey for medicinal use as provided by law.”

Clearly, the advantage went to owners of concentration warehouses because only those distillery companies owning one (or more) were even eligible to apply for a permit to distill medicinal whiskey in January 1930. The commissioner got even more specific;

“In allocating the quantities to be manufactured by approved permitees, the bureau proposes to act on the basis of the concentration warehousemen’s own stocks and distribution. The bureau believes that pooling of manufacturing expense among the concentration warehousemen will obviate the need of granting more than six actual distilling permits. This will avoid monopoly and ensure competitive manufacturers of both bourbon and rye types…The distribution of Bourbon and Rye whiskey for medicinal purposes will be 70 percent Bourbon and 30 percent Rye, and the bureau will arrange with the distillers for the proper proportionate production of Rye and Bourbon whiskey.”

It doesn’t take much reading in between the lines to see that favoritism was at play in the 6 permits assigned.

An interesting thing to note is that in October of 1929, while more data was being collected by the prohibition administration to determine how to divvy up the 2 million gallon production quota among the distilleries that had been approved for permits, the American Medicinal Spirits Company was busy prepping in anticipation of its monopoly. 17 distillery companies were incorporated with the state tax commission through the office of the American Medicinal Spirits Company in Baltimore, Maryland (Russell and Alluvion Streets). The incorporation certificates read,

“In so far as now or hereafter may be permitted by law, under State and Federal permits when necessary and not otherwise to buy, sell, deal in and with, distill, rectify, blend, compound, store, warehouse, bottle, export, import, and advertise for sale additional spirits, including all kinds of whisky, liquors, wines, spirits, gins and products and byproducts thereof, grain, fruits, fruit juices and fruit extracts.”  

The 17 newly incorporated companies were:

1. The Green River Distilling Company
2. The Hermitage Distillery Company
3. The Gwynnbrook Distillery Company
4. The Chicken Cock Distillery Company
5. The Bond and Lillard Distilling Company
6. The Black Gold Distilling Company
7. The Medical Arts Distilling Company
8. The Mount Vernon Distilling Company
9. The Old Crow Distilling Company
10. The Old Granddad Distilling Company
11. The Old McDrayer Distillery Company
12. The Old Taylor Distilling Company
13. The Pebbleford Distilling Company
14. The Rewco Distilling Company (Wathen)
15. The Federal Distilling Company
16. The Spring Garden Distilling Company
17. The Sunnybrook Distilling Company  

When information on which companies would be permitted to distill were revealed, many industry insiders were understandably unhappy. Democratic Representative Cellars of New York complained that the Prohibition Commissioner had assigned the bulk of production to the American Medicinal Spirits Company. He pointed out to that while 6 Kentucky distilling companies had been given permits, the AMSC was given the rights to produce 60% of the total output. According to a dispatch from the Times in Washington, Representative Cellars wrote a letter to Commissioner Doran explaining his concerns.

“The American Medicinal Spirits Company,” Mr. Cellars wrote,” has already sought mastery over the American distilling and warehousing industries. It now practically controls, through its plants and warehouses, about 50 percent of all the medicinal whiskey in bonded and free warehouses.
 “By giving it 60% of all the bourbon whiskey to be manufactured, I believe you are fostering their stranglehold upon medicinal whiskey. This concern already controls the prices of whisky sold to retail and wholesale druggists.
”Is it not wrong to help this corporation fasten itself upon this country as a monopoly? In the event of any epidemic like the ‘flu’ the health of the nation would be jeopardized, as whisky is an important agent in combatting this disease. Nevertheless, in such a crisis, the company could charge any price it saw fit for this whisky. No one could compete against it.
“I earnestly urge that you investigate the operations of this company before you make these allotments final.”

The Wichita Eagle (Wichita, Kansas), November 21, 1929.

Is it any wonder that the AMSC was the first and most notable of the six companies given license to fill the government’s order for more bourbon whiskey? It was determined that at least 2 million gallons of whiskey would be necessary in that first distilling season (1930) to fulfill that need. 1,300,000 gallons of bourbon and 700,000 gallons of rye were the amounts determined neccessary to fill the quota, assuming for loss through soakage and evaporation.

The following is a list of the six distilleries in Kentucky that were given permits to manufacture medicinal whiskey that first year (In parentheses are the amounts they were allotted to manufacture):

1. American Medicinal Spirits Company (859,600 gallons)
   While they would utilize several plants, the first to operate was the Bernheim Brothers Distillery on Bernheim Lane in Louisville.
2. J.E.Pepper Distillery (37,000 gallons)
3. Glenmore Distilleries Co. (128,000 gallons)
4. Frankfort Distillery (203, 200 gallons)
5. Brown-Forman Distilling Company (105,000 gallons)
6. A. Ph. Stitzel Distillery (65,000 gallons)

The total allotment for these six companies came to 1,397,800. The Prohibition Commissioner explained that production by the larger firms (AMSC, Glenmore, and Frankfort) would fortify any shortages remaining at the smaller production facilities warehouses after the 3 months of spirits production were complete.  All distilleries met their quotas using the same grain sources. All the corn came from Illinois and Iowa, all rye from Minnesota, and all barley malt from Wisconsin.* About 350,000 bushels of grain would be consumed in Kentucky distilleries alone during 1930. The Stitzel plant famously gave all their spent grains and water resources to nearby farmers with the means to haul it away.

The balance of approximately 700,000 gallons of rye to be distilled would be assigned to:

1. Schenley Distilling Co.
   The plant in Schenley was operated as the Joseph E. Finch Distilling Co.
2. Large Distillery
   This distillery had been active from 1920 to 1922 and was an unofficial concentration warehouse with 20,000 gallons of whiskey stored that had been produced during those years.
3. A.Overholt & Co. at Broad Ford
4. Baltimore Distilling Co.
   This distillery was owned and operated by the American Medicinal Spirits Company.

With another year’s worth of whiskey tucked away to age for the next four years, those distilling companies with distilling permits got busy selling medicinal whiskey by bottling the contents of the randomly obtained barrels within their concentration warehouses. 1931 brought another round of replenishing, this time with 7 distilleries operating. In 1931, 2,435,631 gallons of whiskey were distilled. 20 fruit distilleries were operated, as well, producing 820,278 gallons of brandy. Only 100, 589 gallons of that brandy were used for medicinal purposes with the balance going into fortified wines or for non-beverage purposes. 166,014,346 gallons of industrial alcohol were produced.

In August 1932, a newly formed National Distillers Products Company was so inexplicably sure that the prohibition regulations would be lifted that they offered to give stockholders in their new company “whiskey bonuses.” They advertised that they would “give 12 quarts of whiskey to every holder of five shares in their company’s stock on October 1, 1934. In November of 1932, Franklin Delano Roosevelt was elected President of the United States after running on a campaign to end Prohibition. The joint resolution to enact the 21st Amendment as part of the US Constitution, otherwise known as the Blaine Act, was passed by Congress just days after the election on December 5, 1932.

In 1934, just after Repeal, 9 companies controlled 80% of the output of new liquor production. 50% of the production was handled by only three of those: The American Medicinal Spirits Company, now restructured as National Distillers, Inc., operated 7 plants and was responsible for about 23% of the country’s liquor production; Schenley owned 5 plants producing approximately 16% of the nation’s spirits; and Seagram’s handling just under 9% of production. Pennsylvania’s Continental Distilling Co. (a subsidiary of Publicker) ran a close 4^th with just over 8% of the country’s spirit production. The other 5 large producers were the American Distilling Company (2 plants) with 7.61%, Century Distilling Co. of Peoria with 5.79%, Hiram Walker with 5.45%, Frankfort Distilling with 3.5% and Glenmore Distilling Co. with 2.88%.

There is no question that the establishment of concentration warehouses in 1922 was the turning point for the nation’s whiskey industry and its future. Those companies controlling the concentration warehouses controlled everything- from medicinal whiskey sales, to production of whiskey between 1930-1933, to the place they held at the negotiating table in the nation’s capital. These powerful companies mixed with gangsters, politicians, and the very wealthy to secure their place long before Repeal put an end to Prohibition. The era after Repeal was choreographed by the powerful few, allowing them to dictate the future of America’s whiskey trade.     

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