Forget Scotland and Kentucky. Some local distillers are making a craft whiskey that can rival the best bourbons. But just as a newly growing industry is starting to take off in our state, craft spirit makers warn some unintended consequences of the new law privatizing liquor sales could drive many out of business and cost a lot of people their livelihoods.

As a result of I-1183, state liquor stores have stopped ordering from local distillers like the Woodinville Whiskey Company. Co-founder Orlin Sorensen says the state also canceled existing orders, leaving him with nearly 300 cases of his newly released aged whiskey.

But the Washington Liquor Control Board has also issued new rules interpreting I-1183, preventing local distillers from selling to restaurants or bars until March 1, 2012, according to Sorensen.

"Right now, we don't have any mechanism to sell our product to a bar or restaurant at all. The only mechanism we have is to sell it out of our tasting room."

About 40 craft distillers have popped up around the state since Washington created a new license allowing them in 2008. Sorenson complains the Liquor Control Board's interpretation of 1183 has unfairly hit them with a double whammy.

Initiative 1183 adds a new 27 percent tax on liquor in addition to the current state liquor taxes of 20.5 percent, plus $3.77 per liter, according to Sorenson.

Those new taxes include a 10 percent percent distributor fee and 17 percent retailer fee, which "result in one of the highest liquor taxes in the country," says Sorensen. "That's virtually our entire profit margin."

Mhairi Voelsgen, with Seattle-based Brovo Spirits, cashed out her 401k to get the maker of flavored liquors off the ground with her partner. She and others argue voters clearly didn't intend for the industry to be so negatively impacted when they voted to privatize liquor sales and get the state out of the business.

"We're losing sales everyday and we get emails from people saying 'I'm looking for your product, I can't get it,'" she says.

Voelsgen argues the the Liquor Control Board is misinterpreting the initiative and she says industry leaders plan to meet this week to craft a plan of attack, including outreach to lawmakers in hopes of clarifying the law. But that won't help those who've invested everything into their new enterprise.

"I do think it will drive other people out of business who have taken a big chance and have started jobs," she says. Voelsgen says they are looking closely at cutting staff because of the near total loss of revenue.

In the meantime, they hope those who'd rather sip some local spirits instead of Seagram's will put the pressure on state lawmakers to step in on their behalf.

"This is not what the voters thought they were getting," says Sorensen.

Josh Kerns, MyNorthwest.com Reporter