In 2011, OOLA and Sun Liquor both fired up Capitol Hill’s first legal stills, launching the post-Prohibition era of neighborhood-made spirits. Five years later, the two businesses are growing, but while new coffee and beer production operations continue to open around Capitol Hill, new distilleries have not.

Huge startup expenses, navigating a restrictive legal framework, and high state taxes can be daunting barriers to entry despite the seemingly insatiable demand for craft cocktails and spirits.

“We keep trying to get parity with beer and wine,” said OOLA owner Kirby Kallas-Lewis. “A lot of people do their due diligence and they find out it’s not worth it.”

In 2008, the state legislature relented slightly by passing a craft distillery law, which made small batch distilling a viable business by lowering minimum production requirements. The state went from one distiller to over 100 by 2015. With few mentors in the local industry, Sun Liquor head distiller Erik Chapman said trial by fire was the primary learning tool.

“In five years we have learned so much, and most of it the old fashioned way. Everything from packaging issues, equipment failures, shipping disasters, flooding, you name it.” he said. “There’s no handbook for this business.”

OOLA started as a craft distiller at 14th Ave and E Union, but switched its license to a general distiller in order to start importing bottles of rare scotches for retail. That venture never panned out, but the license has allowed OOLA to innovate in other ways. OOLA’s Three Shores Whiskey, for instance, blends Highland scotch and Canadian whiskey aged in American oak barrels.

Sun Liquor got an early jump on the game by when Top Pot doughnut co-founder Michael Klebeck opened the Sun Liquor cocktail lounge on Summit Ave in 2006. Five years later he opened the distillery Belmont and E Pike with one unique asset: a cocktail bar attached to the distillery. State law prohibits distilleries and bars from from operating in the same space, but Sun Liquor’s bar and distillery are technically located at two different addresses. OOLA, on the other hand, can offer liquor tastings but not cocktails — one of the many issues Kallas-Lewis has tried to resolve at the state level over the years. “That brew pub model is genius,” he said.

OOLA opened its own complementary business in 2012 — the 10 Degrees event space, which is attached to the distillery. Still, Kallas-Lewis said liquor taxes are a significant burden on the business.

Washington has the highest excise tax on liquor in the U.S. OOLA takes in just under a third of the retail price for a bottle sold at a liquor store. Here’s a breakdown Kallas-Lewis provided of a $38.97 bottle of gin:

Distiller’s take: $12.24
Excise Tax: $2.51
Freight: $.04
Distributor: $5.15
WA distribution fee: $1.05
Retailer’s take: $9.00

List Price on the shelf to consumer: $29.99
WA 20.5% Spirits tax at register: $6.15
Liter tax at register: $2.83

Final Price: $38.97

As microdistilling continues to grow nationwide, Kallas-Lewis said distributors and bars are increasingly looking for more innovation. Both OOLA and Sun Liquor owners say they will be tapping into the state’s fruit bounty to create new lines of liqueurs and brandy.

OOLA currently has seven regular spirits in its lineup: two gins, a bourbon, a standard vodka, and three infused vodkas which get distributed around Washington, California, New York, and Chicago. In the last year, OOLA expanded distribution to Washington D.C., Rhode Island, Connecticut, and New Jersey.

To keep up with demand and to reach a “critical mass” of production, Kallas-Lewis wants to double OOLA’s current output from his Capitol Hill facility. Equipment upgrades have allowed OOLA to automate more of the distilling and bottling process as production grows.

“I was so enamored with it all … putting corks into bottles, putting on labels,” Kallas-Lewis said. “Filling several hundred bottles is fun, filling several thousand is not as fun.”

Last year OOLA purchased a warehouse in the International District to store bottles and barrels for aging whiskey. Kallas-Lewis said OOLA will put away some 100 barrels of whiskey this year. Sun Liquor, meanwhile, made a big leap in 2013 when it landed a contract to produce gin, vodka, and rum “minis” for Alaska Airlines.

Capitol Hill may not yet have its own distinct style of whiskey or gin, but the annual fervor over of Sun Liquor’s limited run of aged eggnog makes it the neighborhood’s undisputed holiday drink. Chapman says he is already hard at work to expand production for this winter.

“I really want to get the same handmade product into the hands of more people,” he said. “Fortunately we have wonderful creameries and dairy farmers here in the state that are wanting to help out.”