Company: IPST
Filing Date: 2025-11-18
Form Type: 10-Q
Source: 0001788230-25-000175
Chunk: 264

Company: Heritage Distilling Holding Company, Inc.
Filing Date: 2025-11-18
Form: 10-Q
Item: Part II, Item 8
Chunk 264
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,” and we believe consumers are electing to buy fewer, but more premium items. We are also seeing reports of Americans electing to consume less alcohol than in the past. While spirits is still gaining market share from beer and wine, an overall reduction in consumption or purchasing has a chilling effect on the market. This is compounded by the number of Americans who are electing to use marijuana as an alternative to consuming alcohol. In some cases, given economic uncertainty we are also seeing some consumer “trade down”, spending less on premium items in favor of buying lower cost items in the same categories. As a result, the forgoing factors forced us tore-examine how we engage with consumers at retail and online to ensure our brands stay relevant while getting more aggressive to cut top line expenses and eliminate losses.

On the positive side, there is an historic excess of quality aged bourbon in Kentucky in which more barrels have accumulated to atypical levels as investors piled into the idea of owning barrels of whiskey and bourbon to capitalize on past price appreciation. As a result of the buildup of inventory, we are seeing prices fall for wholesale barrel sales, which works in our favor as we look to expand our Salute Series line of spirits. In some cases, the price for barrels of quality aged Kentucky bourbon in bulk have fallen by more than half, reducing our input costs for our most premium products. We view this as a tremendous arbitrage opportunity that works in our favor just as we expand our offerings under the Salute Series, especially since we focus marketing our brands to specific populations where our brands and labels resonate the most. Because we sell a relatively small amount of finished spiritists in the market relative to the market as a whole, we can expect to see significant improvements in topline revenue and net income from our spirits segment as our volumes grow.

We source some labels and printed collateral from trusted suppliers in Canada, and tariffs imposed by the Trump administration on Canadian imports in the first quarter of 2025 have resulted in modest increases in the cost of those items. However, these labels and print collateral items typically have a cost ranging from 10 cents to $1.00 each, and because these labels and print items are used for our most expensive and premium products, we do not believe the imposition of tariffs on those items will have a material effect on our gross margin for those products. 

Continued Investment and Innovation

The performance of our spirits business is dependent on our ability to continue to develop products that resonate with consumers. It is essential that we continually identify and respond to rapidly-ev