A product pivot and PPP success in the early days of the pandemic

In March, when the United States was just starting to feel the widespread economic effects of the novel coronavirus, distillery founder Mike Reppucci knew his business was in danger.

Reppucci left a job in finance in 2011 to open Sons of Liberty Spirits, a Rhode Island distillery, brewery, and maker of canned cocktails. Sons of Liberty had big expansion plans for this calendar year and beyond, but those plans were halted by the COVID-19 pandemic, which was going to take away Sons of Liberty’s highest-margin line of business: the tasting room in coastal South Kingstown.

A pivot to producing a different type of alcohol as well as successful application for a Paycheck Protection Program (PPP) loan meant that Sons of Liberty could continue to pay its staff and gave it time to reimagine its business model. June and July are when business in the region picks up, he said, but not if state regulations limit occupancy and not if customers are wary of being indoors.

To provide an immediate lifeline both to the community and the distillery’s approximately 20 full-time employees, Sons of Liberty began making hand sanitizer — selling some but giving most of it away. Production was not as efficient as other business lines — for instance, the growing cocktail business reached nearly 2 million cans sold in 2019.

So there the employees were in mid-March, filling 4-ounce pump bottles of hand sanitizer — by hand, because they didn’t have a production line set up for that type of operation.

Reppucci said he read an article about a Seattle distillery switching production to hand sanitizer. He thought Sons of Liberty could do the same thing, but the hurdles the business faced were unexpected.

First, because Sons of Liberty was producing a new product, it needed new liability insurance, which cost close to $20,000, Reppucci said. Then it had to acquire containers — quickly. “I was told, ‘Let me know in five minutes or they’ll be gone,'” he said. “I put them on my personal Amex.”

Sons of Liberty also thought it had to get a new industrial license from the Alcohol and Tobacco Tax and Trade Bureau. The bureau ended up granting blanket approval to streamline the process.

Shortly after Sons of Liberty announced it would be producing sanitizer, it was besieged with inquiries, including from the commissioner of the Boston Police Department. Reppucci estimates that Sons of Liberty gave away close to 3,000 gallons of sanitizer, in gallon containers and 4-ounce hand-pump containers, to the public, including to law enforcement, medical facilities, and others. Sons of Liberty also sells gallon-size containers for industrial use. The new business helped the company keep tasting room employees on the payroll.

Advised by Rhode Island CPA firm DiSanto, Priest & Co., Sons of Liberty applied promptly for a PPP loan, seeking part of the initial $349 billion made available in the first round under the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. Reppucci, who declined to disclose the amount Sons of Liberty received, also credited the Bank of Rhode Island for loan assistance, saying the bank was “on top of everything and one of the first banks in the state to process these loans.”

He is confident that Sons of Liberty will be able to get most if not all of the loan forgiven, thanks to guidance from DiSanto, Priest. Reppucci said he was on track in May to have more than 75% of PPP funds used for payroll expenses, and he was also able to pay rent with the money. Guidance for PPP loans has since changed to allow companies to have loans forgiven if at least 60% of funds are used for payroll. And partial forgiveness is allowed if companies don’t meet the 60% threshold.

“We used all of the proceeds and followed very closely the 75% [guidance] for payroll,” Reppucci said. “We hope that the entire loan will be forgiven.”

Reppucci said the loan helped his employees with needed income and the business with the gift of time.

“I said, ‘Look, our business model’s changed,'” Reppucci said. “‘We are blessed to be employed. You’re blessed to be here. PPP’s helping me keep you here. We realize the business model has changed now, and if we utilize this time to have a path forward, we’re going to come out so strong.'”

Online ordering and to-go business was strong in the spring, Reppucci said. And while demand for hand sanitizer has diminished, he said that having that product available, for profit or for giveaways, was important.

“One, when you hire someone, as an employer you make a commitment to them and you don’t want to have to let them go,” he said. “You don’t want to back down from that. Two, I love how our staff stepped up. I said, ‘We’re doing this for Boston PD. We’re giving this away. We’re doing this,’ and they came out.”

The first day Sons of Liberty gave out sanitizer, it was a dreary New England day. It’s one Reppucci will not soon forget.

“It was 42 degrees and raining and our staff showed up to hand stuff out for free. I didn’t want to let them go because they were totally invested in everything we’re doing.

“So I think they go hand in hand. The giving back to the community thing, it helped not only me feel good, but everyone here was psyched. They felt so good that we could add value. And then seeing them do that, go above and beyond and stand out in the rain for six hours handing out sanitizer, I didn’t want to say, ‘OK, now you’re out of a job.’ “

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA‘s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

— Neil Amato (Neil.Amato@aicpa-cima.com) is a JofA senior editor.