Bourbon Empire (20 page)

The sport’s outlaw past—and Bill France’s attempts to suppress it—helps drive its appeal, a rule that also applies to the moonshine that fueled its early days during Prohibition. It’s hard to miss the parallels between the sport that whiskey built and whiskey itself. Both started as a collective endeavor, with humble roots they’ve attempted to transcend as they join the mainstream. The big come-up for both was rambunctious and rowdy, full of colorful myths that remain in the narrative when they’re convenient, but are toned down in the struggle for respectability that corporatization demands. NASCAR is still a family-owned business that tightly controls access to historical records, just as getting access to old records at big liquor companies is no easy task. Both industries still maintain their
appeal and are exciting as ever, but their foundations have unquestionably shifted with the times. They were built on steady mainstays, stock cars and mid-tier brands, but the sex appeal has drifted to the fancy stuff, cars that could double as spaceships and bottles emblazoned with words like “limited” and “exclusive.”

Nevertheless, the bootlegging of moonshine was just one part of Prohibition, which today translates into a catchy kind of marketing. More important was its lasting effect on the structure of the industry itself, and the way a hypocritical policy would forever change how, and by whom, bourbon would be
made.

T
he bootlegger George Remus loved to refer to himself in the third person. He would say things like, “Remus is going to the store,” or “Remus does not agree with you.” By only using his last name, Remus gave his quirk a sort of locker-room feel, which the creators of HBO’s
Boardwalk Empire
would later use to their advantage when portraying him on their show. Eighty-five years before
Boardwalk Empire
,
F. Scott Fitzgerald had also noticed Remus’s dramatic potential, allegedly using him as a model for Jay Gatsby after meeting the bootlegger in a Louisville bar.

Remus at his Prohibition peak grossed over $25 million per year by figuring out how to tap into the ocean of bonded bourbon sitting in padlocked warehouses. A lawyer by trade, he utilized loopholes to make broad chunks of his criminal empire legal. A few other bootleggers copied his template, and after Repeal would convert those enterprises into parts of some of the biggest liquor companies in the world today.

Remus was a teetotaler who ran a whiskey empire, left a lucrative law career to break a law that he considered the epitome of hypocrisy, and murdered the one person in the world he loved most. But that last bit of violence aside, he kept his affairs strictly about business. After suffering a rare defeat from another attorney suing him over a construction contract, he walked across the courtroom to his adversary, extended
his hand, and offered him a job. With his annoying third-person habit, he said, “Anyone who can beat me and my coterie of lawyers deserves to be Remus’s lawyer.”

 • • • 

When Prohibition began, Remus was a fidgety criminal defense lawyer in Chicago earning $50,000 a year—a lot, but not nearly as much as what his bootlegging clients made. He considered most of them nothing more than thug kids, but he couldn’t ignore how casually they snapped thousand-dollar bills from fat rolls of pocket cash to pay $10,000 fines, right there in the courtroom. If these foot soldiers had that kind of money, Remus could only imagine what their bosses—men like Jim Colosimo and Johnny Torrio on the South Side—were making.

As soon as Prohibition was passed, Remus, as he would later say, saw the new law as “a chance to make a clean up.” All around him, beer casks were smashed open and drained into Chicago’s gutters. High-quality bourbon and rye, however, were saved, twenty-nine million gallons of it inside bonded warehouses. Legally, the spirits were still private property, so the government couldn’t confiscate it, but the whiskey’s owners couldn’t sell it either. All of America’s whiskey sat in padlocked warehouses, scattered across the rural, unguarded countryside. Pilfering became an immediate problem, but that’s not where Remus focused his attention—simple snatch-and-grab jobs weren’t where the biggest fortunes sat. Besides, the government quickly moved to establish “consolidation warehouses” in which the contents of 292 whiskey warehouses were gathered in ten different locations, all patrolled by guards.

Instead, Remus sat in his office and read every word of the Volstead Act. His attention was caught by Title II, Section 6, a clause that allowed for the sale of “medicinal whiskey.” Sales of whiskey as medicine—a holdover notion from the nineteenth century—were allowed so long as sellers had a government-issued permit and took the whiskey from bonded warehouses. Anyone with a doctor’s prescription could get it. If your doctor was high-end, you’d get your bourbon in the
distillers’ own bottle, just like it had been before Prohibition, only with a caveat on the label stating, “Unexcelled for Medicinal Purposes.” That’s how Old Grand-Dad was sold—the exact same as before, with four extra words. If your doctor wasn’t quite as reputable, you’d get it in a pint-sized vial, most definitely diluted. Physicians were allowed to prescribe one pint of 100-proof spirits per patient every ten days. Dentists and veterinarians were also licensed.

Remus, a licensed pharmacist who as a youth had worked in his uncle’s drugstore while going to law school at nights, quickly realized that this loophole would make him rich. He considered the real crime here to be the law’s hypocrisy—the U.S. government had banned alcohol, knowing that it was a deeply flawed policy, and then rigged the whiskey industry in a way that sanctioned breaking the rules. In Remus’s opinion, as he would later say, the loophole was “the greatest comedy, the greatest perversion of justice” imaginable.

Six companies were given licenses to continue selling 100-proof bonded spirits for medical reasons: Brown-Forman, Frankfort Distilleries, the A. Ph. Stitzel Distillery, Schenley Distillers Corporation, the American Medicinal Spirits Company, and James Thompson and Brother. In 1928, when most of the six were running out of whiskey, the government passed an exception allowing them to distill a total of three million gallons more.

Many of the distilleries that closed during Prohibition never reopened. They sold their stocks of aging whiskey and rights to their brands to one of these “Big Six.” Each of the six companies consolidated valuable brand names as a way to preserve them, usually buying them cheap because their owners needed the money. This was how Brown-Forman acquired Early Times, how A. Ph. Stitzel got Old Fitzgerald, and how the American Medicinal Spirits Company managed to acquire fifty-eight new brands (AMS was actually the carcass of what remained of Joseph Greenhut’s Whiskey Trust, and would become National Distillers after Repeal). Alexander Hamilton, who had so fervently championed the industry’s consolidation, never would have imagined that this was how it would happen.

These deals made during Prohibition drew much of the blueprint for how the industry would look after Repeal. A little foreshadowing here: in the first decade of Repeal, get ready to see the names of some of the Big Six change in order to account for various mergers, agreements, and buyouts. The names of these companies would transform, and today continue to do so, into the names of the giant liquor companies that modern drinkers know and love. Schenley in particular would emerge as one of the biggest liquor companies in the world, and its owner, Lewis Rosenstiel, would become one of the most influential figures in the whiskey industry during the latter half of the century, making decisions and lobbying for reforms that still greatly affect the spirit today. A Cincinnati native, Rosenstiel had dropped out of high school during the first decade of the century to work in his uncle’s distillery—the Susquemac Distillery Company in Milton, Kentucky—but had left to sell bonds after Prohibition started. In 1922, while vacationing in the French Riviera, he met Winston Churchill, who speculated that the United States would eventually overturn Prohibition, and that the businessmen who had prepared for Repeal would become rich. Rosenstiel took his advice, and upon returning to the United States he would follow a strategy similar to that of Remus, buying up shuttered distilleries and their whiskey stocks while taking advantage of the medicinal whiskey loophole.

 • • • 

Aside from being a godsend for organized criminals, Prohibition was likewise a boon for American drugstore chains that now, thanks to the medicinal whiskey loophole, found themselves a conduit for booze. The Chicago-based Walgreens chain grew from 20 stores in 1920 to 525 by the end of the decade. The company’s gobsmacking growth spurt is often credited to milkshakes, which the chain started selling in 1922, and which no doubt included more than just milk and ice cream. In
The Great Gatsby,
Daisy Buchanan describes the mysterious bootlegging title character as having “owned some drugstores, a lot of drugstores.” The identical paths of Remus and Gatsby seem lifted from the same
manual on how to achieve the American dream—that is, after the pages of that manual fell into a shredder.

Fifty years earlier, a man like Remus would have moved west to seek his fortune in something like gold or railroading. But after studying the Volstead loopholes, he moved east to Cincinnati, after calculating that 80 percent of the bonded whiskey in the United States was sitting in padlocked warehouses within a three-hundred-mile radius of the city. It was a good portion of the best straight bourbon and rye in the country. Each warehouse was watched by a government gauger—similar to the ones who were paid off during the Whiskey Ring scandal—who made sure that whiskey volumes, paperwork, and taxes all matched up when whiskey was withdrawn. Remus gathered $100,000 in savings and planned his move. He then asked his secretary, Imogene Holmes, a woman he was deeply in love with and who had become his closest confidante and friend, to marry him.

Remus bought his first distillery for $10,000, making him the legal owner of all the bonded whiskey sitting on the distillery grounds. Then he combined the remaining $90,000 with his persuasive charm and entered the good graces of a local bank that would underwrite the part of his ambition that exceeded his savings. He soon owned ten distilleries scattered across the Midwest, including Pogue Distilling in Kentucky, Jack Daniel’s (which had temporarily relocated to St. Louis after Tennessee voted itself dry), the Squibb Company in Lawrenceburg, Indiana, and the Fleischman Company of Cincinnati. Alongside the distilleries, he also purchased a mansion in the fashionable neighborhood of Price Hill that he and Imogene planned to renovate.

Rome wasn’t built in a day, but Remus—who shared his name with one of that city’s mythical founders—seemed to build up his Cincinnati empire in about that much time. He employed hundreds of drivers, guards, and office personnel and was one of Cincinnati’s biggest employers. While he was accumulating distilleries, he also bought a drugstore in Covington, Kentucky, and renamed it the Kentucky Drug Company. Since he was a former pharmacist, the perfectly legal acquisition barely raised eyebrows, as did the purchase of other drugstores
and their allotted number of medical whiskey permits. Remus then started removing whiskey, in thousand-case lots, for sale on the medicinal market, to the millions of Americans who had suddenly started asking for medicinal whiskey prescriptions once alcohol was banned.

A portion of Remus’s operation was actually legal, bolstered by his government-sanctioned permits. Of course, if he wanted to get the higher black market price, he’d just have his own men hijack the shipment, then play dumb during police questioning. When he didn’t have enough legal permits he turned to government officials he had bribed (on just one day in October 1920, forty such officials were invited to Remus’s office and each given $1,000). When the permits eventually ran out, he simply broke the law—at the Jack Daniel Distillery, he ordered his men to tap into the barrels, siphoning the contents through an underground warren of hoses and pipes into waiting tanker trucks. He replaced the whiskey with water.

In the early years of Prohibition, Remus was bootlegging’s most impressive baron—Al Capone was still clawing his way up through the ranks of Johnny Torrio’s outfit. As the scope of Remus’s operations spread, so did bribes to government officials. He had started making regular trips to New York since his shell companies there were important sources of liquor permits. Settled into his suite at the Hotel Commodore during one trip to the city, he reached out to an old lawyer friend, Elijah Zoline, for a series of introductions. His operation was national, and that meant an insurance policy protecting him at that level. America’s biggest mover of bourbon planned to buy the protection of Harry Daugherty, attorney general of the United States.

Remus’s meeting with Zoline was to establish contact with Jesse Smith, who knew Zoline and was a poker buddy and drinking partner of President Warren Harding. Smith had known Daugherty since childhood and ascended through Ohio politics with both him and Harding. Smith was one of the administration’s primary gatekeepers, and almost impossible to get an appointment with.

Smith was also involved with Prohibition matters and could get the permits that Remus needed. He was a double dealer, along with
Harding’s chief Prohibition officer, a man named Roy Haynes, who occasionally sidestepped his official duties to send bourbon, under the protection of armed federal officers, to what was known as the “Little Green House on K Street,” where Harding would join Daugherty, Smith, and others for poker games. Harding was a heavy drinker, and the Washington rumor mill would eventually disclose that Remus was likely the source for much of the bourbon making its way into the White House.

Remus’s meeting with Smith cut straight to the point. He asked for more withdrawal permits and Smith agreed. But one thing Smith made clear was that the arrangement was only for permits, not for any kind of legal protection. Remus, one step ahead of him, pulled out $50,000 in cash. Smith extended his hand again and told Remus that he was safe. He warned that there would be investigations, arrests, and even prosecutions—appearances would need to be upheld—but Remus would never end up in jail. Bourbon, like the rest of the nation, was finding ways around the rules.

Remus’s payoff of the attorney general put him in the safe zone for the time being. It was audacious and gutsy, but par for the course at the level he was now playing at. The man didn’t do things that were diminutive or subtle. For New Year’s Eve 1921, Remus and Imogene threw a party lavish enough to confirm his Gatsbyesque status. The couple had just finished renovating their mansion, thirty-one rooms sprawled out in gray stone. The indoor swimming pool—a marble-columned Roman bath surrounded by a lush crescent of palm trees and exotic plants—alone cost $100,000. A hundred couples celebrated in the mansion’s warm glow as a full orchestra played in the background. A team of professional synchronized swimmers performed water ballet, to be joined later by a drunken Imogene waltzing to the end of the diving board and splashing in. Remus beamed and applauded alongside the other guests. He then turned to the crowd and told them that he had always wanted a pool like this, jumping in beside his wife and soaking his tuxedo.

Of course, Remus the teetotaler couldn’t keep up with that festive
pace all night. When the ball dropped and the party was at its fever pitch, he slipped quietly up to his library to read. At dawn he made his way back downstairs to find all his guests still celebrating, waiting on rumors of extravagant parting gifts. Remus told his servants to gather everyone’s coats so they could go outside and find their party favors. The crowd shuffled toward the door and, squinting out into the morning light, found one hundred brand-new cars lined up on the front lawn.