V.I., Cruzan Rum Announce Deal to Expand Distillery

The Virgin Islands government and the owners of Cruzan Rum have entered into an agreement that, if approved by the Senate, will allow the distillery to expand on St. Croix, strengthening its brand and the local economy and providing additional funds to the government.

The agreement, if approved by the Legislature, also will ensure that Cruzan Rum remains on St. Croix for at least another 30 years.

Gov. John deJongh Jr. announced the agreement Wednesday evening in a televised speech.

DeJongh called the agreement "a comprehensive solution to the challenges Cruzan has faced," adding that it’s "a very good agreement for the government and the people of the Virgin Islands," more than doubling the cover-over revenue collected by the territory from the sale of rum.

Even as the government was negotiating and implementing the agreement that brought Diageo, makers of Captain Morgan’s Rum, to St. Croix, it was working to help improve the position of the Cruzan label in the liquor market. But Cruzan faced difficulties, including operating under the restrictions of an environmental order that restricted its production.

The distillery has had five owners in the last 10 years, and was bought and sold twice in 2008, the governor said. It is currently owned by Fortune Brands, whose Beam Global subsidiary owns, among other brands, Jim Beam, Canadian Club and Courvoisier. Fortune wants Cruzan to become a competitor in the upper end of the rum market, but to do so it would need to increase production.

"We knew that if we did not act, we would soon see the Cruzan brand move offshore," the governor said. "We could not let Cruzan leave St. Croix. We would lose the opportunity to build a rum industry."

Under the new agreement, the company agrees to produce all of its Cruzan and Ronrico (another rum brand already owned by Fortune) rums for sale in the United States at the St. Croix distillery for the life of the deal. The Virgin Islands government will continue to share the cost of molasses, a critical input in rum production, as it has for the past several decades. In addition, the government will continue to invest a portion of the tax revenues generated from the sales of locally produced rum in growing Cruzan Rum and the Virgin Islands rum industry.

Finally, the V.I. government will provide financing for the construction of a state-of-the-art wastewater treatment plant and to expand capacity of the Cruzan distillery by more than 50 percent. The agreement calls for issuing as much as $30 million in bonds for a wastewater treatment facility to address the long-standing environmental issues at the St. Croix facility, and another $75 million in bonds to expand the capacity of the existing distillery.

Fortune Brands predicts significant growth in production on St. Croix, including a 50 percent increase in capacity by 2013, the governor said. The company projects capacity will reach 15 million proof gallons by 2013, allowing for the anticipated growth of Matching Fund revenues from 2008’s $91 million to approximately $199 million.

“This is an exciting and proud day for all of us at Cruzan,” said Gary Nelthropp, president and master distiller of Cruzan Rum, in a statement released after the governor’s speech. “It’s exciting because we are putting Cruzan and Virgin Islands rum on a path to dynamic growth. And proud because this agreement demonstrates a commitment to securing Cruzan’s long-term future in America on St. Croix, building on a heritage of rum production that dates back to 1760 on our site.”

“This long-term agreement underscores our commitment to Cruzan and the premium rum category,” said Patrick Koley, senior vice president of strategy and corporate development for Fortune Brands.

In his speech, the governor said he will call a special session of the Senate to ratify the agreement.