Here’s What It Takes to Start a Tequila Business from Scratch

Howard Cao never really intended to get into the spirits business. As photographer and founder of the San Francisco-based advertising agency Form & Fiction, he and his team were celebrating the wrap of a client project that just happened to be on National Tequila Day.

His colleague suggested that they should have some to celebrate. Cao was skeptical at first. "I think people look at tequila as this fire water type of thing," he says. His taste for the spirit bittered at a family reunion with his wife's family, who have a Mexican heritage. Cao and his wife's uncle would get into drinking contests. "I learned not to like the taste of tequila after that," says Cao.

Despite the trepidation, they pulled out a bottle that was a gift from their old studio manager. "When I tasted it, I was like 'Oh man' I forgot how good tequila could be," says Cao. "It was a real awakening."

Cao looked at his friend, and started thinking aloud about creating a client gift by making their own bottles. They started designing moonshine bottles, and sent about 100 to family and friends.

The response was overwhelming, and as an entrepreneur, Cao kept thinking: How hard would it actually be to produce a spirit or a tequila? At the time, he was working with Ken MacKenzie, who was the chief operation officer and co-founder of Republic Tequila with about 20 years of industry experience. When Cao asked MacKenzie about the idea, Mackenzie looked at him and said he wouldn't recommend it.

But Cao couldn't let it go, and that's how Kokoro Spirits got started.

Starting a tequila brand is a long process. First, in order to be called tequila, there's a geographically specific certification process similar to that of wine in Italy and France. To bear the name of the spirit, versus being called an agave-derived liquor, the blue agave has to be grown in one of five states and certified by The Tequila Regulatory Council (CRT)— Jalisco, parts of Guanjuato, Tamaulipas, Michoacán and Nayarit. On top of that, there are other standards that are set by the (CRT). Beyond that, there's finding a distiller, working within U.S. guidelines and trying to change people's perspectives around the spirit.

Cao admits that he didn't know much about tequila when he first began this journey. "I'm a kid from Nebraska, so my palate for all this stuff is not as sophisticated as if I were growing up on the West Coast," says Cao. "All of this was a great learning experience for me."

He remembers going down to Guadalajara going through tasting after tasting to try to find the perfect tequila for his brand. At the time, he wanted to produce an extra añejo, which is a designation of tequilas that are aged in oak barrels for at least three years. But then, he tasted a blanco, and that was his "aha" moment. Blancos are probably the type of tequila that most people are familiar with. Unlike the añejo or reposada, this tequila lacks color and isn't aged more than 50 days.

For Cao, this particular blanco felt like a true representation of tequila. It wasn't fire-and-water, but very floral with apple notes and a kiss of pineapple. He asked the master distiller which of her tequilas made her the most proud. "She told me the blanco because she had full control over it," says Cao. "She said once it hits the wood (the barrels used for aging), I don't have a lot of control over it." That night, he recalls that he couldn't sleep because he made a big decision to make a blanco as his first spirit for the company.

In the end, Cao is really happy with his decision. He says, with the other versions of tequila, the finished product ends up losing a lot of its agave qualities. The whole process took about three years, but on Oct. 10, Cao finally launched Kokoro Spirits.

Even before the pandemic, Cao knew he wanted to have a direct-to-consumer model, and his small-batch brand is also in the process of becoming a certified B corporation, benefiting the United States Bartenders Guild Helen David Relief Fund, which supports those in the industry battling breast cancer, and Casa Hogar Alegria, which aims to help girls in unstable homes.