(Bloomberg) — California’s vintners, struggling with a precipitous drop in wine consumption, are experimenting with making an American version of tequila.
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Facing state-imposed water restrictions and an oversupply of grapes, second-generation farmer Stuart Woolf is one of those betting on agave. He has planted about 550 acres over four years on his land in Huron, California. He plans to add another 150.
California’s love of tequila was “one of the reasons I was so enamored with planting this crop,” he said. “We’ve got 40 million people here, 40% of which identify as being Latino or Hispanic. This is a great place to try to introduce a new category of agave spirits.”
The spiky blue-green succulent — used for centuries in Mexico to make tequila and mezcal — is cheaper to plant and cultivate than grapes. It also requires less water and maintenance. That’s key for Woolf, who’s looking for alternative uses for his farm’s 30,000 acres, much of which is subject to strict limits on water use.
“This is a way that I could protect jobs, continue to farm our land, keep the land holdings within my family,” Woolf said. “This is kind of our family’s legacy and I wanted to hang onto it and protect it.”
Despite the lower costs and water use, it’s a risky move. There’s very little local distilling capacity in California and knowledge about processing agave is still limited. A recent price crash for agave in Mexico, meanwhile, has followed the same boom-and-bust cycle as grapes. Agave plants are slow-growing and generally harvested five years or more after being planted. A lot can change over that period.
On top of these factors, any alcoholic beverage made from California agave can’t be called tequila or mezcal, due to rules on denomination of origin. Will consumers warm to an agave spirit that’s not Mexican?
The California spirit makers say tequila is an inspiration, but they’re looking to put their own spin on agave. This is leading to experimentation in the production process to create something new.
“We’re not tied to any tradition, we’re not really tied to any way of making it,” said Gian Nelson, co-founder of Napa-based Jano Spirits.
Steve Vierra, a soil scientist and consultant in the wine region of California for nearly 30 years, said agave is “a purely speculative crop” that spirits makers won’t buy ahead of time. “There is no distillery handing out pre-plant contracts.”
But things look even worse for grape growers. Wine sales contracted 5% last year, the most among alcoholic beverages, according to Circana data compiled by Bloomberg Intelligence. The category, which brings in more than $15 billion annually through Circana’s tracked retail channels, hasn’t grown since at least 2022.
With demand down, some growers are ripping their vines out or letting their crops rot, said Dale Stratton, managing director of Azur Associates, an alcohol industry consulting group. Vintners’ woes have been compounded by higher labor and operating costs.
Tequila, in contrast, has held up relatively well. Growth was flat over the 52 weeks ended Sept. 9 while vodka, whiskey and other liquors each contracted by at least 1.5% over that period. Mexico’s exports to the US grew about 30% by volume from 2020 through 2025, despite a decline of about 1% last year, according to Mexico’s Tequila Regulatory Council.
It costs around $10,000 per acre to plant agave, according to Vierra. A transition back to grapes can run as much as $70,000 per acre, depending on the region of California. After they’re established, agave plants can largely survive on natural rainfall, while grapes require additional irrigation.
Vierra said he’s helped more than 20 wineries transition some of their land from growing grapes to agave. It started with smaller, boutique operations, but more commercial farms have been wading into the budding industry, he said.
Bigger companies are also taking a serious look at the possibilities. O’Neill Vintners & Distillers, which produces 8 million cases of wine annually, has been carrying out tests with California agave. The company owns wine brands including Line 39 and FitVine.
O’Neill has invested around $300,000 in new equipment — purchased in Mexico — to cook, process and distill agave spirits, according to Matt Towers, the company’s chief operating and financial officer. It aims to double or triple that outlay in the next year. Their work has focused on perfecting their product, which won’t likely hit shelves until 2028, according to Jeff O’Neill, the company’s founder and chief executive officer.
“It’s not quite really commercial yet, but that would be the next step,” O’Neill said.
Craig Reynolds, who formerly sat alongside Woolf on the board of the California Agave Council, first planted agave in 2014, helping a few small-time distillers to make spirits from his crop.
His early forays provided a proof of concept that California-made agave spirits are viable in the state. “It was just originally somewhat of a joke that I would be suggesting that to people,” Reynolds said.
But while California’s supply of agave is now growing, there are bottlenecks when it comes to turning the plants into liquor. It’s a labor-intensive process that involves pruning the spiky leaves from the plant’s core. The cores are then cooked over a long period before being crushed to extract juice that’s fermented and then distilled.
Connor Vaccaro, the founder of Calavé Spirits, says he’s likely one of the few operators with commercial-scale equipment needed to handle larger volumes of production in the state.
“We’re just trying to get the distilling side of it caught up,” said Vaccaro, who is also a winemaker. “I’m hoping to scale up in the next couple years to meet that demand.”
O’Neill is planning to increase production capacity in line with the maturity cycle of agave that’s been planted in the state. The vast majority of agave will be harvested in the next two to three years, he said. His company has planted around seven acres of agave to give it plants to work with.
The hope is that a number of brands and agave products hit the shelves in the coming years in order to create a new category. “We want more than one product coming to market,” O’Neill said.
Mexico’s industry is watching California closely to ensure denomination-of-origin rules aren’t violated. Tequila exports generate more than $4 billion annually for the country, according to a 2025 report from the World Spirits Alliance, a global industry advocacy group.
Vaccaro is currently doing his fourth production run. Customers’ reception to his blanco and reposado varieties has been very positive, he said.
“It’s really easy to sell once people try it,” he said. The hardest part is getting it into consumers’ hands, due to a lack of familiarity.
“For most people, when you tell them it’s like sparkling wine and Champagne, they’re like, ‘Oh I get it,'” he said. “It’s a pretty easy explanation and it’s just getting people aware that we’re actually doing it in California.”
–With assistance from Valentine Hilaire.
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