California growers plant agave after tequila avoids a U.S. sales decline

Tequila was the only major spirits category to avoid a sales decline in the latest U.S. retail tracking period, and that gap is helping drive a new round of agave investment in California as wine producers look for alternatives to grapes.

According to a Bloomberg report published by Yahoo Finance, tequila sales in U.S. retail channels measured by Circana were unchanged in the 52 weeks ended Sept. 9. Over the same period, vodka, whiskey and other spirits fell at least 1.5%. That gave tequila a relative advantage of at least 1.5 percentage points over those categories, even though its own sales did not grow.

Bloomberg’s report did not specify whether Circana’s figure referred to sales by dollar value, volume or another retail measure. Still, the divergence was strong enough to shape investment decisions in California, where weak wine demand, excess grape supply and water limits are forcing growers and producers to reconsider how they use land and equipment.

The shift is most visible in parts of the state that have long depended on wine or table grapes. Some farmers are planting agave, a crop better known for its role in tequila and mezcal production in Mexico, because it is generally cheaper to establish than vineyards and requires less water and maintenance. That matters in California’s Central Valley and other farming areas where stricter groundwater rules and recurring drought pressure have made water-intensive crops harder to justify.

One of the growers making that bet is Stuart Woolf, a second-generation farmer in Huron, California. Bloomberg reported that Woolf has planted about 550 acres of agave over the past four years and plans to add another 150 acres. That would increase his planted area by about 27.3%. Woolf sees agave as a way to keep land in production while protecting jobs and adapting to long-term water restrictions affecting his broader farming operation.

California producers say they are also responding to a local market that already has strong demand for agave-based spirits. The state has roughly 40 million residents and a large Latino population, which some producers view as a natural consumer base for new agave drinks made in the United States. But the commercial case depends on more than demand. It also depends on whether growers can build a supply chain that does not yet exist at scale in California.

That is where distilling investment comes in. Bloomberg reported that O’Neill Vintners & Distillers has spent about US$300,000 on equipment to distill agave and expects to double or triple that investment over the next year. The move shows how some California alcohol producers are testing whether agave can become a viable line of business at a time when the wine industry is under pressure from slower consumption and changing consumer preferences.

The strategy carries clear limits. Any spirit made from agave grown in California cannot legally be sold as tequila or mezcal because both names are protected by denomination-of-origin rules tied to specific regions of Mexico. California producers would have to market their products under different names, such as agave spirit or agave distillate. That means the new products may benefit from consumer interest in tequila-style drinks, but they cannot use the category names that already carry recognition and established value.

Producers in California say that restriction also creates room for experimentation. Because they are not bound by the production traditions and regulatory standards that apply in Mexico’s tequila and mezcal regions, they can test different methods and styles. That flexibility may help them create a distinct product, but it also adds uncertainty because there is no established U.S. market for a large-scale domestic agave spirits category.

The agricultural risks are also significant. Agave is a slow-growing crop that typically takes five years or more to mature before harvest. That means farmers planting now are making bets on market conditions several years ahead. Prices can shift sharply during that period. Bloomberg noted that Mexico has recently experienced a price crash in agave, a reminder that the crop can follow the same boom-and-bust cycle seen in grapes and other commodities. By the time new California acreage is ready, demand and pricing could look very different.

Another challenge is the lack of processing infrastructure. California has limited capacity to cook, crush, ferment and distill agave on a commercial scale, and industry knowledge remains far less developed than it is in Mexico, where tequila and mezcal production has been refined over generations. Without a broad base of experienced processors and buyers, farmers face a more speculative market than they do with traditional wine grapes.

That concern extends to contracting. In established crop sectors, growers often rely on purchase agreements or long-term relationships with processors before making major planting decisions. Bloomberg reported that agave growers in California do not yet have that kind of support. Steve Vierra, a soil scientist and consultant in California wine country, described agave as a speculative crop because distillers are not handing out pre-plant contracts. That leaves growers exposed if output expands faster than demand or if too few distillers are willing to buy local supply.

The California experiments are unfolding against a larger backdrop of strong U.S. appetite for tequila over the past several years. Bloomberg, citing data from Mexico’s Tequila Regulatory Council, reported that Mexican tequila exports to the United States rose by about 30% in volume between 2020 and 2025, although they slipped by about 1% in 2025. Those figures provide context for why California farmers and distillers believe there may be room for a domestic agave category, even if recent export growth has cooled and even if local products cannot use tequila’s protected name.

For now, the retail numbers suggest tequila remains more resilient than rival spirits in the United States, but not immune to broader consumer caution. That narrow edge is enough to keep California producers interested, especially in a state where the economics of wine have weakened and water has become more expensive. Whether that interest turns into a durable new industry will depend on how much acreage is planted, how quickly distilling capacity expands and whether consumers accept an American-made agave spirit on its own terms.