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Real tequila is made from 100% agave - and Weber Blue Agave at that, and can only come from Jalisco, Mexico. To be legally called Tequila, however, only requires 51% agave, and the rest of the alcohol comes from sugar, which is much cheaper. The difference in quality is readily apparent, even in Margaritas. The price difference isn't that much. This is one instance where "you get what you pay for" is obvious.
There are three basic levels of Tequila. Blanco (also called white or silver) is usually unaged (less than 60 days, and less than 30 days in barrel) and is the spiciest, with big jalepeño flavors. It is primarily used for mixed drinks, but those with a strong palate and a taste for harsher spirits ca and do drink it straight.
Reposado is aged a minimum of two months (and up to 1 year) in oak barrels or casks and is much less spicy, but retains much of the fresh flavor and is far smoother and richer. It's much easier to drink straight, and still makes a superb mixed drink.
Añejo is aged a minimum of one year in barrels or casks of less than 600 liters (reposado casks can be as large as 20,000 liters) and are still richer and more complex, smoother and meant to be sipped straight or in simple cocktails, like a good Bourbon or Scotch.
Extra Añejo is a fairly new category and follows the same rules as Añejos, except that it must be aged a minimum of three years in barrel. This is a fairly controversial category, in that many believe that the best features of tequila are lost with overly long aging. It is, however, the richest and smoothest of all Tequilas.