In a world fraught with economic uncertainty, investors are looking for ways to diversify their investments as a hedge against inflationary shifts. Bitcoin has skyrocketed, tech stocks have soared, housing prices are up and down depending on your location and now whisky (or whiskey) is seeing a spike in investor interest.
In the UK and Canada, we spell whisky without the ‘e’, but in America and Ireland it’s usually written as ‘whiskey’. This confuses matters, but they’re essentially the same product from different locations. Scotch Whisky is made in Scotland, Irish Whiskey is made in Ireland.
Investing in Cask Whisky
When it comes to investing, time is your friend. This is as true of whisky as any quality stock. But when it comes to whisky investment, it may be the most important factor of all.
The longer you can leave it to mature, the richer you will be.
Producing whisky costs a lot, but one way distilleries capitalize on their efforts is to allow private investment. By investing in newly created whisky, the private investor can leave it to mature for as long as they like, making annual profits of 10% to 30% depending on how and where they market/sell it. Meanwhile, the distillery generates cash-flow to keep things ticking over.
According to The Whiskey & Wealth Club, an organisation set up to connect investors with suitable whiskey investments, investors purchased record palettes of the liquid gold in September. This boom at The Whiskey & Wealth Club came as it sold 111.2 palettes of a new-make premium spirit for a total investment of over £1.8 million. This was nearly a 54% rise on its August sales.
Founded by Jay Bradley, owner of The Craft Irish Whiskey Co, The Whiskey & Wealth Club is a specialised cask whisky wholesaler breaking down the barriers to entry in this ancient industry. Although it’s technically called a club, the private investors are not joining what has traditionally been an exclusive club for industry insiders. Instead, The Whiskey & Wealth Club pairs private investors up with wealth advisors as a guide to suitable investment opportunities in the whisky space. Much in the same way that a financial advisor guides a retail investor on suitable investments for their ISA or SIPP. They can then choose to buy, hold, bottle or sell their premium cask whisky as an investment vehicle that suits their personal circumstances and whims.
Another reason whisky cask investing is popular is it doesn’t incur VAT or Capital Gains Tax.
What Does a Whisky Cask Cost?
The investment club or broker strikes a deal with the distillery for a limited edition run at a discounted price. The investor then buys a cask outright via the club. This is then stored in a secure warehouse and insured. The investor patiently waits, and when it’s time to profit from the deal, the investor should expect to enjoy returns of up to 20%.
The cost of buying a cask varies. Factors affecting price include brand, variety of cask used, distillery location, and many more. The cheapest cask you may find could be around $2000, but they can go upwards of $10,000.
One unique factor affecting taste, and thus price, is the variety of casks being used. Scotch whisky likes hand-me-downs and doesn’t respond well to being put in a brand new wooden cask. So the most common and cheapest option is for it to be birthed in a bourbon cask, often shipped from America to Scotland. A first fill is when a cask, previously used to store Bourbon, is first filled up with whisky. A refill is when that same cask is filled with whisky for a second or subsequent time. Prices for these casks tend to start around the £2,500+ ($3,350) price point. Of course, that’s not the only consideration, so prices vary wildly. A cask that has previously contained sherry may well be double that and red wine, dearer still. Then there’s the option for it to be peated, or unpeated, single, double or even triple distilled.
So many options can be overwhelming and that’s why an investment broker can keep you right. The Whiskey & Wealth Club and HMRC approved Whisky Investment Partners are just two of many to choose from.
There are several exit strategies available to the investor. Whether opting to sell to a whisky brand, bottle under your own label, sell at auction, directly sell to a broker network or consider alternatives provided by the broker.
A Malt or a Blend? Exclusivity Equals Profitability
Whiskies are not created equal, the cheaper ones are blends, containing only 10% to 20% of malt. True malt whiskeys are a higher class and more appealing to investors. A unique brand expression, that’s not mass-produced, gives whisky its prestige and desirability. But the true value of a whisky comes from a selection of factors; age, quality, taste, brand, rarity and exclusivity all contribute to its worth.
That doesn’t mean all blends are bad, though. Jack Daniels and Johnnie Walker are blends, but retail investors can still buy exclusive bottles from these brands that hold their value.
The Whiskey & Wealth Club’s unique selling point is its access to exclusive runs from top-notch distilleries in Scotland and Ireland. An example of these exclusive runs is its release of Bunnahabhain Staoisha in September. This hailed from an esteemed Islay distillery and was limited to an undeclared number of casks. An average whisky cask has a volume of 250 litres. This produces around 385 75cl bottles. The pitch was perfectly curated and highlighted the reasons Islay whiskies in particular are set to be a very valuable commodity in the future.
Whisky Investing Algorithm
In response to this newfound demand for whisky investment options, financial analysts have gone so far as to develop the very first data modelling algorithm. This is specifically designed for investors in the whisky cask market. These analysts hail from specialist whisky investment firms where they have the knowhow and experience to make clear judgements on the market. The purpose of this algorithm is to furnish prospective investors with a set of metrics that give them unique insight into the industry.
Braeburn Whisky is another Whisky Cask Investment Specialist promising investors a fun, profitable and fulfilling ride to investing in this intrinsically appreciating asset. It has teamed up with Cask 88 to create its BC20 Whisky Cask Index. So far, this index shows the whisky cask market to have a steady annual growth of around 13%. Their recent research shows that whisky investment returns have surpassed that of the S&P 500, Bitcoin (this may now be debatable) and Gold. Despite the raging pandemic, this index continued to rise during the first six-months of 2020. Its data also shows that casks from the top three whisky distilleries offer projected returns close to 20%.
According to its data, Scotland has 22 million casks of whisky maturing in storage, giving it confidence that trades will grow in quantity and cost. Gracing the top of the Distillery Cask League Table is Laphroaig approaching 20% projected annual capital growth. This is closely followed by Bunnahabhain, Staoisha and Macallan. Malt whisky must mature for a minimum of 3 years to be called whisky, but maturation periods can run upwards of 20 years. Due to the costs to store the whisky, the more mature the product, the more expensive it will be.
In recent years the casks that have aged for over 20 years are achieving remarkable valuations. Casks aged over 45 years have sold for over £600,000. But it’s newly casked whisky (aka New Make Spirit) that younger investors are after because with time on their side, they can afford to reap big returns in the future.
The whisky maturing process takes place in the cask. Once it’s been bottled it stops maturing and that’s the age appearing on the label. This is why casked whisky over 20 years old is considered rare and the older it is, the more valuable it becomes. In 2019 a rare bottle of Macallan 1926 sold for an extravagant $1.5 million!
None of the distilleries followed by the BC20 Whisky Cask Index have shown negative returns. This is because it’s a booming and lucrative area of investment to be in.
Irish Whiskey vs Scotch Whisky
The Irish whiskey market is rebounding and is projected to grow for the next two to three decades. Scotch whisky is more established than the Irish whiskey market, with Scotch whisky being a major contributor to Scotland’s food and drink exports, accounting for 70% of them. This has a value of £4.7 billion annually to Scotland. In fact 41 bottles a second leave Scotland’s shores, making their way to 175 global markets.
Demand is growing and new brands are entering the space. In recent years (prior to the pandemic) gin popularity was exploding with new distilleries popping up all over the place. Many of these make gin because production is quick. But a lot of them will also branch into whisky production as a future income stream. So we can expect those brands to come online in the years to come.
An example of this is Greenwood Distillers, a boutique distillery hidden in a misty valley in the Scottish Highlands. It’s only begun producing its stylishly packaged ‘Theodore, Pictish Gin’ this year, but has big plans to branch into creating rare, exquisite and aged whiskeys. It now owns some of the most unique single malts Scotland can offer and has further plans to expand through Japan, the US, France and Mexico.
Whisky: A Luxury Investment
Whisky investing is taking on a life of its own and very much up there with other favoured alternative investments such as art, rare coins and fine wine. There are a number of cask investment houses now making it easier for retail investors to jump on the whisky bandwagon, but it’s important to avoid pitfalls too. While the middlemen make the process easier, they can also cut into the profits. Nevertheless, these cask wholesalers offer discounts to limited batches and exclusive runs.
This prospering industry is not yet regulated, so it’s important to do your homework. There are trade associations that legitimate investment firms can join to protect the industry’s reputation. The Whiskey & Wealth Club works with a compliance officer to ensure that its compliance-ready for when the Financial Conduct Authority makes its mark.
Another risk is whisky going out of fashion, but as it’s so ingrained in Scottish and Irish heritage, which is spread throughout the world, that doesn’t look to be an imminent concern.
When it comes to launching a new whisky, an alternative route to branding is for the company to buy mature whisky from investors, which it then brands as its own. This is one reason for the increasing popularity of cask investing as it leads both parties to cash in on the rising demand for these new and exciting brands.
Haig Club is a single grain Scotch Whisky popularised by David Beckham in partnership with Diageo (LON:DGE) and British entrepreneur Simon Fuller. Several other celebrity endorsements quickly followed Beckham’s step into the whisky arena. Conor McGregor has his own Irish Whiskey named Proper No. Twelve, after the area of Dublin he comes from. Bob Dylan brought out a trio of whiskey blends, Metallica have their own American Bourbon named Blackened, and Matthew McConaughey also has a Bourbon called Longbranch.
In a 2020 report rare whisky surpassed classic cars on the Knight Frank luxury investments index, achieving its very own Knight Frank Rare Whisky 100 Index in the process. In the luxury investments index, whisky has risen by 564% in value during the past ten years.
Investing in Luxury Liquor Brands
For investors looking to diversify, it’s not just whisky that offers potential gains. The liquor market is taking on a life of its own.
LVMH Moet Hennessy Louis Vuitton SE (EPA: MC | OTCBB:LVMUY)), is a luxury goods conglomerate, headquartered in Paris and distributed to every corner of the planet. Its share price has grown phenomenally in the past decade generating spectacular shareholder returns.
Bernard Arnault, chairman and CEO of $LVMH is now one of only five centibillionaires in the world. (A centibillionaire is someone who has personal wealth of more than $100 billion.) He joins ranks with Elon Musk, Jeff Bezos, Mark Zuckerberg and Bill Gates.
LVMH whisky brands include Ardbeg and Glenmorangie, while some of the other luxury goods under its label include Tag Heuer, Moët & Chandon, Sephora, Louis Vuitton, Hennessy (cognac) and more recently it acquired Tiffany.
If you’d prefer to spread your investment in luxury goods, across a selection of them, you could opt for a luxury goods ETF. One such ETF is The GLUX – Amundi S&P Global Luxury UCITS ETF – this tracks the S&P Global Luxury Index’s performance. Along with LVMH, this includes Pernod Ricard SA (EPA: RI) a French drinks giant with whisky brands that include Chivas Regal, The Glenlivet, Jameson and luxury Scotch Whisky Royal Salute, it also owns many other alcoholic beverages.
Glenlivet is the 2nd best selling single malt after Glenfiddich and sold almost 16m bottles in 2019. Around 40% of which went to the USA where it has been number 1 for decades.— Cask Trade Ltd (@CaskLtd) November 17, 2020
We currently have a 1978 Glenlivet Hogshead in stock so call us for more info: 02037463030#glenlivet pic.twitter.com/ZJ0hqILgFI
Hollywood actor Ryan Reynolds recently sold his premium gin brand to Diageo plc (LON: DGE) for $610m (£460m). In striking the deal he agrees to be the face of Aviation American gin for the next decade. Diageo is a fan of the celebrity endorsement, having previously collaborated with George Clooney and David Beckham.
Diageo is another stock that has rocketed over the past ten years. Its share price faltered in 2019 but has been gaining ground during November. Whisky is such an important part of Diageo’s portfolio, it’s committed to investing £185 million to revamp its Scotch whisky visitor offerings at distilleries around Scotland.The highlight of this is an immersive visitor experience at its Johnnie Walker, Princess Street in Edinburgh, which tells the story of the brand.
Remy Cointreau SA (EPA: RCO) creates premium spirits such as its opulent champagne cognacs. Its whisky portfolio includes Bruichladdich single malts, Port Charlotte and Octomore, as well as Westland American whiskey and Domaine des Hautes Glaces French whisky. Remy’s share price rise has been more volatile over the past decade than LVMH and Diageo, but long-term holders will still be sitting on a significant profit.
Investing in whisky and luxury liquor appears to be an interesting and potentially lucrative space to be diversifying your financial investments. Just don’t be tempted to drink away your profits!