22 Feb Buyer beware – a survival guide to investing in cask whiskey
As cask whiskey opens up to private investors, this also provides many opportunities. But buyers should be cautious as this can raise risks too. The key to understanding the potential of cask whiskey investment safely, is through a thorough understanding of the market. However, the challenge many investors face is that this is an unfamiliar environment.
Though a complex landscape, with an understanding of the fundamentals, new buyers can be sure that future opportunities really do turn into liquid gold.
Understanding the asset
The first of these fundamentals is to appreciate the inherent value of the asset. The components that go into a good cask whiskey are varied, and there is an exception to almost every rule, but the ‘golden quartet’ is: age, quality, brand and rarity.
- Age: is a complex aspect of whiskey know-how, but to simplify, the longer a whiskey matures in the cask, the better it’s likely to taste. Which leads nicely on to….
- Quality: is not a guarantee of ROI, but it is an essential foundation. Commercially produced whiskeys, which often find themselves used in low quality blends, are never going to hit the heights in terms of resale. Which leads nicely on to….
- Brand: is imperative ─ a cask from a company that nurtures its brand will always be more desirable than anonymous and mass produced whiskey. Which leads nicely on to….
- Rarity: really sets cask whiskey apart in terms of potential. A high quality, well-aged whiskey from a strong brand will still not generate significant returns if there’s a lot of it. In the whiskey world, limited supply leads to significant demand.
Now that an investor better understands value, we can start to scratch the surface of purchase options. Again, with caveats, there are three main routes to market.
- Direct from the distillery: is usually the preserve of specialist whiskey traders, because private investors struggle to access the best distilleries and smaller volumes fail to attract discounts.
- Brokers: overcome access and volume barriers, but bring a whole ecosystem of middlemen and traders eating into investor profits. Further, investors won’t know who they’re really dealing with.
- Specialised cask whiskey partners: companies such as Whiskey & Wealth Club have pioneered the opening of cask whiskey markets: strong distillery relationships bring access; buying in volume delivers discounts; expertise identifies the highest potential casks; a single partner ensures accountability; and industry insight provides the whole cask whiskey ownership package – from tax compliance, to bonded storage, to insurance and on to insight on the most profitable exit strategies.
The cask whiskey market is expanding fast, attracting both genuine and less scrupulous players. This shouldn’t put those investors off who perform due diligence: after all, nobody would enter the art, wine or antiques markets unprepared, so why should whiskey be any different?
The first thing to note is that cask whiskey isn’t yet classified as a financial product in jurisdictions such as the UK and is, therefore, outside the remit of its Financial Conduct Authority (FCA). I believe it should (and soon will be), which is why Whiskey & Wealth Club works with the FCA so that we’re compliance-ready.
Our work with the FCA and others is a useful guide to investors, with responsible companies:
- Meeting strict UK government standards to secure a whiskey warehouse operators’ licence (known as a WOWGR).
- UsingUK government standard DRAMS warehouse software to ensure the ownership and integrity of assets.
- Conducting extensive due diligence, including anti-money laundering and EU regulated Know Your Customer checks.
- Forging direct distillery relationships to deliver a triple lock: where the distillery vets the partner; the partner vets the distillery; and there are no shadowy middlemen.
- Ensuring that casks are only from limited runs of the highest quality whiskeys —not dumped from large volume batches.
Survive – and thrive
Any investment opportunity carries risk, but with research, due diligence and careful choices, investors will mitigate it.
Confidence in the cask whiskey market also flows from the fact this is an important industry to both the UK and Irish governments — combined it’s worth well over £5 billion a year and contributes significant tax revenues. While not (yet) in the remit of financial regulators, Whiskey & Wealth Club can testify to the fact that the tax authorities of both countries take responsible operation very seriously indeed.
We’re happy to comply, because I believe the companies that partner with cask whiskey buyers should go above and beyond in demonstrating their financial responsibility. It’s an emerging market where we need to adhere to higher standards than those currently demanded. In so doing, investors, distilleries and the whole whiskey industry will not simply survive — but thrive.