ALL THAT GLITTERS MAY NOT BE GOLD: STAY AWARE
In continuation of my previous post on the same subject, imagine your very own cask of whisky….it’s the ultimate
indulgence, isn’t it? When you love whisky this much, owning your cask – or
investing in one – is the icing on the cake, yes? But icing can go off if you’re not careful….
There’s no denying that there’s a degree of romance
involved. It’s like owning your own
little piece of Scotland, not to mention that it affords great bragging rights
with your mates on WhatsApp and Signal. And, if you buy a cask when it first
gets filled, you also get the enjoyment of watching it mature and tasting it at
various intervals along its maturation journey – almost like watching your kids
grow up!
It all sounds great on the surface, and plenty of
people pay for and acquire a cask with the expectation that nothing could
possibly go wrong. After all, what’s the
worst that could happen? In ten years’
time, you’ve got 200-350 bottles of your own whisky to drink, sell, or give
away! But, for many people, it seems
this end outcome causes more problems than joys. “How? Why?”
Diehards in the Scotch Malt Whisky Society regularly get emails from people who are trying to sell and off-load their cask. The circumstances are invariably the same each time: They purchased a cask 8 to 12 years ago, but found that the additional costs and expenses involved to bring their bounty home were prohibitive, and they can no longer afford (or risk) to complete the deal.
In the period from 2008 to 2014 or so, such experts were
getting at least two to three emails each month from people around the world
who were trying to offload their cask.
Several distilleries – Springbank and Bruichladdich being two good
examples – had cask purchase schemes in place for the general public in the
late 1990’s and early 2000’s, and when these casks reached maturity at around
10 years of age, the purchasers discovered all the additional costs that
weren’t instantly evident at the start of the process 10 years earlier. We’ll see
what these costs and risks are in just a moment….
There’s a difference between owning or buying a cask of
whisky and investing in one. The former
implies that you’re doing it for a bit of fun, and you plan on drinking,
enjoying, and sharing your spoils when you eventually decide to bottle it. Investing in a cask, on the other hand,
suggests that the exercise is purely a financial affair, and you’re hoping to
make a few bucks out of the deal. Both
alternatives are very different prospects, so let’s look at them separately:
BUYING A CASK
As explained in Part I, if you were tempted to buy your
own cask of whisky as a means to “cut out the middle man” and to obtain some
bottles of whisky cheaply, stop reading here and head down to your local liquor
outlet instead. Commercially available
whiskies that you find in these outlets or in the online stores enjoy economies
of scale that are beyond the humble cask-buyer, and the journey of buying,
maturing, and bottling your own cask is not a path to cheap whisky. Get back to mother earth now.
Several Scottish distilleries offer cask purchase
schemes and, in fact, with the huge number of new distilleries establishing and
opening in the last few years, the opportunities to buy your own cask are
better than they’ve been for a long time.
Ardnamurchan, Glasgow, Ballindalloch, Lagg, Annandale, Lindores Abbey,
Kingsbarns, and Ardnahoe are all just some examples of Scottish distilleries
that have (or had) private cask purchase offerings in place for
individuals.
The schemes vary from distillery to distillery but, in
most cases, your original buy-in purchase price will afford you somewhere
between five and ten years of warehousing and a sample sent out to you once a
year. Additional fees and costs apply if
you want to mature the cask and keep it warehoused beyond the initial
allowance, or to obtain extra samples.
HIDDEN COSTS
The “hidden” or extra costs – and what catch so many
people out – are the costs involved once the whisky is matured and deemed ready
for bottling. Nine times out of ten, the
purchase price you pay at the start covers only the cask and spirit up until
it’s deemed ready to bottle. For
whatever happens after that, the ball is in your court, as are the expenses.
This aspect has been dealt with at length in the earlier article.
But if you’re flying this exercise solo, there are also
some practical issues to deal with. It
all sounds fun at the start, but it’s a very different prospect when 250
bottles suddenly lob up on your doorstep.
How much of this do you really expect you’ll be able to consume
yourself? How much can you afford to
give away to family and friends? If you
want to sell a few bottles (or a few hundred bottles) to re-coup some of your
costs, how can you realistically and legally move that stock? Your close friends or the colleagues you know
through your whisky circles might drop around to your house and exchange cash
for a bottle, but that might account for just 30 or 40 bottles if you’re
lucky. If you want (or need) to move 100,
or even 200 or more bottles, then the complications and costs of acquiring a
liquor licence come into the mix, and you’ve STILL got to find your market and
buyers…and all at a price where you at least break even on your costs.
Some readers will be familiar with Facebook whisky
groups like Dram Full ex-Australia, and plenty of other similar country-centric
groups on Facebook and other Social Media forums. With Social Media forums having a combined
Facebook group membership of over 100,000 people, did you think a simple ad or
announcement on Facebook would easily find your market and help you shift your
bottles? But joining a Facebook group
and being willing to spend $200 or more on a bottle of whisky are two very
different things and it seems a large proportion of those group’s members baulk
at paying more than $100 for a bottle of malt when it’s sight unseen. Experience has shown that social media groups
will only help one move 30-50% of your cask, if one is lucky. And they’ll want or expect discounts or other
incentives, too, so the revenue you get might not be what you banked on. Moreover, if you’re inviting people from
other cities and states to buy your bottles, you’ll also need to organise and
handle all the packaging and posting – no small or convenient task.
So, after all that, is it really worth it? Is the work, cost, effort and expense
rewarded? I guess that depends on
whether you find your cask tasty and how much you’re prepared to drink or give
away. But it certainly is nice to see
your name on your own label.
INVESTING IN A CASK
Most of the pitfalls and additional expenses associated with investing in a cask are the same as what we’ve already outlined above. The
key difference here is that the ultimate objective is to make money. That means
divorcing yourself from the romance and fun of the affair, and focussing purely
on ensuring every last drop of spirit is sold.
In such an instance, the easiest – and recommended –
path is to simply sell the cask off once it’s reached maturity, i.e. let
someone else take on the risk and hassle of bottling the spirit and selling it
as a labelled product. A cask of 10
years old matured whisky is worth more than a cask of freshly-filled newmake
spirit, and so the exercise simply becomes an 8 to 12 year long-term investment
that relies on the capital growth of your asset. Of course, like every long-term investment,
there are risks involved, and you need to consider these:
Will the whisky industry still be buoyant in 10 years’
time and will there be demand for your cask? If a bust follows the current
boom, your cask might not attract the same interest or price-tag you
anticipated when you first invested.
You may be obliged to pay UK duties and taxes,
depending on how the transfer of ownership takes place and how the deal is
negotiated. Bear in mind that excise, duty, and VAT generally increase over
time, and so the taxes due in 10 years’ time will undoubtedly be more than what
you can currently calculate.
Casks can get damaged. Leaks are not uncommon, and
whilst it’s been a long time since a fire ripped through a Scottish warehouse,
fire and loss of your cask is also an ever-present risk. Or, as many distilleries found out in 2010,
so is collapse and damage of a warehouse under extreme snow! Most cask investment schemes offer insurance
against such losses, up to an extent, but you’d want to check the fine print
for yourself.
This is only applicable in the case of a sherried cask, but what if your cask is tainted with sulphur? If the sale of your cask at the end of its maturation relies on sending samples out to prospective buyers, you might be in trouble if those doing the sampling hold an anti-sulphur sentiment.
How reliable is the investment scheme and the
distillery? Some distilleries offer schemes whereby the distillery buys the cask
back from you once it’s matured, and the terms and prices of that buy-back are
written into the initial contract.
Beware of any investment scheme that sounds too good to be true. Remember that the end buyer of your cask –
whether it’s the distillery, or a cask broker, or a whisky club such as the
SMWS – has to meet all the costs associated with bottling, labelling,
transporting, and selling the whisky, and it’s they that capitalise on the real
or retail price of the whisky. You are
effectively just a wholesaler and must accept the smaller margins. As investors in the infamous Nant Distillery
found in Australia, not every investment scheme returns the dollars it
originally promised. Matthew Hayden was among the losers.
Like any investment, consider what the return is and
whether your money would be better placed somewhere else? You’re looking at least
an 8 to 10 year wait for your return, and it’s not unreasonable to ask if your
money would perform better if invested in some other fund or scheme for that
same period.
Regardless of which of the above two routes you go down, remember that 10 years is a relatively long time into the future,
and our crystal balls can get a bit cloudy when looking that far down the
track. Your health may be a different
prospect in 10 years’ time, as might your circumstances and address. If all the distillery knows about you is an
email address, it’s easy for either party to lose track of one another if you
re-locate or change your internet service provider. And, whilst it’s a morbid thought, if you
were to accidentally die at some point, make sure someone in your family knows
that a cask in a foreign land forms part of your estate!
This is what WhiskyInvestDirect posted about their Investment
Scheme:
Good returns from whisky maturation have been achieved
over many years, but historically only distillers and blenders could benefit.
Until now, that is.
Launched in 2015, WhiskyInvestDirect changed that, by allowing private investors to buy quality whiskies at wholesale prices. Already some 3,500 users own enough to fill over 70,000 casks, that's the equivalent of 29 million bottles of maturing Scotch. Accounts range in size from £700 to £750,000.
You will own the whisky as it matures, and when you decide to sell, via our trading exchange, you'll receive a transparently competitive price from other users and industry bidders. To date, mature whisky bought back by the trade has realised an average annualised return of over 10% for private investors — after all costs.
On the other hand, investment specialists at Rare
Whisky 101 (RW101) have expressed “worry” over the increased number of
inexperienced investors buying new make spirit.
RW101, a rare whisky indexing, valuation and brokerage firm, recently released its review, outlining performance of rare whisky on the secondary market last year.
RW101 said it has brokered a number of sales of
“exceptional” casks containing old liquid, including Ardbeg, Laphroaig, The
Macallan, Highland Park and Springbank. However, the company said these sales
were made by “sophisticated buyers with a wealth of experience in maturing
stocks”, adding that it would not advise inexperienced investors or buyers to
purchase “even the most sought after of casks” due knowledge about the loss of liquid
in the maturation process.
In addition, the increased incidence of inexperienced
investors looking at buying into new make spirit, that is, whisky that has not
aged in the barrel, is “worrying” to RW101. “Malt and grain production is at an
all-time high with distilleries being worked 24/7 to get more out of every last
cell of years,” the group said. “Should the current negative trend for global
sales of big brand blends continue, it would not be beyond the realms of
possibility that there could be a whisky loch in a few years’ time.”
In order to generate funding to increase capacity, a
number of whisky distilleries offer cask investment schemes to consumers, who
can purchase either entire casks or shares in casks at a time before the liquid
has aged.
While RW101 concedes that buying new make spirit from
distilleries where it’s not usually obtainable “may not be disastrous”, the
firm said such investments “might not yield the expected results”.
“The market for older casks of quality liquid from renowned top-tier distilleries, in our opinion, will continue to go from strength to strength,” RW101 said. “However, we’re strongly advising our customers against buying new make from less desirable single malt distilleries or new make single grain. Rarity, singularity and quality, again in our opinion, are crucial factors when looking at casks.”
HIGHER GLOBAL PROFILE FOR SCOTCH
The profile of this market, in recent years, has only
been raised. And for investment, the opportunities have only grown with prices
collectors are willing to pay exponentially increasing. Andy Simpson of RW101
(rare whisky 101) says:”One person’s investment or collection today can be
another’s drink tomorrow. Stick to limited editions, single casks, discontinued
bottles and older rarities from the iconic collector’s distilleries.”
TIPS THAT WILL STAND THE TEST OF TIME
TASTE
TEST
In order to understand an investment, it’s imperative
that investors get to experience it for themselves. Due to the pure nature of
the commodity, this is possible by conducting educational virtual tastings. Not
only does this give investors the chance to understand their investment from a
different perspective, it also allows them to feel part of the investment they
are making – something very unique in the general investment markets, as well
as in the whisky sector.
KNOW
WHAT TO LOOK FOR
It is important to look for a high alcohol by volume,
which means you will get longevity in the spirit so that if you do intend on
ageing it, whether it be anywhere from five to 50 years, a high ABV at any
stage of investment will give you the maximum opportunity for growth in the
investment.
UNDERSTAND
THE BRANDS
It is essential to invest in a recognised brand name
that you would see in the supermarket, on a recognised website like The Whisky
Exchange or Master of Malt, or that you would see in duty-free. If you are
buying or investing in a recognised name, you will be able to track the growth
across the years by observing the year-on-year price and inflation increases.
If you are able to get hold of a name-brand whisky from
2020 or 2021, it will probably grow quicker than other whiskies distilled the
previous year due to the lack of ability and increased demand, making it highly
investable whisky.”
KNOWLEDGE
IS THE KEY
When choosing your investment, make sure to investigate
the distillery financial reports to see how well the company is performing, and
look at future plans. Something small, such as a potential rebrand, could greatly
increase the cask value.
KNOW
WHERE TO FIND VALUE
With increased worldwide demand for whisky, including
in America where tariffs have been reduced by President Joe Biden, the value of
whisky in casks will only increase; in particular, more aged whisky, along with
the value of that produced in 2020 and 2021 during the global pandemic due to
the closures of distilleries, which meant that there was reduced supply.
LOOK
FOR SPECIAL DROPS
The growth will definitely continue and cask values
will keep on increasing, especially aged, rare and unique whisky, which will
continue to outperform the standard single malts and keep meeting market
expectations, with 2020 and 2021 casks likely to outperform them all.
A fair portion of the article quoted below has been used by me in my post. https://www.whiskyandwisdom.com/should-you-buy-or-invest-in-a-cask-of-whisky/
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