Jay is the Founder of rare, collectable Irish whiskey brand, The Craft Irish Whiskey Co. and cask investment company, Whiskey & Wealth Club.
As cask whiskey opens up to private investors, opportunities are many, but there are risks, too. The key to realizing its potential (safely) is a thorough understanding of the market. The challenge facing many investors, however, is that this is a new and unfamiliar environment.
It’s a complex landscape with many moving parts, but with an understanding of the fundamentals — a cask whiskey investor’s survival guide — new buyers can ensure that glittering opportunities really are gold.
1. Understanding The Asset
The most fundamental 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: Almost always the first question that springs to mind when trying to judge the value of a whiskey, particularly for those new to the field. Age is a key indicator of value, but it’s a complex aspect of whiskey know-how. To simplify, the longer a whiskey matures in the cask, the better it’s likely to taste, and, of course, the more someone is willing to pay for it.
Quality: Not a guarantee of ROI, but an essential foundation. Commercially produced whiskeys, which are often used in low-quality blends, are never going to hit the heights in terms of resale.
Brand: An imperative. A cask from a company that nurtures its brand will always be more desirable than anonymous and mass-produced whiskey.
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 for sale on the market. In the whiskey world, and most others for that matter, limited supply leads to significant demand — scarcity dictates price.
2. Purchasing Possibilities
Once an investor better understands value, we can start to scratch the surface of purchase options. Again, with caveats, there are three main routes to the market.
Direct from the distillery: This 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: They’ve overcome access and volume barriers but bring a whole ecosystem of middlemen and traders eating into investor profits. Investors might not know who they’re really dealing with.
Specialized cask whiskey wholesalers: They’ve pioneered the opening of cask whiskey markets. Strong and exclusive distillery relationships bring access to their limited stocks. They buy in volume to get economies of scale, which deliver significant discounts, and a single partner can ensure accountability. Their expertise can also help identify the distilleries to work with and other industry insights from tax compliance and bonded storage, to insurance and the most profitable exit strategies.
3. Trust: Due Diligence, Regulation And Standards
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 antique 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 U.K. and is, therefore, outside the remit of its Financial Conduct Authority. I believe it should (and soon will be), which is why Whiskey & Wealth Club works proactively with a compliance officer to ensure that we’re compliance-ready.
Our journey may provide a useful checklist for potential buyers when looking for a cask whiskey buying partner. Responsible companies can:
• Meet strict government standards to secure a warehouse operators’ license (known as a WOWGR in the U.K. and a Warehousekeepers license in Ireland).
• Use U.K. government standard warehouse software to ensure the ownership and integrity of assets and that HMRC has a record of each cask and its owner. In Ireland, this is done by the revenue commissioner with officers assigned to monitor each warehouse.
• Train with senior financial crime officers so the staff is alert to every form of risk.
• Conduct extensive due diligence, including anti-money laundering and EU-regulated Know Your Customer checks.
• Forge 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.
• Ensure that casks are only from limited runs of the highest quality whiskeys, not dumped from large volume batches to give buyers the best return.
Survive And Thrive
Any investment opportunity carries risk, but with research, due diligence and careful choices, investors can mitigate it. Confidence in the cask whiskey market also flows from the fact this is an important industry to both the U.K. 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, 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 doing so, investors, distilleries and the whole whiskey industry will not simply survive but thrive.