In April 2023, a unique cask of Macallan whisky from 1988 made headlines. It recently went under the hammer for an amazing £1 million! All of which has sparked a renewed interest in whisky cask investments. Younger investors are particularly interested, looking for new and different investment opportunities like never before. The Macallan distillery in Aberdeenshire, Scotland, carries a lofty reputation on the international whisky stage. Yet would-be investors need to be careful about making bets in this nascent market.
Unlike other investments, whisky cask investments start at £2,500 to £5,000, allowing more investors to join in. Industry experts recommend that policymakers think of these investments as perpetual commitments. Even worse, they usually take a minimum of 10 years before you can start to realize significant benefits. Items like the ultimate value of the whisky and the costs of bottling have a huge impact on returns.
Whisky consultant Mark Littler, who is based Cheshire, said with cask investment becoming more popular it was crucial for investors to know what their ownership rights were. Having clear ownership is extremely important both in terms of being able to prove the asset exists and being able to ensure control over one’s investment.
Understanding Ownership and Verification
Whisky cask ownership is not as simple as it first might appear. Investors are frequently issued certificates or titles which fail to ensure their rights of legal ownership down to the warehouse level. Mark Littler marks the importance of good provenance.
“If you have received a certificate of ownership, a deed of title, or anything that isn’t a signed document acknowledged by the warehouse, then chances are that you do not own your cask at the warehouse level.” – Mark Littler
Until appropriate verification is in place, investors could find themselves unable to access their assets. This is especially problematic since whisky casks are easily gamed. Richard Woodard warns that “a whisky cask is essentially an open container – it has a bung in it which is easily removed and replaced – so it would be relatively simple for crooks to top up the casks with inferior liquid, or to replace that liquid altogether.”
While there are significant opportunities for investors, they should be conscious of the downsides and risks involved in whisky cask investments. Fortune Theodora Lee Joseph Theodora Lee Joseph warns that a lot of young investors might be new to the game and have an undiversified portfolio.
“The trouble is, the majority of them may not be experienced investors who own a well-rounded portfolio, which makes whisky cask investing much riskier.” – Theodora Lee Joseph
Financial Considerations and Hidden Costs
It can seem like an easy bet to invest in whisky casks, particularly when you take into account high-profile sales like the £1.5 million Macallan auction. Would-be investors have to consider investment taxes and investment fees, which can deeply eat into returns.
These unexpected expenses can eat away at profits and must be considered in any investment decision. In addition, bottling costs, labelling costs and retailer margins are involved.
“But that removes every single bit of tax and VAT and duty that comes into the equation. You know, you’re looking at 20% VAT on the purchase price of the cask, duty at £28.74 per litre of alcohol, plus VAT … so tax on a tax.” – Richard Woodard
Some firms advertising whisky cask investments might falsely guarantee returns, even though these companies are heavily regulated. Sarah Coles warns against trusting such claims:
She stresses that investors need to be on the lookout for scams that will inevitably prey on people looking to strike it rich overnight.
“Others will claim to be able to offer guaranteed returns in order to get people to part with their cash, but you can never guarantee a sale price upfront.” – Sarah Coles
The current boom in alternative investments such as whisky casks is symptomatic of deeper trends in the wider financial ecosystem. Disappointing returns from traditional stock markets and high-interest rates have contributed to a trend of younger investors venturing into these new frontiers. Evolving platforms Social media channels such as Instagram have evolved into popular mediums for the promotion of whisky investments, often marketing directly to this demographic.
Market Trends and Young Investors
Not all opportunities are genuine. For example, some firms will purport to sell exceedingly rare, greatly sought after and/or once in a lifetime whiskies that don’t exist or are highly inflated. Sarah Coles cautions investors about these pitfalls:
Investors must do their due diligence and only invest with trustworthy brokerages that have required qualifications.
“It leaves room for unscrupulous people to take advantage. Some may offer what they claim to be rare and expensive whisky but is in fact nothing of the sort.” – Sarah Coles
Potential investors should conduct thorough research and only deal with reputable brokerages that hold valid certifications.