Is Investing in Whiskey a Good Idea?

You may have enjoyed a wee dram of whiskey over time, but have you ever considered investing in whiskey?

The Irish translation of whiskey is uisce beatha which literally means ‘water of life’. Along with art, wine, and classic cars, the ‘water of life’, whiskey, is considered an alternative asset class to investing in say, the stock market or property.

Whiskey or Whisky?

There is a difference:

You use whiskey with an ‘e’ in Ireland and the US.

You use whisky in Scotland, Canada, and Japan.

However, it’s not just a spelling difference. There are legal requirements around the production methods for whiskey and whisky.

The Legal Requirements to Produce Irish Whiskey

Irish Whiskey/ Uisce Beatha Eireannach is one of the oldest spirit drinks in Europe. The Irish first distilled it in the 6th century.

There are specific regulations governing the production, verification and labelling of Irish whiskey.

Production must take place on the island of Ireland including Northern Ireland.

It must be produced as follows:

1. The Brewing Stage involves the preparation of a mash of malted cereals with or without whole grains of other cereals.
2. The Fermentation Stage enables the fermentation of the brewing liquor by the action of yeast.
3. The spirit is obtained by a process of Distillation. Irish Whiskey is distilled at an alcoholic strength of less than 94.8% by volume in such a way that the distillate has an aroma and taste derived from the materials used.
4. The product is then matured in wooden casks, such as oak, not exceeding 700 litres capacity, for a period of not less than three years.

There are also regulations around the production of:

• pot still Irish whiskey/ Irish pot still whiskey
• malt Irish whiskey/ Irish malt whiskey
• grain Irish whiskey/ Irish grain whiskey.
• Blended Irish whiskey/ Irish blended whiskey is a blend of two or more of the above 3 whiskey types.

Source: Irish Whiskey Technical File

Irish Whiskey Verification Schemes

In 2016, the Irish Department of Agriculture, Food and Marine (DAFM), the Irish Revenue Commissioners and the Food Safety Authority of Ireland (FSAI) introduced a new verification control system for Ireland Spirit Geographical Indicators (GIs).

Geographical indication is a label for goods with unique qualities, originating from a specific place. It usually contains the name of the location. The Irish Revenue administers verification for the Republic of Ireland and HMRC carries this out in Northern Ireland. They do this for all stages of whiskey production.

Irish Whiskey Labelling

There are also rules around the labelling of Irish Whiskey which are there to protect the consumer from being misled.

The Legal Requirements to Produce Scotch Whisky

There are strict legal conditions under which Scotch whisky can be produced, labelled, marketed and exported. Scotch whisky is always spelt without the e.

Some of the conditions include:

• Scotch whisky means a whisky produced in Scotland.
• It must be made from water and malted barley.
• The spirit needs to mature only:
  • in Scotland
  • in oak casks of a capacity not greater than 700 litres
  • for at least three years
• in an excise warehouse or a permitted place
• the minimum alcoholic strength by volume of whisky must be 40%.

There are also regulations around the production of different types of Scotch whisky including:

• Single Malt Scotch Whisky

• Single Grain Scotch Whisky

• Blended Malt Scotch Whisky

• Blended Grain Scotch Whisky

• Blended Scotch Whisky

Why Should I Invest in Whiskey?

Potentially Good Returns on Investment

Investing in whiskey is an alternative asset class that could provide good returns on your investment over time. Per the Knight Frank Wealth Report 2023, investments in rare whiskey bottles were up only 3% year on year to Q4 2022, however, over 10 years, they are expected to provide a return of 373%.

Some prices fetched for rare whiskey bottles can be enormous such as:

In September 2022 The Macallan The Reach 81-year-old single malt, sold for £300,000 (USD $325,740).

The Macallan 1926 Fine & Rare version sold at a Sotheby’s auction in 2019 for £1.5m ($1.9m). At the time it set a new auction record for any bottle of wine or spirit.

Global Demand for Whiskey

There is global demand for rare whiskey bottles.

The Knight Frank Wealth Report 2023 found that 18% of respondents were likely to buy rare whiskey bottles. The geographical split was as follows:

Australasia 29%

Africa: 27%

Asia: 25%

Americas 14%

Europe 10%

Middle East 0%

Increasing Use of Technology to Buy Whiskey

The presence of online whiskey cask platforms and whiskey auction houses has made it easier for buyers to invest in whiskey from anywhere in the world. Technology should increase market transparency, reduce fraud risk, and simplify whiskey authentication for investors.

UK Tax Advantages for Investing in Whiskey

There may be UK tax advantages to investing in whiskey. Speak to your tax advisor before investing in whiskey.

Enjoy the Whiskey

You can enjoy the whiskey and share it with friends or family or give the whiskey as a gift to someone.

How Can You Invest in Whiskey?

If you want to invest in whiskey, here’s how you can do it.

You can invest in different ways:

Buying Bottles of Whiskey

You could invest in rare and collectable whiskey bottles from auctions or brokers.

When buying a whiskey bottle or bottles, assess the following:

Authenticity: Verify the label, seal, batch number, and provenance.

Rarity: Check the production date, edition, and availability.

Quality: Examine the age, type and brand of the whiskey bottle(s).

Condition: Check for damage, defects, leakage, oxidation, or contamination.

Sales: Check popularity, demand, and market value of the whiskey bottles(s).

You could use online information and/or hire a whiskey expert to assist you in carrying out your due diligence.

Investing in Whiskey Casks

When investing in whiskey casks, choose a high-demand whiskey variety.

Calculate the costs for buying, storing, insuring, and selling casks.

Do your due diligence before contacting a broker or distillery. Once you have made contact with the chosen broker or distillery, select your investment option, and complete the application forms.

The broker orders the cask from the distillery. You will get a certificate of ownership of the cask which should include a tenancy agreement between the broker and the bonded warehouse of the distillery which covers storage and insurance. Insurance should cover fire and theft.

The cask will be stored in a government-approved bonded warehouse until the whiskey matures.

After the agreed maturation date, you can decide on your exit strategy.

Exit Strategy

You have multiple options to choose from for your exit strategy. You could:

• get the whiskey bottled and use it for personal use or give it to someone as a gift.
• get the whiskey bottled for your own brand.
• auction your cask to whiskey collectors, whiskey clubs or brokers.
• sell the cask to independent bottlers/brands who need to stock more whiskey. They either don’t have the money to invest in their own distillery or they can’t wait for the minimum 3 years to maturity.
• decide on further maturation. The value of whiskey rises with age. You may wish to wait for another 10 or 20 years until the whiskey matures further.

Investing in Whiskey Stocks or Funds

You could buy shares in companies that produce whiskey such as:

• Pernod Ricard (0HAT) produces Jameson, an Irish whiskey and The Glenlivet, a Scotch whisky.
• Diageo (DGE) produces Johnny Walker Scotch whisky and Canadian whisky Crown Royal.
• Suntory produces a Japanese whisky the Yamazaki.
• Brown-Forman which produces American whiskeys like Jack Daniels and Woodford Reserve.

You could invest in Spirited Funds/ETFMG Whiskey & Spirits ETF (WSKY), which tracks the performance of the global spirits industry. This ETF tracks publicly traded companies in the distillery, brewery, vintner, and beverage mixer industries. It has a 0.75% management fee.

Before you invest either in individual shares or the ETF, you must do your due diligence first and speak to your financial advisor (if you have one).

How Safe is a Whiskey Investment?

If whiskey investment companies/brokers mislead investors, this falls under the authority of the Advertising Standards Authority (ASA) or Trading Standards. HMRC is only informed of a potentially fraudulent firm if they fail to pay the correct tax.

Direct investments into whiskey bottles or casks do not fall under the remit of the FCA. This means that there is no protection or guarantee for investors. So, proceed with caution as investment scams are on the rise.

If you decide to invest in individual shares or ETFs, then do your due diligence before investing.

In all cases above you could lose most if not all of your money.

How Much Money Can You Make Investing in Whiskey?

One way to measure the performance of whiskey investment is to look at the indices that track the prices of rare and collectable whiskies. For example:

The Rare Whisky Icon 100 Index which includes 100 iconic collectors’ bottles. It is up over 300% over the last decade.

The Glenfiddich Index is up almost 117% over the last decade.

The Macallan Index is up just over 305% over the last decade. However, over the 12 months to September 2023, it was down over 21%.

These indices only represent a small selection of whiskies sold on the market. They are not an indicator of the whiskey market as a whole.

What are the Risks of Investing in Whiskey?

There are many risks to investing in the whiskey market.

• It is unregulated.

• The bonded warehouse where the whiskey is stored may burn down. However, this should be covered by insurance.

• The risk of fraud is high and as discussed previously, scams are on the increase.

• There is a risk that the quality of the whiskey may deteriorate over time if it is not stored in the right conditions.

• Some may steal the casks or bottles.

• High costs related to storage of bottles and casks, insurance, transporting the whiskey and bottling.

• Brokerage fees and auction fees may be high.

• Investors may not be able to sell their whiskies quickly in the event they need cash.

• Oversupply in the market and/or demand falling. This could lead to a fall in the value of the whiskey.

• Owners may face challenges over ownership or authenticity of the whiskey they have invested in.

• Investors may be subject to tax on their whiskey investments.

• Investors may need a licence or certificate before they can buy, sell or transport the whiskies.

• Government administrations may ban the sale of alcohol, therefore reducing the available market for resale.

If you invest in shares of companies that produce whiskey, your investments may drop. You could lose most if not all of your money.

Investing in Whiskey or Whisky – Just a Drink or an Investment for You?

Investing in whiskey or whisky, the ‘water of life’, can be highly rewarding but investing in bottles or casks is unregulated and comes with a lot of risks. You must be aware of the strict legal regulations that govern the production, verification, and labelling of these drinks in different countries.

Investing in shares or ETFs of companies that produce whiskey/whisky can provide good returns and potential dividends. However, as with all investments in the stock market they carry the risk that your investments could go down and you could lose most or all your money.

Whiskey/whisky investing helps diversify your portfolio. It will also help you appreciate the history and culture of this ancient drink.

Thanks for reading!

Have you invested in whiskey? Share your experience in the Comments below.

DISCLAIMER: Inquisitive Finance operates on principles of exchange of knowledge, ideas and opinions and learning in the community. Your decisions are entirely your own responsibility, and I am in no way responsible for your actions. I am not a financial advisor. Whilst I strive to provide accurate and up-to-date information, I make no warranties or representations as to the accuracy or completeness of this information. Use common sense, do due diligence and where necessary, use the services of a licensed financial advisor, before making any financial decision and/or transaction.