Are you thinking of investing in whisky? Or buying your own cask? Owning your very own cask of whisky, maybe selling it for profit one day, or just enjoying every drop for yourself sounds like the ultimate indulgence, and it definitely appeals. 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, and investing in whisky has a lot more traps and pitfalls than the sales brochures make clear at the start…
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 friends down the pub. And, if you buy a cask when it first gets filled, you also get the enjoyment of watching it mature, and then 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. “Why? How?” I hear you ask, indignantly. Let’s explore…
In my role with the Scotch Malt Whisky Society, I 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 have now discovered that the additional costs and expenses involved to bring their bounty home are prohibitive, and they can no longer afford (or risk) to complete the deal.
In the period from 2008 to 2014 or so, I was 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 explore these hidden costs and risks 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, (or just investing in whisky in general) suggests that the exercise is purely a financial affair, and you’re hoping to make a few bucks out of the deal. The two approaches are very different prospects, so let’s look at them separately:
Buying a cask
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 retailer instead. Commercially available whiskies that you find in the shops or in the online stores enjoy economies of scale that are well beyond the humble cask-buyer, and the journey of buying, maturing, and bottling your own cask is not a path to cheap whisky. So…now that you’re considering this for the right reasons, let’s continue…
Several Scotch whisky 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. These smaller, privately owned distilleries need cash and investment up front, and so offering casks as fresh fillings to the public is a nice way for them to get the early injections of revenue they need. However, the cost and value varies tremendously. For example, both Ardnamurchan and Glasgow offered 200 litre ex-bourbon barrels for around £2,500, whereas Lagg and Ardnahoe were charging £6,000 for the same size barrel.
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.
The “hidden” or extra costs – those that catch so many people out – are the costs involved once the whisky is mature 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 everything that happens and is needed after that, the ball is in your court, as are the expenses. In the case of Scotch, the whisky must be bottled in Scotland, and so not only do you have to pay for handling, transportation, labelling, and bottling costs for the cask prior to bottling (in Pounds Sterling, mind you, which is unlikely to favour your particular exchange rate), you also have to then ship those bottles to their final destination. Freight costs are determined by weight, and so in the case of a cask that yields, say, 250 x 700ml bottles, you’re paying to ship roughly 330kg of goods – of which 45% is just the dead weight of glass! You’ll also need to have your label signed-off and approved by the Scotch Whisky Association before the bottling plant can proceed, and you also need to make sure the labelling complies with the liquor licensing and importing requirements of your own home country.
Then, there’s the biggie of them all – the cost of the duties, excise, taxes, and import costs to bring your whisky home to your own country. In the case of Australia (my home country), someone who forked out, say, £2,500 to buy the cask at the start (roughly $4,600AUD) will be up for an additional $11,600 (approx) in local taxes, depending on the bottling ABV! (The rough indication given here is based on 250 x 700ml bottles at a strength of 58% ABV). Did you get that? The costs of getting your whisky back to you can be 2.5 to 3.0 times your initial investment.
If you don’t have access to a genuine exporter who’s registered for UK VAT and Duty and can’t export under bond, then it’s likely you’ll also be up for the costs of all the UK excise and taxes (about an extra $6,400 based on the same assumptions as above), as well as those at your local end. And we still haven’t added in the costs of engaging a Customs broker to handle your Customs clearance; the cost of freight itself (this varies, but can be anywhere between $3 to $7 per bottle for sea-freight, depending on your carrier and what rate you can negotiate as a small, one-off player). You may also have the additional costs of having to obtain a liquor licence (for importing a commercial quantity of alcohol) and – once it arrives here – you also need space to hoard your 250 bottles! And so, as many people have found to their surprise and dismay, what started out as a fun, sentimental venture ends up being an exercise that has become unaffordable, or is a nightmare in logistics. As a single player doing a one-off exercise with a single cask, the economies of scale simply do not exist. Hence the reason many people continue to contact me to see if the SMWS or other whisky entities I’m involved with would like to purchase their cask.
Of course, many of these issues can be ameliorated by forming a syndicate and going in as a group. One person may struggle to deal with and pay for everything, but splitting a cask and its costs between, say, 20 or 30 people is a far more manageable affair.
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 license 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.
No doubt plenty of readers imagine they could promote / flog off some bottles to a ready-made audience and market via Facebook whisky groups or similar. Such thinking is misguided. Firstly, for the hundreds or thousands of people who might be “members” of a whisky interest group or community, there’s a big leap between joining a Facebook group for free at the click of a “Follow” button, and being willing to spend $150 or more on an obscure, independent bottle of whisky. Secondly, Facebook has become particularly militant in shutting down whisky groups where they perceive that unlicensed, private sales of liquor or promotions are taking place. Post a link or message about selling your private hooch will get you kicked out of a group very quickly, or the group will be shut down.
So, after all that, is it really worth it? Is the work, cost, effort and expense rewarded? That depends on whether you find your cask tasty and how much you’re prepared to drink or give away.
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 for a return.
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.
- Like any investment, consider what the return is and whether your money would be better placed somewhere else? Buying a cask of whisky or investing in whisky means you’re looking at – 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.
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Finally, regardless of which of the above two routes you go down, remember that ten 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 personal health may be a different prospect in 10 years’ time, as might your circumstances and address. If the only thing the distillery or broker knows about you is your 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 die unexpectedly, make sure someone in your family knows that a cask of whisky in a foreign land forms part of your estate! 😊
Cheers,
AD
Got any other tips to share about investing in whisky or buying a cask? Have you previously participated in a barrel investment scheme and can share some thoughts? Add them to the comments section below…
This article was originally published in February 2019 and significantly refreshed in October, 2022.
I recently had a similar ask from my VIP Group where I teach them how to invest in whiskey/whisky. I agree that people get excited at the upfront for a Cask but don’t think about the costs after. I usually tell people to invest in bottles or if they can try to invest in a Cask from their country. If not and they are excited to purchase or invest in a Cask team
up with a local person. Or negotiate warehousing upfront if they travel a lot. Even perhaps talk to auction houses.
If the cask is bought as an investment, you do have annual visitation rights to check on your investment for which the travel and accommodation costs are tax deductible.
The ATO will need to recoup your expense claims, so will expect your “investment” profit to be declared as income in future
Thank you for this advice. This advice has prevented me from buying a cask of something i know i will not be able to move in 10 years time. Funny how the sales rep forgot to mention these pitfalls