Is Whisky a Good Investment?

Lately, I’ve been thinking about whether I should buy an entire cask of whisky for investment purposes. But I wondered, is whisky a good investment? Below I have detailed my thought processes about whether I should or shouldn’t by an entire cask of Scotch Whisky.

The Scotch Whisky Cask in Question

The cost to purchase a private cask from the Borders Distillery is normally £1,995. However, because I work there I would only pay £1,837. That’s an employee discount of £158, or 7.9%. This price includes the cask, 200L of spirit, storage in a bonded warehouse for up to 10 years, insurance, and bottling costs.

Although I enjoy collecting things such as fine mugs, antiques and thrift store treasures, I’ve never thought of collecting alcohol. Since this is unfamiliar territory for me the first thing I did was ask the good people of reddit (r/Scotch).

Asking r/Scotch For Advice

I received quite a lot of feedback, and below are a selection of comments:

“Ok. Selling the cask straight away makes things easier especially if the distillery buys it back from you. That said you’re relying on the cask remaining quality and the market being strong. No idea what either will be in 10 years. If you’re comfortable losing the money go for it.”

“Prices will be dropping in 10 years, poor investment – fun hobby.”

“If I ever have enough money for it, I want to buy a cask or two of Arran and bottle it with my face on the label and give it out as gifts and eventually dump an absurd amount of it on my heirs. But as an investment it’s not gonna be profitable unless you have a plan and connections to essentially start a micro-indy-bottling business.”

“Nay nay and thrice nay. Look up Nant whisky casks scandal“

“That’s a super extreme example. There are plenty of good reasons to buy a cask from a new distillery that doesn’t claim to offer a clearly bullshit buy back scheme. However, you obviously shouldn’t pour your savings account into volatile assets when the market is starting to see a possible downturn in the next few years.

I learned a couple of things from the comment section. Number one: buying a whisky cask might not be as safe an investment as I initially thought. Number two, the scotch subreddit has a lot more Negative Nancies than I anticipated.

Nant Distillery Scandal

As suggested by one of the redditors, I next looked into the Nant Whiskey Scandal.

The Nant Distillery was a boutique whisky distillery in Australia who had a very popular whisky cask investment scheme. Almost 900 investors purchased barrels of whisky after production began at Nant’s distillery, north of Hobart, in 2008. The barrels cost up to $14,000 each and would be stored in a bonded warehouse until the whisky had matured. This process that was expected to take four years, according to the Nant investment offer. (Source ABC Radio National / Exclusive by David Lewis for Background Briefing Posted 7 September 2017, updated 14 September 2017)

When the distillery started to falter, a publicly listed company, Australian Whisky Holdings (AWH), announced a takeover. When doing a stock take as part of their due diligence “it was revealed that a staggering 700 barrels had never been filled with whisky. The audit also found an unknown number of barrels were either missing or had been secretly decanted, bottled and sold to the public without the knowledge of investors.” Needless to say,the takeover did not proceed and investors lost all the money they had invested in the whisky cask scheme.

While that is an unfortunate story, I am not planning to invest my entire life savings into buying whisky casks, I am just thinking of buying one. Since I’ve worked at the distillery for over a year, I know the founders and the people who work there. I’d like to think I’m an okay judge of character and can confidently say that this is not a scam. This leads me to the next big question, can I actually make a profit from selling my cask in the future?

Can I Profit From My Whisky Cask?

This is where the risk comes in. In ten years I don’t know if the scotch in my cask will taste good. This is a new distillery, so new that they don’t legally have any scotch yet. Spirit must mature in the cask for at least 3 years to legally be called Scotch and it has not been 3 years yet. I have nothing to use as a reference guide, so your guess is as good as mine as to whether it will be any good. If in ten years it turns out that that my whisky doesn’t taste good it will decrease its resale value.

Also, what if the cask starts leaking and nobody notices? If there is significantly less liquid in the cask then I expect there to be, what happens then? Luckily, I remembered that the initial cost of my cask includes insurance so I am covered in these situations.

I wanted to see what the average rate of return on investment is for whisky cask. Based on my research, I came up with a 7% annual rate of return on investment, before the cost of bottling and duties. If I pay £1,837 for a cask and assume a 7% compound annual rate of return, the cask will be worth £3,613 pounds in ten years.

A 7% annual rate of return is okay. It is not terribly exciting considering my money will be tied up for the next ten years. However, this percentage could be higher if in ten years the distillery has established an in-demand brand. This percentage could also be lower if the whisky isn’t very good.

Mathing it Out

Then I wondered, what if I don’t sell the cask outright and I try to bottle it and then sell it? What is the cost of a bottle of my scotch whisky? And how many bottles will I get from the cask?

First let’s calculate the number of bottles I can expect. The cask should hold approximately 200L of new make spirit at 63.5% alcohol. If every year there is a 2% loss in liquid to evaporation (also known as the angel’s share) then after ten years we should have 163L. Let’s assume only pure alcohol is evaporating and being lost, so after ten years the cask should be 51.9% alcohol. We are left with a cask with 163L at 51.9% alcohol.

We’ll assume we’re bottling our whisky at 46% alcohol, which means we have 184L at this strength. A single bottle is usually 700mL, so that means we should have around 263 bottles (Note: The Borders Distillery estimates that a 200L cask will yield 280-300 bottles if matured for eight years)

Litres of pure alcohol (184L x 46%)	84.64LAA
Initial Cost of Cask (including insurance, warehousing, and bottling)	£1,837
Documentation charges	£130
Current duty rate (2020)	£28.74/litre pure alcohol
Duty (85LAA (calculated above) x £28.74/LAA)	£2,442.90
Subtotal	£4,409.90
Value added tax at 20% (VAT) on duty and purchase price	£881.98
Total Cost	£5,291.88
Bottle Price to Break-even (£5,291.88/263 bottles)	£20.12/ bottle

Through my rough calculations, I determined that I would need to sell all my estimated 263 bottles of whisky at £20.12 per bottle to recoup my initial costs.

Decision Time

In terms of investment purposes, I think there are shorter term investments out there with higher rates of return (but more associated risks too). If we are talking about buying a whisky cask purely for investment purposes, I would not do it.

With that said, I decided that yes I will be buying a cask of Scotch Whisky. My reasons for buying a cask aren’t entirely objective, and I think what really influenced my decision is the fact that I work at the distillery. In ten years time when that Scotch Whisky has matured I can hold a bottle in my hand and say, “hey here’s a bottle of scotch that I helped make way back when”. I think that is a pretty cool thing to be able to say. It also makes me reflect on where I’ll be and who I’ll be in ten year’s time.

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