Over the last decade, Scotch whisky has undergone an extraordinary shift. Globally, the Scotch whisky industry has seen tremendous expansion, while records for the most expensive bottles continue to be broken. Because of this, new businesses and companies have opened up opportunities for customers who want to buy bottles and barrels.
As an investment instrument, casks have gained significant attention in recent years. Nevertheless, with potential comes danger. Marketing materials and social media advertisements from many new businesses and brokers offer big profits on whisky barrels, mirroring Scotch whisky’s tremendous market expansion. If these claims are accurate, investing in whisky barrels seems almost risk-free. Recently, a story about a lucky barrel owner who made a big profit on a cask he bought in the 1990s brought this possibility to light.
However, profits are not guaranteed. Although purchasing a Scotch whisky barrel might result in profits in the future, the market for casks is not as explosive as some may believe. There is also a significant danger involved. Numerous offshore investing businesses and brokers use opaque ownership issues that expose investor funds to more risk than they realize. Swindlers are also out in force, attempting to dupe people into overpaying for standard barrels.
Therefore, here is a list of safety guidelines for anybody interested in purchasing a whisky barrel, whether for profit or pleasure.
1. Avoid Firms That Mention A ‘586%’, ‘564%’, Or ‘562%’ 10 Year ROI
Numerous cask investment firms tout whisky as a high-performing alternative investment vehicle, citing a ten-year ROI of 586 or 564 percent.
This statistic is often presented prominently in advertisements and on websites. It is derived from the Knight Frank Rare Whisky Index, which exclusively follows the fluctuating prices of 100 rare and desirable bottles of whisky. This does not contain whisky barrels and is a poor measure of their probable market success.
The Knight Frank Wealth Report, which produces the Index, is similarly appalled by these firms’ exploitation of their data. In a recent Great Whisky Magazine piece on cask investment organizations and their disturbing methods, the report’s editor, Andrew Shirley, noted, “Our index tracks 100 bottles of rare and precious whisky—it has nothing to do with cask whisky.”
So, businesses that use the Index in their advertising materials are either mostly clueless or are trying to give potential cask buyers lousy information that doesn’t make sense in context.
2. Careful Of Guaranteed Returns Claims
Some companies have claimed yearly returns on cask investments ranging from 10 to 20%, but this is deceptive, and any business that makes such a claim should know better. At the time of this writing, there are no dependable or widely accepted metrics for the overall performance of cask investments.
In many instances, certain historical data is manipulated into what seems to be authoritative information on general cask returns. Mark Littler, a whisky barrel broker who arranges cask acquisitions between sellers and purchasers and is a staunch advocate for more information openness in cask investing, despises this kind of false information. Even though he agrees that the value of some casks, especially those bought in the 1990s, has gone up a lot in the last 20 years, he warns that the market is changing quickly:
“The market’s health and buoyancy in 2021 is dramatically different from the mid-1990s. For example, in 1987, Springbank began intermittent distillation after being shuttered in 1979. So, single malt Scotch whisky is now a highly valued asset worldwide. This means that the profits that were possible in the past may not be potential in the future.
3. You Do Not Own A Scotch Whisky Cask Without A Delivery Order.
Scotch whisky cask ownership is based on a few legal papers and designations, and it’s helpful to know what they are.
The first is the Warehousekeepers and Owners of Warehoused Goods Regulations (WOWGR) registration. A rigorous procedure is necessary for anybody who buys and sells whisky barrels as a company (as defined by UK tax legislation as a “revenue trader”) to be on the register. Individuals purchasing a few casks as a long-term investment do not, but the legal line between such a person and a “revenue dealer” might be murky.
The delivery order is also crucial. This is a formal agreement between the seller and buyer of a cask, delivered to the warehouse keeper who is keeping the cask, verifying the transfer of ownership. Without a DO, the purchaser lacks legal ownership of the barrel. A few brokers and businesses provide an “ownership certificate,” but it has no legal standing and is only a nice piece of paper.
This does not imply that a firm that does not provide a DO is a fraudster, but it does increase the danger of losing your money if the company that owns “your” cask goes bankrupt. Blair Bowman, a whisky expert and barrel trader, outlines the dilemma:
“Most of these cask firms are not equipped to issue DOs since this would require the warehouse keeper to set up a new account for each cask owner…
This is highly burdensome for all parties, so firms avoid this path.”
One more vital point. If an investor does not live in the UK, they must have a duty representative on the WOWGR register who communicates with HMRC (the UK’s tax authorities) about their warehoused cask.
4. Scams Continue to Linger
The Financial Conduct Authority of the United Kingdom does not supervise cask whisky investments, making them a fertile ground for con artists. At the beginning of the new century, there were a significant number of fraudulent enterprises, many of which made similar claims of enormous riches to those that some bogus investment firms make today. In the whisky business, the names Nant Whisky, Grandtully, Cavendish/Hamilton Spirit Management, and the Napier Spirit Company, among others, are said with curses because they scammed investors in recent years.
Littler finds that the pitches made for whisky casks today and the methods used to sell them are remarkably similar to those used by con artists in the past: “The similarities between these old scams, such as inflated sales prices, no transfer of ownership, misleading sales information, manipulated/falsified returns, and Ponzi selling, and the practices of some companies today are quite remarkable.”
Cask buyers won’t discover an issue until many years later when they wish to liquidate their investment after the whisky has aged for some time. According to Bowman, “my greatest worry is that these firms will continue to attract foolish investors in the near term, but when the bubble collapses, they will be far gone with all the capital they produced today.” When an investor decides to sell their share, I strongly feel many of these firms will no longer exist.
This implies that when the ‘cask owner’ is ready to cash in on projected earnings in a few years, they will be in a difficult position, particularly without the DO.
Even though investing in Scotch whisky barrels is riskier than promised, it is still feasible to do it safely and enjoy the rewards years later. As with any investment opportunity, it is essential to do the necessary research before putting money down.
