Understanding Scotch Whisky Investment In 2022


Georgie Harris, CEO, founded Hackstons by bringing together a wide range of physical asset experts in order to make investing accessible.

The past two decades have seen the rise of cask Scotch whisky as a tangible asset that is no longer restricted to the super-wealthy. Based on my conversations and dealings with those in this industry, I hope to describe why many investors are excited about this market and where it can go in the future.

Scotch And Other Spirits

When I started my company, we began to explore which spirits make the best investments. Wine has traditionally been a popular choice; however, due to the fact it can have good and bad years, it lacks the consistency of something like Scotch. While whiskey cask investing can be impacted by reductions in demand, a cask is highly unlikely to lose long-term value due to poor quality ingredients.

We chose Scotch specifically because it is the most established whiskey market. Irish whiskey, although older, has far fewer active distilleries, with most of them being established in the 2010s. Otherworld whiskeys, while tasting great, can be riskier or less accessible than Scotch in terms of an investment. For the purposes of the rest of this article, I will be referencing Scotch whisky investing specifically.

Traits Of Cask Investing

Cask investing was once limited to the super-wealthy due to its exorbitant storage costs and a lack of well-established brokers to facilitate the transfer of casks. However, over the past two decades, and especially since the pandemic, there has been a shift in the market as it opened up to the wider investor population. Scotch investment runs on a simple principle, and this is a large part of its charm: The more Scotch that is consumed, the higher the value of that cask in the long run.

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Due to being tied more to pure consumer demand rather than the stock market or other global economic systems, this means that Scotch whisky can provide a port in the storm. Casks can be used to supplement a portfolio of traditional stocks, bonds or properties, giving investors some peace of mind while they focus on more risky ventures.

Scotch investing is not fast-paced, so I always tell my clients to hold their cask for at least five years. Instead, it is a patient investment that steadily grows from acorn to oak, as one of my senior portfolio managers always phrases it. Other inflation-proof assets such as luxury watches and gold are certainly powerful hedges, but whiskey casks have the added benefit of being a product for consumption meaning that they become rarer at a much faster rate as similar casks are bottled and drank.

Protection From Inflation

This is especially useful now, with U.K. inflation at a 40-year high of 9%. This is why investors are turning to inflation-proof investment classes such as tangible assets like Scotch whisky.

Generally, the price of any tangible asset rises alongside inflation because of its physical nature. The value of the asset is not tied to company success or the fixed interest that they pay, the worth of the item is the inherent value of its properties. There is always a ready-made market to sell as well since many distilleries will buy back secondary market casks.

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Stability In Scotch

Scotch and other luxury assets enjoy further protection from economic instability as the ultimate end consumers of these investment items typically rank among the wealthiest. Even during the instability of Covid-19, luxury brands such as Rolls-Royce enjoyed their highest profits in decades since the consumption habits of the super-wealthy remained unchanged or even grew during this period. Scotch also enjoyed a similar boom, with the most expensive bottles being drunk at double the normal rate in the last year.

Tariffs

This stability within the Scotch whisky investment market is also facilitated by the extensive support the U.K. government provides to the scotch industry. This comes in the form of scotch being at the forefront of any trade deal the U.K. negotiates. For instance, in the latest trade talks with India, the removal of the 150% tariffs on Scotch is a top priority.

Official government releases called this trade deal a “golden opportunity” for Scotch, and this couldn’t be better news for investors in Scotch casks. With cheaper prices for Indian consumers, the rate of consumption obviously increases, causing the valuation of casks to surge as the demand rises. Last year the U.K. signed deals with Australia and the U.S. as well to remove tariffs on Scotch, which helped raise demand for Scotch.

Changing Cultures: Millennials And Gen Z

Another factor driving the growth of the Scotch whisky investment market and tangible assets, in general, is their increasing popularity among millennials and Gen Z.

Having reached their prime wealth-generating years during the 2008 financial crash, there is a great distrust of traditional financial institutions, with 45%, as surveyed by the World Economic Forum, actively distrusting them. Instead, they are moving toward less traditional assets.

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My company has been seeing more of these millennial investors. They tend to want to hedge against traditional markets as a way to secure their wealth so that they can be bullish in other areas like cryptos and stocks.

Conclusion

There has been a confluence of factors that have led to Scotch’s strong position. One risk to keep in mind, though, is that while the political will certainly exists for many of these trade deals, as always with politics, the situation could change and these deals could be watered down. I see the market as a whole, however, as resilient even without these upcoming trade deals.

For investors, casks of Scotch whisky can represent a strong and sustainable alternative to more traditional investments. To best take advantage, pay attention to the markets and upcoming trade deals. For example, when President Biden released tariffs on Scotch in 2021, I noticed a huge surge in demand on top of the already high demand from negotiations with India. The recent trade deals signed by the British government, alongside an increasingly turbulent economic climate, make cask whiskey a promising tangible asset.

The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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