Before you became CEO of CaskX, you founded and later sold a company that allowed investors to invest in art. Do you see any similarities to investing in art and investing in whiskey casks?
While art and whiskey might seem to be worlds apart, from an investment perspective there are many parallels between the two asset classes. In a very basic sense, both art and whiskey casks offer investors the ability to diversify holdings with tangible assets that have, historically, offered a great level of resilience against inflation and economic uncertainty. Additionally, the value of both types of assets are impacted by time-driven characteristics that limit the supply that is available within the market. Whereas the supply of art is dictated by the amount of time expended by the artist, the production of whiskey is dependent on time spent aging inside the cask.
Looking beyond the similarities, one of the key advantages of barreled whiskey over art is that it is a product that continues to develop. Whereas the value of a work of art is driven exclusively by demand, the value of a barrel of whiskey is dictated by both demand and its age. Historically, the older the age of a whiskey the more valuable it becomes. For example, if you purchase a barrel of bourbon today it will not be the same product in six years’ time – at that point it will be something entirely different.
Do you just purchase casks of whisky in Scotland, or do you also buy casks of bourbon whiskey in the U.S. (Kentucky), Japan, and other locations?
CaskX currently offers investment opportunities from distilleries in the United States and Scotland. The massive growth in the demand for bourbon over the past several years has led to an increased concentration on these offerings as they are, in our opinion, positioned for the most significant gains over the next 5-10 years. Scotch casks offer a well-established market that continues to see steady rises in value, while the market for barreled bourbon is still in its infancy with the potential for more substantial increases. While investments from other regions have not been offered to date, the CaskX team is monitoring market conditions in Canada, Ireland, Japan and beyond to stay abreast of offerings that might benefit investor portfolios.
I am trying to understand the investment strategy behind investing in whiskey casks. When someone invests in a cask of whiskey at CaskX, can you walk me through the process of what actually happens?
The process begins by working with an advisor to build a portfolio of casks based on the investors desired objectives. By selecting barrels from specific regions, distilleries and vintages an investor can achieve the right combination that manages risk, offers the desired holding period, and is projected to achieve target returns. Upon purchasing a suitable portfolio, investors receive certificates for each of the casks which prove their ownership rights and can be used to transfer the casks in the event of a future sale. All cask investments are then stored at a government regulated warehousing facility at either the distillery or a third-party storage provider until the casks are either bottled or sold to another party. Investments are also fully insured to protect investors from any unforeseen disaster or loss. By investing in whiskey casks investors are able to help the industry grow by providing cash flow to distilleries in advance of the whiskey being of adequate age for release as bottles.
Do you take delivery of the cask, then store it at a warehouse to be aged for 5-25 years and later sold? Or is it bought already aged at a wholesale price in bulk and then immediately resold as individual bottles at a higher price?
Many investment offerings are “new make spirit” – whiskey that has been recently distilled and placed into a cask. In certain instances, investors are offered the opportunity to purchase whiskey which has already been aged but given that the greatest returns typically occur during the first three years, most investors prefer to purchase new spirit. Casks are then stored in a warehouse until they reach an age in which they can be resold to a bottler for public release.
Is there a targeted or optimal hold time from the time someone invests to when they sell the cask and “cash out?”
CaskX recommends that all investments are held until the spirit reaches a premium level and moves beyond commodity pricing. With the growth in demand for high-end whiskey combined with depleted stocks of well-aged liquid, investors have the opportunity to fill this void. The optimal holding period to reach this level differs based on the specifics of an investment, but it is typically 6-8 years for bourbon and 8-15 years for Scotch. Climate and mashbill have a profound impact on the amount of time it takes a spirit to reach its optimum flavor profile.
When it comes to Kentucky whiskey, has foreign demand from countries in Asia and Europe increased substantially in recent years?
Quite surprisingly, the growth that bourbon has experienced over the past three years has come almost exclusively from the domestic market. The imposition of a 25% tariff by the EU in 2018 had an immediate effect in slowing the growth of exports, which up to that point had grown by more than 50% in the preceding 10 years. In the fall of 2021, the bourbon industry celebrated these tariffs being lifted completely, returning the industry to a comparable export climate as what was enjoyed prior to 2018. With tariffs removed, the Distilled Spirits Council expects global exports of bourbon to return to double digit annual growth in 2022. When combined with the rise of bourbon domestically, bourbon is entering an environment unlike anything the industry has seen before.
Have you done any research about how whiskey or other spirits have performed during a hyperinflationary period, whether it was Weimar Germany, or something more recent like the hyperinflation that has occurred in South America or even Zimbabwe? What were your findings?
The CaskX team is currently in the process of collecting data points from international markets in order to assess the impact of hyperinflation on barreled whiskey.