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It may be time to take a shot at investing in whiskey

MONEY & INVESTING



 

 

I think it is amazing when you can pair investing with an expertise or a passion you have in your day-to-day life. Which is why I was so excited to learn that investing in whiskey has increased in popularity over the last several years. Can you really make money buying this hard liquor and how can you start investing in this alternate asset class?

For those of you not familiar with whiskey, it is an alcoholic beverage that has been around for over 600 years and is produced around the world. To create it, grains such as barley, corn, rye or wheat are combined with water. The resulting mash is distilled in a still, which is basically just a huge copper-lined pot. The resulting liquor is then aged in casks — typically oak — which impart complex flavors into the whiskey before it is bottled. The age of the whiskey is the length of time it sits in the casks.

 

 

There are many types of whiskey at many different price points. A single malt whiskey is a beverage made from a specific distillery created from one particular malted grain. A blended whiskey is created by combining two or more single malt whiskeys. There are also single cask whiskeys which are bottled from one specific oak cask. A bourbon is a whiskey made from at least 51 percent corn and is aged in new charred oak barrels (which gives the bourbon its unique color). And scotch is produced in Scotland, aged for at least three years, and is produced from malted barley.

Several characteristics of whiskey make it an interesting investment asset. First, there is limited supply of the product. Most high-end whiskey is aged for 12 years or more, which means that even if a company wanted to increase supply of a particular beverage, the finished products would take over a decade to produce.

Second, the demand for single malt whiskey, especially single malt scotch and single cask whiskeys, has outpaced very limited supply. Overall, the market for whiskey has steadily increased by around 1.5 percent per year over the last few decades. However, the high-end whiskey sub sector of this market has grown much more quickly. In 2002, 47 million bottles of single malt scotch was consumed. In 2016, that number grew to 114 million.

Finally, there is an expertise needed to invest in whiskey. Atmospheric conditions, impurities in the environment, age, types of casks utilized and distiller skill all have an effect on the finished product. It takes years to understand how these factors affect the beverage in order to understand which whiskey will have a premium taste and thus increase in value.

In the last few years, whiskey investors have done well with average prices for high-end bottles increasing by 35 percent in the last year alone. Further, a company called whiskeyinvestdirect has even enabled investors to speculate on whiskey by buying the product before it is even done aging in order to sell hopefully premium product when the aging process is complete.

But there are definitely substantial risks in investing in whiskey. The first is already starting to play out — an increase in high-end whiskey supply. Just as large beer manufacturers are buying micro-brews, large spirit companies are buying or expanding smaller whiskey and scotch facilities. While the finished product won’t be ready for a decade, with so much product expected to be produced I would think that the price of the beverage would be negatively affected down the road.

In addition, while whiskey is clearly a “hot” beverage today, there is no guarantee that it will be so in the future. Like in the wine world where Merlot wines were extremely popular for a while and then faded, there is no guarantee that whiskey will continue its high popularity for decades to come.

So while there are risks to investing in whiskey, I think it is a fine way to diversify a portfolio. And if it doesn’t work out, you won’t have to look far for help in drowning your sorrows. ¦

— Eric Bretan, the co- owner of Rick’s Estate & Jewelry Buyers in Punta Gorda, was a senior derivatives marketer and investment banker for more than 15 years at several global banks.

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