“The industry has just gotten bigger since then. So, they have more power. It’s going to be even harder to deal with them,” Martin Armstrong, director of Whisky Broker, laments. “Investment companies that were there in 2021 are still there, but now they’ve got more money because they’ve been selling for longer at inflated prices.” Witnessing the sector’s growth, new companies are regularly cropping up – sometimes with disastrous consequences for customers.
In June 2022, British national Casey Alexander was arrested by the FBI after it was alleged customers lost around US$13 million “investing” in whisky. Alexander worked for three companies – Charles Winn, Vintage Whisky Casks, and Windsor Jones – which targeted elderly individuals. Using what investigators termed “aggressive and deceptive tactics”, Alexander promised huge gains and luxury experiences. He had created a dazzling online persona, which he used to help sell the romance (and fictional returns) of Scotch whisky to unassuming investors. One 89-year-old based in Ohio reportedly lost $300,000 due to his actions. Alexander pleaded guilty to conspiracy to commit wire fraud at a US district court in Ohio in April 2023 and is due to be sentenced in July; he faces up to 20 years in prison and a hefty fine.
Like all scams, it is easy to think that it would never happen to you, but with so much mainstream attention given to the vast sums of money being paid for whisky casks, it is easy to see how even the most level of heads could be turned.
In 2022, two success stories were touted by cask investment firms as examples of what can be achieved by investing in maturing whisky. The first of these hit the headlines in April and has all the hallmarks of the traditional, and much romanticised, whisky investment story. A cask of Macallan, bought at the distillery in 1988, was sold at an online auction for around £1 million (including buyer’s premium) by a private seller. Where had the seller been keeping the cask all these years? They had forgotten all about it. They had bought it on a whim for £5,000 on a visit to Scotland and then returned home. Over the next 33 years, the cask and its contents lay forgotten until the distillery tracked the customer down to let them know it was still there. It was only then that they became aware of the cask’s immense value. It’s the type of story that the entire speculative cask market is built on, but one that paints a distorted picture. Casks of Macallan for £5,000 do not exist in 2023; those wanting to make returns on the world’s most popular investment whisky can expect to shell out significantly more to get a foot on the ladder.
The other major story was one nobody saw coming. In July, Ardbeg announced the sale of a cask from its maturing stock for £16 million. ‘Cask No. 3’, as it was named, was distilled in 1975 and laid down to age in two separate casks before being transferred to a single sherry butt in 2014. Sold to an unnamed female collector based in Asia, the sale was more surprising at the time as Ardbeg had never advertised a private sale programme. The whisky will be bottled over five years with the owner receiving 88 bottles every year. Ardbeg has also committed to donating £1 million of the windfall to local community causes over the next five years through its All Islay Fund.
While both stories are true successes for the Scotch whisky industry and should be applauded, the way they were reported in national and international press failed to identify the uniqueness of both sales in the broader context of whisky cask investment. In fact, it could be argued that the Ardbeg sale wasn’t really a ‘cask sale’ at all – the esteemed buyer has simply bought the future outturn of that cask.
However, both stories have also been leapt upon by eager cask investment companies to further their own cause. They feature prominently on the websites of several, have become a go-to for social media graphics, and are frequently referenced in advertorials highlighting their services.
We spoke to customers about their experiences with some of these companies. We were told that the sales tactics are forceful. The implication that many came away with was that they’d miss out if they didn’t invest right away. A new developing concern since 2021 is the increase in cold sales calls that potential clients have received after logging their interest with a cask investment company. Calls about investing in art, cryptocurrencies, and even gold have been reported. Questions about recent investments and individuals’ net worth have also been reported. It’s unclear if these new calls are affiliated with the original company with which they enquired.
While investing in whisky might not be for everyone, one of these concerns may soon start to affect even the most casual of drammers. “About six months ago, we just stopped selling casks,” Armstrong at Whisky Broker shares. The prices have escalated to such a level that, if he sold the casks at his usual margins, he would not even be close to replacing the stock. He says this price escalation has started what could be a domino effect across certain sectors of the whisky industry. Small independent bottlers, those so beloved by the whisky community, are struggling to make the new pricing work for their bottlings. “The independent bottlers – the ones who don’t have a warehouse, the ones who haven’t been going long enough and don’t have stock – are worried about where they’re going to get their stock from,” Armstrong says. “Certainly, over the last six months, quite a few of them have sold casks back to us…because they were sort of running short on cash, basically.”
Gregor Hannah, director of Hannah Whisky Merchants, which produces the multi-award-winning Lady of the Glen brand, concurs that the supply of casks has been more limited but thinks that other factors are also at play. He cites the success of Scotland’s big distillers in foreign markets as something that has changed what his company can buy: “Because Scotch is doing so well, it means that they’re wanting to retain as much of their own portfolio of casks as possible.” In the decade that he has been buying and bottling casks, Hannah says the industry has changed. “You could get samples of casks, whereas now people are buying on the spot.” Many cask buyers now have “got no idea what it tastes like”. He goes on to explain that, for experienced bottlers, a cask that isn’t maturing as expected can be easily dealt with by re-racking it and monitoring it – an option not available to most investment cask buyers. Hannah has engaged with cask investment companies to help bottle goods for customers, but says he is unsure if people are getting what they expected due to the extra costs (duty, VAT, and the glass itself) involved.
While Hannah’s dealings with investment companies have been sparse, Armstrong and the team at Whisky Broker are unearthing new issues on a regular basis. “I’ve just literally come off the phone with somebody else pointing out that our WOWGR [Warehousekeepers and Owners of Warehoused Goods Regulations] certificate number has been used sort of misleadingly, to say the least, on an investment company’s websites,” he explains. The WOWGR is a register maintained by HM Revenue & Customs (HMRC) that revenue traders of spirits, including cask whisky, in the UK must be accepted onto (although plans are afoot to repeal it). Armstrong says of the offending company, “They just say, ‘Our casks are all stored and managed in our HMRC-approved warehouse.’ The implication in the wording is that it is their warehouse. But it’s actually my number.” Due to this, Armstrong was in the process of contacting the company to have the casks it has stored in his warehouses, numbering around 130, removed.
WOWGR registration has been a contentious subject in the field of whisky investment, with Armstrong and other warehousekeepers feeling that it puts an unrealistic duty on the warehousekeeper to ensure that every cask in the warehouse is compliant with HMRC regulations – something which has been complicated by the growth in whisky investment companies. As widely reported, it’s common for these companies to sell casks without informing the warehouse of the change in ownership. As per core warehousing regulations, it is the duty of the buyer and/or seller simply to inform the warehouse of any changes, but if any discrepancy is found in the records, it is the warehousekeeper that may be subject to sanctions by HMRC. In 2021 Armstrong told us about a number of casks that had been seized by HMRC after their owner had fallen foul of WOWGR rules. Amazingly, two years on, the casks are still there with no solution in sight.
In 2022 HMRC stated its intention to do away with WOWGR, which prompted a celebratory statement from the United Kingdom Warehousing Association (UKWA). Specialist excise advisor Alan Powell has been a key figure in working with HMRC to bring this about, lightening the load for warehousekeepers across the UK. Powell, who has successfully defended both warehousekeepers and owners of warehoused goods against sanctions for breaches of WOWGR, says, “HMRC now acknowledges that a breach of WOWGR is in conflict with retained EU law – unless the cask physically departs the warehouse, there can be no duty charge arising. Amongst other things, it is to prevent wasted time and costs on litigation that HMRC’s ‘preferred option’ is to repeal WOWGR.”
It’s possible that the complicated litigation and excess of excise regulation around investing in casks in storage have helped investment firms to find their niche. Research has revealed that many investment companies use what they call a “cask portfolio” model: the casks are all kept under the company’s name in a warehouse, as the owner for the purposes of compliance with the WOWGR provisions, and their customers, who are the ‘beneficial owners’, are not routinely issued with a delivery order (DO) – the Scotch whisky industry standard for proof of ownership.
Obtaining a DO is less pertinent if buying casks directly from a distillery, and those casks are stored by the distillery in its own warehousing. This also gives the buyer the opportunity to see the casks and confirm their existence for themselves. However, when the purveyor of the cask is not the warehousekeeper (as is generally the case when purchasing through a cask investment company), the waters are murkier.
The lack of a DO has created stress for some customers that bought whisky through cask investment companies. However, when contacted about proof of cask whisky ownership, HMRC offered some reassurances in interpreting the law: “Our officers would consider each case on its own merits. Contracts of sale/purchase are necessary to establish whether the buyer has absolute or a qualified ownership of the goods but the types of documentation which would help support a claim of ownership would include: purchase invoices; evidence of payment including amount paid/method of payment; contracts of sale/purchase; and any other relevant documentation supplied to the buyer by the seller.”
So, where are we in 2023? Prices are being forced higher, warehousekeepers are being put under pressure, and everyday whisky drinkers could start feeling the effects of a growing investment market. Armstrong doesn’t think it can last. “It’s going to be like the housing boom – it’ll collapse.” Only time will tell if his prediction is correct.
This article is for information purposes only. It does not constitute advice or guidance in relation to any investment or types of investments, and you should take your own professional advice before deciding whether to invest in whisky or any other products.