Four Top Scotch Whisky Investment Strategies To Avoid Cask Scammers

Scotch whisky has undergone a dramatic transformation over the past decade. The global Scotch whisky industry has experienced an explosion in growth, while the records for the most expensive bottles of Scotch whisky have been broken. New businesses and firms have created opportunities that allow eager consumers to buy bottles and casks.

Casks have been a popular investment vehicle in recent years. There are risks associated with the potential for investment. Social media ads and marketing materials from many new companies and brokers promise huge returns on whisky casks. This is a reflection of Scotch whisky’s massive market growth. These claims make investing in whisky casks almost as easy as free money. A storyshowing the potential of cask ownership has recently highlighted this potential. It shows how one lucky owner made a large return on a cask he purchased in 1990.

Profit is not always guaranteed. While buying a Scotch whisky cak may yield some returns, the market isn’t as vibrant as many would think. There is also serious risk. Cask brokers and investment companies often use obscure ownership details that expose investors’ money to greater risk than they realize. Another scammer is out there, trying to con people into paying too high for unremarkable casks.

Here are some tips to help you buy a whisky barrel safely.

1. Avoid companies that refer to a 10 Year ROI of ‘586%’ or ‘564%’

Many investment companies that specialize in casks mention whisky as a high-performance investment vehicle. They claim a figure of either 586% or 564% for a 10-year ROI.

This figure is frequently displayed prominently on websites and ads. It comes from the Knight Frank Rare Whisky Index. This measure was created by whisky consultants Rare Whisky101. This does not include whisky casks and is an insufficient indicator of the market potential for whisky casks.

Knight Frank Wealth Report, which publishes this Index, is also concerned about the misuse of their data by these companies. Andrew Shirley, the report editor, stated that the index tracks 100 bottles of valuable and rare whisky. It has nothing to do whatsoever with cask whisky.

The companies that use the index in promotional materials are either very clueless or deliberately provide poorly contextualized information to potential purchasers of casks.

2. Be wary of claims that you will receive a guaranteed return

Some companies have claimed annual returns of between 10-20% on cask investments. However, this is misleading and any company promising this should be aware. At the time of writing there are no established or reliable measures of overall cask investment performance.

These cases involve the use of historical data to create what appears to be official information about cask returns. This type of misinformation is a major pet peeve of Mark Littler , a whisky cask broker. He facilitates cask purchase between buyers and sellers and strongly believes in increased transparency in cask investment. He acknowledges that certain casks have seen a rapid increase in value in recent decades, particularly those casks bought in the 1990s. However, he warns that the market is rapidly changing today.

“The market’s health and buoyancy in 2021 will be significantly different from its state in the mid-1990s. Springbank, for example, had just begun intermittent distillation in 1987 after having been closed since 1979. Single malt Scotch whisky has become an internationally recognized luxury asset. Therefore, the gains that were possible in the past are unlikely to continue.

3. Without a Delivery Order, you can’t own a Scotch Whisky Cak.

A few legal documents and designations are the core of Scotch whisky cak ownership. It’s helpful to have a working knowledge of them.

One is the Register of Warehousekeepers and Operators of Warehoused Goods Regulations. Also known as WOWGR. It is necessary to register anyone who buys and sells whisky casks for a business (which is classified by UK tax law as an’revenue trader’). This is a complex process. Although individuals may buy a few casks for long-term investments, they are not required to be on the registry. However, it is possible to draw a distinction between an individual who invests in several casks and someone who is a’revenue dealer’.

It is important to have a Delivery Order. It is a written contract between buyer and seller of the cask. This order is addressed to the warehouse keeper that is keeping the cask and confirms the ownership transfer. A buyer cannot legally purchase the cask without a DO. Although some brokers and companies may issue an “ownership certificate”, it does not have legal merit. It is just fancy paper.

It’s not to say that any company without issuing a DO is a fraudster, but it does indicate that there is a greater chance of you losing your investment if they actually own ‘your’ cask.

“Most cask companies do not have the capacity to issue DOs. This would require the warehouse keeper to open a new account for each cask owner. It is quite burdensome for everyone involved. Companies aren’t going this route.”

Another important point. An investor who isn’t a UK resident must have someone act as their duty representative. This person is someone who is registered on the WOWGR registry. They are responsible for communicating with HMRC (the UK tax authorities) regarding their stored cask.

4. Scams still exist

Cak whisky investment is not regulated by the UK’s Financial Conduct Authority, which makes it an area where scammers thrive. Many fraudulent companies were operating at the beginning of the new millennium. Many of them made similar promises to large profits to some of today’s cask investment firms. The names Nant Whisky and Grandtully, Cavendish/Hamilton Spirit Management (Napier Spirit Company), and many others are often mentioned in the whisky industry.

Littler finds that the pitches made today for whisky casks, and the practices to sell them, often echo the scammers of the past: “The resemblances to these old scams, including inflated sales prices, no transfer of ownership, misleading sales information, manipulated/falsified returns, and Ponzi selling, to the practices of some firms today is quite remarkable.”

Cask buyers won’t be able to see that they have a problem until many years later when they are looking to cash in on the investment they made after the whisky has aged for some time. This is a big problem. Bowman says, “My greatest fear is that these companies continue to draw in naive investor in the short-term but they’ll be gone when the bubble bursts with all the cash generated today.” My strong suspicion is that these companies won’t exist when an investor wants to sell their stock.

This means that the “cask owner” will find themselves in a difficult situation in a few decades when they are ready for cashing in on promised profits.

Although investing in Scotch whisky casks can be risky, it is possible to make a wise investment and still enjoy the benefits years later. It’s important that you do your research before investing.

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