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The Whiskey Rebellion
The origins of whiskey can be traced, some say, all the way back to Mesopotamia in the second millennium BCE. Historians know the Babylonians were distilling something close to whiskey, but whether it was for its scent or its taste is a mystery whose answer is long lost to time.

The Alexandrian Greeks distilled something close to whiskey, as did medieval Arabs in the ninth century and medieval Latins in the twelfth century. Italians in the thirteenth distilled a whisky-like concoction, though used it primarily in medicine to treat smallpox and colic.

But any serious whiskey drinker will claim two points of origin matter above all others: the emergence of Scotch whisky in Scotland, around 1495, and the advent of barrel-aged bourbon in present-day Kentucky, likely originating from Scottish immigrants settling the region (a brief linguistics note: the beverage distilled in the US and Ireland is known as ‘whiskey’, but if it’s distilled in Scotland, Japan, or Canada it’s known as ‘whisky’; meanwhile, actual laws dictate the specification required to be labeled as Scotch or Bourbon).

But flash forward a few centuries, and whiskey is a far bigger commodity than fifteenth-century Scottish monks could possibly imagine. While Scotch and Bourbon still dominate the higher end of the industry, whiskey producers and sellers are flourishing like never before.

(Photo Credit: Unsplash — Adam Jaime)

Whiskey Business: The global whiskey market has exploded, according to one high-end estimate from Polaris Market Research, to over $80 billion in 2021, with an expected compound annual growth rate of over 7%.

The growth has been driven in large part by the premium-end market. Much like the growing luxury goods industry, high-end whiskey (and whisky) has benefitted from an increasingly larger, younger class of wealth, particularly in Asia. That gives whiskey both a rollicking present and even brighter future:

• The global whiskey market is expected to reach almost $150 billion in annual revenue by 2030, according to Polaris’s projections.
• The premium market is growing even faster than the regular market, with revenue for the high-end premium segment rising 37% in 2021 and the super-premium segment by 136%, according to the Distilled Spirits Council.

All of which makes whiskey sound like a beyond-intriguing asset class — one that, like wine, has the natural attraction of a constantly diminishing supply (there’s always an occasion to crack open the 30-year). Even better, because distillers ten, 20, and 30 years ago could only dream of whiskey growing this popular, there’s barely enough whiskey in existence to meet demand.

But for all its appeal and fun — let’s face it, who wouldn’t want to trade in fine scotch single malts or American bourbon ryes? — seriously treating whiskey as a legitimate asset class isn’t as easy as stashing your best bottles in your liquor cabinet for a few extra years. It requires volume, as in entire casks or barrels of liquor. This presents a whole host of logistical problems, from storage to bottling, and requires connections with some of the world’s top producers and suppliers.

In other words: retail investors have been largely denied access to the asset class. Which brings us to the sponsor of today’s Deep Dive, Anthony Zhang and the team at Whiskeyvest, a new platform from the team at Vinovest that provides a structure for retail investors to access the high-end whiskey trading market.

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TDU: Can you tell us a bit about Vinovest?

Anthony: Vinovest is a longstanding platform that allows users to invest in blue chip wine, an asset class that’s historically been reserved for the ultra-wealthy. Now, we want to provide the same access to whiskey investing.

TDU: Why was whiskey the next step after wine?

Anthony: From the beginning, whiskey always made a lot of sense as the next natural step. It’s a really fast-growing category, and the luxury category is growing the fastest. They can’t make this aged whiskey fast enough. And a lot of our existing investors have been asking us about it, which is why we put out a waitlist. And then the speed in which the waitlist grew also gave us a lot of conviction that this was the right second product launch.

TDU: What does the operation look like today? How does it differ from Vinovest?

Anthony: We’re buying entire casks. That’s the main difference between Vinovest and Whiskeyvest.

Vinovest you’re buying bottles. Here, you’re buying casks because the maturation process for whiskey happens inside the barrel. And once you bottle it, a 12-year is a 12-year, and 18-year is an 18-year. It doesn’t really change that much after. That’s the key difference operationally. We’re much more ingrained with the supplier. Oftentimes, they’re the ones that actually buy it back after a few years when it’s reached its marketable age. So it’s a little bit different than Vinovest on the acquisition and the exit side.

(Source: Whiskeyvest. Note — graphic rendering — actual cask not pictured.)

TDU: Why whiskey and not other liquors and spirits?

Anthony: We would consider tequila or rum. But the high-end segment of those markets are not as well developed. I think it will probably get there in the next five to 10 years. But whiskey — especially with scotch and American bourbon — we’ve been making for a long, long time. And there’s a long history of price appreciation. Track records, right? Pricing history can show, this is how much a 30-year-old MacAllan could sell for. There’s really no good data and comps in other spirits just yet.

TDU: Can you walk us through the mechanics of the whiskey supply chain, from grain to cask, from cask to bottle, and where Whiskeyvest sits in that process?

Anthony: We have two different types of supply chains. The first is, we’re working with a bulk supplier that sells to multiple brands. That’s how most whiskey works. Maker’s Mark doesn’t make their own barrels, they just buy bulk barrels from a supplier. After six months, or three years or five years, brands will buy the barrels, add their finish to it, and make it into the branded product. At that stage, we’ll work directly with the supplier. Oftentimes, they already have a contract on who they’re going to sell it to down the line. And then we’re the ones that then purchase custody of the asset, and then we have the option to sell it at auction or bottle it ourselves. Or we could just go with the contract and sell to the eventual brand.

Or, we’ll work directly with the brand. A lot of times, say with a distillery that has their own operations, like MaCallan, they are doing the entire vertical supply chain operation. They’re making the barrels, their people are taking care of the barrels, they’re tasting it every single year to kind of figure out what year they want to bottle it at. It’s a high-end market. And at that point, we’re working with them much more closely along the entire lifecycle of the barrel… A lot of it is cash flow. If you’re going to age something for that long, you just don’t want that on your balance sheet where it’s not generating any income. There’s a cost to your storage, insurance, and upkeep of it. The main reason why this market exists is cash flow.

TDU: How often do you sell back to the original distiller? How often do you go to the specialist bottlers? Or auctions or off market deals?

Anthony: Most of them we will sell it back to the supplier or the supplier partner. Nine times out of 10, where most of demand is, especially with the barrel shortage that’s happening right now.

If supply is not an issue, it would probably go more to a broader market. And that’s where auctions would come in. But right now, there’s just such a shortage in the industry that these brands are committing to multi-year contracts. Not only are we wanting to buy up your first quarter batch, we’d like to buy up your next three years, for example. It’s a theme that we’re seeing across all whiskey categories, not just scotch, not just bourbon. Pretty much everything.

TDU: Right. There’s nothing you can do to accelerate the aging process.

Anthony: You can’t slow it down. You can’t speed it up. Eighteen years is gonna take 18 years to make. And the market can change a lot in that time, which is why the prices have gone up so
much.

Note to readers: Daily Upside readers can have exclusive access to the Whiskeyvest platform with this special link.