Almost seven years ago, I got my very own barrel of Maker’s Mark.
Well, that’s not entirely accurate. I didn’t get the whole barrel — I’m splitting it with a number of other folks Maker’s Mark calls their “ambassadors.”
Basically, I signed up for the Maker’s Mark email list and they gave me a part of a barrel of whiskey in exchange. (If you’re interested, there are a few other perks like bourbon parties and sneak peeks of new flavors — you can sign up here.)
But the main appeal is getting a personal bottle of Maker’s Mark with your name on it.
Shortly — probably sometime within the next year — my barrel will have finished aging. At which point, Maker’s Mark will let me know my personal whiskey is ready. And they’ll be perfectly happy to sell me my bottle at retail price (or slightly higher, what with the personalization).
Really, this is nothing more than a bit of fun marketing (and a good way to grab a free shot of whiskey now and again).
But the truth is buying whiskey (or whisky — the preferred spelling for the spirit if it isn’t from Ireland or the U.S.) while it’s still in the cask is a winning investment strategy.
To understand how this strategy works, you have to understand some of the distilling process…
What Makes Whiskey Whiskey?
When whiskey is first made, it’s not too different from beer. But it gets distilled a number of times — greatly upping the alcohol content — and graduates into a full spirit.
But it’s still not whiskey. In fact, before it’s aged, whiskey is clear and very similar to gin.
What is it that makes whiskey the drink we all love? Simple — aging in wooden casks. There are no botanicals like with gin… none of the additives that liven up vodka…
Whiskey is purely about the interaction of alcohol with wood.
Different casks will give different flavors to the whiskey. For instance, American bourbon can only call itself bourbon if it uses fresh, virgin American white oak wood — a cask that’s never been used before. That gives bourbon a strong, brash, powerful flavor, full of vanilla and coconut.
Scotch distillers, on the other hand, often find the flavors from virgin wood too powerful and pungent. So Scottish whisky usually uses wood that’s already been used to age another spirit, like bourbon.
Aging whiskey in casks isn’t the whole story, of course. There’s an art to it as well.
Generally speaking, the longer a whiskey ages, the deeper and more complex the flavor becomes, even as it mellows compared with younger whiskeys.
At the same time, the longer a whiskey ages, the more alcohol it loses (often called the angel’s share). Not only is higher alcohol content more desirable as a general rule, but if the percentage drops below 40%, you can’t call it whiskey anymore.
A good distiller is constantly balancing these two forces. And — while experienced, good distillers can make strong educated guesses — the truth is you never know how a whiskey will truly turn out until it’s fully aged.
That’s where whiskey futures come in.
What Are Whiskey Futures?
Whiskey futures is an investment-friendly term for buying whiskey when it’s still in the cask.
This helps producers in a couple of ways.
One, it helps them even out income. After all, when you have to wait eight–12 years to get paid — which is the average time whiskey ages — that’s a pretty big lag.
Indeed, the youngest whiskey has to age for a minimum of three years — making cash flow a serious problem for many distillers.
Two, it helps distillers gauge demand — and react accordingly.
Right now Japanese whisky is scarce and costs an arm and a leg. Not because Japanese whisky has changed in any way over the past few years. But because it’s been discovered as a superlative whisky by the world at large.
And with the “youngest” high-quality whisky taking 12 years to age, there’s a serious supply issue.
Until we start getting whisky first distilled during the years of worldwide demand, Japanese whisky will remain undersupplied. The distillers left money on the table.
Because they weren’t selling whisky futures and getting an idea of future demand.
Finally, whiskey futures also help spread risk around. While rare, a batch does occasionally go bad. By selling whiskey before it’s done aging, distillers can avoid a total loss.
Consumers have plenty of reason to be excited as well…
There are several good things that come out of buying whiskey still in the cask. But by far the biggest positive is the whiskey is sold at a steep discount — well below retail.
So as soon as you get your whiskey bottled, you’ve already made a profit.
And of course, if you choose a popular, quality whiskey, the prices can go up quite a bit from the original retail cost.
To take a single example, the Rare Whisky 101 website has a number of whisky indexes it uses to track the price of sought-after, collectible whiskies.
The broadest index they track — the Rare Whisky Apex 1000 Index, tracking the 1,000 most popular single-malt scotches — has gone up about 750% since tracking started in 2008:
Individual makers can do even better. Pappy Van Winkle, for instance, is mostly sold by lottery these days because it’s so popular. On the secondary market, bottles of Pappy have shot up nearly 1,000%.
Getting in on this action below the ground floor. That’s what you get by investing in whiskey futures.
And even if you guess wrong — or get unlucky — you’ll still make money selling the bottle at retail cost. Or at worst, you can still enjoy a tipple yourself.
How to Buy Whiskey Futures
This is still a small market, so there isn’t a centralized place to make purchases.
Instead, you’ll often want to speak with individual distillers. Some sell whiskey in casks, some don’t. Some have steep discounts, while others might actually charge a markup to get your name engraved on the cask.
If you’re serious about investing in whiskey futures, you’ll want to contact a number of your favorite distillers and find out which ones offer attractive packages.
If you want to try to cut out some of that legwork, you can also talk to your local wine and whiskey shop. The good ones will know which distillers offer whiskey in the cask.
Some will even help you team up with others to invest if you like (most whiskey futures require you to buy a full cask — which can hold up to 250 bottles of whiskey, depending on size and loss through evaporation).
If you want the easiest possible way to invest, you can use a platform like WhiskyInvestDirect.
While it’s aimed more at those who are planning to sell whisky futures soon after the spirit reaches maturation — at something close to retail cost — investors are averaging 10% annualized gains every year. Even after factoring in other expenses like storage and bottling.
WhiskyInvestDirect makes it easy to buy and sell whisky on a robust exchange with about 2,500 other investors (and many more wholesalers and distributors).
But it’s still a small fish in the big, growing pond of whiskey futures. And WhiskyInvestDirect isn’t really aimed at rare, collectible whiskey — which is where the greatest profit lies.
I recommend picking five or 10 of your favorite distillers and seeing what kind of whiskey futures they offer. Look up the returns on previous bottles they’ve sold on sites like Rare Whisky 101.
Then hop in with your favorite investment. It will take some time to pay off — anywhere from three years to over 20, depending how long the whiskey will age and when in its maturation you buy.
But I can’t think of a more fun way to make market-beating profits.
Editor-in-chief, Unconventional Wealth
P.S. Did you know that whiskey isn’t the only collectible liquid asset that sells itself in a futures market? Wine does as well — it’s called en primeur in that case. You can learn more about how to turn a similar profit with wine at Cult Wines.
Ryan Cole is the editor-in-chief of Unconventional Wealth. He’s been covering the alternative investment space for nearly a decade and writing about finance and investment for almost 20 years.
Ryan has walked the walk for years, living a very unconventional life. He’s led snowmobile tours through the mountains of Colorado, settled in Japan for five...