Scotland visit - Investor Report
Edinburgh, Scotland, UK
29-30 July 2022
Ian Berclaz
CEO, Blair Road Capital Pte. Ltd.
In Edinburgh Scotland, I first was greeted by Mark McGairy, a Whisky Cask Club (WCC) shareholder and representative in Scotland. Mark works directly with Alexander Knight (WCC CEO) to source the best casks for the Fund.
WCC is the exclusive broker of the Whisky Cask Fund (WCF), and sources as well as sells all the casks on behalf of the Fund.
Mark has many experience in Whisky sourcing and trading and works with a whole range of whisky suppliers and traders locally.
Whisky casks trading is an OTC market and works in a similar way to the bond markets. Purchases and sales are done through a relatively small network of industry professionals and all within Bonded Warehouses. Prices are negotiated on a one-to-one basis and hence there are no real official records of past cask transactions. It is therefore crucial to have someone on the ground that is connected and knows the market in-depth.
To understand cask sourcing in more details, I was introduced to Rare Whisky Vault a whisky brokering company
Rare Whisky Vault is also the duty representative for the Whisky Cask Fund, on behalf or HMRC (His Majesty’s Revenue and Customs which is a non-ministerial department of the UK Government responsible amongst others for the collection of taxes). Rare Whisky Vault is fully licensed by HMRC to buy, store and trade whisky casks under WOWGR (Warehouse keepers and owners of warehouse goods regulations. Excise ID: GBOG383278400)
We had it explained to us the tedious process of being accredited by HMRC and all the stringent regulations and reports that are linked to it.
We had it explained that in this world of whisky trading, it is paramount to gain and maintain a perfect reputation. One of the key differentiators is to immediately pay all suppliers which increases the reputation and credibility of the counterparty.
We were given insides on whisky casks distillery releases:
- Most of the distilleries, will release only little quantities of their whiskies.
- Most of the releases are done in bulk and therefore capital intensive
- WCF would then be able to buy this and resale all the casks at premium (fractioned quantities or individual casks) at a premium. However, this requires substantial funding (> USD 4m)
We had it also explained the various processes for increasing value of casks:
- Be a major player that can buy in bulk and then sell casks at individual levels
- Adding value through regauging or reracking (enhancing whisky flavors by changing casks at the end of the maturation process – which makes it both rare and of special value)
- Find the perfect timing for sale
It was confirmed that casks that have been purchased through RWV are covered under RWV’s insurance for a period of 5 years or until those would be sold. The insurance covers the purchase price of the casks. There are several insurance companies insuring bonded warehouses and casks. The insurance covers all risks of physical loss or damage
To understand further the whisky journey, I was taken to visit Young Spirits (YS) in Edinburgh https://www.youngspirits.co.uk/
At YS, we were greeted by their brand ambassador. YS is a bonded warehouse that hosts several activities, of which independent bottler, supplier, re-racking, and blender. YS is also one of the suppliers of casks for WCC.
Immediately when you enter the storage space, you can smell alcohol vapor, which are the result of evaporation – or the ‘angel’s share’. Evaporation is a natural process that is linked to cask aging and one can expect around 1 to 4% of evaporation yearly. Hence the casks will lose content over the years.
The whisky casks are typically stored on racks in warehouses going up several stories, the casks on the top story are the hottest and least humid, while those on the bottom are coolest and most humid. Casks stored at the top are therefore more likely to lose water through evaporation (angels share), making them a higher ABV alcohol, while casks nearer the ground are cooler, but with a high humidity meaning it is less likely to lose water and will remain at a lower ABV. Spirits tend to evaporate more quickly while they’re young, and slow down as they age. So, at the very beginning, the angels’ share will be right at the top of the spectrum – around 3.5-4% every year. As the years pass, whisky evaporation slows down (it will never stop) and by the end of the maturation period, a 20-year-old spirit for example might have lost 40% of its original volume. But, with that evaporation, time, and the elements of the warehouse the casks will take on distinctive characteristics that create very unique flavors and experiences.
The casks in the warehouse are kept in a temperature and humidity-controlled area. They are labelled and inventoried with a bar code that allows unique tracking of make, year, ownership, etc. The warehouses will also spot for potential leakages on the ground.
Each cask is labelled and inventoried
Bonded warehouse – Ian in front of a cask storage rack
On purchasing a cask, it is important to know the alcohol percentage and the Real Liters of Alcohol (RLA) which corresponds to the remaining liquid in the cask. However, this measure is usually only an estimate as it is gauged with a dip stick and then extrapolated, considering the shape of the cask. Also note that there are different shapes and total capacity of casks, which makes it even harder to estimate.
Casks have birthdays and the value will automatically jump up just because the whisky simply gets one year older.
Casks can mature for from 3 to 50 years, and it is the expertise of the master blender that will determine when it is time to regauge, with which wood to regauge and or bottle. An empty cask usually costs around £60-80 and reracking usually is £200, not including the transport. A cask can be used multiple times and usually is refurbished and charred before being re-used.
When bottling, the client can also decide to either bottle at cask strength or to “water it down” to lower the relative percentage of alcohol.
Tasting of content before a potential regauging or bottling
Before bottling, casks are emptied into plastic vats for the bottling process. As every cask will mature differently, this allows several casks of the same make to be blended, giving the same taste to all the bottles. Obviously, each cask could also be bottled individually with each one having its own individual taste.
Pre-bottling stage in up to 1,000 liters plastic containers
YS has 3 bottling lines, which allow to adapt for various bottle sizes and shapes (from mini bottles to very special ones). Note: airport bottles are usually of one liter content.
Two of the three bottling lines
As a bottler, YS must keep one bottle of each of series for HMRC inspection. This is to ensure that the correct taxes were observed as the shipment leaves the bonded warehouse.
Bottles kept for HRMC inspection at the bonded warehouse
YS is also an independent bottler that carries its own brands under “Ferg & Harris” and “Uhuru”
Tasting of Ferg and Harris brands
Note that some distilleries won’t allow independent bottlers to use their distilleries name (e.g., Glenfarclas). However, the law (recent jurisprudence) allows bottlers to label the whisky as “distilled at X distillery” as a reference since it is a generic fact.
I finally went for a visit a Johnnie Walker, in Edinburgh, which belongs to the Diageo group. This experienced showed me how whisky blending is done (which ends up being roughly 90% of Scotch production). Diageo owns 31 distilleries in Scotland. It will use around 6 or 7 distilleries to produce this blend. The master blender will choose the relevant casks in order to achieve the same taste over the years for all the sub brands (red label, black label, blue label, etc.)
The blending and tasting room at the Johnny Walker Experience
I tasted whisky from some of the casks which will be used for blending. The master blender then chose a recipe and blended it in front of us to create a unique blend that we tasted.
