Welcome back to the Net Worth Podcast.
Speaker 1: This week we are diving into an intriguing alternative asset class that’s been gaining significant traction, especially among younger investors, tequila investing.
Speaker 2: We’ll explore how spirits are transforming into valuable assets and what that could mean for your financial landscape.
Speaker 1: Check out the full edition on our websit wearenoyack.com.
Speaker 2: That’s wearenoyack.com.
Speaker 1: Okay, let’s dive in.
Speaker 2: We’ve been seeing a…
Speaker 1: quite a lot of buzz around alternative investments lately, things beyond the usual stocks and bonds.
Speaker 2: And one that really uh jumped out of us in this edition of Noyack Wealth Weekly is tequila, which sounds surprising, doesn’t it?
Speaker 1: It does a bit, yeah.
Speaker 2: Most people think of it as, something you drink, not something you necessarily invest in.
Speaker 1: Exactly.
Speaker 2: But what’s truly fascinating here is just the sheer velocity of its market growth.
Speaker 1: mean, the global tequila market.
Speaker 2: It was valued at nearly, what, $11.7 billion in 2024.
Speaker 1: That’s already significant.
Speaker 2: Right.
Speaker 1: But the projections.
Speaker 2: They show it’s surging to over 18.5 billion dollars by 2032.
Speaker 1: That’s well that’s not just steady growth is it?
Speaker 2: No that’s pretty explosive.
Speaker 1: And it seems almost entirely fueled by this booming demand for premium tequilas globally.
Speaker 2: People are moving past shots and into you know sipping tequilas.
Speaker 1: So if we’re thinking about building net worth diversifying assets what does this boom in premium tequila actually mean for someone listening.
Speaker 2: It sounds like a classic supply and demand story playing out maybe.
Speaker 1: Precisely.
Speaker 2: But tequila has this uh really unique dynamic.
Speaker 1: You’ve got soaring demand, yes, but it’s coupled with an intensely limited and highly regulated supply.
Speaker 2: Limited how?
Speaker 1: Well, unlike bourbon or vodka, you can’t just make tequila anywhere.
Speaker 2: Production is legally restricted to only five specific regions in Mexico, mostly Jalisco plus bits of a few other states.
Speaker 1: There’s a regulatory body, the CRT, enforcing this.
Speaker 2: It’s not just marketing, it’s law.
Speaker 1: Ah, OK.
Speaker 2: Like champagne in France.
Speaker 1: Exactly like champagne.
Speaker 2: eh That strict geographic boundary, the denomination of origin, and the quality controls, they create inherent scarcity.
Speaker 1: And as this edition highlights, that scarcity naturally makes it an attractive investment opportunity.
Speaker 2: You can’t just flood the market.
Speaker 1: That geographic lock is really interesting.
Speaker 2: OK, so here’s the big question then for you, the listener.
Speaker 1: How do you actually invest in tequila?
Speaker 2: I assume we’re not just talking about buying a few expensive bottles for the shelf.
Speaker 1: No, not really.
Speaker 2: Though collecting rare bottles is its own thing.
Speaker 1: We’re talking more about tequila cask investing.
Speaker 2: Basically, the process starts with purchasing unaged tequila blanco directly from a distillery.
Speaker 1: But you’re buying it while it’s still in the barrel, the cask.
Speaker 2: OK, so you own the barrel of raw spirit.
Speaker 1: Right.
Speaker 2: And then the investor holds onto this cask, letting the tequila age over time.
Speaker 1: It matures inside the oak, changes, develops character.
Speaker 2: The whole goal is to eventually sell this matured tequila at a premium.
Speaker 1: Time and the barrel do the work, adding the value.
Speaker 2: Got it.
Speaker 1: So you buy it young, let time do its magic inside the wood, and then sell it for more.
Speaker 2: Seems like a pretty direct path to potentially increasing that asset value.
Speaker 1: What are the options once it’s matured?
Speaker 2: What’s the exit strategy look like?
Speaker 1: Good question.
Speaker 2: Once it reaches the desired level, maybe it becomes a Reposado or a Inejo, or even an Extra Inejo, investors have a couple of main paths they could bottle and sell it themselves, maybe launch their own small premium brand.
Speaker 1: That’s more involved though.
Speaker 2: Right, more work.
Speaker 1: Yeah.
Speaker 2: So more commonly, investors sell their aged casks directly to the established tequila brands, the big names.
Speaker 1: These brands often need a steady supply of aged teakless to meet their own market demands for their Añejo lines and so on.
Speaker 2: So they buy casks from investors.
Speaker 1: Oh, so it provides them with aged stock.
Speaker 2: Exactly.
Speaker 1: It offers a clearer, potentially more consistent exit strategy for the cask investor.
Speaker 2: It’s more of a B2B play, really.
Speaker 1: You’re supplying the industry.
Speaker 2: That makes sense.
Speaker 1: Okay, let’s dig into the value drivers.
Speaker 2: What are the key factors that actually push the price of these casks up?
Speaker 1: What makes the investment grow?
Speaker 2: Well, several things are critical.
Speaker 1: First, we touched on, scarcity is huge.
Speaker 2: The denomination of origin is strict, only those five states in Mexico.
Speaker 1: This prevents overproduction, maintains a certain baseline quality standard.
Speaker 2: And the agave itself.
Speaker 1: That’s the second major factor, blue agave.
Speaker 2: It takes a long time to mature.
Speaker 1: We’re talking seven to 10 years before it’s ready to harvest.
Speaker 2: Wow, seven to 10 years.
Speaker 1: Yeah.
Speaker 2: So that long growth cycle naturally creates a persistent undersupply issue for the raw material, which means higher agave prices.
Speaker 1: And that feeds into higher tequila prices right from the start.
Speaker 2: Any disruption in the agave harvest, weather, disease, it can really impact supply and price volatility.
Speaker 1: It’s a unique bottleneck.
Speaker 2: That long lead time for the plant itself is a really crucial detail.
Speaker 1: What about how it’s made?
Speaker 2: Does the production method affect the value too?
Speaker 1: Oh, absolutely.
Speaker 2: Very much so.
Speaker 1: The method matters a lot, especially at the premium end.
Speaker 2: Tequila is made from 100 % blue agave.
Speaker 1: That’s a must for quality investment casks and those using traditional techniques.
Speaker 2: Think slow roasting in brick ovens, maybe using a Tohono wheel to crush the agave.
Speaker 1: The big stone wheel.
Speaker 2: That’s the one.
Speaker 1: Those methods are more labor intensive, yield smaller batches, but they’re seen as producing higher quality, more complex, more authentic tequila.
Speaker 2: Investors actively look for casks produced this way because they know that’s what the premium market desires.
Speaker 1: It commands a higher price.
Speaker 2: then of course there’s the aging itself that seems central to the whole value proposition.
Speaker 1: Can you break down how the different aging levels impact the value?
Speaker 2: Yeah.
Speaker 1: The maturation in oak barrels is where a lot of the magic happens financially speaking too.
Speaker 2: So unaged Blanco is valuable.
Speaker 1: Sure.
Speaker 2: It’s the pure expression of the agave.
Speaker 1: But aging transforms it.
Speaker 2: You have repasado which means rested.
Speaker 1: that’s aged at least two months, up to a year, usually an oak.
Speaker 2: It gets smoother, picks up some color, subtle oak notes.
Speaker 1: Okay, a bit of aging.
Speaker 2: Then there’s Añejo, aged.
Speaker 1: That’s one to three years in oak, often smaller barrels for more wood contact.
Speaker 2: Here you get real complexity.
Speaker 1: Vanilla, caramel, spice notes, a nice amber color, much smoother.
Speaker 2: Getting more serious.
Speaker 1: Definitely.
Speaker 2: And then the top tier is Extra Añejo.
Speaker 1: This category was only created back in 2006.
Speaker 2: It requires a minimum of three years aging, but often it’s much longer.
Speaker 1: These are the really deep complex ones.
Speaker 2: They can rival fine whiskeys or cognacs.
Speaker 1: Incredible richness.
Speaker 2: And much higher value, presumably.
Speaker 1: Significantly higher value.
Speaker 2: The longer it ages appropriately, the more desirable and valuable it becomes in the market.
Speaker 1: That aging process directly boosts the asset’s contribution to your net worth potential.
Speaker 2: That really maps out the journey nicely.
Speaker 1: OK, so it sounds like tequila is definitely making a case for itself as an alternative investment.
Speaker 2: But how does it really stack up against something more established like whiskey?
Speaker 1: Whiskey cask investing has been around for a while.
Speaker 2: How do they compare for someone building a portfolio?
Speaker 1: That’s a really important question for anyone thinking about diversifying with tangible assets.
Speaker 2: Bulls can be lucrative for sure, but they cater to slightly different strategies, maybe different risk appetites.
Speaker 1: Whiskey.
Speaker 2: Well, it’s the established player, right?
Speaker 1: decades of history as an investment class, it generally offers pretty stable returns, maybe in the 10, 20 % per year range, historically.
Speaker 2: And it has infrastructure.
Speaker 1: Exactly.
Speaker 2: A very developed infrastructure.
Speaker 1: Auction houses, brokers, secondary markets, it’s all quite mature.
Speaker 2: This contributes to its high liquidity.
Speaker 1: If you have a valuable cask or a bottle of whiskey, generally you know where and how to sell it relatively easily.
Speaker 2: OK.
Speaker 1: Stable, liquid, established.
Speaker 2: And tequila, then, the new kid on the block, investment-wise.
Speaker 1: Tequila, as we explored in this edition, is definitely a newer market for this type of investing.
Speaker 2: And that comes with pros and cons.
Speaker 1: The pro, early mover advantage.
Speaker 2: The market isn’t saturated yet, especially with big institutional money.
Speaker 1: The con, less historical data, less predictability than whiskey, and liquidity.
Speaker 2: Well, it’s currently lower than whiskey.
Speaker 1: Harder to sell quickly.
Speaker 2: Potentially, yeah.
Speaker 1: It might take longer to find the right buyer at the right price.
Speaker 2: However, specialized resale channels are developing fast.
Speaker 1: online platforms, brokers focusing just on spirits casks.
Speaker 2: They’re emerging to meet this demand.
Speaker 1: So liquidity is improving.
Speaker 2: am I hearing this right?
Speaker 1: It sounds like tequila might be a higher risk but potentially higher reward scenario, a bit like an emerging market play, but with spirits.
Speaker 2: That’s a great way to put it.
Speaker 1: Exactly.
Speaker 2: Tequila probably carries a higher risk profile right now because it is a newer market.
Speaker 1: The infrastructure is still building out, but that risk is potentially offset by higher reward potential.
Speaker 2: We’ve seen figures, for instance, showing premium tequila casks appreciating around 18.29 % over just three years.
Speaker 1: That’s quite punchy.
Speaker 2: It is.
Speaker 1: It suggests tequila could potentially outperform whiskey, at least in the shorter to medium term.
Speaker 2: So for someone looking to maybe accelerate growth, willing to take on a bit more risk and possibly hold for a bit longer, tequila could be a compelling part of the mix, though definitely speculative.
Speaker 1: Interesting.
Speaker 2: Now, this whole trend, investing in something like tequila.
Speaker 1: It seems particularly popular with millennials, maybe even Gen Z.
Speaker 2: Why do you think that is?
Speaker 1: What makes it align so well with how they seem to be approaching wealth building?
Speaker 2: It feels like more than just the return numbers.
Speaker 1: think you’re right.
Speaker 2: If you look at the bigger picture, it really reflects a shift in how younger generations think about assets and building wealth.
Speaker 1: Data shows millennials in Gen Z allocate a much larger slice of their portfolios to alternatives, something like 31 % on average.
Speaker 2: compared to older investors who lean more heavily on traditional stocks and bonds.
Speaker 1: 31 percent is quite a chunk for alternative.
Speaker 2: It is.
Speaker 1: It shows this real appetite for innovation for diversification beyond the old norms and maybe for assets that offer something more.
Speaker 2: More than just the financial return like a story or a connection.
Speaker 1: Exactly that.
Speaker 2: think millennials especially gravitate towards investments that feel personal that have some authenticity some cultural resonance.
Speaker 1: Tequila fits that perfectly as this artisanal story deep roots in Mexican heritage the traditional production methods.
Speaker 2: feels less corporate, maybe.
Speaker 1: Perhaps.
Speaker 2: It often connects to ideas of quality, craft, maybe even supporting specific communities or traditions.
Speaker 1: That cultural alignment adds this experiential value on top of the financial one.
Speaker 2: It’s an investment you can feel good about, talk about, connect with.
Speaker 1: It makes it a more holistic asset for building personal wealth, aligning with that trend towards values-based investing.
Speaker 2: That makes a lot of sense.
Speaker 1: Beyond the cultural cool factor and the potential returns, are there any other sort of structural benefits that boost its appeal, maybe tax related?
Speaker 2: Yes, potentially.
Speaker 1: This depends heavily on where the investor is based, of course.
Speaker 2: But in some markets, the UK is the most cited example.
Speaker 1: Tequila casks can be treated as a wasting asset for tax purposes.
Speaker 2: A wasting asset.
Speaker 1: What does that mean practically?
Speaker 2: It’s a classification for assets expected to have a limited useful life or decline in value over time.
Speaker 1: which seems counterintuitive here, but that’s the classification.
Speaker 2: The key benefit is that under certain conditions, gains from selling a wasting asset can be exempt from capital gains tax.
Speaker 1: Ah, so no tax on the profits.
Speaker 2: Potentially yes.
Speaker 1: In those specific jurisdictions like the UK, that tax advantage can significantly amplify the net return for an investor.
Speaker 2: It adds another compelling financial layer beyond just the spirit’s appreciation.
Speaker 1: It’s definitely something to look into depending on your location.
Speaker 2: So I think the bottom line here is that Tequila Cask investments offer a really compelling, though distinct opportunity, especially for investors looking for diversification and potentially high returns.
Speaker 1: It’s a tangible asset, something real you own, and it can act as an uncorrelated addition to a traditional portfolio.
Speaker 2: its value doesn’t just track the stock market up and down.
Speaker 1: Precisely.
Speaker 2: It moves to its own rhythm, largely driven by its own supply, demand, and aging dynamics.
Speaker 1: That can be valuable for smoothing out overall portfolio volatility.
Speaker 2: so wrapping this up, what does this all mean for you, the listener, if you’re considering this for your own financial journey, your own net worth strategy?
Speaker 1: Well, I’d say while the tequila cask market definitely carries higher risks compared to something like whiskey, mainly because it’s newer, less liquid for now, it also presents these unique advantages.
Speaker 2: It’s particularly interesting for those willing to embrace a rapidly growing, premiumizing asset class, but it absolutely requires careful planning.
Speaker 1: Not something to jump into lightly.
Speaker 2: No.
Speaker 1: And it should be approached with moderation within your overall portfolio.
Speaker 2: You need to be aware of the market and nascency, the potential for agave supply swings, the current lower liquidity.
Speaker 1: It’s an intriguing piece of the diversification puzzle, for sure, but one to approach with open eyes and as part of a broader, well thought out strategy.
Speaker 2: It really makes you think.
Speaker 1: Considering this blend of cultural appeal, the high growth potential we talked about and those unique supply dynamics of tequila.
Speaker 2: How might the evolution of these kinds of new, culturally resonant asset classes continue to redefine what a truly diversified and robust personal net worth looks like in the coming decade?
Speaker 1: Something to ponder.
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website wearenoyack.com.
Speaker 1: To read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
