TLDR: Great Investments;
Not for the Faint of Heart

A typical starter conversation about spirits investing:

Me: Spirits are a great investment category!

Investor: Cool, Tell me more about it.

Me: >60% of brands will fail.

Investor: Ouch. But I'm sure the winners rake in money.

Me: Well they don't really "make money" so to speak

Investor: ...

Me: ...So, can I put you down for a $1M?

If you are used to the S&P 500 or traditional private equity, spirits investing is going to be new territory for you.

I hesitate to make the connection because of key differences, but venture capital is probably the most relevant asset class to compare it with (margins at scale, importance of portfolio diversification, etc.)

So why consider investing in this asset class at all?

Recession? Irrelevant. Inflation? Child's play:

Dot-com Crash - Spirits sales grew

'08 Recession - Spirits sales grew

Worldwide Pandemic - Spirit sales grew

In fact spirit sales have had positive nominal growth every year since 1999.

Apparently, people keep drinking when times are tough. Who would have thought?

A 2022 Goldman Sachs report revealed that spirits have maintained pricing power and risen in step with CPI for the last century.

Very few asset classes hedge those two factors like spirits

Returns come from exits:

You have probably heard that George Clooney made more from the sale of Casamigos than from his entire movie career.

Multi-national spirits companies can reap the value (and cash flow) of brands due to their large footprint and leverage with distributors.

That’s why they can pay seemingly insane revenue multiples (8x+) for brands that aren't generating any profit. That multiple is what creates the crazy returns for investors.

That is why it is PARAMOUNT to consider M&A viability when investing in spirits.

Deep moat full of scary alligators:

It's very difficult to find good deals in any industry when hundreds of institutions with huge capital behind them are all competing for the best ones.

The unfortunate reality is that if you have access to a deal, it's probably because it's bad.

Not so with spirits!

There is a ton of archaic regulation around the spirits industry with roots going back to prohibition in the 1920's.

One of the unique nuances of that regulation is that if you own a stake in any retailer (including restaurants), you can't own a stake in a producer (brand).

Why is that important?

Because 90% of venture capital, private equity, and institutional money investing in consumer has at least some tiny stake in a restaurant or retailer.

That creates a massive moat around spirits investing that allows investors to get access to the best deals without having to compete with hundreds of billions in professional capital.

It's fun!

Being able to taste your investment or give it away to friends is irrelevant from a financial returns perspective

But, It's still gloriously fun anyway.