The boom is back with regards to the Irish whiskey market. The industry has grown exponentially in the last 10 years expanding from just four to over 40 distilleries across the island of Ireland. It is currently the fastest growing premium spirits category in the world with 140% growth in sales from 2010 to 2020 and expected to continue. According to the Irish Whiskey Association (“IWA”), the global market share is set to grow by 300% by 2030, to 12%. Welcomed news is that the IWA also predicts that Irish whiskey sales could overtake the sales of Scotch whisky in the US over the next 10 years for the first time since before prohibition in the 1920s.
A lot of this growth can be attributed to Irish whiskey’s recent status as a Protected Geographical Indication (“PGI”) by the European Commission in 2014 making Irish whiskey now protected by Regulation (EC) No. 110/2008. A PGI identifies a product that originates from a particular country or area whose characteristics are linked to that specific area and to obtain a GI, the product in question must have a comprehensive technical file concerning the production and ingredients.
For Irish whiskey, this means it must have matured on the island of Ireland, aged in a wooden cask with a maximum capacity of 700 litres for at least three years. Accordingly, any product wishing to brand itself as Irish Whiskey, Irish Whisky or Uisce Beatha Eireannach must comply with these requirements. There is also a strict prohibition on maturing the product outside of Ireland so much so that whiskey cannot be exported in its barrel but has to be bottled or placed in a container before leaving the island.
Naturally with such a booming market, we are seeing many new entrants and the IWA predicts production to rise by 41% from 2010 levels. Whilst the trend is now reversing, a decade of stagnant interest rates has already contributed to an appetite in alternative means of maximising investments, and that has led to increased interest in whiskey casks and bottles. However, given the length that the product has to mature before it can be considered Irish whiskey, this means that investing in a cask requires capital to be tied in which can lead to difficulties for companies who require long-term investor commitment and funding.
Whiskey and the world of digital tokenisation
This is where digital tokenisation can come in. This involves the issuing of a digital token (or NFT – non-fungible token) on a blockchain which represents ownership of the underlying asset. As investment in a whiskey cask essentially constitutes an illiquid asset (excuse the pun!) for the first three years of its life, digital tokenisation introduces liquidity by making the asset easily transferable with token owners being able to trade directly or on secondary markets 24/7 from anywhere in the world. This also is likely to increase fractional ownership of casks, thus decreasing the overall exposure for investors and reducing the risk.
Of course, when creating or issuing digital tokens or crypto assets there are regulations to comply with both at a domestic and EU level, with the incoming Markets in Crypto Asset Regulations (MiCA) (see our article here). Tokenisation still has a number of grey areas and no two cases are the same, which is why any whiskey company availing of tokenisation will need experienced and informed advice.
Philip Lee has unrivalled whiskey industry experience advising the most established whiskey brands to more recent whiskey market entrants. Led by senior partner Bernard McEvoy, the specialised team in Philip Lee is unique in having continually acted for whiskey market leaders since 1987. What started with advising Cooley Distillery plc, up to and including its ultimate sale to Jim Beam in 2012, has developed over 35 years into a market-leading team advising on all aspects of the whiskey industry.
Complimentary to our crafted understanding of the whiskey business is our depth of experience in advising distilleries on their operational needs. With the demand for maturation space at an all-time high, clients have called on the niche Philip Lee team of planning, real estate and construction law specialists. This has proved invaluable to efficient completion from inception to bespoke warehouse delivery. Couple this with partner Andrew Tzialli’s specialist knowledge in venture capital and digital tokenisation of various real-world assets (Andrew also heads up Philip Lee’s cryptocurrency and blockchain group) and we have unrivalled knowledge to advise on all whiskey company matters.