How to Invest in Tequila

2881

If there is one type of liquor out there that everyone loves to mythologize, it is tequila. It may produce some magical nights with the added capability of producing some capital gains. Tequila is a unique brand of spirits as its importance is closely tied to its geographical prominence similar to wine. This means it is extremely important as to where the liquor was produced due to certain climate conditions and ingredients.

When investing in certain aspects of tequila, it is best to know just what you may be getting into. This includes knowing what process the tequila went through whilst it was being created, which has a lot to do with the quality of the tequila and thereafter the price as well. There are multiple classes of tequila sold in the market, some will be worthless as an investment and others highly coveted. There are also multiple ways of investing in tequila, through the companies themselves and even by investing in the farms and plants used in creating tequila.

Merits of Quality Tequila

When starting a new investment, it is always best to familiarize yourself with the major details surrounding the business or sector you are investing in, investing in liquor and specifically tequila, is no different. The first step in investing in tequila is being able to understand the difference between what can truly be considered tequila and what cannot be.

All tequilas come down to being mezcals, that is both tequila and mezcal are derived from the class of plants called agaves.  But here is the important distinction to be made for would be tequila investors to not miss out on. True tequila is only distilled from the blue agave plant that is native to only certain places in Mexico. Certain regions in Mexico have the correct altitude and soil makeup in order to provide the necessary qualities in creating tequila. These areas include Nayarit, Michoacan, Tamaulipas, Guanajauto, and Jalisco. The reason to remember these names is because the majority of any quality investment worthy tequila will hail from one of these five regions of Mexico.

Now that it has been established that tequila needs to hail from these regions and be produced from the blue agave, there are other aspects to take into consideration. There are many different classes of tequila sold out in the retail market that just don’t cut it in terms of long term worth. Low grade and inexpensive brands that cite blue agave on their labels are misnomers unless they specifically state the phrase “100 percent blue agave,” only the purest tequila is made with one hundred percent blue agave. In order for the tequila to be labeled as “made with blue agave” it needs a minimum of 51 percent. The rest of the ingredients can then be a mix of different agaves, corn sweeteners and different flavorings.

Different Tequila Distinction:

  1. Gold Tequila, also considered “mixtos” are not made purely of 100 percent blue agave. These types of tequila are not aged before being bottled.
  1. Silver tequila is a clear type of tequila that is one hundred percent made out of blue agave. It also goes without aging, but some creators will let the silver tequila sit in the casks for a couple weeks.
  2. Reposado tequila is let aged for a couple months to a year in wooden barrels. By sitting in wooden barrels the flavor of the tequila takes on notes of wood flavor. Different types of wood produce different flavors, some of these include white oak and other varieties of oak.
  1.  Añejo tequila is the vintage type of tequila and one of the tequilas that is going to fetch a higher investment price. It has a much deeper and more complex taste as it is usually aged for three years. A recent development in tequila distillation has been extra añejo, this has a minimum of three years for maturation. As many know the older it is, there are greater profits and investments in return.

Alternative Investment Strategy

It is easy to invest in the market and follow trends in the tequila market, and that is something that should be done. But there are also other ways of direct investment into tequila markets. Some of these include investing in the blue agave itself. The plant is a slow growing specimen that usually takes eight to twelve years before it matures. Investing directly into the growing and procurement of blue agave is a smart investment because of the growing demand for tequila, as increased tequila demand has and will result in a shortage for blue agave that is ready to be harvested.

Between now in 2016 and through the next two years, the price for blue agave is expected to almost double during that time period. The reason for this shortage is because smaller farms at the time can’t compete with the larger ones supplying tequila makers with blue agave, especially the ones without their own agave plantations.

For those investors looking to capitalize on this high risk scenario, they’d be taking a risky investment by looking into pouring some money into smaller sized distilleries and blue agave producers.  As the agave shortage continues this could be a promising investment for those distilleries that stay afloat. A good way to directly invest in something like this would be through a group investment of some sort through either peer to peer lending or crowd funding. This helps reduce the inherent risk and cost to the individual investor.

There are companies out there like Mexico Business to Business that works on connecting investors to different tequila companies, distilleries, and farms. Aside from the actual production of the tequila, there is other avenues this company puts forward like investing in tequila bars and tours in the tequila producing areas of Mexico.

Unique Expensive Tequilas

There’s a great selection online of expensive bottles and different rare types of brands. Here is a look at some of the most expensive collectable tequila bottles. They fetch these sorts of prices for their prestigious qualities in production and jewel laden artisan crafted bottles.

  • A high end Tequila, but entry level to the world of expensive tequilas is the Gran Patrón Platinum. The starting price for this bottle of tequila goes for $250. It is known for its citrus like flavor due to the volcanic ash that inhabits the high altitude hills it was grown in. This is a great bottle to buy and hold onto as it can fetch some higher prices in the future.
  • Another top of the line tequila from a well known retail brand is Don Julio Real. This is another favorite amongst amateur and professional tequila investors and drinkers. It has a high end bottle and is produced in Guadalajara. One of the only ways of purchasing this bottle is through buying it where it is grown and bottled. Making this a highly sought out after drink that could be resold for much more of its original $350 value in other places around the world.
  • Now comes the heavy hitter in the realm of tequila that is bound to make some investors quite thirsty. The Clase Azul Extra Anejo is an extra aged tequila done so in sherry oak barrels. There are only 100 of these bottles created and manufactured yearly. The design of the bottle is done so with silver and platinum and a bit of 24-karat gold. The price tag for one of these rare bottles comes out to $1,700.
  • The most expensive bottle of tequila starts at $225,000, way outpacing any of its other competitors. The name of the tequila is the Ultra-Premium Ley .925 Pasion Azteca. The bottle is a hand crafted bottle that was created from platinum and white gold. Another one of these bottles goes for $1.5 million encrusted with diamonds on the bottle. Examples like these just go to show that the world of liquor investing, and for that matter the bottles that hold them can be a lucrative affair.

Celebrity Investment & Endorsement

There is a reason that there are a lot of celebrities getting involved with the tequila industry. Some of these people include Sean Combs, Carlos Santana and a slew of other public figures. The reason being is that the high end market for tequila is a growing industry. Between 2009 and 2015 sales for tequila in the United States increased at a compound rate of nearly 5.5 percent a year. What helped increase this was the new line of tequilas being produced by many different celebrities. This was due to there being premium growth sales. This type of increased growth is making big named investors get interested in a market that is considered an alternative type of investment, which gives some added validity and stability for alternative investors now. For investors looking to put some money into stocks here, there are a few good options.

Investment Opportunity

Diageo is a company that is trading on the New York Stock exchange and produces the largest amounts of spirits in the world. It was some time ago that the company acquired complete control of Don Julio, arguably one of the most noteworthy and best tequila investments.  Sean Combs also brokered a deal with the company for the production of another luxury tequila brand called DeLeon. This is definitely a company to look into. The past five years has seen Diageo’s earnings per share increase by some 17 percent.

Another older company based in America is the Brown-Forman Corporation, created back in 1870. It has just begun acquiring and picking up new tequila brands, as it currently holds four.  It’s earnings per share growth was 23.5 percent in the past five years.

The reason for these massive and consistent gains is because the luxury tequila market is a fast growing industry that is not letting up anytime soon. So no matter what way you go about investing in it, there’s the possibility for large gains.

SHARE
mm
Mike Colagrossi is an analyst at ActivistStocks.com covering activist investors and major deals at hedge funds. He also regularly contributes to SeekingAlpha.com and has a strong interest in alternative investments and emerging markets.