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With the American Whiskey business in full-scale runaway train mode, it’s “tipped.” Anyone familiar with Malcolm Gladwell’s great book The Tipping Point knows what I mean; the book examines how, why and when something goes viral. Two or three years ago, one could still find some of today’s treasures, such as certain Pappy Bourbon on shelves (I found 15 and 20 in Florida in January 2012 and three bottles of Pappy 23 in a display case in New Jersey in March 2012.). Old Black Maple Hill, Early Editions of Parker’s Heritage, and even a reasonably priced 1950s Stitzel Weller sold on eBay two years ago.

It’s a desert out there now for the old and new bourbon lover. Around 90 percent of American Whiskey growth is in Ultra categories, some of which you can’t find or disappear quick. Many undeserving brands pretending to be great are bought up by the unknowing, at times creating a chain reaction. I haven’t seen a positive review by respected and known Whiskey writers of Stagg Jr. I have had it and the finish is terrible and aspirin like - bitter. It’s not going to be stuff experienced fans of the craft will buy a second bottle of if it had no label. That’s important to point out as I wonder how much of today’s American Whiskey would sell/sell out if sold as a house brand for that specific chain. Rest assured Stagg Jr. will not make many shelves, and if it does the bottles won’t make it past a day or two.

James E Pepper 15-Year has been out about a year and prices are going up and up on it because it can, not because it’s a good value. Long time enthusiasts like myself now compete with hoards of new people that were drinking Jager or Pumpkin Vodka two years ago. American Whiskey is trendy, which brings us to the Black Market of Whiskey.

The reselling, secondary or Black Market for “Collectable” Whiskey is booming. At least six sources come to mind. First lets get this straight: It’s not legal because presumably taxes weren’t paid and you can’t be 100 percent sure you’re selling to someone 21 years of age. Time to look into those two things.

Lets start with taxes:

A great writer (Fred Minnick, who does a great job covering Whiskey) states in his blog via research for a Whisky Advocate story that “…  please keep in mind that 60 percent of a bourbon’s cost is tax. Kentucky bourbon whiskey is taxed seven times before it’s bottled.”

So, if resold in another state, it’s true the state doesn’t see the eighth tax. But it’s not valid for collectible Whiskey, as either that bottle was never available to begin with or it had already sold out in the state and taxes were already paid. Paying the state tax twice or approximately an eighth time to a resale state (that would have never sold the bottle in the first place) is an irrelevant argument.

Age:

Yes, it’s possible for a kid to buy a bottle of Pappy for $800 or $2,000 for a very, very Old Fitzgerald from the ’50s. But the same kid can get 1.75 liters of Jack for $100 every minute of the day in a hundred places. Drugs and booze, you name it. There is no scientific evidence to prove this theory, but if you looked at every drunk driving or alcohol related death in the USA, of every 1,000 deaths, I’d be shocked if more than a couple were from high-end ultra booze, especially that which was bought on the secondary collectors market. Hardly any of these serious enthusiasts get drunk and if they do they have the responsibility and means to get home safely or not drive. Beer and cheap stuff (in my experience) are the culprits of accidents by a large margin. I’ve asked a bunch of Whiskey aficionados their thoughts on my theory and they agree: kids aren’t buying this stuff, nor are irresponsible drunks. The possibility of an underaged person getting this stuff is marginally insignificant, and a bunch of those are probably meant as gifts for those over 21 anyway.

So, with the controversy of legalese done, let’s look at the morality.

Theory: “If everyone intending to resell didn’t buy these items, more would be left for everyone else.” Maybe.

People who want these bottles generally know they are coming or have their store of choice order or hold it for them. With social media, the PR engine, and pre-release samples, it’s almost impossible that a yet-to-be released Whiskey (that people are actually going to want) to get to a store without loads of people knowing beforehand. It’s mid-August and I’ve been hinting at one of the best Whiskeys to be released in a very long time coming out (for about 6 months), and recently samples of Four Roses 2013 Small Batch made it out to reviewers. Word’s out that it’s great. Even though the release amount is almost doubled from last year, it will be very hard to get any. It will get Pappy-esque treatment by many. The number of bottles that makes it to a shelf will be negligible.

Lets drill down and microscopically look at a great example, the Pappy of all bottles. When eBay stopped allowing the sale of Collectors Whiskey in September 2012, it was because a TV investigative report (20/20) hired a kid to get a bottle of Vodka online. What’s interesting is at the same time, a bottle of Buffalo Trace Antique Collection Eagle Rare 17 Year Old got rejected for posting on eBay due to it being common (obviously mixed up with Eagle Rare 10 Year). So how does a Belvedere Vodka show up and get sold???

Maybe eBay drops the ball? Maybe the TV show posts the bottle for sale in Los Angeles with a misspelled name and two minutes later, before filters catch it, the kid working for the TV producer buys it. However, eBay stops. That’s how we used to buy and sell the stuff. Stores didn’t gouge as there was no point, and if they did there was an eBay ceiling. Van Winkle 23 Bourbon was selling for between $400-$600 ten months ago on the secondary market. No more eBay and now “off the grid” private collector groups, legal auctions, etc., are around $800-$1200.

Stores that choose to take their meager allocation and sell it may do so at suggested prices of around $240 or maybe a bit more for $300 or so. Some stores have a lottery or hold it for special or regular customers, or maybe waiting list customers. I was in line for a recent big release, and 20 people were waiting for the store to open the day of delivery. Another store posts a YouTube video of a near riot when they announce the Pappy sale’s about to happen. The video shows employees of other stores (according to comments) and some really shady characters (sent by other stores to bypass the one-bottle Pappy limit to earn a bottle of cheap vodka as payment). The store owner knew this, but he said he couldn’t deny the sales and very few “real customers” got any. Another place I heard did an auction to the highest bidders. Then there are the gougers.

Rapidly increasing greed among a few select retailers have created huge price increases of 10 times or more. Yes, 10 times or more. So, for the Pappy age variations, $350 for list price $40 for 10 year old; $3,000 for list price of $240 for 23 year old, and $1,450 for list price of $120 for the 20 year old. (Prices have gone up slightly in the couple days it took to write this blog post).

I know of at least 10 retail stores publicly displaying such prices in stores and online for Pappy. I know of at least two direct distributors increasing prices well above the Sazerac suggested price, places Sazerac hand picks to distribute.

These distributors aren’t fools either. If a store sells Pappy for 2x, 3x, 10x, they know it. They will tell you they have no control over pricing as that’s “illegal” although many states have a state mandated selling price often ignored.

These same distributors are the ones that make the illegal deals (discussed in a previous post) if the store buys brands they don’t want or need, they get some or more of a Pappy allocation. When the time comes for the next allocation it’s certainly in their power legally for a distributer not to allocate or sell a gouging store Pappy. Perhaps a salesman gets huge kick backs and its ignored and more goes to the store. For what ever reason it happens, it doesn’t stop and a blind eye is turned.

After the 20/20 report is aired the Van Winkle’s were as giddy as the guy that just won a new Corvette on The Price is Right. They were all over social media with their “it’s about time” and “we finally got them to stop”, and “this will solve the supply issues” type of comments.

Buffalo Trace/Sazerac says it’s not their business and Distributers can do what they want including not reducing/ending allocations to the culprits. So with all the Van Winkle’s congratulatory back slapping, their stuff’s selling for 10x what it’s supposed to with no problem.

In the midst of Van Winkle’s jubilation for the eBay removal its’ pointed out that they are hypocrites for not going after the stores doing far worse. They can certainly tell the distributors that its against their philosophy to allocate bottles to a store gouging customers and hold back distribution after saying they would do something, but the places that have been doing it are still getting allocations. Van Winkle cheers eBay’s ban then ignore or accepts far worse stuff they have much much more control than they want you to think—

To now ram it home look on the Van Winkle Facebook page and compare to the Twitter screen shot. You will see NO sign of the “Let us know if you are experiencing price gouging…” post. Reason is they deleted it. My spy’s tell me they got in some hot water and were told to remove it. Is there any better proof they are looking the other way?

So you say, “Wait Truth, these store’s might just be reselling stuff they got on the Black Market or consignment” but again, not kosher nor sanctioned by those already mentioned. Worse, what’s to say a store that would do this aren’t buying empty bottles of Pappy on the net, refill, reseal, resell-hmmmm?? Reputation and scruples of these stores are already gone anyway. So you might say “Come on Truth, now your going nuts with these Conspiracy theories”. It pains me to say many of these bottles are being bought up by stores, bars, resellers. Why? Only one logical explanation and its not empty bottle collectors. It takes digging so dig away you’ll see its happening.

So an open market is the best system if the official system has no controls.

By no means does it stop with Pappy, they are just the Poster Child of the issue.

Lets look at one more as an example of the Secondary market’s usefulness.

I’m not going to name the company or whiskey as they are a very cool, customer focused company and share no guilt in what I find are superb Whiskies. If your lucky enough to get 2 bottles of the special annual release, your a king among whiskey kings. You get it home, have some and tears come to your eyes. Not just because it’s perhaps the best you’ve ever had but because you know two bottles will never last more than a rationed couple years. How about this common yet worse scenario—-Lets say I get into the whiskey hobby today and in a year or so I find out about this long gone great 2012 Bourbon and I HAVE to get a bottle. Maybe you tried it at a friend’s or a bar. You have a better chance of meeting the original Jim Beam than seeing a bottle of this long sold out stuff. Maybe you can spend 10-20 hours driving and looking and after 50-100 stores find one in a store. Or on the secondary markets someone that worked magic got bottles or did your searching for you. Most importantly, they put money out to save them from their immediate consumption to eventually sell them to someone really wanting them. These would have never been left on a shelf for you to find a month or years later in either case. For many of these sellers it might be extra bottles, it might be to raise capital for Braces, Medical Bills, or to finance their next few bottles. Some of these people are known as “Flippers” in a derogatory sort of way. I’ve got a friend that’s done a bunch of favors for me and loves this “Export only” Bourbon which is not available in the US. I’m planning to gift him the only one of these I’ve ever seen on the Secondary market which I got for him with no regret.

Maybe I want a few others I can no longer find for my collection and need to trade or buy. I may have to sell a few bottles for that one I really want. I’ve got a very nice collection and when friends and specifically, “Whiskey friends” are over, these efforts pay off to enjoy, share and appreciate—thats what it’s all about.

In the end how is this different from collecting and appreciating things such as Art, Wine, Pens, Watches, etc? Of course with Alcohol you have the option and often the willingness to enjoy/destroy it and I do.