Bull Case Bear Case: The Joy Fantastic Vint En Primeur
May 20, 2022
Welcome to the latest edition of Bull Case Bear Case. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Prepare to tackle the week with confidence! This week, we preview the The Joy Fantastic Vint En Primeur.
The Joy Fantastic Vint En Primeur
5/20 @ 12:00 PM ET
Wine at an immediate discount. In traditional financial markets, having the opportunity to buy into an offering 20% below its anticipated fair market value is uncommon to say the least. This collection features 600 bottles of 2021 Syrah from The Joy Fantastic, a producer based in Santa Barbara California and is priced at $40 per bottle, while the open market is currently commanding $50 for previous vintages. Earlier this week, we highlighted the process and reason behind the the En Primeur system and how it benefits both producers and consumers by providing discounted wines in exchange for consistent cash flow.
Emerging market with an emerging grape. In 1976, renowned wine merchants Steven Spurrier and his colleague Patricia Gallagher curated a blind taste test of red and white wines from both France and California. Until that point, the United States has not established itself as a major player on the global wine market and was considered an afterthought compared to the premier estates in France and Italy. After the Californian wines were rated best in each category at the tasting, the entire market was changed forever and the United States became a force in the wine world. Today, California makes up around 8% of the total wine trade on Liv-Ex which is fifth behind other legendary wine regions including Bordeaux, Burgundy, Champagne, and Tuscany. As the U.S. market share continues to grow, expect more regions such as Santa Barbara, Oregon, and Washington to start attracting attention from the global market. The collection also features the grape syrah, which has experienced an increase in popularity at a time when red wines are still outpacing white as a favorite among the investor class. While syrah initially rose to popularity within the Rhone Valley in France, it has since become a staple vine in emerging regions such as Australia, South Africa, and the western shores of the United States.
Opportunity to diversify. This is the 23rd collection offered by Vint but the first En Primeur. One of the primary benefits of investing through a platform like Vint is the opportunity to immediately diversify throughout different regions, vintages, and producers and this collection provides all three of those categories for the first time in addition to a unique format. Unlike every other collection offered by Vint to date, this collection provides investors with a futures bet on 600 bottles that are expected to sell on retail markets for 20% more than the IPO price. The collection gives investors their first ever opportunity to invest in wines from Santa Barbara, an emerging coastal valley in California, in addition to gaining exposure to the syrah grape variety.
Unproven investment returns. This is a collection where the value and appreciation is already priced into the initial purchase. The Joy Fantastic is an impressive producer who has received accolades from media arms including the Wine Enthusiast, but it is not a producer that is known for providing investment-grade wines. The wines themselves fall within the mid to upper level of the retail class, which is still an opportunity to make money within, but not the way that an investor of Romanee-Conti or La Tache would approach. The wines from The Joy Fantastic do not have a track record of appreciation and are found to usually sell at their initial retail price even with later vintages. That retail price is expected to be a 20% premium to the market cap on Vint, which essentially caps the potential ROI at 20% before fees and expenses. The 20% return is still nothing to scoff at though of course, but as with any investment, is not a guarantee, leading to the second bear case.
The risks of En Primeur. As with any investment, there are risks. With En Primeur, there is a risk that the market for the wine will be limited or the retail price will ultimately be lower than anticipated. The $50 retail price expected for this 2021 vintage matches the current retail price of the 2020 vintage. That 2020 vintage received a 97-point score from Wine Enthusiast and was released at a time when Santa Barbara was named the magazine's top 'Wine Region of the Year'. It is of course possible that if the 2021 vintage does not receive a similar level of media attention and love from critics, the volume transacted at $50 could dip. Another concern is that there is still 2020 Joy Fantastic that can be easily purchased through their website.
The liquidity process. As of publication, it is still unclear for investors exactly how liquidity will work on Vint and while this specific collection . Vint has mentioned that they are working on a liquidity solution and in a perfect world both buyouts and an active secondary market will provide investors looking for the opportunity to move cash in and out of collections. Wine traditionally has a longer hold period than other assets and there is a benefit to holding onto wine investments for a few years, both for tax purposes and appreciation. It is fair to acknowledge that some investors will be looking to flip their investments rather quickly though and at least today, there is no option in place to accommodate that investing style. Whether or not Vint will create a secondary market or the process of buyout offers could all impact investor decisions and portfolios in the future.
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