James Sprow | Blue Vault
Blue Vault hosted a very interesting webinar with the co-founders of Gold Leaf Farming, Brandon Rebiero and Jack McCarthy, along with Josh Guggenheim, VP of Acquisitions. Jack and Brandon were introduced five years ago, Brandon a farmer and trained agronomist and Jack a private equity investor. Coming from a farm family, Brandon was actively managing a farm, even driving a tractor. Jack had worked as a consultant at McKinsey & Company. Gold Leaf Farming was founded with “friends and family” capital, and both founding partners have virtually all their net worth invested in the company.
Gold Leaf Farming currently owns 26 farms with over 12,000 acres, farming almonds, pistachios and dates at one farm. The firm manages approximately $350M of farmland. As one of the top organic almond and pistachio growers in the US, Gold Leaf has a team of 81 employees, many of whom manage farms and have an equity interest in the company. The company makes a point of putting decisions in the hands of the best people to make them – their team. Its farms are located from north of Sacramento to south of Fresno, with one farm in Kingman, Arizona. Overall, the firm has 6,250 acres in almonds and 5,633 acres of pistachios. Interestingly, California has about an 80% share of the world’s market for almonds because of the unique growing conditions in the state and the availability of water from the Sierras.
As the partners explain, the company also invests in converting its farms to organic farmland, a three-year process of investment that can yield much higher prices for their production. Rebiero explains the transition to organic farms by an analogy as a three-year “walk through the desert.” The three years is a “purging” process, getting rid of man-made chemicals in the soil. For those three years the profitability of the farms is lowered. But, once the farm is designated by the government as organic, the company enjoys around an 80% premium in pricing for their production. They go through a three-year audit with state agencies to get certification, and the audits continue every year to maintain their certification. They would love to do more organic, which requires a lot of technical agronomy expertise, which creates significant barriers to entry. Financially, after a farm is certified organic, it adds roughly 500 bps to the IRR.
One interesting feature of the farming industry is the Federally subsidized crop insurance that protects the company when pricing falls. In a really bad year, Guggenheim says that insurance protects about 80% of their revenues. That makes their revenues a “pretty safe bet.” And long-term, US farmland values have had only one period of negative returns since 1950.
Regarding pricing, the company is currently in a low-price environment, and has been in recent years. They expect the pricing cycle to eventually move upward. The firm is diversified across almonds, pistachios, organic almonds and organic pistachios, which does moderate the pricing risk across the related commodity markets.
Gold Leaf Farming is currently raising capital via Gold Leaf Farming LP, with a Target Net IRR of 14 to 18%. Answering a question from Blue Vault’s Stacy Chitty, the firm is looking for $50 to $100 in equity this year. In some years they will be investing in a very favorable acquisition environment while some years may not be as favorable, depending on product prices. With lower product prices currently, they expect acquisition opportunities to be favorable for the company. As they raise equity from new investors, they will use the funds to roughly 2/3 to acquire more farms and 1/3 to build the balance sheet, and fund transitions to organic farms, for example.
Guggenheim explained the reason they don’t have a dividend right now is due to the transition the company is making to organic farming at a number of farms. He expects dividends in the coming year to be in the 5% to 7% range.
The company’s website can be found at www.goldleaf.ag and investment opportunities can be accessed at www.investors@goldleaf.ag. Blue Vault highly recommends potential investors to visit Gold Leaf Farming’s impressive website for the full story of this very interesting company.
