The Bull Case For Farmland And Specialty Agriculture, With Gold Leaf Farming

Gold Leaf Farming was a presenting partner at Alts Expo 2022, a one-day virtual event hosted by AltsDb. In this webinar, Josh Guggenheim presents a specialty agriculture investment opportunity.

Interested In Learning More About This Opportunity?

Click here to visit Gold Leaf Farming’s website to learn more about the company’s offerings.

Webinar Presenters

Webinar Highlights

  • An overview of farmland as an asset class, including its historical returns, and the case for farmland as an investment during prolonged periods of high inflation.
  • The historical difficulties in making passive investments in farmland, and how Gold Leaf addresses those issues.
  • The supply and demand dynamics driving the almond and pistachio markets.
  • How proven processes can be leveraged to enhance returns.
  • The benefits of increased institutional ownership for the farmland industry.
  • Live Q&A with webinar attendees.

Connect With Gold Leaf Farming

Webinar Transcript

Jimmy: We have Josh Guggenheim joining us from Gold Leaf Farming. Josh, how are you doing?

Josh: Doing all right. How about you?

Jimmy: Fantastic, Josh.

Josh: Well, yeah. Thanks, everyone, for joining today. My name is Josh Guggenheim. I run acquisitions for a firm called Gold Leaf Farming. We are an investment firm focused on specialty agriculture. A lot of people say… We’re based in California, and a lot of people say, “Oh, specialty agriculture. Isn’t that just another word for cannabis?” For us, it’s not. We’re doing almonds and pistachios, not cannabis. So, maybe a little less exciting, but it’s working for us so far. So, today the agenda will be, we’ll talk a little bit about farmland as an asset class and historical returns. We’ll talk about our firm and our expertise, how we drive value. We’ll talk about our core fund, which is what we’re raising for now. It’s our first dedicated fund vehicle for cash flowing farms. We spoke before on Jimmy’s platform about our opportunity zone strategy. This will be a little bit different. This is our cash flowing strategy. Then we’ll conclude today on kind of the future of farmland.

So, farmland, as you may know, is a massive asset class, right? It’s about $3 trillion in the U.S. alone. Comparatively, our office is about $3 trillion multi-family, I think 4 to 5. So, it’s a large asset class. But it’s really mom and pop owned. About 98% of farms in the U.S. are owned by families. Only 1% are owned by institutional investors. And the families are generally older. You see the pic in the background. I guess that is representative, because the average farmer is about 60 years old in the U.S. today. Despite being relatively under-invested, returns have been quite good. So, if you look back at farmland in the last 70 years, farmland has averaged about 12% per year. About 5% of that is from cash flow and 7% is from appreciation, similar returns to the S&P 500. But I’d say farmland has actually been a better store of value than the S&P 500. If you look back over time, there’s really only been one period where farmland has decreased in value, in the early 1980s. Besides that, farmland has always been, you know, had a positive return. It’s different than S&P 500, which has, obviously, had multiple periods where, you know, value has been lost.

Also, farmland over-performs during times of inflation. So, if you were to take the last 70 years here and then break it into three different categories, high inflation, which is 5% of inflation or more, medium inflation, which is 3% to 5%, and low inflation, anything lower than 3%, you see that farmland actually outperforms when inflation is high. The problem here, though, is that it’s, you know, a great asset class, but it’s really hard to access, because it’s mom and pop owned mostly. That was the goal of Gold Leaf, or our goal is to basically solve that problem and become a best-in-class sponsor focused on specialty farmland. There’s a lot of awesome sponsors out there in multi-family and in office, industrial, et cetera. There’s less in farmland, and we wanna change that.

So, we were founded about six years ago in California. We’ve now got about 25 farms, invested about $300 million, and about 12,000 acres under management. We’re different than some other players in the field, because of a few things. One, we have an extreme focus. We only do almonds and pistachios. We like those crops because they have great supply and demand dynamics, which I’ll explain later. We’re farmers first. We operate all of our assets. We’ve got a 75-person team, but about 50 of those people are actual farmers. We operate our assets. That helps us control risk and drive value. And we have a few playbooks, I’d say, which combine sustainability with increasing profitability, which I’ll explain later.

So, quickly on almonds and pistachios, when you think about the commodity markets, you wanna invest in places where there’s strong demand, but limited supply growth, and that fits for almonds and pistachios. So, thanks to almond milk, and thanks to healthy snacking, demand for plant-based protein, etc., there’s a lot of demand for almond in the market. There’s been about 155% U.S. growth for almonds in the last 20 years. At the same time, supply can’t keep up with growth. The Almond Board actually just published a statistic, I guess it was this week, and said that almond acreage is actually declining for the first time ever in California. Why? Because there’s just not enough land to keep expanding. So, our view is it’s great to invest in commodities where demand is there and supply growth cannot be there. That’s gonna drive margins to us in the long run. An example of how we use our operational expertise to drive value for investors is seen here with an organic conversion of one of our farms.

GLF3 is a farm we bought, I think it’s three and a half years ago. It’s 700 acres of almonds in Sacramento. And the plan here was pretty simple, take a conventional farm and turn it into organic. It sounds real simple… I mean, the benefit here is that organic almonds trade for about twice as much as conventional. It sounds simple to do, but it’s not. Not very many people have the farming expertise to do that. Only about 1% to 2% of California almonds are organic. If it were easy, everyone would do it, but it’s not. So, what we did here was we bought the asset in 2019, converted it to organic. It’s organic now this year. And by doing that, what we’ve done is we’ve been able to capture this higher organic price premium, and that allows us to basically triple our return on equity, in addition to helping, you know, the planet with sustainable farming.

What we’re doing today we’ve got 15 farm…well, I guess we’ve got 25 farms in total. All are in a different kind of single asset LLC structure. We’re taking 15 of those farms, the cash flowing farms, merging those into a fund, and then raising some new equity. So, if you were to invest in our fund, you’d have access, I guess, exposure to 15 of our cash flowing assets, and a few more that will close going forward. We’re targeting low teams net IRR, which would be driven not by appreciation, but by a 10% cash distribution. If you were to invest… I think we’re gonna close in March of 2023. If you were to invest, you’re gonna get distributions right out of the gate, kinda like 4% or 5%. Eventually, it will ramp up to kind of a 10% plus annual cash distribution. The reason for the bump here is that we have a lot of assets that are currently undergoing organic transition, or maturing, and once they’re fully mature in 2025, 2026, you know, cash flows to investors will increase.

I guess I’ve got a minute left here. And so, I’ll share what excites us. If you think about other real estate asset classes, like some of the folks that are presented today, they’ve obviously been amazing places to invest in the last 40 years. But, you know, 40 years ago, office and apartment, for example, weren’t that institutionalized. Obviously, today there’s tons of firms who are doing great investing in those asset classes. But as those asset classes have institutionalized, obviously, cap rates have come down, values have come up, and it’s become more competitive. We think that’s gonna happen with farmland. And that gets us really excited. Office of, like, let’s say, the 1970s is like farmland of today. And we’re super excited to be a first mover here and kind of get in and, you know, build expertise in an asset class before others come to it. So, with that, if you’re interested in our fund, or even any other of our strategies, please reach out. Send me an email at [email protected]. We’re doing meetings and commitments now, and look to close on the fund in March.

Jimmy: Fantastic. Well, thank you Josh. We do have a handful of questions, and I’ll say we’ve got about three or four more minutes to see if we can get to a handful of these. Now, the first two questions that came in are both regarding water, and concerns over water. Richard asks, “How is the fund addressing water issues with almond farms?” Another attendee asked, “Do you worry about the regulatory environment in California, particularly around water usage? How do you address water concerns?”

Josh: Yeah, good question. So, that’s the biggest question that’s on our mind and how… And I think we spend probably 60% to 70% of our diligence budget on water on farms, right? So, we find a new farm. We’re spending a ton of time digging into the water situations. And, you know, how California water is set up is there’s about 200 different water districts, and about 200 different districts which manage groundwater use. Some of the areas have ample water, and some don’t. I’d say I think we… And we’ve gone basically district by district. It’s probably something like 30% to 40% of California almond farms won’t have access to enough water in the future, but the best 60% or 70% have access to ample water. So, our whole strategy here is let’s invest, let’s pay a little bit more for senior high-quality water rights. And our view is that we’ll pay up in the beginning, but as those other lower quality farms kind of come off market because of water, our assets will actually appreciate.

So, long story short, water is a really complicated game, and it’s all about finding the right water dynamics. And if you do it right, there’s a huge opportunity, because, you know, as water becomes more scarce, great water rights are only gonna become more and more valuable. So, we view it as a risk and an opportunity, and something where we spend a lot of time and value. Yeah. And, you know, regulatory wise, you know, California regulation, a lot of the water was set up in, like, 1914, and before that. So long story short, like, we’ve had a… And there’s been periods of drought. So, there’s not a lot of movement in the California water regulation. It’s hard to do that in California. One of the biggest changes, though, that has happened is that the state is now monitoring how much groundwater you can use. So, they’ll say, “Hey, in one farm here, the aquifer looks good, you can pump four acre feet.” Another farm 100 miles away might only be able to pump 6 inches of water. And that, to us, is an opportunity because we can kind of dig in, look at the regulation, see where we can pump, and if we can invest in those good properties, those are only gonna appreciate.

Jimmy: Very good. Well, great answer there. Thanks for the thoroughness. One more question here. What is the use of the cash you are raising? Are you purchasing land, or is it CapEx?

Josh: Yeah, good question. So, we have a couple more deals in the pipeline. So, we’d like to kinda merge together this fund, which would be 15 farms, and then we’re gonna acquire, like, three or four new farms in kinda like, you know, Q1 of next year right after the fund closed. So, it’s primarily for that.

Jimmy: Fantastic. Well, Josh, we’ve run out of time, but really appreciate your participation today on Alts Expo. Thank you so much. Before you go, real quick. Where can folks reach out to you if they’re interested in learning more? Can you give us one more time?

Josh: Yeah, I’ll put my email in the chat here, but it’s [email protected].

Jimmy: Fantastic. [email protected]. All right. Josh, thank you so much. Appreciate it.

Josh: Perfect. Thank you.

Andy Hagans
Andy Hagans

Andy Hagans is co-founder and CEO at AltsDb, and host of The Alternative Investment Podcast. He resides in Michigan.