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To Our Partners-
I am writing after a very difficult year for our industry, for Gold Leaf, and for me personally.
Our industry has been in its most extended downturn in my lifetime over the last 4 ½ years. While we have done our best to navigate that environment, we are not immune. As you know, we just finished taking in $23M of capital from our partners to strengthen our balance sheet at GLF LP. We appreciate the continued commitment and partnership from the vast majority of you who participated, and we are hard at work to maximize your investment.
My family and I have also navigated the biggest challenge we have ever faced with our 3-year-old, Liam, battling an aggressive cancer. Thank you for all of the prayers and well wishes coming our way. He is about 2 months from finishing first-line treatment, and at this time the doctors are cautiously happy with his progress. Thank God.
I like to start each annual letter with a review of our performance vs. our benchmark. You will see here that GLF LP’s value is down substantially (as comps are low and we roll back organic acres), our OZ fund is also down (the orchards are maturing nicely but comps are down there, too) and Arizona is up. Since inception, we are underperforming the NCREIF benchmark at GLF LP but outperforming at OZ, AZ and in aggregate.¹
For us and our industry, it has been an excruciating moment.
One of the silver linings of hard times is that the learning curve is steep. I know I grew tremendously as a business person and human being over 2024. The team and company are learning quickly, too. We are better farmers and operators, more conservative and pragmatic investors, clearer communicators, smarter and faster decision makers.
¹ GLF returns shown are since investment inception, back to the original SPVs. See more details in the appendix for our returns vs. the NCREIF benchmark. One notable callout is that the NCREIF index is unlevered (whereas our assets are levered - so we do worse in drawdowns and better in upswings).
Across all of the ways we are learning, one theme emerged recently as I was talking to a role model of mine. He is a successful apartment investor and built his business over 25+ years, delivering excellent returns to his partners. I was asking for advice, describing today’s situation in almonds, and what we are trying to do - operate well and raise capital to get through and take advantage of the distress. As I finished my spiel, he clapped me on the back: “I have been through 4 cycles, and even though we busted ass each time to take advantage, we missed the first 3. We’re seeing another one now - this time I’m finally ready.”
Here’s what I took from that: it is a lot easier to know what to do than how to do it.
Any amateur knows to “buy low and sell high” - but having the capital, capabilities and conviction to hang in and buy during a drawdown is no small feat.
The continued almond market challenges are putting us to the test. We know what to do, but the “how” is where the magic is. At times, we have certainly fallen short on the “how” - but we are striving to master it as we work to build a great company on your behalf. A few lessons on “how” from 2024:
I am an optimistic person. Most entrepreneurs are, and farmers too. There is an old Will Rogers quote “the farmer has to be an optimist - or he wouldn't still be a farmer.”
Optimism can be a good thing. Great entrepreneurs, though, balance optimism and vision with skepticism and reality checks. Even when Microsoft had become one of the most dominant companies in the world, Bill Gates would think about all the ways they could be challenged and attacked and write “nightmare memos” to his team.
What Gates was doing with these memos is twofold. First, he was setting expectations for his team and other stakeholders. Second, he was identifying what is really important and focusing the company - often on doing hard things today that will pay off in the future.
On the first point, the last few years I have really worked to balance my inherent optimism with a more grounded, near-term realism. Last year, I discussed some of the things we’re doing to course correct our (my) past over-optimism in our investor communications. For one, we have banned any “single scenario” forecasts (with returns at a fixed/flat price - we now always want to show a variety of price/yield scenarios and a fan of potential outcomes). If you catch me being over-optimistic, please please call me out. I am working hard to improve our investor communications and ensure they are brutally candid.
On the second, we don’t know how long the industry challenges will last and we need to behave accordingly. It won’t last forever (low prices solve low prices) but we may still have years of tough times ahead. How do we build the business for an uncertain period of difficulty? You can see some of this in how we have structured our recent capital raise. We hoped to permanently solve it, once and for all. We took a painful amount of dilution - raising new money at 50% off last year’s value - but this money is effectively common equity (with downside protection in a liquidation). The alternative was preferred equity with an accumulating coupon, effectively high rate debt. After 1 year, 15% preferred is only 1.15x. But after 5 years, 15% preferred builds to 2.0x - i.e., the $23M we raised would now be $46M sitting ahead of our equity. In our “down round” structure, new investors will get paid from buying in at a low price, but if the recovery takes longer, we won’t be revisiting today’s problem a second time, this time with more debt.
Another tough problem we will address in 2025 is declining appraisal values across our industry. Today, almond price is rising, a welcome trend after 4 ½ tough years. That said, it is too late for many growers, who have burned through their reserves since 2020. They have been forced to sell farms, which has dropped comps - they’re all fire sales. With lower appraised values banks are sitting at much higher Loan-To-Values. This is triggering lenders to force more farm sales, furthering the downward spiral in farm values and LTV problems.
Though GLF LP is the main entity exposed to low almond price, other entities (GLF26 and OZ, and even possibly Route 66) are exposed to declining appraisals and tightening ag credit. They may be unable to rely on normal debt capacity given lower appraised farm values. This quarter, we will lay out for investors proposals to add equity to these entities to protect us from this LTV problem and ensure we can continue to farm these orchards even as banks pull back.
We are trying to make more of these conservative, hard-now better-later choices about the business. I know some of these moves are very difficult - for investors, for our employees, and for us as a management team. But I firmly believe attacking hard problems is how great companies navigate turbulent moments.
If we do these hard things now, we believe patient investors - who seize the current moment and wait for the inevitable periods of undersupply due to declining acres, water constraints and other long-term tailwinds - will be rewarded.
I am proud of our team for being willing to do things differently. “Lead by example” is one of our four values - to be leaders in ag and try new things that make sense, even if unconventional. A key part of the “how,” though, is to size these bets appropriately.
One place where we have made a bold bet that is paying off is Arizona. We were one of the first groups to buy land in Kingman, something we did after carefully evaluating the soils, weather and water and determining it had excellent potential for pistachios. In 2018 we bought 3,800 acres but planted only 4% of it, an approximately 140 acre test plot. This was a bold move but a carefully-sized bet - if the 140 acres of pistachios worked, 3,800 acres would appreciate. If they didn’t, we could sell the land having only invested in developing 4%.
After 2 years, we saw good results and began doubling down, developing more of our land. Today, 4 years later, we have planted all of our land, secured grandfathered water rights, and are achieving yields on par with California. It is early, but the bet appears to be paying off.
One place where we made a bold bet but sized it wrong was organic. That mistake is on me. We believe in the right circumstances, organic farming can deliver yields not far off conventional, but with much higher pricing. In 2020, as conventional price fell and early organic results appeared strong, I chose to step on the gas too early, getting to the point where 60% of GLF LP’s acreage was organic.
This year, we made the tough call to reverse that bet at several farms. In 2025, GLF LP is only 25% organic. While we believe in organic and sustainable farming and know we can achieve higher profits in the right situations, we cannot justify leaving the majority of our acreage organic. We can’t bet the business on a niche market where results are not yet clear.
James Dyson has a quote “There is no such thing as a quantum leap. There is only dogged persistence – and in the end, you make it look like a quantum leap.”
It is obvious in a farmland investment business that you want to be great farmers - but that is a lot easier said than done. Many of the institutional investors in our market have bought the right water but then proceeded to shoot themselves in the foot on ops, choosing to outsource, or underinvest, or change managers every year or two - leading to poor results.
Ultimately, farming is a business where the edge comes from achieving a low cost of production. The way to get low cost per pound is not only to spend less, but more importantly to yield more. Why does good farming matter? Yield. We have covered this in past letters - yield is the whole ball game. Most almond growers spend around the same amount per acre but some get 2,000 pounds or less and others get 3,000 pounds or more. The few farms that are making money in today’s ultra-challenging environment are all high yielders. We have struggled to achieve our desired yields, particularly in some organic farms.
When Jackie arrived in 2022, she began a process of turning us from so so towards great operators. A lot of the “how” there has meant getting back to basics and focusing on yield. Hire great Farm Managers, create the farming plan most likely to deliver high yields and low cost of production, and execute well every day. Then at season end, do detailed reviews (we call them post mortems) on everything we did that season, identify what worked and what didn’t, make changes, and enter the next season better. Steadily, methodically getting better every day, week, month and year. (See more here what our AMs and FMs do each offseason to steadily, doggedly improve.)
There are aspects of this downturn outside our control - low price and tough weather, for example. But everything that is even remotely within our control, we want to evaluate, optimize and hone until we are proud of the result and stand out vs. the competition.
In tough times, it can be especially difficult to strike the right balance between staying the course and improvement. That is part of the how. As we have struggled through the almond downturn, some investors asked us, what the hell, you are not making money, you need to do everything differently! Cut the staff, outsource management, start doing this, stop doing that, sell the farms, etc. Others who recognized low price as a key driver said, why would you do anything differently - just let price rise and the organic premium re-expand.
The answer is sort of both. We are NOT going to fire the staff and outsource, sell all the farms, etc. But we are also NOT going to do the same thing next year as last year - especially because we aren’t yet happy with our yields. What we are going to do is persist - keep doing what we know works, stop what doesn’t, and steadily get better yields and cost of production every year (while understanding that Mother Nature will occasionally have other plans in mind). We believe that sooner or later, persistence will begin to look like a quantum leap.
We have always believed in and invested in talent. I have seen the impact of concentrating an extreme amount of talent under one roof at McKinsey, Stanford and other top institutions.
At Gold Leaf, I knew to bring in great talent but I didn’t always know how to unleash them. I have sometimes underestimated our team - babying, or taking too much off their plate, or over-building centrally what great people can figure out on their own. I have learned, especially in 2024, that great people don’t need (or want!) any of that.
Our great people have allowed us to slim down the org chart dramatically. We peaked at 88 FTEs in mid-2023, but over the last 18 months, we have raised the bar on talent, exited our lower performers, and ultimately refocused our org chart back on the core building blocks: Farm Operators (hourly team), Farm Managers (who have a few farms and FOs each), and Asset Managers (who oversee each region). Today, we are at 66 people (-25% from peak), the vast majority in those building block roles.
Great people, unleashed, do great things. Our goal is to pay market median salaries to our team, then grant equity that aligns our team with investors and provides incentive to outperform. To match median salaries, every year end we benchmark wages and recommend to managers cost of living adjustments. (Ultimately, managers have final say.) This year, suggested adjustments were on the order of 2-3%. But our great FMs one-by-one, but unanimously, decided on no raises for their teams- the company was going through tough times, so each of the 8 of them decided their teams should feel it too. After the FMs made this call, their bosses, the AMs, agreed, and it flowed up such that all but a handful of people at Gold Leaf are making the same pay as last year. Many companies in our situation would mandate a pay freeze. But few would have a sort of viral, bottoms-up push to do the right thing for the business.
Psychologically, the “how” is about developing comfort doing the hard things. As I laid out across these lessons, we are doing our best to make hard choices and attack difficulty head on:
- Shoring up reserves - we appreciate your willingness to back us with the GLF LP round and will need to add capital to other entities as well given the downturn. We do not take lightly the extra capital and will work hard to maximize every dollar.
- Rolling back organic - I/we over-bet here, and while we believe in innovating to build an edge we also need to size bets wisely.
- Focusing on yield and CoP; improve every day - we want to learn everything possible from each season. In our business it is all about yield, and we will continue to do everything we can to farm well, achieve high yields, and therefore lower cost per pound.
- Relying on a small group of A+ people - we have slimmed our org by ~25% over the last 18 months, and will continue to rely on a small but dedicated team of A+ people that live our values and do their jobs well, particularly the AMs, FMs and FOs who run the farms.
If we do these things well, we are confident we can navigate the remaining tough period, lower our cost structure, and reach the other side a stronger business. But we won’t stop there.
Medium-term, we believe we should take advantage of the current distress on our investors’ behalf. We do not have excess liquidity in GLF LP today, but we will keep working to add equity to GLF LP and/or other entities to augment GLF LP’s buying power. We will continue to prioritize operating the current entities well, but we believe today is one of the best times to buy in our asset class over the last 20-40 years. We are seeing especially high quality assets available at reasonable prices and we hope to take advantage of this moment on investors’ behalf.
Long-term, even as we reach the other side of low price, we will continue to reshape the business around the hard “how” lessons learned now. We will drive cash flows when price rises and also monetize in other ways, for example selling the non-“hold forever” farms in the next upcycle. (These proceeds could be used to de-lever, exit redeemers and give other investors an offramp.) Someday, we hope to become a more differentiated business (from commodity farming to things like capturing sustainability premiums, leveraging water assets, or vertically integrating) and a more diversified business (from mainly almonds today to a handful of different crops or ag businesses, emulating Driscoll’s or Wonderful). All of this, with the goal of building a great business on your behalf.
For now, in 2025, the entire team is focused on two things: yield to drive a low cost structure and capital to strengthen our balance sheet.
When I think about all the ways we are improving, learning “how” to do the more obvious “whats,” I see also that “how” is the opportunity.
Given the articles on almond bankruptcies and the declines in farm comps, we are starting to see large institutions kick the tires on California ag. What’s to stop a New York firm from deploying$500M in our market? The how. How do they know what water districts are any good? How do they know what makes a good farm - from a financial but also a farming standpoint? How will they go about building an elite farming organization?
A friend of mine is a competitive cyclist and startup CEO. He often reminds his team that in a race, everyone can more or less keep up on flat road. Only when you get to the really tough stuff, the big climbs and challenging legs of the race, do great cyclists have a chance to pull ahead. Everyone knows what to do, they are all on the same course. But only some know how to do it - to have the stamina, grit and guts to strike out and pull ahead of the peloton. When times get tough, in cycling and company building, the how is what matters and what separates the great from the good.
We are in our own tough climb today. Our industry is in turmoil, growers are ripping out orchards or even losing their farms. There may be more difficulty ahead, but sooner or later, the cycle will turn. Acres are declining. Shipments are increasing. Carryout is back to normal levels, and price is starting to rise. Over the coming years, acres are likely to continue shrinking given aging orchards and few young plantings. And over the coming decades, constraints on water will limit new plantings in California and globally. In an industry with declining supply and growing demand, it should be a good place to be a grower.
The strong, those who know how to do the hard things needed to make it to the other side, will reap the rewards. We intend to be one of those growers. And in the long-run, one of the great companies that learns from tough times and is made better for it.
All the best to you and your families in 2025.
Jack
