An Inside Look At The Growing Opportunity In Agricultural Investing

Hey, it's Mark Podolski, the Land Geek with your favorite niche real estate website, www.thelandgeek.com. and I'm really excited for today's guests. Just selfishly because of, I don't know, Scott, how many podcasts have we done? A thousand? Between the three podcasts, I don't know, man.

I was actually. It's funny because I was trying to figure that out today. I don't even know where I'd begin to. I don't even know where I begin to look.

I don't know, let's just say a lot. And this is the first time we've had a guest in this niche. I'm getting tingly thinking about it, so I'm really excited. But before we talk to our guests, I'd be remiss if I didn't properly introduce my co host, the professor, the brain, Scott Todd from Scott todd.net landmodo.com and most importantly, if you're not automating your Craigslist and your Facebook postings, posting domination.com forward slash the land geek. Scott Todd. How are you, Mark?

I'm great, how are you?

I'm good, I'm good. Just a reminder, today's podcast is sponsored by flight school. If you want Scott Todd to lead you the Sherpa. The who was, who was Edmund Hillary's Sherpa? What was his name? Tenzin Norgay.

I don't know.

Anyway, if you want him to lead you up the mountain, quickly, efficiently, profitably, don't waste time. Learn more about flight school. Go to landgeek.com training schedule a call with Scott Bossman or Mike Zaino. Our guest today is Chris Rawley from harvestreturns.com Chris is the CEO of harvestreturns.com this is a company that does capital raises for small to medium sized operators in actually private investments in production farming. Production farming? What? Chris Raleigh, You woke up one day and said, you know what? Farmers, agriculture, I can help them.

Yeah, more or less that that's what we did. But kind of a long and windy road to get to starting this company. Harvest Returns. I have been a real estate investor for a long, long time. My career started in the been an active and reserve Navy officer for about 25 years. I spent a lot of time traveling around the world and one thing I think I've been to 50 something countries. One thing I've seen every place I go as there are two essential industries on earth. One is real estate. People have to live somewhere and the other is Food people have to eat. And coincidentally, those are both based on land. People have to have a place to live and grow their food and, and no matter where I've gone, no matter how poverty stricken the country, people are raising livestock or growing something, fruits and vegetables, that sort of thing, so that they can eat, so that they can feed people and so that they can make money. And so as a real estate investor, I've done land, I've done residential, commercial, real estate, worked in that industry for a time, and invested a lot in my own account. Several years ago, because of this notion that agriculture is sort of a universal need, I became interested in investing in it. But when you start to figure out how to invest in a farm and you look into it, it's not really an easy thing. I was talking to a banker about a month ago and he said that the average farm, I think in North America or the US is valued at about four and a half million. So this is not something you just go out and write a check for. Even if you've got that kind of capital laying around, you got to have the knowledge, you got to know what you're doing. Most farms in the US are family farms, so there's a kind of factory industrial farming gets a, gets a bad rap. But most farms are family farms. So you want to invest in this, there's not a lot of ways to do it. So a few years ago, my COO and I, Austin Manus, conceived this idea to combine online investing, equity crowdfunding, with passive investments in production agriculture. And that's how we started Harvest Returns.

You know what, Chris, I hate to do this to you, but my, my Internet just kind of froze. Can you go back just a sentence and say how you started Harvest Returns?

Yes. Okay, so a few years ago, based, based on this desire to make agricultural investing more easily, my coo, Austin Manus and I started this company, Harvest Returns, which is an online platform that enables people to invest in agriculture.

Okay, great. Great.

Scott.

Todd, you know, Chris kind of has like a little niche where, you know, nobody wakes up and thinks themselves, boy, I'd love to invest in a farm today. A family farm. Yet to his point, this is a massive market and massive opportunity. What are your thoughts?

Well, Chris, I was, I'm kind of curious, like, you know, how, how is it that you go about and like, find, find investors that like, and educate them? Because, like, for me, and look, I'm gonna tell you, I'm being naive when I say this, but like, when I think of like, farming, I know It's. But man, like, whenever I think about farming, I think of like the struggles that you hear about on the media about, you know, how difficult farming is, how, you know, how the economics don't really make sense without government subsidies. And look, I've never gone down this path to look at it. So I'm saying this from a naive standpoint. But like, to me, I would look at that and I'd go like, I don't know about that, but how is it that you educate investors on this when it seems to be like, it's pretty unique?

Yeah. Education, Scott, is a huge part of what we do because it is a new asset class for most people. And I think most people, when they think about farming, they're thinking about driving to visit grandma at Thanksgiving and they're driving through wheat fields or soybean fields or corn fields, just long as far as you can see pastures of food growing. And those are those commodity based crops. And those are quite frankly commodity farmers in the US in the past few years have had lots of issues because there's been a long term slump in those, those prices. But agriculture is a really wide ranging subject and the type of offerings that we're really focused on, although we certainly want to work with those commodity based farmers that the type of placements that we put on the platform are more specialized. So when you think of indoor agriculture, new ways of growing food, whether it's hydroponics or aquaponics or aquaculture, people are growing food closer to the consumer and that can be grown at higher margins now on really specialized types of livestock like grass fed grass, finished cattle, cage free chicken eggs, those sorts of things where the margins are higher. So although, yeah, there are a lot of government subsidies in agriculture, it can be profitable if you know what you're doing and if you structure the investment correctly.

Got it, Got it. Yeah. I mean, when I think of, you know, profitable land, you know, kind of like a bond, I think of timberland, I think of Buffett and farmland, you know, 8%. Is that something that you guys look at as well or do you like what you said, think really outside the box?

Yeah, we're doing a little bit of both and everything. Some of our offerings are in the US and sort of more generic and other ones are. Or outside the US and more specialized. And yeah, there's that sort of bond based. The best way to get in farming is really to go out and buy a piece of land and pay somebody to farm it. But that takes a lot of capital, debt and equity and One of the things we do is we help bring together investors who will put equity into an established farmer's project or help him expand into a larger piece of land or put some infrastructure to help them achieve those economies of scales. Because as these family farmers, these farms are growing, the average size of the farm is growing. And that's because the farmer today is not just competing to sell his, say, soybeans or his organic tomatoes in the next county, but with that same grower that's in Brazil or somewhere else that are bringing in those that organic produce. So it's a very competitive industry, like a lot of industries, but there are ways to invest in it profitably.

So if we were going to be really savvy investors, Chris, what would be the due diligence questions we'd want to ask to become more educated? So if we're looking at fund A that invests in agricultural and fund B that does it, what are the questions that we want to ask so that we kind of fill in this gap? Like we know, we know, we know we don't know, but we don't. What we don't know, we don't know is where we get killed.

Right? So these are the types of questions we ask when we're vetting offerings for our platform. And the first is get to know who your sponsor is or who the farmer is. What is their background, their are they a multi generational farmer? Are they, do they have a degree in ag economics? Have they been doing this for a while? So first off is do they know what they're growing, how to grow it, how to actually be a farmer? Because that's one part of the equation. The other part is, are they financially savvy? So we talk to a lot of people that are great at growing things, but they just don't understand the business side of things. And we try to help with that, but that's so that sponsor vetting is a huge part. Then look at what's being produced and how it's being produced. So is it a commodity based crop? Are you investing in something like just land with soybeans where it's going to be very dependent on the overall commodity price on possibly tariffs and trade, some of those issues that are going on right now. Or are you investing in something that is a high demand crop or a growing market crop? Crop right now? So hemp is something that everybody's talking about right now because the farm bill last year was just passed and there's tons of CBD based products that are derived from that Hemp production. And that's a really growing industry. And as I mentioned before, the indoor agriculture aspect of growing food closer to the consumer takes less water, less energy to get it to the consumer. It can be more specialized. You can grow year round in all types of climates. The risk in those investments are a lot lower because you're not dealing with drought, you're not dealing with insect infestations and things like that compared to growing outdoors. So there's you basically, the main due diligence. The bottom line to your question is get to know what's growing and how it's growing. And there's some ways to do that. We produce a lot of content and educational products that that kind of bring somebody who just is a food consumer and transforms them into a food investor.

I love it. Scott. Ty, what are your thoughts?

No, I think it's. I mean, I'm really like taken back by the whole thing because I haven't really thought about this at all.

Right.

Like, it's really a cool process to hear. I'd love to hear kind of more about like the crowdfunding that you're doing and kind of that like, are you using an established platform or how are you kind of getting the investors into your system?

Yes. So we're definitely doing a form of crowdfunding without getting too geeky on the regulations. We do reg D offerings, which is primarily offered to accredited investors, but not entirely. We're not doing this reg CF crowdfunding, which is every retail investor for say $100 pop $5, because it's just not. After kind of studying that, it's not feasible. But our platform does allow an investor to come on and soup to nuts, research the investment, review the offering document, sign the offering documents, make the investment, transfer the funds into escrow, close the investment, get regular updates, get your tax documents, and receive your distributions as the operation. So it's very similar to the real estate crowdfunding platforms that are out there, which, you know, probably many of your listeners are familiar with. There's dozens, literally dozens and dozens of them. Much less so, though on the production agriculture side. And we have different offerings and our investment minimums are something that we're proud of. You can invest in a farmland fund. There's some REITs out there, and those investments, they range, they vary. They're 100,000, 250,000. But our platform, our offerings are in the 5 to $25,000 minimum investment. So it's a good way for someone who's not familiar with asset class to kind of dip their toes in the water and diversify their portfolio and receive that passive income from these projects.

You know what? You know what? I want to invest in this fund, Chris.

Why is that, Mark?

Because I feel disconnected. Like, I go to the grocery store and I buy the food. I never think about how in the heck did this food get into this grocery store? And I feel like this would be a way to bridge that gap where I would be a little bit more connected to the farmer that's going through all this labor to keep me and my family alive. Like, just that aspect alone, I think selfishly, would be cool. And then the second aspect is, like, let's, like, even if take it a step further. Like, okay, we've all heard about CBD oils, right? And we see them on the things. We have no idea. How does that even happen? And the benefits of that. And there's a lot of science on the benefits of CBD oil for lots of maladies. So I think it's really one of those things where it's kind of like the Tom's Shoes of funds, right? Like, you just feel good investing in it versus say, maybe just a commercial project where I make 8% and somebody's living in this apartment complex and I have no connection to it. Oh, we own 0.05% of it. So do you get, Chris, you get a lot of people who are motivated not just by their turn, but the fact that it connects them back to the earth?

Yeah, for sure. I mean, you just kind of described our mission statement to connect farmers to invest investors, connect investors to the food system, bring them closer. And. Yeah, we define most of our projects as sustainable agriculture. And there's a lot of different ways you can define that. You can define it as environmentally friendly. You can define it as key social aspects where you're keeping, say, American farmers farming, and you're bringing jobs to these rural areas that have been depressed compared to the growth we see in urban areas. And then obviously, it needs to be economically sustainable and economically viable and produce a nice return. So there's farmers or there's investors that we've spoken to that are really into sustainable agriculture and, you know, feel proud to own a piece of a farm, whether it's in the US Or West Africa or South America or wherever, and help keep those farmers and what's arguably the most important industry in the world because we are all consumers of this industry. There's no way to avoid it. You're wearing products of agriculture, you're drinking products of agriculture, and obviously you're eating them and it's, you know, sometimes it's in our, our houses, if you include timberland as part of that and in our clothes and all that kind of things.

Right, right. Can you kind of talk a little bit about. And I can see Scott's got a question.

No, go ahead.

I just want to ask him about opportunity zones and why, you know, you. Every time I go to real estate anything, inevitably somebody brings up the Opportunity zone.

Yeah. So this is something that's, that's really exciting for us. We are putting together an Opportunity Zone fund. It's going to be the first, if not one of the first opportunity zone funds focused in. Ours is focused on sustainable agriculture. And most of the ozfs qualified opportunity zone funds that we've worked, we learned about are focused on real estate. So that's great. People have to have someplace to live in apartment buildings and renovating them and bringing jobs to urban areas. But about half of the 8,700 opportunity zones in the US are in rural areas. And so obviously what happens in rural areas is agriculture. And I think what's exciting about them from an investor standpoint is just the tax advantages. I think most people are probably familiar with 1031 exchanges and they're kind of tricky. To do a 1031 exchange successfully, you've got to have a like kind asset. But these opportunities own funds, the rules are much more flexible. So you can defer the capital gains from the sale of any kind of asset. So it can be land, it can be an apartment building, it can be stocks or a business even. And you've got a much longer time period, I think 180 days. And you defer those. They're pretty complicated rules and you've got to kind of follow along. So you can defer those recognition of those taxes until December 31, 2026. But if you hold that investment opportunity zone for five years, you get a tax basis step up of 10%. You hold it for seven years, you get a 15% step up. And then sort of the real kicker is that any gains made on that initial investment into an Opportunity Zone fund, you don't pay any capital gains on them. The post acquisition games if you hold it for 10 years. So it's definitely a long term investment. But we've talked to a lot of investors who are really excited about this one. Yes, it's a great way to sort of shield your gains from taxes, but also because they're passionate about what we're doing with sustainable agriculture and bringing these jobs into these rural Areas growing food in new ways, in interesting ways and all that kind of things.

Scott Todd. Scott, you're on mute.

Sorry about that. The zones that we were just discussing, it's funny to see how the application of those is kind of expanding. Like they were getting ready to build a stadium here, like a baseball stadium here in the Tampa area. And they were going to use a zone fund, if you will, to raise the private equity, which they did. I think the stadium kind of fell through. But essentially it's interesting to see the opportunities and the dynamics at play for like what you're doing with the sustainable portion of that.

Yeah, very familiar with Tampa. I used to live there for several years, so I know what you're talking about.

Yeah. All right, Chris, let's just pretend that, you know, we're family. You're my brother in law. We're at a party, we're drinking a few beers, right? And you come up to. Scott and I are like, guys, I know the future. I see it like, you know that, that scene in, what was that movie? Dustin Hoffman, like his first movie? Mrs. Robinson. Cuckoo Choo. What was that movie?

The Graduate.

The Graduate. The Graduate. The guy goes to Duff stumps, he's like plastics. All right, just between us, right?

And nobody's listening, by the way.

Nobody, no one's listening. Just, you know, several million people. What's the next big opportunity in agriculture? Is it, Is it cbd? Is it hydroponics? Is it?

What is it? So I mentioned hemp, so I'll skip over that one. That is hugely growing. But I think it's what I call decentralized agriculture or urban agriculture. Not necessarily urban, that's one form of it. Suburban. The vision that I sort of see with agriculture is related to sort of the decline in retail. So you have all these empty Sears and Toys R Us and, and buildings all over the country, right? They're just sitting empty in areas that you've still got, you know, you've got people that you need to feed. So why aren't we turning some of these buildings into indoor agriculture projects? And that's happening in some places, but I see more and more of that happening. So you are, instead of continuing to expand development and cut down trees and take away sort of native territory to produce arable land, why don't we take what we already have in these, the form of these sort of discarded buildings and repurpose them? So that's what I'm excited about right.

Right now, at the risk of Scott Todd rolling his eyes, I've got To mention the word climate change. What's. I mean, is this something that can derail any aggression Investment? Look at Scott. Scott, I'm just joking. I know you're not really rolling your eyes.

I'm not rolling my eyes. No.

It's a thing. Yeah.

Okay. So this is a risk management thing to me, just putting on the investor hat the climate changes. The climate's always changed, always going to change. Indoor agriculture, I'll keep harping on that. That's one way to mitigate potential for changing climates. Because you're, you're not reliant. You're using much less water. You're doing in a controlled environment. You're growing food closer to consumer so you don't have to burn as much fuel to get it to where it's consumed. And yes, sure, maybe you could invest in a project in a certain geographic area where 20 years from now that there's not enough water or enough.

To.

Grow something, but at the same one person's risk is another person's opportunity. So now there's probably places that are more north that you can grow, have a longer growing season. So it's like anything else. There is location, location, location is important with agriculture, just like it's important in real estate investing.

Yeah, absolutely. Last question before we get to the tip of the week. Let's say Scott and I invest in hemp. Now, if we were farmers, and we were actually farming hemp, the way that we would mitigate a bad season, or bad harvest, if you will, is to short the commodities. Now we're hedging our bet on the commodities exchange, which is with an option. So is this something that you guys also say, okay, if you're gonna invest, you're a credit investor, you're gonna invest $100,000 in this fund. In exchange, you might want to buy an option here and mitigate it and cover the downside on a bad harvest.

So that's a great question mark. We certainly wouldn't discourage our investors from doing that if they had a large enough position in a particular offering to make it worth a while. Say we had a pure soybean offering. Yeah, you should probably hedge that. But what we rather, what we do is we encourage the farmers to hedge and to put risk mitigation measures into place, whether it's crop insurance. You mentioned hemp. Well, part of the 2018 farm bill was to allow crop insurance on hemp. So that's, that's a big deal. And then the other way to mitigate the risk is via hedging via futures. And there's more and more of those. It's not just the commodity crops anymore. And we have some partners that will help our farmers, service providers that will help our farmers hedge those risks so that you as an investor and the final way is to diversify. Right. So don't put all your eggs in one basket. And that's kind of the beauty of our platform and our offerings is you don't have to put your life savings into one investment that's going to have a high risk. You can diversify not only your portfolio, whether it's real estate, gold, silver, stocks, bonds, whatever, put some of it into natural resources, farming and agriculture, but also across project that diversification is what protects your principle and your risk.

I love it. All right, well, Chris, we're at that point now on the podcast. I think this has been phenomenally enlightening. And what a great idea, by the way, Scott. We should have thought of this years ago.

It's definitely unique, that's for sure.

Yeah, absolutely. So what is your tip the week website, A resource, a book, something actionable for the auto passive income listeners to go improve their businesses, improve their lives. What have you got?

So thanks. There's a lot of books that I like to recommend and I've read and that have kind of shaped the way we do things in the company here. But one of them is the Lean Startup by Eric Ries. And that's just how to start a company on a shoestring budget and be agile and learn how to experiment and iterate and improve constantly. And so if, if you're starting a small business, I think Lean Startup is a good place to start.

All right, I've read it. It's great book. Great book, Scott. Todd, what's your tip of the week?

Mark, I had a situation in the last few days where I actually needed to share with somebody a large, pretty large file. So I needed to share with them like it worked out to be like an 80, I don't know, like an 86 gig file. And there's no sorry, 86 meg apologize, 86 meg file. There's no way of kind of sharing that through email. And I needed to be a little bit more secure. I didn't just want to put it in Dropbox or whatever. So essentially what I did was I found this website called hightail.com hightail.com h I g h I g h t a I l and so what that does is I got the free, free plan. You could pay monthly if you want, but the free plan Gives you a file up to 100 gig. 100 meg.

Sorry.

And essentially what that does is it provides it in a secure format. So I provide the email that I'm sharing it with. They get notified that they have this email. I can put in there an expiration date if I want so that it expires out. I get an email that confirms that it was delivered to their email address. So no more of this like, oh, well, oh, I had the wrong email address. I know I got to the right place or a valid email address. And it's worked out pretty well. So check it out, huh? If you need a large file sent and you want secured.

Different, like say we transfer. Is this better than we transfer.com?

I'Ve never heard of it, so I'm gonna say yes.

All right, well, let's, let's check out. We transfer. Chris, you want to weigh in on this?

No, I, you know, we send a lot of documents back and forth securely, so I'm gonna give those a try.

Okay. So we transfer sense of the two gig free. And this does 100 meg free. Otherwise it's 12 bucks a month for 25 gig. Okay. But you do get tracking. This is pretty good. Yeah.

Either way, check them out.

All right, nice. My tip of the week is learn more about Chris Raleigh and, you know, the way that he's actually improving our lives by raising capital and helping out farmers that are doing, you know, amazing things and, you know, connecting us back to the earth. Learn more@harvestreturns.com harvestreturns.com, we will have a link to that. And I'm personally interested in learning more. So I can't wait to get an offering, Kris. And as long as it, you know, I get a better return than whatever Scott Todd's investing in, that's really all I care about.

It's all about keeping up with the.

Joneses, keeping up with the Todd's. Absolutely. So, Chris, are we good?

Yeah. Appreciate it, guys.

Great. Scott. Todd, are we good? Mark, Great. Well, I want to thank all the listeners. I just want to remind you the only way, the only way we're going to get the quality of guests like a Chris Raleigh from harvestreturns.com is if you do us three little favors. You got to subscribe, you got a rate, you got to review the podcast. Send us a screenshot of that review to supportelandgeek.com we're going to send you for free the $97 passive income launch kit course. All right, well, I want to thank everybody and let freedom ring. Thanks, everybody.