With about two billion cups consumed daily, coffee is one of the most popular drinks worldwide. In this episode of The Agent of Wealth Podcast, Marc Bautis is joined by Josh Ziegelbaum, the Director of Investor Relations at Legacy Group, an alternative asset manager that includes The Green Coffee Company (GCC). Since being founded in 2017, The Green Coffee Company has become a disruptive force in the Colombian coffee industry and is now the largest coffee producer in Colombia. Together, they discuss the intricacies of investing in coffee through Legacy Group’s GCC.
In this episode, you will learn:
- Compelling reasons for US investors to expand into emerging markets.
- The Green Coffee Company’s innovative business model, which allows complete control of the coffee supply chain, from cultivation, through processing, to direct trade with end-clients.
- How US market challenges such as inflation and labor shortages have (or haven’t) affected the Colombian coffee industry.
- How you, as an investor, can be a part of The Green Coffee Company’s growth.
- Why The Green Coffee Company is considered an impact investment.
- And more!
Resources:
Legacy-group.co | [email protected] | Legacy Group’s YouTube Channel | Schedule an Introductory Call | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show, I brought on a special guest, Josh Ziegelbaum. Josh is the Director of Investor Relations at Legacy Group, an alternative asset manager that targets profitable investment opportunities with high social and environmental impact in Latin America. Legacy Group gives their investors the chance to invest directly in projects that not only produce favorable returns, but also have a positive social and environmental impact on all relevant stakeholders. Josh, welcome to the show.
Marc, thanks for having me on the show. It’s great to be here with you.
Today, we’re going to talk about alternative investments – specifically coffee. I drink a lot of coffee, so I’m looking forward to hearing about this opportunity to invest in it. Can you start off by providing an overview of Legacy Group? It would be great to share some background on the Green Coffee Company, too.
Sure, I’d be happy to dive into that, Marc. The Legacy Group is a boutique private equity firm. We’re an asset manager focusing on alternative investments in Latin America, and our main focus is Colombia – the two partners at Legacy Group live and work out of Medellin, Colombia. We’re opening up unique opportunities for US-based investors to participate overseas. We focus primarily on the Green Coffee Company, which is our flagship portfolio company. It’s a US-based investment opportunity. We control over 6,500 acres of coffee farmland and over 7 million coffee trees in Colombia on behalf of our investors – which, to date, we have about 300 investors. With their capital as well as our own, we’ve solidified our position as the number one largest coffee producer in Colombia and we have goals of becoming the largest coffee producer globally in the next several years.
The medium term goal is to exit through IPO – we’re expecting the company to go public in 2026. That’s the preferred strategy. So it’s an early-stage private market investment for accredited investors to come in on a company that’s revolutionizing coffee.
Great. I’ve covered a lot of alternative investments on previous episodes of The Agent of Wealth Podcast – from collectibles like wine and gold, to real estate like multi-family rental properties and laundromats. But all of these investment opportunities have been domestic. Can you share some benefits of alternative investments outside the US, or specifically Colombia?
Why Invest Internationally?
Our investors are heavily allocated to US assets, whether it’s the homes or rental properties they own, the stocks and bonds that make up their portfolio, or even their US dollars. In the global macroeconomic environment we’re in today, the US dollar is strong, but investors are opening their eyes to other markets. Obviously, emerging markets are recommended as a small part of an investor’s portfolio… But right now, people are becoming increasingly concerned about public markets. That’s usually how investors go about getting exposure into emerging markets.
When you think of emerging markets, you’ll often think of Asia or parts of undeveloped Europe. Those places don’t really look like places I want to keep my capital right now, and our investors seem to agree. By contrast, Latin America is very close to the US and it’s a market that we see growing immensely.
Colombia, specifically, has attracted a tremendous amount of foreign capital – I think more than double this year than last, even in our current environment. So we’ve seen a ton of capital flowing into venture capital and early-stage companies in Colombia… Legacy Group has been early on that – the two partners at the company found Medellin back around 2015-2016, and The Green Coffee Company was founded in 2017. So we’ve been on the ground there early.
Colombia itself is a democratic country that’s open for business. They have high human talent and real opportunities for arbitrage, like returns where we could pick up assets at deep discounts and really apply our expertise in mergers and acquisitions, in deal structuring and bringing that to fruition. So it’s really a fragmented market that we think is right for disruption and we’re doing just that.
What about the political risk? I know Colombia has advanced over the years, because 30 or so years ago, Colombia was one of the world’s unsafest countries. But what are some of the political risks that the company has had to deal with, or could potentially deal with in the future?
Colombia’s Unique Coffee Market
Well, Colombia has come a very long way from the ’90s, which is what you’re describing. Being that our work is done in the heart of Medellin, we know that very well. It’s an unbelievable city, and an unbelievable country.
Obviously, every country has its safety concerns and its unique political environment, but I’ve seen it firsthand and what you hear versus what you see is totally different. But it doesn’t come without its headwinds. We view this as a positive thing, but Colombia does have a new President, Gustavo Petro. He’s a real proponent of domestic production of goods rather than importation. He wants to create more of a producing economy as opposed to an importing economy, and The Green Coffee Company being a producer at origin, we check that box.
Coffee is the national product of Colombia. It employs over 2 million people in the country, and we’re doing things right by those people. Whether it’s equal and fair employment or our sustainability practices, we do a lot to lift up the communities in which we operate.
We believe coffee is well positioned in Colombia as it goes through this transformation. We also believe we’re at the forefront of revolutionizing coffee. But we will continue monitoring the situation in Colombia closely.
We have great relationships in Salgar, which is where our farms are. We’re the largest employer there. And on a national level, we’re a member of CEA Colombia, which is the council for American enterprises doing business in Colombia. That gives us access to information from the embassy, whether it’s changes in policy or movement in different regions.
And while we are primarily Americans at Legacy Group, at our portfolio company, Green Coffee Company, we have a Colombian management team. It’s a special team and a special opportunity. You’ll find nothing else like it.
You mentioned that Legacy Group is a US company… can you walk us through how the company is structured?
How The Green Coffee Company Is Structured
Sure, let me walk you through the structure and the business model. Legacy Group has a US-based holding company structure, so our almost 300 investors are invested at the US parent holding company level. That holding company owns operating subsidiaries in Colombia. So all of the assets flow up to the parent, which is here in the United States.
We have an operating subsidiary for operations, and then we have one that holds the assets. All of the land titles are held by a Colombian entity, and that entity is wholly owned by our US-based parent. That structure makes it as easy and frictionless as possible for our investors to get access to assets, while having the comfort of knowing that their investment is actually in the States. As of today, all the assets are in Colombia, except for a bit of human talent that we have here in the US.
The Green Coffee Company processes coffee cherries from our own farms, which are among those 6,500+ acres and 7 million+ trees. We also buy coffee from neighboring farmers. We have one world class processing facility already open with another coming online before the end of the year. In those facilities, we take it from cherry down to pergamino – or green coffee. That product is not yet roasted.
So we process it, take it down to an unroasted coffee bean and then we sell it at scale B2B. The model is that we sell it domestically in Colombia and we sell it internationally at premiums to specialty buyers. That’s headed up by a US-based sales director, but we could unload unlimited amounts of coffee in this form, in its unroasted form.
Coffee is one of the most heavily traded commodities on earth, next to oil. It’s very liquid. And we are really operating at scale at our own farms, buying other cherries, processing them and exporting B2B, green. Now that is really the first pillar of the business, one that we’ve done very well over the years, and one that we want to continue to scale and replicate in other parts of the country.
Beyond that, we want to build out a US-based roasting channel. So that’s part of the proceeds in our recently open Series C funding round. We want to continue to grow the green coffee production, but also build out a US-based roaster. With that, we expect that we’ll be able to bring the green coffee through the states and then sell it B2B, as well, but make a significantly more margin per pound.
A third pillar would be monetizing the byproduct. Right now, 80% of the coffee cherry is garbage, or waste. Only 20% of it is useful, which is the bean – what we all know. Of the water, we use some as fertilizer, but the remainder goes bad and is essentially trash. So we’ve ordered distillery equipment from Europe and we’re conducting research and development on ways in which we could monetize that byproduct and make alternative products. This would improve the waste and make additional revenue streams.
So the goal is to create ethanol, or vodka, and sell that at scale in B2B as well. Those are the three main pillars of the business right now.
That’s great. Now, I wanted to ask you about a couple of things prevalent in the US markets right now, and it would be great if you could share if there’s any impact in Colombia. The first one is inflation. How has inflation impacted The Green Coffee Company?
Inflation’s Effect on The Green Coffee Company
So inflation has pushed up commodity prices. Consumers see the impact when grocery shopping or – if they have a gas car – at the gas stations. The price of coffee has certainly risen, along with many other products. As a producer at origin, we benefit from that.
Because we own farmland, we have relatively fixed costs of production. Obviously, there are certain variables, such as fertilizers and such, but as a producer we benefit from rising prices.
But inflation does make acquisitions potentially more expensive, and we’re still growing through acquisitions. That said, we’re very diligent in the way in which we do them, in that we buy below market price.
Colombia is experiencing inflation at a local level, too, right around where we’re seeing it in the US. But it’s really the commodity – coffee inflation – that’s moving the business the most.
Okay, makes sense. Another thing we’re seeing in the US is labor shortages. How are things in Colombia, specifically in the coffee market, in terms of labor?
So I would call the coffee market a bit of an outlier related to normal skilled labor that you’d find in the States. There are skilled and unskilled workers – we have pickers and we have more technical people like agronomists and operations managers – but we’ve had no issue attracting talent.
We have several hundred full-time employees, and we’re the largest employer in Salgar. During the primary harvest, we have even more people from that area and from other parts of the country working in our facilities. So, with that being said, I’m confident that we haven’t been affected by labor shortages. We’re able to get who we need at the farms and our facilities.
That’s good to hear. Now, one of the complaints that I hear from investors in private or alternative companies is that there can be a lack of transparency. How does Legacy Group communicate with their investors, in terms of what’s going on?
How The Green Coffee Company Investors Get Involved
As the Director of Investor Relations at Legacy Group, I pride myself on the level of communication and transparency we have. We do formal, quarterly investor updates where we send out a written report followed by a webinar in Q&A format. In that webinar, we’re able to go over the report and address investor questions in real time.
In between those quarterly updates, we generally do weekly investor updates which aren’t always specific to performance. They might include something about the coffee industry, new videos that we release, new articles that we write, acquisitions that we make, etc. But we are very communicative with our investors, and we always make ourselves available for scheduled calls or to address questions over email.
I know you mentioned that the plan is to IPO at some point in the future. Up until that point, does Legacy Group plan to offer dividend payments back to the investors?
The Return on Investment
The Green Coffee Company is most certainly a growth investment. While IPO is our preferred strategy, where dual tracking the company for sale. So in the event that we have favorable terms presented to us to sell the business, we’ll entertain that, but the IPO is the preferred strategy. It will create the most value for our investors.
As it relates to dividends or distributions, it might not be prudent to take that route because the total return that we’re targeting is of the utmost importance to us. We’re forecasting an IRR north of 60% and 11x net equity multiple on investments through 2026. So investors today, based on our model, could give us $100,000 and we’re forecasting to turn it into $1.1 million. In that case, they might not want a dividend of $5,000. It’s really not the ethos of what we do.
That said, we are modeling the potential to pay annual dividends. If paid, that would be declared and paid in the year following operations. From the US parent level, it would result in a 1099 tax form, which is very easy for investors to file.
While it’s certainly possible, we haven’t paid a dividend to date. It’s been a growth investment. We started the seed round at $500/share and we’re now up to $1,200/share in our Series C funding round. If you do the math there, you’ll see there are unrealized gains – and our investors have been very pleased with that.
Yeah, total return is definitely where it’s at. I know that The Green Coffee Company is classified as an impact investment. What makes it an impact investment?
What Makes The Green Coffee Company an Impact Investment
Yes, it’s most certainly an impact investment. I touched on this earlier on, but let’s start with the social component. We formally employ the people at our farms and in our facilities. In the coffee industry in Colombia, informal employment is much more common. Generally, those people are paid cash and don’t have access to insurance, pensions or time off. We’re formalizing that by employing people full-time, so the benefits like pensions and time off are available to them. We also often give our employees places to live at the farms… we really do a lot to lift up worker wellbeing.
In our greenhouse, we employ a group of single mothers. In Colombia, it can be very difficult for single mothers/heads of households to get good employment, so we’ve chosen to employ quite a few of them and we’re very proud of that. We have a couple videos on this, which you’ll find on our YouTube channel.
On an environmental stage, we’re reducing waste. Rather than planting the way it’s traditionally done – in large plastic bags – we use biodegradable pods for the trees that we plant. We brought in technology to allow us to do that. While eliminating waste, we’re also eliminating water. We use less water in our facilities than is traditionally done. We don’t dump any waste into the waterways. We’re very much preserving the areas in which we operate. We promote biodiversity, whether that’s planting different types of plants, promoting wildlife to live on the farms. We’re trying not to disrupt the natural ecosystem where we operate. And the list goes on.
We have an entire presentation, separate from our investor presentation, called an Impact Strategy Deck, and it really dives into the sustainable development goals set forth by the UN that we hit on. If any of you listeners would like to see that, you could certainly reach out to us. We’d be happy to share it.
You mentioned the company’s three tiered strategy for the future, but what about the future of coffee in general?
Trends in the Coffee Industry
Coffee is the most popular drink worldwide, with around two billion cups consumed every day. And on a global level, coffee consumption has been on the rise. I would say it hasn’t fully penetrated certain markets, like areas of Asia, where there’s even more growth potential. In certain countries of Asia, drinking coffee is less popular than it is here in North and South America. So there’s opportunity for further growth.
Oh wow, that’s a lot. I know you mentioned that there are some other areas in Colombia that Legacy Group is looking at. Is that for coffee, or are you looking at other investment opportunities?
It would be focused on coffee. We’re looking at other regions in Colombia, because where our current farms are in Salgar, the primary harvest is in Q4. There’s a half harvest in between and some production throughout the year, but the bulk of the production is in Q4 because of the climatic conditions in the region.
So we’re looking to acquire farms in another part of Colombia’s coffee triangle so that we can have year-round production with stable revenue streams. But we definitely want to continue the footprint in coffee. The additional products could be the byproducts that I mentioned, whether that be ethanol or vodka. But from a farming perspective, the focus is on coffee.
And does The Green Coffee Company produce premium coffee, or are there different blends?
It’s a specialty coffee product that sells at a premium above commodity. Today, we’re primarily a green coffee business, which means we don’t roast the beans. We do have some roasted coffee available on Amazon, but the primary sales channel is unroasted. But yes, it grades mid-eighties on the Specialty Coffee Association scale, which means it’s specialty.
Cool. Well, we’re just about out of time. Josh, I want to thank you for being on the show today. You gave some great insight into investing in coffee through The Green Coffee Company. How can someone reach out to you to find out more information?
I’d love to get in touch with anyone interested in learning more about the business or about investing with us. You can visit our website at legacy-group.co or you could send us an email at [email protected].
Great. We’ll link to all that in the show notes. Thanks again, Josh. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.
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