Green Chip Stocks: New Private Deal
GreenChip by Jeff Siegel, Green Chip Stocks, Baltimore, MD A few months ago, my good friend Terence (the real estate developer I’ve told you about before), acquired a new property that he’s now rehabbing and turning into a sustainable apartment building. When completed the building will include 8 two-bedroom apartments, 4 one-bedroom apartments, and two studios. It’ll also have a small lounge area where tenants will have access to three work stations and free wifi. The lounge originally housed a coffee shop that just couldn’t make a go of a high-end cafe in a neighborhood where no one is willing to spend $5 for a cup of coffee. The folks who ran the shop, however, are as nice as can be. Originally from Brooklyn, this young couple had big dreams, but little in the way of business sense. No one ever told them the importance of location, location, location. In any event, in an effort to recoup some of their losses, they unloaded some of their equipment. Knowing how much of a coffee geek I am, Terence called me right away. They had a Sonofresco roaster that they were willing to unload for $950. If you don’t know anything about coffee roasters, this is a really nice machine that typically goes for about $4,000 - new. This particular one was in great shape, so I snatched it up. Now I realize that $950 might sound like a lot of money for a coffee roaster, but I take my coffee very seriously. For me, coffee isn’t just a jolt of caffeine in the morning. It’s an experience. It’s a passion. It’s a privilege to drink it, and I'm honored and humbled by the farmers who provide me with my daily dose of euphoria. I know, I do go a bit overboard when it comes to coffee. But the truth is, I’m a part of a very large (and growing group) of coffee nerds that’s more than happy to shell out $5 for a quality cup of coffee. And I’m always equally excited to invest in this magic bean, too. RED BAY COFFEE As a loyal subject of the almighty coffee bean, it should come as no surprise that I'm very protective of those who make their living cultivating this heavenly plant. For the most part, I only buy direct from the farmer, and I spend a lot of time (probably too much time), researching various producers, regions, and wholesalers. I want to know that my coffee is pure. That it was grown in a responsible and sustainable manner, without the use of chemical pesticides and fertilizers. I won't buy my coffee from a company that treats its farmers like peasants and their children like afterthoughts destined for a life of illiteracy and poverty, and I sure as hell won’t invest in one. So when I found out that Red Bay Coffee was accepting new private investors, I didn’t hesitate to check out the deal. Red Bay Coffee is an Oakland-based coffee roaster that started about three years ago in the garage of founder, and 10-year food entrepreneur, Keba Konte. Today, it's a major force, supplying its coffee to some of the biggest players in Silicon Valley, including Twitter, Salesforce, and Uber. Now before getting into the nuts and bolts of Red Bay, let me be perfectly clear that what initially drew me to this company was its credibility as a socially-responsible operation. You see, Red Bay does a lot of work in direct trade with farmers as a way to offer a positive social and environmental impact. When asked how the company sources its beans, Konte says.... "We have strong direct trade relationships with several companies from different countries including Tanzania where we’ve partnered with a farm called Sweet Unity Farm. It is a co-op founded by David Robinson (the younger son of the famous baseball player Jackie Robinson) who has been growing amazing coffee for around 25 years in Africa. We’re really interested in the stories of communities like that, where farmers have a livable wage. We actually send back a share of the retail price on top of the original price we paid just for the crops. In Indonesia, we have partnered with a co-op there and met farmer named Foster who’s doing some amazing work in high quality beans. Historically, farmers in the region have been exploited by coffee buyers. It becomes difficult for farmers who are trying to create a better product in these situations because they don’t have the resources necessary to experiment, innovate, and do new things. It takes much more than what they’re being paid (rock bottom commodity prices) to grow coffee to make a real living and to generate enough incentive for them to experiment. So we agreed to pay this farmer a higher price, probably triple his normal price, for higher quality. He’s quadrupled the quality and now utilizes environmentally responsible practices taught to him by a USDA certified agriculturalist." Of course, it’s not just all puppies and rainbows, and Red Bay isn’t just in business to make other people money. The truth is the specialty coffee market is incredibly lucrative. Right now the retail value of the U.S. coffee market is about $50 billion. Specialty coffee comprises about 55% of that, or about $27.5 billion. That ain't chump change. And the demand for specialty coffee continues to grow steadily, with millennials proving to be a major factor in this growth. So if you're going to be in the coffee business, you need to be in the specialty coffee business – where consumers base their purchasing decisions on quality and transparency instead of convenience and price. You see, specialty coffee drinkers want to know where their coffee is coming from. They want to know that the growers are being paid a fair wage and they want to know that the beans are being grown in a responsible manner without the use of pesticides or other growing techniques that could negatively affect the long-term sustainability (both environmental and economic) of the farms. Roasters and retail shops that can effectively provide such a product can charge a hefty premium that most specialty coffee drinkers will happily pay. For instance, in Baltimore, there's a fantastic coffee shop called Artifact Coffee. Hands down, it's the best coffee in Baltimore. A cup of their Yirgacheffe, which is sourced from the Idido cooperative in Ethiopia, will run you $3.50. This, by the way, is actually much cheaper than the $5.00 I typically spend for a cup of specialty coffee in other major cities such as New York and San Francisco. In any event, that $3.50 cup of coffee costs almost 90% more than a regular cup of coffee from Starbucks. Yet Artifact is always serving up a steady supply of their specialty coffee. Sometimes I have to wait 20 minutes just get my cup. And Artifact's success is not a random event. From specialty coffee kingpin Blue Bottle Coffee to my favorite little spot in Denver, Thump Coffee, these places are always crowded and always raking it in. There's no doubt that there's a lot of money to be made in the specialty coffee game – as long as you do it right. In fact, Blue Bottle landed a $70 million round of funding last summer after striking a deal with Fidelity Management. $70 million! For a company that only sells premium, specialty coffee! I'm telling you, specialty coffee isn't a cute little niche. It's a force. And as long as you can deliver a quality experience for the consumer, you can make a fortune in this space. This is the direction in which I see Red Bay heading. And fortunately, the company is still young enough that getting in on an early round is not that difficult. In a very short amount of time, Red Bay has gone from roasting beans in a garage to working major deals with the Bay Area elite: Uber, Salesforce, and Twitter, just to name a few. The company even has a deal in place now with Whole Foods. And this is one of the reasons Red Bay is doing this raise. In an effort to meet increased demand from Whole Foods (as well as some other new wholesale accounts), Red Bay is expanding its production. It has to if it wants to move up to the next level. Especially considering how much it already sells. Just in the past year, Red Bay has grown revenue by 116%. Of course, even with its impressive growth rate and its ability to land major wholesale deals with Silicon Valley's tech elite, Red Bay is still a very early stage company. Which of course, is one of the reasons I like it. Red Bay has the right management and the right product to thrive in a very competitive market. They've already proven this to be true. Now it just needs to expand to keep pace with this growth. Which is why the company is now doing a small $100,000 raise. Indeed, this isn’t like one of our bigger million-dollar deals, such as Steep Hill or Mirth Provisions, but for those looking for something a bit smaller in scale, Red Bay offers such an opportunity. THE DEAL Red Bay is offering a revenue share that pays 5% of net revenues until 100% of the principal is returned, plus 50% on top. The company is securing the note with its assets. Because this deal is open to both accredited and non-accredited investors, taking part is pretty easy as you can access the deal right on the Wefunder crowdfunding platform here: https://wefunder.com/red.bay.coffee I'll have more on Red Bay in the coming weeks, as well as two more private deals. More to come ... JeffSignature Jeff