Wine Investing Explained: 30%+ Returns with Arizona Vineyards

Tom Heshion (00:00)
goes through to the end sale,

where their crop share is designated on what it ultimately brings, they basically own 50 % of the business with us. But they own their own land and they can sell their part whenever they want to. Doesn’t matter to us, we’re still the management, we own the co-op. So it wouldn’t matter to us. So they can get out whenever they want. Well, what if I was an Italian restaurant and I wanted my own brand? Okay, well, great. You can take your half and make your own brand.

And really makes sense if you can get more than $44 average, because a lot of places, you know, it’s about the character of the owner. You know, that, and he says this is my own brand, it’s $66. He could make more than we do, you know, so we open that up to them. And then if they want to learn, so the restaurant owner can fly to Arizona, work with our winemakers in our facility, blend his own, so he can really, truly be

the winemaker and learn to be a winemaker alongside our famous winemakers.

Kristen Knapp (02:36)
Amazing! Well, let’s get into your business. It’s very unique. Tell people what Arizona Mountain Vineyards is all about.

Tom Heshion (02:43)
Arizona Mountain Vineyards uses a completely new model. For a long time, I studied the wine industry for over 30 years. And for the first 10 years, we couldn’t do what I wanted to do. I really liked the investment of real estate. I grew up on a farm. I was in the organic hay business and saw a lot of opportunity. When I went out to California,

all of the vineyards there, the people that own horses would always say, if it wasn’t for the vineyard, I wouldn’t own the horses. And so I started looking back in the 80s at how profitable vineyards were. And they were for what they could sell there. So when you start adding up, they got 3,000 bottles an acre, and they were making

40 bucks, you know ⁓ a bottle they would you know, they were making a hundred and a hundred twenty thousand dollars an acre or something and I thought no wonder California is so full of vineyards and so I started so I wrote a business plan and I realized that if I wanted to open them up nationwide I couldn’t do that. Because ever since prohibition the law states that

If you own a vineyard in California right now and you want to sell to the liquor store in a corner, you can’t do it. You have to sell it to a distributor. It has to travel to the distributor’s location. That has to travel back to the liquor store. So the distributor actually controls the price because the distributor is the one who fights for shelf space with the stores. So the vineyard owners kind of left to system. And so that’s why in California,

when you go on a wine tasting tour, they’re successful in their own vineyard, but they’re limited to the traffic they can get to their wine tasting room. So I wanted to go vertical and because I couldn’t do it, so like 11 years after I wrote the business plan, I saw a newspaper article where one of the states, the winemakers had sued the state and said, you can’t do this, this is restricted to trade.

And they won the lawsuit. And so then little by little,

like 40 states now have approved self-distribution. that changes the whole industry really. So in the meantime, the top 20, I was watching as the top 20 wine companies all said, know, this new distribution is coming and they wanted to control it. So they started buying up all the vineyards in California. They would roll back in their profits and were, and vineyards are

you know, would bring 25 times earnings. And very few businesses that you can get into will bring that high of a multiple. So I kept watching the wine business. And so now California, the top 20 have bought 7,000 of the 9,000 vineyards. And because of that, the 2,000 that are left, they don’t even want them. They’re little ones and they’re kind of stuck with the old model of whatever they can get to their location is about the most they can sell.

and whatever they have left over at end of the year that they wholesale, they don’t make any money on. Well, so I envisioned a new model where as long as we grow our grapes in an area that can grow a quality grape. So I started researching and got a whole bunch of wine experts to tell me, go to Cochise County, Arizona, because, and I was like, why? And they said, well, look at the record. So there’s 151 vineyards in California area in Arizona.

that have now won 200 gold awards. so they’re not only, so just this year, one of my neighbors on one side of me won five golds and two silvers at the big wine, the wine competition. I forget the name of it, but the biggest, one of the biggest wine spectator is I believe the one that they competed in.

and they won five golds and two silvers and then another neighbor of mine won two golds and two silvers. So they’re not able to compete with, actually beating California wines. And so I started studying the soils and what I came up with was that the soil is so arid down in Arizona that the plants, ⁓

the roots have to chase the water. So they go down over 10 feet deep, where in a more clay type ground, they only have to go three, four, five feet deep to where the water is and they stop growing. They don’t need to go any bigger. So because of the long root system, they collect more minerals through the root system as the water comes in. So we believe that that’s the reason that they’ve been so successful.

And time will tell if we’re right or not, so far statistically, per capita, they’re really beating the heck out of California. So I designed this new model where I thought, what would I want as an investor? Well, one thing, I want to get out what I want. I don’t want to wait for the exit strategy of the CEO.

right? Because I’ve been stuck in some companies that I didn’t want to be stuck in. And so I divided all the property up where they can just, they can buy a 10 acre vineyard. And then I thought, let’s even make it more attractive. Let’s divide those up into 10 membership units for 80,000 each so they can get in as cheap as 80 grand. So everybody can play, right? So with this model now, each 10 acre vineyard,

When you go retail your wine, it retails for an average of $44. Your cost of sales is about 20%. Your cost of goods is under $5 a bottle.

So the wine tasting rooms in Arizona are currently netting over $30 a bottle. I thought, now how do we take that to Chicago? How do we take that to New York? How do we take that to Florida? Well, once they approve this self-distribution,

Now we can drive our grapes right off the harvest, put them in an air conditioned truck, two drivers, and they go all the way to New York or Chicago or wherever we want to go. And as long as we blend it there, we can self distribute. So by making this an advantage to our shareholders, by giving them 50 % crop share

goes through to the end sale,

where their crop share is designated on what it ultimately brings, they basically own 50 % of the business with us. But they own their own land and they can sell their part whenever they want to. Doesn’t matter to us, we’re still the management, we own the co-op. So it wouldn’t matter to us. So they can get out whenever they want. Well, what if I was an Italian restaurant and I wanted my own brand? Okay, well, great. You can take your half and make your own brand.

And really makes sense if you can get more than $44 average, because a lot of places, you know, it’s about the character of the owner. You know, that, and he says this is my own brand, it’s $66. He could make more than we do, you know, so we open that up to them. And then if they want to learn, so the restaurant owner can fly to Arizona, work with our winemakers in our facility, blend his own, so he can really, truly be

the winemaker and learn to be a winemaker alongside our famous winemakers.

So, ⁓ so we, we opened that up to, know, to the investor where, where then I thought, how do I make it most beneficial as an investment? Right. I want, if I want to get in or I want to get out. Well, so we put part of it into a Delaware statutory trust. So if you have a 1031, it doesn’t quite fit. Doesn’t matter if you’re

You can just invest in the trust and they buy the vendors from us under the same formula, right? Or you can do it, you can take any property that you’ve got that’s earning 10, 12%. If you want to make 30, 40, 50 % in hours, you sell your property and you take your gain and put it in the DST or put it into a vendor directly with us, right? So, but the controlling owner, so because each one has 10 units,

You have to buy six of the 10 to own control of the LLC Right. So if you buy six tents, which is 480,000 you control when it sells right because you have voting control of the LLC or If you buy all eight percents, you don’t have any partner if you bought by all eight unit or all ten units for 800,000 You don’t have any partners but in that if you’re going to if an individual wants to invest in the vineyard because the the investment

Goes into an LLC and the LLC writes a check for 100 000 for the land and 700 000 for the improvements It’s an agricultural improvement. That’s deductible the same year The preciable same year, right? So they get seven eighths of their money is it’s a great tax advantage going in that way we Show the tax advantages for going in so worse and any of our investors because

We can’t give legal or tax advice. But we have a lawyer who’s worked all this out with us. And we offer the first 15 minutes of explanation from our lawyer, ⁓ our tax lawyer, to any client who’s interested in buying the vendor so they can talk directly to him. So that’s kind of model. It’s different than anybody else has ever done. ⁓ It’s unique, which is not new for me. I was the

i was the driving force about behind it number of companies in including one i p l it was the first dot com ever to go public i know how to build companies auto by tell dot com was the first it was yahoo and auto by tell the file within a day or two of each other back in ninety seven and and so i was the president company

and ⁓ we were you know ⁓ i’d i’ve been

kind of a of a an entrepreneur my whole life. I’ve been in sports technologies also. You see the instant replay you see on Major League Baseball. I designed that system with the help of people from Russia that you know we took military you know target triangulation technology applied it to sports and we did that. So anyway so I’ve been I’ve been involved in growing other companies.

But I’ve actually waited patiently for over 30 years for the industry to get in position where I could do my model that I wrote in 1989. So we’re very excited about getting it out there. ⁓ But yeah, that’s our model. We took that old, ⁓ the Plaza model from Kansas City where you not only get your rent, but you get

50 % of the business and that’s the only way you can make 30 40 50 on your money in real estate so The bad side is there’s a three-year wait while the grapes grow, you know It’s three years before you get your first harvest, know, and and so that’s that’s the downside. But if you want the upside This one has it more than others because in year seven Again, they bring 25 times earnings So it’s a 10 times

you know, multiple of their investment at that time.

Fairly predictably, know, that’s fair with the rest of the industry. ⁓

Kristen Knapp (17:25)
So fascinating and such a great model. mean, you really are owning a part of the business and your returns are amazing.

Tom Heshion (17:32)
Well there

Go ahead.

Kristen Knapp (17:36)
Keep on.

Tom Heshion (17:38)
⁓ Do we get a lot of people so? You know, that’s that’s all new people who have owned a vineyard UC Davis, you know ⁓ teaches a class where they say start with ten acres well ten acres Isn’t enough to do any damage really, you know, you it’s enough to make a living in California right, but

it’s not going to set the world on fire and you’re not going to become a national or international brand that way. So with our model being part of a 200 acre co-op, the safety is let’s say, come and eat your 10 acres. By the time we get out the trucks and do away with them, you’re still part of the other 19 vineyards in the co-op. You still get one 20th of the total.

while we’re collecting the insurance check on yours. So all of the vineyards are insured year by year, the crop is insured. then, ⁓ and then on top of that, we, the statistical probability of being successful on just 10 acres, let’s say you pick three different varietals. Well, on 20 vineyards, we have 20 different varietals and the statistical probability about being able to blend lot one with lot seven and lot 14.

and making a successful wine are much higher. So you vault yourself into a much higher predictability of success by being part of that. In addition, the small vineyard, it’s always one or the other. They either didn’t plant enough vineyard and they ran out of wine too quick if they had a good location, or they planted too much and everything that they’re doing in the second half is they do for free because they wholesale it for their cost. So with a larger vineyard,

we can calculate how many wine tastings we’ll need, which is about four per year. One vineyard can sell an average of about 50 acres, right? So by managing them all and getting all of the benefits of a larger organization, their net is higher, right? So again, we more than earn our 50 % because their 50 % net

of a much larger operations about a hundred percent of what they would have made before and so ⁓ so anyway the whole model really works were very excited for it and we know that we’re going to be far more profitable than any other wine business model that’s out there now and and but we’re excited to see it grow and ⁓ our winemakers are excited to you know plant there’s

plant their stakes in a new area, you know, that type of thing. It’s pioneering at the same time and a lot of fun. you know, so we just, yeah, we want people to come have fun with us. It’s a business that I’ve always wanted to do. And ⁓ frankly, you know, it kind of presents itself as an investment group, you know, 20 investors at a time who come, or as many as 200 a year that can come together and talk about other investments too.

here at an Opal family office discussing AI and other new investments that we’re in also. So anyway, so that’s what we do. That’s what we do.

Kristen Knapp (21:02)
It’s amazing.

It combines a lot of business with passion. I’m sure you get people that are very passionate about the wine industry and are very happy to do

Tom Heshion (21:10)
Well, too,

for all those that wanted to be the winemaker, they leave all the work to us. You know, they can go take all the wine classes that they want to and all the schools that they want to and learn from all the pros and then come practice with us. And, ⁓ you know, if they, if they choose their own brand, though, they’re still, they’re still responsible for the outcome, you know, if they, if they want to take their own to their own place there, you know, but.

But or they can leave it with us. So let’s say they want to sell their brand and they want to go to our Chicago store. We give them their own area in the Chicago store where it right now in you go, you go into a ⁓ liquor store and all the venue and all the different, the Chardonnays are all together and the Cabernets are all together. Well, in ours, every winemaker’s together, they’ll have his Cabernets and his whites, you know, every winemaker has their own display. So they get to

brand themselves in each of our wine tasting rooms across the country. You know, so there’s a lot of benefits to letting it just ride with us. But for those who want to have their own wine tasting room, their own neighborhood, they can take 10 % of their wine every year, 20%, 30%, whatever they’re up to their 50 % of the crop share, and they can take it and do whatever they want with it. A lot of people just buy it to give away as gifts. Other companies,

We actually have air. We have a California wine company that, ⁓ has an online wine company and they buy grapes every year from other people. They don’t even own a vineyard yet. And I walked into there and they’re like, Tom, for 15 years, we’ve been trying to decide how to disrupt the wine industry. And here you come walking into our office with this great model. So we, they’re actually raising a hundred million dollars to buy vineyards from us.

and open these restaurants across the country because they also own restaurants. So that was our first commit was actually from a wine company that’s already in business. So that should tell you something about they checked all the numbers and they know that we’re right with our calculations. So anyway, so yeah, we’re fine. So we just opened it up. We’re just put the PPM on the street. We’re deciding who to work with.

What they’re, you know, people that are in the specialty business of selling DST investments and other things. So we’re just trying to figure out where that is. And I’m hoping that this podcast will give me some light on that and we’ll get some response from some people who could say they’d like to be involved, you know? So, but yeah, so that’s the reason. That’s, that’s the reason I wanted to be here. So thanks for the exposure to. Yeah.

Kristen Knapp (24:05)
of course, I mean this is so unique. think this is really exciting and the way you talk about it makes me excited. So we’re already ⁓ like, can you tell people how to reach out to you if they’re interested?

Tom Heshion (24:18)
Yeah, so I’m Tom at AZ Mountain Vineyards. ⁓ My phone number is 816-728-2933. You can call me directly. That’s been the same phone number I’ve had for 30 years, so it’s not like I’m going anywhere. So reach out to me and let’s talk if you’ve got a good idea.

Kristen Knapp (24:38)
Fantastic! Well, thank you so much for being here, Tom.

Tom Heshion (24:43)
Thanks. I appreciate your, your help and us getting the word out there and good luck to your podcast. hope you, you know, it continues to be successful.

Kristen Knapp (24:52)
Amazing. I’m sure a lot of people learned a lot from this and I’m sure a of people are interested. So I’m excited to make people reach out to you. So thank you everybody for listening and we will see you back next time. Please reach out to Tom.