Investing in Plant-Based Industries with a Self-Directed IRA

Plant-Based Investments

Plant-based foods are becoming more popular; by reading Fiber Fueled, a book on health effects based on the foods we eat, I was exposed to a doctor who referenced over 600 studies in his book on the health implications of a plant-based diet. This article focuses on the growing popularity of plant-based productions and how to invest with a self-directed IRA.

Why Is Plant-Based Food Gaining Traction?

Environmental Impacts – A growing interest in our environmental impact on the planet has increased the popularity of plant-based foods and alternatives. More people are talking about the planet and the effects of global warming. Animal sourced foods, such as beef or dairy milk, can use thousands of gallons of water to produce, in comparison to plant-based alternatives like tofu or oat milk, which average a few hundred to produce. The massive amounts of methane released by large herds of cattle have also been increasingly publicized and made common knowledge.

Health Impacts – Going plant-based, or simply incorporating more plant-based food into your diet, offers a multitude of health benefits. It often requires more, lower-calorie food in order to fill up the same, causing people to feel fuller, longer and can be very helpful in weight loss. Plant-based alternatives can offer the same calories and nutrients in a healthier way.

How to Get Involved in Plant-Based Food Investments

Investors have the opportunity to enter into this growing market of alternative assets; plant-based start-ups have become a hot choice. This is being recognized in many different industries and companies. For example, Purdue University is offering up to $100,000 per semester in funding towards innovations in the plant sciences industry that includes new plant-based alternatives.

However, plant-based investments are not limited to food start-ups. Many people are making a shift away from animal-based products towards alternatives that perform the same function but are instead plant-based. Listed below are just a few products commonly (and sometimes surprisingly) made with animal components that are now facing plant-based competition:

  • cosmetic and hair care products
  • paint brushes
  • leather
  • perfume
  • plastic bags
  • crayons

The more the product positively correlates to increased environmental or health benefits, the more sought after they will be by those supporting plant-based alternatives. Investors like the fact that these products and companies are affecting local, national, and global economies.

What are some different ways to invest in Plant-based products with my IRA?

To invest in a start-up company with your IRA, the investors would first need to use a Midland self-directed IRA. A self-directed IRA gives the owner the flexibility to invest in alternative assets like small business stock or private placements. A self-directed custodian will allow the client to purchase private assets with their IRA funds. The benefit of investing with your IRA is that all income and gain is tax-free back to the IRA vs. a taxable account where you would have to pay tax annually on your investment.

Using Private Stock and Private Placement to purchase alternative assets

If you are looking to invest in a plant-based company, the two most common ways are via a direct stock offering or private placement. If you are early enough in the company’s start-up, they may be offering shares of stock. In that case, once your IRA is established and funded, the IRA custodian would make sure the company stock is issued to your IRA (not in the individual’s name).

Stock purchase example: Let’s assume Cassie Ortenzo would like to use her IRA to invest in Horizon Burgers and Dogs, a plant-based company that sells plant-based meat substitutes. Horizon is doing a 5 million dollar capital raise to select family and friends. They are selling shares for $10 apiece. Cassie would like her IRA to invest $50,000 and purchase 5,000 shares. The IRA custodian would work with Cassie and Horizon to have the shares titled in the name of Midland Trust Company FBO Cassie Ortenzo IRA. In the case of any dividends, the income would return to the IRA. If Horizon were sold for $20 per share, all the original principal and capital of $100,000 would be returned to the IRA.

Private Placement Example: Dashawn Kelly would like to invest in a private placement called All Natural Shoe Company, specializing in shoes made of organic cotton/wool and other pure products. All Natural is raising $20 million, and Dashawn would like to invest $250,000. Dashawn has been working with his independent advisor, who has recommended this product. Midland Trust is Dashawn’s custodian. Dashawn would complete a purchase authorization form with Midland directing them to buy this asset in his IRA. The client services representative at Midland would work with All Natural to prepare the documentation. Midland Trust would sign on behalf of a client for this investment, and after Dashawn would approve all documents. Once all the documents are complete, Midland would wire the funds to the escrow agent to complete the transaction. It is not uncommon for investors in private placements to be an accredited investor before purchasing this sophisticated type of asset. For more information on accredited investors, click here. The most common type of accredited investor status requires a net worth in excess of 1 million dollars, excluding your primary residence. As with private stock, all dividends or gains from sales must come back to your Midland IRA.

There are many advantages to self-directed IRAs. Please feel free to contact Midland Trust at 239-333-1032 and talk to one of our experienced representatives about your transaction. At Midland, we are here to help.

Author: Alec Potts, Compliance Specialist at Midland IRA, Inc.

MIDLAND TRUST COMPANY, NOR ITS AFFILIATES OR SUBSIDIARIES (COLLECTIVELY REFERRED TO AS “MIDLAND”), IS NOT A FIDUCIARY: Midland’s role as the Custodian and/or Administrator of self-directed retirement accounts is non-discretionary and/or administrative. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account, and is responsible for conducting his/her own due diligence. Midland has no responsibility or involvement in selecting or evaluating any investment and does not conduct due diligence on any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.