Cadiz: Not Your Grandmother's Water Utility – But Uniquely Positioned to Address California's Water Crisis

Article #6: CDZI

Summary

• CDZI has strategically acquired land, water rights, and critical infrastructure, including its Northern Pipeline, to fully operationalize its Mojave Groundwater Bank project.

• The Mojave Groundwater Bank has water storage capacity equivalent to nearly two Lake Meads, holding approximately 10 trillion gallons, positioning it as a transformative asset in California water infrastructure.

• The project is expected to generate over $2.5 billion in cash flow to CDZI throughout its lifespan, offering significant long-term value to the company.

• California's water shortages have gained public and political attention, and the project aligns with broader priorities for water security, making it an appealing opportunity for stakeholders, including the Federal government.

• Get paid nearly 14% to wait with the Class A preferred shares.

Introduction

This is one of those names we have followed for nearly a decade but only recently decided to invest in. What changed? Everything!

In a somewhat morbid twist, the passing of Dianne Feinstein, a long-time and fierce opponent of the Mojave Groundwater Bank project, altered the political landscape for the company. Around the same time, CDZI announced a revamped management team and the addition of a second pipeline, the northern pipeline, to the project. These developments significantly improved the project’s viability, prompting us to begin building a position in the preferred shares and, more recently, the common stock.

Cadiz has spent more than 40 years assembling the assets that form the foundation of its business today. These assets fall into two primary categories: first, land in the form of a large water storage bank in the Mojave Desert; and second, two pipelines designed to transport water from the storage bank to surrounding communities, including Los Angeles County.

The recent surge in California wildfires has intensified calls for solutions to the state’s persistent water shortage crisis. We believe this renewed focus, coupled with the strategic positioning of Cadiz’s project, creates a favorable environment for the company. Cadiz is approximately 12 months away from its first water sales, making it one of the most immediate large-scale solutions for the region. As with all infrastructure projects, financing is critical, and the company has been actively securing project-level investments to support this vital initiative.

Despite decades of effort, founder Keith Brackpool faced significant political resistance in California, a state known for its strong environmental priorities. Recognizing this challenge, the company recently shifted its strategy to align more closely with California’s political climate. In January 2024, Cadiz appointed Susan Kennedy, a lifelong Democrat and seasoned California policymaker, as CEO. Kennedy had previously joined the company as Chairman of the Board in February 2022.

When Kennedy was promoted to Chairman, Cadiz highlighted her extensive political experience, stating:

“Susan joined the Cadiz Board in March 2021 after more than 30 years in California government and politics, having served as chief of staff to Governor Arnold Schwarzenegger, Cabinet Secretary to Governor Gray Davis and Communications Director for U.S. Senator Dianne Feinstein. Kennedy also served on some of the State's most powerful regulatory boards overseeing investor-owned energy, water and telecommunications industries, health insurance and water projects. In the governor's office, Kennedy was known for her execution skills, which put her at the center of complex deals and groundbreaking policies, including AB 32 - California's internationally recognized climate change law, the Low Carbon Fuel Standard and implementation of the California Bay-Delta Accord. After leaving the Governor's office in 2011 she founded energy storage start-up Advanced Microgrid Solutions, which was acquired by Fluence in 2020.”

Founder and former Chairman Keith Brackpool praised Kennedy’s leadership, stating, “Susan's reputation for successfully executing large-scale initiatives involving complex stakeholder engagement is legendary.”