Chicago Atlantic Real Estate Finance, Inc. Q3 FY2024 earnings call

Cannabis Market Context

• Florida, Nebraska, and Dakotas had voting results related to cannabis; ETF MSOS tracking U.S. cannabis equities fell over 25% on recent news.

Company Focus

• Aim to build an investment platform for strong operators in attractive markets with fundamental underwriting, differentiated returns, and downside protection.

Portfolio Pipeline

• Pipeline stands at $560 million, prioritizing operators in limited license states and those transitioning to adult use; liquidity exceeds $75 million.

Financing Activity

• Entered a $50 million unsecured term loan from institutional private lending platforms in October 2024; matures October 2028, 9% fixed rate.

Maturity Management

• $151 million in loans matured in 2024; $89 million retained/extended, $15 million extended with new terms, $47 million repaid.

Interest Rate Management

• Increased fixed rate loans, reducing exposure to benchmark interest rate declines; as of October 30, 52% of portfolio is fixed rate or has prime rate floors >= prevailing prime rate.

Credit Facility

• Revolving credit facility increased to $110 million; $54 million outstanding at quarter end, then drew down term loan proceeds to repay, leaving $15.5 million outstanding on revolving credit facility.

The loan portfolio totaled $362 million across 29 portfolio companies with a weighted average yield to maturity of 18.3% (down from 18.7% previously). Gross originations during the quarter were $32.7 million, with $24 million funded to new borrowers and $8.7 million to existing borrowers. Net interest income for the third quarter increased to $14.5 million from $13.2 million in the second quarter. The CECL reserve as of September 30, 2024, was approximately $4.1 million compared to $5.1 million as of June 30, 2024. Adjusted distributable earnings per weighted average diluted share was $0.56 for Q3 2024. Book value as of September 30 was $15.05 per common share.

Affirmed the guidance previously issued on March 12.

Uncertainties

• Potential tax cuts, economic stimuli, tariffs on imports, and escalations in Europe and the Middle East create uncertainty regarding medium- and long-term interest rates. Additionally, risks associated with political/regulatory events not factored into investments, such as speculative political or regulatory changes in cannabis markets.

Q: Update on cannabis industry weakness/improvement in states A: We focus on nascent, emerging, and mature markets. We are spending a lot of effort on Missouri operators, Ohio operators, Maryland operators and brands expanding between regions. There isn't a single cannabis market in the U.S. but rather 40 distinct, relatively uncorrelated markets, so we focus on competitive dynamics in each state and best operators within them Q: Pipeline for new loans and states driving opportunities A: The pipeline is strong at approximately $560 million. We're spending a lot of time in Ohio, Missouri and Maryland operators and will continue to focus on finding the right operators in the right markets