Chicago Atlantic Real Estate Finance Aktie

Good day, and welcome to the Chicago Atlantic Real Estate Finance, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Lisa Kampf. Please go ahead.

Thank you. Good morning. Welcome to the Chicago Atlantic Real Estate Finance Conference Call to review the company's results. On the call today will be Peter Sack, Co-Chief Executive Officer; David Kite, President and Chief Operating Officer; and Phil Silverman, Chief Financial Officer.

Our results were released this morning in our earnings press release, which can be found on our Investor Relations section of our website, along with our supplemental filed with the SEC. A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call.

During the call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by securities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans and other investments, future dividends and financing activities. All forward-looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risks and other information disclosed in the company's filings with the SEC.

We also will discuss certain non-GAAP measures, including, but not limited to, distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC.

I will now turn the call over to Peter Sack. Please go ahead.

Thank you, Lisa. Good morning, everyone. This quarter, Chicago Atlantic reported a quarter of consistent results against the backdrop of continuing concerns in the private credit market, the Fed pausing the interest rate easing cycle following 3 consecutive rate cuts in Q4 of last year and volatility caused by the Middle East conflict. This quarter's results reflect the strength and resilience of our business model. We are a leading capital provider in the cannabis ecosystem. Our experience in this industry provides us with the expertise, relationships and the ability to redeploy capital more quickly than the typical mortgage REIT.

Our rigorous underwriting and stringent risk standards led by our cannabis-focused underwriting, real estate and analytics team ensures an acceptable risk reward. I continue to be optimistic about the current environment. The pipeline of cannabis opportunities remain strong and currently stands at $482 million, of which approximately $133 million of this pipeline is backed by real estate collateral. Given the recent medical rescheduling news in late April, I'd be remiss in not highlighting the latest major federal initiative in policy setting for the cannabis industry.

The Department of Justice announced on April 23 that it is rescheduling certain medical marijuana products to Schedule III from Schedule I. This is the most significant federal policy change in years and perhaps in the history of the industry. There are nuances to work out as we wait for a more definitive framework and how this policy will apply to existing individual state laws, and we expect these policy changes to impact each operator differently based on their medical market exposure. But after many years of delays, this is a tremendous step in the right direction. How we expect to immediately benefit from this order is predominantly through the elimination of the extra tax burden on cannabis companies resulting from Section 280E and retrospective relief on legacy tax liabilities that should improve operator cash flows and strengthen balance sheets, driving higher valuation multiples and improving the credit profiles of our borrowers.

The federal order requires and sets up an expedited process for state licensed medical cannabis operators to register with the DEA and, in effect, legalizing state licensed medical cannabis on a federal level. Additional benefits from this would be lowering barriers to U.S. exchanges for which we have been an advocate. An administrative hearing is scheduled for June 29 to July 15. This hearing provides a pathway to reschedule cannabis more broadly, possibly rescheduling adult-use products.

We will continue to be measured in our outlook for a positive outcome and not jump ahead in any conclusions. We believe Chicago Atlantic is well positioned to benefit from the initial order. And as I stated before, the success of our strategy is not dependent on any of these changes. We have remained conservative and underwrite every investment assuming no regulatory-driven credit improvements. Leading up to the June 29 hearing, we have begun forecasting for a range of outcomes from the rule-making process, but currently remain in a wait-and-see mode.

Overall, REFI delivered consistent stable financial results for the first quarter of 2026 against an unstable macro environment. Our differentiated business model, lending to operators and property owners in the cannabis industry enables us to operate in a niche market with limited competition with favorable terms and delivering competitive yields. This year is proving to be a transformative time for the cannabis industry following the federal government's rescheduling medical marijuana from Schedule I to Schedule III and the potential for broader policy shifts for cannabis later this year.

We are encouraged by the validation of our business model and the potential impact of regulatory orders flowing through to REFI. I look forward to updating you on our progress throughout the rest of this exciting year.

David will now speak to the portfolio in greater detail. David?

Thank you, Peter. As of March 31, our loan portfolio principal totaled approximately $414 million across 25 portfolio companies with a weighted average yield to maturity of 15.8% compared to 16.3% for the fourth quarter of 2025. Gross originations during the quarter were approximately $54 million of principal fundings, of which $16.2 million and $37.8 million were funded to new borrowers and existing borrowers, respectively. These were offset by approximately $52 million of repayments comprised of $3.3 million in scheduled amortization payments and $48.2 million from full and partial loan prepayments.

As of March 31, 2026, approximately 10.7% of our portfolio is risk rated 4 or higher compared with 4.8% as of December 31, 2025. This risk rating shift primarily attributable to loan #36 being downgraded from 3 to a 4 contributed to an increase in CECL reserves of approximately $3.8 million. As I mentioned on our last call, we made significant progress on loan #9 last quarter, funding in advance for the borrower to allow for accretive acquisitions. As of December 31, 2025, the loan was brought current. And as of March 31, we're pleased to announce that we've moved the loan back to accrual status after 3 consecutive months of timely payment and demonstration of sustained performance improvement, which we expect to lead to the ability to continue to meet debt service obligations.

This is a prime example of how we utilize the operational and workout expertise amongst our team and the broader Chicago Atlantic platform, using creativity and deal management to drive successful turnaround efforts. As of March 31, 2026, approximately 4.8% of our portfolio is on nonaccrual status, a decrease from approximately 11.1% as of December 31, 2025, primarily relating to the restoration of loan #9 to accrual.

As of March 31, 2026, our portfolio consisted of 35.2% fixed rate loans and 64.8% floating rate loans, 71.9% and 28.1% of floating rate loans are benchmarked to the prime rate and SOFR, respectively. With the current prime rate at 6.75%, 100% of our prime loans are at their floors. And in total, approximately only 4% of our loan principal is exposed to further rate declines across the total portfolio. Importantly, our floating rate loans are not exposed to interest rate caps, which, combined with our rate floor protections, provides a structural advantage in portfolio construction that compares favorably to most other mortgage REITs.

Total leverage equaled 38% of book equity at March 31 compared to 32% as of December 31. As of March 31, we had $67.1 million outstanding on our senior secured revolving credit facility and $49.4 million outstanding on our unsecured term loan. As of today, we have approximately $59 million available on the senior credit facility and total liquidity, net of estimated liabilities of approximately $54 million.

I'll now turn it over to Phil.

Thanks, David. Our net interest income of $13.1 million for the first quarter represented a $1.2 million or 8% decrease from $14.2 million during the fourth quarter of 2025. The decrease was primarily attributed to the fourth quarter collection of past due unaccrued interest on loan #9 totaling $1.7 million, which was recognized last quarter. Total interest expense, including noncash amortization of financing costs for the first quarter of 2026 was approximately $2 million, an increase from $1.8 million in the fourth quarter.

The weighted average borrowings on our revolving loan increased to $48 million compared to $33.6 million during the fourth quarter. Our CECL reserve on our loans held for investment as of March 31, 2026, was approximately $8.7 million. On a relative size basis, our reserve for expected credit losses represents 2.1% of our outstanding principal of our loans held for investment. The reserve increased by approximately $3.8 million from the fourth quarter, primarily due to increases in LTV attributed to specific loans, primarily loan #4, 34, and loan #36.

On a weighted average basis, our portfolio maintained strong real estate coverage of 1.2x. Distributable earnings per weighted average share on a basic and fully diluted basis were approximately $0.47 and $0.46 for the first quarter. And in April, we distributed the fourth quarter dividend of $0.47 per common share declared by our Board. Since inception, the company has distributed $8.94 per common share in dividends, which represents a yield on cost of approximately 11.8% when measured against our IPO price.

Our book value per common share outstanding was $14.39 as of March 31, 2026, and there were approximately 21.5 million common shares outstanding on a fully diluted basis as of such date. During the subsequent period from April 1, 2026, through today, the company advanced new growth loan principal of approximately $15.8 million, comprised of $13.1 million advanced to a new borrower and $2.7 million to existing borrowers on delayed draw on existing credit facilities.

Additionally, the company received a total of $14.3 million in loan repayments, comprised of $1.8 million of scheduled amortization and $12.5 million in early prepayments, which included the full repayment of loans #6 and #30. We expect to continue to maintain a dividend payout ratio based on our basic distributable earnings per share of 90% to 100% for the 2026 tax year. If our taxable income requires additional distributions in excess of the regular quarterly dividend to meet our taxable income requirements, we expect to meet that requirement with a special dividend in the fourth quarter.

Operator, we're now ready to take questions.

[Operator Instructions] The first question comes from Pablo Zuanic from Zuanic & Associates.

Thanks, Peter, for the commentary on the regulatory front and of course, the positive news that we've been receiving recently. I just want to start with loan #36. Obviously, 4 and 34 are Arizona loans, and we know that's a tough market for growers. You mentioned 4 and 34 are in accruals or part of the reserve. And in the case of 36, that's an Illinois loan, right? And it's a larger loan, $27 million. Whatever color you can provide more on that loan would be helpful.

Arizona, I understand Illinois, of course, we've see forefront and other companies have issues there. But if you can just give more color on that particular loan #36 would be helpful, please. Especially in the context that was issued in December 2024, which is not that long ago, I think.

Thank you. Illinois market is experiencing consolidation on the retail front and I think it is experiencing increasing competition on cultivation. This one in particular, has strong real estate coverage and is a vertically integrated operator. And the -- I think the reserving activity reflects our ordinary course evaluation of portfolio company performance and risk. The discussions with the borrower are very constructive. And we expect that this can be -- this company's performance can be improved and resolved in a constructive and collaborative manner. And I'm hopeful that in the months ahead, we'll find this reserving activity conservative.

But regardless, this is part of our ongoing process to show reserving activity that reflects a conservative appreciation of performance in the portfolio.

On the same topic, Peter, can you give an update on loans 4 and 34?

These continue to be -- continue to evolve. I think it's too early to give specific updates, but they are constructive relationships.

And by the same token, in the case of loan #9, back into accruals, like you said, you were actively involved with them on a collaborative basis. I'm just trying to understand the potential for loans in the portfolio that can be equitized or where you can succeed in bringing new buyers to those loans. I mean how should we think about that as an opportunity going forward for the book?

I think it's important to contrast loan #9 with other reserving activities within the portfolio, and loan #9 was a foreclosure process, was a judicial foreclosure process. And that takes a substantial longer amount of time for resolution than when challenging situations within portfolio companies can be resolved constructively and collaboratively. I'd say that the markets for assets that are undergoing challenges have improved significantly over the last year as expectations for rescheduling have moved from speculative to more definitive to, in the case of medical operators, executed.

And this is both an environment that is constructive and positive for deploying capital and for finding solutions within the book, whether that's finding new equity investors, executing operational change or working towards an exit. This is a better environment for both deployment and reorganization and problem solving than really we've seen in the last 3 years.

Right. And then on the topic of the unscheduled repayments, thank you for the table. You showed in the press release today about $48 million unscheduled repayment in the first quarter. And I think Phil mentioned another $15 million so far in the second quarter. Is that out of the norm? I'm just trying to understand what's driving those early repayments or that's just normal part for the course.

These are part of the course and we labeled them unscheduled, but unscheduled doesn't mean necessarily mean a surprise. And these were loans that many -- a few of them were nearing their maturity date.

Look, a couple of more, and apologies if there's someone else in the Q&A queue. Looking at the 10-Q, loan #45 in Canada, I don't know if that's the first time you've done a loan outside of the U.S., but can you comment on that? And more in general, opportunities in international, Europe and even more in Canada?

It's not the first -- maybe the first time that REFI has executed a loan outside the U.S., but not the first time that Chicago Atlantic as a platform has executed a loan outside the U.S. and in Canada. I think we're finding that in the Canadian market, there has been stabilization of the market in some cases and rationalization of the market in terms of unprofitable operators leaving. And that's given room and air for profitable, well-executing operators to rise the top, be recognized to show strong results and to provide opportunities for lenders to provide capital at very strong risk-adjusted returns.

And I think in the past, we just haven't seen that opportunity set arise so meaningfully and so specifically and clearly. But I think we see this happen in a lot of markets that are oversaturated that they go through a period of rationalization. And after that rationalization, pockets of opportunity emerge.

One last one. I know we've talked...

Sorry to interrupt Mr. Zuanic. Maybe I request you to return to the queue for any follow-up questions, please? Thank you. You have the next question coming from the line of Chris Muller with Citizens Capital Markets.

So I wanted to ask some clarifications around Schedule III that you may or may not know the answers to at this point. I guess, first off, what percentage of your guys' portfolio is medical? And I guess, how is that determined? Is that done at the license level, which my understanding is some states have adult-use licenses? Or is it determined by the end user being either medical or rec?

Most of our borrowers that are operating as adult use are also operating as medical operators. And each of them then parse their revenue by medical versus adult use, but they can be those medical and adult-use sales in many cases, can be operating out of the same dispensary. We haven't published what is medical or versus adult use. I'm hopeful that within the year of 2026 that it's irrelevant, that the administrative hearings that are scheduled for June and July proceed, that adult use is rescheduled as well.

And the industry doesn't have to go through this exercise of analyzing what's medical and what's adult use that it can proceed to operate each businesses seamlessly. But we shall see. I think the -- if adult-use measures and progress around adult-use rescheduling falters or slows down, then I think you're going to see a lot of work among our borrowers to parse medical versus adult-use operations to allocate costs optimally between their medical and adult-use operations to maximize tax efficiency. And I think you're also going to see state regulators perhaps adjusting the definitions within their adult-use program to shift more of their operations towards what they can call and designate a medical program. But I hope those types of acrobatics are unnecessary because the administration has executed on its pathway to reschedule the entire supply chain.

Got it. That's helpful. And I think I saw California is doing something along those lines, which I agree with you. Hopefully, that's relevant and full Schedule III gets done in June, but we'll see how that plays out. And then I guess on the CECL reserve increase in the quarter, and I may have missed this in your guys' prepared remarks, but was that increase specific or general reserves? And how are you guys thinking about the impact on CECL reserves following Schedule III?

That reserve activity was a mix of both specific and general. The -- I should note that, that reserve activity reflects the market and discount rates and valuations and loan to values as of 3/31, and they do not reflect the subsequent events of rescheduling market activity and discount rates thereafter. I think generally, the rescheduling is a -- I think the rescheduling is a credit positive for all of our borrowers and even those that don't have significant medical revenues.

Should we expect to see some CECL releases throughout 2026 as those 280E issues work through the companies?

It's certainly possible. It would be a reflection, not necessarily directly of rescheduling, but it would be a reflection of the inputs that a reflection of market sentiment, loan to values, cash flow calculations flowing through to the inputs that drive our CECL reserve policies and behaviors.

Great to hear we finally got some positive news in the sector.

The next question comes from Aaron Grey with Alliance Global Partners.

First question, obviously, there's a hope that we get the full plant rescheduled late summer, fall following the hearings. But potentially in the near term or if full plant reschedule, it takes a little bit more time. In this scenario, do you potentially get a little bit more aggressive in medical-only states where you know you have the removal of 280E? Or does that change any of the potential near-term landscape opportunities?

I think it does allow us -- what's the -- it allows us to be -- to reflect in our underwriting the different tax treatment of medical revenues versus adult-use revenues. And I think it drives us to -- we will have to -- if adult-use does not proceed on adult-use sales, then it will lead to, I think, different lenses for medical versus adult use only because it drives different cash flow dynamics of the operators. And that is the fundamental basis of which I think all underwriters at this space will need to adjust. Again, I hope it's not needed. But if the fundamentals of cash flows are to be reflected in this, and it will be reflected in our underwriting and deployment as well.

That's helpful color. A lot of people in industry talk about potential impact of the hemp ban coming to fruition in November, having a broader impact on the legal cannabis market. Curious to your view on that and your borrowers, potentially there being that come to fruition and helping out the fundamentals of your borrowers and your view on that.

I've absolutely heard anecdotal feedback that the hemp ban has driven revenue increases, particularly in states that have a larger prevalence of smoke shops and these types of black market hemp CBD and cannabis-adjacent products. I think it's been difficult to find a direct link in the data, but certainly anecdotal and correlative links between the hemp ban and regulated cannabis sales.

Okay. Great. Just last question for me. In terms of liquidity and pipeline, any color on timing to having some things in the pipeline come to fruition with the liquidity you still have available?

I think it's -- our pipeline tends to refresh itself every 3 to 6 months. And in that period of time, we have the opportunity to explore whether these transactions that are in the pipeline are transactions that we seek to close or transactions that end up not being worthy of closing. But it's -- I think it's difficult to forecast within that time frame of what that deployment will be for better or worse. And in this -- I'll point out that in this quarter, we have released our -- at investors' request, we have released a breakdown between Canada -- between real estate backed and non-real estate loans within our portfolio in an effort to give our investors a better view into what portion of our pipeline is more directly fit for Chicago Atlantic real estate financing.

As there are no further questions from the participants, this concludes our question-and-answer session. Also, the conference has now concluded.

We thank you for attending today's presentation, and you may now disconnect.

Good day, and welcome to the Chicago Atlantic Real Estate Finance, Inc. Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the call over to Tripp Sullivan of SCR Partners. Tripp, please go ahead.

Thank you, Bailey. Good morning. Welcome to the Chicago Atlantic Real Estate Finance conference call to review the company's results.

On the call today will be Peter Sack, Co-Chief Executive Officer; David Kite, President and Chief Operating Officer; and Phil Silverman, Chief Financial Officer. Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, along with our supplemental filed with the SEC. A live audio webcast of this call is being made available today. For those who will listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call.

During this call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans and other investments, future dividends and financing activities. All forward-looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC. We will also discuss certain non-GAAP measures, including, but not limited to, distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC.

I will now turn the call over to Peter Sack. Please go ahead.

Thank you, Tripp, and good morning, everyone. Chicago Atlantic operates within a unique intersection of real estate, credit and the emerging sector of the U.S. cannabis industry. Our thesis is simple. We apply best-in-class sector expertise, highly developed relationship-based sourcing capabilities and fundamental credit and real estate investment principles to make debt investments in an industry with limited sources of debt capital. We take advantage of limited lending competition to structure, first, what we believe to be differentiated downside risk of senior secured positions; and second, a highly outsized return profile relative to the broader credit and real estate lending portfolios.

Most lending companies are limited in their ability to invest in underwriting and originations expertise in any one particular sector. They become masters of none, and they are price takers, investing in whatever the next investment banker or private equity sponsor offers. Because we focus on one sector with limited lending competition, we have the luxury of investing in a highly respected originations team made up of the best-known leaders in our space. We maintain an outsized underwriting, real estate and analytics team that specializes solely in this unique niche of cannabis. We directly originate and agent nearly all of our investments. We maintain a team of over 100 professionals overseeing only $2.3 billion in capital under management because we know that with limited lending competition, our investment in expertise and execution capabilities translates directly into alpha generation for our investors.

Our discipline, our focus and institutional investment platform built for the long run is reflected in the execution of Chicago Atlantic Real Estate Finance in 2025 and already nearly 3 months into 2026, we're exceeding our expectations and more enthusiastic than ever about our opportunity set for the coming year. Thank you for indulging me in this reappraisal of the fundamentals of Chicago Atlantic's differentiation. It's important to reinforce this in the context of the investor community's recent reconsideration of risk and reward in the broader private credit ecosystem. Our portfolio has extremely limited overlap with other private credit markets. The drivers of current private credit market pressure simply are not relevant to us. We have no exposure to software, receivables factoring nor recent examples of fraud and syndicated facilities. Our sector has not experienced an overallocation of capital, leading to compressed yields that is happening across other sectors of private credit.

Our strategy is built on a disciplined focus on credit and collateral. We work collaboratively with our borrowers to create value, and our work is executed by a team of originators and underwriters with deep industry and rigorous risk management expertise. I spoke last quarter about how optimistic we are about our current environment. The pipeline remains strong and currently stands at $616 million. We continue to get first looks at the largest opportunities within the cannabis sector, but we're also leading when it comes to creative solutions for our borrowers as well. For example, during the fourth quarter, the Chicago Atlantic platform closed on a credit facility to support the largest cannabis ESOP completed to date.

We've talked about ESOPs as a compelling opportunity, and we believe this loan highlights our capabilities to Trailblaze, bringing financial solutions common in broader lending markets to the more nascent cannabis lending market. Over recent months, there's been positive momentum in cannabis policy with bills introduced in several states to change the legality of the product. In December 2025, President Trump signed an executive order directing his administration to reclassify cannabis from a Schedule I to Schedule III regulated product. While this is not federal legalization, rescheduling would represent the most significant federal policy change in years.

We highlight on a slide in this quarter's supplemental how this sets the stage for improved industry economics without opening the door for increased lending competition. We believe Chicago Atlantic is well positioned to benefit from these developments, but the success of our strategy is not dependent on these changes. As we mentioned in previous quarters, we underwrite every investment assuming no regulatory-driven credit improvements. We continue to create a differentiated and low levered risk return profile that is insulated from cannabis equity volatility and outperforms our industry-agnostic mortgage REIT peers.

As David will break down for you in a moment, because we have structured our floating rate loans with high interest rate floors and no caps, only 9% of our total loan portfolio is exposed to further rate declines based on the prevailing prime rate. That discipline provides a meaningful measure of protection to the portfolio. We are focused on outperforming and delivering a consistent yield to our shareholders despite volatile industry sentiment. The pipeline is expanding, and we have already established strong momentum to kick off 2026.

David, why don't you take it from here?

Thank you, Peter. As of December 31, our loan portfolio principal totaled approximately $411 million across 26 portfolio companies with a weighted average yield to maturity of 16.3% compared with 16.5% for the third quarter. Gross originations during the quarter were approximately $19 million of principal fundings, of which $5 million was advanced to a new borrower and $14 million was advanced to existing borrowers. As anticipated, all the loans that had maturities at the end of 2025 were extended with new contractual maturities in 2026.

During the quarter, we made significant progress on loan # 9. We funded in advance for the borrower to acquire 3 additional dispensaries in Pennsylvania, bringing their total to 6 operating dispensaries. In connection with this advance, the company received all past due interest from the borrower, which brought the loan current as of December 31, 2025. We expect the 6 dispensaries to provide sufficient free cash flow to enable the borrower to remain current on its outstanding indebtedness and applicable covenants. Despite being brought current, which resulted in a risk rating upgrade from 4 to 3, we maintained the loan on nonaccrual status as of December 31, 2025. We expect to restore the loan to accrual status once the operator demonstrates sustained performance and continued timely debt service payments.

As of December 31, 2025, our portfolio consisted of 37.6% fixed rate loans and 62.4% floating rate loans. The floating rate portion is primarily benchmarked to the prime rate. Following December's 25 basis point rate reduction, which brought the prime rate to 6.75%, only 9% of our portfolio remains exposed to further rate declines. The remaining 91% is either fixed rate or protected by prime rate floors of 6.75% or higher. Importantly, our floating rate loans are not exposed to interest rate caps. This structural advantage, combined with our rate floor protection positions our portfolio favorably compared to most mortgage REITs.

We've included a slide in our supplemental presentation that highlights how well we have safeguard our portfolio from interest rate volatility. You'll note that based on the current portfolio as of December 31, a hypothetical 100 basis point decline in benchmark rates is estimated to result in a mere $14,000 decrease to net investment income and a 200 basis point decline would actually result in an increase to net investment income, all else remaining equal. This is primarily the result of minimal exposure to rate declines within our asset portfolio, offset by the positive impact of interest rate expense declines resulting from a revolver loan bearing a prime rate floor of 3.25%. Should rates begin to move back up, then of course, we should expect to see material gains in net investment income.

Total leverage equaled 32% of book equity at December 31 compared with 33% as of September 30. As of December 31, we had $49.1 million outstanding on our senior secured revolving credit facility and $49.3 million outstanding on our unsecured term loan. As of today, we have approximately $53 million available on the senior credit facility and total liquidity, net of estimated liabilities of approximately $50 million.

I'll now turn it over to Phil.

Thank you, David. Our net interest income of $14.2 million for the fourth quarter represented a 4% increase from $13.7 million during the third quarter of 2025. The increase was primarily attributable to the collection of past due on accrued interest on loan # 9, totaling $1.7 million, which is recognized upon receipt. This was offset by the impact of the multiple benchmark prime rate cuts in the fourth quarter totaling 50 basis points, 25 each in October and December 2025. Total interest expense, including noncash amortization of financing costs for the fourth quarter was approximately $1.8 million, an increase from $1.6 million in the third quarter. The weighted average borrowings on our revolving loan increased to $33.6 million compared to $14 million during the third quarter.

Our CECL reserve on our loans held for investment as of December 31 was approximately $5.1 million. On a relative size basis, our reserve for expected credit losses represents 1.23% of our outstanding principal of our loans held for investment. The reserve remained consistent with prior quarter. On a weighted average basis, our portfolio maintains strong real estate coverage of 1.2x. Our loans are secured by various forms of other collateral in addition to real estate, including UCC 1 all asset liens on our borrower credit parties. These other collateral types contribute to overall credit quality and lower loan-to-value ratios. Our portfolio has a loan-to-enterprise value ratio on a weighted average basis of 44.2% as of December 31, 2025, calculated as senior indebtedness of the borrower divided by the fair value of total collateral to refi.

Distributable earnings per weighted average share on a basic and fully diluted basis were approximately $0.44 and $0.43 for the fourth quarter and $1.92 and $1.88, respectively, for the year. And in January, we distributed the fourth quarter dividend of $0.47 per common share declared by our Board in December. Since inception, we've distributed $8.47 per common share in dividends, which represents an annualized yield on cost of approximately 12.4% when measured against our IPO price. Our book value per common share outstanding was $14.60 as of December 31, 2025, and there are approximately 21.5 million common shares outstanding on a fully diluted basis as of such date.

During the subsequent period from January 1, 2026, through today, the company has advanced new gross loan principal of approximately $51.1 million, comprised of $16.2 million advanced to 1 new borrower and $34.9 million to existing borrowers on delayed draw and revolving credit facilities. Additionally, the company received a total of $40.4 million in loan repayments comprised of $3.1 million of scheduled amortization payments and $37.3 million in early prepayments, which included the full repayment of loan #1 and loan #27. We expect to continue to maintain a dividend payout ratio based on our basic distributable earnings per share of 90% to 100% for the 2026 tax year. If our taxable income requires additional distributions in excess of the regular quarterly dividend to meet our taxable income requirements, we expect to meet that with a special dividend in the fourth quarter.

Operator, we're now ready to take questions.

[Operator Instructions] Our first question comes from Aaron Grey with Alliance Global Partners.

First question, it's encouraging to hear the commentary on demand for growth capital that you're seeing. Just in terms of the pipeline, can you provide maybe some general line of sight as to when some of those originations might come to fruition? And how many of those are maybe at the later stage of being finalized?

And then secondly, can you provide comfort in being able to potentially deliver another year of net portfolio growth?

Thank you. We are still targeting net portfolio growth for this year. I think we have a fairly high degree of confidence in our ability to execute on the pipeline. And I think it's helpful to put in context that as of March 12, we have about $50 million of liquidity available. And this, frankly, isn't as much as we would like relative to the pipeline that we have. That amount of liquidity can be deployed relatively quickly. The bigger unknown at this part earlier in the year is what repayments in the portfolio will occur between now and December 31, and that's difficult to forecast.

Appreciate the color, Peter, and can understand some of the uncertainty in terms of the repayments. So maybe a second question outside of that, can you talk about maybe the outlook in terms of current yields for potential deals in the pipeline? And has rescheduling been coming into play on rate negotiations, the underwriting process? Or has that largely been not quite taking rescheduling into account yet?

Apologies. We are -- rescheduling has driven increases in demand for debt capital that we're seeing in the market operators accelerating investment decisions and accelerating merger and acquisition decisions. It has not changed the conversation around pricing nor has it changed how we underwrite and evaluate risk. That's largely due to the fact that reschedule -- the announcement of rescheduling and even the execution of rescheduling has yet to lead to new lenders entering the market in our -- from the vantage point that we set at.

Okay. Great. So yes, increased demand, but you're not seeing more companies to come to the market.

Our next question comes from Chris Muller with Citizens Capital Markets.

I guess I'll stay on a similar line of questioning here. So nice slide you guys have on the regulatory reform in the deck there. On the point about not seeing increased competition, is that as we sit today? Or does that assume Schedule III gets finalized?

And then maybe a second layer to that question, what do you think would increase competition in the space?

Well, as we sit today, we've not seen new lenders enter the market due to -- on the follow-on of Trump's announcement of rescheduling. We also have not heard of lenders or significant lenders sitting on the sidelines and saying, well, when rescheduling happens, we're ready to deploy x amount of capital, and we're gathering opportunities to be able to do that. We have not observed that in the market. What do I think would be required to -- what would be required to support a large influx of new lenders into the cannabis market? I think there's a series of reforms that would be very helpful. And we, in general, look forward to that.

There's, I think, one full legalization would open up cannabis would open up really the broad array of private credit market participants to enter a framework under which -- a regulatory framework under which existing cannabis operators could produce, market and distribute cannabis as a Schedule III substance perhaps would do that. I think it would be helpful to have cannabis companies listed on New York Stock Exchange and NASDAQ. It would be helpful to have the broader pieces of the financial ecosystem open to servicing cannabis companies. That includes major accounting firms, major law firms, major custodians. There's a lot of, I think, little steps that individually don't seem like big hurdles, but are very important for opening up access to capital markets that are required and that I think still are going to take a long time to evolve in terms of how broader participants in our financial system approach and view cannabis as a market. And that process perhaps hasn't even begun yet.

Got it. Very helpful. And then I guess changing gears a little bit. It looks like there's 2 new nonaccrual loans. Both of them are in Arizona. Are these loans to the same sponsor? Or is it something market specific in Arizona going on there?

They are loans related to the same sponsor. Arizona is having a challenging pricing environment that our borrower in this case is navigating in close collaboration with us.

Our next question comes from Pablo Zuanic with Zuanic & Associates.

Can we just go back to loan # 9? I know you gave a little color there, but I'm just trying to understand, I think the principal -- the combined principal end of September was $19 million, and now it's $29 million. So you decided to lend more money to a borrower that's in trouble, right? So I'm just trying to understand the logic of that. And then if you can provide more color in terms of what's going on with that borrower, please. I know you gave some color in the call.

Absolutely. I think this is -- loan # 9 has been a good example of really the full toolkit that Chicago Atlantic can bring the table in addressing challenging credit situations and challenging -- and challenging workout and restructuring opportunities. In this position, we completed a full foreclosure on the assets and change of control and change of control of the assets in 2025 over the course and a recapitalization of the business. Over the course of 2025, the business reorganized its operations, improved its cash flow and revenue significantly. And at the end of 2025, Chicago Atlantic supported the company's acquisition of additional dispensaries within its market. And it did so both with capital from Chicago Atlantic Real Estate Finance, Inc. and additional junior capital behind Chicago Atlantic Real Estate Finance, Inc. And it dramatically changed the operating profile of the business, the cash flow of the business, and it permits the company to become current on all of its interest in 2025.

And so we hold this loan in -- I think as we sit at the end of December 31, 2025, it's a little bit of a gray area from an accounting position on how we need to present this loan. I say gray area because as of December 31, 2025, the loan is current on all interest, but we've chosen not to formally take it off nonaccrual. I think that represents -- that's a high level of conservatism in how we view the portfolio and how we present the portfolio, which I think is important in this environment of private credit investor skepticism. But I think that those series of events make us confident or hopeful that we'll be revisiting that nonaccrual status in shortly in 2026.

And Peter, maybe -- sorry, if I could just chime in as well, Pablo, just to be clear, despite the loan being on nonaccrual, the borrower made their January and February payments, and we recognize those as income on a cash basis. So despite the loan not being accrued, to Peter's point and for the reasons, we still are recognizing the income as it's received in cash.

Right. And then just moving on to the early repayments on loan #1 and loan #27. When those things happen, I try to think in terms of, well, it have been extended or maybe you did not want to extend it because of credit issues or maybe that borrower had better alternatives out there. I don't know if you can give some color in terms of those 2 early repayments.

Loan #1 was refinanced with a new credit facility in which Chicago Atlantic participated. So we did not extend the loan, but we executed -- we participated and led a refinancing of the existing loan, #27, the loan did pay off, and we opted not to pursue a refinancing for a number of decisions, some pricing, some credit related. But I think it's a healthy mix that you should expect to see that some loans will be refinanced, some loans will be extended. And in the case of a loan being refinanced and Chicago Atlantic not leading the refinancing, it doesn't mean that we've -- that the relationship is over and that there won't be opportunities in the future.

And then just a bigger picture. I was looking at the press release on the third quarter conference call. I think back then, you talked about a pipeline of $415 million, and now it's $616 million, right? So obviously, up $200 million. But on the other hand, you said no changes in pricing, no changes in terms of discussions. I'm just -- I'm trying to reconcile the fact that the pipeline increased by 50%. And on the other hand, you're saying you're not changing the way you're evaluating risk based on rescheduling potential and that there's no changes in pricing. I'm just trying to connect the 2.

Yes. Pipeline is a proxy for opportunity set. But there is -- within that pipeline, there's a broad range of risk reward of opportunities. As our capital becomes particularly constrained, and perhaps this is where you're going with your question, as our capital becomes constrained relative to the opportunity set, you obviously will see a forced change in selection and a forced change in the opportunities that we can fund and the risk reward that we're funding. I think it's -- and we're constantly evaluating what is the pricing that we can extract and how can we manage those -- the levers of risk for the advantage of the funds.

And so what I think I wanted to address more specifically is that rescheduling has not led us to change -- to lower the bar of underwriting to decrease our credit underwriting standards to increase. It's not leading us to increase the leverage at which we're willing to lend as another example. It's not leading us to decrease the pricing at which we're deploying capital or willing -- it's not changing our willingness to deploy capital at lower levels. I hope that gives you some clarity on our mindset as we approach what is an evolving market opportunity.

That's very helpful. And one last one, if I may. Obviously, thank you for all the color you gave on the slide deck about the reform outlook and the positive impact for the industry. And of course, I agree, but maybe playing a little bit devil's advocate and not pushing back. I could make the argument that from a cash flow perspective, nothing changes for the companies because none of them, including in some, are paying 280E tax, right? So the only thing that would change -- it could change is that share prices go up a lot and the companies are able to issue equity. But as we saw on December 18, the jump in share prices didn't last very long, right?

So I'm afraid that we would have a situation, cash flow, we get rescheduling, but cash flow doesn't change, obviously, because they're not paying ADE. And then we don't really have the ability for companies to issue equity because share prices don't go up so much. So from that perspective, in practical terms, very little would change. I mean I'm sure you would disagree with me, but if you can comment on that, Peter, and that's my last question.

Yes. I think the fundamental disagreement is -- the fundamental piece that I would push back on is that is, I think, how you view the current environment. The concept that companies are accruing a tax liability and not -- and are accruing a tax liability and not paying those taxes is not a particularly sustainable one in the long-term. And it's an aspect of underwriting that we focus on very intensely when we're evaluating new opportunities. We're evaluating what amount of taxes are unpaid on their balance sheet today. If they're not current and not paying their 280E taxes, how might that balance grow over the life of our investment? And then what guardrails can we put in place within the -- as far -- from a covenant perspective and a loan agreement perspective to ensure that those balances don't grow and that those balances and their nonpayment of taxes are factored into how we measure risk on a monthly basis when we receive their compliance certificates.

And so we look at the current environment and to use -- to paraphrase your words, we do not say, oh, they're not paying their taxes, so it doesn't matter. We look at the current -- that current environment with a very healthy amount of skepticism and factored into how we underwrite our loans. And so when rescheduling does occur and those taxes are no longer being accrued because they're no longer due on a go-forward basis, that to us is a strong credit improvement.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Chicago Atlantic Real Estate Finance, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead.

Thank you. Good morning. Welcome to the Chicago Atlantic Real Estate Finance Conference Call to review the company's results. On the call today will be Peter Sack, Co-Chief Executive Officer; David Kite, Chief Operating Officer; and Phillip Silverman, Chief Financial Officer.

Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, along with our supplemental filed with the SEC. A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call.

During this call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans and other investments, future dividends and financing activities. All forward-looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC.

We also will discuss certain non-GAAP measures, including, but not limited to, distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC. I'll now turn the call over to Peter Sack. Please go ahead.

Thank you, Tripp. Good morning, everyone. This quarter, against the backdrop of a volatile private credit environment, we demonstrated another consistent period of execution and performance. The benefits of our consistent approach and disciplined focus on principal protection yielded a strong quarter and this quarter's gross originations have us on pace to hit our goal of net growth in the loan portfolio. Challenges in private credit markets have created newfound concern in the investor community. Declining interest rates impacted lenders with floating rate portfolios. The syndicated loan market experienced high-profile fears of fraud and excess capital in the market underlies perceived lack of underwriting standards. I suspect that these broader concerns have caused us to trade at a sizable discount to our book value rather than the premium we long enjoyed since our IPO nearly 4 years ago.

Noting this disconnect from the reality of our portfolio, our management team and Board of Directors recently purchased shares on the open market, bringing our collective ownership of the common stock to nearly 1.8 million shares on a fully diluted basis. There are several reasons why we're so confident with what we've created at Chicago Atlantic. The first is that we have a cannabis pipeline that currently stands at approximately $441 million. We believe that this pipeline of opportunities is unrivaled in the industry and is diversified across growth investments, maturities in the market, M&A activity related to operational and balance sheet restructurings and potential ESOP sale transactions.

Secondly, we have the most robust platform and capital to meet the growth of the industry. We deploy capital with consumer and product-focused operators in limited license jurisdictions at low leverage profiles to support fundamentally sound growth initiatives. I can't think of a better example of our commitment to the industry than Chicago Atlantic's funding this quarter of what we believe to be the largest real estate-backed revolving credit facility among U.S. operators in the history of the industry, a $75 million 3-year secured revolver with Verano.

Lastly, we've constructed a portfolio with differentiated and low levered risk return profile that is insulated from both Cannabis Equity and interest rate volatility. As David will break down for you in a moment, because we have structured our floating loans with interest rate floors, only approximately 14% of our total loan portfolio is exposed to any further rate declines based on today's 7% prime rate. That discipline provides a meaningful measure of protection to the portfolio. We are focused on outperforming and delivering the kind of returns that we all expect to shareholders. Confidence in the strategy is important. And hopefully, I've provided some insight into why we are enthusiastic and why we, as a management team, executed share repurchases in recent weeks. But execution on our plan matters even more and I look forward to reporting on our continued progress over the balance of the year.

David, why don't you take it from here?

Thank you, Peter. As of September 30, our loan portfolio principal totaled approximately $400 million across 26 portfolio companies with a weighted average yield to maturity of 16.5% compared with 16.8% for the second quarter. Gross originations during the quarter were $39.5 million of principal fundings of which $11 million was advanced to a new borrower and $20 million was related to the new Verano credit facility that Peter mentioned earlier. These were offset by unscheduled principal repayments of $62.7 million that we disclosed last quarter. As of September 30, 2025, our portfolio consisted of 36.7% fixed rate loans and 63.3% floating rate loans. The floating rate portion is primarily benchmarked to the prime rate. Following last week's 25 basis point rate reduction, bringing the prime rate to 7%, only 14% of our portfolio remains exposed to further rate decline. The remaining 86% is either fixed rate or protected by primary floors of 7% or higher.

Importantly, our floating rate loans are not exposed to interest rate caps. This structural advantage, combined with our rate floor protections positions our portfolio favorably compared to most mortgage REITs. Should the Federal Reserve implement another adjustment to the Fed funds target in December, we are well insulated against the adverse effects of declining interest rates. Total leverage equaled 33% of book equity at September 30 compared with 39% as of June 30. As of September 30, we had $52.4 million outstanding on our senior secured revolving credit facility and $49.3 million outstanding on our unsecured term loan. As of today, we have approximately $69.1 million available on the senior credit facility and total liquidity, net of estimated liabilities of approximately $63 million.

I'll now turn it over to Phillip.

Thanks, David. Our net interest income of $13.7 million for the third quarter represented a 5.1% decrease from $14.4 million during the second quarter of 2025. The decrease was primarily attributable to nonrecurring prepayment make-whole exit and structuring fees, which amounted to $1.1 million for Q3 2025 compared with $1.5 million in Q2 2025. Additionally, approximately $0.1 million of the decrease in net interest income was attributed to the impact of the 25 basis point rate cut late in September on our floating rate portfolio and interest expense on our revolving credit facility. Total interest expense, including noncash amortization of financing costs for the third quarter was approximately $1.6 million, down from $2.1 million in the second quarter. The weighted average borrowings on our revolving loan decreased $14 million compared to $42.3 million during the second quarter.

Our CECL reserve on our loans held for investment as of September 30, 2025, was approximately $5 million compared with $4.4 million as of June 30. On a relative size basis, our reserve for expected credit losses represents approximately 1.25% of our outstanding principal of our loans held for investment. On a weighted average basis, our portfolio maintained strong real estate coverage of 1.2x. Our loans are secured by various forms of other collateral in addition to real estate, including UCC-1, all asset liens on our borrower credit parties. These other collateral types contribute to overall credit quality and lower loan-to-value ratios. Our portfolio has a loan-to-enterprise value ratio on a weighted average basis of 43.5% as of September 30, calculated as senior indebtedness of the borrower divided by the fair value of total collateral to refi.

Distributable earnings per weighted average share on a basic and fully diluted basis were approximately $0.50 and $0.49 for the third quarter, a modest decrease from $0.52 and $0.51, respectively, during the second quarter. And in October, we distributed the third quarter dividend of $0.47 per common share declared by our Board in September. Our book value per common share outstanding was $14.71 as of September 30, 2025, and there are approximately 21.5 million common shares outstanding on a fully diluted basis as of such date. We continue to expect to maintain a dividend payout ratio based on our basic distributable earnings per share of 90% to 100% for the 2025 tax year. If our taxable income requires additional distributions more than the regular quarter dividend to meet our taxable income requirements, we expect to meet that requirement with a special dividend in the fourth quarter. Operator, we're now ready to take questions.

[Operator Instructions] At this time we will take today's first question from Aaron Grey with Alliance Global Partners.

First question for me. I just wanted to talk about the pipeline a bit. So $415 million, I know that's down a little bit from prior quarters. So I just wanted to talk about where there are some large potential originations that exited the pipeline. And I know prior quarter, you had talked about ESOPs and potential opportunity there. So I want to see if you still see those as appealing and within the pipeline opportunities.

Yes. ESOPs continue to form a large part of the pipeline. There was no significant exits other than ordinary turnaround of our pipeline quarter-over-quarter. We have -- our pipeline tends to refresh every quarter or so as deals that -- as deals either disappear, get turned down by us or get funded. And so changes quarter-over-quarter were ordinary churn.

Okay. Great. Glad to hear ESOPs are still a good opportunity for you guys. Second question for me, just in terms of some of the loans that are maturing before year-end. Any color you can talk about in terms of how those conversations are panning out? I know you're still targeting net portfolio growth for the year. So any color on those would be greatly appreciated.

We are in the midst of negotiating the terms under which we may extend to maintain the business and maintain the position. And I expect that the vast majority of those loans that are maturing before the end of the year, we will retain in some form or another.

Okay. That's great to hear. Last question for me. No direct implications for new cannabis legalization in the election today but some indirect, particularly for Virginia, if there is a new government that comes in that's more pro-cannabis. Particularly looking at that state, I know new states coming online could be a good opportunity for you guys. So how would you guys potentially look at a state like Virginia in terms of the opportunities there and how the regulatory landscape exists today and could exist tomorrow based on pass legislation for retail setup?

We think Virginia is a very attractive medical market due to its very controlled licensure structure and the way in which the regulator has set up the geographic orientation of license holders. And we think it will be an extremely attractive recreational market as well. So as those discussions progress, we'll be looking to expand our relationships in the state and deploy capital.

And today's next question comes from Chris Muller with Citizens Capital Markets.

Congrats on another solid quarter here. So you guys have done a really great job underwriting a pretty challenging part of the market here. So can you guys talk about your approach to underwriting and what's driving that success? Is it more the type of borrowers you focus on or the geographies or maybe a combination of those?

Yes, I think you've hit on some of the key points. The first -- I think the foundation of our underwriting is an analysis of each of the markets, each of the markets of the 40 states that are legalized medical or recreational cannabis and that underwrite begins before we've deployed a single dollar into that market. And it's not just a focus on the state, it's also a deeper dive into each piece of the supply chain within that market. We focus on limited license jurisdictions because we find that in these spaces, the regulatory moat creates greater predictability of wholesale prices, margins and the competitive environment. Within that framework, we're focused on operators with a diverse source of earnings streams, whether that's earnings coming from a diverse portfolio of retail operations, retail and vertical integration or retail vertical integration spread across multiple limited license states.

And then lastly, in addition to -- apologies, in addition to real estate collateral, we're focused on lending to operators at conservative leverage levels of under 2x EBITDA. And the combination of all of these factors, frankly, allows for diversity of repayment, diversity of potential growth opportunities. And then while we're in structuring loans, I think it's important that in the majority of our loans, not only is our capital going towards growth initiatives that drive EBITDA improvement, and the majority of our loans also include amortization.

Got it. That's all very helpful and I guess...

And so the aim is that our loans will be less risky by their maturity date by virtue of EBITDA growth and loan paydown than they were at the outset and that we can then continue to support those clients in the next phase of their growth, whether that's acquisitions, expansion of cultivation, expansion of retail. And it's really just consistency with what we think are pretty simple fundamentals approach to this industry, a focus on credit quality and a focus on principal protection that's allowed us to maintain the track record through a lot of volatility in equity valuations and in the marketplaces, the operating marketplaces in each of these states.

Got it. That's very, very helpful. And I guess maybe looking forward a little bit. So looking at the LTVs of your portfolio, they're well below what we see for a typical commercial mortgage REIT. So if we do end up getting some type of reform, whether it's this year or next year, whenever that timing is, what type of normalized LTV would you expect to see in the portfolio?

Well, it's a difficult question to answer because there's a few variables. I would expect that in the case if the reform that we're discussing about is rescheduling, I haven't seen examples of a significant amount of new lenders entering the market in the event of rescheduling. And so I think there's opportunity to increase our loan sizes in many cases with many of our borrowers by nature of the improved cash flow dynamics of operators in a rescheduling environment because of the lack of the impact of 280E taxes. So that's one reason why you might see loan balances go up in a post- rescheduling world because the fundamental cash flow profile of the industry and individual operators has improved significantly.

But also on the other hand, I would expect there to be a lot more equity interest in the sector as a result of rescheduling. And so I would expect to see the denominator, the V in that ratio increase significantly starting with public operators and public cannabis valuations. And so the combination of those two, it's difficult to parse exactly what would be the change in LTV.

Got it. There's a lot of unknowns out there still. So that's very fair.

Yes. But I would note that we focus in our underwriting on the ability of a cannabis operator to service its indebtedness and to pay back that indebtedness. And that was our focus when cannabis companies were valued in the high teens EV to EBITDA. And that's our focus today when cannabis companies are valued in single-digit EV to EBITDA. And so I think it's -- and so that's why the understanding of the cash flow and diversity of cash flows and the collateral is really fundamental to us and more fundamental to us than an ephemeral -- potentially ephemeral market cap, potentially an ephemeral license value.

Got it. That's all very, very helpful. And I guess just one clarifying one real quick, if I could. Did I hear you guys correctly say that 86% of the portfolio has active floors in place as we sit today?

That's a combination of floors and fixed rate.

And the next question comes from Pablo Zuanic with Zuanic & Associates.

Peter, I realize that every company is different. But for example, IIPR this morning announced an investment outside cannabis, AFC Gamma transforming to a BDC investing outside cannabis. Chicago Atlantic BDC also is investing outside cannabis. Is that something that Chicago Atlantic Real Estate Finance would also consider given the environment in cannabis?

We have, on occasion, invested outside of cannabis, but we find that the risk reward profile for real estate-backed loans in the cannabis space is simply much more attractive than the risk reward in most cases than the risk-reward profile of real estate-backed loans in non-cannabis real estate opportunities. And I think that's what's driving our focus and the overwhelming allocation of the portfolio to cannabis opportunities in refi. But to the extent that changes, to the extent that we find attractive real estate-backed opportunities, we will certainly offer them to refi and may deploy them in refi.

But Chicago Atlantic was founded with a focus on idiosyncratic and niche areas of the private credit market and with a focus on cannabis. And that's part of our DNA and that focus on cannabis and our fidelity to the sector is not going to change. And I think it's one of the reasons why we've persisted in this industry and continue to deploy in this industry as the equity markets have experienced significant volatility as other lenders have exited the space. We think that focus and specialization can drive outsized returns and really differentiated returns for our investors and that we can provide a better product, better support, better relationship with our clients, with our borrowers. And we find that consistent presence in the market, that consistent support to our borrowers leads to better relationships, leads to more longevity of relationships and leads to a greater ability for us to build relationships with the next top operator that emerges from the ecosystem.

Right. That's good color. Just moving on in terms of 280E, you explained in the prior question that your main focus is on the company's ability to service debt, right? So how do you think about the uncertain tax provision that most MSOs have, right? The majority of them -- well, most MSOs, not the majority, like pretty much all of them except one, are paying their taxes, declaring taxes as a normal corporation and assuming 280E does not apply and based on lawyers and auditors recommendations, their advice, they are putting an item that's called uncertain tax provisions or benefits as a long-term liability, right? We will see if it's ever due and it doesn't have a maturity date. But how do you factor that in your ability to service debt?

We consider it as another form of leverage. And so we aim to create covenants that limit the ability of our borrowers to incur uncertain tax liabilities above a certain amount. And that amount is set by our comfort of the total leverage profile of the company.

That's good. Look, I know we normally do not talk about specific borrowers, but you mentioned Verano in your prepared remarks. I'm trying to understand here the dynamics. In the case of Verano, Chicago Atlantic, I believe, as a group, not just refi, has about a $300 million facility, $292 million book in Verano due next year, right? And now you have issued these revolvers for $75 million, 3-year revolver. I'm trying to understand the dynamics in terms of why not just restructure the whole thing and just have to restructure the $300 million loan that was due next year? Or given that we don't know what's going to happen in reform, you might just -- I'm just trying to understand why not do that as opposed to issuing a 3-year short-term revolver here?

We have incredible respect for the team at revolver -- at Verano and what the team at Verano has accomplished, what they're executing on today and their growth prospects. And we think their footprint, their asset base and their mindset when approaching the industry is something that we think is really unique within the space and we really value the partnership. And so to the extent that we can support them in any way, we're going to be ready and willing and we'll do our best to further their next growth initiatives and that applies for the rest of our portfolio as well. And so I can't -- I don't want to speak for what the team's aims are and how they wish to structure their balance sheet, except to say that we value their relationship, we value their partnership and we would love to support them in any way we can. And are really excited for what they're executing on within their portfolio.

Okay. And one last one, if I may. I know that we discussed the competition from other sectors before. I was recently at the Blank Rome conference. Bank Needham there, they said that they had issued about $500 million in loans to the cannabis sector, including Curaleaf most recently. They said they would never go to $2 billion, but they implied that they could double the current amount. So my read is that the competition from the regional banks under the current regulatory status quo is increasing, whether it's Valley Bank, Needham or other people. Am I wrong about that read, Peter?

I think those banks that have developed an expertise that have invested in the infrastructure and invested in the relationships of the cannabis space, in general, those banks have done well because they've deployed capital with discipline and conservatism and built relationships with some of the strongest operators in the space. And in many cases, those banks are now opting to go deeper because they've seen -- they've experienced success.

And so I think we've seen that among some of the largest banks that have consistently deployed capital in the space that they're seeking to do more, and that's great. We view banks as partners in our deployment strategy. They are leverage providers in both our public and private funds. There are co-lenders in many transactions. There are co-lenders in unitranche transactions in many transactions. And so we think they're an integral part of the lending ecosystem, and they're part of this process of building a mature capital markets for the cannabis industry.

And I think to compare -- just to compare where the banking industry sits within the broader private credit ecosystem today, banks are not outside of the cannabis industry. Banks are operators alongside of the private credit space. And the private credit space and whether that's mortgage REITs and/or BDCs operate alongside the banking ecosystem, and they benefit one another significantly and work together as part of this ecosystem. And that's what we hope to see develop in the cannabis industry, and that's what we're trying to build at Chicago Atlantic through our various partnerships with nearly all of the major banks that are operating in the cannabis space today. So long story short, we welcome and have worked to help banking institutions enter the cannabis space and we hope more will do so.

Look, I'm sorry, I want to add one more question if you don't mind, and apologies if there's someone else on the queue here. Can you give an update in terms of your lending program to the New York? I think your loan is to the regulator, right? It's not necessarily or to a fund there, not necessarily to the stores. I think we're up to 251 stores. Obviously, the state continues to expand in terms of retail stores, but I haven't seen necessarily that reflected in your loan book or maybe I'm missing something, but if you can provide an update on that.

I'm sorry, Pablo, I lost you at the beginning of your question. Could you repeat it?

Okay. I'm going to repeat that. I'm talking about New York state in terms of the number of stores and dispensaries in New York continues to grow. We are, I think, north of 250 now. And I thought that given the agreement that you have with the regulator there in terms of the funding, the fund there that as the number of stores increases that your lending to the program will have increased. But I don't see that reflecting in your loan book or maybe I'm missing something. And I'm sorry if it's about connection.

The New York Social Equity Fund has opted not to draw additional capital from our funds. They've supported the construction of close to 23 stores across the state and they've taken a pause on deployments. That being said, we are ready and willing to support them if they decide to continue deployments and continue to grow the portfolio of stores that they're supporting.

This concludes our question-and-answer session for today. I would now like to turn the conference back over to Peter Sack for any closing remarks.

Thank you all for the support and the questions. Glad to follow up offline with any questions and please reach out at any time. Thank you again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Chicago Atlantic Real Estate Finance, Inc. Second Quarter 2025 Earnings Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to hand the call to Tripp Sullivan of Investor Relations. Please go ahead.

Thank you. Good morning. Welcome to the Chicago Atlantic Real Estate Finance conference call to review the company's results. On the call today will be Peter Sack, Co-Chief Executive Officer; David Kite, Chief Operating Officer; and Phil Silverman, Chief Financial Officer.

Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, along with our supplemental filed with the SEC.

A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call. During this call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans and other investments, future dividends and financing activities. All forward-looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations.

Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC. We also will discuss certain non-GAAP measures, including, but not limited to, distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC.

I'll now turn the call over to Peter Sack. Please go ahead.

Thank you, Tripp. Good morning, everyone. While the cannabis equity markets have vacillated on the headlines surrounding the DEA and rescheduling and other capital providers have been inconsistent in their commitments to the industry, we've maintained our steady as-it-goes approach. We're deploying capital with consumer and product-focused operators in limited license jurisdictions at low leverage profiles to support fundamentally sound growth initiatives. And more importantly, we're staying disciplined and patient by making decisions based on credit and our ability to protect principal and achieve strong risk-adjusted returns.

The cannabis pipeline across the Chicago Atlantic platform has increased from $462 million a quarter ago to nearly $650 million today. We have a number of signed term sheets within this pipeline that should offset the early Q3 payoffs and keep us on track for net portfolio growth for the year.

Upcoming maturities in the market, M&A activity related to operational and balance sheet restructurings and a growing number of ESOP sale transactions drive recent pipeline growth. With our long history in the industry and over $2.2 billion of capital deployed in the cannabis industry alone, we continue to have the most robust platform to meet the growth of the industry. We enhanced our ability to support that growth with the recent extension of our credit facility with no change to the economic terms from June 30, 2026 to June 30, 2028. Our overriding goal for our shareholders is to create a differentiated and low levered risk return profile that is insulated from cannabis equity volatility and outperforms our industry-agnostic mortgage REIT peers. While there has been some near-term divergence in the financial services industry due to uncertainty around tariffs and the direction of interest rate policy, we're confident that we will outperform long term and deliver strong returns to our shareholders.

David, why don't you take up from here?

Thank you, Peter. As of June 30, our loan portfolio principal totaled $421.9 million across 30 portfolio companies with a weighted average yield-to-maturity of 16.8% compared with 16.9% for the first quarter. Gross originations during the quarter were $16.5 million of principal fundings, of which $10 million was an upsize and refinance of loan #7 and $6.5 million was funded to existing borrowers on delayed draw term loan facilities. These were partially offset by scheduled principal amortization payments received of $3.1 million.

As of June 30, 2025, the percentage of our portfolio comprised of fixed rate loans and floating rate loans was 40.7% and 59.3%, respectively. Our floating rate loans are generally benchmarked against the prime rate. When factoring for prime rate floors, 70.9% of the portfolio would be unaffected by prime rate declines up to 50 basis points, and 91.2% of the portfolio would be unaffected by prime rate declines up to 75 basis points. Meanwhile, our floating rate loans are not exposed to interest rate caps. We believe the portfolio remains well positioned to limit the impact of interest rate declines should the Federal Reserve decide to adjust Fed funds target later in the year. Total leverage equaled 39% of book equity at June 30 compared to 28% as of March 31.

Our debt service coverage ratio on a consolidated basis for the quarter was approximately 4.27:1 compared with the requirement of 1.35:1. As of June 30, we had $71.2 million outstanding on our senior secured revolving credit facility and $50 million outstanding on our unsecured term loan. As of today, we have approximately $97.6 million available on the senior credit facility with total liquidity net of estimated liabilities of approximately $94 million. The increase in availability under our leverage facility since quarter end results primarily from the application of approximately $56.8 million of proceeds from loan prepayments from 6 credit facilities subsequent to quarter end. To date in the third quarter, we recognized make-whole and prepayment fees on these prepayments of approximately $1 million.

I'll now turn it over to Phil.

Thanks, David. Our net interest income of $14.4 million for the second quarter represented a 10.6% increase from $13 million during the first quarter of 2025. The increase was primarily attributable to nonrecurring prepayment, make-whole, exit and structuring fees, which amounted to approximately $1.5 million for Q2 2025 compared with $0.4 million in Q1 as well as incremental gross interest income earned on our $16.5 million of new deployments.

Total interest expense, including noncash amortization of financing costs for the second quarter was consistent with Q1 at approximately $2.1 million. The weighted average borrowings on our Revolving Loan remained relatively consistent at $42.3 million compared to $41.6 million during the first quarter. As David noted, the company has approximately $98 million available on our Revolving Loan. Our CECL reserve on our loans held for investment as of June 30, 2025, was approximately $4.4 million compared with $3.3 million as of March 31. During the second quarter, we placed loan #6 on nonaccrual status, which partially contributed to the sequential increase in the reserve, and this loan is included in risk rating 4 as of June 30. On a relative size basis, our reserve for expected credit losses represents approximately 1.1% of outstanding principal of our loan held for investment compared to 0.8% as of March 31. On a weighted average basis, our portfolio maintains strong real estate coverage of 1.2x.

Our loans are secured by various forms of other collateral in addition to real estate, including UCC-1 all asset liens on our borrower credit parties. These other collateral types contribute to overall credit quality and lower loan-to-value ratios. Our portfolio has a loan-to-enterprise value ratio on a weighted average basis of 43.2% as of June 30, calculated as senior indebtedness of the borrower divided by the total fair value of total collateral to refi.

Distributable earnings per weighted average share on a basic and fully diluted basis were approximately $0.52 and $0.51 for the second quarter, an increase from $0.47 and $0.46 during the first quarter of this year. And in July, we distributed the first quarter dividend of $0.47 per common share declared by our Board in June 2025. During the second quarter, approximately 181,000 restricted stock awards previously granted under our employee incentive plan vested to common stock and accrued dividends since their respective grant dates of approximately $0.6 million, which were paid in June 2025. Our book value per common share outstanding was $14.71 as of June 30, and there were approximately 21.5 million common shares outstanding on a fully diluted basis as of such date.

We continue to expect to maintain a dividend payout ratio based on our basic distributable earnings per share of 90% to 100% for the 2025 tax year. If our taxable income requires additional distributions in excess of the regular quarterly dividend to meet our taxable income requirements, we expect to meet that requirement with a special dividend in the fourth quarter.

Operator, we're now ready to take questions.

[Operator Instructions]. And our first question will come from Aaron Grey of Alliance Global Partners.

So first question for me. Pipeline went up nicely Q-over-Q. Just want to get some color in terms of what you're seeing in the pipeline. I understand it can be for the whole Chicago Atlantic platform.

But was it more a function of operators realizing one of the limited options out there for capital? I just want to make sure there's no change in criteria qualifying for it to enter the pipeline or maybe just a function of larger potential opportunities that came in there. So any color that maybe drove some of the sequential increase in that pipeline?

Thanks, Aaron. Pipeline growth is driven by increased number of increased activity in the market of M&A, largely M&A, whether that's operational reorganization, ESOP transactions and to a certain extent, refinancings of existing debt.

Great. Peter, second question for me, you mentioned some increased liquidity from some prepayments that happened subsequent to the quarter.

Just kind of more broadly speaking, how do you view prepayments occurring for the remainder of the portfolio, maybe just kind of sticking it out through the remainder of the year? Do you feel like there's a large number of loans where that could occur further? Do you feel like that's more limited in nature? Just want to get more color in terms of how you're seeing the potential for prepayments and then also how you're seeing the yields for those potential loans that are being prepaid and how you can then deploy that out into new loans?

We -- sometimes it's difficult to predict prepayments and prepayments are both good and bad. They're a marker of success of the portfolio and quality of the portfolio. But they also are capital that is to be redeployed into new opportunities. I think the prepayments that occurred in early Q3 were particularly large and greater than I would expect for the balance of the year. But again, it's difficult to predict. That being said, they don't necessarily come at a bad time given the pipeline of opportunities that we have.

[Operator Instructions]. And our next question will come from Pablo Zuanic of Zuanic Associates.

Peter, can you just give an update on New York in terms of the relationship there with the agency, how the program is going? How many stores have you funded? What color can you share with us in that regard?

Yes. Relationship with the New York Social Equity Fund and the Dormitory Authority of New York is strong. We have a lot of faith in the program. They've built close to 23 dispensaries that are operating relatively successfully.

And we're really proud of what they've accomplished for those entrepreneurs. Those entrepreneurs that have been able to get their dispensaries open and are operating well. There's been a large amount of news around that market with regulations changing and controversy around how dispensaries were cited. But I'm confident that the governor's office and the legislature will find a solution and work their way through because it's in everyone's interest to do so.

And I think the New York market as a whole has been developing quite well in 2025. The wholesale market is developing, product quality and diversity has improved significantly and the ecosystem of dispensary operators has become nicely developed. And that's important for the ability of the legal market to compete with the illegal market. We've always said that there's 3 important prongs of a healthy legal operating market. You need access to dispensaries ideally within minutes of 15-minute walk of your front door. You need high-quality, reliable product grown indoors year-round. And you need pricing that's competitive, including taxes with potential legal competitors, and New York is getting that.

That's good. And then just bigger picture, obviously, we're all aware of many companies coming -- having maturities coming up over the next 12, 18 months. Can you talk about the landscape?

Because when we ask the companies, it seems to me that some of them are in a wait-and-see mode, waiting for reform at the federal level or positive news flow at the state level. If you can talk about how the demand side of things is playing out right now. And by the same token, it's -- I always ask you a question about competition, but it seems to me that there are some of your peers or other competitors in other asset classes perhaps being more aggressive in terms of terms and financing. So maybe talk about the demand and the supply side of the market right now?

Among the large-cap public operators are strong participants in the market, and we've participated and deployed capital into that segment of the market selectively. But that part of the market has never been our primary focus.

Our primary focus tends to be operators that are 1 or 2 level smaller, successful strong private multistate operators and single-state operators. We do find that among some of the larger public operators, ones that are large enough to have access to, for instance, the bond market, they do bring in a slightly different profile of lenders at times. But we don't really view them as -- we view them as a different class of competition simply because that's a segment of the market that we don't focus on.

I think the wait-and-see approach makes sense given cost of capital options. A lot of the bond maturities and debt maturities that are coming up in 2026 were priced at a time when overall interest rates were a lot lower and cannabis interest rates and cannabis access to capital was lower. And so that's -- and so in that context, I think the wait-and-see approach makes a lot of sense.

And one last one, and only if you can talk about this, but when I think about Chicago Atlantic, I think about the group on the private side, I think about the BDC, right? That's listed. And I think about you guys. And I'm trying to understand with the BDC involved right now, the group as a whole has more tools in approaching the clients, the demand side. Can you talk about how that's helping you working out right now, again, in terms of what you can share?

Yes, absolutely. Absolutely. Having multiple funding sources allows us to be a stronger, more competitive and more flexible partner to our clients, to our borrowers. And that's important because the lifeline of private credit and debt financing what underscores the quality of our portfolio ultimately stems from the quality of our pipeline and the broader that we can make that pipeline, the largest number of opportunities that we can generate creates greater selection and ultimately creates better quality.

And so this is why we think that there's extreme value to being part of a broader -- for each of our funds, there's extreme value to being part of a broader platform that can take advantage of sourcing capabilities, underwriting capabilities that ultimately leads to a higher quality, more diversified portfolio in each of the vehicles that we manage.

This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.