Chicago Atlantic Real Estate Finance Stock

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

I'd now like to turn the conference over to Lisa Kampf from ICR. Please go ahead.

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 report, which can be found on the Investor Relations section of our website, along with our supplemental information package furnished to 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 securities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans, and other investments, future dividends, the proposed merger of the company with and into Chicago Atlantic BDC, Inc. and its expected timing and benefits, and the anticipated benefits of our recent financing transaction to affiliates of [ Coach Capital ]. We will discuss certain non-GAAP measures, including but not limited to, distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most direct comparable GAAP measures are included in our earnings release and supplemental information available on our website and furnished to the SEC.

I'd like to remind our listeners that today's remarks and accompanying investor presentation contain forward-looking statements that are subject to significant 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. Risks and uncertainties include the ability to complete the merger of REFI and LIEN on the anticipated timeline, to obtain shareholder and regulatory approvals and required lender consent, realize the anticipated benefits of the transaction and developments in the cannabis regulatory environment, as well as other risks described in our SEC filings and in the legends in today's filed material. Actual results may differ materially, and we undertake no obligation to update except as required by law.

The transcript of this call is being filed with the SEC pursuant to Rule 425 under the Securities Act of 1933 and is being filed under Rule 14a-12 under the Securities Exchange Act of 1934. In connection with the proposed merger, LIEN filed with the SEC a registration statement on Form N-14, which includes a joint proxy statement of REFI and LIEN and a prospectus of LIEN. Investors and stockholders are urged to read those materials and any amendments or supplements when they become available because they will contain important information about the transaction. LIEN, REFI, the respective directors and executive officers, Chicago Atlantic BDC Advisors, LLC, and Chicago Atlantic REIT Manager, LLC, and certain other people may be deemed participants in the solicitation.

Information about those persons and their interests are included in the joint proxy statement and prospectus. Copies of all filed materials will be available free of charge on the SEC's website and on each company's Investor Relations website. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any securities. No offer of securities shall be made except by means of a prospectus, meeting requirements of Section 10 of the 1933 Act. I'll now turn the call over to Peter Sack. Please go ahead.

Thank you, Lisa. Good morning, everyone. REFI delivered a productive second quarter against the backdrop of continued geopolitical tensions and ongoing debate around inflation and interest rate expectations. While distributable earnings of $0.44 per basic weighted average common share came in below our dividend, this largely reflects the timing of capital redeployment rather than any material change in the underlying business or portfolio quality. Our experience in the cannabis ecosystem gives us the expertise, relationships, and ability to redeploy capital more quickly than the typical mortgage REIT. But redeployment never comes at the expense of our underwriting discipline and stringent risk standards protecting an acceptable risk versus reward.

In this case, early in the quarter, $16.3 million of loans were prepaid, and the capital wasn't redeployed until later in the quarter. While the portfolio principal balance increased approximately $40 million quarter-to-quarter, income growth was affected by that redeployment timing gap. The pipeline of cannabis opportunities remains strong and currently stands at $649 million, though only $204 million is backed by real estate collateral as of June 30, 2026. We continue to monitor the regulatory environment and have also noticed a growing acceptance of the cannabis industry within capital markets recently, reflected in the New York Stock Exchange uplisting of 2 cannabis-related companies. This was on the heels of the Department of Justice's announcement that it was rescheduling certain medical marijuana products from Schedule I to Schedule III.

An administrative hearing, which could clear a pathway to reschedule recreational adult use, concluded on July 15, and we are awaiting the next steps following a deadline for briefs set in August. We are encouraged by the progress in federal policy changes and the broader acceptance of cannabis and what it could mean for our borrowers. That said, we remain conservative in our outlook. The success of our strategy does not depend on any of these changes. The cannabis industry, in many respects, is evolving, and REFI must plan to evolve with it. In June, we announced an agreement to merge Chicago Atlantic BDC and REFI. Under the terms of the merger, as previously reported on Form 8-K filed on June 18, REFI will first elect to be treated as a business development company, or BDC, and then merge with and into LIEN in an all-stock adjusted NAV-for-NAV transaction, with LIEN continuing as the surviving company.

The merger of REFI and LIEN is intended to unlock potential value for REFI stockholders that we believe would be difficult to achieve for REFI independently as a public mortgage REIT. We believe LIEN is the right partner to deliver the benefits of scale by virtue of the breadth of the Chicago Atlantic platform and ability to expand the asset class and cannabis industry investment where both companies have experienced success since their respective inception. Both boards have unanimously approved this transaction, believing that it has the opportunity to create meaningful opportunity for stockholders of both companies through increased portfolio diversification and improved scale and stock liquidity, which is expected to drive market visibility and the potential to unlock greater capital market opportunities.

On July 31, 2026, LIEN filed a preliminary registration statement on Form N-14, which included a joint proxy statement of REFI and LIEN. The N-14 registration statement is subject to SEC review. We currently expect the transaction to close in the fourth quarter of 2026, subject to the required LIEN and REFI stockholder approvals, lender consents, regulatory approvals, and other customary closing conditions. Additionally, subsequent to the end of the second quarter, we announced the second lien financing of 32 retail properties across the United States that are managed by affiliates of [ Coach Capital ]. Each of the 32 retail properties, which are leased to cannabis tenants, are individually secured by second lien mortgage notes with an aggregate principal balance of approximately $62.5 million.

The notes bear interest at an annual rate of 12%, of which 10% is payable in cash and 2% paid in kind, respectively. The notes also include an exit fee and an amount up to 2.5x the commitment amount of each note, calculated at the time of repayment, net of interest and principal, if any, paid through such date. Through these exit fees, which may be realized in whole or part, REFI may receive economic benefit from the sale of each of the 32 retail properties within the portfolio. The notes thereby have particular opportunity for convexity in potential value realization to REFI. As we have noted, the regulatory landscape at the federal and state level is evolving rapidly. In the [ Coach ] portfolio, we underwrote each property and the credit quality of each tenant.

As regulatory change leads to greater equity capital availability, we expect capitalization rate compression to take place and value appreciation within the market of retail real estate leased to cannabis operators. REFI now stands to benefit from this potential market dynamic. In exchange for the notes, REFI issued approximately 4.3 million new common shares. Phil will walk through certain aspects of the accounting treatment for this transaction, but I'd like to summarize again why this transaction was attractive to Chicago Atlantic. First, our newly issued stock was priced at a 1% premium to book value, preserving cash liquidity for other originations. Second, the transaction diversifies our revenue streams and provides exposure to a different asset class, 1 with longer durations than the existing portfolio that we expect to present further opportunities to generate alpha as the industry continues to evolve.

Lastly, we believe the transaction has opportunity to provide REFI stockholders significant potential yield upside beyond the 12% blended annual rate through the exit fee mechanism. The fee is structured to enable REFI to capitalize on potential cap rate compression and economic gains, if any, earned by the borrower upon property realizations. In closing, REFI continues to deliver strong returns through our differentiated approach, lending to operators and property owners in the cannabis industry in a niche market where competition remains limited. We remain confident in our ability to navigate a changing landscape while staying disciplined in our underwriting and true to the strategy that has driven our performance to date. [ David Kite ] will now speak to the portfolio in greater detail. David?

Thank you, Peter. As of June 30, our loan portfolio principal, which includes loans held for investment and loans at fair value, totaled approximately $453 million across 26 portfolio companies with a weighted average yield to maturity of 15.8%, consistent with the first quarter of 2026. The originations during the quarter were approximately $56.8 million of principal fundings, of which $56.1 million and $0.7 million were funded to new borrowers and existing borrowers, respectively. These were offset by approximately $19.7 million of repayments, comprised of approximately $3.3 million in scheduled amortization payments and $16.4 million from full loan prepayments. There was minimal change in portfolio risk rating and credit quality in the second quarter. As of June 30, 2026, approximately 10.8% of our portfolio is risk rated 4 or higher, compared with 10.7% as of March 31, 2026.

This slight shift was due to the change in the total portfolio risk rating of the first quarter portfolio amount rather than a change in ratings on loans. CECL reserves of $0.6 million reflected reserves on 2 new loans. As of June 30, 2026, approximately 3.7% of our portfolio, based on outstanding principal, is on non-accrual status, a decrease from approximately 4.8% as of March 31, 2026. As of June 30, 2026, our portfolio consisted of 37.5% fixed rate loans and 62.5% floating rate loans. Approximately 74% and 26% 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 rate loans are at their floors. And in total, only approximately 3.6% 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 47% of book equity at June 30, compared with 38% as of March 31. As of June 30, we had $90.1 million outstanding on our senior secured revolving credit facility and $49.5 million outstanding on our unsecured term loan. As of today, we have approximately $15 million available on the senior credit facility, which is largely representative of our available liquidity for new deployments. I'll now turn it over to Phil.

Thanks, David. Our net interest income of $12.8 million for the second quarter represented a $0.3 million or 2.2% decrease from $13.1 million during the first quarter. The decrease was attributed to the timing of redeployments of new originations from payoffs received during Q1 and during the front half of the second quarter, as well as a decrease in 1-time non-recurring fee income, which was approximately $0.8 million in the second quarter compared with $1.1 million during the first quarter. There were no material changes to the company's non-accrual positions, though we received a full repayment of loan #6, which we referenced as a subsequent event during our call last quarter. Total interest expense, including non-cash amortization of financing costs for the second quarter, was approximately $2.4 million, an increase from $2 million in the first quarter.

The weighted average borrowings on our revolving loan increased to $67.5 million from $48 million during the first quarter. Our CECL reserve on our loans held for investment as of June 30 was approximately $9.4 million. On a relative size basis, our reserve for expected credit losses represents approximately 2.3% of our outstanding principal of our loans held for investment. There were no significant movements in risk ratings across the portfolio and on a weighted average basis, our portfolio maintained a strong real estate coverage of 1.2x and a loan-to-enterprise value ratio of approximately 46%. Distributable earnings per weighted average share on a basic and fully diluted basis were approximately $0.44 and $0.43 respectively for the second quarter. And in July, we distributed the second quarter dividend of $0.47 per common share declared by our board in June.

Since inception, the company has distributed $9.41 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 $14.15 as of June 30, 2026, and there were approximately 21.7 million common shares outstanding on a fully diluted basis as of such date. As Peter referenced earlier, on July 9, the company closed the [ Coach ] financing transaction, under which REFI issued approximately 4.3 million new common shares at a price of $14.53 per share, in exchange for second lien notes with an aggregate principal balance of $62.5 million. The transaction price amounted to a premium to the March 31, 2026 book value per share. And pro forma for the [ Coach ] transaction, the company has approximately 26 million common shares outstanding on a fully diluted basis.

Because the [ Coach ] notes were received as consideration for the issuance of the company's common stock, the [ Coach ] notes are expected to be presented in the company's third quarter financial statements as a reduction of stockholders' equity rather than as loans held for investment. And the associated cash flow shall be recorded through stockholders' equity rather than as interest income or within total assets on the consolidated balance sheets in accordance with GAAP. Accordingly, the transaction increased the number of shares of common stock outstanding, but had no material net effect on total stockholders' equity and did not increase total assets upon issuance. Notwithstanding this financial statement presentation, the [ Coach ] notes constitute bona fide debt secured by real property and for purposes of the company's qualification as a real estate investment trust, are expected to be treated as qualifying real estate assets that generate qualifying distributable taxable income under the applicable REIT gross income and asset tests.

Under the terms of the agreement and plan of merger by and between the company and Chicago Atlantic BDC, Inc., the company intends to distribute its accumulated REIT taxable income, if any, prior to the merger effective time. Though the transaction remains subject to shareholder and SEC approvals, lender consents, and customary closing conditions, the company currently anticipates the transaction to close in the fourth quarter of 2026. Notwithstanding the proposed merger, 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.

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

Good morning. First question for me, I can appreciate some of the timing issues, you know, with the prepayments and being able to redeploy some of that capital, but just curious, how are you looking to manage that in the interim? I know it's been coming up a couple times the past quarter. Maybe it does become less of an issue post-merger, but just within the dynamics of just REFI today, how are you looking to manage that and potentially give yourself more cushion for that distributable EPS relative to the dividend as you look to take advantage of opportunities to get the most out of the capital you have?

Thanks for the question, Aaron. And through the completion of the merger with LIEN, I think today we're only prepared to say that we expect to distribute all or nearly all of REFI's distributable earnings through its taxable income through the merger date.

Okay, appreciate that. I know this question has come up in the past several years, but I just want to bring it up again, just given the dynamics that could be changing now to the next time we talk to you in November, particularly if we get Phase II descheduling of the entire plant. Just maybe remind us of how those dynamics could change for you guys if you see others potentially coming into the space, how you could potentially leverage that, given your expertise in the sector, to find more opportunities and get access to more capital yourselves at more attractive rates. If you just remind us of potential changes that could come with that, that would be appreciated.

So, rumors of rescheduling began in mid-2025. In December, Trump made his executive order directly directing his administration to execute the process of rescheduling. And then in April, the Department of Justice made its landmark order rescheduling medical cannabis. Through that process, beginning in mid-2025, we saw significant changes in valuations of the equities of major Canadian-listed U.S. cannabis operators. And then this year, following the Department of Justice's order rescheduling medical cannabis products, we've seen 2 U.S. operators list on the New York Stock Exchange, and we've seen 1 NASDAQ-listed cannabis operator announce that it would be acquiring U.S. medical assets. These are really significant capital market transitions for the U.S. cannabis industry. However, throughout this period from the beginning of 2025 through the executive order, through Department of Justice order, through cannabis operators listing on U.S. exchanges, we've not seen new entrants enter our competitive lending environment.

Obviously, I can't say with certainty why that is, and I can't say with certainty that there won't be new entrants, but I can describe why I think debt markets and equity capital markets are somewhat distinct. The debt capital markets, I think of the debt capital markets and the equity capital markets as being somewhat different. The equity capital markets are somewhat like a light switch. You're either listed on the New York Stock Exchange or the NASDAQ, or you're not. In debt capital markets, it's more like turning the Titanic. There's so many incremental pieces of our financial plumbing system that are required for cannabis operators to have greater access to debt capital markets for there to be a large number of participants involved in our debt capital markets.

You need rating agencies. You need the leverage providers that lend to levered lending companies. You need more law firms to be willing to write the loan documents for cannabis operators. You need the Big Four accounting firms to be willing to audit funds that serve cannabis operators and to audit cannabis operators. You need more custodians. And any 1 of them can make it difficult for existing debt capital providers to support the cannabis ecosystem. All that being said, we would welcome more debt participants in our industry because the market is extremely inefficient today. And we believe that we're going to be best positioned to benefit from greater capital availability.

We look forward to the opportunity to have a broader array of debt capital providers. We look forward to the opportunity to be able to work with a broader array of credit rating agencies for lenders such as ours. And we look forward to the opportunity to have a broader array of equity investors that are excited about our industry. And we think that having more U.S. cannabis operators listed on U.S. exchanges means that there will be more equity analysts following the industry more broadly and that that will inure to our benefit as well. I think this also plays a role in why we think the merger between REFI and LIEN is very well-timed as a platform with a larger market. It creates an opportunity for us to communicate and to seek the interests of a broader range of equity investors and a larger array of debt investors as these transitions are occurring. Does that answer the question, Aaron?

Yes, absolutely. I really appreciate the extensive commentary on that. I'll go and jump back in the queue.

The next question comes from Pablo Zuanic with Zuanic & Associates. Please go ahead.

Yes, good morning, everyone. Just on the [ Coach ] deal. You gave a lot of color, but can you explain why that was the right structure as opposed to, for example, just buying the leases on the 32 dispensaries? Let's start with that.

Mm-hmm. As you're aware, as a NASDAQ-listed entity, REFI is still prohibited from owning cannabis properties, from owning the equity of cannabis companies or the warrants related to cannabis companies or even convertible loans related to U.S. cannabis operators. And so I think this structure and the financings that we provided to [ Coach Capital ] allow REFI to secure much of the economic benefit related to cannabis-related leases without owning properties, which would be prohibited by our listing. We should note that in this strategy, in our exposure to the sale-leaseback market, we're gaining exposure to a market inefficiency that's very similar to the market inefficiency that we have in debt capital markets today.

In debt capital markets and cannabis, our ability to make loans at what we view as much lower risk levels than the broader private credit and lending markets, much higher reward levels than the broader private credit markets is driven by the mismatch in supply and demand between debt capital and demand for capital in the cannabis industry and the lack of debt financing options within the cannabis industry today. That same gap exists within the market for real estate and leasing to cannabis operators. Oftentimes cannabis operators, and I'll focus on the retail market because that's what this portfolio represents, cannabis operators in the retail market encounter difficulties sourcing properties from landlords that are willing to lease to cannabis companies. They find challenges finding properties in locations that satisfy zoning requirements or distance requirements, and in municipalities that are willing to permit cannabis operations.

The result of these structural challenges is that cannabis operators often end up paying higher cap rates, higher lease rates than the broader retail leasing market. And that's what this portfolio of investments gives us greater exposure to. It gives us greater exposure to that market inefficiency, gives our investors greater exposure to that market inefficiency. And then if that market inefficiency does change over the coming years, the structure, the way in which this transaction is structured, the exit fees associated with them, allow REFI to have exposure to the convexity that could occur if cap rates compress, if the market for leasing to cannabis operators becomes more competitive. And so I think this portfolio and this decision dovetails well with regards to Aaron's question, where he asked how REFI positions as the market changes, as more competitors come in. And I think this [ Coach ] transaction is 1 example of how we can benefit in the immediate term from an attractive yield profile, attractive opportunities for earnings, and benefit especially well should that market change, should the pricing for properties leased to cannabis operators change dramatically.

That's good color. Thank you. So assuming that the inefficiencies remain in place for some time, would not be a 1-off transaction. You would do more of this to gain more exposure to sale-leaseback in the cannabis space.

Potentially, yep.

Okay, do you want to give any color on the 32 dispensaries, and I don't want to get too bogged down on [ Coach ], but just, what are they located, is it just 1 operator, can you give any?

We'll have more color within our Q3 reporting. I can say that it is a relatively diverse array of tenants. It is not 1 tenant. I'd say that our presence in the industry, our natural presence in the industry, means that by chance we're already familiar with many of the tenants involved. And so that did ease the underwriting process. Just similar to a credit underwriting, the credit quality of the borrower is critical. In this case, the credit quality of the tenants are critical. And so our diligence process placed extreme emphasis on that facet of the transaction.

Right. And last 1 on [ Coach ] and maybe for Phil. I mean, obviously, I will try to do the math, but do you know the contribution to adjustable distributable earnings per quarter in Q3 and Q4? Roughly, how much would that be from this transaction, from the [ Coach ] deal, factoring the increased share count?

I'm sorry, Pablo, could you repeat that 1 more time? I missed the front part of your question.

Well, I mean, just trying to work out the impact on adjustable distributable earnings from the [ Coach ] transaction. Like, I mean, how many cents does this add, say, in the fourth quarter on a full run rate basis? Just roughly, if you can.

Yes, thanks for the question. We don't provide guidance on changes of distributable earnings in future quarters, but as I referenced in the prepared remarks, because the loans that were made are secured by real estate and are qualifying assets for the REIT income and asset tests, the income generated from these properties at the contractual rate plus any exit fees will be distributable income, even if not presented on the income statement under GAAP within the company's financial statements. So the, you know, fixed profile, if you will, of the loans at 12% are the yield plus any exit fees on the upside. I'm not going to provide guidance on the pro forma distributable earnings.

Okay. All right. That's fine. And then just a couple more, if I may, and an apology to someone else on the Q&A queue. So you had that early, I mean, in terms of early repayments, I guess par for the course, that's going to happen, but is there anything new? Are you seeing more early repayments than in the past? And if so, why? Or is it just normal cadence?

Sorry, Pablo, I don't know if my line is okay. My apologies. Can you repeat the question?

Yes. In terms of the early repayments, I know that that's par for the course, right? But you had about $19 million, particularly loan #37. I think that was due November 2028. So $17 million there. Compared to prior quarters, is anything changing? Are you seeing more early repayments? And if so, why?

No, no significant changes. I think we can go on. Sorry, go on, Pablo. Sorry.

So no significant changes. And then given the potential for uplisting, rescheduling and all these positive reform news, do you find that some of your potential borrowers in your pipeline on cannabis are on hold waiting for those changes or people are still taking action and engaging with you?

I think we're actually seeing the opposite. We're seeing more demand for debt capital as operators see an opportunity for expansion, for acquisition, for investment going into these potential regulatory changes. Particularly on the M&A side, operators see what could be a last opportunity to merge, acquire in a low valuation environment that could change in the future.

That's good. And the very last question, and here it's just to get your take on the macro side of cannabis, even though you talk to most companies. The first question is that in my opinion, when I hear most of the MSO calls, they're given guidance or expectations on a number of macro issues. They have not given guidance in terms of when they expect the IRS or the Treasury to issue guidance on tax debt relief, 280E relief. In your opinion, do you expect that will happen before we have recreational rescheduling or it will only come out after recreational rescheduling? And I know it's a crystal ball question, but I'm just trying to get your opinion on that.

I believe that market participants believe that tax relief related to rescheduling is effective for medical operators concurrent with the Department of Justice order with regards to adult use and its rescheduling process. Time will tell.

Yes, it's more about the question about the tax debt, right? But I hear you.

Oh, the tax. Apologies. Yes, I think there's very little guidance and it's difficult to say. Consider in our underwriting process that IRS tax debt to be debt. And it's a key focus of our underwrites.

Right. And, Peter, I'm sorry, 1 very, very last 1. There's more and more companies talking about interstate trade potentially being imminent after rescheduling of rec, right? I personally disagree with that. More companies talking about that, talking about the Dormant Commerce Clause, that it will happen sooner or later, rather soon according to some companies out there. In your underwriting, how do you think about the potential for interstate trade and how that will impact some of your borrowers?

I think in our underwriting, we have a... I think that there's greater credit protection from diversified retail portfolios. In addition to limited license regulatory moats, diverse retail portfolios provide additional geographic moats and additional diversity of EBITDA generation. I think that retail portfolios are also more insulated from risks associated with interstate commerce. As product can travel across state lines, operators will still be required to have retail licenses to market and sell product to the end consumer.

I think our bias towards EBITDA generation from retail, EBITDA generation driven by brand strength, insulates our portfolio relatively well already from interstate commerce. But I think, Pablo, I agree with your sentiments that states can be very effective at creating moats and barriers for interstate commerce to protect industries and to protect jobs that have been built up in this industry on a local level over the course of the last decade. And so I believe that the transition to more accessibility of interstate commerce, if it does begin, is going to be a gradual process.

This concludes our question and answer session. This concludes today's conference. Thank you for participating. You may now disconnect.

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.