Cannabis REIT Chicago Atlantic Nets $9.2M In Strong Q2, Citing Regulatory Tailwinds

Chicago Atlantic Real Estate Finance Inc. REFI, a cannabis-focused commercial real estate finance company, announced Wednesday its financial results for the second quarter ending June 30, 2024.

Q2 2024 Financial Highlights

• Net interest income held steady at approximately $13.2 million, mirroring the first quarter of 2024. Interest expenses fell by about $0.3 million due to reduced average borrowings during the quarter.
• Total expenses rose to roughly $4.3 million before accounting for expected credit losses, up 3.6% sequentially, mainly due to increased stock-based compensation from new restricted stock awards in April 2024.
• Net income reached about $9.2 million, or $0.46 per weighted average diluted share, marking a 2.1% decrease per share from the previous quarter.
• The reserve for expected credit losses decreased by $0.3 million to $5.1 million, representing 1.3% of the total portfolio principal of $383.3 million as of June 30, 2024.
• Distributable earnings were approximately $9.8 million, or $0.50 per diluted share, showing a 3.8% per share decrease sequentially.
• Book value per common share was $14.92 on June 30, 2024, slightly down from $14.97 on March 31, 2024. Fully diluted shares increased to 20,057,977 from 19,460,282 over the same period.

Chicago Atlantic's Portfolio And Capital Management

The company's portfolio performance remained strong with a total loan principal outstanding of $383.3 million across 31 investments. Also, the weighted average yield to maturity as of June 30, 2024, was approximately 18.7%, a slight decrease from 19.4% as of March 31, 2024, attributed to amendments in borrower performance and pricing structures.

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Moreover, Chicago Atlantic’s proactive capital management raised over $6 million through its ATM program and expanded its revolving credit facility to $105 million. This financial maneuvering is aimed at supporting an expected uptick in originations in the latter half of the year, as stated co-CEO Peter Sack in a press release. “We have continued to grow the portfolio in a measured fashion while maintaining a substantial spread above our cost of capital. Our loan underwriting has always assumed that regulatory reform at the federal level does not occur, resulting in a very conservative posture with relatively low loan to value and loan to enterprise value across the portfolio.”

Cannabis Reform Boosts Operations

Executive chairman John Mazarakis shared insights on the impact of regulatory changes on their operations. “The pace and direction of federal and state regulations are creating a tailwind in the cannabis industry. The comment period closed on DEA rescheduling with an overwhelmingly positive response – nearly 90% were in favor. The Ohio adult use rollout is happening as we speak, and Florida adult use is on the ballot in November. We have already seen a positive impact to our originations pipeline from both new and existing operators in these states as well as operators with growth opportunities in recent states such as Maryland, Minnesota, and Missouri.”

Looking ahead, Chicago Atlantic reaffirmed its 2024 outlook, anticipating sustained growth fueled by both regulatory reforms and robust investment activities. 

REFI Price Action
REFI's shares were trading 0.58% higher at $15.36 per share at the time of this writing around noon ET Wednesday.

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