Overview

Chicago Atlantic Real Estate Finance, Inc. is a commercial mortgage real estate investment trust (REIT) that primarily originates, structures, and invests in first mortgage loans and alternative structured financings secured by commercial real estate properties. The company’s current portfolio is comprised primarily of senior loans to state-licensed operators in the cannabis industry, secured by real estate, equipment, receivables, licenses, or other assets of the borrowers.

Financial Performance

• The company’s revenue is primarily generated from interest income on loans, which decreased by 2% in the first quarter of 2025 compared to the same period in 2024. This was driven by a decrease in the percentage of floating-rate loans in the portfolio and a lower weighted average yield-to-maturity internal rate of return (YTM IRR).

• Interest expense remained consistent over the comparative period. The addition of the Notes Payable in the fourth quarter of 2024 was offset by a decrease in the outstanding balance on the Revolving Loan.

• The company recorded a benefit for current expected credit losses of $1.1 million in the first quarter of 2025, compared to a provision of $380 thousand in the same period in 2024. This was primarily driven by the reversal of the reserve on Loan #9 and improvements in the overall portfolio risk composition.

• Net income increased by 15% in the first quarter of 2025 compared to the same period in 2024, primarily due to the decrease in the credit loss provision.

Strengths and Weaknesses

Strengths:

• Diversified portfolio across jurisdictions and cannabis industry verticals
• Substantial collateral backing the loans, including real estate, equipment, receivables, and licenses
• Experienced management team with a track record of originating and managing loans in the cannabis industry

Weaknesses:

• Exposure to interest rate risk, as a significant portion of the portfolio is comprised of floating-rate loans
• Reliance on the cannabis industry, which remains federally illegal and subject to regulatory uncertainty

Outlook

The company expects the demand for capital in the cannabis industry to continue increasing as more states legalize cannabis and operators seek to enter and build out new markets. The company plans to grow its portfolio by continuing to make loans to leading operators and property owners in the cannabis industry. However, the company’s performance remains subject to risks related to the evolving regulatory environment, interest rate volatility, and the overall economic conditions affecting its borrowers.