Chicago Atlantic's Q4 2024 Earnings Call: Contradictions in Market Demand, Credit Quality, and Cannabis Reform

These are the key contradictions discussed in Chicago Atlantic Real Estate Finance's latest 2024Q4 earnings call, specifically including: Market Demand and Leverage Expectations, Credit Quality Assessment, Schedule III Reform, and the Industry's Overall Shape and Competition:



Industry and Company Performance:
- The U.S. cannabis industry turned the year on muted notes, with cannabis equity values and implied valuation multiples reaching near record lows due to factors like the failure of Florida's adult-use ballot initiative and pricing pressure in some markets.
- Despite this, Chicago Atlantic executed a strong fourth quarter, with its stock price increasing from $15.13 to $16.15 per share, while the ETF tracking U.S. cannabis operators, MSOS, declined by 61%.

Dividend and Shareholder Returns:
- Chicago Atlantic announced 2 dividends in Q4, while the cannabis ETF declined significantly, highlighting the company's ability to create a differentiated and low levered risk return profile insulated from cannabis equity volatility.
- The company delivered $2.06 per share in dividends to shareholders in 2024, payout ratio of approximately 99% of its basic distributable earnings.

Loan Portfolio and Liquidity:
- The company's loan portfolio principal totaled $410 million, with a weighted average yield to maturity of 17.2%. Approximately 68% of the portfolio is now insulated from declining interest rates.
- Chicago Atlantic had $67 million of liquidity at the end of Q4 to fund deployment, with a pipeline of $490 million in potential loans.

Credit Quality and Portfolio Management:
- Credit quality remained strong, with 91% of the portfolio risk rated 3 or better, and only 1 loan on nonaccrual status.
- The company increased its senior secured credit facility to $110 million and closed on a $50 million unsecured term loan, deploying nearly half net of repayments in Q4.