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Introduction & Market Context
Chicago Atlantic Real Estate Finance Inc (NASDAQ:REFI), a commercial mortgage REIT focused on lending to state-licensed cannabis operators, presented its Q2 2025 earnings supplemental on August 7, 2025. The company reported improved net interest income compared to the same period last year, despite facing ongoing challenges in the cannabis lending market.
The presentation comes after REFI missed analyst expectations in Q1 2025, with the stock currently trading at $13.23, down 0.53% from its previous close and significantly below its 52-week high of $16.29. The company continues to position itself as a significant player in the cannabis lending space, claiming approximately 18% market share of the U.S. cannabis debt market.
Quarterly Performance Highlights
Chicago Atlantic reported net interest income of $14.42 million for Q2 2025, representing a 9.4% increase from $13.18 million in Q2 2024. However, net income slightly decreased to $8.88 million from $9.18 million in the same period last year, primarily due to higher total expenses of $5.71 million compared to $4.00 million in Q2 2024.
The company’s core business metrics remain strong, with $421.9 million in outstanding loan principal and a gross portfolio yield of 16.8%. Chicago Atlantic has closed over $2.8 billion in loans since inception and maintains a robust pipeline of approximately $650 million under evaluation.
The following overview highlights the company’s key metrics and business model:
The company’s distributable earnings have supported consistent dividend payments, maintaining its position as a high-yield investment with an annualized dividend yield of approximately 12-14%.
Portfolio Composition and Strategy
Chicago Atlantic’s portfolio demonstrates diversification across loan sizes, interest rate types, and geographic locations. The top five loans represent 38.4% of the portfolio, while the next five account for 24.2%, with the remaining loans comprising 37.4%. This structure helps mitigate concentration risk while maintaining efficiency in portfolio management.
Geographically, the portfolio is spread across multiple states with significant concentrations in Michigan (17%), California (15%), and Illinois (11%). This diversification strategy aligns with the company’s focus on limited license states where cannabis licenses hold substantial value.
Risk management remains a priority for Chicago Atlantic, as evidenced by its loan collateral coverage metrics. The portfolio maintains a weighted average loan-to-enterprise value ratio of 43.2% and a real estate coverage ratio of 1.2x, providing a cushion against potential market volatility.
The company’s target loan profile focuses on real estate financing, capital expenditure, and growth/acquisition capital for cannabis operators. Loans typically range from $10-50 million with 2-3 year terms, and the company maintains conservative underwriting standards with loan-to-value ratios below 60% and senior debt to EBITDA ratios less than 2.0x.
Cannabis Market Opportunity (SO:FTCE11B)
Chicago Atlantic’s presentation emphasized the significant growth potential in the U.S. cannabis market. The industry is now legal in 41 states and the District of Columbia, with estimated revenue of $35 billion in 2025, projected to grow to $69 billion by 2031.
The company highlighted several advantages in the cannabis lending space, including lack of traditional financing options, high barriers to entry, and low correlation to traditional markets. These factors allow for higher interest rates and lender-friendly covenants compared to conventional real estate lending.
The regulatory landscape has evolved significantly over the past six years, with more states legalizing cannabis for recreational and medical use. This expansion creates additional lending opportunities as operators seek capital for growth and expansion.
Financial Position and Outlook
Chicago Atlantic’s balance sheet shows total assets of $455.21 million as of June 30, 2025, up from $435.15 million at the end of 2024. Total (EPA:TTEF) liabilities increased to $145.19 million from $126.19 million, while stockholders’ equity slightly improved to $310.03 million from $308.96 million.
The company’s consolidated statements of operation reveal the quarterly performance trends, with net interest income growth offset by increased expenses:
Despite the positive aspects presented in the earnings supplemental, Chicago Atlantic faces challenges reflected in its stock performance. After missing Q1 2025 earnings expectations with EPS of $0.47 against a forecast of $0.50, the stock has continued to trade below its 52-week high, currently at $13.23.
Looking forward, Chicago Atlantic aims to capitalize on its strong market position and the growing cannabis industry. The company’s management has previously indicated plans to accelerate loan deployments in the second and third quarters of 2025, which could potentially improve financial performance in upcoming quarters. Additionally, potential cannabis rescheduling at the federal level could benefit borrowers by eliminating certain tax constraints, potentially enhancing their ability to service debt.
As the cannabis lending market continues to evolve, Chicago Atlantic’s diversified portfolio, conservative underwriting approach, and significant market share position it to navigate industry challenges while pursuing growth opportunities.
Full presentation:
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