[10-Q] Chicago Atlantic Real Estate Finance, Inc. Quarterly Earnings Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
Commission File Number:
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
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Outstanding at August 4, 2025 |
Common stock, $0.01 par value |
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CHICAGO ATLANTIC REAL ESTATE FINANCE, INC.
TABLE OF CONTENTS
INDEX
Part I. |
Financial Information |
1 |
Item 1. |
Financial Statements (unaudited) |
1 |
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Consolidated Balance Sheets |
1 |
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Consolidated Statements of Income |
2 |
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Consolidated Statements of Equity |
3 |
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Consolidated Statements of Cash Flows |
4 |
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Notes to Consolidated Financial Statements |
5 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
45 |
Item 4. |
Controls and Procedures |
48 |
Part II. |
Other Information |
49 |
Item 1. |
Legal Proceedings |
49 |
Item 1A. |
Risk Factors |
49 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
49 |
Item 3. |
Defaults Upon Senior Securities |
49 |
Item 4. |
Mine Safety Disclosures |
49 |
Item 5. |
Other Information |
49 |
Item 6. |
Exhibits |
50 |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CHICAGO ATLANTIC REAL ESTATE FINANCE, INC.
CONSOLIDATED BALANCE SHEETS
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June 30, 2025 |
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December 31, 2024 |
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(unaudited) |
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Assets |
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Loans held for investment |
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$ |
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$ |
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Loans held for investment - related party (Note 8) |
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Loans held for investment, at carrying value |
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Current expected credit loss reserve |
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( |
) |
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( |
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Loans held for investment at carrying value, net |
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Loans, at fair value - related party (amortized cost of $ |
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Cash and cash equivalents |
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Other receivables and assets, net |
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Interest receivable |
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Related party receivables |
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Total Assets |
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$ |
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$ |
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Liabilities |
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Revolving loan |
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$ |
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Notes payable, net |
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Dividend payable |
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Related party payables |
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Management and incentive fees payable |
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Accounts payable and other liabilities |
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Interest reserve |
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Payable for investment purchased |
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Total Liabilities |
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Commitments and contingencies (Note 9) |
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Stockholders' equity |
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Common stock, par value $ |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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1
CHICAGO ATLANTIC REAL ESTATE FINANCE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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For the three months ended June 30, |
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For the six months ended June 30, |
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2025 |
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2024 |
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2025 |
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2024 |
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Revenues |
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Interest income |
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$ |
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$ |
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$ |
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$ |
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Interest expense |
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( |
) |
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( |
) |
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( |
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( |
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Net interest income |
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Expenses |
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Management and incentive fees, net |
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General and administrative expense |
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Professional fees |
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Stock based compensation |
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Provision (benefit) for current expected credit losses |
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( |
) |
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Total expenses |
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Change in unrealized gain (loss) on investments |
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( |
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Realized gain on debt securities, at fair value |
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Net Income before income taxes |
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Income tax expense |
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Net Income |
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$ |
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$ |
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$ |
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$ |
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Earnings per common share: |
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Basic earnings per common share |
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$ |
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$ |
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$ |
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$ |
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Diluted earnings per common share |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic weighted average shares of common stock outstanding |
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Diluted weighted average shares of common stock outstanding |
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2
CHICAGO ATLANTIC REAL ESTATE FINANCE, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2025 |
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Common Stock |
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Additional Paid-In- |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at March 31, 2025 |
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( |
) |
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Issuance of common stock, net of offering costs |
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- |
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- |
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- |
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- |
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- |
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Issuance of common stock from employee incentive plan (Note 10) |
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( |
) |
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- |
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- |
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Stock-based compensation, net of forfeitures |
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- |
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- |
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- |
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Dividends declared on restricted stock awards |
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- |
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- |
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- |
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( |
) |
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( |
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Dividends declared on common shares ($ |
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- |
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- |
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- |
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( |
) |
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( |
) |
Net income |
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- |
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- |
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- |
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Balance at June 30, 2025 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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THREE MONTHS ENDED JUNE 30, 2024 |
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Common Stock |
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Additional Paid-In- |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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Issuance of common stock, net of offering costs |
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- |
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Issuance of common stock from employee incentive plan (Note 10) |
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( |
) |
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- |
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- |
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Stock-based compensation, net of forfeitures |
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- |
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- |
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- |
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Dividends declared on restricted stock awards |
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- |
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- |
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- |
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( |
) |
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( |
) |
Dividends declared on common shares ($ |
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- |
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- |
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- |
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( |
) |
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( |
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Net income |
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- |
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- |
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- |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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SIX MONTHS ENDED JUNE 30, 2025 |
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Common Stock |
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Additional Paid-In- |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2024 |
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( |
) |
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Issuance of common stock, net of offering costs |
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- |
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Issuance of common stock from employee incentive plan (Note 10) |
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( |
) |
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- |
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- |
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Stock-based compensation, net of forfeitures |
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- |
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- |
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- |
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Dividends declared on restricted stock awards |
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( |
) |
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( |
) |
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Dividends declared on common shares ($ |
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- |
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- |
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- |
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( |
) |
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( |
) |
Net income |
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- |
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- |
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- |
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Balance at June 30, 2025 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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SIX MONTHS ENDED JUNE 30, 2024 |
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Common Stock |
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Additional Paid-In- |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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( |
) |
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Issuance of common stock, net of offering costs |
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Issuance of common stock from employee incentive plan (Note 10) |
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( |
) |
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- |
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- |
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Stock-based compensation, net of forfeitures |
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- |
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- |
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- |
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Dividends declared on restricted stock awards |
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- |
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- |
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- |
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( |
) |
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( |
) |
Dividends declared on common shares ($ |
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- |
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- |
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- |
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( |
) |
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( |
) |
Net income |
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- |
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- |
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- |
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Balance at June 30, 2024 |
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$ |
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$ |
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( |
) |
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$ |
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3
CHICAGO ATLANTIC REAL ESTATE FINANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the six months |
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2025 |
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2024 |
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Operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Accretion of deferred loan origination fees and other discounts |
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( |
) |
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( |
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Paid-in-kind interest |
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( |
) |
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( |
) |
Provision for current expected credit losses |
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Change in unrealized (gain) loss on investments |
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( |
) |
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Realized gain on debt securities, at fair value |
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- |
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( |
) |
Amortization of debt issuance costs |
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Stock based compensation |
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Changes in operating assets and liabilities: |
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Interest receivable |
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( |
) |
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( |
) |
Other receivables and assets, net |
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( |
) |
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Interest reserve |
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( |
) |
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Related party payables |
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( |
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( |
) |
Related party receivables |
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( |
) |
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Proceeds from the redemption of debt securities, at fair value |
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- |
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Management and incentive fees payable |
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( |
) |
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( |
) |
Accounts payable and accrued expenses |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Issuance of and fundings of loans held for investment |
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( |
) |
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( |
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Principal repayment of loans held for investment |
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Net cash provided by/(used in) investing activities |
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( |
) |
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Cash flows from financing activities |
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Proceeds from sale of common stock |
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Proceeds from borrowings on revolving loan |
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Repayment of borrowings on revolving loan |
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( |
) |
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( |
) |
Dividends paid to common shareholders |
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( |
) |
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( |
) |
Payment of debt issuance costs |
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( |
) |
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Payment of offering costs |
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( |
) |
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( |
) |
Net cash (used in)/provided by financing activities |
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( |
) |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents, beginning of period |
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||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of non-cash financing and investing activities |
|
|
|
|
|
|
||
Interest reserve withheld from funding of loans |
|
$ |
|
|
$ |
|
||
OID withheld from funding of loans held for investment |
|
|
|
|
|
|
||
Dividends declared and not yet paid |
|
|
|
|
|
|
||
Payable for investment purchased |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
||
Supplemental information: |
|
|
|
|
|
|
||
Interest paid during the period |
|
|
|
|
|
|
||
4
CHICAGO ATLANTIC REAL ESTATE FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Chicago Atlantic Real Estate Finance, Inc., and its wholly owned consolidated subsidiary, Chicago Atlantic Lincoln LLC (“CAL”) (collectively the “Company”, “we”, or “our”), is a commercial mortgage real estate investment trust (“REIT”) incorporated in the state of Maryland on March 30, 2021. The Company has elected to be taxed as a REIT for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2021. The Company generally will not be subject to United States federal income taxes on its REIT taxable income if it annually distributes to stockholders at least
The Company operates as one operating segment and its primary investment objective is to provide attractive, risk-adjusted returns for stockholders over time, primarily through consistent current income (dividends and distributions) and secondarily, through capital appreciation. The Company intends to achieve this objective by originating, structuring, and investing in first mortgage loans and alternative structured financings secured by commercial real estate properties. The Company’s loan portfolio is primarily comprised of senior loans to state-licensed operators in the cannabis industry, secured by real estate, equipment, receivables, licenses, and/or other assets of the borrowers to the extent permitted by applicable laws and regulations governing such borrowers. We also lend to and invest in companies or properties that are not related to the cannabis industry if they provide return characteristics consistent with our investment objective.
The Company is externally managed by Chicago Atlantic REIT Manager, LLC (the “Manager”), a Delaware limited liability company, pursuant to the terms of the management agreement dated May 1, 2021, as amended in October 2021, by and among the Company and the Manager (the "Management Agreement"). The Management Agreement had a three-year initial term that expired on April 30, 2024. After the initial term, the management agreement is automatically renewed for one-year periods unless the Company or the Manager elects not to renew in accordance with the terms of the Management Agreement. On April 30, 2025, the Management Agreement was most recently automatically renewed. The Manager conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. For its services, the Manager is entitled to earn management fees and incentive compensation, both defined in and in accordance with the terms of the Management Agreement (Note 8). All of the Company’s investment decisions are made by the investment committee of the Manager, subject to oversight by the Company’s board of directors (the “Board”). The Manager is wholly-owned by Chicago Atlantic Group, LP. (the “Sponsor”).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and related notes of the Company have been prepared on the accrual basis of accounting and in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Our consolidated financial statements present the financial position, results of operations, and cash flows of Chicago Atlantic Real Estate Finance, Inc., and its wholly owned consolidated subsidiary, Chicago Atlantic Lincoln, LLC. All intercompany accounts and transactions have been eliminated in consolidation. Accordingly, these financial statements may not contain all disclosures required by generally accepted accounting principles. Reference should be made to Note 2 of the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2024. In the opinion of the Company, all normal recurring adjustments have been made that are necessary to the fair statement of the results of operations and financial position as of and for the periods presented. Operating results for the three and six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
Cash and Cash Equivalents
The Company’s cash held with financial institutions may at times exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company and the Manager seek to manage this credit risk relating to cash by monitoring the financial stability of the financial institutions and their ability to continue in business for the foreseeable future.
Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions. Cash and short-term investments with an original maturity of three months or less when acquired are considered cash and cash equivalents for the purpose of the consolidated balance sheets and consolidated statements of cash flows, and represented $
5
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include the provision for current expected credit losses.
Revenue Recognition
Interest Income
Interest income from loans is accrued based on the outstanding principal amount and the contractual terms of each loan. Loan origination fees and costs, and other discounts or premiums (collectively, “OID”) are recorded as an adjustment to the amortized cost basis of the loan and are accreted or amortized to interest income over the initial loan term as a yield adjustment using a method which approximates the effective interest method. Delayed draw loans may earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income in the period earned.
Certain of the Company’s loans contain a paid-in-kind interest income provision (“PIK interest”). The PIK interest, computed at the contractual rate specified in the applicable loan agreement, is added to the principal balance of the loan, rather than being paid in cash, and is generally collected upon repayment of the outstanding principal. Recognition of PIK interest includes assessments of collectability and may discontinue accrual of interest income, including PIK interest, when there is reasonable doubt that the interest income will be collected. To the extent required to maintain the Company’s status as a REIT, and/or to avoid incurring an excise tax, accrued income such as this may need to be distributed to stockholders in the form of dividends for the year earned, even though the Company has not yet collected the cash.
Interest income on debt securities designated as trading securities is recognized on an accrual basis and is reported as interest receivable until collected. Interest income is accrued based on the outstanding face amount and the contractual terms of the securities. Realized gains or losses on debt securities are measured by the difference between the net proceeds from the disposition and the amortized and/or accreted cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include loans charged off during the period, net of recoveries.
Non-Accrual
Loans are generally placed on non-accrual status when principal or interest payments are past due 90 days or more or when there is reasonable doubt about the full recovery of principal and interest. Accrued and unpaid interest is generally reversed against interest income in the period the loan is placed on non-accrual status when management expects such amounts to be uncollectible . Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding the borrower’s ability to make pending principal and interest payments. Non-accrual loans are restored to accrual status when principal and interest payments are brought current, the borrower demonstrates sustained repayment performance, or the loan becomes well secured and is in the process of collection.
Fee Income
Other fees, including prepayment fees and exit or success fees, are recognized as interest income when received. From time to time, the Company may also receive fees for amending, underwriting, syndicating, arranging, or other types of fees (collectively "Structuring Fees") in the course of origination of its investments. To the extent such fees are not deemed to be yield enhancements and are not paid to all lenders in the syndication, such Structuring Fees are recognized in interest income when received.
Realized and Unrealized Gains and Losses
Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized and/or accreted cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include loans charged off during the period, net of recoveries. An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost. The change in unrealized gains or losses primarily reflect the change in loan values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.
Income Taxes
The Company is a Maryland corporation and has elected to be taxed as a REIT under the Code, commencing with its taxable year ended
6
December 31, 2021. The Company believes that it has qualified as a REIT and that its method of operation will enable it to continue to qualify as a REIT. However, no assurances can be given that the Company’s beliefs or expectations will be fulfilled, since qualification as a REIT depends on the Company satisfying numerous asset, income and distribution tests which depends, in part, on the Company’s operating results. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including various income, asset, and distribution tests.
Income Tests
In order to maintain our REIT qualification, we must satisfy two gross income requirements on an annual basis. First, at least
Asset Tests
At the close of each calendar quarter, we must also satisfy five tests relating to the nature of our assets. First, at least
Distribution Tests
The Company is required to distribute annually to its stockholders, at least
The Financial Accounting Standards Board (“FASB”) ASC Topic 740, Income Taxes (“ASC 740”), prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are documented and supported for the taxable years ended December 31, 2024 and 2023. Based on the Company’s evaluation, there is no reserve for any uncertain income tax positions. Accrued interest and penalties, if any, are included within other liabilities in the consolidated balance sheets and within income tax expense on the consolidated statements of operations.
7
Recent Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update ("ASU"), ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company concluded that the application of this guidance did not have any material impact on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures ("ASC 2024-03"), which requires disaggregated disclosures of certain costs and expenses, including purchases of inventory, employee compensation, depreciation, amortization and depletion, within relevant income statement captions. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods with fiscal years beginning after December 15, 2027. Early adoption and retrospective application is permitted. The Company is currently evaluating the impact of this guidance on the Company's future consolidated financial statements.
3. LOANS HELD FOR INVESTMENT, NET
The Company primarily originates senior secured loans that it has the intent and ability to hold until maturity or payoff. Such loans are classified as held for investment and are reported on the consolidated balance sheets at amortized cost.
|
As of June 30, 2025 |
|
||||||||||
|
Total Principal |
|
Original Issue Discount |
|
Carrying Value |
|
Percentage of loans held for investment |
|
||||
Fixed-rate loans |
$ |
|
$ |
( |
) |
$ |
|
|
% |
|||
Floating-rate loans |
|
|
|
( |
) |
|
|
|
% |
|||
Total |
$ |
|
$ |
( |
) |
$ |
|
|
% |
|||
|
As of December 31, 2024 |
|
||||||||||
|
Total Principal |
|
Original Issue Discount |
|
Carrying Value |
|
Percentage of loans held for investment |
|
||||
Fixed-rate loans |
$ |
|
$ |
( |
) |
$ |
|
|
% |
|||
Floating-rate loans |
|
|
|
( |
) |
|
|
|
% |
|||
Total |
$ |
|
$ |
( |
) |
$ |
|
|
% |
|||
The following tables summarize the Company’s aggregate portfolio of loans held for investment, net of the current expected credit loss reserve as of
|
|
As of June 30, 2025 |
|
|||||||||||||
|
|
Outstanding Principal |
|
|
Original Issue Discount |
|
|
Carrying |
|
|
Weighted Average Remaining Life (Years) (1) |
|
||||
Senior Term Loans |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
Current expected credit loss reserve |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total loans held at carrying value, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
|
|
As of December 31, 2024 |
|
|||||||||||||
|
|
Outstanding Principal |
|
|
Original Issue Discount |
|
|
Carrying |
|
|
Weighted Average Remaining Life (Years) (1) |
|
||||
Senior Term Loans |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
Current expected credit loss reserve |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total loans held at carrying value, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|||
8
The following tables present changes in loans held at carrying value as of and for the six months ended June 30, 2025 and 2024.
|
|
Principal |
|
|
Original |
|
|
Current |
|
|
Carrying |
|
||||
Balance at December 31, 2024 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
Purchase of investments |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Principal repayment of loans |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Accretion of original issue discount |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transfer of loan held for investment to loan held for sale |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|||
PIK Interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase in provision for current expected credit losses |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Balance at June 30, 2025 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
|
|
Principal |
|
|
Original |
|
|
Current |
|
|
Carrying |
|
||||
Balance at December 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
Purchase of investments |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Principal repayment of loans |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Accretion of original issue discount |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transfer of loan held for investment to loan held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PIK Interest |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase in provision for current expected credit losses |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Balance at June 30, 2024 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
A more detailed listing of the Company’s loans held at carrying value based on information available as of June 30, 2025, is as follows:
9
|
|
Initial Funding |
Maturity |
Principal |
|
Original Issue |
|
Carrying |
|
Percent of Loans held |
|
Future |
|
|
Periodic |
YTM |
|||||
Loan |
Location(s) |
Date (1) |
Date (2) |
Balance |
|
Premium/(Discount) |
|
Value |
|
for investment |
|
Fundings |
|
Interest Rate (3) |
Payment (4) |
IRR (5) |
|||||
1 |
Various |
$ |
|
$ |
( |
) |
$ |
|
|
% |
$ |
- |
|
||||||||
2 |
Michigan |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
3 |
Various |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
4 |
Arizona |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
6 |
Michigan |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
7 |
Illinois, Arizona |
|
|
|
( |
) |
|
|
|
% |
|
|
|||||||||
8 |
West Virginia |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
9 |
Pennsylvania |
|
|
|
( |
) |
|
|
|
% |
|
|
|||||||||
12 |
Various |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
16 |
Florida |
|
|
|
( |
) |
|
|
|
% |
|
|
|||||||||
18 |
Ohio |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
19 |
Florida |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
20 |
Missouri |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
21 |
Illinois |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
23 |
Arizona |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
24 |
Oregon |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
25 |
New York |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
27 |
Nebraska |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
29 |
Illinois |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
30 |
Missouri, Arizona |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
31 |
California, Illinois |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
32 |
Nevada |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
33 |
Minnesota |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
34 |
Arizona |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
35 |
California |
|
|
|
- |
|
|
|
|
% |
|
- |
|
||||||||
36 |
Illinois |
|
|
|
( |
) |
|
|
|
% |
|
|
|||||||||
37 |
Various |
|
|
|
( |
) |
|
|
|
% |
|
|
|||||||||
38a |
Various |
|
|
|
( |
) |
|
|
|
% |
|
|
|||||||||
38b |
Various |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
40 |
Various |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
41 |
Ohio |
|
|
|
( |
) |
|
|
|
% |
|
- |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Subtotal |
$ |
|
$ |
( |
) |
$ |
|
|
% |
$ |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
10
The following table presents aging analyses of past due loans by amortized cost, excluding the CECL reserve, as of June 30, 2025 and December 31, 2024:
|
|
As of June 30, 2025 |
|
|||||||||||||||||||||||||
|
|
Current |
|
|
31-60 |
|
|
61-90 |
|
|
90+ Days |
|
|
Total |
|
|
Total |
|
|
Non- |
|
|||||||
Senior Term Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
As of December 31, 2024 |
|
|||||||||||||||||||||||||
|
|
Current |
|
|
31-60 |
|
|
61-90 |
|
|
90+ Days |
|
|
Total |
|
|
Total |
|
|
Non- |
|
|||||||
Senior Term Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
11
Non-Accrual Loans
As of June 30, 2025 and December 31, 2024, there were two and one loans placed on non-accrual status.
As more fully described in Note 8, Loan #9 was placed on non-accrual status as of May 1, 2023 and has a carrying value of approximately $
Loan #6 was placed on non-accrual status as of May 9, 2025 and had an outstanding principal balance and carrying value of approximately $
Credit Quality Indicators
The Company assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, payment history, real estate collateral coverage, property type, geographic and local market dynamics, financial performance, loan to enterprise value and fixed charge coverage ratios, loan structure and exit strategy, and project sponsorship. This review is performed quarterly.
Rating |
|
Definition |
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
5 |
|
The risk ratings are primarily determined based on current and historical performance metrics specific to each portfolio company, as well as consideration of future economic conditions and each borrower’s estimated ability to meet debt service requirements. The risk ratings shown in the following table as of June 30, 2025 and December 31, 2024 consider borrower specific credit history and performance and reflect a quarterly re-evaluation of overall current macroeconomic conditions affecting the Company’s borrowers, specifically those designated as held for investment.
As of June 30, 2025 and December 31, 2024, the carrying value, excluding the current expected credit loss reserve (the “CECL Reserve”), of the Company’s loans within each risk rating category by year of origination is as follows:
|
|
As of June 30, 2025(1) |
|
||||||||||||||||
Risk Rating |
|
2025 |
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
Total |
|
||||||
1 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
12
|
|
As of December 31, 2024(1) |
|
|||||||||||||
Risk Rating |
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
Total |
|
|||||
1 |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
2 |
|
|
|
|
|
|
|
|
|
|
|
|||||
3 |
|
|
|
|
|
|
|
|
|
|
|
|||||
4 |
|
|
|
|
|
|
|
|
|
|
|
|||||
5 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||
Real estate collateral coverage is also a significant credit quality indicator, and real estate collateral coverage, excluding the CECL Reserve, was as follows as of June 30, 2025 and December 31, 2024:
As of June 30, 2025(1) |
|
|||||||||||||||||||||
|
|
< 1.0x |
|
1.0x – 1.25x |
|
1.25x – 1.5x |
|
1.50x – 1.75x |
|
1.75x – 2.0x |
|
> 2.0x |
|
Total |
|
|||||||
Fixed-rate |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
Floating-rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
As of December 31, 2024(1) |
|
|||||||||||||||||||||
|
|
< 1.0x |
|
1.0x – 1.25x |
|
1.25x – 1.5x |
|
1.50x – 1.75x |
|
1.75x – 2.0x |
|
> 2.0x |
|
Total |
|
|||||||
Fixed-rate |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
Floating-rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
Geography concentration of our loans held for investment is also a significant credit quality indicator. As of June 30, 2025 and December 31, 2024, our borrowers have operations in the jurisdictions in the table below:
As of June 30, 2025 |
|
|
As of December 31, 2024 |
|
||||||||||||||
Jurisdiction |
|
Outstanding |
|
|
Percentage of Our Loan |
|
|
Jurisdiction |
|
Outstanding |
|
|
Percentage of Our Loan |
|
||||
Illinois |
|
$ |
|
|
|
% |
|
Illinois |
|
$ |
|
|
|
% |
||||
Ohio |
|
|
|
|
|
% |
|
Ohio |
|
|
|
|
|
% |
||||
Florida |
|
|
|
|
|
% |
|
Florida |
|
|
|
|
|
% |
||||
Pennsylvania |
|
|
|
|
|
% |
|
Pennsylvania |
|
|
|
|
|
% |
||||
Missouri |
|
|
|
|
|
% |
|
Missouri |
|
|
|
|
|
% |
||||
Michigan |
|
|
|
|
|
% |
|
Michigan |
|
|
|
|
|
% |
||||
Arizona |
|
|
|
|
|
% |
|
Arizona |
|
|
|
|
|
% |
||||
California |
|
|
|
|
|
% |
|
California |
|
|
|
|
|
% |
||||
New York |
|
|
|
|
|
% |
|
New York |
|
|
|
|
|
% |
||||
Maryland |
|
|
|
|
|
% |
|
Maryland |
|
|
|
|
|
% |
||||
Nebraska |
|
|
|
|
|
% |
|
Nebraska |
|
|
|
|
|
% |
||||
West Virginia |
|
|
|
|
|
% |
|
West Virginia |
|
|
|
|
|
% |
||||
Nevada |
|
|
|
|
|
% |
|
Nevada |
|
|
|
|
|
% |
||||
Texas |
|
|
|
|
|
% |
|
Texas |
|
|
|
|
|
% |
||||
Minnesota |
|
|
|
|
|
% |
|
Minnesota |
|
|
|
|
|
% |
||||
Oregon |
|
|
|
|
|
% |
|
Oregon |
|
|
|
|
|
% |
||||
Massachusetts |
|
|
|
|
|
% |
|
Massachusetts |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
Total |
|
$ |
|
|
|
% |
||||
13
CECL Reserve
The Company records an allowance for current expected credit losses for its loans held for investment. The allowances are deducted from the gross carrying amount of the assets to present the net carrying value of the amounts expected to be collected on such assets. The Company estimates its CECL Reserve using, among other inputs, third-party valuations and a third-party probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan based on the risk profile for approximately three years after which we immediately revert to use of historical loss data.
ASC 326 requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. The Company considers multiple datapoints and methodologies that may include likelihood of default and expected loss given default for each individual loan, valuations derived from discount cash flows (“DCF”), and other inputs including the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment, if applicable. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments.
The Company evaluates its loans on a collective (pool) basis by aggregating on the basis of similar risk characteristics as explained above. We make the judgment that loans to cannabis-related borrowers that are collateralized by real estate exhibit similar risk characteristics and are evaluated as a pool. Further, loans that have no real estate collateral, but are secured by other forms of collateral, including equity pledges of the borrower, and otherwise have similar characteristics as those collateralized by real estate may be evaluated as a separate pool. All other loans are analyzed individually, either because they operate in a different industry, may have a different risk profile, or maturities that extend beyond the forecast horizon for which we are able to derive reasonable and supportable forecasts.
Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of the Company’s loan portfolio, and (iv) the Company’s current and future view of the macroeconomic environment including benchmark interest rate fluctuations. The Company also considers loan-specific qualitative factors which may include; among other factors; (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and (iii) the liquidation value of collateral. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we may elect to apply a practical expedient, in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a CECL Reserve.
To estimate the historic loan losses relevant to the Company’s portfolio, the Company evaluates its historical loan performance, which includes zero realized loan losses since the inception of its operations. Additionally, the Company analyzed its repayment history, noting it has limited “true” operating history, since the incorporation date of March 30, 2021. However, the Company’s Sponsor and its affiliates have had operations for the past five fiscal years and have made investments in similar loans that have similar characteristics including interest rate, collateral coverage, guarantees, and prepayment/make whole provisions, which fall into the pools identified above, and may be considered by management in determining the extent to which a CECL Reserve shall be recorded.
In addition, the Company reviews each loan on a quarterly basis and evaluates the borrower’s ability to pay the monthly interest and principal, if required, as well as the loan-to-value (LTV) ratio. When evaluating qualitative factors that may indicate the need for a CECL Reserve, the Company forecasts losses considering a variety of factors. In considering the potential current expected credit loss, the Manager primarily considers significant inputs to the Company’s forecasting methods, which include (i) key loan-specific inputs such as the value of the real estate collateral, liens on equity (including the equity in the entity that holds the state-issued license to cultivate, process, distribute, or retail cannabis), presence of personal or corporate guarantees, among other credit enhancements, LTV ratio, rate type (fixed or floating) and IRR, loan-term, geographic location, and expected timing and amount of future loan fundings, (ii) performance against the underwritten business plan and the Company’s internal loan risk rating, and (iii) a macro-economic forecast. Estimating the enterprise value of our borrowers in order to calculate LTV ratios is often a significant estimate. The Manager utilizes a third-party valuation appraiser to assist with the Company’s valuation process primarily using comparable transactions to estimate enterprise value of its portfolio companies and supplement such analysis with a multiple-based approach to enterprise value to revenue multiples of publicly-traded comparable companies obtained from S&P Capital IQ as of June 30, 2025, to which the Manager may apply a private company discount based on the Company’s current borrower profile.
During the six month period ended June 30, 2025, the Company's CECL Reserve increased by approximately $
14
The increase in the CECL reserve corresponds to risk rating changes within of our portfolio of loans held for investment during the comparative three-month period from March 31, 2025 to June 30, 2025, primarily due to Loan #6 being placed on non-accrual status and the continued non-accrual of Loan #9. The carrying value of loans held for investment risk rated "4" increased from approximately $
Regarding real estate collateral, the Company generally cannot take the position of mortgagee-in-possession as long as the property is used by a cannabis operator, but it can request that the court appoint a receiver to manage and operate the subject real property until the foreclosure proceedings are completed. Additionally, while the Company cannot foreclose under state Uniform Commercial Code (“UCC”) and take title or sell equity in a licensed cannabis business, a potential purchaser of a delinquent or defaulted loan could.
In order to estimate the future expected loan losses relevant to the Company’s portfolio, the Company utilizes historical market loan loss data obtained from a third-party database for commercial real estate loans, which the Company believes is a reasonably comparable and available data set to use as an input for its type of loans. The Company believes this dataset to be representative for future credit losses without historical loss data.
All of the above assumptions, although made with the most available information at the time of the estimate, are subjective and actual activity may not follow the estimated schedule. These assumptions impact the future balances that the loss rate will be applied to and as such impact the Company’s CECL Reserve. As the Company acquires new loans and the Manager monitors loan and borrower performance, these estimates will be revised each period.
Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loans receivable at carrying value as of and for the six months ended June 30, 2025 and 2024 is presented in the table below.
|
|
Funded |
|
|
Unfunded |
|
|
Total |
|
|||
Balance at December 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Provision (benefit) for current expected credit losses |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at June 30, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Funded |
|
|
Unfunded |
|
|
Total |
|
|||
Balance at December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Provision (benefit) for current expected credit losses |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at June 30, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
The Company has made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of the related loans held for investment in determining the CECL Reserve, as any uncollectible accrued interest receivable is generally written off in a timely manner. To date, the Company has had zero write-offs related to uncollectible interest receivable, but will discontinue accrual of interest on loans if deemed to be uncollectible, with any previously accrued uncollected interest on the loan charged to interest income in the same period. For loans on non-accrual as of June 30, 2025, the Company generally ceased accruing interest on the first date of delinquency, based on expectation of its ability to collect all amounts then due from the borrower. As it relates to Loan #6, accrued interest for the period from April 1, 2025 through May 9, 2025, the date the loan was placed on non-accrual, was reversed. Management believes it is more likely than not that the remaining outstanding interest receivable prior to such date remains collectible.
4. LOANS, AT FAIR VALUE
As of June 30, 2025, the Company's portfolio included
The loan held at fair value as of June 30, 2025 was originated to a related party (Note 8), and is included within Loans, at fair value - related party on the consolidated balance sheets. See Note 13 for additional information on fair value measurement.
The following table summarizes the Company's loan held at fair value as of June 30, 2025.
15
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loan |
Location(s) |
Maturity Date |
Principal Balance |
|
Amortized Cost |
|
Fair Value |
|
Future Funding (1) |
|
Interest Rate |
||||
39 |
Minnesota |
$ |
|
$ |
|
$ |
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Subtotal |
$ |
|
$ |
|
$ |
|
$ |
|
|
||||
5. INTEREST RECEIVABLE
As of June 30, 2025 and December 31, 2024, the Company had interest receivable of approximately $
The following table presents aging analyses of past due loans by class as of June 30, 2025, and December 31, 2024, respectively:
|
|
As of June 30, 2025 |
|
|||||||||||||||||||||||||
|
|
Current |
|
|
31-60 |
|
|
61-90 |
|
|
90+ Days |
|
|
Total |
|
|
Total |
|
|
Non- |
|
|||||||
Interest receivable |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
(1)
(2)
|
|
As of December 31, 2024 |
|
|||||||||||||||||||||||||
|
|
Current |
|
|
31-60 |
|
|
61-90 |
|
|
90+ Days |
|
|
Total |
|
|
Total |
|
|
Non- |
|
|||||||
Interest receivable |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
6. INTEREST RESERVE
As of June 30, 2025 and December 31, 2024, the Company had
The following table presents changes in interest reserves as of June 30, 2025 and December 31, 2024, respectively:
|
|
June 30, 2025 |
|
|
December 31, 2024 |
|
||
Beginning reserves |
|
$ |
|
|
$ |
|
||
New reserves |
|
|
|
|
|
|
||
Reserves disbursed |
|
|
( |
) |
|
|
( |
) |
Ending reserve |
|
$ |
|
|
$ |
|
||
7. DEBT
Revolving Loan
16
In May 2021, in connection with the Company’s acquisition of its wholly-owned financing subsidiary, CAL, the Company was assigned a secured revolving credit facility (the “Revolving Loan”).
On February 28, 2024, CAL entered into a Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amendment and Restatement”). The Fifth Amendment and Restatement extended the contractual maturity date of the Revolving Loan until
On June 26, 2024, CAL entered into the First Amendment to the Fifth Amendment and Restatement. The amendment increased the current loan commitment from $
On September 30, 2024, CAL entered into the Sixth Amended and Restated Loan and Security Agreement (the "Sixth Amendment"). The Sixth Amendment increased the current loan commitment from $
As of June 30, 2025, the Revolving Loan has aggregate commitments of $
On August 5, 2025, CAL entered into the First Amendment to the Sixth Amended and Restated Loan and Security Agreement (the "August 2025 Amendment"). The August 2025 Amendment extended the contractual maturity date from June 30, 2026 to
The Revolving Loan provides for certain affirmative covenants, including requiring us to deliver financial information and any notices of default, and conducting business in the normal course.
As of June 30, 2025 and December 31, 2024, unamortized debt issuance costs related to the Revolving Loan, including all amendments and amendments and restatements thereto, as applicable, of $
During the six months ended June 30, 2025, the Company had net borrowings and repayments of $
Notes Payable
On October 18, 2024 (the "Closing Date"), the Company entered into a Loan Agreement by and among the Company and the various financial institutions party thereto, for an aggregate commitment of $
The $
17
The Unsecured Notes provide for certain affirmative covenants, including requiring us to deliver certain financial information and any notices of default, and conducting business in the normal course. Additionally, the Company must comply with certain financial and non-financial covenants including but not limited to: (1) minimum stockholders' equity of $
Year |
|
Notes Payable |
|
|
2025 |
|
$ |
- |
|
2026 |
|
|
- |
|
2027 |
|
|
- |
|
2028 |
|
|
|
|
Total principal |
|
$ |
|
|
Deferred debt issuance costs included in notes payable |
|
|
( |
) |
Total notes payable, net |
|
$ |
|
|
Interest Expense
The following table reflects a summary of interest expense incurred during the three and six months ended June 30, 2025 and 2024.
|
|
Three months ended June 30, 2025 |
|
|
For the six months ended June 30, 2025 |
|
||||||||||||||||||
|
|
Notes Payable |
|
|
Revolving Loan |
|
|
Total Borrowings |
|
|
Notes Payable |
|
|
Revolving Loan |
|
|
Total Borrowings |
|
||||||
Interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Unused fee expense |
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Three months ended June 30, 2024 |
|
|
For the six months ended June 30, 2024 |
|
||||||||||||||||||
|
|
Notes Payable |
|
|
Revolving Loan |
|
|
Total Borrowings |
|
|
Notes Payable |
|
|
Revolving Loan |
|
|
Total Borrowings |
|
||||||
Interest expense |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||||
Unused fee expense |
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Amortization of debt issuance costs |
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Total interest expense |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||||
8. RELATED PARTY TRANSACTIONS
Management Agreement
Pursuant to the Management Agreement, the Manager manages the loans and day-to-day operations of the Company, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as may be imposed from time to time by the Company’s Board.
The initial term of our Management Agreement continued until May 1, 2024. After the initial term, our Management Agreement is automatically renewed every year for an additional one-year period, unless we or our Manager elect not to renew. Our Management Agreement may be terminated by us or our Manager under certain specified circumstances. On April 30, 2024 and 2025, the Management Agreement was automatically renewed.
18
respectively. For the three and six months ended June 30, 2024, the Base Management Fee payable was reduced by Outside Fees in the amount of $
In addition to the Base Management Fee, the Manager is entitled to receive incentive compensation (the “Incentive Compensation” or “Incentive Fees”) under the Management Agreement. Under the Management Agreement, the Company will pay Incentive Fees to the Manager based upon the Company’s achievement of targeted levels of Core Earnings. “Core Earnings” is defined in the Management Agreement as, for a given period, the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income, and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the members of the Compensation Committee of the Board, each of whom are Independent Directors, and approved by a majority of the members of the Compensation Committee. Incentive compensation for the three months ended June 30, 2025 and 2024 was $
The Company shall pay all of its costs and expenses and shall reimburse the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on behalf of the Company, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement. We reimburse our Manager or its affiliates, as applicable, for the Company’s fair and equitable allocable share of the compensation, including annual base salary, bonus, any related withholding taxes and employee benefits, paid to (i) subject to review by the Compensation Committee of the Board, the Manager’s personnel serving as an officer of the Company, based on the percentage of his or her time spent devoted to the Company’s affairs and (ii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance, and other non-investment personnel of the Manager and its affiliates who spend all or a portion of their time managing the Company’s affairs, with the allocable share of the compensation of such personnel described in this clause (ii) being as reasonably determined by the Manager to appropriately reflect the amount of time spent devoted by such personnel to our affairs.
The following table summarizes the related party fees and expenses incurred by the Company for the three and six months ended June 30, 2025 and 2024.
|
|
For the three months ended June 30, |
|
|
For the six months ended June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Affiliate Payments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management fees earned |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: Outside Fees earned |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Base management fees, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Incentive fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total management and incentive fees earned |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses reimbursable to Manager |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents amounts payable to the Manager as of June 30, 2025 and December 31, 2024:
|
|
|
|
|
December 31, |
|
|
||
|
|
June 30, 2025 |
|
|
2024 |
|
|
||
Management fees payable |
|
$ |
|
|
$ |
|
|
||
Incentive fees payable |
|
|
|
|
|
|
|
||
Management and incentive fees payable |
|
|
|
|
|
|
|
||
General and administrative expenses reimbursable to Manager |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
||
General administrative expenses reimbursable to the Manager are included in the related party payables line item of the consolidated balance sheets as of June 30, 2025 and December 31, 2024.
19
Co-Investment in Loans
From time to time, the Company may co-invest with other investment vehicles managed by its affiliates, in accordance with the Manager’s co-investment allocation policies. The Company is not obligated to provide, nor has it provided, any financial support to the other managed investment vehicles. As such, the Company’s risk is limited to the carrying value of its investment in any such loan. As of June 30, 2025 and December 31, 2024,
Certain syndicated co-investments originated by affiliates of the Manager may include other consideration, generally in the form of warrants or other equity interests. Prior to, or concurrent with, the origination of the investment, the Company may elect to assign the right (the “Assigned Right”) to the equity consideration to an affiliate, in exchange for an additional upfront fee in an amount equal to the fair value of the equity consideration on a pro-rata basis. There were
Loans held for investment – related party
Loan #3 and Loan #33
The borrowers of Loan #3 and Loan #33 are affiliates of Vireo Growth, Inc. ("Vireo"). In December 2024, John Mazarakis, who serves as our Executive Chairman of the Board, was appointed to serve as Chief Executive Officer and Co-Executive Chairman of the Board of Vireo. Certain affiliated investment funds that are managed by entities under common control with our Manager, and for which Mr. Mazarakis can exercise significant influence, own approximately
Loan #9
As of May 1, 2023, Loan #9 was placed on non-accrual status for borrower's breach of certain non-financial covenants and obligations under the loan agreement. The borrower subsequently failed to make contractual principal and interest payments due for the months of May and June 2023. On June 20, 2023, the Administrative Agent to Loan #9 (the “Agent”, a related party) issued an acceleration notice notifying the borrower of the Agent’s intention to exercise all rights and remedies under the credit documents and requested immediate payment of all amounts outstanding thereunder on behalf of the lenders through commencement of foreclosure proceedings. Loan #9 is co-invested by the Company and an affiliated investment fund under common control with the Manager (collectively with the Company, the "Lenders").
The Agent subsequently pursued a Uniform Commercial Code Article 9 sale (“UCC sale”) of the membership interests of the borrower’s subsidiaries which were pledged as collateral. On August 10, 2023, the Agent was the highest bidder in a public auction of the membership interests and took ownership of the membership interests.
In December 2024, the Agent was granted a summary judgment (the "Judgment") against the borrower credit parties and related individuals in the amount of approximately $
In January 2025, the Court of Common Pleas in Snyder County, Pennsylvania granted an order in favor of the Agent, whereby members of the Agent would be duly recognized as owner-operators of the subject assets. The order was conditional upon the satisfactory completion of change of ownership and other cannabis owner-operator affiliation forms, as required by the PA DOH. In February 2025, upon approval by the PA DOH, members of the Agent satisfied the conditions imposed by PA DOH and assumed full control of the facilities and operations of the business.
On March 31, 2025, following completion of the foreclosure proceedings, the Company extinguished the original term loan, previously identified as Loan #9, and the Agent distributed the assets acquired from the foreclosure to the Lenders pursuant to an Agreement Among Lenders by and between the Agent and Lenders (the "AAL"). Pursuant to the AAL, the affiliated co-lender received rights to the membership interests acquired in the UCC sale and intends to engage third-parties, as necessary, and is currently in the process of restoring the business to a fully operational status. Further pursuant to the AAL, in satisfaction of the original loan, the Company now holds two loans with an aggregate principal balance of approximately $
20
The Judgment Loan bears interest at a statutory rate of
In April 2025, the borrower opened its three dispensary locations, all of which were previously non-operational and expect improved financial performance as a result; however; given the history of non-payment resulting from these locations being non-operational, management will closely monitor and evaluate the financial and cash flow performance of the now operational assets, before restoring Loan #9 to accrual status. Accordingly, Loan #9 remains on non-accrual status as of June 30, 2025. The Company intends to hold both the Judgment Loan and the Term Loan until maturity or payoff, as applicable, and therefore has classified these assets as loans held for investment - related party as of June 30, 2025, with a carrying value of $
Loans, at fair value - related party
During the quarter ended December 31, 2024, the Company originated a loan to a subsidiary of Vireo, collateralized by real estate assets in Minnesota. The loan has a principal balance and carrying value of $
9. COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
Off-balance sheet commitments may consist of unfunded commitments on delayed draw term loans. The Company does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities, or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, the Company has not guaranteed any obligations of unconsolidated entities or entered into any commitment to provide additional funding to any such entities. As of June 30, 2025 and December 31, 2024, the Company had unfunded commitments on existing loans of $
Refer to “Note 3 - Loans Held for Investment, Net” for further information regarding the CECL Reserve attributed to unfunded commitments. Total original loan commitments includes the impact of principal payments received since origination of the loan and future amounts to be advanced at sole discretion of the lender.
The following table summarizes our material commitments as of June 30, 2025:
|
|
Total |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
Thereafter |
|
|||||||
Undrawn commitments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Other Contingencies
The Company from time to time may be a party to litigation in the normal course of business. As of June 30, 2025, the Company is not aware of any legal claims that could materially impact its business, financial condition, or results of operations.
The Company’s ability to grow or maintain its business depends, in part, on state laws pertaining to the cannabis industry. New laws that are adverse to the Company’s portfolio companies may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production, and distribution of cannabis may be modified or eliminated in the future, which would impede the Company’s ability to grow and could materially and adversely affect its business.
Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, the Company may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case the Company would look to sell the loan, provide consent to allow the borrower to sell the real estate to a third party, institute
21
a foreclosure proceeding to have the real estate sold or evict the tenant, have the cannabis operations removed from the property and take title to the underlying real estate, each of which may result in the Company realizing a loss on the transaction.
10. STOCKHOLDERS’ EQUITY
Equity Incentive Plan
The Company has established an equity incentive compensation plan (the “2021 Plan”). The Board authorized the adoption of the 2021 Plan and the Compensation Committee of the Board administers the 2021 Plan. The 2021 Plan authorizes stock options, stock appreciation rights, restricted stock, stock bonuses, stock units, and other forms of awards granted or denominated in the Company’s common stock. The 2021 Plan retains flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Any award may be structured to be paid or settled in cash. The Company has and currently intends to continue to grant restricted stock awards to participants in the 2021 Plan, but it may also grant any other type of award available under the 2021 Plan in the future. Persons eligible to receive awards under the 2021 Plan include the Company’s officers and employees of the Manager and its affiliates or officers and employees of the Company’s subsidiaries, if any, the members of the Board, and certain consultants and other service providers.
As of June 30, 2025 and December 31, 2024, the maximum number of shares of the Company’s common stock that may be delivered pursuant to awards under the 2021 Plan (the “Share Limit”) equals
There were
Shares that are exchanged by a participant or withheld by the Company as full or partial payment in connection with any award granted under the 2021 Plan, as well as any shares exchanged by a participant or withheld by the Company to satisfy tax withholding obligations related to any award granted under the 2021 Plan, will not be counted against the Share Limit and will again be available for subsequent awards under the 2021 Plan. To the extent that an award is settled in cash or a form other than shares, the shares that would have been delivered had there been no such cash or other settlement will not be counted against the Share Limit and will again be available for subsequent awards under the 2021 Plan.
Based on the closing market price of our common stock on June 30, 2025 and December 31, 2024 of $
|
|
As of June 30, 2025 |
|
|
As of December 31, 2024 |
|
||||||||||
|
|
Outstanding |
|
|
Vested |
|
|
Outstanding |
|
|
Vested |
|
||||
Aggregate intrinsic value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table summarizes the restricted stock activity for the Company’s directors and officers and employees of the Manager during the six months ended June 30, 2025 and 2024.
|
|
Unvested Restricted Stock |
|
|
Weighted Average Grant Date |
|
||
Balance at December 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Balance at June 30, 2025 |
|
|
|
|
$ |
|
||
22
|
|
Unvested Restricted Stock |
|
|
Weighted Average Grant Date |
|
||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Balance at June 30, 2024 |
|
|
|
|
$ |
|
||
Restricted stock compensation expense is based on the Company’s stock price at the date of the grant and is amortized over the vesting period. The share-based compensation expense for the Company was $
At-the-Market Offering Program (“ATM Program”)
On June 20, 2023, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC, Compass Point Research & Trading, LLC and Oppenheimer & Co. Inc. (each a “Sales Agent” and together the “Sales Agents”) under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $
On March 18, 2025, the Company amended its ATM Program and entered into new At-the-Market Sales Agreements (the “2025 Sales Agreement”) with BTIG, LLC, Oppenheimer & Co. Inc., ATB Capital Markets USA, Inc. and A.G.P./Alliance Global Partners LLC (each a “Sales Agent” and together the “Sales Agents”). Under the terms of the 2025 Sales Agreement, the maximum offering size was increased from $
During the three and six months ended June 30, 2025, the Company sold an aggregate of
During the three and six months ended June 30, 2024, the Company sold an aggregate of
As of June 30, 2025 and 2024, the shares of common stock sold pursuant to the registered direct offering in February 2023 and under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.
11. EARNINGS PER SHARE
The following information sets forth the computations of basic earnings per common share for the three and six months ended June 30, 2025 and 2024, respectively:
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Net income attributable to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Divided by: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per common share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
23
There were
12. INCOME TAX
As of June 30, 2025 and December 31, 2024, the Company does not have any material unrecognized tax benefits.
13. FAIR VALUE MEASUREMENTS
GAAP requires disclosure of fair value information about financial and non-financial assets and liabilities, whether or not recognized in the financial statements, for which it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows using market yields, or other valuation methodologies. Any changes to the valuation methodology will be reviewed by the Company’s management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while the Company anticipates that the valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial and non-financial assets and liabilities could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may fall within periods of market dislocation, during which price transparency may be reduced.
Recurring Fair Value Measurements
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024:
|
|
As of June 30, 2025 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans, at fair value - related party |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans, at fair value - related party |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents the changes in loans classified in Level 3 of the fair value hierarchy during the six months ended June 30, 2025 :
24
|
|
For the six months |
|
|
|
|
Loans, at fair value - related party |
|
|
Balance at December 31, 2024 |
|
$ |
|
|
Purchases |
|
|
|
|
Transfers out of Level 3 |
|
|
( |
) |
Transfers into Level 3 |
|
|
|
|
Balance at June 30, 2025 |
|
$ |
|
|
During the six months ended June 30, 2025, Loan #39 was transferred from Level 3 to Level 2 due to the availability of observable market data. The fair value was based on the price at which the loan was repaid during the period subsequent to June 30, 2025 (Note 16).
Financial Assets and Liabilities Not Measured at Fair Value
As of June 30, 2025 and December 31, 2024, the carrying values and fair values of the Company’s financial assets and liabilities recorded at amortized cost are as follows:
|
|
|
|
|
As of |
|
|
As of |
|
|||||||||||
|
|
|
|
|
2025 |
|
|
2024 |
|
|||||||||||
|
|
Level |
|
|
Carrying |
|
|
Fair Value |
|
|
Carrying |
|
|
Fair Value |
|
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loans held for investment |
|
|
3 |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cash and cash equivalents |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest receivable |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other receivables and assets, net |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Related party receivables |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revolving loan |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Notes payable, net |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts payable and other liabilities |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest reserve |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and incentive fees payable |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Related party payables |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments payable |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividend payable |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Our loans are held for investment and are substantially secured by real estate, equipment, licenses and other assets of the borrowers to the extent permitted by the applicable laws and the regulations governing such borrowers. The aggregate fair value of the Company’s portfolio of loans held for investment was $
14. DIVIDENDS AND DISTRIBUTIONS
The following table summarizes the Company’s dividends declared during the six months ended June 30, 2025 and 2024.
25
|
|
Record |
|
Payment |
|
Common |
|
|
Taxable |
|
|
Return of |
|
|
Section 199A |
|
||||
Regular cash dividend |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Regular cash dividend |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total cash dividend |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
Record |
|
Payment |
|
Common |
|
|
Taxable |
|
|
Return of |
|
|
Section 199A |
|
||||
Regular cash dividend |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Regular cash dividend |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total cash dividend |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
15. SEGMENT REPORTING
The Company uses the management approach to determine reportable operating segments. The Company operates through a single operating and reporting segment with an investment objective to generate both current income and capital appreciation through its investments in loans.
As the Company’s operations comprise of a single reporting segment, the segment assets are reflected on the accompanying consolidated balance sheets as “total assets” and the significant segment expenses are listed on the accompanying consolidated statement of operations.
16. SUBSEQUENT EVENTS
Investment Activity
During the period from July 1, 2025 to August 7, 2025, the Company advanced approximately $
During the period from July 1, 2025 to August 7, 2025, the Company received principal repayments totaling $
Revolving Loan
During the period from July 1, 2025 to August 7, 2025, the Company had net repayments on the Revolving Loan of $
On August 5, 2025, CAL entered into the First Amendment to the Sixth Amended and Restated Loan and Security Agreement (the "August 2025 Amendment"). The August 2025 Amendment extended the contractual maturity date from
Payment of Dividend
On July 15, 2025, the Company paid its regular quarterly dividend of $
26
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this quarterly report constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we intend such statements to be covered by the safe harbor provisions contained therein. Forward-looking statements relate to future events or the future performance or financial condition of Chicago Atlantic Real Estate Finance, Inc. (the “Company,” “we,” “us,” and “our”). The information contained in this section should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. This description contains forward-looking statements that involve risks and uncertainties. Actual results could differ significantly from the results discussed in the forward-looking statements due to the factors set forth in this quarterly report and in “Risk Factors” in our annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) and in Part II, Item 1A of this quarterly report on Form 10-Q, as such risks may by updated, amended, or superseded from time to time by subsequent reports we file with the SEC. The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:
28
Available Information
We routinely post important information for investors on our website, www.chicagoatlantic.com. We intend to use this webpage as a means of disclosing material information, for complying with our disclosure obligations under Regulation FD and to post and update investor presentations and similar materials on a regular basis. We encourage investors, analysts, the media, and others interested in us to monitor the Investments section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations, webcasts and other information we post from time to time on our website. To sign-up for email-notifications, please visit “Contact” section of our website under “Join Our Mailing List” and enter the required information to enable notifications.
Overview
We are a commercial mortgage real estate investment trust. Our primary investment objective is to provide attractive, risk-adjusted returns for stockholders over time primarily through consistent current income dividends and other distributions and secondarily through capital appreciation. We intend to achieve this objective by originating, structuring and investing in first mortgage loans and alternative structured financings secured by commercial real estate properties. Our 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 to the extent permitted by applicable laws and regulations governing such borrowers. We also invest in companies or properties that are not related to the cannabis industry that provide return characteristics consistent with our investment objective. We intend to grow the size of our portfolio by continuing the track record of our business and the business conducted by our Manager and its affiliates by making loans to leading operators and property owners in the cannabis industry. There is no assurance that we will achieve our investment objective.
Our Manager and its affiliates seek to originate real estate loans between $5 million and $200 million, generally with one- to five-year terms and amortization when terms exceed three years. We generally act as co-lenders in such transactions and intend to hold up to $50 million of the aggregate loan amount, with the remainder to be held by affiliates or third party co-investors. We may revise such concentration limits from time to time as our loan portfolio grows. Other investment vehicles managed by our Manager or affiliates of our Manager may co-invest with us or hold positions in a loan where we have also invested, including by means of splitting commitments, participating in loans or other means of syndicating loans. We will not engage in a co-investment transaction with an affiliate where the affiliate has a senior position to the loans held by us. To the extent that an affiliate provides financing to one of our borrowers, such loans will be working capital loans or loans that are subordinate to our loans. We may also serve as co-lenders in loans originated by third parties and, in the future, we may also acquire loans or loan participations. Loans that have one to two year maturities are generally interest only loans.
Our loans are secured by real estate and, in addition, when lending to owner-operators in the cannabis industry, other collateral, such as equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations. In addition, we seek to impose strict loan covenants and seek personal or corporate guarantees for additional protection. As of June 30, 2025 and December 31, 2024, 34.9% and 50.0%, respectively, of the principal of loans held in our portfolio are backed by personal or corporate guarantees. We aim to maintain a portfolio diversified across jurisdictions and across verticals, including cultivators, processors, dispensaries, as well as ancillary businesses. In addition, we may invest in borrowers that have equity securities that are publicly traded on the Canadian Stock Exchange (“CSE”) in Canada and/or over-the-counter in the United States.
As of June 30, 2025, our portfolio is comprised primarily of first mortgages to established multi-state or single-state cannabis operators or property owners. We consider cannabis operators to be established if they are state-licensed and are deemed to be operational
29
and in good standing by the applicable state regulator. We do not own any stock, warrants to purchase stock or other forms of equity in any of our portfolio companies that are involved in the cannabis industry, and we will not take stock, warrants or equity in such issuers until permitted by applicable laws and regulations, including U.S. federal laws and regulations.
We are an externally managed Maryland corporation that elected to be taxed as a REIT under Section 856 of the Code, commencing with our taxable year ended December 31, 2021. We believe that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income, and distribution tests, which in turn depend, in part, on our operating results. We also intend to operate our business in a manner that will permit us and our subsidiaries to maintain one or more exclusions or exemptions from registration under the Investment Company Act.
Revenues
We operate as one operating segment and are primarily focused on financing senior secured loans and other types of loans for established state-licensed operators in the cannabis industry. These loans are generally held for investment and are substantially secured by real estate, equipment, licenses and other assets of the borrowers to the extent permitted by the applicable laws and the regulations governing such borrowers.
We generate revenue primarily in the form of interest income on loans. As of June 30, 2025 and December 31, 2024, approximately 60.1% and 62.1%, respectively, of our portfolio of loans held for investment portfolio was comprised of floating rate loans, and 39.9% and 37.9% of our total portfolio was comprised of fixed rate loans, respectively. The floating rate loans described above are variable based upon the Prime Rate plus an applicable margin, and in many cases, a Prime Rate floor. We have one floating rate loan, which comprises approximately 0.1% of the aggregate portfolio outstanding principal that bears a rate based on SOFR.
The below table reflects the changes in the Prime Rate since January 1, 2024:
Effective Date |
|
Rate(1) |
|
|
December 19, 2024 |
|
|
7.50 |
% |
November 8, 2024 |
|
|
7.75 |
% |
September 19, 2024 |
|
|
8.00 |
% |
Interest on our loans is generally payable monthly. The principal amount of our loans and any accrued but unpaid interest thereon generally become due at the applicable maturity date. In some cases, our interest income includes a paid-in-kind (“PIK”) component for a portion of the total interest. The PIK interest, computed at the contractual rate specified in each applicable loan agreement, is accrued in accordance with the terms of such loan agreement and capitalized to the principal balance of the loan and recorded as interest income. The PIK interest added to the principal balance is typically amortized and paid in accordance with the applicable loan agreement. In cases where the loans do not amortize, the PIK interest is collected upon repayment of the outstanding principal. We also generate revenue from original issue discounts (“OID”), which is also recognized as interest income from loans over the initial term of the applicable loans. Delayed draw loans may earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income in the period earned. Other fees, including prepayment fees and exit fees, are also recognized as interest income when received. Any such fees will be generated in connection with our loans and recognized as earned in accordance with generally accepted accounting principles (“GAAP”).
Expenses
Our primary operating expense is the payment of Base Management Fees and Incentive Compensation under our Management Agreement with our Manager and the allocable portion of overhead and other expenses paid or incurred on our behalf, including reimbursing our Manager for a certain portion of the compensation of certain personnel of our Manager who assist in the management of our affairs, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement. We bear all other costs and expenses of our operations and transactions, including (without limitation) fees and expenses relating to:
30
Income Taxes
We are a Maryland corporation that elected to be taxed as a REIT under the Code, commencing with the taxable period ended December 31, 2021. We believe that we qualify as a REIT and that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us satisfying numerous asset, income and distribution tests which depends, in part, on our operating results.
To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually to our stockholders at least 90% of our REIT taxable income prior to the deduction for dividends paid. To the extent that we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of 1) 85% of our ordinary income for the calendar year, 2) 95% of our capital gain net income for the calendar year, and 3) any undistributed shortfall from our prior calendar year (the “Required Distribution”) to our stockholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay a non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our stockholders and pay tax at regular corporate rates on the retained net capital gain. Our stockholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If it is determined that our estimated current year taxable income will be in excess of estimated dividend distributions (including capital gain dividend) for the current year from such income, we will accrue excise tax on estimated excess taxable income as such taxable income is earned. The annual expense is calculated in accordance with applicable tax regulations. Excise tax expense, if any, is included in the line item, income tax expense. For the six months ended June 30, 2025, we did not incur excise tax expense.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740 - Income Taxes (“ASC 740”), prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have analyzed our various federal and state filing positions and believe that our income tax filing positions and deductions are documented and supported as of June 30, 2025. Based on our evaluation, there is no reserve for any uncertain income tax positions. Accrued interest and penalties, if any, are included within other liabilities in the consolidated balance sheets.
Factors Impacting our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest income, which includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.
31
Changes in Market Interest Rates and Effect on Net Interest Income
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.
Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally is based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.
Interest Rate Cap Risk
We currently own and intend to acquire in the future floating-rate assets. These are assets in which the loans may be subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the asset’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements may not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our floating-rate assets would effectively be limited. In addition, floating-rate assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of cash income from such assets in an amount that is less than the amount that we would need to pay the interest cost on our related borrowings.
These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations. As of June 30, 2025, 60.1% of our portfolio of loans held for investment are floating rate loans, based on total principal outstanding have interest Prime rate floors as summarized below:
As of June 30, 2025 |
|
|||||||
Rate Floor |
|
Outstanding |
|
|
Percentage of Portfolio |
|
||
8.50% |
|
$ |
50,469,178 |
|
|
|
12.1 |
% |
8.00% |
|
|
7,250,000 |
|
|
|
1.7 |
% |
7.75% |
|
|
21,523,183 |
|
|
|
5.2 |
% |
7.50% |
|
|
48,057,687 |
|
|
|
11.5 |
% |
7.00% |
|
|
85,624,483 |
|
|
|
20.6 |
% |
6.25% |
|
|
19,186,876 |
|
|
|
4.6 |
% |
5.50% |
|
|
460,000 |
|
|
|
0.1 |
% |
4.00% |
|
|
233,333 |
|
|
|
0.1 |
% |
0.00% |
|
|
17,400,000 |
|
|
|
4.2 |
% |
Fixed-rate |
|
|
166,213,408 |
|
|
|
39.9 |
% |
|
|
$ |
416,418,148 |
|
|
|
100.0 |
% |
Interest Rate Mismatch Risk
We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on the Prime Rate or a similar measure, while the interest rates on these assets may be fixed or indexed to the Prime Rate or another index rate, including the Secured Overnight Financing Rate ("SOFR"). Accordingly, any increase in the Prime Rate or SOFR will generally result in an increase in our borrowing costs that would not be matched by fixed-rate interest earnings and may not be matched by a corresponding increase in floating-rate interest earnings. Any such interest rate mismatch could adversely affect our profitability, which may negatively impact distributions to our stockholders.
Our analysis of risks is based on our Manager’s experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of decisions by our Manager and our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results.
32
Market Conditions
We believe that favorable market conditions, including an imbalance in supply and demand of credit to cannabis operating companies, have provided attractive opportunities for non-bank lenders, such as us, to finance commercial real estate loans and other loans that exhibit strong fundamentals but also require more customized financing structures and loan products than regulated financial institutions can presently provide. Additionally, to the extent that additional states legalize cannabis, our addressable market will increase. We intend to continue to capitalize on these opportunities and growing the size of our portfolio.
Developments During the Second Quarter of 2025
Updates to Our Loan Portfolio during the Second Quarter of 2025
In June 2025, we entered into an amendment to Loan #16, which extended the maturity date to January 29, 2027. No other terms of the loan were modified in connection with this amendment.
In June 2025, Loan #7 was refinanced, which extended the maturity date from June 30, 2025 to June 30, 2028. In addition, the Company made a $13 million commitment add-on.
On May 9, 2025, Loan #6 was placed on non-accrual and remains on non-accrual as of June 30, 2025. A Default Notice was sent to the borrower on May 9, 2025 specifying certain events of default such as outstanding tax liens and recent non-payment of interest and principal. Management has begun the process to exercise its rights and remedies under the loan documents.
Subsequent Updates to Our Loan Portfolio
During the period from July 1, 2025 to August 7, 2025, the Company advanced approximately $4.0 million to existing borrowers and received $0.5 million in scheduled principal repayments.
During the period from July 1, 2025 to August 7, 2025, the Company received principal repayments totaling $56.8 million, relating to the full repayment of Loans #3, #20, #29, #32, #33 and #39. In connection with the repayments prior to maturity, the Company recognized $1.0 million in prepayment fees.
Dividends Declared Per Share
During the three months ended June 30, 2025, we declared an ordinary cash dividend of $0.47 per share of our common stock, relating to the second quarter of 2025, which was paid on July 15, 2025 to stockholders of record as of the close of business on June 30, 2025. The total amount of the cash dividend payment was approximately $9.9 million.
The payment of this dividend is not indicative of our ability to pay such dividends in the future.
Results of Operations
Comparison of the three months ended June 30, 2025 and 2024
33
|
|
For the three months ended June 30, |
|
|
Variance |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
% |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
16,502,035 |
|
|
$ |
15,022,431 |
|
|
$ |
1,479,604 |
|
|
|
10 |
% |
Interest expense |
|
|
(2,077,048 |
) |
|
|
(1,838,932 |
) |
|
|
(238,116 |
) |
|
|
13 |
% |
Net interest income |
|
|
14,424,987 |
|
|
|
13,183,499 |
|
|
|
1,241,488 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and incentive fees, net |
|
|
1,932,957 |
|
|
|
1,774,880 |
|
|
|
158,077 |
|
|
|
9 |
% |
General and administrative expense |
|
|
1,271,124 |
|
|
|
1,254,535 |
|
|
|
16,589 |
|
|
|
1 |
% |
Professional fees |
|
|
480,113 |
|
|
|
409,149 |
|
|
|
70,964 |
|
|
|
17 |
% |
Stock based compensation |
|
|
881,128 |
|
|
|
836,333 |
|
|
|
44,795 |
|
|
|
5 |
% |
Provision (benefit) for current expected credit losses |
|
|
1,147,290 |
|
|
|
(275,471 |
) |
|
|
1,422,761 |
|
|
|
-516 |
% |
Total expenses |
|
|
5,712,612 |
|
|
|
3,999,426 |
|
|
|
1,713,186 |
|
|
|
43 |
% |
Change in unrealized gain (loss) on investments |
|
|
165,000 |
|
|
|
- |
|
|
|
165,000 |
|
|
|
100 |
% |
Net Income before income taxes |
|
|
8,877,375 |
|
|
|
9,184,073 |
|
|
|
(306,698 |
) |
|
|
-3 |
% |
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net Income |
|
$ |
8,877,375 |
|
|
$ |
9,184,073 |
|
|
$ |
(306,698 |
) |
|
|
-3 |
% |
34
Comparison of the six months ended June 30, 2025 and 2024
|
|
For the six months ended June 30, |
|
|
Variance |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
% |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
31,609,350 |
|
|
$ |
30,366,098 |
|
|
$ |
1,243,252 |
|
|
|
4 |
% |
Interest expense |
|
|
(4,142,430 |
) |
|
|
(3,942,982 |
) |
|
|
(199,448 |
) |
|
|
5 |
% |
Net interest income |
|
|
27,466,920 |
|
|
|
26,423,116 |
|
|
|
1,043,804 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and incentive fees, net |
|
|
3,668,490 |
|
|
|
3,529,621 |
|
|
|
138,869 |
|
|
|
4 |
% |
General and administrative expense |
|
|
2,467,231 |
|
|
|
2,644,802 |
|
|
|
(177,571 |
) |
|
|
-7 |
% |
Professional fees |
|
|
973,059 |
|
|
|
859,007 |
|
|
|
114,052 |
|
|
|
13 |
% |
Stock based compensation |
|
|
1,530,440 |
|
|
|
1,367,626 |
|
|
|
162,814 |
|
|
|
12 |
% |
Provision (benefit) for current expected credit losses |
|
|
74,014 |
|
|
|
104,808 |
|
|
|
(30,794 |
) |
|
|
-29 |
% |
Total expenses |
|
|
8,713,234 |
|
|
|
8,505,864 |
|
|
|
207,370 |
|
|
|
2 |
% |
Change in unrealized gain (loss) on investments |
|
|
165,000 |
|
|
|
(75,604 |
) |
|
|
240,604 |
|
|
NM |
|
|
Realized gain on debt securities, at fair value |
|
|
- |
|
|
|
72,428 |
|
|
|
(72,428 |
) |
|
|
100 |
% |
Net Income before income taxes |
|
|
18,918,686 |
|
|
|
17,914,076 |
|
|
|
1,004,610 |
|
|
|
6 |
% |
Income tax expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net Income |
|
$ |
18,918,686 |
|
|
$ |
17,914,076 |
|
|
$ |
1,004,610 |
|
|
|
6 |
% |
35
Loan Portfolio
As of June 30, 2025 and December 31, 2024, the Company's portfolio included loans to 29 and 30 borrowers, respectively, of which approximately $414.0 million and $402.5 million at carrying value, respectively, prior to the reserve for current expected credit losses, are classified as held for investment. The aggregate outstanding principal was approximately $416.4 million and $404.7 million as of June 30, 2025 and December 31, 2024, respectively.
As of June 30, 2025 and December 31, 2024, our portfolio of loans held for investment had a weighted-average YTM IRR of 16.8% and 17.2%, and was substantially secured by real estate and, with respect to certain of our loans, substantially all assets of the borrowers and certain of their subsidiaries, including equipment, receivables, and licenses. YTM IRR is calculated using various inputs, including (i) cash and PIK interest, which is capitalized and added to the outstanding principal balance of the applicable loan, (ii) original issue discount (“OID”), (iii) amortization, (iv) unused fees, and (v) exit fees. Certain of our loans have extension fees, which are not included in our YTM IRR calculations, but may increase YTM IRR if such extension options are exercised by borrowers.
The below table summarizes our portfolio of loans held for investment by rate type as of June 30, 2025 and December 31, 2024:
|
As of June 30, 2025 |
|
||||||||||
|
Total Principal |
|
Original Issue Discount |
|
Carrying Value |
|
Percentage of loans held for investment |
|
||||
Fixed-rate loans |
$ |
166,213,408 |
|
$ |
(708,502 |
) |
$ |
165,504,906 |
|
|
39.9 |
% |
Floating-rate loans |
|
250,204,740 |
|
|
(1,734,162 |
) |
|
248,470,578 |
|
|
60.1 |
% |
Total |
$ |
416,418,148 |
|
$ |
(2,442,664 |
) |
$ |
413,975,484 |
|
|
100.0 |
% |
|
As of December 31, 2024 |
|
||||||||||
|
Total Principal |
|
Original Issue Discount |
|
Carrying Value |
|
Percentage of loans held for investment |
|
||||
Fixed-rate loans |
$ |
149,771,871 |
|
$ |
(545,081 |
) |
$ |
149,226,790 |
|
|
37.1 |
% |
Floating-rate loans |
|
254,949,683 |
|
|
(1,699,427 |
) |
|
253,250,256 |
|
|
62.9 |
% |
Total |
$ |
404,721,554 |
|
$ |
(2,244,508 |
) |
$ |
402,477,046 |
|
|
100.0 |
% |
As of June 30, 2025, the Company has one loan held at fair value with a principal balance of $5.5 million, which bears a fixed rate. On an aggregate basis, our total loan portfolio is comprised of 59.3% and 40.7% floating rate loans and fixed rate loans, respectively.
36
The below summarizes our portfolio of loans held for investment as of June 30, 2025:
|
|
Initial Funding |
Maturity |
Principal |
|
Original Issue |
|
Carrying |
|
Percent of Loans held |
|
Future |
|
|
Periodic |
YTM |
|||||
Loan |
Location(s) |
Date (1) |
Date (2) |
Balance |
|
Premium/(Discount) |
|
Value |
|
for investment |
|
Fundings |
|
Interest Rate (3) |
Payment (4) |
IRR (5) |
|||||
1 |
Various |
10/27/2022 |
10/30/2026 |
$ |
19,186,876 |
|
$ |
(191,080 |
) |
$ |
18,995,796 |
|
|
4.6 |
% |
$ |
- |
|
P+6.5% Cash (8) |
P&I |
17.1% |
2 |
Michigan |
12/31/2021 |
12/31/2025 |
|
27,110,506 |
|
|
(19,285 |
) |
|
27,091,221 |
|
|
6.5 |
% |
|
- |
|
P+3% Cash (13) |
I/O |
17.3% |
3 |
Various |
11/18/2021 |
1/29/2027 |
|
21,523,183 |
|
|
(398,115 |
) |
|
21,125,068 |
|
|
5.1 |
% |
|
- |
|
P+10.375% Cash, 2.75% PIK (11)(14)(15)(21) |
I/O |
23.5% |
4 |
Arizona |
6/1/2024 |
6/17/2026 |
|
6,626,809 |
|
|
- |
|
|
6,626,809 |
|
|
1.6 |
% |
|
- |
|
11.91% Cash |
I/O |
17.0% |
6 |
Michigan |
8/20/2021 |
1/30/2026 |
|
4,958,672 |
|
|
(1,537 |
) |
|
4,957,135 |
|
|
1.2 |
% |
|
- |
|
P+6.5% Cash (13)(20) |
P&I |
17.2% |
7 |
Illinois, Arizona |
6/30/2025 |
6/30/2028 |
|
33,130,667 |
|
|
(537,735 |
) |
|
32,592,932 |
|
|
7.9 |
% |
|
3,000,000 |
|
P+5.75% Cash (9) |
I/O |
15.6% |
8 |
West Virginia |
8/30/2024 |
12/31/2025 |
|
8,491,943 |
|
|
- |
|
|
8,491,943 |
|
|
2.1 |
% |
|
- |
|
10% Cash |
I/O |
15.0% |
9 |
Pennsylvania |
3/31/2025 |
3/31/2028 |
|
17,926,987 |
|
|
(108,037 |
) |
|
17,818,950 |
|
|
4.3 |
% |
|
|
9% Cash (16) |
I/O |
9.7% |
|
12 |
Various |
11/8/2021 |
10/31/2027 |
|
14,807,687 |
|
|
(95,856 |
) |
|
14,711,831 |
|
|
3.6 |
% |
|
- |
|
P+7% Cash, 2% PIK (10) |
I/O |
19.6% |
16 |
Florida |
6/1/2025 |
1/29/2027 |
|
9,557,500 |
|
|
(127,753 |
) |
|
9,429,747 |
|
|
2.3 |
% |
|
500,000 |
|
16.75% Cash |
I/O |
26.7% |
18 |
Ohio |
2/3/2022 |
12/31/2025 |
|
46,168,399 |
|
|
(227,963 |
) |
|
45,940,436 |
|
|
11.1 |
% |
|
- |
|
P+1.75% Cash, 5% PIK (9)(17) |
I/O |
16.7% |
19 |
Florida |
3/11/2022 |
12/31/2025 |
|
18,061,526 |
|
|
(10,511 |
) |
|
18,051,015 |
|
|
4.4 |
% |
|
- |
|
11% Cash, 5% PIK |
P&I |
16.5% |
20 |
Missouri |
5/9/2022 |
11/28/2025 |
|
21,104,965 |
|
|
(34,683 |
) |
|
21,070,282 |
|
|
5.1 |
% |
|
- |
|
11% Cash, 2% PIK (21) |
I/O |
14.7% |
21 |
Illinois |
7/1/2022 |
7/29/2026 |
|
6,325,417 |
|
|
(19,981 |
) |
|
6,305,436 |
|
|
1.5 |
% |
|
- |
|
P+7% Cash, 2% PIK (9) |
P&I |
23.3% |
23 |
Arizona |
3/27/2023 |
3/31/2026 |
|
1,500,000 |
|
|
(9,307 |
) |
|
1,490,693 |
|
|
0.4 |
% |
|
- |
|
P+7.5% Cash (12) |
P&I |
18.7% |
24 |
Oregon |
9/27/2022 |
9/27/2026 |
|
460,000 |
|
|
- |
|
|
460,000 |
|
|
0.1 |
% |
|
- |
|
P+10.5% Cash (7) |
P&I |
21.7% |
25 |
New York |
7/1/2023 |
6/29/2036 |
|
23,580,998 |
|
|
- |
|
|
23,580,998 |
|
|
5.7 |
% |
|
- |
|
15% Cash |
P&I |
16.6% |
27 |
Nebraska |
8/15/2023 |
6/30/2027 |
|
17,400,000 |
|
|
- |
|
|
17,400,000 |
|
|
4.2 |
% |
|
- |
|
P+6.5% Cash (18) |
I/O |
15.7% |
29 |
Illinois |
10/11/2023 |
10/9/2026 |
|
1,897,729 |
|
|
- |
|
|
1,897,729 |
|
|
0.5 |
% |
|
- |
|
11.4% Cash, 1.5% PIK (21) |
P&I |
14.7% |
30 |
Missouri, Arizona |
12/19/2023 |
12/31/2026 |
|
18,400,000 |
|
|
(95,257 |
) |
|
18,304,743 |
|
|
4.4 |
% |
|
- |
|
P+7.75% Cash (13) |
I/O |
18.7% |
31 |
California, Illinois |
5/3/2023 |
5/3/2026 |
|
6,680,000 |
|
|
- |
|
|
6,680,000 |
|
|
1.6 |
% |
|
- |
|
P+8.75% Cash (10) |
I/O |
18.3% |
32 |
Nevada |
4/15/2024 |
8/15/2027 |
|
5,750,000 |
|
|
(21,717 |
) |
|
5,728,283 |
|
|
1.4 |
% |
|
- |
|
P+6.5% Cash (12)(21) |
I/O |
16.1% |
33 |
Minnesota |
5/20/2024 |
5/28/2027 |
|
1,044,000 |
|
|
(3,294 |
) |
|
1,040,706 |
|
|
0.3 |
% |
|
- |
|
12% Cash (14)(21) |
P&I |
13.3% |
34 |
Arizona |
6/17/2024 |
5/29/2026 |
|
10,000,000 |
|
|
- |
|
|
10,000,000 |
|
|
2.4 |
% |
|
- |
|
11.91% Cash |
I/O |
12.8% |
35 |
California |
8/23/2024 |
8/23/2027 |
|
24,624,213 |
|
|
- |
|
|
24,624,213 |
|
|
5.9 |
% |
|
- |
|
12% Cash, 3% PIK |
I/O |
16.3% |
36 |
Illinois |
10/28/2024 |
1/1/2027 |
|
26,570,000 |
|
|
(94,816 |
) |
|
26,475,184 |
|
|
6.4 |
% |
|
1,030,000 |
|
P+6.25% Cash (10) |
I/O |
15.4% |
37 |
Various |
11/26/2024 |
11/24/2028 |
|
20,120,309 |
|
|
(340,507 |
) |
|
19,779,802 |
|
|
4.8 |
% |
|
10,000,000 |
|
12% Cash, 1% PIK (19) |
I/O |
15.2% |
38a |
Various |
12/13/2024 |
12/12/2025 |
|
2,065,000 |
|
|
(52,726 |
) |
|
2,012,274 |
|
|
0.5 |
% |
|
2,065,000 |
|
10% Cash (19) |
I/O |
15.6% |
38b |
Various |
1/15/2025 |
12/12/2025 |
|
840,000 |
|
|
(23,994 |
) |
|
816,006 |
|
|
0.2 |
% |
|
- |
|
10% Cash (19) |
I/O |
15.6% |
40 |
Various |
3/28/2025 |
7/28/2028 |
|
233,333 |
|
|
(21,513 |
) |
|
211,820 |
|
|
0.1 |
% |
|
- |
|
SOFR +10.25% Cash (6) |
I/O |
19.4% |
41 |
Ohio |
3/1/2025 |
3/13/2027 |
|
271,429 |
|
|
(6,997 |
) |
|
264,432 |
|
|
0.1 |
% |
|
- |
|
14.5% Cash |
I/O |
16.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Subtotal |
$ |
416,418,148 |
|
$ |
(2,442,664 |
) |
$ |
413,975,484 |
|
|
100.0 |
% |
$ |
16,595,000 |
|
|
|
16.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
37
The following tables summarize our loans held for investment as of June 30, 2025 and December 31, 2024:
|
|
As of June 30, 2025 |
|
|||||||||||||
|
|
Outstanding Principal |
|
|
Original Issue Discount |
|
|
Carrying |
|
|
Weighted Average Remaining Life (Years) (1) |
|
||||
Senior Term Loans |
|
$ |
416,418,148 |
|
|
$ |
(2,442,664 |
) |
|
$ |
413,975,484 |
|
|
|
2.0 |
|
Current expected credit loss reserve |
|
|
- |
|
|
|
- |
|
|
|
(4,421,348 |
) |
|
|
|
|
Total loans held at carrying value, net |
|
$ |
416,418,148 |
|
|
$ |
(2,442,664 |
) |
|
$ |
409,554,136 |
|
|
|
|
|
|
|
As of December 31, 2024 |
|
|||||||||||||
|
|
Outstanding Principal |
|
|
Original Issue Discount |
|
|
Carrying |
|
|
Weighted Average Remaining Life (Years) (1) |
|
||||
Senior Term Loans |
|
$ |
404,721,554 |
|
|
$ |
(2,244,508 |
) |
|
$ |
402,477,046 |
|
|
|
2.2 |
|
Current expected credit loss reserve |
|
|
- |
|
|
|
- |
|
|
|
(4,346,869 |
) |
|
|
|
|
Total loans held at carrying value, net |
|
$ |
404,721,554 |
|
|
$ |
(2,244,508 |
) |
|
$ |
398,130,177 |
|
|
|
|
|
38
The following tables present changes in loans held for investment at carrying value as of and for the six months ended June 30, 2025 and 2024:
|
|
Principal |
|
|
Original |
|
|
Current |
|
|
Carrying |
|
||||
Balance at December 31, 2024 |
|
$ |
404,721,554 |
|
|
$ |
(2,244,508 |
) |
|
$ |
(4,346,869 |
) |
|
$ |
398,130,177 |
|
Purchase of investments |
|
|
20,859,561 |
|
|
|
(1,048,270 |
) |
|
|
- |
|
|
|
19,811,291 |
|
Principal repayment of loans |
|
|
(12,279,060 |
) |
|
|
- |
|
|
|
- |
|
|
|
(12,279,060 |
) |
Accretion of original issue discount |
|
|
- |
|
|
|
850,114 |
|
|
|
- |
|
|
|
850,114 |
|
Transfer of loan held for investment to loan held for sale |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
PIK Interest |
|
|
3,116,093 |
|
|
|
- |
|
|
|
- |
|
|
|
3,116,093 |
|
Increase in provision for current expected credit losses |
|
|
- |
|
|
|
- |
|
|
|
(74,479 |
) |
|
|
(74,479 |
) |
Balance at June 30, 2025 |
|
$ |
416,418,148 |
|
|
$ |
(2,442,664 |
) |
|
$ |
(4,421,348 |
) |
|
$ |
409,554,136 |
|
|
|
Principal |
|
|
Original |
|
|
Current |
|
|
Carrying |
|
||||
Balance at December 31, 2023 |
|
$ |
355,745,305 |
|
|
$ |
(2,104,695 |
) |
|
$ |
(4,972,647 |
) |
|
$ |
348,667,963 |
|
Purchase of investments |
|
|
43,372,158 |
|
|
|
(161,080 |
) |
|
|
- |
|
|
|
43,211,078 |
|
Principal repayment of loans |
|
|
(21,638,340 |
) |
|
|
- |
|
|
|
- |
|
|
|
(21,638,340 |
) |
Accretion of original issue discount |
|
|
- |
|
|
|
847,315 |
|
|
|
- |
|
|
|
847,315 |
|
Transfer of loan held for investment to loan held for sale |
|
|
— |
|
|
|
|
|
|
- |
|
|
|
— |
|
|
PIK Interest |
|
|
5,802,004 |
|
|
|
- |
|
|
|
- |
|
|
|
5,802,004 |
|
Increase in provision for current expected credit losses |
|
|
- |
|
|
|
- |
|
|
|
(107,900 |
) |
|
|
(107,900 |
) |
Balance at June 30, 2024 |
|
$ |
383,281,127 |
|
|
$ |
(1,418,460 |
) |
|
$ |
(5,080,547 |
) |
|
$ |
376,782,120 |
|
We may make modifications to loans, including loans that are in default. Loan terms that may be modified include interest rates, required prepayments, maturity dates, covenants, principal amounts and other loan terms. The terms and conditions of each modification vary based on individual circumstances and will be determined on a case by case basis. Our Manager monitors and evaluates each of our loans held for investment and has maintained regular communications with borrowers regarding potential impacts on our loans.
Non-GAAP Measures and Key Financial Measures and Indicators
As a commercial mortgage real estate investment trust, we believe the key financial measures and indicators for our business are Distributable Earnings, Adjusted Distributable Earnings, book value per share, and dividends declared per share.
Distributable Earnings and Adjusted Distributable Earnings
In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings and Adjusted Distributable Earnings to evaluate our performance. Each of Distributable Earnings and Adjusted Distributable Earnings is a measure that is not prepared in accordance with GAAP. We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors. We define Adjusted Distributable Earnings, for a specified period, as Distributable Earnings excluding certain non-recurring organizational expenses (such as one-time expenses related to our formation and start-up).
39
We believe providing Distributable Earnings and Adjusted Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, we generally intend to attempt to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.
Distributable Earnings and Adjusted Distributable Earnings should not be considered as substitutes for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings and Adjusted Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings and Adjusted Distributable Earnings may not be comparable to similar measures presented by other REITs.
The following table provides a reconciliation of GAAP net income to Distributable Earnings and Adjusted Distributable Earnings (in thousands, except per share data):
|
Three months ended |
|
Three months ended |
|
|
Six months ended |
|
|
Six months ended |
|
||||
|
June 30, 2025 |
|
June 30, 2024 |
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
||||
Net Income |
$ |
8,877,375 |
|
$ |
9,184,073 |
|
|
$ |
18,918,686 |
|
|
$ |
17,914,076 |
|
Adjustments to net income |
|
|
|
|
|
|
|
|
|
|
||||
Stock based compensation |
|
881,128 |
|
|
836,333 |
|
|
|
1,530,440 |
|
|
|
1,367,626 |
|
Amortization of debt issuance costs |
|
110,148 |
|
|
182,593 |
|
|
|
220,458 |
|
|
|
182,593 |
|
Provision (benefit) for current expected credit losses |
|
1,147,290 |
|
|
(275,471 |
) |
|
|
74,014 |
|
|
|
104,808 |
|
Change in unrealized gain (loss) on investments |
|
(165,000 |
) |
|
- |
|
|
|
(165,000 |
) |
|
|
75,604 |
|
Distributable Earnings |
$ |
10,850,941 |
|
$ |
9,927,528 |
|
|
$ |
20,578,598 |
|
|
$ |
19,644,707 |
|
Basic weighted average shares of common stock outstanding (in shares) |
|
21,002,787 |
|
|
19,378,445 |
|
|
|
20,931,025 |
|
|
|
18,826,182 |
|
Basic Distributable Earnings per Weighted Average Share |
$ |
0.52 |
|
$ |
0.51 |
|
|
$ |
0.98 |
|
|
$ |
1.04 |
|
Diluted weighted average shares of common stock outstanding (in shares) |
|
21,487,106 |
|
|
19,890,376 |
|
|
|
21,376,645 |
|
|
|
19,265,434 |
|
Diluted Distributable Earnings per Weighted Average Share |
$ |
0.51 |
|
$ |
0.50 |
|
|
$ |
0.96 |
|
|
$ |
1.02 |
|
Book Value Per Share
The book value per share of our common stock as of June 30, 2025 and December 31, 2024 was approximately $14.71 and $14.83, respectively.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders, and meet other general business needs. We use significant cash to invest in loans, repay principal and interest on our borrowings, make distributions to our stockholders, and fund our operations.
40
Our primary sources of cash generally consist of unused borrowing capacity under our financing sources, the net proceeds of future offerings of equity or debt securities, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results. On a long-term basis, we expect that our primary sources of financing will be, to the extent available to us, through (a) credit facilities and (b) public and private offerings of our equity and debt securities. We may utilize other sources of financing to the extent available to us. As the cannabis industry continues to evolve and to the extent that additional states legalize cannabis, we expect the demand for capital will continue to increase as operators seek to enter and build out new markets. In the short-term, we expect the principal amount of the loans we originate will increase and that we will need to raise additional equity and/or debt financing to increase our liquidity. We expect to achieve this through recycling capital from loan paydowns, repayments, and sales of common stock related to our shelf registration statement.
As of June 30, 2025 and December 31, 2024, all of our cash was unrestricted and totaled approximately $35.6 million and $26.4 million, respectively. We believe that our cash on hand, capacity available under our Revolving Loan, the Unsecured Notes and cash flows from operations for the next twelve months will be sufficient to satisfy the operating requirements of our business through at least the next twelve months. The sources of financing for our target investments are described below.
Credit Facility
As of June 30, 2025 and December 31, 2024, unamortized debt issuance costs related to the Revolving Loan, including all amendments and amendments and restatements thereto, as applicable, of $203,382 and $305,075, respectively, are recorded in other receivables and assets, net on the consolidated balance sheets.
For the six months ended June 30, 2025, the Company had net paydowns of $16.2 million against the Revolving Loan. As of June 30, 2025, the Company had $38.8 million available and $71.2 million outstanding under the Revolving Loan (Note 7).
Notes Payable
On October 18, 2024 (the "Closing Date"), the Company entered into a Loan Agreement by and among the Company and the various financial institutions party thereto, for an aggregate commitment of $50.0 million in senior unsecured notes (the "Unsecured Notes"). The Unsecured Notes have a contractual four year term maturing on October 18, 2028 and bear a fixed interest rate of 9.00% per annum. The Company may prepay the Unsecured Notes at any time without penalty following the second anniversary of the Closing Date. A prepayment penalty of 3.00% and 2.00% would be due and payable in the event of prepayment prior to the first and second anniversary of the Closing Date, respectively.
The $50.0 million aggregate commitment was advanced on the closing date and proceeds were used to temporarily repay outstanding obligations on the Revolving Loan and for other working capital purposes. The Company incurred debt issuance costs of approximately $0.9 million related to Unsecured Notes, which were capitalized and offset against the outstanding face value of the Unsecured Notes within the line item titled Notes Payable, net on the consolidated balance sheets.
The Unsecured Notes provide for certain affirmative covenants, including requiring us to deliver certain financial information and any notices of default, and conducting business in the normal course. Additionally, the Company must comply with certain financial and non-financial covenants including but not limited to: (1) minimum stockholders' equity of $200.0 million, (2) maximum aggregate indebtedness of $225.0 million, subject to increase from time to time based upon ratable increases in stockholders' equity, and (3) maintenance of a credit rating. As of June 30, 2025, the Company is in compliance with all financial covenants with respect to the Unsecured Notes.
Capital Markets
We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans. Our Shelf Registration Statement became effective on January 19, 2023, allowing us to sell, from time to time in one or more offerings, up to $500 million of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock, preferred stock, or debt securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our ATM Program, which was established in June 2023 and amended in March 2025, pursuant to which we may sell, from time to time, up to $100.0 million of our common stock.
For the six months ended June 30, 2025, the Company sold an aggregate of 64,557 shares of the Company’s common stock under the Sales Agreement at a weighted average price of $16.01 per share, generating net proceeds of approximately $1.0 million.
For the six months ended June 30, 2024, the Company sold an aggregate of 1,306,803 shares of the Company’s common stock under the Sales Agreement at a weighted average price of $15.88 per share, generating net proceeds of approximately $20.2 million.
41
Cash Flows
The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2025 and 2024, respectively:
|
|
For the six months ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Net income |
|
$ |
18,918,686 |
|
|
$ |
17,914,076 |
|
Adjustments to reconcile net income to net cash used in operating activities and |
|
|
(4,830,181 |
) |
|
|
(4,785,258 |
) |
Net cash provided by operating activities |
|
|
14,088,505 |
|
|
|
13,128,818 |
|
Net cash provided by/(used in) investing activities |
|
|
1,952,043 |
|
|
|
(21,572,738 |
) |
Net cash (used in)/provided by financing activities |
|
|
(6,878,912 |
) |
|
|
7,616,763 |
|
Change in cash and cash equivalents |
|
|
9,161,636 |
|
|
|
(827,157 |
) |
Net Cash Provided by Operating Activities
For the six months ended June 30, 2025 and 2024, we reported “Net cash provided by operating activities” of approximately $14.1 million and $13.1 million, respectively. Net cash provided by operating activities increased approximately $1.0 million, primarily attributable to a decrease in PIK interest income of $2.7 million, an increase in related party receivables of $3.2 million, and an increase in stock based compensation expense of $0.2 million, an increase in net income over the comparable period of approximately $1.0 million, a decrease in the interest reserve for applied interest payments of approximately $2.5 million, a decrease in accounts payable and accrued expenses of approximately $1.3 million and a decrease in interest receivable of approximately $1.7 million, over the comparable period.
Net Cash Provided by Investing Activities
For the six months ended June 30, 2025 and 2024, we reported “Net cash provided by/(used in) investing activities” of approximately $2.0 million and $(21.6) million, respectively.
For the six months ended June 30, 2025, cash outflows primarily related to $10.3 million used for the origination and funding of loans held for investment, partially offset by $12.3 million of cash received from the principal repayment of loans held for investment.
For the six months ended June 30, 2024, cash outflows primarily related to $43.2 million used for the origination and funding of loans held for investment, partially offset by $21.6 million of cash received from the principal repayment of loans held for investment.
Net Cash Used in Financing Activities
For the six months ended June 30, 2025 and 2024, we reported “Net cash (used in)/provided by financing activities” of approximately $(6.9) million and $7.6 million, respectively.
For the six months ended June 30, 2025, cash inflows of approximately $1.0 million related to proceeds received from sales of our common stock through the ATM offering and $56.9 million related to draw downs on our Revolving Loan, which were offset by approximately $40.7 million in repayments on our Revolving Loan, $24.0 million in dividends paid, and approximately $82 thousand in offering costs associated with the registered at-the-market offering.
For the six months ended June 30, 2024, cash inflows of approximately $20.8 million related to proceeds received from sales of our common stock through the ATM offering and $44.0 million related to draw downs on our Revolving Loan, which were offset by approximately $33.3 million in repayments on our Revolving Loan, $23.1 million in dividends paid, approximately $113 thousand in debt issuance costs paid, and approximately $667 thousand in offering costs associated with the registered at-the-market offering.
Leverage Policies
Although we are not required to maintain any particular leverage ratio, we expect to employ prudent amounts of leverage and, when appropriate, to use debt as a means of providing additional funds for the acquisition of loans, to refinance existing debt or for general corporate purposes. Leverage is primarily used to provide capital for forward commitments until additional equity is raised or additional medium- to long-term financing is arranged. This policy is subject to change by management and our Board.
Dividends
42
We have elected to be taxed as a REIT for United States federal income tax purposes and, as such, anticipate annually distributing to our stockholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and our net capital gain. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any Required Distribution to our stockholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our stockholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our stockholders and pay tax at regular corporate rates on the retained net capital gain. The stockholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
The following table summarizes the Company’s dividends declared during the six months ended June 30, 2025 and 2024, respectively.
|
|
Record |
|
Payment |
|
Common |
|
|
Taxable |
|
|
Return of |
|
|
Section 199A |
|
||||
Regular cash dividend |
|
3/31/2025 |
|
4/15/2025 |
|
$ |
0.47 |
|
|
$ |
0.47 |
|
|
$ |
- |
|
|
$ |
0.47 |
|
Regular cash dividend |
|
6/30/2025 |
|
7/15/2025 |
|
$ |
0.47 |
|
|
$ |
0.47 |
|
|
$ |
- |
|
|
$ |
0.47 |
|
Total cash dividend |
|
|
|
|
|
$ |
0.94 |
|
|
$ |
0.94 |
|
|
|
- |
|
|
$ |
0.94 |
|
|
|
Record |
|
Payment |
|
Common |
|
|
Taxable |
|
|
Return of |
|
|
Section 199A |
|
||||
Regular cash dividend |
|
3/28/2024 |
|
4/15/2024 |
|
$ |
0.47 |
|
|
$ |
0.47 |
|
|
$ |
- |
|
|
$ |
0.47 |
|
Regular cash dividend |
|
6/28/2024 |
|
7/15/2024 |
|
$ |
0.47 |
|
|
$ |
0.47 |
|
|
$ |
- |
|
|
$ |
0.47 |
|
Total cash dividend |
|
|
|
|
|
$ |
0.94 |
|
|
$ |
0.94 |
|
|
$ |
- |
|
|
$ |
0.94 |
|
CECL Reserve
In accordance with ASC 326, we record allowances for our loans held for investment. The allowances are deducted from the gross carrying amount of the assets to present the net carrying value of the amounts expected to be collected on such assets. The Company estimates its CECL Reserve using among other inputs, third-party valuations, and a third-party probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan based on the risk profile for approximately three years after which we immediately revert to use of historical loss data.
ASC 326 requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. We consider multiple datapoints and methodologies that may include likelihood of default and expected loss given default for each individual loans, valuations derived from discounted cash flows (“DCF”), and other inputs including the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment, if applicable. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments.
We evaluate our loans on a collective (pool) basis by aggregating on the basis of similar risk characteristics as explained above. We make the judgment that loans to cannabis-related borrowers that are fully collateralized by real estate exhibit similar risk
43
characteristics and are evaluated as a pool. Further, loans that have no real estate collateral, but are secured by other forms of collateral, including equity pledges of the borrower, and otherwise have similar characteristics as those collateralized by real estate are evaluated as a pool. All other loans are analyzed individually, either because they operate in a different industry, may have a different risk profile, or have maturities that extend beyond the forecast horizon for which we are able to derive reasonable and supportable forecasts.
Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of our loan portfolio, and (iv) our current and future view of the macroeconomic environment. From time to time, we may consider loan-specific qualitative factors on certain loans to estimate our CECL Reserve, which may include (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and (iii) the liquidation value of collateral. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we may elect to apply a practical expedient, in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a CECL Reserve.
To estimate the historic loan losses relevant to our portfolio, we evaluate our historical loan performance, which includes zero realized loan losses since our inception of operations. Additionally, we analyzed our repayment history, noting we have limited “true” operating history, since the incorporation date of March 30, 2021. However, our Sponsor has had operations for the past five fiscal years and has made investments in similar loans that have similar characteristics, including interest rate, collateral coverage, guarantees, and prepayment/make whole provisions, which fall into the pools identified above.
In addition, we review each loan on a quarterly basis and evaluate the borrower’s ability to pay the monthly interest and principal, if required, as well as the loan-to-value (LTV) ratio. In considering the potential current expected credit loss, the Manager primarily considers significant inputs to our forecasting methods, which include (i) key loan-specific inputs such as the value of the real estate collateral, liens on equity (including the equity in the entity that holds the state-issued license to cultivate, process, distribute, or retail cannabis), presence of personal or corporate guarantees, among other credit enhancements, LTV ratio, ratio type (fixed or floating) and IRR, loan-term, geographic location, and expected timing and amount of future loan fundings, (ii) performance against the underwritten business plan and our internal loan risk rating and (iii) a macro-economic forecast. Estimating the enterprise value of our borrowers in order to calculate LTV ratios is often a significant estimate. We rely primarily on comparable transactions to estimate enterprise value of our portfolio companies and supplement such analysis with a multiple-based approach to enterprise value to revenue multiples of publicly-traded comparable companies obtained from S&P Capital IQ as of the quarter end, to which we apply a private company discount based on our current borrower profile. These estimates may change in future periods based on available future macro-economic data and might result in a material change in our future estimates of expected credit losses for our loan portfolio.
Regarding real estate collateral, we generally cannot take the position of mortgagee-in-possession as long as the property is used by a cannabis operator, but we can request that the court appoint a receiver to manage and operate the subject real property until the foreclosure proceedings are completed. Additionally, while we cannot foreclose under state Uniform Commercial Code (“UCC”) and take title or sell equity in a licensed cannabis business, a potential purchaser of a delinquent or defaulted loan could.
In order to estimate the future expected loan losses relevant to our portfolio, we utilize historical market loan loss data obtained from a third-party database for commercial real estate loans, which we believe is a reasonably comparable and available data set to use as an input for our type of loans. We expect this dataset to be representative for future credit losses whilst considering that the cannabis industry is maturing, and consumer adoption, demand for production, and retail capacity are increasing akin to commercial real estate over time. For periods beyond the reasonable and supportable forecast period, we revert back to historical loss data.
All of the above assumptions, although made with the most available information at the time of the estimate, are subjective and actual activity may not follow the estimated schedule. These assumptions impact the future balances that the loss rate will be applied to and as such impact our CECL Reserve. As we acquire new loans and our Manager monitors loan and borrower performance, these estimates will be revised each period.
Risk Ratings
We assess the risk factors of each loan, and assign a risk rating based on a variety of factors, including, without limitation, payment history, real estate collateral coverage, property type, geographic and local market dynamics, financial performance, enterprise value of the portfolio company, loan structure and exit strategy, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, our loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:
Rating |
|
Definition |
1 |
|
Very low risk |
2 |
|
Low risk |
44
3 |
|
Moderate/average risk |
4 |
|
High risk/potential for loss: a loan that has a risk of realizing a principal loss |
5 |
|
Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss or an impairment has been recorded |
The risk ratings are primarily based on historical data and current conditions specific to each portfolio company, as well as consideration of future economic conditions and each borrower’s estimated ability to meet debt service requirements. The risk ratings shown in the following table as of June 30, 2025 and December 31, 2024 consider borrower specific credit history and performance and quarterly re-evaluation of overall current macroeconomic conditions affecting the borrowers. As interest rates have increased due to rising rates from the Federal Reserve Board, it has impacted borrowers’ ability to service their debt obligations on a global scale. Changes in risk ratings had an effect on the level of the CECL reserve though, other than the two loans placed on non-accrual status, the loans continued to perform as expected. For approximately 47% of the portfolio, the fair value of the underlying real estate collateral exceeded the amounts outstanding under the loans as of June 30, 2025. The remaining approximately 53% of the portfolio, while not fully collateralized by real estate, may be partially collateralized by real estate and was secured by other forms of collateral including equipment, receivables, licenses and/or other assets of the borrowers to the extent permitted by applicable laws and regulations governing such borrowers.
As of June 30, 2025 and December 31, 2024, the carrying value, excluding the CECL Reserve, of the Company’s loans within each risk rating by year of origination is as follows:
|
|
As of June 30, 2025(1) |
|
||||||||||||||||
Risk Rating |
|
2025 |
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
Total |
|
||||||
1 |
|
$ |
- |
|
$ |
6,768,989 |
|
$ |
1,897,729 |
|
$ |
21,530,282 |
|
$ |
21,125,068 |
|
$ |
51,322,068 |
|
2 |
|
|
33,620,758 |
|
|
53,111,671 |
|
|
67,456,434 |
|
|
43,352,247 |
|
|
- |
|
|
197,541,110 |
|
3 |
|
|
9,694,179 |
|
|
28,271,745 |
|
|
- |
|
|
45,940,436 |
|
|
41,803,052 |
|
|
125,709,412 |
|
4 |
|
|
17,818,950 |
|
|
16,626,809 |
|
|
- |
|
|
- |
|
|
4,957,135 |
|
|
39,402,894 |
|
5 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Total |
|
$ |
61,133,887 |
|
$ |
104,779,214 |
|
$ |
69,354,163 |
|
$ |
110,822,965 |
|
$ |
67,885,255 |
|
$ |
413,975,484 |
|
Accounting Policies and Estimates
As of June 30, 2025, there were no significant changes in the application of our accounting policies or estimates from those presented in our annual report on Form 10-K. Refer to Note 2 to our consolidated financial statements for the six months ended June 30, 2025, titled “Significant Accounting Policies” for information on recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to fluctuations in interest rates. Our loans are typically valued using a yield analysis, which is typically performed for performing loans to borrowers. Changes in market yields may change the fair value of certain of our loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans, however this is mitigated to the extent our loans bear interest at a floating rate. As of June 30, 2025, we had 16 floating-rate loans, representing approximately 59.3% of our loan total portfolio based on aggregate outstanding principal balances, subject to a Prime Rate floor. We estimate that a hypothetical 100 basis points increase in the Prime Rate would result in an increase in annual cash interest income, excluding the effects of PIK interest, of approximately $2.5 million and a 100 basis points decrease in the Prime Rate would result in a decrease in annual interest income of approximately $0.8 million. Our loans generally have a Prime Rate floor established at the prevailing Prime Rate at the time of origination. Refer to Note 3 for Prime Rate floor by loan.
In addition, our Revolving Loan is exposed to similar market risks. Changes in market rates may change the fair value of our Revolving Loan as our loan bears interest at the greater of (1) the Prime Rate plus the applicable margin and (2) 3.25%. As of June 30, 2025, we had an outstanding balance of $71.2 million under the Revolving Loan. Based on our outstanding balance as of June 30, 2025, we estimate that a hypothetical 100 basis points increase in the Prime Rate would result in an increase in annual cash interest expense, excluding unused fees, of approximately $0.7 million and a 100 basis points decrease in the Prime Rate would result in a decrease in annual interest expense of approximately $0.7 million.
The Unsecured Notes bear a fixed interest rate of 9.00% per annum and are not impacted by changes in market rates.
Changes in Market Interest Rates and Effect on Net Interest Income
45
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.
Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally are based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.
Risk Management
To the extent consistent with maintaining our REIT qualification and our exemption from registration under the Investment Company Act, we seek to manage risk exposure by closely monitoring our portfolio and actively managing the financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a loan to changes in interest rates) risks associated with holding our portfolio of loans. Generally, with the guidance and experience of our Manager:
Market Conditions
We provide loans to established companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against our borrowers of the federal illegality of cannabis, our borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and we could lose all or part of any of our loans.
We believe that favorable market conditions, including an imbalance in supply and demand of credit to cannabis operating companies, have provided attractive opportunities for non-bank lenders, such as us, to finance commercial real estate loans and other loans that exhibit strong fundamentals but also require more customized financing structures and loan products than regulated financial institutions can presently provide. Additionally, to the extent that additional states legalize cannabis, our addressable market will increase. While we intend to continue capitalizing on these opportunities and growing the size of our portfolio, we are aware that the competition for the capital we provide is increasing.
Our ability to grow or maintain our business depends on state laws pertaining to the cannabis industry. New laws that are adverse to our borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede our ability to grow and could materially adversely affect our business.
Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, we may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case we would look to sell the loan, which could result in us realizing a loss on the transaction.
While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain loans, particularly those not fully collateralized by real estate. In order
46
to mitigate that risk, our loans are generally collateralized by other assets, such as equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations. In addition, we seek to impose strict loan covenants and seek personal or corporate guarantees for additional protection. As of June 30, 2025 and June 30, 2024, our portfolio on average had real estate collateral coverage of 1.2x and 1.3x, respectively, and all of our loans are secured by equity pledges of the borrower and all asset liens.
Credit Risk
We are subject to varying degrees of credit risk in connection with our loans and interest receivable. Our Manager seeks to mitigate this risk by seeking to originate loans, and may in the future acquire loans, of higher quality at appropriate prices given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated and acquired loans. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results. For additional information regarding the credit risk associated with our loans and interest receivables, see “Risk Factors- Loans to relatively new and/or small companies and companies operating in the cannabis industry generally involve significant risks” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Our Manager or affiliates of our Manager have originated all of our loans and intend to continue to originate our loans, but we may in the future also acquire loans from time to time. Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that we may in the future acquire other than as necessary to maintain our exemption from registration under the Investment Company Act and our qualification as a REIT. Our investment decisions will depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage of our capital that will be invested in any individual target investment at any given time.
Our loan portfolio as of June 30, 2025 and December 31, 2024, was concentrated with the top three borrowers representing approximately 25.6% and 24.0% of principal outstanding, respectively. As of and for the six months ended June 30, 2025 and 2024, the top three borrowers represented approximately 26.0% and 30.0% of the total interest income, respectively. The largest loan represented approximately 11.1% of principal outstanding as of both June 30, 2025 and December 31, 2024.
As of June 30, 2025 and December 31, 2024, our borrowers have operations in the jurisdictions noted within the table below based on real estate collateral location or principal place of business:
As of June 30, 2025 |
|
|
As of December 31, 2024 |
|
||||||||||||||
Jurisdiction |
|
Outstanding |
|
|
Percentage of Our Loan |
|
|
Jurisdiction |
|
Outstanding |
|
|
Percentage of Our Loan |
|
||||
Illinois |
|
$ |
70,614,725 |
|
|
|
17 |
% |
|
Illinois |
|
$ |
55,958,079 |
|
|
|
14 |
% |
Ohio |
|
|
63,487,510 |
|
|
|
15 |
% |
|
Ohio |
|
|
60,065,707 |
|
|
|
15 |
% |
Florida |
|
|
44,968,576 |
|
|
|
11 |
% |
|
Florida |
|
|
42,712,285 |
|
|
|
11 |
% |
Pennsylvania |
|
|
37,113,862 |
|
|
|
9 |
% |
|
Pennsylvania |
|
|
35,727,045 |
|
|
|
9 |
% |
Missouri |
|
|
36,073,052 |
|
|
|
9 |
% |
|
Missouri |
|
|
38,208,259 |
|
|
|
9 |
% |
Michigan |
|
|
32,069,178 |
|
|
|
8 |
% |
|
Michigan |
|
|
32,068,629 |
|
|
|
8 |
% |
Arizona |
|
|
25,163,960 |
|
|
|
6 |
% |
|
Arizona |
|
|
28,023,340 |
|
|
|
7 |
% |
California |
|
|
25,008,065 |
|
|
|
6 |
% |
|
California |
|
|
26,057,479 |
|
|
|
6 |
% |
New York |
|
|
23,580,998 |
|
|
|
6 |
% |
|
New York |
|
|
25,093,595 |
|
|
|
6 |
% |
Maryland |
|
|
22,188,184 |
|
|
|
5 |
% |
|
Maryland |
|
|
21,835,901 |
|
|
|
5 |
% |
Nebraska |
|
|
17,400,000 |
|
|
|
4 |
% |
|
Nebraska |
|
|
17,400,000 |
|
|
|
4 |
% |
West Virginia |
|
|
8,491,943 |
|
|
|
2 |
% |
|
West Virginia |
|
|
8,491,943 |
|
|
|
2 |
% |
Nevada |
|
|
5,750,001 |
|
|
|
1 |
% |
|
Nevada |
|
|
6,000,000 |
|
|
|
1 |
% |
Texas |
|
|
2,770,760 |
|
|
|
1 |
% |
|
Texas |
|
|
2,756,870 |
|
|
|
1 |
% |
Minnesota |
|
|
1,124,460 |
|
|
|
0 |
% |
|
Minnesota |
|
|
1,116,000 |
|
|
|
0 |
% |
Oregon |
|
|
612,874 |
|
|
|
0 |
% |
|
Oregon |
|
|
580,000 |
|
|
|
0 |
% |
Massachusetts |
|
|
- |
|
|
|
- |
% |
|
Massachusetts |
|
|
2,626,423 |
|
|
|
1 |
% |
Total |
|
$ |
416,418,148 |
|
|
|
100 |
% |
|
Total |
|
$ |
404,721,554 |
|
|
|
100 |
% |
(1) The principal balance of the loans not secured by real estate collateral are included in the jurisdiction representing the principal place of business. Amounts presented include loans held for investment and loans held for sale.
47
Real Estate Risk
Commercial real estate loans are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loan or loans, as the case may be, which could also cause us to suffer losses.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the forms and rules of the SEC and that such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
In connection with the preparation of this quarterly report on Form 10-Q, our management, including the Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2025. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025 to ensure that (a) information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the forms and rules of the SEC and (b) such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the three months ended June 30, 2025, the Company engaged a new third‑party provider to support its ongoing CECL reporting including modeling, data aggregation, and documentation. While the Company has substantially completed the implementation activities with assistance from the vendor, as of the quarter ended June 30, 2025, it continues to finalize execution and documentation of its augmented internal control procedures. The transition from the Company’s previous third-party provider is being overseen by the Chief Financial Officer, which concluded that the change is not expected to materially alter the ultimate credit loss estimate or design of internal controls. The Company remains responsible for validating assumptions, methodologies, forecasts, and controls, and intends to maintain documentation consistent with regulatory and other requirements, as applicable.
There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2025 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
48
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we may be subject to various legal proceedings from time to time. We are not party to any material pending legal proceedings required to be disclosed pursuant to Item 103 of Regulation S-K.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect our business, financial condition and/or results of operations. Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes to the risk factors described in the “Risk Factors” sections in our Annual Report on Form 10-K for the year ended December 31, 2024. The risks described in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On August 5, 2025, CAL entered into the First Amendment to the Sixth Amended and Restated Loan and Security Agreement (the "August 2025 Amendment"). The August 2025 Amendment extended the contractual maturity date from June 30, 2026 to June 30, 2028. No other material terms were modified as a result of the execution of this amendment, and the Company incurred approximately $0.1 million in financing costs relating thereto (Note 16). The First Amendment to the Sixth Amended and Restated Loan and Security Agreement is filed as Exhibit 10.7 to this Quarterly Report on Form 10-Q.
None of the Company’s officers or directors have
49
Item 6. Exhibits
Exhibit |
|
Description of Exhibits |
10.7* |
|
First Amendment to the Sixth Amended and Restated Loan and Security Agreement, dated as of August 5, 2025, among Chicago Atlantic Lincoln, LLC, Chicago Atlantic Real Estate Finance, Inc., the other Persons from time to time party thereto, as borrowers; and the financial institutions party thereto, as Lenders |
31.1* |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* |
|
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2* |
|
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
|
Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document.* |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents.* |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CHICAGO ATLANTIC REAL ESTATE FINANCE, INC. |
|
|
|
|
Dated: August 7, 2025 |
By: |
/s/ Peter Sack |
|
|
Peter Sack |
|
|
Co-Chief Executive Officer and Director |
|
|
(Principal Executive Officer) |
Dated: August 7, 2025 |
By: |
/s/ Phillip Silverman |
|
|
Phillip Silverman |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
51
