Chicago Atlantic Real Estate Finance, Inc.

Thank you for standing by, and welcome to Chicago Atlantic Real Estate Finance fourth quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To participate during the session, simply press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Tripp Sullivan of Investor Relations. The floor is yours.

Thank you. Good morning. Welcome to the Chicago Atlantic Real Estate Finance Conference call to review the company's results for the fourth quarter of 2021. On the call today will be John Mazarrakis, Executive Chairman, Tony Kappel, Chief Executive Officer, Andreas Bodmeier, Co-President and Chief Investment Officer, and Lindsey Minns, Chief Financial Officer. Our results were released this morning in our earnings press release, which can be found on the investor relations section of our website, along with our supplemental filed with the SEC. A replay of this call will be available shortly after the conclusion of the call through March 29, 2022. The numbers to access the replay are provided in the earnings press release. For those who listened to the replay of this call, We remind you that the remarks made herein are as of today, March 22, 2022, and will not be updated subsequent to this call. During this call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans and other investments, future dividends, and financing activities. All forward-looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risk and uncertainties that can cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC. We will also discuss certain non-GAAP measures, including but not limited to distributable earnings, and adjusted distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with SEC. And now I'll turn the call over to John Masarykas. Please go ahead.

Thanks, Tripp. Good morning, everyone, and thank you for joining us today. As this is our first earning call since completing the IPO in early December, I would like to welcome all of our new shareholders and analysts. We have worked hard to get to this point, and we're excited about the opportunities ahead of us. With less than a month between our IPO and the end of the fourth quarter, the real measure of how strong a start we have built is in the growth of our portfolio, the attractive yields we're generating, and the robust pipeline of new loan originations. We will focus much of our time this morning on each of these topics as well as the state of the industry and the plans for our capital structure. Before we do that, I want to call out some of our financial highlights for the quarter and to date in March. We have been growing our loan commitments at inception of the REIT Q2 2021. We had $72 million in commitments. That number of loan commitments grew to $192 million at IPO and 235 million at the end of 2021. As of March 17, we have 324 million commitments. Since the IPO and through March 17, we have funded 115 million of new and existing commitments. With that, we have deployed all IPO proceeds, which puts us ahead of schedule in deploying the IPO proceeds and beginning to draw on our revolving credit facility. With this portfolio growth, We were able to report 57 cents of earnings and 61 cents of adjustable distributable earnings for Q4. The fourth quarter results and active start of the year also enabled the board to declare a 26 cent dividend in Q4 and to subsequently increase it in Q1 by 54% to 40 cents per share. Now, let's talk about what initially attracted us to the cannabis market. Four years ago, we recognized that there was an opportunity to bring an institutional lending approach to an industry that had previously struggled to access capital. By institutional approach, I mean introducing to the nascent cannabis industry the disciplines that are taken for granted in all of direct lending, such as rigorous credit reviews, strict underwriting guidelines, deep operator evaluations, enterprise value analysis, as well as other methods of perfecting collateral. We were not looking to create a new model of lending. Instead, we just focused on applying what has been a tried and true approach to an industry that desperately needed it. With a little over a billion dollars in closed facilities, most of which have been in cannabis, we've established a good track record and capitalized on being a first mover in this space. The fact is, you can't create a track record like this without a good team. And we have one of the best teams in the industry. Tony has been in banking for over 15 years and has completed over $5 billion in loans during his career at Wells Fargo and StokeGate Capital. Andreas has underwritten over $500 million in cannabis credit transactions and heads up our investment efforts. He has a strong research and consulting background that helps us with risk management. Peter led the cannabis lending practice at BC Partners Credit before joining us and has a strong underwriting background as well. I come from an operating background having built businesses from the ground up and as a real estate developer and owner. We have a diverse yet complementary background backed by a team of over 30 investment and management professionals who have helped establish the Chicago Atlantic brand in the cannabis industry. That's something I'm focused on every day, ensuring we have the right people in place, the right culture, the full integration of the REIT with the Chicago Atlantic Originations platform, and my goal is to continue building on our well-earned reputation as a capital provider that can be trusted and to grow together with the leading operators in the industry. Another feature that attracted us to the cannabis industry is that it's by no means mature. I've described it before as being in maybe the second inning in terms of its development. In an industry like this, sometimes it's hard to accurately estimate how big the addressable market really is. We and others in the industry have pegged the current size of the legal state regulated markets as $25 billion in top line retail revenue and a multiple of that across the entire value chain. I think we all know it is much larger when you factor in the illicit market, which will eventually become legal over time. When you adjust for that inevitable transition, We believe it's really a $100 billion industry just on the retail side. We have stats in our presentation that highlight the industry could rival beer, spirit, and wine by 2030, leading to substantial growth opportunity and demand for capital. This industry is not the Wild West anymore. The real winners in this space will be the operators that have a proven and disciplined approach. the operators that understand unit economics, scale of manufacturing, and multi-unit retail operations. As Andreas will explain later, when we look at the opportunities in our pipeline, we're able to quickly sort out the operators who meet our stringent criteria and those that likely never will. We believe that good operators will be rewarded long-term, and they will continue to be a shakeout. As you look across, Across our portfolio, it's clear where we are focused on providing capital. We have primarily targeted the limited licensed states with operators that are vertically integrated. While we're open to opportunities west of the Mississippi, we prefer to start with states that are medically licensed and then grow within them as many of those states transition to adult use. The regulatory environment is one of the biggest hurdles to this industry. and we are very familiar with the dynamics within each state and what's being proposed. While federal legalization, passage of the Safe Banking Act, and a change in the Internal Revenue Code to Section 280E will ultimately unlock the true potential of this market, our opportunity set is not built on any of these events occurring in the near term. After the Biden-Harris administration took office, there was speculation about full legalization, quick passage of the Safe Banking Act. When that didn't happen, we saw the public market valuations of the cannabis operators decline significantly, and their access to equity capital was either cut off or suddenly became much more expensive than debt. This environment of uncertainty was exacerbated by all sorts of inflationary pressures like COVID, Ukraine, and the global supply disruption as well as the Federal Reserve moves. What's important to remember is that these operators are in growth mode. The demand for their products has shown no sign of letting up, not even through the pandemic when it actually accelerated, and they need to invest in production, cultivation, and retail. That demand for capital can best be met by working with us. We don't thrive on the disruption in the public equity market, but it is clearly a net positive for us both near and long term. Tony, why don't you take it from here?