Chicago Atlantic Real Estate Finance, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Chicago Atlantic Real Estate Finance Incorporated third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone keypad. At this time, I would like to turn the conference over to Mr. Tripp Sullivan of SCR Partners. Mr. Sullivan, you may begin.

Thank you. Good morning. Welcome to the Chicago Atlantic Real Estate Finance Conference call to review the company's results for the third quarter of 2022. On the call today will be John Masarakis, Executive Chairman, Tony Kappel, Chief Executive Officer, Andreas Bode-Meyer, Co-President and Chief Investment Officer, and Phil Silverman, Interim Chief Financial Officer. Our results were released this morning in our earnings press release, which can be found on the Invest Relations section of our website, along with our supplemental, followed by the SEC. A live audio webcast of this call is being made available today. For those who listened to the replay of this webcast, we remind you that the remarks made herein are as of today, November 9th, 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 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 the SEC. I'll now turn the call over to John Mazurakis. Please go ahead.

Thanks, Tripp. Good morning, everyone, and thank you for joining us today. Throughout this year, we have stressed the importance of maintaining discipline in underwriting, loan documentation, and loan monitoring. We have also continued to assess asset values in every state estate markets evolve monthly. Given the continued disruption in the capital markets, it is critical that we continue to rely on these aspects of our strategy that have made us successful so far, being methodical, analytical, and pragmatic. I want to remind, again, everyone, the investment potential of this industry. Let's compare the performance of the cannabis market in the last three years to beer, wine, tobacco, and pharmaceuticals. The revenue growth of these other industries from 2019 to 2021 was in the low single digits, along with high single digits to low double digits profit growth at best. The cannabis market, on the other hand, generated annual revenue growth in the mid 30% to low 50% range, along with mid 30% to 50% annual profit growth in the same period. Cannabis is an industry that has only just began to grow and will continue to need significant growth capital. I would also highlight that U.S. retail sales estimates from Factbook project cannabis sales to increase from 30 billion in 2022 to 53 billion by 2026. With Rhode Island approving adult-use cannabis in May and its first retail store opening in early December, and with Maryland being expected to move to adult use with a referendum this month, these estimates may in fact be conservative. I don't think we've seen the full impact of New Jersey or New York in those sales estimates either. I also think it is worth mentioning the Safe Banking Act here briefly. There has been an increasing amount of speculation that something could get done before next January. While this piece of legislation may ultimately pass, we believe that there is still a lot of work and compromise on both sides of the aisle for that to happen. Overall, we believe that this legislation will be a net positive for Chicago Atlantic. Several local banks are already providing smaller loans to smaller operators. If the Safe Banking Act results in larger regional banks entering the space, We believe that they will want to put sizable capital to work quickly with platforms such as Chicago Atlantic rather than to build up the expertise with their own underwriting and lending groups. Ultimately, this legislation is expected to help us increase our leverage and to result in an overall lower cost of capital for the REIT. I noted last quarter that it was our number one goal to increase our syndicated credit facility because of how accretive this lower cost of capital is for our investors. And I'm pleased to announce that we have successfully done so. We increased our credit facility by 27.5 million to a total of 92.5 million and we added four new banks to our lending group. We're actively working to close another seven and a half million to get us to 100 million in total. We're also working to ultimately increase the overall size of our revolver as the credit facility will remain the most accretive source of capital for us in the foreseeable future. As we disclosed in our earnings release, we increased our outlook for the full year. We are now expecting adjusted distributable earnings to be in the range of 201 to 205 per share. This outlook assumes the use of our extended credit facility over the balance of the fourth quarter with leverage by year end in the range of 25 to 35%. Having declared a 47 cent regular quarterly dividend for Q3 as planned, in December we expect to declare at least 47 cents for the fourth quarter. We also intend to distribute up to 99% of distributable earnings for 2022. That would imply a special dividend to be declared before year end to true up our taxable income. We have combined a very bullish outlook on the cannabis industry with a measured and disciplined approach to underwriting. Our conservatism has been even more evident in our projections, our leverage, and our dividend payouts. We believe that these decisions have been the right ones for our shareholders and have led to our outperformance on a relative basis to our peers, and on comparable indexes. Tony, why don't you take it from here?