Chicago Atlantic Real Estate Finance, Inc.

Good day and thank you for standing by. Welcome to the Chicago Atlantic Real Estate Finance Inc. Fourth 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'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tripp Sullivan of SCR Partners.

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 2022. On the call today will be John Mazarrakis, Executive Chairman, Tony Kappel, Chief Executive Officer, Andreas Vogtmeyer, Co-President and Chief Investment Officer, and Phil Silverman, Interim Chief Financial Officer. Our results were released this morning at 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 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 or as of today, March 9, 2023, 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 also will 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. I'll now turn the call over to John Mazarrakis. Please go ahead.

Thanks, Tripp. Good morning, and thank you for joining us today. As this quarter represents the completion of our first full year as a public company, I'd like to take a moment to thank our Chicago Atlantic team members and our investors who have made this year a phenomenal success. When we entered the cannabis space in 2019, we saw it as one of the few true sources of alpha available in the market. As we all know, those opportunities don't come around very often. We believe this industry has barely scratched the surface of its true growth potential. I provided a number of stats last quarter on comparing this industry over the last three years to beer, wine, tobacco, and pharmaceuticals. I don't want to tread that ground again, but I do encourage everyone to look at how fast cannabis has grown compared to those industries. No matter which source you use, the industry is sized anywhere from $30 billion to $40 billion currently with expectations of growing somewhere in the neighborhood of $50 to $75 billion in top-line retail sales within the next five years. The capital need for such growth will also be in the tens of billions of dollars, considering that on the one hand, we're converting the illicit market to a legal market, and on the other hand, we have few new adopters trying the medical and adult use products. The size of this market, along with the lack of institutional capital in the space, represents tremendous alpha. And in addition to this dislocation that we have exploited for the better part of the last four years, Top tier existing debt in the cannabis space will soon be within a year of maturity and will need to be refinanced and thus repriced. To be honest, this is why we elected from day one to stick with shorter term maturities on our loans. Operators are perpetual optimists by nature and continue to believe that federal legalization or some other legislation like SAFE will pass soon. As a result, they have been hesitant to lock in longer term loans. That has put us in a better negotiating position with more flexibility in the rising interest rate environment. Our thoughts on the impact of Safe Banking Act are also well established. We don't think it's imminent. We believe that if some form of the Safe Banking Act passes in the end, we benefit more than others because we have the largest credit platform in the space. Capital providers that are not currently in the space will want to put sizable capital to work quickly with platforms like ours rather than to build up the expertise within their own underwriting and lending groups. In addition to the SAFE Act, I also want to mention the state level initiatives we're tracking. Missouri and Maryland have turned adult use and we're actively working on deals in both states. Minnesota is also a state that we expect to soon legalize adult use cannabis. What is particularly intriguing is recent speculation that AG Garland is working on a new memo regarding cannabis scheduling that would replace the cold memo that AG Sessions rescinded during the Trump administration. While the DOJ has been working on that for some time, should it be issued, it could potentially have as much impact for us as safe banking. It could once again free up the capital markets to funnel more capital to proven platforms like ours, and result in an overall lower cost of capital for the REIT and for our borrowers. Our best source of capital currently is our credit facility. We have expanded it to $92.5 million last quarter, and we have extended it to the end of 2024. We also retained the extra one-year extension option without any fees. As Andreas will note later, we're actively working to expand that banking group and grow the facility further. Last month, we also took advantage of a request from some institutional investors to sell 6 million of Kauffman stock at $15.16 per share. This was obviously above book, so we thought it was great execution and did not involve any underwriters. As we disclosed in our earnings release, we initiated an outlook for 2023. Rather than a specific range, we believe a better way to project the year is in terms of our expected regular quarterly dividend and our targeted payouts based on distributable earnings. We expect our dividend to be at least 47 cents each quarter. We also expect to continue to pay out 90 to 100 percent of distributable earnings. Should we need to pay out more of a dividend to maintain our taxable income thresholds, our intent is to meet that with a special dividend. We believe a conservative longer-term approach will be better rewarded in the end. Tony, why don't you take it from here?