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Transcript Summary

Chicago Atlantic BDC, Inc. (LEND) delivered a strong fourth-quarter 2025 performance, reinforcing its status as a specialized lender in the cannabis and lower-middle-market sectors. The company reported a weighted-average portfolio yield of 15.8% and a net investment income of $0.36 per share, supporting a stable $0.34 quarterly dividend. Management highlighted several key differentiators that insulate the firm from current private credit market pressures, including a 99.5% senior secured portfolio, zero nonaccruals, and an exceptionally low debt-to-equity ratio of 0.08x. Unlike many BDCs, Chicago Atlantic has limited exposure to the software industry and is protected against interest rate declines through fixed rates and floors. A significant portion of the call focused on the potential reclassification of cannabis to Schedule III, which management believes will act as a major catalyst for borrower cash flow and consolidation activity. With a $732 million platform pipeline and $48 million in immediate liquidity, the company is well-positioned to capitalize on growth in the cannabis industry. Analysts probed the company on state-level activity and its valuation rigor, with management confirming that 100% of the portfolio is externally valued every quarter to ensure maximum transparency.

5-year share-count history (top 10 holders by peak, incl. exited) + price

Filing Risk Scores

Chicago Atlantic BDC, Inc.: High-Yield Cannabis Lending Masked by Subjective Level 3 Valuations and PIK Accruals

Full Earnings Call Transcript — Q4 • 2026-03-19

Operator: Good day. And welcome to the Chicago Atlantic BDC, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Note that this event is being recorded. I would now like to turn the conference over to Tripp Sullivan. Please go ahead.
Tripp Sullivan: Thank you. Good morning. Welcome to the Chicago Atlantic BDC, Inc. conference call to review the company’s results. On the call today will be Peter S. Sack, Chief Executive Officer; Thomas Napoleon Geoffroy, Interim Chief Financial Officer; and Dino Colonna, President. Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website and in our supplemental earnings presentation filed with the SEC. A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including statements related to financial guidance, may be deemed forward-looking statements under federal securities laws because such statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risks. Chicago Atlantic BDC, Inc. assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, 03/19/2026. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading. I will now turn the call over to Peter S. Sack. Please go ahead.
Peter S. Sack: Thanks, Tripp. Good morning, everyone. During the fourth quarter and the full year, the results continued to demonstrate that Chicago Atlantic BDC, Inc. is a uniquely positioned BDC investing primarily in direct loans to privately held companies in niche markets with the goal to deliver an attractive return while creating downside protection. We are one of the only public BDCs that is primarily focused on and able to lend to cannabis companies. We also focus on pockets of the lower middle market commonly overlooked by capital providers. We believe that this differentiation provides uncorrelated, distinct credit opportunities. Net investment income for the fourth quarter of 2025 was $0.36 per share and $1.45 for the full year, demonstrating the potential of the business model to generate a yield to book value of 2.7% for the fourth quarter and 11% for the year. During the fourth quarter, we executed on our pipeline, funding $31.7 million across seven new investments, including four new borrowers, effectively utilizing additional capacity on our credit facility. During the fourth quarter, the broader BDC market was impacted by negative sentiment among investors, with many more BDCs trading below net asset value by the end of 2025. Investors placed less reliance on book value as a primary valuation metric and focused more on potential dividend cuts and losses in existing loan books. They were concerned that the fraud in the private credit markets may have led to looser underwriting standards, potentially pressuring portfolio performance and driving higher defaults. Additionally, the drop in the Fed Funds rate in December has caused fears that this will weigh on earnings and dividends. Meanwhile, in global markets, companies operating in the software industry, which were heavily backed by private credit, fell out of favor with the perception that AI would eliminate the need for their services. And now there are developing concerns about the banks that have backed private credit. It is clear to us that Chicago Atlantic BDC, Inc. stock is being influenced by negative sentiment currently surrounding the private credit markets. I think it is important for us to reiterate how differentiated Chicago Atlantic BDC, Inc. is from the rest. Chicago Atlantic BDC, Inc. operates within a unique intersection of credit: the emerging sector of the U.S. cannabis industry and lower middle markets underserved by other capital providers. Our thesis is simple. We apply best-in-class sector expertise, highly developed relationship-based sourcing capabilities, and fundamental credit and investment principles to make debt investments to borrowers with limited sources of debt capital. We take advantage of limited lending competition to structure, first, what we believe to be differentiated downside risk in senior secured positions and, second, a highly outsized return profile relative to broader credit and lending portfolios. Our portfolio has extremely limited overlap with other private credit managers, and the drivers of current private credit market pressure simply are not relevant to us. We have limited exposure to software, receivable factoring, and no exposure to recent examples of fraud in some large syndicated facilities. Our focus areas have not experienced an over-allocation of capital leading to compressed yields that we see across other sectors of private credit. Our strategy is built on a disciplined focus on credit and collateral. We work collaboratively with our borrowers to create value, and our work is executed by a team of originators and underwriters with deep industry and rigorous risk management expertise. The metrics speak for themselves, so I will call out a few. The public BDC industry data points that I am about to mention are taken from Raymond James’ BDC Weekly Insights as of 03/13/2026, and Oppenheimer’s BDC Quarterly report as of 12/16/2025. Our weighted-average yield on debt investments as of 12/31/2025 was 15.8%, compared to 10.8% for the average public BDC. 99.5% of our portfolio is senior secured, compared to other BDCs that have an average of 24.9% exposure to subordinated debt, equity, and JV investments. 73% of the portfolio at par is either fixed rate or floating rate at floor, insulating the company against a drop in interest rates. Only 27% of the portfolio is impacted by a further decline in interest rates. We calculate that a 100 basis point drop in rates only impacts NII of the company by approximately 1%. Only 3% of the portfolio is currently exposed to the software industry. Our unique investment strategy is focused on underserved markets, providing no overlap in investments made by any other public BDC that we are aware of. We conduct full due diligence on new credits ourselves instead of relying on underwriting conducted by bankers or co-investors, and we carefully monitor the performance of each of our portfolio companies ourselves. The portfolio is under-levered with only $25.0 million of debt at quarter end and with a 0.08x debt-to-equity ratio. This compares with the BDC average of 1.2x debt-to-equity. Assuming full utilization of our $100.0 million credit facility during the year, we would still be well below industry averages of leverage. Lastly, we have no nonaccruals compared with an industry average of 3.3% of cost. Today, we announced a $0.34 dividend, marking the sixth consecutive quarter at that rate. Total dividends paid out for the year now total $1.36 per share. The platform is performing well, exceeding returns from the larger BDC market with low downside risk and an expanding opportunity set. Recent M&A in the cannabis market has increased our pipeline for 2026. In addition, in recent months, there has been positive momentum in cannabis policy. At the federal level, there was a meaningful shift in December 2025 with the current administration committed to pursuing the reclassification of cannabis from Schedule I to Schedule III. While this is not federal legalization, rescheduling would represent a significant federal policy change. As I have said before, rescheduling would dramatically increase cash flow after taxes for our borrowers. In the short term, this would translate into higher equity valuations of both public and private cannabis companies. There would likely be increased M&A activity and higher capital expenditures driven by the higher free cash flow of operators, leading to greater opportunity for our platform. In the medium and long term, there is lingering uncertainty that would continue to limit investment until federal regulators put in place a regulatory framework for cannabis as a Schedule III substance. This continued ambiguity will continue to create challenges for U.S. public listings and access to debt markets. We highlighted a slide in this quarter’s supplemental on how this may set the stage for improved industry economics without opening the door for increased lending competition. We believe that Chicago Atlantic BDC, Inc. is well positioned to benefit from these developments, although the success of our strategy is not dependent on these changes. We manage the business assuming the regulatory environment does not change. With this mindset, we will continue to pursue higher yields in niche markets where we believe the risk/reward is attractive, deploying available liquidity, all while continuing to build a portfolio with strong credit metrics and protections. We have carved out a unique strategy with above-market returns, opportunity for growth, and limited competition. We have demonstrated that this strategy delivers positive results. I will now turn the call over to Thomas Napoleon Geoffroy to discuss the numbers in greater detail.
Thomas Napoleon Geoffroy: Good morning. Thanks, Peter. I want to highlight the investor presentation that was filed with the SEC this morning that serves as our earnings supplemental. I will start with the investment portfolio. We have 39 portfolio company investments. 25% of the portfolio is invested in non-cannabis companies across multiple sectors. The average credit investment size is approximately 2.4% of our debt portfolio at fair value. 73% of the debt portfolio is insulated from further rate declines due to either fixed rates or floating-rate floors. The gross weighted-average yield of the company’s debt investment portfolio is approximately 15.8%, which is in line with last quarter’s yield, and none of our loans are on nonaccrual status. As of 12/31/2025, the company had $25.0 million of debt outstanding, all of which was drawn from the revolving line of credit. As of 03/18/2026, the company had approximately $47.5 million of liquidity, comprised of $25.5 million of borrowing capacity under its $100.0 million credit facility, subject to borrowing base and other restrictions, and approximately $22.0 million of cash on the balance sheet. We started 2026 with ample liquidity and lower leverage than other BDCs, providing us the flexibility to deploy additional capital strategically. Financial highlights for the fourth quarter were: gross investment income totaling $14.2 million, compared to $15.1 million for the third quarter. The net decrease in investment income of approximately $0.9 million from the prior quarter was primarily due to one-time fees from unscheduled repayments recognized in the third quarter of approximately $2.0 million, which were partially offset by increases of approximately $0.7 million in amendment and origination fees and an increase of $0.4 million of interest income for the fourth quarter. Net expenses for the quarter were $5.9 million, compared to $5.6 million in the third quarter. Net investment income for the quarter was $8.3 million, or $0.36 per share, compared to $9.5 million, or $0.42 per share, in the third quarter. The decrease again was primarily due to the impact of one-time fees earned in the third quarter. Net assets totaled $303.4 million at quarter end. Net asset value per share was $13.30, compared to $13.27 in the third quarter. At quarter end, there were 22.8 million common shares issued and outstanding on a basic and fully diluted basis. I will now turn it over to Dino to talk about our originations efforts.
Dino Colonna: Thanks, Tom. During the fourth quarter, we funded $31.7 million in new debt investments to seven portfolio companies. Four of these investments are new borrowers to the BDC. Of these new debt investments, 100% were senior secured, and 89% are floating-rate loans at their floor at quarter end. During the fourth quarter, we also had loan repayments and amortization totaling approximately $11.0 million, which included paydowns of $8.1 million. As of the end of the fourth quarter, there were approximately $25.0 million in total unfunded commitments for the portfolio. To date in 2026, we have funded $93.9 million in new investments to seven borrowers, of which three were new to the BDC. Included in this was a refinance of $38.3 million to our largest borrower. We are excited to have delivered a bespoke solution to the company that met their needs while maintaining an attractive and well-structured investment for the portfolio. We have had $55.7 million in payoffs from borrowers quarter-to-date, resulting in approximately $40.0 million in net originations thus far in 2026. The pipeline across the Chicago Atlantic platform as of quarter end, which includes cannabis and non-cannabis opportunities, totaled approximately $732.0 million in potential debt transactions. The breakdown of the opportunity set includes approximately $616.0 million in cannabis opportunities and approximately $116.0 million in non-cannabis opportunities. As Tom mentioned, we have approximately $48.0 million of liquidity to grow the portfolio, but as always, we will maintain our disciplined approach to underwriting and structuring investments that deliver above-market risk-adjusted returns. We have had to show patience in the past when the markets around us seemed to underprice risk, and that patience has paid off, because we have the portfolio strength and liquidity to go on offense when many other private credit managers are busy playing defense. Both the cannabis and non-cannabis verticals continue to perform well within the portfolio, while demand for new debt capital within the lower middle markets remains healthy. As Peter mentioned, recent M&A activity in the cannabis industry has been a positive for our pipeline. Our disciplined and thoughtful approach to sourcing and structuring investments has resulted in a portfolio with low correlation to other asset classes and the broader private credit markets. This differentiated portfolio has been intentionally constructed and is a direct result of how we approach creating value for our investors, and that includes investing in underserved market niches, which allows for favorable downside protection with pricing power. We have a limited reliance on sponsor-driven deal flow, so we tend to maintain control over underwriting, structuring, and documentation, and we believe that not chasing the ultra-competitive parts of the market translates to better credit performance in the long run. We perform our own rigorous due diligence on all of our investments, and our strategy remains almost entirely focused on first-lien senior secured loans that are structured with lender-friendly covenants. The underlying strength of the portfolio and structural protections from further interest rate risk have allowed us to continue to generate a stable and durable dividend. The underlying loans in the portfolio also continue to demonstrate significant health overall, with low net leverage, high interest coverage, and no nonaccruals. There is also no overlap with investments made by other public BDCs that we are aware of. And finally, the portfolio is underleveraged compared to industry standards. Periods of macro uncertainty tend to expose underwriting shortcuts and reward discipline. Market anxiety today is real; our consistent, repeatable approach has positioned us well for what we believe is an increasingly attractive deployment environment. We do not compete by chasing large sponsor-driven deals or by stretching on leverage, structure, or pricing. Our focus remains on disciplined sourcing, conservative structuring, and rigorous underwriting. It is how the platform was built, and it is how we intend to grow. We believe this approach has produced and will continue to produce an idiosyncratic credit opportunity that targets above-market returns with a strong emphasis on capital preservation. Thank you for your continued support. We look forward to updating you again next quarter. Operator, we are now ready for questions.
Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, you may do so at that time. We will pause momentarily to assemble our roster. The first question today comes from Pablo Zuanic with Zuanic and Associates. Please go ahead.
Pablo Zuanic: Thank you, and good morning, everyone. Just a two-part question. First, in terms of housekeeping, when you talk about the $732.0 million pipeline, is that for Chicago Atlantic Group as a platform or for LEND specifically? And then I was looking at the third quarter press release. I do not think a pipeline number was given then, but if you can talk about how much the pipeline grew between November and now, March, that is the first part of my question. The second part is that I know you addressed it in part, but we had this executive order talk about rescheduling. How are discussions playing out with potential borrowers? Has there been a cadence change? Maybe there were a lot of discussions in December and January, but here we are in March, and we still do not have news on rescheduling. Has that changed? If you can talk about the cadence and how the discussions have changed with operators in general. Thank you.
Dino Colonna: Thanks, Pablo. On the pipeline, that is across the entire platform, and last quarter we reported approximately $600.0 million of a pipeline, so that is a nice increase to the $700.0 million and change we just mentioned.
Peter S. Sack: Thanks. I will start with your last question, Pablo, as it relates to pipeline. Rescheduling, I think, has breathed a new, fresh air of optimism into the industry. We are seeing it from a couple of perspectives. We are seeing greater eagerness to execute on consolidation, as larger players see potentially a short window and execute acquisitions before rescheduling becomes effective. And then on the supply side, we are seeing greater eagerness of operators who have stayed on the sidelines, not pursuing exits in a very low valuation environment, starting to cross the sidelines and consider exiting or selling their businesses. All of that volume and transaction activity is positive for Chicago Atlantic BDC, Inc. because it creates more new opportunities to provide financing. And then, difficult to quantify across the industry, we are seeing a general stronger willingness for operators to invest in their businesses and invest in growth.
Pablo Zuanic: And just to follow up on that same point at the state level, given the news flow in Virginia—Pennsylvania is more of a question mark—do you want to highlight any states where you are seeing more activity in terms of potential catalysts at the state level?
Peter S. Sack: The thoughts are still early in Pennsylvania, but there is certainly eagerness in Virginia. I think the consolidation tends to be focused on states where the fundamental economics are attractive. We are still seeing lots of consolidation activity in Ohio, Missouri, and Maryland to some extent, and more mature states that have seen stabilization in their markets, including legacy states like Colorado and California.
Pablo Zuanic: Thank you. And then, in terms of the credit facility, you gave the numbers for March 18—$100.0 million in total. Is there room to increase that revolver in 2026, or would that be difficult right now?
Peter S. Sack: It certainly is possible, and there are other options of financing available to BDCs, including unsecured financing.
Pablo Zuanic: But obviously issuing equity would not be an option given the discount to par value, right?
Peter S. Sack: Right.
Pablo Zuanic: Okay. Thank you. And then, I totally agree with the fresh air and new optimism in the industry, of course. But when I look at some of your new loans in the fourth quarter—about $14.0 million on a new company—there was just one new borrower on the cannabis side and, I think, three on the non-cannabis side. I do not know what that ratio is for the first quarter. I am just trying to say, yes, we have to focus on the par value, so there was more lent to cannabis than to non-cannabis, but in terms of operators, it seems that you are increasing much faster the number of borrowers in terms of operators on the non-cannabis side versus cannabis. Do you want to share some light on that? Or just by definition, loans to smaller to middle-market companies in non-cannabis will be smaller than cannabis loans?
Dino Colonna: It is more the latter, and our non-cannabis positions in that portfolio are going to reflect a much more diversified portfolio of positions and issuers than our cannabis positions.
Pablo Zuanic: And then you spoke about the first quarter new loans. You mentioned a bespoke solution for one of your operators. Do you want to share more color in terms of what that was specifically, and maybe on the borrower?
Peter S. Sack: I am reluctant to provide the borrower’s name because we have not disclosed it in a specific filing. But in this case, this was a first-out/last-out financing in partnership with a large financial institution. We are finding that as the industry matures, partnership with bank partners can provide both attractive return and risk profiles for lenders such as Chicago Atlantic BDC, Inc., while also providing increasingly competitive and sustainable credit facilities for some of the larger, most creditworthy operators in the space.
Pablo Zuanic: I am going to have two more questions, and apologies if there is anyone else on the queue. In terms of repayments that we saw in the fourth quarter and the ones we have seen so far in the first quarter, does that come out to be a bit of a surprise? At least in terms of my modeling, it is a lot more than I had expected, and I do not understand what is driving that. Or is it just normal for the course of business?
Peter S. Sack: As far as payoffs in Q4, the payoffs have been idiosyncratic across a fairly large number of borrowers with relatively small individual positions. But I do think it is reflective of that broader transaction activity that has accelerated within the market. Broader transaction activity means both more frequent financing opportunities but also more frequent refinancing opportunities of our existing portfolio. With regard to originations and payoffs as a subsequent event, the large origination and the large paydown were connected and were the same borrower.
Pablo Zuanic: Okay. That is good. Thank you. That is all for me.
Operator: The next question comes from Mitchell Penn with Oppenheimer. Please go ahead.
Mitchell Penn: Morning, guys. I am just following up on Pablo’s question. You talked about the states. Is it possible to get disclosures on which states these companies are in?
Peter S. Sack: We will explore that for next quarter.
Mitchell Penn: A second question: can you remind us, in terms of your valuations—BDCs all employ third-party valuation services, and they use them in different ways—can you walk us through how you use third parties and valuation services for your portfolio? Because it is a little different than most of the BDCs, as you mentioned.
Peter S. Sack: We utilize a third-party valuation provider to value every position each quarter. Other BDC managers opt to use third-party advisers, in some cases, for each position only once per year, relying on internal evaluations through the balance of the year. We have opted to provide a more transparent and consistent approach.
Mitchell Penn: Got it. Thanks. And my last question: what percent of the portfolio overlaps with REFI?
Peter S. Sack: We have not published that number historically. I think we would take it under consideration for next quarter in conjunction with your question on state-by-state exposure.
Mitchell Penn: Okay. Thanks. That is all for me. Thanks so much, guys.
Peter S. Sack: Thank you, Mitchell.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.