Chicago Atlantic BDC, Inc. Common Stock 2026 Q2 Earnings Call

Good morning. Welcome to the Chicago Atlantic BDC conference call to review the company's results. On the call today will be Peter Sack, Chief Executive Officer, Tom Jeffrey, 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.

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, financing activities, the proposed merger of Chicago Atlantic Real Estate Finance Inc., REFI, with and into the company, and the anticipated benefits and timing of that merger. Such forward-looking statements are subject to significant risks 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 risks and other information disclosed in the company's filings with the SEC.

Risks and uncertainties include the ability to complete the merger of REFI and LIEN on the anticipated timeline, to obtain shareholder and regulatory approvals and required lender consent to realize the anticipated benefits of the transaction and developments in the cannabis regulatory environment, as well as the other risks described in our SEC filings and in the legends in today's filed materials. Actual results may differ materially, and we undertake no obligation to update except as required by law. The transcript of this call is being filed with the SEC pursuant to Rule 425 under the Securities Act of 1933 and is being filed under Rule 14a-12 under the Securities Exchange Act of 1934. In connection with the proposed merger, LIEN filed with the SEC a registration statement on Form N-14, which includes a joint proxy statement of LIEN and REFI and a prospectus of LIEN.

Investors and stockholders are urged to read those materials and any amendments or supplements when they become available because they contain important information about the transaction. LIEN, REFI, their respective directors and executive officers, Chicago Atlantic BDC Advisers, LLC, and Chicago Atlantic REIT Manager, LLC, and certain other people may be deemed participants in the solicitation. Information about those persons and their interests are included in the joint proxy statement and prospectus. Copies of all filed materials will be available free of charge on the SEC's website and on each company's investor relations website. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any security. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the 1933 Act. I will now turn the call over to Peter Sack.

Please go ahead. Thanks, Lisa.

Good morning, everyone. As the first publicly listed BDC focused primarily on lending to the cannabis industry, we remain uniquely positioned to participate in a market with limited competition, and we continue to focus on the lower middle market, a segment commonly underserved by capital providers. Net investment income for the second quarter of 2026 was $7.7 million or $0.34 per share. Today, we announced a $0.34 dividend, marking the eighth consecutive quarter at that rate. The second quarter of 2026 results were strong but difficult to compare against our record first quarter. Originations and repayments are difficult to predict and can be volatile quarter-over-quarter.

At quarter end, the fair value of the portfolio was $334.8 million, as $32.2 million of gross paydowns, inclusive of three full payoffs, were partially offset by $2.7 million of new originations. While the timing of repayments and originations may temporarily decrease the deployed capital, repayments are a validation of our credit selection and underwriting. These performing borrowers had a clear path to repay, and they returned our principal at par with no realized losses and a weighted average contractual yield in the high teens over the life of the loans. We underwrite to a defined outcome, which includes a return of capital at an attractive realized return that we're now deploying into new originations.

Credit quality remained stable throughout the quarter, and our liquidity totaled $73.9 million at quarter end, giving us additional capacity to pursue opportunistic investments as we continue to build out the portfolio. It's worth reiterating how differentiated Chicago Atlantic BDC remains from the broader BDC industry. First, we're one of the only lenders focused on the cannabis industry. Second, we work collaboratively with our borrowers, generally in non-sponsored transactions where traditional BDC lenders tend not to participate, creating idiosyncratic opportunities that simply aren't available to other BDCs or private funds. Comparing our financial metrics to the larger BDC market is a testament to the benefits of our unique business model. Comparing to the Raymond James BDC Weekly Insight as of July 24, 2026, and Oppenheimer's BDC quarterly report as of May 2026.

Our weighted average yield on debt investments as of June 30, 2026, was 16%, compared to 10.8% for the average public BDC. 100% of our debt portfolio is senior secured. 1.4% of our total investment portfolio has exposure to sub-debt, equity, or JV investments, compared to other BDCs who have an average exposure of 25.8%. 93% of the debt portfolio at par is either fixed rate or floating rate at their respective floor, insulating the company against a drop in interest rates. Conversely, a 100 basis point increase in benchmark rates would have a positive impact on 81% of the debt portfolio. Importantly, our floating rate loans, combined with our rate floor protections, provides a structural advantage in portfolio construction.

We believe that our investments have minimal overlap with the investments made by other public BDCs due to our unique investment strategy focused on underserved markets. The portfolio is under-levered, with only $27 million of debt as of quarter end, with a 0.09 times debt-to-equity ratio. This compares with the BDC average of a 1.3 times debt-to-equity ratio, providing us with ample room to expand our liquidity and still be below industry averages for leverage. Lastly, we have no non-accruals compared with an industry average of 3.8% of costs. We also saw continued momentum on federal cannabis policy this quarter. The Department of Justice took a significant step, announcing that state-licensed medical cannabis products will be rescheduled from Schedule I to Schedule III. Following that, an in-person administrative hearing process concluded in mid-July, which considered rescheduling for recreational cannabis.

Post-hearing briefs are due in the coming week, after which the DEA's Chief Administrative Law Judge will issue a non-binding recommendation before the matter proceeds to the DEA administrator for a final decision. We see these developments as a positive for our borrower's credit quality, but do not foresee a new large-scale increase in competition due to the inherent complexity of this industry. There are signs, however, of wider acceptance of the cannabis industry within the capital markets. One example of the positive shift was the recent up-listing of two cannabis-related companies by the New York Stock Exchange. We believe that Chicago Atlantic BDC is well-positioned to benefit from potential changes. But as I've noted before, we do not include these assumptions of these regulatory changes in our projections, and we maintain our rigorous underwriting standards based on today's regulatory framework, not potential future regulatory reform.

In June, we announced the agreement to merge the company with Chicago Atlantic Real Estate Finance in an all-stock NAV for NAV transaction. At its core, the merger brings together two highly complementary portfolios to create a larger and better capitalized BDC. Increased scale should improve access to capital, support future earnings growth, and enhance trading liquidity and market visibility while maintaining the strong underwriting discipline and portfolio quality that have defined both platforms. The result is a stronger competitive position and a more durable vehicle for generating long-term returns for all shareholders. Following our announcement on July 31, 2026, we filed a preliminary registration statement on Form N-14, which includes a joint proxy statement. That filing is subject to SEC review.

We still expect the merger to close in the fourth quarter of 2026, subject to the required LIEN and REFI stockholder approvals, regulatory approvals, and customary closing conditions. In conclusion, the strength of our portfolio speaks for itself. No non-accruals, a fully senior secured debt portfolio, meaningful protection against interest rate moves in either direction, and a weighted average yield on debt investments of 16%. We believe this combination of credit quality, structural protections, and disciplined underwriting continues to set Chicago Atlantic BDC apart from the broader BDC industry and positions us well as we work towards closing our merger with Chicago Atlantic Real Estate Finance later this year. Now I'll turn it over to Tom to discuss the numbers in greater detail.