Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Chicago Atlantic BDC Inc (LIEN, Financial) successfully closed on the acquisition of a loan portfolio, marking a significant milestone in its strategic growth.
- The company is the only publicly traded BDC focused on lending to cannabis companies, with net assets of over $300 million in investments across 28 portfolio companies.
- Chicago Atlantic BDC Inc (LIEN) has a diversified investment portfolio, with 23% of investments outside of cannabis, providing a balanced risk profile.
- The company reported an increase in gross investment income to $3.2 million for the quarter, up from $2.9 million in the same quarter last year.
- Chicago Atlantic BDC Inc (LIEN) has no debt at the BDC level, providing a strong position to leverage and expand its investment portfolio for improved shareholder returns.
Negative Points
- Transaction-related expenses totaled $2.4 million this quarter, impacting the reported net investment income.
- The company anticipates additional expenses in the fourth quarter, although not as significant as those experienced to date.
- The competitive landscape is evolving, with some banks entering the cannabis lending space, potentially impacting Chicago Atlantic BDC Inc (LIEN)'s market position.
- The regulatory environment for cannabis remains uncertain, with federal rescheduling and safe banking legislation facing potential delays.
- The company's net investment income for the quarter was only $15,000, or nearly $0.00 per share, indicating challenges in profitability.
Q & A Highlights
Q: Can you quantify how much liquidity you have to put to work, considering no debt and cash on the balance sheet? What are your leverage targets?
A: Umesh Mahajan, CFO, Secretary & Co-Chief Investment Officer: We currently have over $30 million in cash. We are working on adding leverage to the balance sheet, which could potentially add around $100 million, assuming a third of our equity as leverage. Conversations are ongoing, and we will update in the next call.
Q: Regarding the $550 million pipeline, how do you decide the allocation between different entities like REIT and BDC?
A: Umesh Mahajan, CFO, Secretary & Co-Chief Investment Officer: The pipeline is robust and actionable. Allocation depends on what is best suited for each entity, following regulations. Real estate opportunities are better suited for REITs, while BDCs can invest in non-real estate and non-cannabis sectors with equity features.
Q: With 23% of the portfolio outside cannabis, how do you view investor feedback on diversification versus focusing solely on cannabis?
A: Umesh Mahajan, CFO, Secretary & Co-Chief Investment Officer: Diversification is beneficial, providing a robust portfolio under different scenarios. Cannabis remains our core, but non-cannabis offers an optimal mix for diversification. Dino Colonna, President, adds that non-cannabis opportunities are equally attractive in terms of risk-reward.
Q: What is your read on the state of the cannabis industry, especially with recent third-quarter results?
A: Umesh Mahajan, CFO, Secretary & Co-Chief Investment Officer: The long-term growth thesis remains strong despite specific state-level challenges. We focus on operators with strong strategies and credit metrics. Scott Gordon, Executive Chairman, adds that regulatory changes are not factored into our models, and it's business as usual.
Q: With the demand-supply imbalance for capital in the industry, how do you view the competitive landscape, especially with banks offering lower rates?
A: Umesh Mahajan, CFO, Secretary & Co-Chief Investment Officer: While some banks have entered the space, the overall demand for capital remains robust with limited supply. Dino Colonna, President, notes that capital influx is beneficial, but the demand-supply imbalance still favors lenders. Andreas Bodmeier, CEO, mentions that bank deals often require high deposit balances, which may not suit many operators.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
