Cannabis Credit: An emerging asset class.

 

Chicago Atlantic Group, LLC provides loans and leases to the cannabis and industrial hemp space from $1-10 million, generally with three-year terms and secured by collateral. In addition, their loans seek strict loan covenants and personal guarantees for additional protection and equity kickers for additional upside.

Chicago Atlantic is growing a credit portfolio diversified across states (with a focus on limited-license states restricting competition) and across verticals including cultivators, processors, testing facilities, dispensaries, hemp and CBD firms, as well as ancillary businesses like equipment manufacturers and service providers.

Chicago Atlantic believes that its affiliated cannabis direct lending strategy has several key advantages over other credit strategies:

  1. Limited banking competition - Cannabis is a controlled substance according to federal law, which prevents banks and traditional lenders from providing loans in the space.
  1. Oligopolies in limited-license states - Chicago Atlantic focuses on limited-license states where borrowers have a strong competitive advantage due to restricted competition. Further, strict state-level oversight mitigates credit risk.
  1. Secular growth, low market correlation, and credit cycle resiliency - The cannabis and industrial hemp industries are expected to face over a decade of secular growth, low correlation to public and private markets, and resiliency during a credit downturn.
  1. Above market returns and equity kickers - Limited competition and high loan demand allow Chicago Atlantic to obtain above-market interest rates and, in many cases, equity kickers such as warrants or profit interests to provide additional upside.
  1. Strong collateral positions - Senior secured loans with first priority mortgages on real estate and security interests in equipment, receivables, and other assets have lower loan-to-value ratios compared to other industries.
  1. Proven commercial underwriting - Chicago Atlantic’s disciplined underwriting and due diligence process achieves the desired yield while mitigating risk of principal impairment through loan structure and strict covenants. Chicago Atlantic’s principal’s experience includes over 150 deals comprising over $5 billion in total credit prior to entering the cannabis credit space.
  1. Strong origination pipeline - With minimal effort, Chicago Atlantic has developed an origination pipeline of over $150 million and expects to grow this pipeline to support $200 million of funded loans by the end of 2020.
  1. Portfolio diversification - A diversified loan portfolio across multiple states and sub-industries, including cultivators, processors, testing labs, dispensaries, and ancillary businesses is expected to reduce risk.
  1. Experienced and highly motivated team - Our principals have had successful careers in private credit, real estate development, investment advice, risk management, retail, and consulting.

For more information, visit https://www.chicagoatlantic.com or contact Andreas Bodmeier at abodmeier@chicagoatlantic.com.