Chicago Atlantic BDC, Inc. Q1 FY2026 earnings call

• Strategic Positioning & Competitive Advantage

  • Chicago Atlantic BDC is the first publicly listed BDC focused primarily on cannabis industry lending, operating in an underserved niche with limited large-scale competition.
  • 100% of the debt portfolio is senior secured, with only 1.3% total exposure to sub-debt, equity, or joint venture investments, far below the BDC industry average of 25.5%.
  • 94% of the portfolio at par is fixed-rate or has floating-rate interest floors, insulating the portfolio against interest rate drops: a 100 basis point benchmark rate drop is estimated to have an annualized impact of less than 15 basis points on interest income.
  • Leverage is well below industry average, with a 0.18x debt-to-equity ratio (compared to a 1.3x BDC average), providing ample room for future portfolio expansion.
  • There are 0 non-accrual loans in the portfolio, compared to a 3.4% industry average non-accrual rate.

• Operational Origination Activity

  • Q1 2026 was the most active origination period in company history, with $93.9 million in total new debt funding across seven portfolio companies, including three new borrowers.
  • Net investment activity for the quarter was $32 million, after $63.4 million in total loan repayments, amortization, and refinancings.
  • 100% of new originations in Q1 2026 were senior secured, with 83% protected against interest rate declines via fixed rates or interest floors.
  • As of quarter end, the total origination pipeline across cannabis and non-cannabis opportunities is $810 million, split between $482 million in cannabis opportunities and $328 million in non-cannabis opportunities, with non-cannabis pipeline growing meaningfully during the quarter.

• Regulatory Update

  • In April 2026, the U.S. Department of Justice moved state-licensed medical cannabis from Schedule I to Schedule III, the most significant federal cannabis policy shift in decades.
  • This rescheduling eliminates the 280e tax code provision that taxed medical cannabis businesses on gross profit rather than pre-tax income, which is expected to improve borrower cash flow and credit quality over time.
  • A June 29 administrative hearing will consider rescheduling recreational cannabis, with a decision expected by July 15; a favorable outcome could boost industry capital markets and M&A activity, which Chicago Atlantic is positioned to benefit from.

• Financial Structure

  • As of March 31, 2026, $54.5 million in debt was outstanding, all drawn from the company's $100 million revolving credit facility.
  • As of May 13, 2026, total liquidity was $51.5 million, consisting of $50 million in remaining credit facility borrowing capacity and $1.5 million in cash.
  • Subsequent to quarter end, the company filed a $500 million shelf registration statement with the SEC to enable future issuance of debt and equity securities for additional financial flexibility.

Chicago Atlantic BDC is structured as a single investment portfolio business, with two main exposure segments: 1) Cannabis-focused lending: 76% of the total investment portfolio, with a gross weighted average yield on debt investments of 15.8% as of March 31, 2026. 2) Non-cannabis diversified lending: 24% of the total investment portfolio, comprised of smaller average loan sizes than the cannabis segment, held across multiple non-software heavy sectors. Overall portfolio financial performance for Q1 2026: Gross investment income of $16.7 million, net investment income of a record $10 million (or $0.44 per diluted share), net expenses of $6.7 million, and a net unrealized loss of $1.4 million driven by spread widening (not credit underperformance). Total net assets reached $304.2 million at quarter end, with a net asset value per share of $13.33.

• Management maintained a consistent dividend policy, announcing a $0.34 per share dividend that marks the seventh consecutive quarter at this rate.
• No formal full-year 2026 financial guidance was issued, but management stated it aims to fully utilize the available capacity on its existing $100 million revolving credit facility by the end of 2026.
• Management expects to keep leverage well below the average 1.3x debt-to-equity ratio for the broader BDC industry.
• The company maintains a target allocation of 20-30% of total portfolio to non-cannabis lending, with the remaining 70-80% allocated to cannabis lending.
• Management expects cannabis lending activity and M&A-driven deal flow to pick up through the remainder of 2026 as regulatory changes filter through to industry fundamentals.

• Forward-looking statements about future regulatory changes, industry growth, and financial performance carry inherent uncertainty, and actual results may differ materially from expectations due to unknown risks.
• Changes to U.S. federal cannabis regulation remain uncertain, and the outcome of the upcoming recreational cannabis rescheduling hearing is not guaranteed.
• While the portfolio is insulated against interest rate declines, general macroeconomic uncertainty and interest rate volatility create potential risks to BDC performance across the industry.
• Origination pipeline volume does not guarantee completed transactions, and actual deployment may differ materially from the current total opportunity set.
• The cannabis industry remains subject to ongoing federal legal constraints even with recent policy changes, which may continue to limit industry growth and borrower performance.

Q: The question asks for clarification on the company's $500 million shelf registration: management confirms the focus is on raising future debt (since equity is unattractive at a discount to book value), and asks for expected rates and timing for tapping the debt market, plus what leverage level management is comfortable with. / A: Management confirms the shelf registration is primarily focused on enabling future debt issuance, but notes it is too early to comment on potential borrowing rates or specific timing of any capital raise. Management adds the firm will maintain leverage well below the current BDC industry average of 1.3x debt-to-equity.

Q: The question asks how much the non-cannabis origination pipeline grew, and questions why the current pipeline split is not more skewed to cannabis given recent favorable regulatory changes for the sector. / A: Management confirms the non-cannabis pipeline grew significantly, but emphasizes pipeline size does not guarantee closed transactions. Management adds the cannabis origination pipeline is also growing, and expects increased cannabis M&A-driven deal flow to continue growing throughout 2026 following recent rescheduling news.

Q: The question asks if the modeling assumption that the company will fully utilize its existing revolver capacity by the end of 2026 is appropriate. / A: Management confirms the company aims to fully utilize the existing revolving credit facility capacity by the end of 2026.

Q: The question notes new loans appear to be smaller on average, asks if this aligns with target loan size ranges, and requests the average size of the three new Q1 2026 borrower loans. / A: Management confirms smaller non-cannabis loans are intentional: the firm targets 20-30% of the portfolio for non-cannabis lending, and these positions are intentionally smaller than the larger loans in the cannabis portfolio, which matches the firm's stated target allocation.

Q: The question asks how much M&A activity the firm is already seeing post-medical cannabis rescheduling, and whether M&A will be driven by public companies buying private operators or private-to-private deals. / A: Management confirms an increasing share of the current pipeline is M&A-driven. Most of this activity involves smaller transactions that are not required to be publicly announced, but there is clear increased sentiment and eagerness across the industry to take advantage of the new regulatory landscape, driving higher deal demand.