Business Context and Reporting Period
Company: Chicago Atlantic BDC, Inc. (LIEN)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and Six Months Ended June 30, 2026
Business Overview: An externally managed, closed-end business development company (BDC) and regulated investment company (RIC) focused on investing in the cannabis ecosystem, growth and technology companies, and esoteric asset-based lending. The portfolio consists primarily of senior secured debt.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 |
|---|---|---|
| Total Investment Income | $30.67 million | $25.00 million |
| Net Investment Income | $17.62 million | $15.31 million |
| Net Increase in Net Assets from Operations | $14.60 million | $16.20 million |
| Net Asset Value (NAV) per Share | $13.26 | $13.23 |
| Total Assets | $343.96 million | $341.99 million (Dec 31, 2025) |
| Total Investments (Fair Value) | $334.83 million | $333.31 million (Dec 31, 2025) |
| Revolving Line of Credit Outstanding | $27.00 million | $25.00 million (Dec 31, 2025) |
| Cash and Cash Equivalents | $0.93 million | $2.93 million (Dec 31, 2025) |
| Distributions Paid (Six Months) | $15.52 million | $15.52 million |
Material Changes vs. Prior Period
- Investment Income Growth: Total investment income increased 22.7% year-over-year (from $25.0M to $30.7M), driven by portfolio growth and higher interest income ($27.9M vs. $23.2M).
- Expense Increases: Total operating expenses rose 14.0% to $13.06 million. Interest expense surged 353.5% to $2.03 million due to increased utilization of the revolving credit facility. Conversely, legal expenses dropped 79.0% to $0.12 million.
- Unrealized Depreciation: The company recorded a net unrealized depreciation of $3.02 million for the six months ended June 30, 2026, compared to unrealized appreciation of $0.89 million in the prior year period. This was primarily driven by valuation adjustments in the cannabis portfolio.
- Portfolio Composition: Cannabis investments remain the dominant sector, representing 73.6% of the portfolio by fair value. The Midwest region holds the largest geographic concentration at 41.3%.
- Liquidity: Cash balances decreased by approximately $2.0 million during the period, primarily due to distributions paid and net investment activity.
Guidance, Outlook, and Material Events
Proposed Merger with Chicago Atlantic Real Estate Finance, Inc. (REFI)
On June 17, 2026, the Company entered into a Merger Agreement to acquire REFI. REFI will merge into the Company, with the Company surviving. Key details include:
- Exchange Ratio: Based on the ratio of REFI's closing NAV to the Company's closing NAV.
- Ownership: Former REFI stockholders are expected to own approximately 50.5% of the combined company.
- Conditions: Subject to shareholder approvals (including minority vote requirements), regulatory approvals, and SEC effectiveness of Form N-14.
- Timeline: Expected to close in the fourth quarter of 2026.
- Transaction Costs: Approximately $1.3 million incurred to date, capitalized as deferred charges.
Regulatory Developments
On April 23, 2026, the DEA issued an order reclassifying certain medical cannabis products from Schedule I to Schedule III. The Company notes this may improve after-tax cash flows for medical-focused borrowers but introduces operational complexity for integrated medical/adult-use operators. Adult-use cannabis remains Schedule I.
Risks and Contingencies
- Merger Risk: Failure to obtain required approvals or regulatory consents could terminate the transaction.
- Concentration Risk: Three portfolio companies represented 35.1% of the portfolio's fair value as of June 30, 2026.
- Interest Rate Risk: 81.0% of debt investments are floating-rate. A 100 basis point increase in benchmark rates would increase net investment income by approximately $1.24 million annually.
Investor Verification Checklist
- Merger Approval Status: Verify the outcome of the required shareholder votes and the effectiveness of the Form N-14 registration statement.
- Portfolio Valuation: Review the specific portfolio companies driving the $3.0 million unrealized depreciation, particularly within the cannabis sector.
- Leverage Utilization: Monitor the $27 million outstanding on the revolving credit facility and the impact of rising interest rates on net investment income.
- Regulatory Impact: Assess the practical application of the DEA's Schedule III reclassification on the Company's specific medical vs. adult-use borrower mix.
- Dividend Sustainability: Confirm that net investment income continues to cover the $0.34 per share quarterly distribution rate.