Chicago Atlantic BDC, Inc. Annual Report: This Year's Performance

Hey there! Let's see how Chicago Atlantic BDC (CABP) performed this past year. Think of this as a friendly chat to help you understand if this company fits your investment goals. We'll cover what they do, how they earned money, their successes, challenges, and future outlook.

What They Do: Lending Money to Growing Businesses

First, CABP is a Business Development Company, or BDC. Think of them as a specialized bank for certain businesses. They raise money from investors (like us!). Then, they lend it to companies that struggle to get loans from traditional banks. CABP earns interest on these loans. That's how they make their money. As a BDC, CABP must invest at least 70% of its assets in private or smaller public U.S. companies. It also distributes at least 90% of its annual profits to shareholders. This maintains its special tax status, letting it avoid corporate taxes.

This past year, CABP actively made many loans. Most went to U.S. companies, with some in Canada. They focus heavily on "First Lien Senior Secured" loans. This means if a borrower struggles, CABP is usually first in line to get paid from the company's assets. This loan type offers strong protection for CABP's money.

They lend to companies across several sectors. A major focus for them is the cannabis industry. You'll see them lending to cannabis businesses like Aeriz Holdings, Verano Holdings, and Cresco Labs. Their strong involvement in cannabis puts them in a high-growth, yet complex, market. They also lend to companies in other areas, such as:

• Information Technology (e.g., Protect Animals With Satellites LLC, Simspace Corporation)
• Retail Trade (e.g., Aura Home, Inc., Portofino Labs, Inc.)
• Finance and Insurance (e.g., Hartford Gold Group, LLC, West Creek Financial Holdings, Inc.)
• Educational Services (e.g., Energize Holdings, Inc.)
• Manufacturing (e.g., Ocular Science, Inc.)
• Real Estate (e.g., Workbox Holdings Inc.)

They offer different types of loans:

• Term Loans: A lump sum loan paid back over a set period.
• Delayed Draw Term Loans: They commit a loan amount, but the company can take the money as needed. This gives borrowers flexibility. It also ensures CABP has future lending opportunities.
• Senior Secured Notes: This is another type of secured debt, similar to a loan. Institutional investors often receive these.
• They sometimes take Preferred Stock or Warrants in companies. These are like options to buy stock later. They give CABP a chance to profit if the company grows a lot. These investments can boost returns beyond just interest payments.

How They Made Money: Interest on Loans

CABP primarily earns money from the interest charged on its loans. This past year, their total income from investments shows how well they operated. After subtracting operating costs, this becomes their profit from investments. This profit is key for BDCs, as it often shows how much they can pay out to shareholders. The interest rates they charge vary, but many are quite high, especially for cannabis companies. This suggests they lend to businesses traditional banks might see as higher risk, but which also offer higher potential returns.

Here are some "all-in" interest rates on recent loans (many from 2024 and 2025):

• Cannabis Loans: Many of these loans carry rates from 13.25% to 18.50%. For example, a delayed draw term loan to Remedy - Maryland Wellness, LLC has an 18.50% rate. A term loan to Kaleafa, Inc. is at 17.00%. These high rates reflect the unique market for cannabis businesses. Traditional financing is often unavailable to them.
• Other Industries: Non-cannabis loan rates are also strong. Energize Holdings, Inc. is at 11.99%. Protect Animals With Satellites LLC is at 12.25% (or 13.25% for an extra loan). Hartford Gold Group, LLC is at 14.40%.

Many loans have variable interest rates. These rates link to a standard like "Prime Rate" (P) or "Secured Overnight Financing Rate" (SOFR). They also add an extra percentage. This means if overall interest rates rise, CABP's income from these loans can also increase. This helps protect them when borrowing costs climb. Some loans have "Fixed Rates," meaning the interest rate stays the same.

They sometimes include a "PIK" (Payment-in-Kind) feature. This means part of the interest isn't paid in cash. Instead, it's added to the loan's main amount. This helps borrowers save cash. However, CABP doesn't get cash right away for that portion of the interest. While PIK interest increases the loan amount, it doesn't provide immediate cash to pay shareholders until the loan is repaid.

What's New and Noteworthy: A Deeper Dive into Their Portfolio

This past year, CABP actively grew its loan portfolio. The total value of their investments shows the size of their lending business. Many "Initial Acquisition Dates" for these loans fall in 2024 and 2025. This shows they are continuously lending and making new commitments. For example, they acquired a senior secured note for Ascend Wellness Holdings, Inc. in July 2024. They also added a term loan for Ocular Science, Inc. in December 2025. These recent additions show CABP keeps investing money into new and existing companies.

Their detailed loan list reveals a clear strategy:

• Focus on Secured Lending: Almost all their loans are "First Lien Senior Secured." This typically represents over 90% of their debt investments. This conservative approach aims to protect their money. They hold the highest claim on a borrower's assets.
• High-Profit Opportunities: High interest rates across their portfolio, especially in cannabis, suggest they target businesses offering good profits. This is likely due to higher perceived risk or limited traditional financing. The average return on their debt portfolio shows their overall profit-making ability.
• Varied Client Base (within their niche): Cannabis is a big focus, but they also lend to other industries. This variety helps reduce risk from relying too much on one area.

Another key measure for BDC investors is Net Asset Value (NAV) per share. This is the value of the company's assets per share, after subtracting what it owes. Changes in NAV per share, along with payouts to shareholders, give a full view of what shareholders earned.

Risk Factors: What Could Go Wrong

High interest rates often mean good potential returns, but they also bring higher risk.

• Cannabis Industry Risk: Lending to cannabis companies has unique and big risks. Federal law still makes cannabis illegal in the U.S. This creates banking and trade challenges. It also subjects businesses to a tough tax rule called 280E. Changes in state and federal rules, strong competition, or too much supply could hurt their cannabis borrowers financially. If a cannabis company struggles, CABP might not get repaid. This could lead to loans not being paid back or losing value.
• Borrower Health: Borrowers must repay these high-interest loans. This is crucial. If businesses face tough economic conditions, operational problems, or more competition, CABP's investments could suffer. A key sign of borrower health is the rate of loans not being paid. This shows the percentage of loans where interest payments are very late or unlikely to be collected. More unpaid loans would directly cut CABP's investment income. It could also lead to losses in their portfolio's value.
• Valuation Challenges: Some investments, like options to buy stock, special shares, and even some loans, are valued using complex models. These models rely on management's own guesses. This makes their value subjective and less exact than assets valued using clear market information. So, their reported value can be hard to pinpoint. It might change a lot based on these guesses or market shifts. This could affect the reported Net Asset Value (NAV).

Overall, CABP actively lends to many different companies. They focus heavily on the cannabis sector, which offers high growth but also high risk. Their strategy centers on secured loans with attractive interest rates. They aim to earn good profits for shareholders while managing the risks in their chosen markets.