Chicago Atlantic and New York State’s Cannabis Finance Debate

The TDR Three Key Takeaways regarding Chicago Atlantic and New York State:

1. Chicago Atlantic offers necessary capital where other lenders hesitate.
2. Concerns raised over financial acumen of NY cannabis licensees.
3. Private equity challenges social goals in NY’s cannabis sector.

Chicago Atlantic Real Estate Finance Inc. (NASDAQ:REFI) has recently been featured by ‘The City,’ a New York City-based online news outlet. The report highlighted Chicago Atlantic’s role in lending to cannabis businesses in New York, focusing particularly on the interest rate it charges the borrowers. Although the mid-teen interest rates have been criticized as excessive, especially considering the backing from New York State, such lending has been crucial. The lack of alternative capital from other sources underscores the significant role of Chicago Atlantic. The rates agreed upon by the public entity and the state indicate a mutually accepted arrangement, despite public opinion varying on the matter. Anthony Varrell, the co-host of the TDR podcast, reflecting broader industry perspectives, criticized what he termed “phony capitalism” particularly regarding how contracts for constructing dispensaries were managed by the state.

“The City” has raised concerns about the financial arrangements, which they claim disproportionately favor Chicago Atlantic, but such a characterization seems exaggerated. Recognizing that Chicago Atlantic’s lending has bridged a significant gap that other financial institutions were unwilling or unable to fill in New York is important. Investments like these by a public company are rare, especially in sectors like cannabis, which are often bypassed by traditional banks due to regulatory uncertainties.

Furthermore, Anthony Varrell, depicted a complex scenario where social equity applicants were presented with completed dispensaries that came with substantial bills, and little transparency or input in the buildout process. These applicants were essentially required to accept the setup and manage the costs over time. This situation raises concerns about the fairness and effectiveness of policies aimed at supporting social equity in the cannabis industry.

Despite these criticisms, the financial framework established by Chicago Atlantic and New York State has provided a necessary foundation for progress in a sector struggling with financial support. The deals, though controversial, have facilitated the creation of dispensaries critical to the functioning and growth of the legal cannabis market.

Private investment from firms like Chicago Atlantic has been key in developing New York State’s cannabis industry despite criticism about fairness. It is important for regulators and companies to regularly review and modify these financial arrangements to better achieve both investor and social equity objectives. The ongoing debate over these investments underscores the complex interplay between finance, regulation, and social justice in the sector. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.