Marvelous Microcaps

Chicago Atlantic (REFI)


At Perritt Capital Management, we take focused positions in companies where we have a high conviction in their success; companies that are out of the mainstream of small cap investing. To highlight our process, we are pleased to present the newest installment in our new series “Marvelous Microcaps – Big Ideas on Small Companies”.  This series profiles companies that we believe have a niche in their existing markets or are launching a product that could disrupt their marketplace.


Chicago Atlantic (REFI) is a real estate finance company that is structured as a real estate investment trust, or REIT. A REIT is a pass-through vehicle, which means that the company does not pay federal income taxes if 90% or more of its taxable income is passed through to shareholders. This means that REITS often come with attractive dividend yields along with the opportunity for capital appreciation as their portfolio grows. While REIT investing is not a primary focus for us at Perritt, we will purchase one from time to time if we believe there is a unique value proposition to be had and we believe this is the case with Chicago Atlantic.

Chicago Atlantic lends to businesses in the cannabis space, in the form of senior loans secured by facilities and equipment. Due to the inconsistent nature of the United States’ cannabis laws, primarily the continued categorization as a schedule one controlled substance by the Federal government, banking in the space is difficult, with a limited number of firms serving the space. Most commercial banks that operate in states where cannabis is legal will not transact with businesses in the space due to the local and federal laws being at odds with each other; and since most banks operate in multiple states, they are regulated on the federal level. As a result, most businesses turn to the private lending markets for capital needs and Chicago Atlantic is one of those private lenders. Chicago Atlantic has operated for three years, reviewing over 500 loan applications and currently has 32 loans outstanding across 23 different portfolio companies. As of their last report dates March 16, 2022, loan commitments total approximately $324.2M. The company is new to the public markets, having completed their IPO last December to raise growth capital, all of which has already been committed to new loans.


We took a position during the Initial Public Offering (IPO) in both of our funds based on our expectations that they would quickly deploy the additional capital that they raised from the IPO and subsequently raise their dividend as they received more money interest payments from a larger loan portfolio. During their last earning report in March, they reported an increase in their quarterly dividend payment from $0.26 cents per share to $0.40 per share, an increase of 53.8%. On an annualized basis this increase puts their forward dividend yield (the projected yield over the next 12 months) at 9%. We also believe that there are opportunities for capital appreciation in the stock price as the portfolio of loans grow.

We believe that the management team behind Chicago Atlantic has demonstrated a strong due diligence process, having reviewed over 500 applications, and maintaining a loan portfolio of 32 loans totaling $324M, with an additional $979 million in opportunities currently being evaluated in their pipeline. With the cannabis industry growing in multiple states as recreational legalization becomes more widespread, we believe that there is plenty of runway for Chicago Atlantic to continue to grow their loan portfolio with the same disciplined approach. Management recently stated on their conference call that they believe they are only in the second inning for the industry expansion due to the trends towards increased legalization across multiple jurisdictions. We also believe that their expertise in evaluating cannabis related loan applications, relationships with brand name cannabis firms, and pipeline of opportunities provide a competitive advantage over conventional commercial lenders in the event of banking legalization on the federal level.

We consider Chicago Atlantic to be a high conviction name with the caveat that cannabis space itself still is immature in many jurisdictions and that investing in the space comes with risks not found in other industries. Since purchasing Chicago Atlantic REIT in both funds during their IPO last December, we have subsequently added to name as initial results have confirmed our original thesis. We believe that the robust due diligence process they have in place, as well as their focus on the cannabis space will likely continue to allow for success in the future.


Perritt.  Marvelous Microcaps – Big Ideas on Small Companies.


Data here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.

Fund holdings and sector allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Please click PRCGX and PREOX for a list of the top ten holdings.

Before you invest in the Perritt MicroCap Opportunities Fund or Perritt Ultra MicroCap Fund, please refer to the prospectus for important information about the investment company, including investment objectives, risks, charges, and expenses. You may also obtain a hard copy of the  prospectus by calling 800-331-8936. The prospectus should be read carefully before you invest.

Mutual fund investing involves risk. Principal loss is possible. The Funds invest in smaller companies, which involve additional risks, such as limited liquidity and greater volatility. The Funds invest in microcap companies which tend to perform poorly during times of economic stress. The Ultra MicroCap Fund may invest in early-stage companies which tend to be more volatile and somewhat more speculative than investments in more established companies. 

Past Performance does not guarantee future results.

The Perritt Funds are distributed by Quasar Distributors, LLC.

First published April 2022.

Invest With Us