Exclusive Interview with Chicago Atlantic Group Principal John Mazarakis
Strategic capital provider Chicago Atlantic Group is working to create a successful debt brand in the cannabis space. Since inception 18 months ago, the direct lender has committed more than $60 million in loans. Principal John Mazarakis spoke with New Cannabis Ventures about the Chicago Atlantic portfolio and investment approach. The audio of the entire conversation is available at the end of this written summary.
The Chicago Atlantic Principals
Chicago Atlantic Group is led by John Mazarakis and his partners Tony Cappell and Andreas Bodmeier, both of whom are also Principals. Previously, Mazarakis built a company in the hospitality space that has 1,500 employees. While growing, the company developed its own real estate, and Mazarakis built more than 1 million square feet of retail and real estate space across four states.
Cappell, who has a background in credit and working with large banks, first brought a cannabis opportunity to Mazarakis and Bodmeier. Together, they decided to offer the cannabis space a vehicle for funding without dilution. Both Bodmeier and Cappell bring their expertise in understanding loan and fund structure to the Chicago Atlantic team.
Chicago Atlantic takes the approach that no deal is too small or too big, according to Mazarakis. The firm has done deals ranging from $700,000 to $30 million. It has a diversified portfolio that spans 15 states and across the cannabis industry, touching dispensaries, cultivators and ancillary businesses.
The direct lender focuses on markets east of the Mississippi and, for now, prefers to work with vertically integrated companies. Any investments it does make are accretive in nature. Chicago Atlantic wants to help operators grow from a CAPX or acquisition perspective, according to Mazarakis.
Verano Holdings and Green Leaf Medical are two of the platform’s key investments. Chicago Atlantic recently closed a deal with Verano for a $30 million credit facility, and the Green Leaf deal was announced earlier this year. Mazarakis noted that both companies have strong operators on their leadership teams.
Vetting and Structuring Deals
Chicago Atlantic touches roughly 1,000 deals per year. From there, the lender will prescreen about a quarter of those potential deals and issue a term sheet for 30 to 50. Once a term sheet is in place, Mazarakis expects 15 to 25 deals will close and be funded.
The firm is not reinventing the wheel, according to Mazarakis. Its deals are structured with standard covenants in place, guided by the expertise of Cappell and Bodmeier. But, Chicago Atlantic prides itself on being transparent and reliable. Over the course of 18 months, it has never changed a term sheet or indication to the detriment of a borrower, according to Mazarakis.
Chicago Atlantic wants to build a solid, reliable brand that has long-lasting relationships with its borrowers. Mazarakis visits every single borrower. In the case of Verano, he traveled to each state in which the company has operations to meet their team members.
The firm has skin in the game, investing its own money, alongside its network of co-investors. Chicago Atlantic primarily works with alternative finance hedge funds, as well as some institutional funds. It prefers institutions in the $300 to $500 million range. Its network feels comfortable with Chicago Atlantic’s underwriting, loan documentation and the relationship it builds with borrowers, according to Mazarakis.
Deals and Funding
The company has more than $60 million in loan commitments to date, and it has $30 million that is waiting to be funded immediately. Chicago Atlantic expects to have $200 million deployed by the end of next year, according to Mazarakis.
Thus far, all of the loans Chicago Atlantic has made are performing well or even over-performing. Mazarakis is confident that the platform has provided the right companies with the right amount of debt. If ever necessary, Cappell has capital expertise in debt workout.
Opportunities in the Cannabis Investment Space
Mazarkis does not see the COVID-19 pandemic having a negative impact on the cannabis industry. Rather, it has largely propelled cannabis businesses to the status of essential.
When considering investment opportunities, Chicago Atlantic does a deep dive into metrics. For Mazarakis, the holy grail of retail operations metrics is dollars per square foot. He points to Apple, which has stores that can achieve $5,000 per square foot. A number of Chicago Atlantic borrowers are currently outperforming that metric in their retail operations.
On the cultivation side, Mazarkis likes to look at the number of harvest per year, number of rooms, plants per room, square footage per room and grams per square foot. Understanding a business with that level of granularity helps to anticipate future revenue, according to Mazarakis.
Over the next six to 12 months, Mazarkis is hoping to see more states adopt medical and adult-use legislation, which will create more need for capital and more opportunities for lenders.
To learn more, visit the Chicago Atlantic Group website. Listen to the entire interview: