Chicago Atlantic's $62.5M Koach Deal Shows What Cannabis Real Estate Credit Actually Pays

TL;DR: Chicago Atlantic Real Estate Finance (REFI) just issued 4.3 million shares to Koach Capital in exchange for $62.5 million of second-lien notes secured by 32 cannabis retail properties. The notes pay 12% (10% cash, 2% paid-in-kind), carry a 2.5x exit fee, and sit behind roughly $39 million of senior debt. REFI is doing this days before its all-stock merger with Chicago Atlantic BDC (LIEN) locks in an exchange ratio, and the yield on offer only exists because cannabis operators still can't get a normal bank loan. Here is what the deal tells you about the trade, and where the risk actually lives.

I want to start with the filing, not the press release, because the filing is where the numbers are precise. On July 13, 2026, Chicago Atlantic Real Estate Finance disclosed in a Form 8-K filed with the SEC that it had issued 4,306,754 shares of common stock, priced at $14.53 each, to entities tied to Koach Capital. In return, REFI picked up roughly $62.5 million in second-lien notes, meaning notes that sit behind, or are "subordinate" to, a first-lien lender who gets paid first if something goes wrong, secured by mortgages on 32 cannabis retail properties. The notes carry a 12% total coupon: 10% paid in cash, 2% paid in kind (PIK, meaning the interest accrues and compounds into the loan balance rather than being paid out, common when a borrower wants to conserve cash). If the notes are repaid early, Koach owes a 2.5x exit fee on top of principal. Weighted average maturity runs about 12 years. The stock issued represents roughly 16.8% of REFI's post-transaction equity, and Koach's holders are locked up, with 20% of the shares released after three months and the rest after six.

That is a lot of structure for one transaction, and structure is the point. REFI didn't buy real estate here. It bought a subordinated credit position on real estate that a bank would not touch, and it paid for that position with equity instead of cash, right as a merger is about to freeze its share count into an exchange ratio. Worth sitting with that sequencing before getting to the yield.

For context on scale: REFI is a real estate investment trust, meaning it's required to distribute most of its taxable income to shareholders as dividends in exchange for avoiding corporate income tax, and it specializes almost entirely in cannabis-secured mortgages, a niche Chicago Atlantic's management, led by managing partner Peter Sack, has built the firm's entire commercial real estate finance platform around. Before the Koach transaction, REFI's loan book was already concentrated in the same niche this deal deepens. Adding 32 more properties and $62.5 million in notes to that book isn't diversification into a new asset class. It's more of the same bet, sized up, on more favorable terms to REFI than it could get by originating a comparable loan from scratch, given the 2.5x exit fee and the 12-year runway.

Why cannabis real estate credit trades at a premium

The 12% coupon on the Koach notes is not a mispricing. It's a direct consequence of federal law. Cannabis is still a Schedule I controlled substance at the federal level in the eyes of most conventional lenders (more on the one exception below), which means federally chartered banks generally won't extend commercial real estate loans secured by cannabis-leased properties. No FDIC-backed institution wants Bank Secrecy Act exposure to a plant that's still federally illegal to sell, even where every operator involved is fully licensed by their state. That single fact pushes an entire category of borrowers, state-licensed cannabis retailers who need to buy, refinance, or renovate their stores, out of the conventional debt market and into a small pool of specialty lenders like Chicago Atlantic.

Layer on 280E, the section of the federal tax code that bars businesses trafficking in a Schedule I or II substance from deducting ordinary business expenses. A cannabis retailer can't write off rent, payroll, or marketing the way any other retailer can, which crushes after-tax cash flow and makes these operators look weaker to a lender than their actual store-level economics would suggest. Combine no bank access with a tax code that structurally starves the borrower of cash, and you get operators willing to pay double-digit coupons plus exit fees for capital that a Walgreens-anchored strip mall would get financed at 6 to 7 percent today. That spread, call it the cannabis credit premium, is the entire investment thesis behind REFI, Chicago Atlantic BDC, and now the Koach notes specifically. It is a real, persistent premium. It also exists because of a legal quirk, not because the underlying real estate or tenant credit is inherently riskier than any other net-lease retail exposure. That distinction matters for what could kill the trade, which I'll get to below.

It's worth being precise about who is on the other side of these leases. The 32 Koach properties are leased to state-licensed cannabis retailers, meaning dispensaries operating under a state cannabis board's license, not gray-market or unlicensed shops. State licensing is what makes the real estate financeable at all, even at this premium; it's also what makes 280E apply, since the tax code doesn't distinguish between a state-legal dispensary and an illicit one when a plant is still federally scheduled. The retailer did everything right under state law and still gets taxed and financed like a fringe operator under federal law. That gap between state legitimacy and federal treatment is the engine generating REFI's yield.

The REFI-LIEN merger context, and why the timing here is not an accident

Chicago Atlantic Real Estate Finance and its sister vehicle, Chicago Atlantic BDC (ticker LIEN), signed a definitive, all-stock merger agreement on June 17, 2026, disclosed via joint SEC filing. The deal is structured NAV-for-NAV, meaning shares convert based on each company's net asset value rather than a market-price premium, with REFI shareholders ending up owning about 50.5% of the combined company, based on March 31, 2026 net asset values. The combined entity will hold roughly $771 million in assets, 89% of it cannabis-related, generating a trailing gross yield of about 16.7%. Management expects the deal to close in the fourth quarter of 2026.

Here's why the Koach timing is worth noticing. REFI issued equity for the Koach notes on July 13, 2026, almost a month after the merger agreement was signed and while the exchange ratio math is still being finalized ahead of a Q4 close. Adding a 12%-coupon, second-lien asset with a 2.5x exit fee to the balance sheet right now changes what REFI is bringing to that NAV-for-NAV calculation. It's not improper. It's disclosed, and Koach's shares are locked up for months. But if you're a LIEN shareholder evaluating the merger, or a REFI shareholder wondering what you're diluted into, you want to know that a large, high-yielding, geographically concentrated credit position landed on the balance sheet during the run-up to the vote. I'd read the proxy statement's pro forma NAV disclosures closely once they're filed, specifically how the Koach notes get marked.

There's also a simpler reason the combined company wanted this deal done now rather than after the merger closes: post-merger, REFI and LIEN become one reporting entity with one board and one set of disclosure obligations, which makes originating a bespoke, negotiated note-for-equity swap slower and more complicated to execute cleanly. Doing it now, while REFI is still a standalone issuer with its own capital-raising authority, is operationally simpler. That's a reasonable business explanation. It doesn't change the fact that the shares issued to Koach will be part of whatever REFI brings into the merger's NAV calculation.

How an AIN reader actually gets exposure to this

You do not need to be an accredited investor chasing a private placement to touch this trade. Koach Capital's own $62.5 million in notes was a negotiated, bilateral transaction between REFI and Koach's entities — not something retail investors could have participated in. But REFI itself, and LIEN, both trade on public exchanges. REFI trades on Nasdaq under the ticker REFI. Chicago Atlantic BDC trades under LIEN. Buying shares of either gives you a claim on the same kind of subordinated, double-digit-coupon cannabis real estate credit that institutional players like Koach negotiate privately, wrapped in a REIT or BDC structure with public disclosure, quarterly reporting, and daily liquidity you'd never get in the underlying loans themselves.

That's the access point, and it's the honest pitch for this whole category. Publicly traded cannabis-lending vehicles let a retail-accessible brokerage account rent exposure to a private-credit yield that used to be available only to direct lenders and family offices with cannabis-specific underwriting teams. You're not buying the mortgage on 32 dispensaries. You're buying a share of a company that owns dozens of mortgages like that one, diversified across operators and states, and, pending the merger, a combined loan book pushing toward $771 million. If you want the cannabis credit premium without negotiating a note purchase agreement yourself, this is how you get it.

The honest risk, stated plainly

The single biggest threat to this entire thesis is the thing every cannabis investor is rooting for: federal rescheduling. In April 2026, the Department of Justice issued an order, reported at the time by outlets including Reuters and Marijuana Moment, moving state-licensed medical cannabis to Schedule III, a step down from Schedule I. Chicago Atlantic's own management said as much on the REFI/LIEN merger conference call, disclosed in the companies' joint SEC Form 425 filing, arguing rescheduling could eventually eliminate 280E's expense-deduction penalty and, over time, compress the cap rates and lending spreads that make deals like Koach's so lucrative for lenders. Read that twice, because it's the paradox at the center of this trade: the regulatory progress that most cannabis investors want, and that would meaningfully help operators' after-tax economics, is the same progress that would erode the premium REFI and LIEN are charging those operators today. If federal banks ever get comfortable lending against cannabis real estate, REFI's 12%+ coupons compete against 7% bank money, and that's a business REFI loses. This isn't a tail risk. It's the base case management itself is flagging.

Then there's concentration. The Koach notes are $62.5 million tied to 32 properties under one sponsor's stabilization strategy, sitting behind about $39 million of senior debt. That second-lien position gets paid after the first-lien holder, which means if Koach's cannabis retail tenants underperform (a real possibility in a sector where state-level oversupply has already crushed margins in markets like Michigan and Illinois) REFI's cushion before taking a loss is thinner than a first-lien holder's. You're trusting one sponsor's underwriting and one set of tenant leases for a meaningful slice of the combined portfolio's yield. Diversification helps at the REFI/LIEN portfolio level, but this single transaction is a concentrated bet within that portfolio, and it's now embedded in the balance sheet that will determine your merger exchange ratio if you hold either stock.

What to actually do with this

If you already hold REFI or LIEN, pull the 8-K and the merger proxy when it's filed and look specifically at how the Koach notes are valued in the pro forma NAV — that's the number that determines what you own after the deal closes. If you're considering initiating a position to get cannabis credit exposure, treat the 16.7% trailing gross yield on the combined entity as a number that reflects today's regulatory environment, not a permanent feature, and size the position with rescheduling risk in mind rather than extrapolating current spreads for the next decade. Read the GlobeNewswire release on the Koach financing alongside the 8-K, since the press release frames the deal in growth terms that the filing tempers with the subordination and lock-up details. This is a niche corner of alternative investing where the yield is real, the legal reasoning behind it is real, and the risk that erases both is sitting in a DOJ scheduling order that's already moving.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.