Finding high-yield investments isn’t always easy these days, but one commercial mortgage real estate investment trust (REIT) has found its place in the growing cannabis lending market. The retail market for legal marijuana is projected to grow to $57 billion by 2028, making it an exciting opportunity for investors looking for steady income.

The cannabis industry is going through big changes. Over 830 financial institutions now work with licensed cannabis businesses. On top of that, potential regulatory changes, like reclassifying cannabis from Schedule I to Schedule III, could reshape the industry even further.

This REIT stands out because it sits at the crossroads of two major trends: the cannabis market, which contributed an estimated $115.2 billion to the U.S. economy in 2024, and the demand for high-yield investments in a space where traditional banks are still hesitant to lend. Adult-use cannabis sales are now legal in 24 states, meaning nearly half the country has embraced recreational marijuana, giving this lender a strong position in a fast-growing sector.

Let’s examine this REIT, which offers an impressive 12.1% dividend yield, to see if it’s worth your attention.

REFI Stock: Behind the Numbers

Chicago Atlantic Real Estate Finance (REFI) is a commercial mortgage REIT that focuses on lending to state-licensed cannabis operators, a market that traditional banks have mostly avoided. 

One of the company’s biggest draws is its attractive dividend program, offering a current yield of 12.1%. For the fourth quarter of 2024, REFI announced a regular quarterly dividend of $0.47 per share and a special dividend of $0.18 per share. Both were paid on Jan. 13, 2025. This brings the annualized dividend to $1.88 per share, which reflects the company’s strong cash flow. It’s rare to see such a high yield in today’s market, making REFI particularly appealing to income-focused investors.

The stock’s recent price movements show some ups and downs, but remain within a reasonable range. Shares are down 3% over the past 52 weeks and are up just under 3% in the year to date. In just the past five trading days, they are up 4%. 

Despite this volatility, REFI’s solid fundamentals and long-term potential make it worth watching. Looking at valuation, REFI seems undervalued compared to its peers. It trades at a price-cash flow ratio of 8.21x, well below the industry average of 10.23x, and its price-book value is 1.02x, below the 1.25x average. Its forward price-to-earnings ratio of 7.88x further highlights its value for investors seeking income and growth.

Operationally, REFI continues to deliver strong results. The company posted net interest income of $14.5 million in the third quarter, up from $13.2 million in Q2 and $13.7 million in Q3 2023, while net income jumped 21.7% sequentially to $11.2 million ($0.56 per diluted share). 

As of Sept. 30, 2024, REFI had $362.3 million in total loan principal across 29 portfolio companies with an average yield to maturity of 18.3%. While slightly lower than the previous quarter due to repricing amendments and prime rate changes, this yield remains strong and competitive.

With steady earnings growth and disciplined portfolio management, REFI has built a reputation as a reliable high-yield investment option in an underserved market segment like cannabis lending.

REFI’s Growth Story

REFI has been making smart moves to strengthen its position as a top lender in the cannabis industry. In October 2024, the company secured a $50 million unsecured term loan with a fixed 9% interest rate, set to mature in October 2028. 

This interest-only loan, rated BBB+ by Egan-Jones, gave REFI the flexibility to fund future investments while also paying down borrowings on its $110 million senior secured revolving credit facility. It’s a clear example of how REFI is managing its finances while staying ready for growth.

On top of improving its balance sheet, REFI has been busy with major deals in the cannabis space. Partnering with Lineage Merchant Partners, the company played a key role in Vireo Growth’s (VREOF) $397 million merger with three single-state operators — Proper Cannabis in Missouri, Deep Roots Harvest in Nevada, and WholesomeCo Cannabis in Utah — as well as the acquisition of The Flowery in Florida. 

This merger created a business spanning seven states, with over 1 million square feet of cultivation and manufacturing space and 48 dispensaries. As Vireo’s largest stockholder, REFI not only expanded its reach, but also cemented its leadership in cannabis financing.

What the Experts Say About This Dividend Stock 

Investors and analysts are eagerly awaiting REFI's next earnings report. The company is expected to show earnings per share (EPS) of $0.56 on a normalized basis and $0.43 on a GAAP basis. Revenue is estimated to hit $14.26 million. These numbers suggest REFI is still doing well financially, which is good news for those looking for steady income from cannabis-related investments.

Wall Street seems to like REFI's prospects. Three of five analysts watching the stock say it's a “Strong Buy,” while two recommend holding onto it. This averages out to a “Moderate Buy” rating overall. 

Looking ahead, analysts think the stock has generous upside potential. They’ve set an average price target of $18.67 for the next 12 months, which is about 21% higher than where REFI stock is trading now. This optimistic outlook is based on expectations that REFI will keep performing well and making smart moves in the cannabis lending market.

Conclusion

In summary, REFI’s 12.1% dividend yield, strong financial performance, and strategic positioning in the growing cannabis sector make it a compelling option for income-focused investors. Analysts see 21% upside, and its valuation only adds to the appeal. While the cannabis industry carries inherent risks, REFI’s disciplined approach and solid fundamentals position it well for long-term success. If you’re seeking high yield with growth potential in a niche market, this little-known REIT might just be worth your investment.