How Billion-Dollar Investors Find Blue Ocean Deals | Peter Sack | EP 73

Did you know that driving under the influence of marijuana is illegal?

That's right.

Driving high can get you a DUI.

And if you're wondering if law enforcement can tell when you're driving high, well, everyone else in your life can.

Your friends can tell, your coworkers can tell, even your parents can tell.

So what makes you think law enforcement can't tell?

Well, they can.

If you feel different, you drive different.

Drive high, get a DUI.

Paid for by NHTSA.

This sale only happens once a year.

The Honda Summer Event.

Get Get our biggest savings on new Hondas.

All Honda cars, trucks, vans, SUVs, hybrids, and EVs are on sale.

Save thousands with 0% APR financing on new Hondas like the 25 Prologue.

Don't miss the Honda Summer Event with big summer savings like 0% financing.

Search your local Honda dealer today.

See Dealer for Financing Details, Financing, or Credit Approval Offer NS9225.

GoldDealer.com provides one of the nation's largest inventories of gold, silver, platinum, palladium, and rhodium bullion, and our website offers live buy and sell prices.

We specialize in precious metal IRA accounts, charge no setup or shipping fees, and provide one of the best storage programs in the business.

GoldDealer.com also provides a free audio quote line that is updated twice each day and a gold newsletter that is published every week.

What's more important is finding a space that blue ocean where when we invest resources in people in terms of originating to finding opportunities, in terms of underwriting, in terms of operating, are we going to be able to drive returns for our investors through that process?

And it's not that easy to find sectors where the more you invest, the greater opportunities and the greater expertise and the greater returns you can drive.

And that's what we've done most demonstrably.

by investing in the U.S.

cannabis industry.

Yeah.

That we found a really unique space with strong industry fundamentals.

And the key was finding a differentiated approach to investing in it.

What's up, the Entrepreneur DNA family?

Welcome back to another incredible episode.

I have someone super cool, really smart, and hyper successful in the investment space.

He is the CEO of Chicago Atlantic, but they focus specifically on alternative style investments that a lot of people and a lot of industries are scared of, but they actually give huge returns, like equity ownership type returns.

Peter Sack is here.

What is up, dude?

Thanks for having me.

Yeah, this is going to be fun.

So, you know, I come from the real estate space.

I've done this for two decades.

Returns, investments, this is my language.

This is where I play.

So for all of you watching this, make sure you first follow Peter Sack, but Chicago Atlantic is the company.

Let's get into the first things first.

What industries, what verticals, what are people kind of scared or companies and lending institutions?

What are people kind of scared of?

And then why are they scared of those things?

Many institutions institutions are afraid of emerging industries

mostly because they're different, because they're new, because they operate under different constructs, under different regulatory frameworks, and different levels of uncertainty.

And so if you can find, as an investor, can find ways to mitigate.

a lot of those risks or uncertainties through different structuring, through different approaches, through finding the right avenues of entries into these industries that have that uncertainty, then you can find really exciting opportunity and really exciting risk reward.

And that's what we focused on at Chicago Atlantic over the last six years is finding ways to mitigate risk in industries that are underserved by the broader financial services industry.

I think

another way of saying it in my world is like red ocean versus blue ocean, right?

You have found a blue ocean that most financial institutions don't go after, don't look at.

Why do you?

Like what makes those, is it just the simple idea of this red ocean versus blue ocean?

Or is it, why do you go after the the verticals, the industries that other financial institutions go, I don't want to play it in this game?

Yeah.

Blue ocean versus red ocean is just the start.

That's a first screen to understand, could there be opportunity here?

The key beyond that, I think, is twofold.

One, are there ways to enter those blue oceans that mitigate the risk that keep others out?

Sometimes blue oceans are avoided because for very good reason.

Yeah.

And sometimes they're not.

Or sometimes you just need to find the right avenue and the right approach in order to gain exposure to them that mitigates those risks that keep others out.

I think that the second piece that we focus on is this blue ocean, an area that is large enough, fragmented enough, underserved enough in the long term, that the more that we as a platform at Chicago Atlantic invest in that space.

through resources, through expertise, through sourcing capabilities, can we drive greater alpha for our investors?

Now, the thing that I'm hearing without you saying it specifically is getting a better understanding of some of these maybe misunderstood or just simply not understood, not misunderstood, but not understood verticals or industries.

And you're focusing on, let me actually understand why.

What do they have to offer?

Why are they there?

It's an industry that works.

And you guys really focus.

Maybe I'm mishearing in, you know, reading into what you're saying, but like.

Sounds like you actually take the time to understand the industry first.

Focus is key.

Yeah.

Focus and deep understanding is irreplaceable.

Yeah.

We don't consider ourselves tourists in the spaces that we invest.

When we invest, we want to go all in as a platform in understanding the space and becoming the leading expert in that space.

And that's the piece that's hardest to find.

It's easy to find sectors of the economy that are underserved by the financial industry or are disfavored by the financial industry today.

Take, for example, you could invest in commercial real estate today in major city centers and say, gosh, vacancy rates are high.

It's difficult to find capital to develop.

Prices are going down.

I should buy now.

I should buy the dip.

Right.

Right.

But I could spend the next 10 years doing only commercial real estate lending or commercial real estate investing in challenged areas.

And I still wouldn't be a leading expert in the commercial real estate space because it's a crowded, extremely competitive investing and development world.

It's the red ocean.

What's more important is finding a space, that blue ocean, where when we invest resources in people in terms of originating, to finding opportunities, in terms of underwriting, in terms of operating, are we going to be able to drive returns for our investors through that process?

And it's not that easy to find sectors where the more you invest, the greater opportunities and the greater expertise and the greater returns you can drive.

And that's what we've done most demonstrably by investing in the U.S.

cannabis industry.

Yeah.

That we've, we found a really unique space with strong industry fundamentals.

And the key was finding a differentiated approach to investing in it.

You'll say cannabis.

I'll use the word weed.

And I say that jokingly to bring a smile.

Like for a lot of people out there, they might be users of said flower.

And there's no judgment on my side.

Trust me there.

I just want people to understand is

remove the title of who you are and what you do and running Chicago Atlantic.

At the end of the day, you're an investor and you got to get the right type of returns in an industry or a vertical like weed, cannabis, flour, we can name whatever we wanted to say.

That's exciting.

There's a vertical that didn't exist 15 years ago for any lenders, let alone business operators.

Talk to us and maybe bring it down to the layman investor, someone who might not have Chicago Atlantic type of investment strategy.

Why cannabis?

Why marijuana?

Why is this a vertical that you say, you know what?

Let's lean into this.

Yeah, a couple key factors.

One, fundamentally, it's a growing business

with strong fundamentals.

This is a sector with $32 billion in revenue.

It's legal on a medical or adult use basis in close to 40 states and jurisdictions across the country.

It's legal in 40 states now.

On a recreational or a medical basis.

A majority of Americans live in a state where you can acquire cannabis legally.

But because of the conflict between federal and state law and regulation regarding the substance, very few institutional established capital providers will provide, in particular, debt capital, but also in many cases, equity capital to cannabis companies.

You guys do both?

We primarily focus on providing debt capital to cannabis companies.

And why debt capital?

Because there's even a greater paucity.

of lenders that are willing to provide loans to cannabis companies.

And

that's the unique angle that's allowed us to enter this blue ocean.

yeah it's that by providing debt capital instead of equity capital we're able to enter through an avenue that controls risk better

uh allows us to mitigate the valuation risk how much is this company worse and allows us to underwrite and control risk through a focus on hard collateral through cash flow generation

and in the process because there are very few operators providing debt capital to cannabis companies generate really strong differentiated returns at differentiated risk profiles?

So

I've had several friends who talked about this offline who have done very, very well early in this game, right?

There were some of the first few in California, just crushed it, sold their company off to, I want to say a Canadian company.

But the point being is there was a true build and sell opportunity.

I think you guys are probably.

well aware of that, obviously.

But let's talk about kind of the idea of the space of like so cash heavy.

My understanding, the challenges that they went through because they were some of my closest friends, it was just again, new enough, so cash heavy, so much federal versus state risk.

But that is also why they got the multiple they got.

I mean, it's insane how much money they made, right?

It's insane.

Like hundreds of millions of dollars.

And

now are we further enough down this road of the cannabis industry for companies like yourself to have comfort with the risk between federal and state, with the cash-intensive side of this type of thing, with banking.

Like not many banks are willing to take in $200,000 every other day, right, in cash.

Like where do you stand with that?

Maybe that's not, you may not be a retail bank in that sense.

It might just be lending, but how is that all kind of washed out, so to speak?

As many of you know, I'm constantly on the move, juggling multiple businesses, traveling, and ensuring I get my morning workouts in.

Staying fresh isn't just a preference, it's a necessity.

But let's face it, after back-to-back meetings, juggling two kids at home, and the hustle and bustle of everyday life, body odor can become an issue.

But here's the deal.

Mando has revolutionized how I stay fresh.

This isn't just another deodorant, it's clinically proven to control odor better than a shower alone with soap.

My favorite scent, bourbon leather, it's fresh, is subtle, and doesn't clash with my clone.

And I was surprised by how well the solid stick works, even after an intense morning workout.

Mando starter pack is perfect for the new customer.

It comes with a solid stick deodorant, cream tube deodorant, two free products of your choice like a mini body wash or a deodorant wipe, and free shipping.

As a special offer for listeners and new customers, you get $5 off a starter pack with our exclusive code.

That equates to over 40% of your starter pack.

Use code Colby at shopmando.com.

That is S-H-O-P-M-A-N-D-O.com.

Please support our show and tell them we sent you.

Smell fresher, stay drier, and boost your confidence from the head to the toe with Mando.

We thought about calling it the ultimate do-everything wonder tool for making CIOs look like mad geniuses, geniuses.

But that sounded kind of long.

So we just call it the Enterprise Browser.

It drives productivity up, IT costs down, and helps you stay more secure than ever.

It's like the ultimate do everything wonder tool for making CIOs look like mad geniuses.

You get the idea.

The Enterprise Browser from Island.

Lowe's knows tough jobs call for tougher tools.

The new DeWalt Elite Series power tool accessories are built to last for the pro who doesn't stop.

With precision fitment, durability, and impact resistance, finishing jobs faster has never been easier.

Shop the new DeWalt Elite Series at an everyday low price, exclusively at Lowe's.

We help.

You save.

Is it time to reimagine your future?

The right business skills may make a difference in your career.

At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world.

We'll teach professional skills to help you pursue your goals, like business management, strategic planning, and effective communication.

And you can apply these skills right away.

A different future is closer than you think with Capella University.

Learn more at capella.edu.

Did you know 39% of teen drivers admit to texting while driving?

Even scarier, those who text are more likely to speed and run red lights.

Shockingly, 94% know it's dangerous, but do it anyway.

As a parent, you can't always be in the car, but you can stay connected to their safety with Greenlight Infinity's driving reports.

Monitor their driving habits, see if they're using their phone, speeding, and more.

These reports provide real data for meaningful conversations about safety.

Plus, with weekly updates, you can track their progress over time.

Help keep your teens safe.

Sign up for Greenlight Infinity at greenlight.com/slash podcast.

Yeah, the industry's maturing over time.

Yeah.

A lot of the irrational exuberance that drove people to exit at really big valuations early on in the development of the industry has gone away.

And

states that grew really fast have matured into stable marketplaces where competition creates winners and competition creates losers and creates a lot of challenges and a lot of opportunities.

And the industry is going through the cycle of weeding out strong operators and weak operators as capital has become, as equity capital in particular has become more scarce and valuations have declined.

At the same time, the business has normalized significantly.

There's now close to 500 banks and credit unions across the country that provide ordinary commercial banking services

for cannabis dispensaries and for cannabis cultivation facilities.

So

finding a bank that will pick up your cash, just like they pick up cash from a Starbucks a couple times a week, now is ordinary, of course.

It's certainly still more expensive

than ordinary, than other, than if you were a coffee shop sure um but um a lot of those fundamental logistic problems have been ameliorated i would say though not not gone altogether there's straight word i don't even know what that word means let's let's what is um ameliorated yeah have been uh lessened have been lessened or late right so beer i definitely just got schooled there that was great um

i'm saying that right ameliorated yep okay my challenge to myself is today i need to use that word property somewhere somehow it just rolls off the tongue like reduced lessened, ameliorated.

Okay.

I sure hope I'm using it right.

Otherwise, I'll just look like an idiot.

Yeah.

So you guys aren't an institution that takes it.

You're not a bank in that sense where you would be your

correct?

Yep.

Correct.

So you're a lending institution.

Got it.

So I just want to know, framing wise, when talking to you about this.

So my friends had a very big challenge with that, right?

I mean, it was like the classic like back room full of $15 million in cash because banks wouldn't do anything.

Yeah.

That has been ameliorated.

Yeah.

And there's now, there's still, however, only a handful of lenders regularly providing debt capital to the cannabis industry.

So you have dozens of publicly traded companies generating strong cash flows, strong equity backing.

You have thousands of

small and medium-sized companies that are generating strong EBITDA, strong equity backing, strong collateral bases that can't get access to debt capital to grow or to buy a competitor or to build, expand their cultivation facility or to build additional dispensaries, things that access to capital that if you were a coffee shop or a vertically integrated CPG company, you would be able to raise debt capital quite easily.

For sure.

And in this space, it's just simply not an option.

And so we're one of the few providers that are regularly operating in this industry, making those debt investments, helping cannabis companies grow.

Grow.

And the investment, really, the borrower, those companies are really borrowing for growth.

I mean, that's the impetus of it all is, is growth strategy.

So,

and you, the lending side of it, you're collateralizing that loan against the current operation.

Against the current operations,

yep.

So, they have one operation.

I'm just going to say California.

That's where I'm from.

It's the experience I have with it.

They have an operation in San Francisco.

They're doing whatever X revenue.

You guys underwrite the current operation.

They want to open three more up in wherever the hell.

You say, great, based around your current revenue, based around your bank statements based around this operation we're willing to lend x yep standard stuff yep very same thing in the real estate space i mean it's literally you're just looking at the business you're looking at the p l of the business you say bank based around the strength of that p l i'll lend you this money with the collateral of that p l

i mean this is the best part about this podcast dude i just having so many incredible guests like yourselves and just I'm getting just as much informed as the listeners are, right?

And it's so cool to me because I have experience because of how close I was to my friends friends of the alternate side of this which is there were no chicago atlantics that did not exist their growth and expansion quite literally was private financing right and so they would have to raise all this capital give away equity give away debt and then they could go open up another shop and it was just a burden now they did very well you know they had a nine-figure exit

but Now they can play enough space with you to say, hey, I want to go open up five more shops at this type of revenue stream.

And it's a call away.

Yeah, exactly.

Exactly.

And look, we are, we're certainly expensive capital.

We pull investors from high net worth individuals, family offices, RIAs, some pension funds that also look at this space as a big opportunity and a big white space in order to invest and be a first mover driving really attractive risk-adjusted rewards because there are so few lenders operating in the space.

Are you guys on the back end of this?

Not for the operators, but for the investors, your investors.

Are you guys constantly raising capital?

Have you filled that?

Is that a constant work in progress also?

If I have a handful of family offices I can connect you to, is that a direct like effort?

I'd be interested.

Absolutely.

We're constantly raising capital and deploying.

And that's the game, raising capital and deploying and seeking to be able to be a

more fulsome, a more fulsome partner to our clients in the space.

I think the lifeblood of what we do is opportunities to deploy capital with really strong risk-adjusted returns with some of the best operators in the industry.

No doubt.

And we do that by managing a platform of investment funds such that when we have, when there's a really strong operator, we have a funding source to support what they're doing and make strong returns in the process.

Yeah.

And so

this is so incredible.

Now, The Cannabis space is one

vertical.

I just use the word vertical for internal purposes, but like that's one industry.

What else would be considered a riskier industry or maybe the more of the blue ocean type industry that there aren't a lot of people out there that is an open lane, that is an open freeway to like, hey, there's opportunity here that's legitimate these days, where

five years ago, this was not necessarily the case.

What else are you guys looking at?

Yep.

I think a lot of, a lot of, I think there's a lot of

There's a lot of ancillary businesses surrounding digital currencies today.

I was just going to say, like crypto was.

Like five years ago, crypto was like, this isn't a thing.

Now it's like the president's basically saying, hey, the government's going to have crypto, right?

Like we have come a long ways in five years.

And this is a space where

we're focused still on providing downside protection, yield investments that provide equity-like returns with stability and downside protection.

And so in the crypto space, you don't get that by just buying cryptocurrency.

That's right.

I mean, look what it's done.

I mean, I'm not a crypto guy heavy, but like the actual market dropped 66%.

Yeah, that's the type of volatility that we're not looking to give our investors exposure to.

Right.

But we're looking for ancillary business that operate within that ecosystem that provide real services that can generate real cash flow and profitability over the long term.

Like a, like a, uh, what's the word?

Like Coinbase, right?

Meaning they charge me every time I buy and sell.

There's consistency.

There's stability in that, right?

If I'm losing money, making money, I'm selling, I'm buying.

every time it's, oh, here's $8 goes to Coinbase.

Yeah.

$22 goes to Coinbase.

I'm like, but that's the level of consistency.

You guys are like, that type of service, we can invest heavy into that because there's consistency in the security of it.

Exactly.

Exactly.

And then there are other industries where we spend time looking to understand, looking to understand the fundamentals and understand why.

Other institutional providers may or may not be providing capital.

One example is a business who we gave a loan to that makes equipment for shooting ranges for the police and the military.

Okay.

And this ordinary business makes equipment for shooting ranges, has a big backlog, has a long track record of success.

Really challenging for them to find debt capital in particular because many institutional investors simply can't invest in the firearms industry.

And we also don't invest in firearms manufacturing.

But this, this is, this is not firearms manufacturing.

This is adjacent to that space

for training military and police.

But still, because of that adjacency, they have trouble finding capital sources.

And so

that's an area where we see an opportunity like that.

And we want to lean in and we want to be their partner for growth.

So let's talk about some of that.

That's fun to talk about.

I want to talk to all investors.

We thought about calling it the wonderful workflow wizard for big businesses battling ballooning budgets.

But that felt like it was trying a little hard.

So we just call it the Enterprise Browser.

It drives productivity up, IT costs down, and helps you stay more secure than ever.

It's like a wonderful workflow wizard for big businesses battling ballooning budgets.

Yeah, you get the idea.

The Enterprise Browser from Island.

At Capella University, learning the right skills could make a difference.

That's why our business programs teach you relevant skills you can take from the course room to the workplace.

A different future is closer than you think with Capella University.

Learn more at capella.edu.

Did you know that parents rank financial literacy as the number one most difficult life skill to teach?

Meet Greenlight, the debit card and money app for families.

With Greenlight, you can set up chores, automate allowance, and keep an eye on your kids' spending with real-time notifications.

Kids learn to earn, save, and spend wisely, and parents can rest rest easy knowing their kids are learning about money with guardrails in place.

Sign up for Greenlight today at greenlight.com/slash podcast.

Lowe's has the Labor Day deals you need to give your home a new look.

Buy one, get one free.

Select interior paint via Visa gift card rebate.

Then add the final touch with two for $8 on select 2.5 or 3 quart mums.

Refresh your home and save big while doing it.

Lowe's, we help.

You save.

Valid through through 9-3.

Mums offer in-store only.

Selection varies by location.

While supplies last.

More terms and restrictions apply.

See Lowe's.com slash rebates for details.

You're looking at basically, I'm going to bring it to real estate just because it is my strong suit.

But so you go to a

Phoenix and it has been

a madhouse for the last eight years.

Everyone and their mother is investing in Phoenix.

It is just overridden with investors, et cetera.

But you go and do an adjacent city like a Tucson that doesn't have, is that like, talk to the investors.

Like, what should investors, in a general sense, banks, institutions, family offices, doesn't matter.

What is the secret to your success when looking at things?

Is it this like adjacent structure where it's like you don't go after the big everyone knows red ocean thing?

You go, where's the side,

you know, alley?

that people don't really know about the back door that is just rich heavy and just people don't like what's that philosophy that you guys run with?

Yeah, so if I'm looking at something like the Phoenix market, I want to see and appreciate what the market is driving.

That could be a bubble, could be temporary, could be not.

But if everyone's looking at the basics of the Phoenix market, I probably want to find something different from that.

I want to find an angle into that space that other people aren't doing because it's more complex, because it carries more execution risk.

Maybe that's a conversion.

Maybe that's finding something that has zoning and entitlement complexity.

Maybe this is a property where by adding an improvement like a drive-through, I can make a lot more, I can create a lot more value for this commercial retail property than was before.

But finding an avenue that

justifies our focus and

justifies our efforts.

Ultimately, particularly in the alternative asset management space, there are a lot of people pitching products and managing funds that are not differentiated.

And they make management fees and they earn incentive fees for doing something that

for creating risk reward, exposure to risk reward that you could get by buying ETFs, by buying publicly traded lending companies.

And

frankly, that's just not how I want to spend my life.

I want to spend my life in the investing world, creating something new, creating risk reward that is truly differentiated.

You're a true investor.

And I love that, right?

That's why this episode is here.

This is why this podcast is because

we talked about it offline.

Like giving someone a guaranteed 5%

is as boring and is basic and they sell themselves is the risk eliminator, right?

The downside risk, we're going to make sure you don't have it, you know.

But man, is that not fun or sexy?

Do you have a big upside?

If you want a guaranteed 5%, you should buy treasury bond, 10-year treasuries at 4.5% yield, and then never look at it for the next 10 years.

That's right.

And you don't need to pay anyone else to do that for you.

Yeah.

Great suggestion, by the way, for all you guys that want a very secure, safe, steady.

Now, I'm more risk, not averse.

I'm,

what's the right word I'm looking for?

Like, I'm into risk.

I'm okay with risk, right?

I bought four apartments, sight unseen in Alabama, right?

Now, that comes with its own hurdles.

I wouldn't suggest everyone to go through that kind of stuff.

But having the risk is the bigger opportunity.

Yeah.

Your word focus means a lot to me.

Right.

My wife told me

just a little while ago, right?

Is if you had a little bit less trust and a little bit more focus, you exponentially would grow your businesses and have multiple businesses, right?

So focus is a hard word, right?

Because how do I do these things all at a high level?

And it's easier said than done.

Yes, it is very easy for my wife to give me that advice and then for me to have to go execute on it.

Yeah, there's always a new shining shiny object.

There's always a new opportunity.

There's another, always a new vertical.

But the discipline to say, if I focus on this space, if I commit resources to it, I know the opportunity will come and I know I'm going to be better at it, a better executor at it as a result of that.

It's challenging to keep that over a long period of time.

How far in the red are you willing or able to go?

And I don't want to speak to Chicago Atlantic, obviously, because this is a little bit different and it's much bigger.

But like,

I think most investments of any sort.

into your own business, into a property, into whatever, you got to have some level of like sustaining the pain knowing that you're likely going to go in the red for a little bit because to you you just said it in a way if you do it long enough

it can get that hockey stick you're looking for but you might have to go down not just kind of coast but like go down first

to come up right um

how long do you think is the right time frame like you can't just be foolish and torch money and torch your time and torch but you also have to be reasonable.

To do this right, you probably have to take some,

I don't want to say losses, but you have to go in the red first to come up and find the green.

Yeah, I'd say yes and no.

We focus on lending and debt investments.

And debt, you can define debt in a dozen different ways.

For me, the fundamental principle for all definitions of debt should be downside protection.

And so when we're making an investment, we're trying to find multiple avenues of uncorrelated pathways where we can have downsite protection.

That could be because they have revenue streams coming from many retail locations and cultivation and wholesale products across multiple states, a really broad, diversified footprint.

That could be because in addition to strong cash flows, the company has hard collateral.

That could be because we have personal guarantees and pledges of assets outside of the business that provide us downside protection.

And so we're looking for a number of different ways that if this part of the thesis goes wrong, we still get paid our interest in principal.

If this part of the thesis goes wrong, we can still recoup value from this part of the business that's uncorrelated.

And so we can feel really comfortable seeing underperformance in an investment on a consolidated basis if we have really strong conviction in our downside protection thesis.

And that...

that thesis of downside protection, that thesis of being able to recoup value may allow us to take risk or allow the business to take risk in a growth project that we wouldn't otherwise because we have that margin of safety in our development.

So, protection.

As an investor at all levels, being able to understand

and looking at where are my downsides, if I pull the trigger on this opportunity, this investment, this thing,

I need to look at the landscape of like, here's a hole, here's a hole, here's a hole, here's a hole.

And then how do we protect those holes?

If we fall in this hole over here, how do we make sure that we can come up over here?

If we fall in this hole, how do we make sure this, right?

So you're really looking at the entire landscape of your downside.

So you know you can minimize it by having multiple, what I would call exit strategies.

Yeah.

And credit, it is a different lens than equity and venture capital and new initiatives.

In venture capital, you may be willing.

to lose all of your money on two-thirds, three-quarters, 90% of your portfolio because you're confident that 10%, you might not know which 10%, but 10% is going to 10x.

In credit, you can't do that.

In credit, you have to have very strong downside protection and downside conviction on your investments because you can't sustain that many full losses.

And if we've sustained losses of principle, then something has gone very wrong in our thesis.

That's right.

And that's the difference between,

that's sort of what fixed income means.

Fixed income means when you make an investment, there is a maximum amount of upside that you can get in most debt investments.

And that could be your

interest, that's fees, that's exit fees.

But ultimately, those are contained within a contract.

You're going to make this percent return on the investment over this period of time.

And so that's why that return could be really attractive.

In our case, in some of our vehicles,

our weighted average returns are in the high teens for portfolios of first-lean senior secured debt.

Wow.

That's great.

And that's how we can create equity-like returns in portfolios that have really strong downside protection.

But that downside protection thesis is still very key.

We gain additional upside by, in addition to fixed returns, also securing warrants or conversion features in some of our investments that can provide incremental upside.

But

that doesn't

take the place of solving the question of downside protection first because our first goal is to provide principal protection for our investors and then on top of that, provide a really attractive, risk-adjusted return.

So who's your preferred client?

Like if there was someone listening or watching this on all these platforms, who would you say is your person that should be reaching out to you, right?

Whether it's a company, industry, go contact Chicago Atlantic.

You might not get Peter, but reach Chicago.

Who are you talking to?

Who should consider using you for financing?

Yeah, please.

In the cannabis space, we focus on states that have a limited license environment.

So states that have issued a relatively small number of whether that's retail licenses or cultivation licenses.

We like those markets because those states create more barriers to entry for new entrants to come in.

And that means that existing operators have more stability in their margins, more stability in their outlook.

That's right.

And when they make new investments, they can do that with greater certainty.

And so, we're spending a lot of time in Missouri, Ohio, New York.

We've invested a lot here in Florida,

Maryland,

Illinois.

These are markets that are stable.

Lots of profitable operators executing on theses to develop their space, to provide more products, to provide more attractive products for the end customer, and ultimately growing this industry by creating something that's more accessible.

No doubt.

We thought about calling it the ultimate do-everything wonder tool for making CIOs look like mad geniuses, but that sounded kind of long.

So we just call it the Enterprise Browser.

It drives productivity up, IT costs down, and helps you stay more secure than ever.

It's like the ultimate do-everything wonder tool for making CIOs look like mad geniuses.

You get the idea.

The Enterprise Browser from Island.

Is it time to reimagine your future?

The right business skills may make a difference in your career.

At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world.

We'll teach professional skills to help you pursue your goals, like business management, strategic planning, and effective communication.

And you can apply these skills right away.

A different future is closer than you think with Capella University.

Learn more at capella.edu.

Did you know that parents rank financial literacy as the number one most difficult life skill to teach?

Meet Greenlight, the debit card and money app for families.

With Greenlight, you can set up chores, automate allowance, and keep an eye on your kids' spending with real-time notifications.

Kids learn to earn, save, and spend wisely, and parents can rest easy knowing their kids are learning about money with guardrails in place.

Sign up for Greenlight today at greenlight.com/slash podcast.

And then...

Who would you like to talk to?

So cannabis in general, that is your main put.

If someone's out there in the cannabis space period in general, you guys would at least like to have a conversation, Chicago Atlantic.

Make sure you're looking up Chicago Atlantic.

Is there a website or a best place for them to chicagolantic.com and you can find me on LinkedIn?

And then LinkedIn, Peter Sack.

So then let's go to the other side of your business.

If someone was interested, like I like this, but I like the protection of having Chicago Atlantic have my money, not me throwing a hundred grand at some operator.

Who are you talking to in terms of the capital raise?

Who are you talking to people

small, large, big, family office style?

Do they need to be a corporation?

Is it, you know, debt arbitrary?

Like, so who are you talking to about people you would like to talk to specifically to finance some of this stuff?

We spend a lot of time talking to family offices, high-net worth individuals, and wealth advisors.

Yeah.

And we spend our time thinking about and talking about how our private credit offering is distinct from the broader private credit industry.

Yeah.

And we're never going to replace investments in some of the largest private credit funds out there.

But we think that

we offer something, a really distinctive risk-adjusted return in a really distinctive industry that investors probably don't have exposure to elsewhere in their portfolio.

I was going to say, you give them an opportunity to get exposure to something that they don't have.

Like they might have a friend, whatever, but again,

they

risk mitigate by giving Chicago Atlantic their capital versus their friend that has a shop, if you will.

And then investing in a diversified portfolio,

debt investments versus what's inherently more risky, equity investments.

The word you use right there, portfolio, I love that word because I'm a real estate investor, but I look at my entire portfolio.

It's not always puppy dogs and rainbows.

If you individually look at every single asset I own, right?

I'm doing a flip right this second that, yeah, it's transactional, so it's not in a portfolio play, but it's going to be a loser.

But I can sustain that loss based around the portfolio's revenue that I generate, right?

The word portfolio to me is a much better word than diversification of what you're doing.

Like if you can invest in something that has, again, your downside risk, like this one crushes, this one's eh, this one's a loser, but this one's okay.

Now you have this diversity, a diversity within your downside risk.

I think everyone needs to look at investing in that way.

Yeah,

this is why you hire investment managers to focus on a space and make an aggregate of smart decisions,

an aggregate of smart individual decisions that create a portfolio of a scoreboard.

Peter, this has been really informative for me.

This is fun.

What have we not covered about either the cannabis space, Chicago, Atlantic that we want to, because I kind of feel like I could go left with it.

What else would we like to talk about here?

When we think about the world, we think about what

What can we add to it?

What's the different lens that we can apply that other people aren't doing?

And

we like talking to operators, regardless of what industry they're in, that are trying to do something different.

And

we want to hear that message.

And we want to see is there a way that we can support that differently from other capital providers.

That's great.

That is incredible.

Peter Sack, thank you for coming on at Entrepreneur DNA.

Thanks for having me.

It was a blessing.

Right on.

Guys, if this is pretty cool and you were interested in any of this or you think someone should hear this, share this with two of your people.

Make sure you check out Chicago Atlantic and Peter Sack all over over LinkedIn, social media.

And again, share this with two more people that might find this interesting.

See you on the next episode.

We thought about calling it the ultimate do-everything wonder tool for making CIOs look like mad geniuses.

But that sounded kind of long.

So we just call it the Enterprise Browser.

It drives productivity up, IT costs down, and helps you stay more secure than ever.

It's like the ultimate do-everything wonder tool for making CIOs look like mad geniuses.

You get the idea.

The Enterprise Browser from Island.

At Capella University, learning the right skills could make a difference.

That's why our business programs teach you relevant skills you can take from the course room to the workplace.

A different future is closer than you think with Capella University.

Learn more at capella.edu.

Did you know 39% of teen drivers admit to texting while driving?

Even scarier, those who text are more likely to speed and run red lights.

Shockingly, 94% know it's dangerous, but do it anyway.

As a parent, you can't always be in the car, but you can stay connected to their safety with Greenlight Infinity's driving reports.

Monitor their driving habits, see if they're using their phone, speeding, and more.

These reports provide real data for meaningful conversations about safety.

Plus, with weekly updates, you can track their progress over time.

Help keep your teens safe.

Sign up for Greenlight Infinity at greenlight.com/slash podcast.

With Robinhood, not only can you trade individual stocks and ETFs, you can also seamlessly buy and sell crypto at low costs.

Trade all in one place.

Get started now on Robinhood.

Trading crypto involves significant risk.

Crypto trading is offered through an account with Robinhood Crypto LLC.

Robinhood Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.

Crypto held through Robinhood Crypto is not FDIC insured or SIPC protected.

Investing involves risk, including loss of principal.

Securities trading is offered through an account with Robinhood Financial LLC, member SIPC, a registered broker-dealer.