For Jon Kalikow, more than two decades of experience in the derivatives and converts market provided important lessons on risk management and the reality that even well designed trades rarely go strictly according to plan. Our conversation explores lessons imparted by Mr. Market, both during the Dotcom bubble and the Global Financial Crisis. In the former, efforts to strip out the optionality embedded in convert positions were stymied by basis risk across markets. And in the period leading into the GFC, Jon grappled with the burden of option carrying costs, even as his firm was well positioned with long convexity on subprime and US financials.

Today, Jon is President of Gamma Real Estate and AFC Gamma, a public REIT in the cannabis space. Through our discussion, we learn more about the risks and opportunities in real estate lending through Jon’s lens as a creditor. Noting that lending has a similar economic profile to equity put selling, he contrasts the two by drawing attention to the complex decision-tree required to “take delivery” in a real estate transaction, something Gamma ultimately did in 2017 after a borrower defaulted.

Next, our conversation explores credit extension in the cannabis industry. We learn more about the unique regulatory issues in the space and how Jon and his team evaluate borrowers in seeking to construct a diversified portfolio of loans. We learn more about the differences in state regulations and how that impacts AFCG’s appetite for lending. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jon Kalikow.