Advanced Flower Capital Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and our accompanying notes and other information included in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Risk Factors,” in this Annual Report. Unless the context otherwise requires, as used in this section the terms “we,” “us,” “our,” or “AFCG,” refers to AFC Gamma, Inc.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and our accompanying notes and other information included in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Risk Factors,” in this Annual Report. Unless the context otherwise requires, as used in this section the terms “we,” “us,” “our,” or “AFC,” refers to Advanced Flower Capital Inc.

Previous wording

AFC Gamma, Inc. is an institutional lender to the commercial real estate sector that was founded in July 2020 by a veteran team of investment professionals. We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of commercial real estate loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis. We have recently expanded our investment guidelines to deploy capital in attractive lending opportunities secured by commercial real estate. Our expanded investment guidelines now include (i) first and second lien loans secured by mortgages to commercial real estate owners, operators and related businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities, in addition to our prior sole focus on first lien loans secured by mortgages to cannabis operators in states that have legalized medical and/or adult use cannabis. We expect the underwriting and investment process for these investments under our expanded guidelines to be substantially similar to the process we deploy for our loans to cannabis operators.

Current wording

Advanced Flower Capital Inc. is an institutional lender that was founded in July 2020 by a veteran team of investment professionals. We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of mortgage loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis. Our investment guidelines primarily relate to deploying capital in attractive lending opportunities to state law-compliant cannabis operators, typically secured by real estate, equipment, cash flows and license value.

Previous wording

Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to real estate developers and state law compliant cannabis companies. The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. Some of our cannabis-related borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.

Current wording

Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to state law compliant cannabis companies. The loans we originate are primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. Some of our cannabis-related borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.

Previous wording

In January 2024, we delivered a reservation of rights letter to Private Company K with respect to the occurrence of certain events of default, including the failure to make principal and interest payments when due and deliver monthly statements as required under the credit agreement with Private Company K. In March 2024, we entered into a forbearance agreement with Private Company K, pursuant to which we agreed to forbear from exercising certain remedies as a result of the certain defaults under the credit agreement. In exchange for such forbearance, Private Company K agreed to, among others, (i) additional reporting requirements and (ii) contribute additional cash equity in an aggregate amount of up to $3.5 million in increments on or before June 30, 2024 or obtain a combination of additional equity and debt financing in an aggregate amount of up to $8.5 million in increments on or before August 31, 2024, certain of the proceeds of which shall be applied to the outstanding obligations under the credit agreement. The existing credit agreement was amended by the forbearance agreement entered into with Private Company K to require (a) 20% of the interest payable for December 2023 and January 2024 to be payable in cash in arrears and 80% paid in kind, (b) 35% of the interest payable for February 2024 to be payable in cash in arrears and 65% to be paid in kind, (c) 50% of the interest payable for March 2024, April 2024 and May 2024 to be payable in cash in arrears and 50% to be paid in kind, (d) interest for the remainder of the months during the term of the forbearance agreement to be payable in cash in arrears and (e) payments of principal during the term of the forbearance to be deferred during the term of the forbearance agreement. We placed Private Company K on non-accrual status effective December 1, 2023 and will recognize income related to loan activity only upon receipt of cash.

Current wording

In January 2024, we delivered a reservation of rights letter to Private Company K with respect to the occurrence of certain events of default, including the failure to make principal and interest payments when due and to deliver monthly statements as required under the credit agreement with Private Company K. In March 2024, we entered into a forbearance agreement with Private Company K, pursuant to which we agreed to forbear from exercising certain remedies as a result of certain defaults under the credit agreement. In exchange for such forbearance, Private Company K agreed to, among other things, (i) additional reporting requirements and (ii) contribute additional cash equity in an aggregate amount of up to $5.5 million in increments on or before August 31, 2024 or obtain a combination of additional equity and debt financing in an aggregate amount of up to $8.5 million in increments on or before August 31, 2024, with certain of the proceeds applied to the outstanding obligations under the credit agreement. The existing credit agreement was amended by the forbearance agreement entered into with Private Company K to require a portion of cash interest payments to instead be paid in kind from December 2023 to May 2024, interest for the remainder of the months during the term of the forbearance agreement to be payable in cash in arrears and payments of principal during the term of the forbearance to be deferred. As part of the equity requirements under the forbearance agreement with Private Company K, we received a cash payment of approximately $1.5 million in June 2024, which was applied to the outstanding interest and principal under the credit agreement with Private Company K. In June 2024, we delivered a reservation of rights letter to Private Company K with respect to the occurrence of certain events of default under the credit agreement and the forbearance agreement, including the failure to make principal and interest payments when due. See “Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” regarding recent updates with respect to our loan with Private Company K.

Previous wording

In February 2024, AFC Agent received approximately$4.7 million in total loan principal prepayments and$0.1 million in related exit fees from Private Company A’s sale of its collateral assets, of which approximately$3.9 million in principal prepayments and$0.1 million in related exit fees were allocated to us relating to our pro rata portion of the Private Company A Credit Facility and was applied to the outstanding principal balance. Following the prepayment, our outstanding principal balance under the Private Company A Credit Facility was approximately$49.8 million. AFC Agent continues to monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors.

Current wording

During the year ended December 31, 2024, we received approximately $5.2 million in aggregate principal prepayments from Private Company A’s sale of certain collateral assets and monthly payments, which was applied to our outstanding principal balance. Effective March 1, 2024, we placed Private Company A on nonaccrual status. AFC Agent continues to monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors. In September 2024, we purchased $4.6 million of outstanding principal of a third-party syndicate partner’s minority debt as part of the credit agreement with Private Company A for approximately $1.8 million. We now hold approximately $53.1 million of outstanding principal as of December 31, 2024.

Previous wording

In March 2024, we entered into a forbearance agreement with Subsidiary of Private Company G, pursuant to which we agreed to forbear from exercising certain remedies as a result of certain events of default under the credit agreement and under the forbearance agreement entered into with Subsidiary of Private Company G in September 2023. In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, (i) contribute additional cash equity in an aggregate amount of not less than $3.0 million before April 30, 2024, (ii) sell certain assets, the proceeds of which will be applied to pay down outstanding obligations under the credit agreement, (iii) enter into a management services agreement with a third party with respect to Subsidiary of Private Company G’s operations in Pennsylvania, (iv) enter into a consulting or similar agreement with a third party with respect to Subsidiary of Private Company G’s operations in New Jersey, and (v) deliver additional reporting requirements. In addition, the existing credit agreement was amended by the forbearance agreement entered into with Subsidiary of Private Company G to, for the remaining life of the loan (so long as Subsidiary of Private Company G complies with its obligations under the forbearance agreement), (a) remove the financial covenants, (b) revise the existing cash flow sweep such that 75% of excess cash flow is paid toward current interest, accrued interest, lender expenses and principal, (c) change the interest rate on the loans to 12.5% per annum, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind, and (d) remove required amortization payments. We placed Subsidiary of Private Company G on non-accrual effective December 1, 2023 and will recognize income related to loan activity only upon receipt of cash.

Current wording

In March 2024, we entered into the 2024 Subsidiary of Private Company G Forbearance Agreement, pursuant to which we agreed to forbear from exercising certain remedies as a result of certain events of default under the credit agreement and under the 2023 Subsidiary of Private Company G Forbearance Agreement. In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, (i) contribute additional cash equity in an aggregate amount of not less than $3.0 million before April 30, 2024, (ii) sell certain assets, the proceeds of which will be applied to pay down outstanding obligations under the credit agreement, (iii) enter into a management services agreement with a third party with respect to Subsidiary of Private Company G’s operations in Pennsylvania, (iv) enter into a consulting or similar agreement with a third party with respect to Subsidiary of Private Company G’s operations in New Jersey, and (v) deliver additional reporting requirements. In addition, the existing credit agreement was amended by 2024 Subsidiary of Private Company G Forbearance Agreement to, for the remaining life of the loan (so long as Subsidiary of Private Company G complies with its obligations under the 2024 Subsidiary of Private Company G Forbearance Agreement): (a) remove the financial covenants, (b) revise the existing cash flow sweep such that 75% of excess cash flow is paid toward current interest, accrued interest and principal, (c) change the interest rate on the loans to 12.5% per annum, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind, and (d) remove required amortization payments. In May 2024, we delivered a reservation of rights letter to Subsidiary of Private Company G with respect to the occurrence of certain events of default under the 2024 Subsidiary of Private Company G Forbearance Agreement, including the failure to deliver proceeds of cash equity contributions and other deliverables by the deadlines set forth in the 2024 Subsidiary of Private Company G Forbearance Agreement. The Company agreed to a cure period and to continue the forbearance period so long as the deliverables were made by the cure date, with which the Subsidiary of Private Company G was able to comply. See “Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” regarding recent updates with respect to our loan with Subsidiary of Private Company G.

Previous wording

In June 2023, Subsidiary of Private Company H repaid its loan in full. The outstanding principal of Subsidiary of Private Company H on the date of repayment was approximately $5.8 million. We received exit fees of approximately $0.2 million.

Current wording

In May 2024, Private Company C repaid its loan in full. The loan had an original maturity date of December 1, 2025 and the outstanding principal of Private Company C on the date of repayment was approximately $3.5 million. We received exit fees of approximately $1.7 million.

Previous wording

In April 2022, we filed our shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Shelf Registration Statement”). The Shelf Registration Statement enables us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities. The Shelf Registration Statement also included a prospectus for the ATM Program to sell up to an aggregate of $75.0 million of shares of our common stock that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and JMP Securities LLC, as Sales Agents. Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.

Current wording

In April 2022, we filed our shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Shelf Registration Statement”). The Shelf Registration Statement enables us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities. The Shelf Registration Statement also included a prospectus for the ATM Program to sell up to an aggregate of $75.0 million of shares of our common stock that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and Citizens JMP Securities LLC, as Sales Agents. Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.

Previous wording

For the years ended December 31, 2023 and 2022, we paid the following cash dividends:

Current wording

For the year ended December 31, 2024 and 2023, we declared the following cash dividends:

Previous wording

In March 2024, we declared a regular cash dividend of $0.48 per share of our common stock, relating to the first quarter of 2024, which will be paid on April 15, 2024 to shareholders of record as of March 31, 2024. The estimated aggregate amount of the regular cash dividend payment is approximately $9.9 million.

Current wording

In connection with the Spin-Off, we declared a one-time dividend of $0.15 per share of our common stock, which was paid on July 15, 2024 to shareholders of record as of July 8, 2024. The aggregate amount of the one-time dividend payment was approximately$3.1 million.

Previous wording

We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) increase (decrease) in provision for current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

Current wording

We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for (reversal of) current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

Previous wording

We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of December 31, 2023 and 2022 was approximately $15.64 and $16.65, respectively.

Current wording

We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of December 31, 2024 and 2023 was approximately $9.02 and $15.64, respectively. On July 9, 2024, we completed the Spin-Off of SUNS, which had a book value of approximately $114.8 million, or $5.55 per share, on the Distribution Date. In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $114.8 million related to the transfer of certain assets and liabilities associated with our CRE portfolio to SUNS.

Previous wording

Our net income allocable to our common shareholders for the year ended December 31, 2023, was approximately $21.0 million or $1.02 per basic weighted average common share, compared to net income allocable to our common shareholders of approximately $35.9 million or $1.80 per basic weighted average common share for the year ended December 31, 2022.

Current wording

Our net income from continuing operations allocable to our common shareholders for the year ended December 31, 2024, was approximately $13.9 million, or $0.64 per basic weighted average common share from continuing operations, compared to net income from continuing operations allocable to our common shareholders of approximately $20.7 million, or $1.01 per basic weighted average common share from continuing operations for the year ended December 31, 2023, respectively.

Previous wording

Interest expense decreased approximately $(0.5) million, or (6.7)%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease was primarily due to lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of approximately $(8.1) million, or (8.1)%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the year ended December 31, 2023. No repurchases took place during the year ended December 31, 2022.

Current wording

Interest expense decreased approximately $(21.1) thousand, or (0.3)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of approximately $(1.9) million, or (2.0)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to the repurchase of $10.0 million of our 2027 Senior Notes during the year ended December 31, 2023. No repurchases took place during the year ended December 31, 2024. The decrease in interest expense year-over-year is also driven by less unused fees incurred due to an increase in borrowings on the credit facilities. Relatedly, this is partially offset by an increase in interest expense on such borrowings year-over-year on both the Revolving Credit Facility and AFCF Credit Facility.

Previous wording

Professional fees decreased approximately $(0.1) million, or (7.1)%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Current wording

Management fees decreased approximately $(0.1) million, or (2.9)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by lower outside fees earned and offset by lower equity attributable to the Spin-Off of SUNS completed on July 9, 2024. In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $114.8 million. Incentive fees decreased approximately $(3.6) million, or (34.7)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by lower Core Earnings (as defined in the Management Agreement), as well as lower Adjusted Capital (as defined in the Management Agreement) attributable to the Spin-Off.

Previous wording

General and administrative expenses increased approximately $0.3 million, or 6.5%, for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase was primarily due to severance expense incurred during the year ended December 31, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million. No severance expense was incurred during the year ended December 31, 2022.

Current wording

General and administrative expenses decreased approximately $(1.0) million, or (20.7)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023. This decrease was primarily due to severance expense incurred during the year ended December 31, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million. No severance expense was incurred during the year ended December 31, 2024.

Previous wording

In September 2023, the credit facility with Public Company A matured without repayment. The agent on the credit facility has placed the borrower in default, and the Company has recorded a realized loss of approximately $(1.2) million.

Current wording

The net change in realized gains (losses) on investments was approximately $1.2 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by the net change in realized losses relating to separate sales of our investment in Subsidiary of Public Company M of approximately $33.7 thousand and realized loss relating to our loan to Public Company A of approximately $1.2 million during such periods. In the prior year, the credit facility with Public Company A matured without repayment. The agent on the credit facility placed the borrower in default, and we recorded a realized loss of approximately $(1.2) million during such period.

Previous wording

Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts. An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost. The net change in unrealized gain (loss) of approximately $(8.5) million and $(3.6) million for the years ended December 31, 2023 and 2022, respectively, was mainly driven by the net change in the valuation of the loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.

Current wording

Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts. An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost. The net change in unrealized gain (loss) of approximately $(9.8) million and $(8.5) million for the years ended December 31, 2024 and 2023, respectively, was mainly driven by the sale of our loan with Private Company B with an unrealized loss that was recovered, maturity of our loan with Public Company A with an unrealized loss that was realized, as well as the net change in the valuation of the loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.

Previous wording

The gain (loss) on extinguishment of debt was approximately $2.0 million for the year ended December 31, 2023 as a result of the repurchase of $10.0 million of our 2027 Senior Notes during the period. No repurchases took place during the year ended December 31, 2022.

Current wording

Gain on extinguishment of debt decreased approximately $(2.0) million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. This decrease was driven by the repurchase of $10.0 million of our 2027 Senior Notes during the year ended December 31, 2023. No repurchases took place during the year ended December 31, 2024.

Previous wording

The provision for current expected credit losses increased approximately $1.0 million, or 8.5%, for theyear ended December 31, 2023 as compared to theyear ended December 31, 2022. The balance as of December 31, 2023 was approximately$26.4 million, or 8.71%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $303.3 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately$26.3 million and (ii) a liability for unfunded commitments of approximately$0.1 million. The balance as of December 31, 2022 was approximately $14.3 million, or 4.97%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $287.4 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $13.5 million and (ii) a liability for unfunded commitments of approximately $0.8 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan. The change in the provision for current expected credit losses for the year ended December 31, 2023 compared to the year ended December 31, 2022 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.

Current wording

The provision for current expected credit losses decreased approximately $(8.0) million, or (65.7)%, for theyear ended December 31, 2024 as compared to theyear ended December 31, 2023. The balance as of December 31, 2024 was approximately$30.6 million, or 10.36%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $295.2 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately$30.4 million and (ii) a liability for unfunded commitments of approximately$0.2 million. The balance as of December 31, 2023 was approximately $26.4 million, or 8.71%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $303.3 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $26.3 million and (ii) a liability for unfunded commitments of approximately $0.1 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan. The change in the provision for current expected credit losses for the year ended December 31, 2024 compared to the year ended December 31, 2023 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, borrower payment status, and changes in other data points we use in estimating the reserve.

Previous wording

As of December 31, 2023, our portfolio was comprised of loans to 12 different borrowers. The aggregate originated commitment under these loans was approximately $431.2 million and outstanding principal was approximately $388.3 million as of December 31, 2023. As of December 31, 2023, our portfolio had a weighted-average estimated YTM of approximately 21% and was secured by various types of assets of our borrowers, including real property and personal property, such as the value associ ated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers. In some cases, we may receive the option to assign the right (each an ‘‘Assigned Right’’) to acquire warrants and/or equity of the borrower as part of the consideration for us to provide a loan to such borrower, which we promptly sell and recognize as additional OID. During the year ended December 31, 2023 the Company neither received nor sold any Assigned Right.

Current wording

As of December 31, 2024, our portfolio was comprised of 16 loans (such portfolio, our “Existing Portfolio”). The aggregate originated commitment under these loans was approximately $361.3 million and outstanding principal was approximately $356.8 million as of December 31, 2024. As of December 31, 2024, our portfolio had a weighted-average estimated YTM of approximately 18% and was secured by various types of assets of our borrowers, including real property and personal property, such as cash flows and the value associ ated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

Previous wording

The below table summarizes our portfolio as of December 31, 2023, unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations.

Current wording

The table below summarizes our total loan portfolio as of December 31, 2024, unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations.

Previous wording

(4)As of October 1, 2022, Public Company A equipment loan receivable was placed on non-accrual status.

Current wording

(4)Effective October 1, 2022, Public Company A equipment loan receivable was placed on nonaccrual status.

Previous wording

(5)Cash interest and PIK interest rates for Private Company A represent a blended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility with Private Company A (as may be amended, restated, and supplemented or otherwise modified from time to time, the “Private Company A Credit Facility”). In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility.

Current wording

(5)Cash interest and PIK interest rates for Private Company A represent a blended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility with Private Company A (as may be amended, restated, and supplemented or otherwise modified from time to time, the “Private Company A Credit Facility”). In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility. Effective March 1, 2024, Private Company A was placed on nonaccrual status. The maturity date passed on the credit facility to Private Company A without repayment. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors. The court-appointed receiver is determining the amount of principal payments the borrower is able to repay either from operations or from sale of collateral assets on a monthly basis.

Previous wording

(10)Quarterly cash interest is paid in kind from closing to February 1, 2024 and then payable in cash thereafter.

Current wording

(8)Quarterly cash interest was paid in kind from closing to February 1, 2024 and then payable in cash thereafter.

Previous wording

(11)The interest and PIK subtotal rates are weighted average rates.

Current wording

(10)The interest and PIK subtotal rates are weighted average rates.

Previous wording

As of December 31, 2023 and 2022, our portfolio included two andthree loans held at fair value, respectively. The aggregate originated commitment under these loans was approximately$94.2 millionand $104.3 million, respectively, and outstanding principal was approximately$71.9 million and $102.4 million as of December 31, 2023 and 2022, respectively. For theyear ended December 31, 2023, we funded approximately $1.9 million of additional principaland had approximately $34.9 million of principal repayments of loans held at fair value. As of December 31, 2023 and 2022, none of our loans held at fair value had floating interest rates.

Current wording

As of December 31, 2024 and 2023, our portfolio included one andtwo loans held at fair value, respectively. The aggregate commitment under these loans was approximately$44.4 millionand $94.2 million, respectively, and outstanding principal was approximately$53.1 million and $71.9 million as of December 31, 2024 and 2023, respectively. For theyear ended December 31, 2024, we funded approximately $4.6 million in new loans and additional principal andreceived approximately $5.2 million of principal repayments of loans held at fair value and sold $19.3 million of the Company’s investment in Private Company B. As of December 31, 2024 and 2023, none of our loans held at fair value had floating interest rates.

Previous wording

In March 2023, we entered into a forbearance and modification agreement with Private Company B, pursuant to which we agreed to, subject to additional 4.0% capitalized PIK interest and certain other terms and conditions, forbear from exercising our rights and remedies with respect to specified defaults under the applicable Private Company B loan documents until the earlier of (i) April 30, 2023, (ii) certain refinancing or cash equity contribution events, and (iii) any new event of default thereunder. In connection with such forbearance and modification agreement, the Company also agreed to, subject to certain terms and conditions, waive compliance with certain covenants for one fiscal quarter and defer specified principal payments. The maturity date passed on the credit facility to Private Company B without repayment. The agent on the credit facility sent the borrower a notice of default and Private Company B was placed into receivership to maintain the borrower’s operations that were disrupted as a result of a management dispute. We have been in discussion with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of the business in order to repay the loan. Until the loan is repaid, the borrower is obligated to pay interest at a base weighted average interest rate of 14.7% and PIK interest rate of 4.0%, plus a default interest rate of 4.0%. As amended by the forbearance and modification agreement entered into with Private Company B in February 2023, the 4.0% default interest rate is applicable from January 15, 2023 and is paid in kind. Outstanding principal balance also includes a protective advance of approximately $0.2 million made in September 2023 to cover certain expenses and was repaid in November 2023. Interest on the protective advance was calculated at the same rate as standard monthly cash interest and PIK interest, plus default interest.

Current wording

(3)As of December 31, 2024, the maturity date passed on the credit facility with Private Company A without repayment.

Previous wording

(4)As of December 31, 2023, the weighted average remaining life only reflects the remaining life of the Private Company A Credit Facility.

Current wording

(4)Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2023. As of December 31, 2023, the weighted average remaining life only reflects the remaining life of the Private Company A Credit Facility.

Previous wording

As of December 31, 2023 and 2022, our portfolio included nine loans held at carrying value. The aggregate originated commitment under these loans was approximately $333.1 million and $338.9 million, respectively, and outstanding principal was approximately $314.4 million and $296.6 million, respectively, as of December 31, 2023 and 2022. During theyear ended December 31, 2023, we funded approximately $59.1 million of new loans and additional principal, had approximately $23.9 million of principal repayments of loans held at carrying value and sold $24.6 million in the aggregate of the Company’s investment in Subsidiary of Public Company M and Private Company I. As of December 31, 2023 and 2022, approximately 84% and 73%, respectively, of our loans held at carrying value had floating interest rates. As of December 31, 2023, these floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.3% and quoted at 5.4% and U.S. prime rate subject to a weighted average floor of 5.0% and quoted at 8.5%.

Current wording

As of December 31, 2024 and 2023, our portfolio included fourteen and nine loans held at carrying value, respectively. As of December 31, 2024 and 2023, the aggregate originated commitment under these loans was approximately $312.8 million and $333.1 million, respectively, and outstanding principal was approximately $301.8 million and $314.4 million, respectively. During the year ended December 31, 2024, we funded approximately $128.8 million of new loans and additional principal, had approximately $53.4 million of principal repayments of loans held at carrying value and sold $90.0 million in the aggregate of our investments in Subsidiary of Public Company H and Subsidiary of Public Company M. As of December 31, 2024 and 2023, approximately 52% and 84%, respectively, of our loans held at carrying value had floating interest rates. As of December 31, 2024, these floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.8% and quoted at 4.3%.

Previous wording

As of December 31, 2023 and 2022, our portfolio included one loan receivable held at carrying value. The originated commitment under this loan was $4.0 million and outstanding principal was approximately $2.0 million and $2.2 million as of December 31, 2023 and 2022, respectively. During theyear ended December 31, 2023, wereceived approximately $0.2 million of principal repayments of loan receivable held at carrying value.

Current wording

As of December 31, 2024 and 2023, our portfolio included one loan receivable held at carrying value. The originated commitment under this loan was $4.0 million and outstanding principal was approximately $1.9 million and$2.0 million as of December 31, 2024 and 2023, respectively. During theyear ended December 31, 2024, wereceived approximately $0.1 million of principal repayments of loan receivable held at carrying value.

Previous wording

Our primary sources of cash generally consist of unused borrowing capacity under our Revolving Credit Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.

Current wording

Our primary sources of cash generally consist of unused borrowing capacity under the Revolving Credit Facility and the AFCF Credit Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.

Previous wording

Our net cash provided by operating activities for the year ended December 31, 2023 of approximately $21.2 million was less than our dividend payments of $42.5 million million made during the same period due to earned OID of $6.1 million, gain on extinguishment of debt of $2.0 million, the net change in interest reserve of $4.7 million and PIK repayments of $1.5 million related to the repayment from Private Company I and Private Company A during such period. OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows.

Current wording

Our net cash provided by operating activities for the year ended December 31, 2024 of approximately $21.6 million was less than our dividend payments of $40.0 million made during the same period due to earned OID of $8.0 million and PIK repayments of $5.5 million related to the exits from Private Company I, Private Company C and Private Company B during such period. OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows.

Previous wording

As of December 31, 2023 and 2022, all of our cash was unrestricted and totaled approximately $121.6 million and $140.4 million, respectively.

Current wording

As of December 31, 2024 and 2023, all of our cash was unrestricted and totaled approximately $103.6 million and $90.4 million, respectively.

Previous wording

As of December 31, 2023, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Current wording

As of December 31, 2024, we believe that our cash on hand, capacity available under the Revolving Credit Facility, AFCF Credit Facility and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Previous wording

Our Shelf Registration Statement became effective on April 18, 2022, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our ATM Program, which was established in April 2022, pursuant to which we may sell, from time to time, up to $75.0 million of our common stock. During the year ended December 31, 2023, we did not sell any shares of our common stock under the Sales Agreement. During the year ended December 31, 2022, we sold an aggregate of 621,398 shares of our common stock under the Sales Agreement at an average price of $18.30 per share generating net proceeds of approximately $10.4 million.

Current wording

Our Shelf Registration Statement became effective on April 18, 2022, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our ATM Program, which was established in April 2022, pursuant to which we may sell, from time to time, up to $75.0 million of our common stock.

Previous wording

On April 29, 2022, we entered into a Revolving Credit Agreement by and among us, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, we obtained a $60.0 million senior secured revolving credit facility. As of December 31, 2023, we had $42.0 million of borrowings outstanding and $18.0 million of availability under our Revolving Credit Agreement, which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.

Current wording

On April 29, 2022, we entered into the Revolving Credit Facility. As of December 31, 2024, we had $60.0 million of borrowings outstanding and zero availability under our Revolving Credit Agreement, which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Facility. All outstanding borrowings under the Revolving Credit Facility were subsequently repaid in full on January 2, 2025.

Previous wording

The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), and contains a maturity date of April 29, 2025. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. Upon entering into the Revolving Credit Agreement, we incurred a one-time commitment fee expense of approximately $0.5 million, which is amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, payable semi-annually in arrears, which is included within interest expense in our consolidated statements of operations. Based on the terms of the Revolving Credit Agreement, the unused line fee is waived if our average cash balance exceeds the minimum balance required per the Revolving Credit Agreement. During the years ended December 31, 2023 and 2022, we incurred approximately $47.9 thousand and $25.0 thousand in unused line fees, respectively.

Current wording

The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), and contains a maturity date of April 29, 2025. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. Upon entering into the Revolving Credit Agreement, we incurred a one-time commitment fee expense of approximately $0.5 million, which is amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, payable semi-annually in arrears, which is included within interest expense in our consolidated statements of operations. Based on the terms of the Revolving Credit Agreement, our estimated average cash balance will exceed the minimum balance required to waive the unused line fee and as such, we did not incur an unused line fee for the year ended December 31, 2024.

Previous wording

On November 3, 2021, we issued $100.0 million in aggregate principal amount of the 2027 Senior Notes. The 2027 Senior Notes accrue interest at a rate of 5.75% per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, which began on May 1, 2022. The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by us. We used the net proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by the Indenture. Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. Subsequent to the transfer of our investment in the senior secured loan to Private Company I to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture.

Current wording

On November 3, 2021, we issued $100.0 million in aggregate principal amount of the 2027 Senior Notes. The 2027 Senior Notes accrue interest at a rate of 5.75% per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, which began on May 1, 2022. The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by us. We used the net proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by the Indenture. Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. TRS1 is currently a subsidiary guarantor under the Indenture.

Previous wording

As of December 31, 2023, we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

Current wording

As of December 31, 2024, we believe that our cash on hand, capacity available under our Revolving Credit Facility and AFCF Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.