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Date
Thursday, August 14, 2025 at 10 a.m. ET
Call participants
Chief Executive Officer — Daniel Neville
President and Board Member — Robyn Tannenbaum
Chief Financial Officer — Brandon Hetzel
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Risks
CEO Neville said, "our earnings may be impacted by the underperformance of some of our legacy loans and any realized losses we take on assets."
Loans to private company P and Justice Grown were reported as underperforming, with private company P's loan, with approximately $16 million in principal outstanding, was moved to nonaccrual status as of June 1, 2025, and multiple ongoing legal proceedings regarding the Justice Grown credit facility.
The CECL reserve was $44 million, or approximately 14.6% of loans at carrying value, as of Q2 2025.
Takeaways
Distributable Earnings-- $0.15 per basic weighted average share in non-GAAP distributable earnings for Q2 2025.
Net Interest Income-- GAAP net interest income was $6.2 million for Q2 2025.
GAAP Net Loss-- GAAP net loss was $13.2 million, or $0.60 per basic weighted average share, for Q2 2025.
Dividend-- $0.15 per common share was declared and paid for Q2 2025 on July 15, 2025, to shareholders of record as of June 30, 2025.
Outstanding Principal-- $359.6 million in principal outstanding across 15 loans as of Q2 2025; $357.9 million in principal outstanding across 15 loans as of August 1, 2025.
Portfolio Yield to Maturity-- The outstanding loan portfolio had a weighted average yield to maturity of approximately 17% as of August 1, 2025.
Book Value Per Share-- Book value per share stood at $8.18 as of June 30, 2025.
CECL Reserve-- $44 million, or 14.6% of loans at carrying value, as of Q2 2025.
Total Assets-- $290.6 million in total assets and $184.7 million in total shareholder equity as of June 30, 2025.
Credit Facility Expansion-- The senior secured revolving credit facility was increased from $30 million to $50 million with a lead FDIC-insured bank in 2025.
BDC Conversion Proposal-- Announced intention to convert from REIT to Business Development Company, subject to shareholder approval, allowing lending to both real estate- and non-real estate-secured assets.
Expanded Mandate-- Board approval for immediate inclusion of direct lending opportunities outside of the cannabis industry.
BDCs Experience-- Management team has over 30 years of direct lending—over $10 billion in transactions—and 20 years managing and scaling BDCs.
Pipeline Limitation-- CEO Neville stated, About two-thirds of the opportunities that come across our desk are not covered by real estate. restricting REIT-compliant investments.
Loan Write-Off-- CEO Neville noted, In Q2 2025, we exited public company A's equipment loan, fully writing off the remaining value. This impacted distributable earnings (non-GAAP) but not book value, as it was already reserved.
Legal Proceedings-- Justice Grown loan subject to three ongoing legal cases concerning credit facility enforcement and shareholder guarantee.
Summary
AFC Gamma(AFCG -6.36%) proposed converting from a real estate investment trust to a business development company, a move expected to expand its lending universe and diversify credit exposure, pending shareholder approval. Management reported that principal balances held steady at $357.9 million as of August 1, 2025, with a weighted average yield to maturity of approximately 17%, but stressed the continued limitations from sector-wide capital scarcity and the lack of real estate collateral among many cannabis borrowers. The company initiated immediate action on an expanded mandate to lend outside of cannabis, citing "interesting credit opportunities in other private and public middle-market companies" supported by extensive team experience in direct lending.
President Tannenbaum stated, "now is the right time where converting to a BDC is the best path to realizing long-term value and being able to invest in more of these opportunities"
One loan is scheduled to mature in the coming month during the second half of 2025, with management indicating, "we will not be participating in the refinance." and a focus on capital recovery rather than reinvestment under current equity trading conditions.
The company expanded its credit facility by $20 million in 2025, signaling ongoing access to balance sheet liquidity and lender support.
Rescheduling of cannabis at the federal level was repeatedly referenced as a potential catalyst for improved loan recoveries and expanded lending opportunities, but management emphasized that near-term activity remains muted pending regulatory clarity.
Industry glossary
REIT (Real Estate Investment Trust): A corporate structure investing primarily in real estate or real estate-backed debt, typically providing tax-advantaged distributions but subject to investment criteria requiring real property security.
BDC (Business Development Company): An SEC-registered investment company structure designed to fund small- and middle-market businesses, with broader investment flexibility than REITs, including non-real-estate-secured loans.
CECL (Current Expected Credit Losses): An accounting standard requiring lenders to estimate and reserve for expected future credit losses on loans, affecting reported asset values and earnings.
Nonaccrual Status: Loan classification indicating that interest is no longer accrued due to borrower default or financial distress, highlighting elevated credit risk.
Yield to Maturity: The internal rate of return earned on a loan or security if held to final maturity, assuming all payments are made as scheduled.
Full Conference Call Transcript
Daniel Neville, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our June 24, 2025 press release and is posted on the investor relations portion of AFC Gamma, Inc.'s website at afcgamma.com, along with our second quarter 2025 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, a proposed corporate conversion, financial performance, and projections in 2025 and beyond. These statements are subject to inherent uncertainties in predicting future results.
Please refer to AFC Gamma, Inc.'s most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning, for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. During today's conference call, management will refer to non-GAAP financial measures, including distributable earnings. Please see our second quarter earnings release uploaded to our website for reconciliations of the non-GAAP financial measures with the most directly comparable GAAP measures. Today's call will begin with Dan providing an overview of our portfolio pipeline and the cannabis industry. Robyn will then provide information about the proposed conversion to a business development company that we announced earlier this morning.
Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A. With that, I will now turn the call over to our CEO, Daniel Neville.
Daniel Neville: Thanks, Gabe, and good morning, everyone. I'll begin with an overview of our results, followed by an update on our portfolio. For the 2025, AFC Gamma, Inc. generated distributable earnings of $0.15 per basic weighted average share of common stock. Additionally, the Board of Directors declared a second quarter dividend of $0.15 per common share outstanding, which was paid on July 15, 2025, to shareholders of record as of June 30, 2025. Over the last year, we have made significant progress reducing our exposure to underperforming credits. There is still work to be done, and our earnings may be impacted by the underperformance of some of our legacy loans and any realized losses we take on assets.
During the quarter, we exited public company A's equipment loan, which impacted earnings. As a reminder, we were a participant in an equipment loan to a Nevada cultivator, which has been in liquidation for about three years. In Q2, we received the last payment from the collateral agent as part of the liquidation, and we wrote off the remaining carrying value of the loan. This impacted distributable earnings but did not impact book value as the loan was already fully reserved. Turning to our current portfolio management efforts, I would like to touch on a few of our underperforming loans.
Regarding private company A, the receiver has executed LOIs for two of the three main assets and will be submitting for court approval in the near term. He is also in discussions for the timely sale of the third asset and has multiple parties interested and has been efficient in the management and liquidation of these assets. Subsequent to quarter-end, private company P's loan was moved to nonaccrual status as of June 1, 2025, as the company did not pay interest due July 1. As a result, AFC Gamma, Inc. provided a default and acceleration notice. We will look to exercise all rights and remedies to recover our principal.
There is approximately $16 million of principal outstanding, and the loan is secured by one cultivation facility and one nonoperational dispensary in Michigan, both of which are owned real estate. Lastly, I wanted to take a minute to touch on a subsidiary of private company G, which is Justice Grown. We are currently engaged in three legal proceedings with Justice Grown entities related to enforcing certain rights under the credit facility in connection with the alleged defaults. We have appealed a prediscovery preliminary injunction in one of the actions barring us from exercising rights with respect to certain alleged defaults. We also have outstanding litigation surrounding the shareholder guarantee in New York.
As a reminder, our loan to Justice Grown matures in May 2026 and is secured by the vertical assets in New Jersey, including an owned cultivation facility and three dispensaries, two of which are owned. In Pennsylvania, we are secured by three dispensaries and an owned cultivation facility, which is currently not operational. We remain extremely focused on realizing maximum value from these underperforming loans. On a positive note, there's recently been talk of rescheduling being considered by the Trump administration. We believe that rescheduling cannabis would increase the supply of capital for cannabis companies and lead to potentially better recoveries for our troubled loans.
At the moment, however, the sector remains in a challenging environment for many operators as there continues to be limited capital entering the market. In light of this environment, as disciplined capital allocators, we have only sought to invest in established operators. However, many of these operators do not have real estate coverage, which limits our pipeline and our ability to invest in size. It has become clear to the board and leadership team that expanding our investment focus beyond real estate-backed companies is an important step to deliver value to our shareholders. As such, today, we propose to convert the company from a REIT to a BDC, which Robyn will speak to now.
Robyn Tannenbaum: Thanks, Dan, and good morning, everyone. This morning, we announced our intention to convert from a REIT, the current structure under which we operate, to a business development company or BDC. This conversion, which is subject to shareholder approval on certain related matters, will enable AFC Gamma, Inc. to originate and invest in a broader array of opportunities, which would include both real estate and non-real estate covered assets. We believe the conversion, if approved, would be an important turning point for AFC Gamma, Inc.
Given the capital-intensive nature of the cannabis industry, combined with the high cost of capital, many operators do not own real estate, which significantly limits the universe of cannabis operators AFC Gamma, Inc. can lend to as a mortgage REIT. As a BDC, the investment universe for AFC Gamma, Inc. would expand, allowing the company to lend to operators without real estate coverage as well as to ancillary cannabis businesses with high growth potential. Moreover, should rescheduling occur at the federal level, we believe much of the inflow of new capital will go towards established operators. As most of these companies do not own real estate, the BDC conversion should position AFC Gamma, Inc. to capitalize on this sector tailwind.
We also announced that our board has approved an expanded investment mandate effective immediately that includes direct lending opportunities outside the cannabis industry. We believe that there are interesting credit opportunities in other private and public middle-market companies that can generate attractive risk-adjusted returns. By broadening the opportunity set, AFC Gamma, Inc. will be better positioned to diversify its exposure across industries and credit risk profiles. The AFC Gamma, Inc. investment team has over thirty years of experience in direct lending outside of cannabis, with over $10 billion of direct lending transactions executed, as well as twenty years of experience managing and scaling BDCs.
In short, we believe this is a positive step for the company and for our shareholders going forward. The proposed conversion is subject to, among other things, approval by AFC Gamma, Inc. shareholders of a new investment advisory agreement with AFCM that complies with the requirements of the Investment Company Act of 1940. Additional information will be available when we file our proxy with the SEC. If approved by AFC Gamma, Inc. shareholders and subject to additional required approvals by our board, we anticipate that our conversion would occur in 2026. Now I'll turn it over to Brandon to discuss our financial results in more detail.
Brandon Hetzel: Thank you, Robyn. For the quarter ended June 30, 2025, we generated net interest income of $6.2 million and distributable earnings of $3.4 million or $0.15 per basic weighted average common share and had a GAAP net loss of $13.2 million or a loss of $0.60 per basic weighted average common share. We believe providing distributable earnings is helpful to shareholders in assessing the overall performance of AFC Gamma, Inc.'s business.
Distributable earnings represent the net income computed in accordance with GAAP, excluding noncash items such as stock compensation expense, any unrealized gains or losses, provision for current expected credit losses, also known as CECL, taxable REIT subsidiary income or loss net of dividends, and other noncash items recorded in net income or loss for the period. We ended 2025 with $359.6 million of principal outstanding spread across 15 loans. As of August 1, 2025, our portfolio consisted of $357.9 million of principal outstanding across 15 loans. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 17% as of August 1, 2025.
As of June 30, 2025, the CECL reserve was $44 million or approximately 14.6% of our loans at carrying value, and we had a total unrealized loss included on the balance sheet of $21.5 million for our loans held at fair value. As of June 30, 2025, we had total assets of $290.6 million, total shareholder equity of $184.7 million, and our book value per share was $8.18. In 2025, AFC Gamma, Inc. expanded its senior secured revolving credit facility from $30 million to $50 million with an additional $20 million commitment from the facility's lead arranger, an FDIC-insured bank with over $75 billion of assets.
Lastly, on July 15, 2025, we paid a second quarter dividend of $0.15 per common share outstanding to shareholders of record as of June 30, 2025. With that, I will now turn it back over to the operator to start the Q&A.
Operator: We will now open for questions. Our first question comes from Aaron Grey with Alliance Global Partners. Your line is open.
Aaron Grey: Hi. Thank you very much for the questions. So first question for me, just overall in terms of the decision to convert over to a BDC versus a mortgage REIT. Can you talk about why you felt like it was the right vehicle and so doing it as a conversion versus maybe setting up a different structure? Would you like to know more in terms of what happened into the thought process of going about it this way?
Robyn Tannenbaum: Sure. So hi, Aaron. It's Robyn. Thanks for the question. Over time, I'd say that, look, as we've seen the landscape of cannabis evolve, more and more operators that I'd say are growing and thriving don't own their real estate. And as a REIT, we're limited in the investments that we can make in those operators. And as we've continued evaluating options to ensure that we're best positioned for market growth, we believe that now is the right time where converting to a BDC is the best path to realizing long-term value and being able to invest in more of these opportunities that we're seeing. And that's why we went at it this way.
Aaron Grey: Okay. Appreciate that. So turning to the pipeline. Right? So I saw it was reduced versus the prior quarter. You know, first off, so in converting to a BDC, any line of sight in terms of how much that would broaden the pipeline versus where it is today, and is a lot of the limitation of the pipeline due to the fact they don't have the real estate coverage, or is it some of the broader macro dynamics that you're talking about within the cannabis industry?
Robyn Tannenbaum: I'll let Dan take that question. But just as, I guess, a reminder, as we are still operating as a REIT, the investments that we're going to do currently grow once we expand the aperture.
Daniel Neville: Yeah. Sure. So, Aaron, with the proposed BDC conversion, we have the opportunity to invest in cannabis companies and speaking to the cannabis pipeline that don't have real estate coverage today. And given the high cost of capital in the industry and the high cost of keeping real estate on your balance sheet, many companies in the universe do not have sufficient real estate coverage to be REIT qualifying assets. So as a rough figure, I'd say, we see every opportunity that comes across in the cannabis space. About two-thirds of the opportunities that come across our desk are not real estate covered.
And so that gives you kind of a metric to evaluate the expansion and the opportunity set associated with the conversion with respect to cannabis opportunities. I think you've seen over the last few quarters, our pipeline continue to move down.
That is a combination of one, just not seeing as many good real estate covered opportunities, and two, given the ongoing uncertainty and volatility in the industry, the last couple of weeks aside, with each quarter that goes on without any equity capital coming into the space, I think our underwriting standards and how we evaluate credits and the risk-adjusted opportunities that we're looking to pursue, those kind of benchmarks and metrics get tighter and tighter, which has resulted in the apples-to-apples pipeline moving down over the course of the last few quarters.
Aaron Grey: Appreciate that. That's helpful color. Last one for me, kind of touching on you said a little bit of in that commentary. So if rescheduling were to occur, as some of these are closed, have them coming out lately. Is it more so just helping out your existing portfolio operators? Obviously, it improves cash flow in terms of the 280E tax. But do you feel like that's really a big step change in terms of incremental opportunities for you? I know you said you're mainly looking at existing operators today.
Do you feel like that opens up a whole new set of operators coming in, or do you feel like that's more so a factor of, you know, states legalizing and licensing being distributed? So just want to get some control of how you view rescheduling in terms of opportunities versus the existing portfolio or really opening up more opportunities for you? Thank you.
Robyn Tannenbaum: Carol, I think I think
Daniel Neville: Thanks, Robyn. So I think rescheduling were to occur and you get certainty on the tax positions of these companies, both with historical tax liabilities as well as taxation on a go-forward basis. That's significant for the industry. And that should allow more capital to be to and flow into the space. As more capital comes in, that should be supportive of asset valuations in this space as well when attracting new either investment players or new potential platforms coming into the space.
I think looking at AFC Gamma, Inc. as we stand today, we traded a significant discount to book value, which is, you know, which is at least in part a function of the number of troubled legacy loans that we have on the books today. And if rescheduling were to occur, and new capital were to come in and asset values were to appreciate, that would help us to achieve better realizations as we work out some of the troubled loans within the portfolio. Which given the size of that is significant to AFC Gamma, Inc. I think, secondarily, capital coming in hopefully allows equity capital to come into the space.
You know, for anyone who's tracking it, you know, based all of the capital coming in over the last couple of years has been debt capital. That's not a healthy way to finance businesses. That's not a healthy way to grow the industry. This is a capital-intensive industry, and you need both equity capital and debt capital coming in. And I think, if that were to occur, and, again, there's been some fits and starts, that would be positive for the industry and, I think, positive for, let the lending environment in deploying more capital into the industry.
Aaron Grey: Okay. Great. That's really helpful color. I'll go and jump back into the queue.
Operator: Thank you. Our next question comes from Pablo Zuanic from Zuanic and Associates. Your line is open.
Rahul (for Pablo Zuanic): Good morning, everyone. This is Rahul on for Pablo. We just have a few questions. And, for our first one, on the problem loans with private company K, can you give an update on where the receivers are regarding asset sales? And related to this, if both private company A and K's loans are with receivers, why is only the loan with private company A booked at fair value while the loan with private company K is booked at carrying value?
Daniel Neville: Sure. So I'll take the first part, and then Brandon will jump in on the second. So we gave a brief update in the script on progress on public company K. Two assets are under LOI. The assets are in receivership today. So any sale has to be approved by the court that is overseeing the receivership. So we expect those APAs for the two assets to be submitted in the near term. The third asset is being actively marketed in Massachusetts, which has been a difficult state for a while.
There is a bit more activity recently because the legislature has proposed increasing the cap from three stores today, which is very low and difficult to build a scale business, to six stores and an additional four partner stores. And talking to contacts in that market, there's optimism around that happening sometime in the balance of the year. And that, I think, is driving some of the activity around companies looking to get ahead of that and potentially increase their holdings within the state from three to six or ten, depending on the model.
Brandon Hetzel: This is Brandon. The loans being held at fair value or carrying value is a function of GAAP and the elections we've made in the past. When we started the company back in 2020, we kept all loans on our books at fair value. And once you elect fair value, the election, you have to keep it on your books at fair value. Once we IPOed, we transitioned to putting new loans on the books at carrying value. So private company A is the only legacy loan from when we originally elected fair value status. So that's why that one was listed at fair value versus carrying value. But it is not unrelated to anything for the receivership.
Rahul (for Pablo Zuanic): Got it. Thank you. And regarding debt leverage, please remind us how high you're willing to go in terms of the debt ratio and at what point would you need new equity to fund future loan growth?
Robyn Tannenbaum: Hi. It's Robyn. So I'd say we target between one and one and a half times leverage. And I think that we'll operate within that. And given where our stock is currently trading, I don't see us issuing equity.
Rahul (for Pablo Zuanic): Sure. And, also, if you could quantify for us the maturities for the second half, please.
Daniel Neville: Sure. So we have one maturity in the second half that is coming up next month. That is a loan that we just given where the cannabis industry is and where our stock is trading. I think we are focused on getting capital back both from the underperforming credits we have within the and as maturities are realized across the performing portfolio. So we expect that loan to be refinanced in the coming weeks. And just for clarity, we will not be participating in the refinance.
Rahul (for Pablo Zuanic): Got it. Thank you. And finally, beyond cannabis, can you give us a brief overview on market sentiment about the mortgage REIT sector in general? How are macro themes, interest rates, all alternative lending solutions, including crypto, impacting the mortgage REIT sector in general and stock sentiment in the group?
Robyn Tannenbaum: Sure. It's Robyn. I think if you look across the mortgage REIT landscape, mortgage REITs have traded better since last year. I think people are overall starting to realize some of their underperforming loans and take losses as they relate. I think overall, the mortgage REITs that we track are trading at about 80¢ on the dollar. I think that interest rates, people have believed interest rates were going down earlier, which is why you saw a bump early in the year. I think that lowering of interest rates will help mortgage REITs trade better. I also think that it may unlock opportunities for mortgage REITs to make new investments and complete some refinancing.
In terms of alternative investments in crypto, you know, I'm gonna pass on commenting on things that I'm not that smart on, and there's a lot of people smarter than me on that.
Rahul (for Pablo Zuanic): Got it. Thank you. That's all for us.
Operator: Thank you. As a reminder, to ask a question, please press Again, is 11 to ask a question. Our next question comes from Chris Muller with Citizens Capital Markets. Your line is open.
Chris Muller: Hey, guys. Thanks for taking the questions. So I guess given some of the recent comments from the administration on rescheduling, have you guys seen an uptick in interest from borrowers? Are they more waiting for something concrete to actually get done? And then similarly, are you guys looking at non-real estate loans already? And have you seen any impact there from the recent rescheduling comments?
Robyn Tannenbaum: Dan, do you want to take that one?
Daniel Neville: Sure, Chris. Thanks for the question. I think it's still pretty new, and people were digesting again. You know, the language in their press reports was that it's under consideration. And I think it's under active consideration. But there wasn't much of a tipping of their hand in terms of which way this decision is gonna fall. So I think a lot of folks are really in a holding pattern at this point to see what the result is. You know, there's been a lot of fits and starts related to the rescheduling conversation. It's August, so it's not typically a time of year where there's a ton of activity.
And so there hasn't been much movement on that side of things.
Chris Muller: Got it. And then I guess following up on a prior line of questions, so CECL reserves were up a good bit this quarter. I guess, is that due to the existing portfolio fundamentals or is there some macro aspects into that? And then I guess part two of that question if we do get schedule three and 280E goes away, how much of an impact would that be to the credit quality of your existing borrowers, and would we see those CECL reserves start coming down?
Brandon Hetzel: Sure. This is Brandon. I'll take the first part of that. With regard to CECL. Macro does have some effect on CECL overall. In general, but we do evaluate our loans on a loan-by-loan basis. And the inputs for the various loans themselves is the main driver of the increase in the CECL reserve.
Chris Muller: Got it. And then just the impact just you repeat the second part of the question?
Daniel Neville: Yeah. So if schedule three happens and 280E goes away and cash flows start improving for some of your borrowers, I guess, would the impact of that be CECL reserves going down as those valuations kind of come up for the borrowers?
Brandon Hetzel: Yeah. I think look. It's always a function of the cash flow performance of the assets, the value of said assets, and we use a third-party valuation firm to look at all of those metrics in coming to the determination of the reserve. So to the extent that cash flow improves and asset valuations within the space improve, that could potentially lead to upward pressure on those valuations.
Chris Muller: Got it. And if I could just squeeze one last one in here. So on the BDC conversion, would that open up new opportunities to add credit facilities? And then longer term, I guess, what is that portfolio composition look like in a year or two of real estate versus non-real estate type assets? Or is it too early to tell on that?
Robyn Tannenbaum: Thanks for the question. I think in terms of credit lines, I think what's interesting is the credit line that we currently have is similar to how BDCs are financed. BDCs, a little more than REITs, sometimes have better pricing in terms of baby bonds or unsecured. So that may be a bump. But I think that from a credit line standpoint, it's still the we're limited by the banks that'll participate in cannabis at this time. So it's hard to tell if the structure would drive more banks in versus the REIT structure. And then I think in terms of our portfolio, it's hard to tell the composition. Right?
And I only say that because, look, we have non-real estate covered assets in our TRS as we're allowed to have under the REIT guidelines. But until we convert, we're operating as a REIT. We're going to make sure that transactions have that required real estate coverage, and we maintain our REIT status. So until such time where I think we've gotten a little further along and have converted, it's hard to predict what that composition will look like.
Chris Muller: Got it. Very helpful. Thanks for taking the questions.
Robyn Tannenbaum: Thanks, Chris.
Operator: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Daniel Neville, Chief Executive Officer, for closing remarks.
Daniel Neville: Thank you all for joining the call today. We anticipate filing a proxy statement to our shareholders in the coming days related to the proposed conversion to a BDC, and we look forward to keeping our shareholders updated as we progress on that front.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.