Advanced Flower Capital Inc. Q3 FY2024 earnings call

• Post-spin off as pure-play cannabis mortgage REIT, originated $116 million in new loans by end of third quarter, exceeding $100 million target for the year.
• Active pipeline of over $400 million of potential deals as of November 1, 2024.
• Closed key deals in third quarter including $11 million senior secured credit facility for Private Company Q and $41 million senior secured credit facility for Story of Maryland.
• Raised capital accretively through ATM stock offering program.
• Portfolio has weighted average yield to maturity of 18%, with 90% of outstanding principal fixed or with sulfur floor at 4.5% or above, positioning well for falling interest rate environment.
• Since last year, exited, restructured or secured significant paydowns on seven key loans, redeploying capital into new vintage deals.

For the quarter ended September 30, 2024, AFC generated net interest income of $8.9 million and distributable earnings of $7.2 million, or $0.35 per basic weighted average common share. GAAP net income was $1.4 million, or $0.06 per basic weighted average common share. As of September 30, 2024, principal outstanding was $298.7 million across 13 loans, and by November 1, 2024, it was $338 million across 14 loans. The weighted average portfolio yield to maturity was approximately 18% as of September 30, 2024 and November 1, 2024. During the third quarter, $12.2 million was generated from selling ~1.2 million shares under the at-the-market offering program.

• Will provide 2025 origination target on fourth quarter call.
• Have dry powder to deploy into new borrowers in cannabis space at attractive risk-adjusted returns, with cautious deployment into good credits and new vintage loans.

• Republican sweep may keep cannabis sector capital scarce, with broader cannabis legislation not likely top priority for Republican administration.
• Rescheduling to Schedule III expected to advance but at slower pace than under Democratic administration.
• Path for Safe Banking Act appears challenging with weak momentum to push it forward.
• Market volatility in cannabis industry affecting profitability and growth prospects for some operators.

Q: Congratulations on exceeding $100 million loan origination for the year. Any guidance for 2025?

A: We'll come back with a target on the fourth quarter call. We have dry powder to deploy to new borrowers in the space at attractive risk-adjusted returns.

Q: Current earnings season with many companies missing estimates, and choppier waters in industry. Impact on pipeline?

A: Revenue growth hard to come by with AU flips and mature markets offsetting growth. As debt lender, fine place, but equity investors face challenges. Shift to right and slower federal reform also factors.

Q: Comment on Florida exposure and operator comments?

A: Florida exposure is ~10% of portfolio. We underwrite to current state without AU flips. Operators in Florida are buttoning down, running lean, maximizing profitability.

Q: Regional banks and their role in lending?

A: More regional banks are being cautious than coming in. Headline rates for strongest operators are exceptions. Tourists in industry have had rough experiences, so specialized focus on cannabis is valuable for us.