Advanced Flower Capital Inc. Q1 FY2026 earnings call

• Completed first quarter operating as a BDC, expanding investment flexibility beyond real estate-backed loans. • Closed two non-cannabis lower middle market deals totaling ~$90M in new commitments and received $41.2M in cannabis loan repayments. • Net fundings for Q1 2026 were $39.1M. • Board has a $5M share buyback program. • Private credit in lower middle market has reduced net inflows and shifted upmarket, creating opportunity for AFC. • Active pipeline over $1.5 billion in deals, focused on lower middle market across industries like healthcare, consumer, etc. • Closed two loans in Q1 totaling $90M, and an additional $5M post-quarter end. • Three loans on non-accrual, with $6.2M pay down in Q1 on Debbie Holdings loan. • Loan to Justice Grom matured in default, pursuing rights and remedies under credit agreement.

For Q1 2026, AFC had net fundings of $39.1 million. It generated net investment income of $0.21 per basic weighted average share of common stock. The Board of Directors declared a first quarter distribution of $0.05 per share. During the quarter, two non-cannabis deals in the lower middle market were closed, totaling approximately $90 million in new commitments, and $41.2 million in cannabis loan repayments were received. The conversion to a BDC expanded investment flexibility to pursue opportunities beyond real estate-backed loans, allowing diversification across industries and credit risk profiles.

• Expanded investment flexibility as a BDC allows pursuing opportunities beyond real estate-backed loans. • Focus on lower middle market with pipeline over $1.5 billion. • Expect yields in lower middle market to move down a touch into low double-digit range but with improved borrower and counterparty quality. • Intend to deploy dry powder and repayments into performing credits over the year.

• Justice Grom loan matured in default with litigation pending, uncertain outcomes. • Industry competition in cannabis market and potential impact on asset values and loan realizations. • Uncertainties in predicting future results related to forward-looking statements, subject to factors causing actual results to differ from projections.

Q: How should we think about potential outcomes for Justice Grom loan given pending litigation?

A: The loan has matured, and they are pursuing all rights and remedies to obtain maximum value from the credit facility, but it's too early to predict outcomes.

Q: Are the incremental loans in the pipeline expecting similar yields as seen?

A: Yields to maturities of some loans can be a guidepost, overall target is yields moving down a touch into low double-digit range with improved borrower and counterparty quality in lower middle market.

Q: Does recent rescheduling change outlook for cannabis market or focus on pipeline?

A: Rescheduling is positive with potential to attract capital and affect asset values, but still focused on expanding into lower middle market lending.

Q: Can you expand on the non-cannabis loans in Q1?

A: STAT operates in revenue recovery related to suppliers into big retailers, proceeds used for refinancing and acquisition. The healthcare benefits platform serves low-wage employees with low-cost virtual care offerings.

Q: Can you deploy all cash on balance sheet and expanded credit facility this year?

A: Hard to predict, but have dry powder and will deploy repayments over the year.