• Distributable Earnings: $0.35 per basic weighted average share of common stock.
• Dividend: $0.33 per share, paid on October 15, 2024.
• Net Interest Income: $8.9 million for the quarter.
• GAAP Net Income: $1.4 million or $0.06 per basic weighted average common share.
• New Loan Originations: $116 million in total new originations for the year.
• Portfolio Yield to Maturity: Approximately 18% as of September 30, 2024.
• Total Assets: $366.6 million, including cash and cash equivalents of $122.2 million.
• Principal Outstanding: $298.7 million across 13 loans as of September 30, 2024.
• CECL Reserve: $25.3 million, approximately 10.7% of loans at carrying value.
• Total Shareholder Equity: $206.1 million.
• Book Value Per Share: $9.42.

• Warning! GuruFocus has detected 4 Warning Sign with AFCG.

Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Advanced Flower Capital Inc (NASDAQ:AFCG) exceeded its $100 million origination target for the year, reaching $116 million in total new originations.
• The company has an active pipeline of over $400 million of potential deals, indicating strong future growth opportunities.
• AFCG raised capital accretively through its ATM stock offering program, enhancing its ability to support the cannabis industry.
• The company has a diversified portfolio with a weighted average yield to maturity of 18%, positioning it well for attractive risk-adjusted returns.
• AFCG's portfolio is largely comprised of fixed-rate loans or loans with high SOFR floors, making it well-positioned for a falling interest rate environment.

Negative Points

• The cannabis industry faces challenges with traditional lenders remaining cautious, limiting access to capital.
• Federal cannabis legislation progress is expected to be slow, potentially impacting industry growth.
• AFCG's CECL reserve increased to $25.3 million, reflecting potential credit risks in its loan portfolio.
• The company reported an increase in unrealized losses on loans at fair value, totaling $19.6 million.
• Revenue growth in the cannabis industry has been hard to come by, with mature markets facing increased competition.

Q & A Highlights

Q: Congratulations on exceeding your $100 million loan origination target for the year. Can you provide guidance for 2025 and discuss your pipeline of $400 million? A: Daniel Neville, CEO: We have over $75 million in liquidity and aim to be fully invested while cautiously deploying capital into good credits. We will likely provide a target in the fourth quarter call. The pipeline is strong, and given the current market conditions, we are well-positioned to deploy capital at attractive risk-adjusted returns.

Q: Considering the challenging earnings season and potential delays in cannabis rescheduling, are we facing riskier conditions compared to six months ago? A: Daniel Neville, CEO: Revenue growth has been challenging due to mature markets like Illinois and New Jersey. While profitability is stable, growth is limited, which is more concerning for equity investors than debt lenders like us. The election results and federal reform delays add to the uncertainty, but we remain focused on solid credits.

Q: What is your perspective on the Florida market, especially after the AU initiative failed? A: Daniel Neville, CEO: Our Florida exposure is modest at 10% of the portfolio. We underwrite based on the current medical market without anticipating AU flips. Operators are expected to run lean and maximize profitability, which aligns with our cautious approach.

Q: Are regional banks increasing their presence in cannabis lending, or are they pulling back? A: Daniel Neville, CEO: More banks are pulling back or becoming cautious rather than entering the space. While there may be exceptions with headline rates for strong operators, the overall competitive intensity has decreased. Specialized focus and experience in cannabis lending are crucial, and many non-specialized lenders have exited.

Q: How do you view the current demand and supply imbalance in cannabis debt capital? A: Daniel Neville, CEO: The demand for debt capital remains strong, especially as traditional lenders remain cautious. We are well-positioned to capitalize on this imbalance, providing flexible funding to strong operators in limited license states.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.