Advanced Flower Capital Inc. Q4 FY2024 earnings call

• In 2024, AFC aimed to restart origination engine, increase portfolio diversification, and reduce exposure to underperforming credits. Originations for fiscal year 2024 were $135 million, with $15 million closed post-year end and $380 million+ active pipeline as of March 1, 2025.
• Added Dan Neville with operational background to use top-down and bottoms-up underwriting; decreased construction lending; received $119 million paydowns from underperforming credits in 2024 and redeployed to new loans.
• Fourth quarter 2024 distributable earnings were $0.29 per share; Board declared $0.23 per share dividend for first quarter 2025. Closed $15 million senior secured credit facility to Story of Ohio in February 2025.
• Portfolio management efforts: Continued liquidation of private company A, awaiting receivership approval for proceeds; subsidiary of private company G had recent defaults under forbearance and credit facility, but had prior equity infusion and operational changes.

For the quarter ended December 31, 2024, AFC generated net interest income of $7.6 million and distributable earnings of $6.3 million or $0.29 per basic weighted average common share. For the fiscal year ended December 31, 2024, net interest income was $45.7 million and distributable earnings were $34.9 million or $1.68 per basic weighted average common share. As of December 31, 2024, the portfolio had $356.8 million of principal outstanding across 16 loans, with a weighted average portfolio yield to maturity of approximately 18%. As of March 1, 2025, principal outstanding was $368.8 million across 17 loans.

• Aim to continue diversifying portfolio in loans to accomplished operators, seeing sweet spot in loan sizes $10M-$40M.
• Portfolio deployment dependent on liquidity availability and capital received back; target to deploy capital into good credits in cannabis space in 2025.
• Dividend set at sustainable level based on performing book excluding underperforming legacy loans.

• Issues with subsidiary of private company G (Justice Grown) including recent defaults under forbearance and credit facility, and legal action.
• Uncertainty around underperforming credits and their impact on earnings and dividend sustainability.
• Regulatory uncertainties in cannabis industry, including stalled federal reform and limited new capital providers entering the market.

Q: Could you provide more color on next steps with Justice Grown?

A: Management not going to negotiate in public, dividend set based on performing assets excluding underperforming legacy loans.

Q: How to think about pipeline mix and near-term opportunities?

A: Opportunities in new medical markets, recently adult-use flip states, refinancing, and M&A; robust pipeline of good operators with strong credits.

Q: Outlook for 2025 book, new funding target?

A: Target likely provided next quarter, deployment dependent on liquidity and capital received back; opportunity set better than 6-9 months ago.

Q: Reminder on liquidity?

A: Two revolving lines of credit up to $100M, ~$89M available as of March 1.

Q: Dividend sustainability, relation to Justice Grown?

A: Dividend set based on performing book ex underperforming legacy loans, recent developments with Justice Grown led to adjustment.

Q: Thoughts on 280E tax benefits for cannabis companies?

A: Views vary, but 280E still in place, companies may face tax issues, and equity transfers can attach tax to assets; hope for 280E reform but not a high priority for Republican administration