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What changed in Advanced Flower Capital Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Advanced Flower Capital Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+995 added−804 removedSource: 10-K (2026-03-04) vs 10-K (2025-03-13)

Top changes in Advanced Flower Capital Inc.'s 2025 10-K

995 paragraphs added · 804 removed · 505 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

131 edited+228 added−51 removed79 unchanged
Biggest changeKey elements of our strategy include: • Targeting loans for origination and/or investment that typically have the following characteristics: – principal balance greater than $10.0 million; – real estate collateral coverage of at least one times the principal balance; – secured by commercial real estate properties; and – well-capitalized sponsors with substantial experience in particular relevant sectors and geographic markets. • Diversifying our financing sources with increased access to equity and debt capital, which may provide us with a lower overall cost of funding and the ability to hold larger loan sizes, among other things.
Biggest changeFollowing the Conversion, we are no longer subject to geographic concentration parameters with respect to the location of underlying collateral, and may originate or acquire investments secured by assets located in any jurisdiction consistent with our investment mandate Key elements of our strategy include: • Targeting loans for investment that typically have the following characteristics: – principal balance greater than $10.0 million – financing is often used for expansion capital, acquisitions, refinancings and recapitalizations; and – secured loans to cash flowing borrowers with at least one times enterprise value coverage. • Targeting borrowers that typically have the following characteristics: – generate EBITDA of $5 million to $50 million; – operate across a diverse range of industry sectors in the United States; and – substantial experience in relevant sectors, either directly or through well-capitalized sponsors. • Diversifying our financing sources with increased access to equity and debt capital, which may provide us with a lower overall cost of funding and the ability to hold larger loan sizes, among other things. 22 Table of Contents Underwriting and Investment Process During the year ended December 31, 2025, pursuant to the Management Agreement, our Manager managed our loans and day-to-day operations, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as were imposed from time to time by our Board.
Becoming the holder of a license through foreclosure or otherwise, the sale of a license or other realization of the value of licenses requires the approval of regulatory authorities.
Becoming the holder of a license through foreclosure or otherwise, or the sale of a license or other realization of the value of licenses requires the approval of regulatory authorities.
Incentive Compensation In addition to the Base Management Fees, our Manager receives incentive compensation (“Incentive Compensation” or “Incentive Fees”) with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings (as defined below).
In addition to the Base Management Fees, our Manager receives incentive compensation (“Incentive Compensation” or “Incentive Fees”) with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings (as defined below).
Expense Reimbursement We pay all of our costs and expenses and reimburse our Manager and/or its affiliates for expenses of our Manager and/or its affiliates paid or incurred on our behalf, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement.
Expense Reimbursement We pay all of our costs and expenses and reimburse our Manager or its affiliates for expenses of our Manager and its affiliates paid or incurred on our behalf, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement.
The service by any personnel of our Manager and its affiliates as a member of the Investment Committee will not, by itself, be dispositive in the determination as to whether such personnel is deemed “investment personnel” of our Manager and its affiliates for purposes of expense reimbursement.
The service by any personnel of our Manager and its affiliates as a member of the Investment Committee will not, by itself, be dispositive in the determination as to whether such personnel is deemed “investment personnel” of our Manager and its affiliates for purposes of expense reimbursement.
Pursuant to our Management Agreement, we reimburse our Manager and/or its affiliates, as applicable, for our fair and equitable allocable share of the compensation, including annual base salary, bonus, any related withholding taxes and employee benefits, paid to (i) subject to review by the Compensation Committee of our Board, personnel of our Manager and/or its affiliates, as applicable, serving as our Chief Executive Officer (except when the Chief Executive Officer serves as a member of the Investment Committee prior to the 16 Table of Contents consummation of an internalization transaction of our Manager by us), General Counsel, Chief Compliance Officer, Chief Financial Officer, Chief Marketing Officer, Managing Director and any of our other officers based on the percentage of his or her time spent devoted to our affairs and (ii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and/or its affiliates who spend all or a portion of their time managing our affairs, with the allocable share of the compensation of such personnel described in this clause (ii) being as reasonably determined by our Manager to appropriately reflect the amount of time spent devoted by such personnel to our affairs.
Pursuant to our Management Agreement, we reimbursed our Manager and/or its affiliates, as applicable, for our fair and equitable allocable share of the compensation, including annual base salary, bonus, any related withholding taxes and employee benefits, paid to (i) subject to review by the Compensation Committee of our Board, personnel of our Manager and/or its affiliates, as 16 Table of Contents applicable, serving as our Chief Executive Officer (except when the Chief Executive Officer serves as a member of the Investment Committee prior to the consummation of an internalization transaction of our Manager by us), General Counsel, Chief Compliance Officer, Chief Financial Officer, Chief Marketing Officer, Managing Director and any of our other officers based on the percentage of his or her time spent devoted to our affairs and (ii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and/or its affiliates who spend all or a portion of their time managing our affairs, with the allocable share of the compensation of such personnel described in this clause (ii) being as reasonably determined by our Manager to appropriately reflect the amount of time spent devoted by such personnel to our affairs.
Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Certain investment opportunities in loans, which may be suitable for us, may also be suitable for other accounts, private funds, pooled investment vehicles or other entities managed or advised, directly or indirectly, by our Manager, Mr. Tannenbaum or Mrs.
Certain investment opportunities in loans, which were suitable for us, may also be suitable for other accounts, private funds, pooled investment vehicles or other entities managed or advised, directly or indirectly, by our Manager, Mr. Tannenbaum or Mrs.
Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.
Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.
It is unclear whether that policy of prosecutorial discretion will continue under the new Trump administration; despite positive statements concerning cannabis during the campaign, his Attorney General and DEA Administrator appointees have not supported cannabis in the past. Therefore, federal prosecutions against state-legal entities cannot be ruled out entirely at this time.
It is uncertain whether that policy of prosecutorial discretion will continue under the new Trump administration; despite positive statements concerning cannabis during the campaign, his Attorney General and DEA Administrator appointees have not supported cannabis in the past. Therefore, federal prosecutions against state-legal entities cannot be ruled out entirely at this time.
Upon its receipt of an actionable request, our Manager’s deal team prepares a standardized memorandum (an “Early Read Memorandum”) that serves as the initial recommendation to the Investment Committee with respect to initially pursuing such opportunity. This Early Read Memorandum contains key property metrics, typically including, without limitation, property characteristics, preliminary loan terms and structure.
Upon its receipt of an actionable request, our Adviser’s deal team prepares a standardized memorandum (an “Early Read Memorandum”) that serves as the initial recommendation to the Investment Committee with respect to initially pursuing such opportunity. This Early Read Memorandum contains key property metrics, typically including, without limitation, property characteristics, preliminary loan terms and structure.
Item 1. Business The following description of the business of Advanced Flower Capital Inc. should be read in conjunction with the information included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2024. Unless the context otherwise requires, the terms “AFC,” “we,” “us” or “our” refers to Advanced Flower Capital Inc.
Item 1. Business The following description of the business of Advanced Flower Capital Inc. should be read in conjunction with the information included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2025. Unless the context otherwise requires, the terms “AFC,” “we,” “us” or “our” refers to Advanced Flower Capital Inc.
As of December 31, 2024, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.
As of December 31, 2025, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.
The following table summarizes all of the compensation, fees and expense reimbursement that we pay to our Manager under our Management Agreement: Type Description Payment Base Management Fees An amount equal to 0.375% of our Equity (as defined below), determined as of the last day of each quarter. The Base Management Fees are reduced by the Base Management Fee Rebate.
The following table summarizes all of the compensation, fees and expense reimbursement that we paid to our Manager under our Management Agreement: Type Description Payment Base Management Fees An amount equal to 0.375% of our Equity (as defined below), determined as of the last day of each quarter. The Base Management Fees are reduced by the Base Management Fee Rebate.
Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code of 1986, as amended (the “Code”), which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income.
Our qualification as a REIT also depended on our ability to meet various other requirements imposed by the Internal Revenue Code of 1986, as amended (the “Code”), which relate to organizational structure, diversity of stock ownership, and certain restrictions with regard to the nature of our assets and the sources of our income.
For more information on regulatory risks, see “ Risk Factors — Risks Related to the Cannabis Industry and Related Regulations .” State Regulation of the Cannabis Industry Forty-one states, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam have legalized the commercial sale of cannabis for certain medical purposes.
For more information on regulatory risks, see “ Risk Factors — Risks Related to the Cannabis Industry and Related Regulations .” State Regulation of the Cannabis Industry Forty-two states, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam have legalized the commercial sale of cannabis for certain medical purposes.
Our Manager’s employees are a valuable asset to our operations, and we believe each person is an integrated member of the team and is meaningful to our continued success. Our Manager’s team meets regularly as a full team where each member is encouraged to actively participate in a wide range of topics relating to our operations.
Our Adviser’s employees are a valuable asset to our operations, and we believe each person is an integrated member of the team and is meaningful to our continued success. Our Adviser’s team meets regularly as a full team where each member is encouraged to actively participate in a wide range of topics relating to our operations.
The duration of our loans, as compared to the length of leases usually employed by REIT land ownership models, allows us to redeploy our capital with more flexibility as market changes occur instead of being locked in for longer periods of time.
The duration of our loans, as compared to the length of leases usually employed by REIT land ownership models, allowed us to redeploy our capital with more flexibility as market changes occur instead of being locked in for longer periods of time.
Therefore, the investment guidelines were amended such that loans and investments made in respect of (x) first lien or second lien loans secured by mortgages or mezzanine loans to commercial real estate owners, operators and related businesses and (y) the ownership of non-cannabis related commercial real estate assets, were removed and are no longer permitted by the investment guidelines.
Therefore, the investment guidelines were amended such that loans and investments made in respect of (x) first lien or second lien loans secured by mortgages or mezzanine loans to commercial real estate owners, operators and related businesses and (y) the ownership of non-cannabis related commercial 8 Table of Contents real estate assets, were removed and are no longer permitted by the investment guidelines.
Our Investment Guidelines may only be amended, restated, modified, supplemented or waived pursuant to the approval of (i) a majority of our Board (which must include a majority of our independent directors) and (ii) our Manager.
Our Investment Guidelines could only be amended, restated, modified, supplemented or waived pursuant to the approval of (i) a majority of our Board (which must include a majority of our independent directors) and (ii) our Manager.
We believe our relationship with our Manager provides us with an robust relationship network of cannabis industry operators as well as significant back-office personnel to assist in origination and management of loans.
We believe our relationship with our Adviser provides us with an robust relationship network of cannabis industry operators as well as significant back-office personnel to assist in origination and management of loans.
Investment Guidelines We have adopted investment guidelines (the “Investment Guidelines”) which require us and our Manager to abide by certain investment strategies which include, but are not limited to: (i) not making loans that would cause us to fail to qualify as a REIT, or that would cause us to be regulated as an investment company under the Investment Company Act; (ii) not making loans that would cause us to violate any law, rule or regulation of any applicable governmental body or agency (excluding the federal prohibition under the CSA (defined below) of the cultivation, processing, sale or possession of cannabis or parts of cannabis including the sale or possession of cannabis paraphernalia, advertising the sale of cannabis, products containing cannabis or cannabis paraphernalia, or controlling or managing real estate on which cannabis is trafficked, as long as such investments are in compliance with applicable state law) or any applicable securities exchange or that would otherwise not be permitted by our governing documents; (iii) requiring the approval of the Investment Committee for all investments made by us; and (iv) until appropriate loans that align with our overall investment strategy are identified, permitting our Manager to cause us to invest our available cash in interest-bearing, short-term investments, including money market accounts or funds, commercial mortgage backed securities and corporate bonds, debt and equity interests of real estate investment trusts and other investments, subject to the requirements for our qualification as a REIT.
Investment Guidelines Prior to the Conversion, we had adopted investment guidelines (the “Investment Guidelines”) which required us and our Manager to abide by certain investment strategies which included, but are not limited to: (i) not making loans that would cause us to fail to qualify as a REIT, or that would have caused us to be regulated as an investment company under the 1940 Act; (ii) not making loans that would have caused us to violate any law, rule or regulation of any applicable governmental body or agency (excluding the federal prohibition under the CSA (defined below) of the cultivation, processing, sale or possession of cannabis or parts of cannabis including the sale or possession of cannabis paraphernalia, advertising the sale of cannabis, products containing cannabis or cannabis paraphernalia, or controlling or managing real estate on which cannabis is trafficked, as long as such investments are in compliance with applicable state law) or any applicable securities exchange or that would otherwise not be permitted by our governing documents; (iii) requiring the approval of the Investment Committee for all investments made by us; and (iv) until appropriate loans that align with our overall investment strategy were identified, permitting our Manager to cause us to invest our available cash in interest-bearing, short-term investments, including money market accounts or funds, commercial mortgage backed securities and corporate bonds, debt and equity interests of real estate investment trusts and other investments, subject to the requirements for our qualification as a REIT.
To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral, we will be subject to the rules and regulations under state law that govern foreclosure sales and Nasdaq listing standards that do not permit us to take title to real estate while it is involved in commercial sales of cannabis.
To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral during 2025 we were subject to the rules and regulations under state law that govern foreclosure sales and Nasdaq listing standards that do not permit us to take title to real estate while it is involved in commercial sales of cannabis.
This model also allows our borrowers to retain control of their real estate assets, which is important to their businesses and allows for more flexibility regarding their capital structure.
This model also allowed our borrowers to retain control of their real estate assets, which is important to their businesses and allowed for more flexibility regarding their capital structure.
Our Manager’s origination team takes a bottom-up, enterprise value-oriented approach to underwriting, focusing on collateral valuation, multiple exit strategies and downside principal protection. The goal of our Manager is to identify key issues and decisions early in the process, including, without limitation, issues relating to the preliminary pricing, asset quality, market, borrower or capital structure.
Our Adviser’s origination team takes a bottom-up, enterprise value-oriented approach to underwriting, focusing on collateral valuation, multiple exit strategies and downside principal protection. The goal of our Adviser is to identify key issues and decisions early in the process, including, without limitation, issues relating to the preliminary pricing, asset quality, market, borrower or capital structure.
On August 29, 2023, HHS issued a letter to the DEA recommending that cannabis be reclassified as a Schedule III controlled substance under the CSA. Following that recommendation, DOJ issued a Notice of Proposed Rulemaking (the “NPRM”) proposing to reschedule cannabis, and DEA issued a notice for a hearing.
On August 29, 2023, HHS issued a letter to the DEA recommending that cannabis be reclassified as a Schedule III 30 Table of Contents controlled substance under the CSA. Following that recommendation, DOJ issued a Notice of Proposed Rulemaking (the “NPRM”) proposing to reschedule cannabis, and DEA issued a notice for a hearing.
We also believe we have a more flexible funding structure than our competitors with typical REIT land ownership models, given our ability to redeploy funds more quickly.
We also believe we had a more flexible funding structure than our competitors with typical REIT land ownership models, given our ability to redeploy funds more quickly.
We will not own real estate as long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us.
We did not own real estate as long as it was used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us.
Tannenbaum, or any of their or our respective affiliates or entities in which any such person is an executive, in each case (such accounts, private funds, pooled investment vehicles and other entities, collectively, the “Ancillary Entities”), and, subject to compliance with our Manager’s Conflict of Interest Policy, our related persons transaction policy, our code of business conduct and ethics and applicable regulatory considerations, our Manager may allocate such loans and participate in such loans on behalf of Ancillary Entities under such allocation process as our Manager deems reasonable under the circumstances in good faith.
Tannenbaum, or any of their or our respective affiliates or entities in which any such person is an executive, in each case (such accounts, private funds, pooled investment vehicles and other entities, collectively, the “Ancillary Entities”), and, subject to compliance with our Manager’s Conflict of Interest Policy, our related persons transaction policy, our code of business conduct and ethics and applicable regulatory considerations, our Manager during such period could allocate such loans and participate in such loans on behalf of Ancillary Entities under such allocation process as our Manager deemed reasonable under the circumstances in good faith.
For a summary of compensation paid to our Manager for the years ended December 31, 2024 and 2023, see Note 15 to our consolidated financial statements in this Annual Report for more information. On March 10, 2022, we entered into an amendment to our Management Agreement between us and our Manager.
For a summary of compensation paid to our Manager for the years ended December 31, 2025 and 2024, see Note 14 to our consolidated financial statements in this Annual Report for more information. On March 10, 2022, we entered into an amendment to our Management Agreement between us and our Manager.
Our Manager also evaluates the Early Read Memorandum prepared by the deal team to evaluate the likely financing terms, comparable market transactions and the impact of the loan on our overall portfolio construction from a diversification and return standpoint. Loans are priced based on our Manager’s view of risk and market conditions.
Our Adviser also evaluates the Early Read Memorandum prepared by the deal team to evaluate the likely financing terms, comparable market transactions and the impact of the loan on our overall portfolio construction from a diversification and return standpoint. Loans are priced based on our Adviser’s view of risk and market conditions.
Furthermore, we cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be materially adverse to the business of our borrowers, and thus materially impact our investments as well. Human Capital We are externally-managed by our Manager and do not have any employees.
Furthermore, we cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be materially adverse to the business of our borrowers, and thus materially impact our investments as well. 31 Table of Contents Human Capital We are externally-managed and do not have any employees.
Some of our competitors may have a lower cost of funds and access to funding sources that may not be available to us or are only available to us on substantially less attractive terms. Many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the Investment Company Act.
Some of our competitors may have had a lower cost of funds and access to funding sources that may not be available to us or are only available to us on substantially less attractive terms. Many of our competitors were not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act.
Under no circumstances will the Base Management Fee be less than zero. Our Equity, for purposes of calculating the Base Management Fees, could be greater than or less than the amount of shareholders’ equity shown on our financial statements. The Base Management Fees are payable independent of the performance of our portfolio.
Under no circumstances will the Base Management Fee be less than zero. Our Equity, for purposes of calculating the Base Management Fees, could be greater than or less than the amount of shareholders’ equity shown on our financial statements. The Base Management Fees are payable independent of the performance of our portfolio. Quarterly in arrears in cash.
We believe a third-party purchaser that is not subject to Nasdaq listing standards may be able to realize greater value from real estate and other collateral securing our loans with respect to loans to cannabis operators.
We believed during 2025, that a third-party purchaser that is not subject to Nasdaq listing standards may be able to realize greater value from real estate and other collateral securing our loans with respect to loans to cannabis operators.
If the offer price of such internalization transaction has not been agreed prior to the date that is the three-month anniversary of the date on which our equity equals or exceeds $1,000,000,000, then we shall have the right, but not the obligation, to consummate such internalization transaction, effective as of such date, at 6 Table of Contents an internalization price equal to five times the sum of (i) the annual base management fee received by our Manager (the “Base Management Fee”) (without giving effect to any Base Management Fee Rebate (as defined below)), (ii) the annual incentive compensation the Manager is entitled to receive (the “Incentive Compensation”) and (iii) the aggregate amount of any other fees (the “Outside Fees”) less the Base Management Fee Rebate, in each case, earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter.
If the offer price of such internalization transaction had not been agreed prior to the date that is the three-month anniversary of the date on which our equity equaled or exceeded $1,000,000,000, then we would have had the right, but not the obligation, to consummate such internalization transaction, effective as of such date, at an internalization price equal to five times the sum of (i) the annual base management fee received by our Manager (the “Base Management Fee”) (without giving effect to any Base Management Fee Rebate (as defined below)), (ii) the annual incentive compensation the Manager is entitled to receive (the “Incentive Compensation”) and (iii) the aggregate amount of any other fees (the “Outside Fees”) less the Base Management Fee Rebate, in each case, earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter.
Model assumptions and pricing methodology are adjusted as needed based on prevailing market conditions, investor sentiment and activity and 19 Table of Contents portfolio allocations and concentrations at the time of pricing.
Model assumptions and pricing methodology are adjusted as needed based on prevailing market conditions, investor sentiment and activity and portfolio allocations and concentrations at the time of pricing.
The Management Agreement also provides that our Manager, its affiliates, and any of their respective members, shareholders, managers, partners, trustees, personnel, officers, directors, employees, consultants and any person providing sub-advisory 7 Table of Contents services to our Manager (collectively, the “Manager Parties”) will not be liable to us for acts or omissions performed in accordance with and pursuant to the Management Agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the relevant Management Agreement.
The Management Agreement also provided that our Manager, its affiliates, and any of their respective members, shareholders, managers, partners, trustees, personnel, officers, directors, employees, consultants and any person providing sub-advisory services to our Manager (collectively, the “Manager Parties”) were not liable to us for acts or omissions performed in accordance with and pursuant to the Management Agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the relevant Management Agreement.
In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more lending relationships than we do.
In addition, some of our competitors may have had higher risk tolerances or different risk assessments, which allowed them to consider a wider variety of investments and establish more lending relationships than we do.
We compete with a variety of institutional investors, including other REITs, debt funds, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, investment banking firms, financial institutions, private equity and hedge funds, and other entities. Some of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do.
We competed with a variety of institutional investors, including other REITs, debt funds, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, investment banking firms, financial institutions, private equity and hedge funds, and other entities. Some of our competitors were substantially larger and had considerably greater financial, technical and marketing resources than we do.
Our Manager’s rigorous underwriting and investment process enables us to source, screen and ultimately provide debt capital to established cannabis industry participants in states that have legalized medical and/or adult use cannabis.
Our Manager employed a rigorous underwriting and investment process enables us to source, screen and ultimately provide debt capital to established cannabis industry participants in states that have legalized medical and/or adult use cannabis.
Tannenbaum, Daniel Neville, Bernard D. Berman and Robyn Tannenbaum • Portfolio is proactively managed to monitor ongoing performance, in some instances, through seats on borrowers’ boards of directors or board observer rights Our Manager’s origination team meets regularly to evaluate new loan opportunities, employing a highly collaborative approach to investing.
Berman and Robyn Tannenbaum • Portfolio is proactively managed to monitor ongoing performance, in some instances, through seats on borrowers’ boards of directors or board observer rights Our Adviser’s origination team meets regularly to evaluate new loan opportunities, employing a highly collaborative approach to investing.
Prior to the consummation of our IPO, we were not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum, Mr. Kalikow or Mrs. Tannenbaum. For the year ended December 31, 2024, our Manager did not seek reimbursement for our allocable share of Mr.
Prior to the consummation of our IPO, we were not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum or Mrs. Tannenbaum. For the years ended December 31, 2025 and 2024, our Manager did not seek reimbursement for our allocable share of Mr.
Under the Management Agreement, our Manager has contractual responsibilities to us, including to provide us with a management team (whether our Manager’s own employees or individuals for which our Manager has contracted with other parties to provide services to its clients), who will be our executive officers, and the Investment Committee.
Under the Management Agreement, our Manager had contractual responsibilities to us, including to providing us with a management team (whether our Manager’s 7 Table of Contents own employees or individuals for which our Manager has contracted with other parties to provide services to its clients), who will be our executive officers, and the Investment Committee.
The calculation methodology for computing Incentive Compensation will look through any derivatives or swaps as if we owned the reference assets directly.
The calculation methodology for computing Incentive Compensation looked through any derivatives or swaps as if we owned the reference assets directly.
Consistent with that, the federal government has chosen not to interfere with the state-regulated cannabis programs and has not brought criminal enforcement against state law compliant cannabis licensees or those doing business with them for the past ten years.
Consistent with that, the federal government has chosen not to interfere with the state-regulated cannabis programs and has not brought criminal enforcement against state law compliant cannabis licensees or those doing business with them for more than 10 years.
For additional information, see “ Management Compensation — Base Management Fees .” Reduces the Base Management Fees on a quarterly basis. 10 Table of Contents Incentive Compensation An amount with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings (as defined below).
Reduces the Base Management Fees on a quarterly basis. 11 Table of Contents Incentive Compensation An amount with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings (as defined below).
For additional information, see “— Expense Reimbursement .” Monthly in cash. 12 Table of Contents Termination Fee Equal to three times the sum of (i) the annual Base Management Fee and (ii) the annual Incentive Compensation, in each case, earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter prior to the date of termination.
Monthly in cash. 12 Table of Contents Termination Fee Equal to three times the sum of (i) the annual Base Management Fee and (ii) the annual Incentive Compensation, in each case, earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter prior to the date of termination.
Additionally, we have entered into indemnification agreements with the members of the Investment Committee provided by our Manager that provide for indemnification and advance of expenses to the maximum extent permitted by Maryland law, subject to certain standards to be met and certain other limitations and conditions as set forth in such indemnification agreements.
Additionally, we entered into indemnification agreements with the members of the Investment Committee provided by our Manager that provided for indemnification and advance of expenses to the maximum extent permitted by Maryland law, subject to certain standards to be met and certain other limitations and conditions as set forth in such indemnification agreements. We also carried directors and officers insurance.
During the years ended December 31, 2024 and 2023, our Manager earned a Base Management Fee of approximately $3.6 million and $3.7 million respectively, which was net of a Base Management Fee Rebate of approximately $0.9 million and $1.7 million, respectively.
During the years ended December 31, 2025 and 2024, our Manager earned a Base Management Fee of approximately $2.9 million and $3.6 million respectively, which was net of a Base Management Fee Rebate of approximately $0.9 million and $0.9 million, respectively.
However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income and distribution tests, which in turn depends, in part, on our operating results and ability to obtain financing.
However, no assurances can be given that our beliefs or expectations were fulfilled, since qualification as a REIT depended on us satisfying numerous asset, income and distribution tests, which in turn depended, in part, on our operating results and ability to obtain financing.
Non-GAAP Metrics Used in Hypothetical Example As used in this Annual Report, we use hypothetical Equity, Adjusted Capital, Catch-up Amount and Excess Earnings Amount only as measures in the calculation of the financial metrics that we are required to calculate under the terms of the Management Agreement.
Non-GAAP Metrics Used in Hypothetical Example As used in this Annual Report in respect of the Management Agreement in effect during the year ended December 31, 2025 , we use hypothetical Equity, Adjusted Capital, Catch-up Amount and Excess Earnings Amount only as measures in the calculation of the financial metrics that we are required to calculate under the terms of the Management Agreement.
We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021. We have elected to be taxed as a REIT under Section 856 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2020.
We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021. We elected to be taxed as a REIT under Section 856 of the Code, commencing with our taxable year ended December 31, 2020 and ending with our taxable year ended December 31, 2025.
We also carry directors and officers insurance. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and standard industry practice; however, our insurance coverage may not be sufficient to cover all of our losses.
We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and standard industry practice; however, our insurance coverage may not have been sufficient to cover all of our losses.
We intend to fund these potential loans using unused borrowing capacity under our senior secured revolving credit facility (as amended from time to time, the “Revolving Credit Facilit y”), obtained under the Loan and Security Agreement (the “Revolving Credit Agreement”) and unsecured revolving credit facility (the “AFCF Credit Facility”), by and among the Company, as borrower, the lenders party thereto from time to time, and AFC Finance, LLC, as agent and lender, net proceeds of future debt or equity offerings, including in connection with our at-the-market offering program (the “ATM Program”), existing cash and/or, depending upon the timing of closing, or net proceeds from loan repayments.
We intend to fund these potential loans using unused borrowing capacity under our senior secured revolving credit facility (as amended from time to time, the “Revolving Credit Facilit y”), obtained under the Loan and Security Agreement (the “Revolving Credit Agreement”) and unsecured revolving credit facility (the “TCGSL Credit Facility”), by and among the Company, as borrower, the lenders party thereto from time to time, and TCGSL LLC, as agent and lender, net proceeds of future debt or equity offerings, including existing cash and/or, depending upon the timing of closing, or net proceeds from loan repayments.
The loans we originate are primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.
The loans originated during this period were primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.
Investment Committee Pursuant to our Manage ment Agreement, our Manager has established an Investment Committee for us, the members of which consist of employees or advisers of our Manager and/or its affiliates and which currently includes certain of our Manager’s affiliates and certain of our officers.
Investment Committee During the year ended December 31, 2025 , pursuant to our Manage ment Agreement, our Manager established an Investment Committee for us, the members of which consist of employees or advisers of our Manager and/or its affiliates and which currently includes certain of our Manager’s affiliates and certain of our officers.
If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax at regular corporate rates, and applicable state and local taxes, and will not be able to qualify as a REIT for the subsequent four years.
If we had failed to qualify as a REIT in any taxable year, we would have been subject to U.S. federal income tax at regular corporate rates, and applicable state and local taxes, and would not have been able to qualify as a REIT for the subsequent four years.
If placed under Schedule III, cannabis will remain a controlled substance and state-legal programs will continue to operate outside of federally legal channels in their distribution of the substance, particularly because no state operator holds a DEA registration to possess or distribute cannabis.
The decision to reclassify cannabis would neither legalize nor likely eliminate current state cannabis programs. If placed under Schedule III, cannabis will remain a controlled substance and state-legal programs will continue to operate outside of federally legal channels in their distribution of the substance, particularly because no state operator holds a DEA registration to possess or distribute cannabis.
The primary components of the investment process are as follows: Origination Underwriting Investment Committee Legal Documentation and Post-Closing • Direct origination platform works to create enhanced yields and allows us to put in greater controls for loans in which our Manager originates and structures • Disciplined underwriting process leads to a highly selective approach • Focused on managing credit risk through comprehensive investment review process • Investment team works alongside external counsel to negotiate credit agreements and collateral liens • Platform drives increased deal flow, which provides for improved loan selectivity • Potential loans are screened based on four key criteria: company profile, state dynamics, regulatory matters and real estate asset considerations • The Investment Committee must approve each loan before commitment papers are issued • Emphasis is placed on financial covenants and limitations on actions that may be adverse to lenders • Allows for specific portfolio construction and a focus on higher quality companies • For the cannabis pipeline, as of March 1, 2025 since January 1, 2020, we had 9 active loans in our pipeline at various stages in the diligence process, and we had passed on 828 of 871 sourced loan opportunities due to, among other reasons, lack of collateral, lack of cash flow, stage of company, state dynamics and lack of cash flow • Other tools that we frequently use to verify data include, but are not limited to: appraisals, quality of earnings, environmental reports, site visits, construction review, anti-money laundering compliance, comparable company analyses and background checks • Members of the Investment Committee currently include: Leonard M.
The primary components of the investment process are as follows: Origination Underwriting Investment Committee Legal Documentation and Post-Closing • Direct origination platform works to create enhanced yields and allows us to put in greater controls for loans in which our Adviser originates and structures • Disciplined underwriting process leads to a highly selective approach • Focused on managing credit risk through comprehensive investment review process • Investment team works alongside external counsel to negotiate credit agreements and collateral liens • Platform drives increased deal flow, which provides for improved loan selectivity • Potential loans are screened based on four key criteria: company profile, state dynamics, regulatory matters and real estate asset considerations • The Investment Committee must approve each loan before commitment papers are issued • Emphasis is placed on financial covenants and limitations on actions that may be adverse to lenders • Allows for specific portfolio construction and a focus on higher quality companies • Other tools that we frequently use to verify data include, but are not limited to: appraisals, quality of earnings, environmental reports, site visits, construction review, anti-money laundering compliance, comparable company analyses and background checks • Members of the Investment Committee currently include: Daniel Neville, Johanna White, Bernard D.
We may seek to sell a defaulted loan prior to commencing a foreclosure proceeding or during a foreclosure proceeding to a purchaser that is not required to comply with Nasdaq listing standards.
During 2025, we could have sought to sell a defaulted loan prior to commencing a foreclosure proceeding or during a foreclosure proceeding to a purchaser that is not required to comply with Nasdaq listing standards.
In the face of this competition, we have access to our Manager’s professionals and their financing industry expertise and relationships, which may provide us with a competitive advantage in competing effectively for attractive investment opportunities and help us assess risks and determine appropriate pricing for certain potential investments.
In addition, competition for attractive investments could have delayed the investment of our capital. 28 Table of Contents In the face of this competition, we had access to our Manager’s professionals and their financing industry expertise and relationships, which provided us with a competitive advantage in competing effectively for attractive investment opportunities and help us assess risks and determine appropriate pricing for certain potential investments.
The information on our website is not, and shall not be deemed to be, a part of this Annual Report or incorporated into any other filings that we make with the SEC.
This information is 35 Table of Contents available on our website at www.advancedflowercapital.com. The information on our website is not, and shall not be deemed to be, a part of this Annual Report or incorporated into any other filings that we make with the SEC.
Our officers also serve as officers or employees of our Manager and/or its affiliates. Our Manager’s employees have extensive financing capabilities and experience in originating, underwriting and managing real estate and cash flow financings.
Our officers also serve as officers or employees of our Adviser and/or its affiliates. Certain investment personnel also serve as investment personnel of affiliates. Our Adviser’s employees and personnel have extensive financing capabilities and experience in originating, underwriting and managing real estate and cash flow financings.
We may pursue a sale of a defaulted loan if we believe that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale.
During 2025, we could have pursued a sale of a defaulted loan if we believed that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale.
Additionally, subject to the foregoing policies, codes and considerations, our Manager or its affiliates, including AFC Agent LLC (“AFC Agent”), may from time to time serve as administrative agent to the lenders under our co-investments, which as of December 31, 2024 include Private Company A and Subsidiary of Private Company G. AFC Agent, an entity wholly-owned by Mr. and Mrs.
Additionally, subject to the foregoing policies, codes and considerations, our Manager or its affiliates, including AFC Agent LLC (“AFC Agent”), during such period served as administrative agent to the lenders under our co-investments, which as of December 31, 2025 included Private Company A and Subsidiary of Private Company G. AFC Agent, an entity wholly-owned by Mr. and Mrs.
Prior to the consummation of our IPO, we were not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum, Mr. Jonathan Kalikow, a former director and officer of the Company, or Mrs. Tannenbaum. For the year ended December 31, 2024, our Manager did not seek reimbursement for our allocable share of Mr.
Prior to the consummation of our IPO, we were not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum or Mrs. Tannenbaum. For the years ended December 31, 2025 and 2024, our Manager did not seek reimbursement for our allocable share of Mr.
The Incentive Compensation fee payable to our Manager for the years ended December 31, 2024 and 2023 was approximately $6.8 million and $10.4 million, respective ly.
The Incentive Compensation fee payable to our Manager for the years ended December 31, 2025 and 2024 was zero and $6.8 million, respective ly.
We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for us to continue to qualify as a REIT for U.S. federal income tax purposes.
During the year ended December 31, 2025, we generally were required to distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for us to continue to qualify as a REIT for U.S. federal income tax purposes.
To the extent that we satisfy this distribution requirement but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income.
To the extent that we satisfied this distribution requirement but distributed less than 100% of our net taxable income, we were subject to U.S. federal income tax on our undistributed taxable income.
Such compensation is subject to Clawback Obligations (as defined below), if any.
Such compensation is subject to Clawback Obligations (as defined below), if any. Quarterly in arrears in cash.
The collateral underlying our loans is located in states in the U.S. that we believe have attractive regulatory environments for companies operating in the cannabis industry, economic conditions and commercial real estate fundamentals.
Prior to the Conversion, the collateral underlying our loans was located in states in the U.S. that we believed had attractive regulatory environments for companies operating in the cannabis industry, economic conditions and commercial real estate fundamentals.
Additionally, these state regulations continue to evolve, and our borrowers will sometimes need to make changes to their businesses to comply with new legal requirements. 22 Table of Contents Because cannabis is such a highly regulated industry, we expect a significant amount of our borrower’s management’s time and external resources will be used to comply with the laws, regulations and guidelines that impact their business, and changes thereto, and such compliance may place a significant burden on such management and other resources of our borrowers.
Because cannabis is such a highly regulated industry, we expect a significant amount of our borrower’s management’s time and external resources will be used to comply with the laws, regulations and guidelines that impact their business, and changes thereto, and such compliance may place a significant burden on such management and other resources of our borrowers.
Therefore, net interest, if any, associated with a derivative or swap (which represents the difference between (i) the interest income and fees received in respect of the reference assets of such derivative or swap and (ii) the interest expense paid by us to the derivative or swap counterparty) will be included in the calculation of Core Earnings for purposes of the Incentive Compensation. 14 Table of Contents Incentive Compensation Clawback Initially, once Incentive Compensation is earned and paid to our Manager, it is not refundable, notwithstanding any losses incurred by us in subsequent periods, except that if our aggregate Core Earnings for any fiscal year do not exceed the amount equal to the product of (i) 7.0% and (ii) our Adjusted Capital as of the last day of the immediately preceding fiscal year (such amount, the “Annual Hurdle Amount”), our Manager will be obligated to pay us (such obligation to pay, the “Clawback Obligation”) an amount equal to the aggregate Incentive Compensation that was earned and paid to our Manager during such fiscal year (such amount, the “Clawback Amount”); provided that under no circumstances will the Clawback Amount be more than the amount to which the Annual Hurdle Amount exceeds our aggregate Core Earnings for the specified fiscal year.
Initially, once Incentive Compensation is earned and paid to our Manager, it is not refundable, notwithstanding any losses incurred by us in subsequent periods, except that if our aggregate Core Earnings for any fiscal year do not exceed the amount equal to the product of (i) 7.0% and (ii) our Adjusted Capital as of the last day of the immediately preceding fiscal year (such amount, the “Annual Hurdle Amount”), our Manager will be obligated to pay us (such obligation to pay, the “Clawback Obligation”) an amount equal to the aggregate Incentive Compensation that was earned and paid to our Manager during such fiscal year (such amount, the “Clawback Amount”); provided that under no circumstances will the Clawback Amount be more than the amount to which the Annual Hurdle Amount exceeds our aggregate Core Earnings for the specified fiscal year.
Upon the consummation of our IPO, our Management Agreement was amended and restated to revise the Base Management Fee and Incentive Compensation payable to our Manager as specified below.
Upon specified termination in cash. General Under our Management Agreement, we pay a Base Management Fee and Incentive Compensation to our Manager. Upon the consummation of our IPO, our Management Agreement was amended and restated to revise the Base Management Fee and Incentive Compensation payable to our Manager as specified below.
In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
In addition, we were subject to a 4% nondeductible excise tax if the actual amount that we 29 Table of Contents paid out to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Our funding structure commits and funds loans with an average maturity of two to five years with significant prepayment protections whereas certain competitors with typical REIT land ownership models have longer-term leases.
Our investments during 2025 generally consisted of loans with an average maturity of two to five years with significant prepayment protections whereas certain competitors with typical REIT land ownership models have longer-term leases.
We intend to conduct our operations so that any wholly owned or majority owned subsidiary does not come within the definition of an investment company or will be exempt from the provisions of the Investment Company Act pursuant to an exemption contained in 3(c)(1), 3(c)(5) or 3(c)(7) thereunder.
We also conducted our operations so that any wholly owned or majority owned subsidiary did not meet the definition of an investment company or was exempt from the provisions of the 1940 Act pursuant to an exemption contained in 3(c)(1), 3(c)(5) or 3(c)(7) thereunder.
We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act of 1940. Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operates as a taxable REIT subsidiary (a “TRS”). TRS1 began operating in July 2021. The financial statements of TRS1 are consolidated within our consolidated financial statements.
During that period, we also operated our business in a manner that permitted us to rely on an exemption from registration under the 1940 Act. Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operated as a taxable REIT subsidiary (a “TRS”). TRS1 began operating in July 2021. The financial statements of TRS1 are consolidated within our consolidated financial statements.
We identify appropriate loans from our origination pipeline based on investment criteria factors such as, among other things, the prospective borrower’s financial performance, loan size, proposed sources and uses and location, at which point we may issue an indication of interest or non-binding term sheet and, if mutually agreeable, enter into a non-binding term sheet or non-binding syndication commitment letter with the prospective borrower. 5 Table of Contents We are currently completing our underwriting process and negotiating definitive loan documents for each of the potential loan investments related to our active fully-executed, non-binding term sheets and fully-executed, non-binding syndication commitment letters.
We identify appropriate loans from our origination pipeline based on investment criteria factors such as, among other things, the prospective borrower’s financial performance, loan size, proposed sources and uses and location, at which point we may issue an indication of interest or non-binding term sheet and, if mutually agreeable, enter into a non-binding term sheet or non-binding syndication commitment letter with the prospective borrower.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf (other than actions arising under federal securities laws), (c) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our shareholders, (d) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our Charter or Bylaws or (e) any other action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.
Biggest changeOur Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf, (c) any action asserting a claim of breach of any duty owed by any of our directors, officers, employees or other agents to us or to our shareholders, (d) any action asserting a claim against us or any of our directors, officers, employees or other agents arising pursuant to any provision of the MGCL, the Charter, the Bylaws or federal law, including the 1940 Act, (e) any other action asserting a claim against us or any of our directors, officers, employees or other agents that is governed by the internal affairs doctrine, or (f) any action brought by or in the right of any shareholder or any person claiming any interest in any shares of stock issued by us seeking to enforce or invalidate any provision of, or based on any matter arising out of, or in connection with, the Charter or Bylaws, or any series or class of any shares of stock issued by us, including any claim of any nature against us, or any director, officer, employee or agent to us.
There can be no assurance that the cannabis industry will continue to exist or grow as currently anticipated. There can be no assurance that the cannabis industry and market will continue to exist or grow as currently estimated or anticipated, or function and evolve in a manner consistent with our expectations and assumptions.
There can be no assurance that the cannabis industry and market will continue to exist or grow as currently estimated or anticipated, or function and evolve in a manner consistent with our expectations and assumptions.
Changes in laws or regulations governing our operations, including laws and regulations governing cannabis and REITs, changes in the interpretation thereof or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business.
Changes in laws or regulations governing our operations, including laws and regulations governing cannabis, changes in the interpretation thereof or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business.
Our Manager could be subject to civil liability, criminal liability, or sanction, including revocation of its registration as an investment adviser (if relevant), revocation of the licenses of its employees, censures, fines, or temporary suspension or permanent bar from conducting business, if it is found to have violated any of these laws or regulations.
Our Adviser could be subject to civil liability, criminal liability, or sanction, including revocation of its registration as an investment adviser (if relevant), revocation of the licenses of its employees, censures, fines, or temporary suspension or permanent bar from conducting business, if it is found to have violated any of these laws or regulations.
The stock market in general, and Nasdaq and the market for cannabis-related companies and REITs have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable.
The stock market in general, and Nasdaq and the market for cannabis-related companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable.
Loans to relatively new and/or small companies and companies operating in the cannabis industry generally involve a number of significant risks, including, but not limited to, the following: • these companies may have limited financial resources and may be unable to meet their obligations, which may be accompanied by a deterioration in the value of any collateral securing our loan, a reduction in the likelihood of us realizing a return on our loan or the need to recognize a partial or complete loss on our loan; • they typically have shorter operating histories, narrower product lines and smaller market shares than larger and more established businesses, which tend to render them more vulnerable to competitors’ actions and market conditions (including conditions in the cannabis industry), as well as general economic downturns; • they typically depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse effect on such borrower and, in turn, on us; • there are a limited number of management teams in the cannabis industry that have U.S. public company experience.
Loans to relatively new and/or small companies and companies operating in the cannabis industry generally involve a number of significant risks, including, but not limited to, the following: • these companies may have limited financial resources and may be unable to meet their obligations, which may be accompanied by a deterioration in the value of any collateral securing our loan, a reduction in the likelihood of us realizing a return on our loan or the need to recognize a partial or complete loss on our loan; 39 Table of Contents • they typically have shorter operating histories, narrower product lines and smaller market shares than larger and more established businesses, which tend to render them more vulnerable to competitors’ actions and market conditions (including conditions in the cannabis industry), as well as general economic downturns; • they typically depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse effect on such borrower and, in turn, on us; • there are a limited number of management teams in the cannabis industry that have U.S. public company experience.
However, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with current or new laws or regulations or such changes thereto, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business. 33 Table of Contents We may not be able to obtain or maintain required licenses and authorizations to conduct our business and may fail to comply with various state and federal laws and regulations applicable to our business.
However, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with current or new laws or regulations or such changes thereto, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business. 45 Table of Contents We may not be able to obtain or maintain required licenses and authorizations to conduct our business and may fail to comply with various state and federal laws and regulations applicable to our business.
Any violations of these laws, or allegations of such violations, by our borrowers could disrupt our operations and involve significant management distraction and expenses; • Laws and regulations affecting the regulated cannabis industry are varied, broad in scope and subject to evolving interpretations, and may restrict the use of the properties our borrowers acquire or require certain additional regulatory approvals, which could materially adversely affect our loans to such borrowers; • Our borrowers may have difficulty borrowing from or otherwise accessing the service of banks, which may inhibit our ability to open bank accounts or otherwise utilize traditional banking services; • Our borrowers may have a difficult time obtaining financing in connection with our investment strategy; • There may be no material aspect of our borrowers’ businesses that is protected by patents, copyrights, trademarks or trade names, and they may face strong competition from larger companies, including those that may offer similar products and services to our borrowers; • U.S. federal courts may refuse to recognize the enforceability of contracts pertaining to any business operations that are deemed illegal under U.S. federal law, including cannabis companies operating legally under state law; • Our borrowers may have a difficult time obtaining the various insurance policies that are needed to operate such businesses, which may expose us and our borrowers to additional risks and financial liabilities; • Our borrowers are subject to unfavorable U.S. tax treatment under Section 280E of the Code; • Our borrowers may be foreclosed from using bankruptcy courts; • Assets collateralizing loans to cannabis businesses may be forfeited to the U.S. federal government in connection with government enforcement actions under U.S. federal law; • U.S.
Any violations of these laws, or allegations of such violations, by our borrowers could disrupt our operations and involve significant management distraction and expenses; • Laws and regulations affecting the regulated cannabis industry are varied, broad in scope and subject to evolving interpretations, and may restrict the use of the properties our borrowers acquire or require certain additional regulatory approvals, which could materially adversely affect our loans to such borrowers; • Our borrowers may have difficulty borrowing from or otherwise accessing the service of banks, which may inhibit our ability to open bank accounts or otherwise utilize traditional banking services; • Our borrowers may have a difficult time obtaining financing; • There may be no material aspect of our borrowers’ businesses that is protected by patents, copyrights, trademarks or trade names, and they may face strong competition from larger companies, including those that may offer similar products and services to our borrowers; • U.S. federal courts may refuse to recognize the enforceability of contracts pertaining to any business operations that are deemed illegal under U.S. federal law, including cannabis companies operating legally under state law; • Our borrowers may have a difficult time obtaining the various insurance policies that are needed to operate such businesses, which may expose us and our borrowers to additional risks and financial liabilities; • Our borrowers are subject to unfavorable U.S. tax treatment under Section 280E of the Code; • Our borrowers may be foreclosed from using bankruptcy courts; 50 Table of Contents • Assets collateralizing loans to cannabis businesses may be forfeited to the U.S. federal government in connection with government enforcement actions under U.S. federal law; • U.S.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including, but not limited to, the risks that: • our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt we incur or we may fail to comply with all of the other covenants contained in such debt, which is likely to 49 Table of Contents result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, and/or (iii) the loss of some or all of our assets to foreclosure or sale; • we may be unable to borrow additional funds as needed or on favorable terms, or at all; • to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense; • our default under any loan with cross-default provisions could result in a default on other indebtedness; • incurring debt may increase our vulnerability to adverse economic and industry conditions with no assurance that loan yields will increase with higher financing costs; • we may be required to dedicate a substantial portion of our cash flow from operations to payments on the debt we may incur, thereby reducing funds available for operations, future business opportunities, shareholder distributions, including distributions currently contemplated or necessary to satisfy the requirements for REIT qualification, or other purposes; and • we are not able to refinance debt that matures prior to the loan it was used to finance on favorable terms, or at all.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including, but not limited to, the risks that: • our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt we incur or we may fail to comply with all of the other covenants contained in such debt, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, and/or (iii) the loss of some or all of our assets to foreclosure or sale; • we may be unable to borrow additional funds as needed or on favorable terms, or at all; • to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense; • our default under any loan with cross-default provisions could result in a default on other indebtedness; • incurring debt may increase our vulnerability to adverse economic and industry conditions with no assurance that loan yields will increase with higher financing costs; • we may be required to dedicate a substantial portion of our cash flow from operations to payments on the debt we may incur, thereby reducing funds available for operations, future business opportunities, shareholder distributions, including distributions currently contemplated or necessary to satisfy the requirements for RIC qualification, or other purposes; and • we are not able to refinance debt that matures prior to the loan it was used to finance on favorable terms, or at all.
The Charter permits us, and the Bylaws require us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable costs, fees and expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, REIT, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
The Charter permits us, and the Bylaws require us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable costs, fees and expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has served as a 66 Table of Contents director, officer, partner, trustee, member or manager of another corporation, REIT, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
For example, we could become subject to a lender’s liability claim, if, among other things, we actually render significant managerial assistance to a borrower to which we have provided a loan. 32 Table of Contents As a debt investor, we are often not in a position to exert influence on borrowers, and the shareholders and management of such companies may make decisions that could decrease the value of loans to such borrower.
For example, we could become subject to a lender’s liability claim, if, among other things, we actually render significant managerial assistance to a borrower to which we have provided a loan. 44 Table of Contents As a debt investor, we are often not in a position to exert influence on borrowers, and the shareholders and management of such companies may make decisions that could decrease the value of loans to such borrower.
Subject to the approval of our Board (which must include a majority of our independent directors), our Manager may change our investment strategies or guidelines, financing strategies or leverage policies with respect to loans, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions at any time without the consent of our shareholders, which could result in a portfolio with a different risk profile than that of our Existing Portfolio or of a portfolio comprised of our target loans.
Subject to the approval of our Board (which must include a majority of our independent directors), our Adviser may change our investment strategies or guidelines, financing strategies or leverage policies with respect to loans, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions at any time without the consent of our shareholders, which could result in a portfolio with a different risk profile than that of our Existing Portfolio or of a portfolio comprised of our target loans.
Changes in our Manager’s investment process may result in inferior, among other things, due diligence and underwriting standards, which may adversely affect the performance of our portfolio. We do not have a policy that expressly prohibits our directors, managers, officers, shareholders or affiliates, as applicable, from engaging for their own account in business activities of the types conducted by us.
Changes in our Adviser’s investment process may result in inferior, among other things, due diligence and underwriting standards, which may adversely affect the performance of our portfolio. We do not have a policy that expressly prohibits our directors, managers, officers, shareholders or affiliates, as applicable, from engaging for their own account in business activities of the types conducted by us.
However, we cannot predict the future growth rate or future market potential, and any negative outlook on the cannabis industry may adversely affect our business operations and the operations of our borrowers.
We cannot predict the future growth rate or future market potential, and any negative outlook on the cannabis industry may adversely affect our business operations and the operations of our borrowers.
Our Manager and its affiliates, as applicable, are subject to regulation as an investment adviser by various regulatory authorities that are charged with protecting the interests of its clients.
Our Adviser and its affiliates, as applicable, are subject to regulation as an investment adviser by various regulatory authorities that are charged with protecting the interests of its clients.
The failure of our Manager to apply our cash and/or the proceeds of our financing activities effectively or to find loans that meet our loan criteria in sufficient time or on acceptable terms could result in unfavorable returns, could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders, and could cause the value of our securities to decline.
The failure of our Adviser to apply our cash and/or the proceeds of our financing activities effectively or to find loans that meet our loan criteria in sufficient time or on acceptable terms could result in unfavorable returns, could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our shareholders, and could cause the value of our securities to decline.
Our Manager is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business. Our Manager is currently an investment adviser under the Advisers Act.
Our Adviser is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business. Our Adviser is currently an investment adviser under the Advisers Act.
In addition, under the MGCL, holders of our “control shares” (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.
In addition, under the MGCL, holders of our “control shares” (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our 65 Table of Contents shareholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.
Any payment defaults by a borrower, including Subsidiary of Private Company G, would adversely affect our cash flows and we may also experience delays in enforcing our rights as a lender and could incur substantial costs in protecting our investment. If our Manager overestimates the yields or incorrectly prices the risks of our loans, we may experience losses.
Any payment defaults by a borrower, including Subsidiary of Private Company G, would adversely affect our cash flows and we may also experience delays in enforcing our rights as a lender and could incur substantial costs in protecting our investment. If our Adviser overestimates the yields or incorrectly prices the risks of our loans, we may experience losses.
We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness, including the 2027 Senior Notes, the Revolving Credit Facility and the AFCF Credit Facility, or to fund our other liquidity needs.
We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness, including the 2027 Senior Notes, the Revolving Credit Facility and the TCGSL Credit Facility, or to fund our other liquidity needs.
Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase. We may need to refinance all or a portion of our indebtedness, including the 2027 Senior Notes, the Revolving Credit Facility and the AFCF Credit Facility, on or before maturity.
Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase. We may need to refinance all or a portion of our indebtedness, including the 2027 Senior Notes, the Revolving Credit Facility and the TCGSL Credit Facility, on or before maturity.
We do not have a policy that expressly prohibits our directors, officers, shareholders or affiliates from engaging for their own account in business activities of the types conducted by us. For example, certain of our officers and directors and employees of our Manager also have a relationship with our borrowers or other clients as part of their outside business activities.
We do not have a policy that expressly prohibits our directors, officers, shareholders or affiliates from engaging for their own account in business activities of the types conducted by us. For example, certain of our officers and directors and employees of our Adviser also have a relationship with our borrowers or other clients as part of their outside business activities.
Further, we, our executive officers, directors and our Manager may, in the ordinary course of business, be named as defendants in litigation arising from our loans. We may in the future foreclose and acquire properties without any recourse, or with only limited recourse, against the prior property owner with respect to contingent or unknown liabilities.
Further, we, our executive officers, directors and our Adviser may, in the ordinary course of business, be named as defendants in litigation arising from our loans. We may in the future foreclose and acquire properties without any recourse, or with only limited recourse, against the prior property owner with respect to contingent or unknown liabilities.
If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, but not limited to: a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; a 29 Table of Contents borrower’s claim against us for failure to perform under the loan documents; increased costs to the borrower that the borrower is unable to pay; a bankruptcy filing by the borrower; and abandonment by the borrower of the collateral for the loan.
If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, but not limited to: a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; a borrower’s claim against us for failure to perform under the loan documents; increased costs to the borrower that the borrower is unable to pay; a bankruptcy filing by the borrower; and abandonment by the borrower of the collateral for the loan.
If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations, including payments on the 2027 Senior Notes, the Revolving Credit Facility and the AFCF Credit Facility.
If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations, including payments on the 2027 Senior Notes, the Revolving Credit Facility and the TCGSL Credit Facility.
We will be responsible for certain fees and expenses as determined by our Manager, including due diligence costs, legal, accounting and financial advisor fees and related costs, incurred in connection with evaluating and consummating loan opportunities, regardless of whether such loans are ultimately consummated by the parties thereto.
We will be responsible for certain fees and expenses as determined by our Adviser, including due diligence costs, legal, accounting and financial advisor fees and related costs, incurred in connection with evaluating and consummating loan opportunities, regardless of whether such loans are ultimately consummated by the parties thereto.
As a result, we may use our cash on hand and/or the proceeds from our financing activities to invest in loans with which our shareholders may not agree. Additionally, our loans will be selected by our Manager with input from the members of the Investment Committee, and our shareholders will not have input into such investment decisions.
As a result, we may use our cash on hand and/or the proceeds from our financing activities to invest in loans with which our shareholders may not agree. Additionally, our loans will be selected by our Adviser with input from the members of the Investment Committee, and our shareholders will not have input into such investment decisions.
Our Manager uses financial models and underwriting criteria, the effectiveness of which cannot be guaranteed. We operate in a highly competitive market for lending and investment opportunities. Our profitability depends, in large part, on our ability to originate or acquire target assets at attractive prices.
Our Adviser uses financial models and underwriting criteria, the effectiveness of which cannot be guaranteed. We operate in a highly competitive market for lending and investment opportunities. Our profitability depends, in large part, on our ability to originate or acquire target assets at attractive prices.
Risks Related to the Cannabis Industry and Related Regulations Cannabis remains prohibited under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan. All but nine U.S. states have legalized, to some extent, cannabis for medical purposes.
Risks Related to the Cannabis Industry and Related Regulations Cannabis remains prohibited under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan. All but eight U.S. states have legalized, to some extent, cannabis for medical purposes.
Such insurance or any sinking fund may result in us having to expend significant funds, which will reduce the available cash for distribution to our shareholders. Risks Related to Our Relationship with our Manager and its Affiliates Our future success depends on our Manager and its key personnel and investment professionals.
Such insurance or any sinking fund may result in us having to expend significant funds, which will reduce the available cash for distribution to our shareholders. Risks Related to Our Relationship with our Adviser and its Affiliates Our future success depends on our Adviser and its key personnel and investment professionals.
Subject to applicable internal policies of our Manager and its affiliates, our Manager and/or its affiliates may also from time to time serve as administrative agent to all lenders of such co-invested loans. In such a case, there may arise potential conflicts of interest between us, such other investment vehicles and/or such affiliated administrative agent.
Subject to applicable internal policies of our Adviser and its affiliates, our Adviser and/or its affiliates may also from time to time serve as administrative agent to all lenders of such co-invested loans. In such a case, there may arise potential conflicts of interest between us, such other investment vehicles and/or such affiliated administrative agent.
Additionally, if federal legislation is enacted that provides protections from liability under U.S. federal law for other types of debt investments in borrowers or other target companies that are compliant with 38 Table of Contents state, but not U.S. federal, laws and is determined to apply to us (or we otherwise determine that the debt investment is not prohibited), and such other types of debt investments are in compliance with Nasdaq’s listing policies and ongoing requirements, we may make other types of debt investments in such companies that do not comply with U.S. federal laws, subject to our investment policies and guidelines.
Additionally, if federal legislation is enacted that provides protections from liability under U.S. federal law for other types of debt investments in borrowers or other target companies that are compliant with state, but not U.S. federal, laws and is determined to apply to us (or we otherwise determine that the debt investment is not prohibited), and such other types of debt investments are in compliance with Nasdaq’s listing policies and ongoing requirements, we may make other types of debt investments in such companies that do not comply with U.S. federal laws, subject to our investment policies and guidelines.
In addition, burdensome regulations at the state level could slow or stop further development of the medical-use and/or adult-use cannabis industry, such as limiting the medical conditions for which medical-use cannabis can be recommended, restricting the form in which medical-use or adult-use cannabis can be consumed, or imposing significant taxes on the growth, processing and/or retail sales of cannabis, each of which could have the impact of dampening growth of the cannabis industry and making it difficult for cannabis businesses, including our borrowers, to operate profitably in those states.
In addition, burdensome regulations at the state level could slow or stop further development of the medical-use and/or adult-use cannabis industry, such as limiting the medical conditions for which medical-use cannabis can be recommended, restricting the form in which medical-use or adult-use cannabis can be consumed, or imposing significant taxes on the growth, processing and/or retail sales of cannabis, each of which could have the impact of dampening growth of the cannabis industry and making it difficult for 49 Table of Contents cannabis businesses, including our borrowers, to operate profitably in those states.
Subsidiary of Private Company G has, and additional borrowers may in the future, resist foreclosure actions by asserting numerous claims, counterclaims and defenses against us, including, without limitation, lender liability claims and defenses, even when the assertions may have no merit, in an effort to prolong the foreclosure action and seek to force us into a modification or buy-out of our loan for less than we are owed.
Subsidiary of Private Company G has, and additional borrowers may in the 40 Table of Contents future, resist foreclosure actions by asserting numerous claims, counterclaims and defenses against us, including, without limitation, lender liability claims and defenses, even when the assertions may have no merit, in an effort to prolong the foreclosure action and seek to force us into a modification or buy-out of our loan for less than we are owed.
Nevertheless, it is possible that we may not be given the opportunity to participate in certain loans made by investment vehicles managed by our Manager or affiliates of our Manager. In addition, there may be conflicts in the allocation of loan opportunities among us and the investment vehicles managed by our Manager or affiliates of our Manager. Co-investments .
Nevertheless, it is possible that we may not be given the opportunity to participate in certain loans made by investment vehicles managed by our Adviser or affiliates of our Adviser. In addition, there may be conflicts in the allocation of loan opportunities among us and the investment vehicles managed by our Adviser or affiliates of our Adviser. Co-investments .
In all cases, financial models are only estimates of future results which are based upon assumptions made at the time that the projections are developed. There can be no assurance that our Manager’s projected results will be attained and actual results may vary significantly from the projections.
In all cases, financial models are only estimates of future results which are based upon assumptions made at the time that the projections are developed. There can be no assurance that our Adviser’s projected results will be attained and actual results may vary significantly from the projections.
Accordingly, we believe that our success depends to a significant extent upon the efforts, experience, diligence, skill and network of business contacts of the officers, key personnel and investment professionals of our Manager as well as the information and deal flow generated by such individuals.
Accordingly, we believe that our success depends to a significant extent upon the efforts, experience, diligence, skill and network of business contacts of the officers, key personnel and investment professionals of our Adviser as well as the information and deal flow generated by such individuals.
These activities could be viewed as creating a conflict of interest insofar as the time and effort of the professional staff of our Manager and its officers and employees will not be devoted exclusively to our business; instead it will be allocated between our business and the management of these other investment vehicles.
These activities could be viewed as creating a conflict of interest insofar as the time and effort of the professional staff of our Adviser and its officers and employees will not be devoted exclusively to our business; instead it will be allocated between our business and the management of these other investment vehicles.
Depending on market conditions, we could incur substantial realized and/or unrealized losses, which could have a material adverse effect on our business, financial condition or results of operations. 30 Table of Contents Provisions for loan losses are difficult to estimate.
Depending on market 42 Table of Contents conditions, we could incur substantial realized and/or unrealized losses, which could have a material adverse effect on our business, financial condition or results of operations. Provisions for loan losses are difficult to estimate.
Accordingly, our shareholders are not entitled to approve changes in our policies. There is a risk that shareholders may not receive distributions or that such dividends may not grow over time. We intend to make to make regular quarterly distributions to our shareholders, consistent with our intention to qualify as a REIT.
Accordingly, our shareholders are not entitled to approve changes in our policies. There is a risk that shareholders may not receive distributions or that such dividends may not grow over time. We intend to make to make regular quarterly distributions to our shareholders, consistent with our intention to qualify as a RIC.
However, our conflicts of interest policies prohibit our directors and officers as well as employees of our Manager from engaging in any transaction that involves a potential or actual conflict of interest with us without the approval of the Audit and Valuation Committee of our Board.
However, our conflicts of interest policies prohibit our directors and officers as well as employees of our Adviser from engaging in any transaction that involves a potential or actual conflict of interest with us without the approval of the Audit and Valuation Committee of our Board.
With the approval of our Board, we may provide such indemnification and advance for expenses to any individual who served a predecessor of our Company in any of the capacities described above and any employee or agent of our Company or a predecessor of our Company, including our Manager and its affiliates.
With the approval of our Board, we may provide such indemnification and advance for expenses to any individual who served a predecessor of our Company in any of the capacities described above and any employee or agent of our Company or a predecessor of our Company, including our Adviser and its affiliates.
We cannot assure you that our Manager will be able to hire, train, supervise, manage and retain new officers and employees to manage future growth effectively, and any such failure could have a material adverse effect on our business.
We cannot assure you that our Adviser will be able to hire, train, supervise, manage and retain new officers and employees to manage future growth effectively, and any such failure could have a material adverse effect on our business.
To the extent such investment vehicles seek to acquire the same target assets as us, subject to the internal policies of our Manager and its affiliates described above, the scope of opportunities otherwise available to us may be adversely affected and/or reduced.
To the extent such investment vehicles seek to acquire the same target assets as us, subject to the internal policies of our Adviser and its affiliates described above, the scope of opportunities otherwise available to us may be adversely affected and/or reduced.
If we participate in a co-investment with an investment vehicle managed by our Manager or an affiliate of our Manager and such vehicle fails to fund a future advance on a loan, we may be required to, or we may elect to, cover such advance and invest additional funds.
If we participate in a co-investment with an investment vehicle managed by our Adviser or an affiliate of our Adviser and such vehicle fails to fund a future advance on a loan, we may be required to, or we may elect to, cover such advance and invest additional funds.
Our Manager has great latitude in determining the types of loans that are proper for us, which could result in loan returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results.
Our Adviser has great latitude in determining the types of loans that are proper for us, which could result in loan returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results.
Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include: ▪ our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects; ▪ changes in governmental policies, regulations or laws; ▪ loss of a major funding source or inability to obtain new favorable funding sources in the future; ▪ equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur; ▪ actual, anticipated or perceived accounting or internal control problems; ▪ publication of research reports about us, the real estate industry or the cannabis industry; ▪ our value of the properties securing our loans; ▪ changes in market valuations of similar companies; ▪ adverse market reaction to any increased indebtedness we may incur in the future; ▪ additions to or departures of the executive officers or key personnel supporting or assisting us from our Manager or its affiliates, including our Manager’s investment professionals; ▪ speculation in the press or investment community about us or other similar companies; ▪ our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; ▪ increases in market interest rates, which may lead investors to demand a higher distribution yield for our common stock (if we have begun to make distributions to our shareholders) and which could cause the cost of our interest expenses on our debt to increase; ▪ failure to qualify or maintain our qualification as a REIT or exemption from the Investment Company Act; ▪ price and volume fluctuations in the stock market generally; and ▪ general market and economic conditions, including the state of the credit and capital markets.
Some of the factors that could negatively affect or result in fluctuations in the market price of our common stock include: ▪ our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects; ▪ changes in governmental policies, regulations or laws; ▪ loss of a major funding source or inability to obtain new favorable funding sources in the future; ▪ equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur; ▪ actual, anticipated or perceived accounting or internal control problems; ▪ publication of research reports about us, the real estate industry or the cannabis industry; ▪ our value of the properties securing our loans; ▪ changes in market valuations of similar companies; ▪ adverse market reaction to any increased indebtedness we may incur in the future; ▪ additions to or departures of the executive officers or key personnel supporting or assisting us from our Adviser or its affiliates, including our Adviser’s investment professionals; ▪ speculation in the press or investment community about us or other similar companies; ▪ our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; ▪ increases in market interest rates, which may lead investors to demand a higher distribution yield for our common stock (if we have begun to make distributions to our shareholders) and which could cause the cost of our interest expenses on our debt to increase; ▪ failure to qualify or maintain our qualification as a RIC; ▪ price and volume fluctuations in the stock market generally; and ▪ general market and economic conditions, including the state of the credit and capital markets.
Any change in the federal government’s enforcement posture with respect to state-licensed cultivation of cannabis, including the enforcement postures of individual federal prosecutors in judicial districts where we 37 Table of Contents make our loans, could result in our inability to execute our business plan and significant losses with respect to our loans to cannabis industry participants in the United States, which would adversely affect our operations, cash flow and financial condition.
Any change in the federal government’s enforcement posture with respect to state-licensed cultivation of cannabis, including the enforcement postures of individual federal prosecutors in judicial districts where we make our loans, could result in our inability to execute our business plan and significant losses with respect to our loans to cannabis industry participants in the United States, which would adversely affect our operations, cash flow and financial condition.
We rely completely on our Manager to provide us with investment advisory services and general management services. Each of our executive officers also serve as officers or employees of our Manager. Our Manager has significant discretion as to the implementation of our investment and operating policies and strategies.
We rely completely on our Adviser to provide us with investment advisory services and general management services. Each of our executive officers also serve as officers or employees of our Adviser. Our Adviser has significant discretion as to the implementation of our investment and operating policies and strategies.
Our Manager is not obligated to dedicate any specific personnel exclusively to us. None of our officers are obligated to dedicate any specific portion of their time to our business. Each of them may have significant responsibilities for other investment vehicles managed by affiliates of our Manager.
Our Adviser is not obligated to dedicate any specific personnel exclusively to us. None of our officers are obligated to dedicate any specific portion of their time to our business. Each of them may have significant responsibilities for other investment vehicles managed by affiliates of our Adviser.
Any such liability or sanction could adversely affect the ability of our Manager and any of its applicable affiliates to manage their respective business. Additionally, our Manager and any of its applicable affiliates must continually address conflicts between their respective interests and those of their respective clients, including us.
Any such liability or sanction could adversely affect the ability of our Adviser and any of its applicable affiliates to manage their respective business. Additionally, our Adviser and any of its applicable affiliates must continually address conflicts between their respective interests and those of their respective clients, including us.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
In the event of a delisting, we can provide no assurance that any action taken by us to restore 77 Table of Contents compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
The officers, key personnel and investment professionals of our Manager source, evaluate, negotiate, close and monitor our loans; therefore, our success depends on their continued service. The departure of any of the officers, key personnel and investment professionals of our Manager could have a material adverse effect on our business.
The officers, key personnel and investment professionals of our Adviser source, evaluate, negotiate, close and monitor our loans; therefore, our success depends on their continued service. The departure of any of the officers, key personnel and investment professionals of our Adviser could have a material adverse effect on our business.
Our ability to achieve our investment objectives depends on our ability to grow, which depends, in turn, on the management and investment teams of our Manager and their ability to identify and to make loans on favorable terms in accordance with our investment strategy as well as on our access to financing on acceptable terms.
Our ability to achieve our investment objectives depends on our ability to grow, which depends, in turn, on the management and investment teams of our Adviser and their ability to identify and to make loans on favorable terms in accordance with our investment strategy as well as on our access to financing on acceptable terms.
Our Manager may change its investment process without the consent of our shareholders and at any time. In addition, there can be no assurance that our Manager will follow its investment process in relation to the identification and underwriting of prospective loans.
Our Adviser may change its investment process without the consent of our shareholders and at any time. In addition, there can be no assurance that our Adviser will follow its investment process in relation to the identification and underwriting of prospective loans.
If the market does not develop as a borrower expects, it could have a material adverse effect on its business; • we, our executive officers and directors and our Manager may, in the ordinary course of business, be named as defendants in litigation arising from our loans to such borrowers and may, as a result, incur significant costs and expenses in connection with such litigation and/or related indemnification obligations; 27 Table of Contents • changes in laws and regulations, as well as their interpretations, may have a disproportionate adverse effect on their business, financial structure or prospects compared to those of larger and more established companies; and • they may have difficulty accessing capital from other providers on favorable terms or at all.
If the market does not develop as a borrower expects, it could have a material adverse effect on its business; • we, our executive officers and directors and our Adviser may, in the ordinary course of business, be named as defendants in litigation arising from our loans to such borrowers and may, as a result, incur significant costs and expenses in connection with such litigation and/or related indemnification obligations; • changes in laws and regulations, as well as their interpretations, may have a disproportionate adverse effect on their business, financial structure or prospects compared to those of larger and more established companies; and • they may have difficulty accessing capital from other providers on favorable terms or at all.
This new policy directive could lead to increased use of asset forfeitures by local, state and federal enforcement agencies. If 43 Table of Contents the federal government decides to initiate forfeiture proceedings against cannabis businesses, such as the cannabis facilities that are owned or utilized by our borrowers, our loans to our borrowers would likely be materially and adversely affected.
This new policy directive could lead to increased use of asset forfeitures by local, state and federal enforcement agencies. If the federal government decides to initiate forfeiture proceedings against cannabis businesses, such as the cannabis facilities that are owned or utilized by our borrowers, our loans to our borrowers would likely be materially and adversely affected.
Our Manager values our potential loans based on yields and risks, taking into account estimated future losses and the collateral securing a potential loan, if any, and the estimated impact of these losses on expected future cash flows, returns and appreciation.
Our Adviser values our potential loans based on yields and risks, taking into account estimated future losses and the collateral securing a potential loan, if any, and the estimated impact of these losses on expected future cash flows, returns and appreciation.
We are subject to regulation by laws and regulations at the local, state and federal levels, including laws and regulations governing cannabis and REITs by state and federal governments. These laws and regulations, as well as their interpretation, may change from time to time, and new laws and regulations may be enacted.
We are subject to laws and regulations at the local, state and federal levels, including laws and regulations governing cannabis by state and federal governments. These laws and regulations, as well as their interpretation, may change from time to time, and new laws and regulations may be enacted.
We cannot provide assurance that the internal controls and compliance systems of our borrowers will always protect us from acts committed by such companies’ employees, agents or business partners in violation of applicable laws and regulations in the jurisdictions in which they conduct operations, including those applicable to businesses in the cannabis industry.
We cannot provide assurance that the internal controls and compliance systems of our borrowers will always protect us from acts committed by such companies’ employees, agents or business partners in violation of applicable laws and 53 Table of Contents regulations in the jurisdictions in which they conduct operations, including those applicable to businesses in the cannabis industry.
As a result, we may not be able to refinance any of our indebtedness, including the 2027 Senior Notes, the Revolving Credit Facility and the AFCF Credit Facility, on commercially reasonable terms, or at all.
As a result, we may not be able to refinance any of our indebtedness, including the 2027 Senior Notes, the Revolving Credit Facility and the TCGSL Credit Facility, on commercially reasonable terms, or at all.
The internal policies of our Manager and its affiliates, which may be amended without our consent, are intended to enable us to share equitably with any other investment vehicles that are managed by our Manager or affiliates of our Manager.
The internal policies of our Adviser and its affiliates, which may be amended without our consent, are intended to enable us to share equitably with any other investment vehicles that are managed by our Adviser or affiliates of our Adviser.
Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could materially adversely affect the trading price of our common stock. Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. We are subject to the periodic reporting requirements of the Exchange Act.
Inadequate internal 83 Table of Contents controls could also cause investors to lose confidence in our reported financial information, which could materially adversely affect the trading price of our common stock. Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. We are subject to the periodic reporting requirements of the Exchange Act.
As a result, the sale of such collateral may not result in sufficient proceeds to repay our loan and could have a material and adverse effect on our business, financial condition, liquidity and results of operations. 45 Table of Contents Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties securing our loans.
As a result, the sale of such collateral may not result in sufficient proceeds to repay our loan and could have a material and adverse effect on our business, financial condition, liquidity and results of operations. Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties securing our loans.
Our Manager’s underwriting criteria may restrict us from being able to compete with others for commercial mortgage loan origination and acquisition opportunities and these criteria may be stricter than those employed by our competitors.
Our Adviser’s underwriting criteria may restrict us from being able to compete with others for commercial mortgage loan origination and acquisition opportunities and these criteria may be stricter than those employed by our competitors.
Certain of our officers and directors and the officers and other personnel of our Manager also serve or may serve as officers, directors or partners of certain affiliates of our Manager, as well as investment vehicles sponsored by such affiliates, including investment vehicles or managed accounts not yet established, whether managed or sponsored by affiliates or our Manager.
Certain of our officers and directors and the officers and other personnel of our Adviser also serve or may serve as officers, directors or partners of certain affiliates of our Adviser, as well as investment vehicles sponsored by such affiliates, including investment vehicles or managed accounts not yet established, whether managed or sponsored by affiliates or our Adviser.
If a borrower is unable to effectively market its products and compete for market share, or if the costs of 40 Table of Contents compliance with government legislation and regulation cannot be absorbed through increased selling prices for its products, its sales, and operating results could be adversely affected, which could impact our business, results of operations and financial condition.
If a borrower is unable to effectively market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for its products, its sales, and operating results could be adversely affected, which could impact our business, results of operations and financial condition.
For example, the loan parties to the Public Company A loans previously defaulted on certain covenants under the applicable agreements governing their real estate loan and equipment loan in which we have a participation.
For example, the loan parties to the Public Company A loans previously defaulted on certain covenants under the applicable agreements governing their real estate loan and equipment loan in which we previously held a participation.
Adoption and implementation of the Basel III standards and the supplemental regulatory standards adopted by United States regulators may negatively impact our access to financing or affect the terms of our future financing arrangements due to an increase in capital requirements for, and constraints on, the financial institutions from which we may borrow.
Adoption and implementation of the Basel III standards and the supplemental regulatory standards adopted by United States regulators may negatively impact our access to financing or affect the terms 63 Table of Contents of our future financing arrangements due to an increase in capital requirements for, and constraints on, the financial institutions from which we may borrow.
Moreover, in January 2019, the Basel Committee published its revised capital requirements for market risk, known as Fundamental Review of the Trading Book (“FRTB”), which are expected to generally result in higher global capital 52 Table of Contents requirements for banks that could, in turn, reduce liquidity and increase financing and hedging costs.
Moreover, in January 2019, the Basel Committee published its revised capital requirements for market risk, known as Fundamental Review of the Trading Book (“FRTB”), which are expected to generally result in higher global capital requirements for banks that could, in turn, reduce liquidity and increase financing and hedging costs.
Third-party diligence reports on mortgaged properties are and will be made as of a point in time and are therefore limited in scope. Appraisals and engineering and environmental reports, as well as a variety of other third-party reports, are generally obtained with respect to each of the mortgaged properties underlying our investments at or about the time of origination.
Third-party diligence reports on mortgaged properties are and will be made as of a point in time and are therefore limited in scope. 46 Table of Contents Appraisals and engineering and environmental reports, as well as a variety of other third-party reports, are generally obtained with respect to each of the mortgaged properties underlying our investments at or about the time of origination.
We and our borrowers may have difficulty accessing the service of banks and other financial institutions, which may make it difficult to sell products and services, and we may be limited in our ability to provide debt to participants in the 39 Table of Contents cannabis industry, which could materially and adversely affect our business, financial condition, liquidity and results of operations.
We and our borrowers may have difficulty accessing the service of banks and other financial institutions, which may make it difficult to sell products and services, and we may be limited in our ability to provide debt to participants in the cannabis industry, which could materially and adversely affect our business, financial condition, liquidity and results of operations.
Our Charter and Bylaws include, among others, provisions that: • authorize our Board, without your approval, to cause us to issue additional shares of our common stock or to raise capital through the creation and issuance of our preferred stock, debt securities convertible into common stock, options, warrants and other rights, on terms and for consideration as our Board in its sole discretion may determine; • authorize “blank check” preferred stock, which could be issued by our Board without shareholder approval, subject to certain specified limitations, and may contain voting, liquidation, dividend and other rights senior to our common stock; • establish a classified Board such that not all members of the Board are elected at each annual meeting of shareholders, which may delay the ability of our stockholders to change the membership of a majority of our Board; • specify that only our Board, the chairman of our Board, our chief executive officer or president or, upon the written request of shareholders entitled to cast not less than a majority of the votes entitled to be cast, our secretary can call special meetings of our shareholders; • establish advance notice procedures for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of individuals for election to our Board; • provide that a majority of directors then in office, even though less than a quorum, may fill any vacancy on our Board, whether resulting from an increase in the number of directors or otherwise; • specify that no shareholder is permitted to cumulate votes at any election of directors; • provide our Board the exclusive power to adopt, alter or repeal any provision of our Bylaws and to make new Bylaws; and • require supermajority votes of the holders of our common stock to amend specified provisions of our Charter.
Our Charter and Bylaws include, among others, provisions that: • authorize our Board, without your approval, to cause us to issue additional shares of our common stock or to raise capital through the creation and issuance of our preferred stock, debt securities convertible into common stock, options, warrants and other rights, on terms and for consideration as our Board in its sole discretion may determine; • authorize “blank check” preferred stock, which could be issued by our Board without shareholder approval, subject to certain specified limitations, and may contain voting, liquidation, dividend and other rights senior to our common stock; • establish a classified Board such that not all members of the Board are elected at each annual meeting of shareholders, which may delay the ability of our shareholders to change the membership of a majority of our Board; • specify that only our Board, the chairman of our Board, our chief executive officer or president or, upon the written request of shareholders entitled to cast not less than a majority of the votes entitled to be cast, our secretary can call special meetings of our shareholders; • establish advance notice procedures for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of individuals for election to our Board; • provide that , except as may be required by the 1940 Act, a majority of directors then in office, even though less than a quorum, may fill any vacancy on our Board, whether resulting from an increase in the number of directors or otherwise; • specify that no shareholder is permitted to cumulate votes at any election of directors; • provide our Board the exclusive power to adopt, alter or repeal any provision of our Bylaws and to make new Bylaws; and • require supermajority votes of the holders of our common stock to amend specified provisions of our Charter, unless a different number of proportion is required by statute (including, but not limited to, the 1940 Act).
As of December 31, 2024, all of our borrowers are generally restricted, under our applicable credit agreements with such borrowers, from incurring any debt that ranks equally with, or senior to, our loans.
As of December 31, 2025, all of our borrowers are generally restricted, under our applicable credit agreements with such borrowers, from incurring any debt that ranks equally with, or senior to, our loans.
Our growth depends on the ability of our Manager to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time.
Our growth depends on the ability of our Adviser to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time.
Subject to the approval of our Board (which must include a majority of our independent directors), our Manager may change our investment strategies or guidelines, financing strategies or leverage policies without the consent of our shareholders.
Subject to the approval of our Board (which must include a majority of our independent directors), our Adviser may change our investment strategies or guidelines, financing strategies or leverage policies without the consent of our shareholders.
We cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be materially adverse to the business of our borrowers, as well as our business. 42 Table of Contents Applicable state laws may prevent us from maximizing our potential income.
We cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be materially adverse to the business of our borrowers, as well as our business. Applicable state laws may prevent us from maximizing our potential income.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Charter and Bylaws described above. Our authorized but unissued shares of common stock and preferred stock may prevent a change in control of our Company.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Charter and Bylaws described above. 64 Table of Contents Our authorized but unissued shares of common stock and preferred stock may prevent a change in control of our Company.
Additionally, each of these matters have been resolved with no admission of wrongdoing by any party and the dismissals of all claims against each of the named individuals but we cannot provide assurance that these prior legal proceedings or future legal proceedings involving us, our Manager, our Manager’s key personnel or investment professionals or its affiliates or our officers or directors will not cause reputational harm for us.
Additionally, each of these matters have been resolved with no admission of wrongdoing by any party and the dismissals of all claims against each of the named individuals but we cannot provide assurance that these prior legal proceedings or future legal proceedings involving us, our Adviser, our Adviser’s key personnel or investment professionals or its affiliates or our officers or directors will not cause reputational harm for us.
These investments would be expected to provide a lower net return than we seek to achieve from investment in our target loans and investments. We expect to reallocate any such investments into our target portfolio within specified time frames, subject to the availability of appropriate investment opportunities.
These investments would be expected to provide a lower net return than we seek to achieve from investment in our target loans and investments. We expect to reallocate any such investments into our target portfolio within specified time frames, subject to the availability 37 Table of Contents of appropriate investment opportunities.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Board plays an active role in overseeing management of our risks, and 71 Table of Contents cybersecurity represents an important component of the Company’s overall approach to risk management and oversight. The Company and our Manager are committed to protecting the confidentiality of all nonpublic information related to the Company’s borrowers, shareholders and their personnel.
Biggest changeThe Board plays an active role in overseeing management of our risks, and cybersecurity represents an important component of the Company’s overall approach to risk management and oversight. The Company and our Adviser are committed to protecting the confidentiality of all nonpublic information related to the Company’s borrowers, shareholders and their personnel.
Our Manager utilizes a third-party managed & cybersecurity services provider (the “MSSP”) for cybersecurity services, including threat detection and response, vulnerability assessment and monitoring, security incident response and recovery and general cybersecurity education and awareness. Our Manager and the MSSP engage in periodic assessment and training regarding the policies, standards and practices designed to address cybersecurity threats and incidents.
Our Adviser utilizes a third-party managed & cybersecurity services provider (the “MSSP”) for cybersecurity services, including threat detection and response, vulnerability assessment and monitoring, security incident response and recovery and general cybersecurity education and awareness. Our Adviser and the MSSP engage in periodic assessment and training regarding the policies, standards and practices designed to address cybersecurity threats and incidents.
The Company’s Chief Financial Officer and Treasurer, Chief Legal Officer and Secretary, and Head of IT work collaboratively with other employees of our Manager or its affiliates and the MSSP to ensure the MSSP’s services protect the Company’s Information Systems from cybersecurity threats and to promptly respond to any cybersecurity incidents.
The Company’s Chief Financial Officer and Treasurer, Chief Legal Officer and Secretary, and Head of IT work collaboratively with other employees of our Adviser or its affiliates and the MSSP to ensure the MSSP’s services protect the Company’s Information Systems from cybersecurity threats and to promptly respond to any cybersecurity incidents.
Risk Management and Strategy As an externally managed company, the Company relies on our Manager’s corporate information technology, accounting and financial reporting platforms, enterprise applications and related systems (the “Information Systems”) in connection with the Company’s day-to-day operations.
Risk Management and Strategy As an externally managed company, the Company relies on our Adviser’s corporate information technology, accounting and financial reporting platforms, enterprise applications and related systems (the “Information Systems”) in connection with the Company’s day-to-day operations.
For additional discussion of the risks posed by cybersecurity threats, see “ Risk Factors—General Risk Factors—We rely on information technology in our operations, and security breaches and other disruptions in our systems could compromise our information and expose us to liability, which would cause our business and reputation to suffer .” Governance The Company’s Audit and Valuation Committee oversees the Company’s cybersecurity risk management process.
For additional discussion of the risks posed by cybersecurity threats, see “ Risk Factors—General Risk Factors—We rely on information technology in our operations, and security breaches and other disruptions in our systems could compromise our information and expose us to liability, which would cause our business and reputation to suffer .” 84 Table of Contents Governance The Company’s Audit and Valuation Committee oversees the Company’s cybersecurity risk management process.
Our Manager has adopted a written information security program (the “Written Information Security Policy”), which is designed to address applicable requirements under Regulation S-P and the FTC Safeguards Rule. Consequently, the Company also relies on the processes for assessing, identifying, and managing material risks from cybersecurity threats under the Manager’s Written Information Security Policy.
Our Adviser has adopted a written information security program (the “Written Information Security Policy”), which is designed to address applicable requirements under Regulation S-P and the FTC Safeguards Rule. Consequently, the Company also relies on the processes for assessing, identifying, and managing material risks from cybersecurity threats under the Adviser’s Written Information Security Policy.
Item 1C. Cybersecurity The Company has no employees and is externally managed by our Manager. Pursuant to the terms of the Management Agreement, our Manager manages, operates and administers our day-to-day operations, business and affairs, subject to the direction and supervision of the Board. The Board recognizes the critical importance of maintaining the trust and confidence of our business partners.
Item 1C. Cybersecurity The Company has no employees and is externally managed by our Adviser. Pursuant to the terms of the Advisory Agreement, our Adviser manages, operates and administers our day-to-day operations, business and affairs, subject to the direction and supervision of the Board. The Board recognizes the critical importance of maintaining the trust and confidence of our business partners.
For third-party service vendors that perform a variety of important functions for our business, we seek to engage reliable, reputable service vendors that maintain cybersecurity programs. All of the Company’s personnel are employees of the Manager or one of its affiliates and are subject to the Manager’s policies and procedures.
For third-party service vendors that perform a variety of important functions for our business, we seek to engage reliable, reputable service vendors that maintain cybersecurity programs. All of the Company’s personnel are employees of the Adviser or one of its affiliates and are subject to the Adviser’s policies and procedures.
They have gained relevant knowledge, skills and experience in information technology and cybersecurity risk management, including overseeing third-party vendors in such areas, through their roles at the Company or other organizations. 72 Table of Contents
They have gained relevant knowledge, skills and experience in information technology and cybersecurity risk management, including overseeing third-party vendors in such areas, through their roles at the Company or other organizations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur Florida office is leased by our Manager or one of its affiliates from a third party and pursuant to the terms of our Management Agreement, we reimburse our Manager (or its affiliate, as applicable) for certain expenses relating to such offices (including our pro-rata portion of rent, telephone, printing, mailing, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses), as well as expenses relating to disaster backup recovery sites and facilities maintained for us, our affiliates, our loans or our Manager or its affiliates, in each case, as required for our operation.
Biggest changeOur Florida office is leased by our Administrator or one of its affiliates from a third party and pursuant to the terms of our Administration Agreement, we reimburse our Administrator (or its affiliate, as applicable) for certain expenses relating to such offices (including our pro-rata portion of rent, telephone, printing, mailing, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses), as well as expenses relating to disaster backup recovery sites and facilities maintained for us, our affiliates, our loans or our Administrator or its affiliates, in each case, as required for our operation.
Added
We do not own any real estate or other physical properties materially important to our operations. We believe that our present facilities are adequate to meet our current needs. If new or additional space is required, we believe that adequate facilities are available at competitive prices in the same area.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. Furthermore, third parties may try to seek to impose liability on us in connection with our loans. As of December 31, 2024 , we were not subject to any material legal proceedings.
Biggest changeItem 3. Legal Proceedings From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. Furthermore, third parties may try to seek to impose liability on us in connection with our loans.
Removed
Item 4. Mine Safety Disclosures Not applicable. PART II
Added
As of December 31, 2025 , the Company was not subject to any material pending legal proceedings to which the Company is a party or any of the Company’s assets are subject that could materially impact its business, financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeREIT taxable income as computed for purposes of the foregoing tax rules will not necessarily correspond to our net income as determined for financial reporting purposes, or our Distributable Earnings as described under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures and Indicators—Distributable Earnings.” Any future determination to actually pay dividends or other distributions will be at the discretion of our Board, subject to compliance with applicable law and any contractual provisions, including under agreements for indebtedness we may incur, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital requirements, the annual distribution requirements under the REIT provisions of the Code, our REIT taxable income and other factors that our Board deems relevant.
Biggest changeAny future determination to actually pay dividends or other distributions will be at the discretion of our Board, subject to compliance with applicable law and any contractual provisions, including under agreements for indebtedness we may incur, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital requirements, the distribution requirements applicable to us as a RIC, our investment company taxable income and other factors that our Board deems relevant.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate loans in a timely manner on 73 Table of Contents favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
To the extent that our cash available for distribution is less than the amount required to be distributed under the applicable provisions of the Code, including the requirements applicable to RICs, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate loans in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
Equity Compensation Plan Information See Note 11 to our consolidated financial statements for the year ended December 31, 2024 included in this Annual Report for information regarding our 2020 Plan. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Item 6. Reserved None.
Equity Compensation Plan Information See Note 10 to our consolidated financial statements for the year ended December 31, 2025 included in this Annual Report for information regarding our 2020 Plan. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. Item 6. Reserved None. 86 Table of Contents
As a result, in order to satisfy the requirements for us to qualify as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all or substantially all of our REIT taxable income to our shareholders out of assets legally available therefor.
As a result, in order to satisfy the requirements for us to qualify as a REIT during the year ended December 31, 2025 and generally not be subject to U.S. federal income and excise tax, we made regular quarterly distributions of all or substantially all of our REIT taxable income to our shareholders out of assets legally available therefor.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed for trading on the Nasdaq Stock Market under the symbol “AFCG.” On March 1, 2025, the closing price of our common stock, as reported on the Nasdaq, was $8.53 per share.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed for trading on the Nasdaq Stock Market under the symbol “AFCG.” On February 25, 2026, the closing price of our common stock, as reported on the Nasdaq, was $2.41 per share.
There were 69 holders of record of our common stock as of March 1, 2025. This number does not include beneficial owners who hold shares of our common stock in street name.
There were 50 holders of record of our common stock as of February 25, 2026. This number does not include beneficial owners who hold shares of our common stock in street name.
Distribution Policy U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains and certain non-cash income, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of such REIT taxable income.
However, because many of our common shares are held by brokers and other institutions, we believe that there are many more beneficial holders of our common shares than record holders. 85 Table of Contents Distribution Policy U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains and certain non-cash income, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of such REIT taxable income.
Removed
However, because many of our common shares are held by brokers and other institutions, we believe that there are many more beneficial holders of our common shares than record holders.
Added
REIT taxable income as computed for purposes of the foregoing tax rules will not necessarily correspond to our net income as determined for financial reporting purposes, or our Distributable Earnings as described under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures and Indicators—Distributable Earnings.” Effective January 1, 2026, we elected to be regulated as a BDC under the 1940 Act and, beginning with our taxable year ending December 31, 2026, we intend to elect to be treated as a RIC for U.S. federal income tax purposes.
Added
As a RIC, we generally will be required to distribute at least 90% of our investment company taxable income each taxable year in order to maintain RIC status.
Added
Accordingly, following the Conversion, we will generally intend to distribute, out of assets legally available for distribution, substantially all of our available earnings, on a quarterly basis, as determined by the Board in its discretion.
Added
We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThis decrease was driven by lower interest income of approximately ($17.9) million driven by Subsidiary of Private Company G, Private Company K and Private Company A on nonaccrual status during fiscal year 2024, lower interest income of approximately ($7.7) million driven by less capital deployed relating to loan exits and prepayments, partially offset by higher fee income of approximately $3.8 million driven by loan exits and prepayments during the year ended December 31, 2024, and higher OID income of approximately $3.5 million due to the acceleration of unaccreted OID of current year loan exits and prepayments during the year ended December 31, 2024, as compared to the year ended December 31, 2023, respectively. 80 Table of Contents Interest expense decreased approximately $(21.1) thousand, or (0.3)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of approximately $(1.9) million, or (2.0)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, due to the repurchase of $10.0 million of our 2027 Senior Notes during the year ended December 31, 2023.
Biggest changeThe decrease in interest income was driven by more loan exits and prepayments in the prior period, which resulted in ($3.6) million lower fee income, ($3.9) million lower OID income due to the acceleration of unaccreted OID, ($3.3) million lower interest income driven by less capital deployed and ($1.6) million lower PIK income during the year ended December 31, 2025, as compared to the year ended December 31, 2024, respectively.
Any of these taxes would decrease cash available for distribution to our shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our shareholders and pay tax at regular corporate rates on the retained net capital gain.
Any of these taxes would decrease cash available for distribution to our shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our shareholders and pay tax at regular corporate rates on the retained net capital gain.
The Shelf Registration Statement also included a prospectus for the ATM Program to sell up to an aggregate of $75.0 million of shares of our common stock that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and Citizens JMP Securities LLC, as Sales Agents.
The Prior Shelf Registration Statement also included a prospectus for the ATM Program to sell up to an aggregate of $75.0 million of shares of our common stock that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and Citizens JMP Securities LLC, as Sales Agents.
(2) Estimated YTM includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan.
Estimated YTM includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan.
(2) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs. (3) As of December 31, 2024, the maturity date passed on the credit facility with Private Company A without repayment.
(2) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs. (3) As of December 31, 2025 and 2024 , the maturity date passed on the credit facility with Private Company A without repayment.
The table below sets forth the material terms of our outstanding senior notes as of the date of this Annual Report: Senior Notes Issue Date Amount Outstanding Interest Rate Coupon Maturity Date Interest Due Dates Optional Redemption Date 2027 Senior Notes November 3, 2021 $90.0 million 5.75% May 1, 2027 May 1 and November 1 February 1, 2027 Other Credit Facilities, Warehouse Facilities and Repurchase Agreements In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing.
The table below sets forth the material terms of our outstanding senior notes as of the date of this Annual Report: Senior Notes Issue Date Amount Outstanding Interest Rate Coupon Maturity Date Interest Due Dates Optional Redemption Date 2027 Senior Notes November 3, 2021 $77.0 million 5.75% May 1, 2027 May 1 and November 1 February 1, 2027 Other Credit Facilities, Warehouse Facilities and Repurchase Agreements In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing.
The balance as of December 31, 2024 was approximatel y $30.6 million , or 10.36%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $295.2 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $30.4 million and (ii) a liability for unfunded commitments of approximately $0.2 million .
The balance as of December 31, 2024 was approximately $30.6 million, or 10.36%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $295.2 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $30.4 million and (ii) a liability for unfunded commitments of approximately $0.2 million.
(5) Cash interest and PIK interest rates for Private Company A represent a blended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility with Private Company A (as may be amended, restated, and supplemented or otherwise modified from time to time, the “Private Company A Credit Facility”).
(3) Cash interest and PIK interest rates for Private Company A represent a blended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility with Private Company A (as may be amended, restated, and supplemented or otherwise modified from time to time, the “Private Company A Credit Facility”).
We have analyzed our various federal and state filing positions and believe that our income tax filing positions and deductions are well documented and supported as of December 31, 2024. Based on our evaluation, there is no reserve for an y uncertain income tax positions.
We have analyzed our various federal and state filing positions and believe that our income tax filing positions and deductions are well documented and supported as of December 31, 2025. Based on our evaluation, there is no reserve for an y uncertain income tax positions.
The decrease of net cash used in investing activities of discontinued operations was primarily due to the issuance and fundings on loans of approximately $(67.3) million, offset by principal repayments of loans of $15.1 million, respectively.
The increase of net cash used in investing activities of discontinued operations was primarily due to the issuance and fundings on loans of approximately $(67.3) million, offset by principal repayments of loans of $15.1 million, respectively.
We have elected to avail ourselves of the extended transition period for complying with new or 93 Table of Contents revised financial accounting standards. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
We have elected to avail ourselves of the extended transition period for complying with new or revised financial accounting standards. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the loan. This includes loans that are valued using “bid” and “ask” prices obtained from independent third-party pricing services or directly from brokers.
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the loan. This includes loans 105 Table of Contents that are valued using “bid” and “ask” prices obtained from independent third-party pricing services or directly from brokers.
The table below summarizes our total loan portfolio as of December 31, 2024, unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations.
The table below summarizes our total loan portfolio as of December 31, 2025, unless otherwise specified. Borrower names have been kept confidential due to confidentiality agreement obligations.
In accordance with SEC guidance, the following discussion addresses the accounting policies that we believe apply to us based on the nature of our initial operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses.
In accordance with SEC guidance, the 104 Table of Contents following discussion addresses the accounting policies that we believe apply to us based on the nature of our initial operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses.
In February 2025, we entered into a $15.0 million senior secured credit facility with Private Company U, which was fully funded at closing. The loan was originated at a discount of 2.50% and matures March 1, 2028. The loan bears interest at 14.00%.
In February 2025, we entered into a $15.0 million senior secured credit facility with Private Company U, which was fully funded at closing. The loan was originated at a discount of 2.5% and matures March 1, 2028. The loan bears interest at 14.0%.
On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100% of the principal amount of the 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100% of the principal amount of the 101 Table of Contents 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
As a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income.
As a REIT, we are required to 92 Table of Contents distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income.
To the best of our knowledge, as of December 31, 2024, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
To the best of our knowledge, as of December 31, 2025, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
(2) Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2024 and 2023 .
(2) Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2025 and 2024 .
Net Cash Provided by (Used in) Investing Activities of Discontinued Operations Net cash used in investing activities of discontinued operations during the year ended December 31, 2024 was approximately $(47.2) million, compared to net cash provided by investing activities of zero for the same period in 2023.
Net Cash Used in Investing Activities of Discontinued Operations Net cash used in investing activities of discontinued operations during the year ended December 31, 2025 was zero, compared to net cash provided by investing activities of $(47.2) million for the same period in 2024.
Income Taxes We are a Maryland corporation and have elected to be taxed as a REIT under the Code, commencing with our taxable year ended December 31, 2020. We believe we have qualified, and our method of operation will enable us to continue to qualify, as a REIT.
Income Taxes We are a Maryland corporation and, prior to January 1, 2026, elected to be taxed as a REIT under the Code, commencing with our taxable year ended December 31, 2020. We believe we have qualified, and our method of operation will enable us to continue to qualify, as a REIT.
As of December 31, 2024, we believe that our cash on hand, capacity available under the Revolving Credit Facility, AFCF Credit Facility and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.
As of December 31, 2025, we believe that our cash on hand, capacity available under the Revolving Credit Facility, TCGSL Credit Facility, and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.
Current Expected Credit Loss Reserve (“CECL”) We estimate our current expected credit losses on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform the “CECL Reserve” using a model that considers multiple datapoints and methodologies that may include discounted cash flows (“DCF”) and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date and expected prepayment, if applicable.
Current Expected Credit Loss Reserve (“CECL”) During the year ended December 31, 2025, we estimated our current expected credit losses on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform the “CECL Reserve” using a model that considers multiple datapoints and methodologies that may include discounted cash flows (“DCF”) and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date and expected prepayment, if applicable.
The Shelf Registration Statement enables us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities.
The Prior Shelf Registration Statement enabled us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities.
Debt Service As of December 31, 2024 , we believe that our cash on hand, capacity available under our Revolving Credit Facility and AFCF Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.
Debt Service As of December 31, 2025 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, TCGSL Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.
Capital Markets Our Shelf Registration Statement became effective on April 18, 2022, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock.
Capital Markets Our current Shelf Registration Statement became effective on April 25, 2025, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock.
OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows. As of December 31, 2024 and 2023, all of our cash was unrestricted and totaled approximately $103.6 million and $90.4 million, respectively.
OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows. As of December 31, 2025 and 2024, all of our cash was unrestricted and totaled approximately $38.6 million and $103.6 million, respectively.
Factors Impacting our Operating Results The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace.
Factors Impacting our Operating Results for the Year Ended December 31, 2025 The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace.
The loans we originate are primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.
The loans we originate during this period were primarily structured as senior loans typically secured by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.
At-the-Market Offering Program In April 2022, we filed our shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Shelf Registration Statement”).
At-the-Market Offering Program In April 2022, we filed a shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “ Prior Shelf Registration Statement”).
Book Value Per Share We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of December 31, 2024 and 2023 was approximately $9.02 and $15.64, respectively.
Book Value Per Share We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of December 31, 2025 and 2024 was approximately $7.46 and $9.02, respectively.
Net Cash Provided by (Used in) Financing Activities of Discontinued Operations There were no cash flows related to financing activities of discontinued operations during the year ended December 31, 2024 and 2023.
Net Cash Provided by (Used in) Financing Activities of Discontinued Operations There were no cash flows related to financing activities of discontinued operations during the years ended December 31, 2025 and 2024.
Cash provided by (used in) operating, investing and financing activities of discontinued operations for the year ended December 31, 2024 and 2023 is as follows: Years ended December 31, 2024 2023 Net cash provided by (used in) operating activities of discontinued operations $ 3,271,445 $ 244,622 Net cash (used in) provided by investing activities of discontinued operations $ (47,211,339) $ — Net cash provided by (used in) financing activities of discontinued operations $ — $ — Net Cash Provided by (Used in) Operating Activities of Discontinued Operations Net cash provided by operating activities of discontinued operations during the year ended December 31, 2024 was approximately $3.3 million, compared to approximately $0.2 million for the same period in 2023.
Cash provided by (used in) operating, investing and financing activities of discontinued operations for the years ended December 31, 2025 and 2024 is as follows: Years ended December 31, 2025 2024 Net cash provided by operating activities of discontinued operations $ — $ 3,271,445 Net cash used in investing activities of discontinued operations $ — $ (47,211,339) Net cash provided by (used in) financing activities of discontinued operations $ — $ — Net Cash Provided by Operating Activities of Discontinued Operations Net cash provided by operating activities of discontinued operations during the year ended December 31, 2025 was zero, compared to approximately $3.3 million for the same period in 2024.
The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion.
The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion when determining the amount to allocate to its CECL Reserve.
To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Estimated YTM is calculated using the interest rate as of December 31, 2024 applied through maturity.
To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Estimated YTM is calculated using the interest rate as of December 31, 2025 applied through maturity. Actual results could differ from those estimates and assumptions.
Our investment guidelines primarily relate to deploying capital in attractive lending opportunities to state law-compliant cannabis operators, typically secured by real estate, equipment, cash flows and license value. Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to state law compliant cannabis companies.
During that period, our investment guidelines primarily related to deploying capital in attractive lending opportunities to state law-compliant cannabis operators, typically secured by real estate, equipment, cash flows and license value. Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation.
The originated commitment under this loan was $4.0 million and outstanding principal was approximately $1.9 million and $2.0 million as 85 Table of Contents of December 31, 2024 and 2023 , respectively. During the year ended December 31, 2024, we received approximately $0.1 million of principal repayments of loan receivable held at carrying value.
The originated commitment under this loan was $4.0 million and outstanding principal was approximately zero and $1.9 million as of December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, we received $0.1 million of principal repayments of loan receivable held at carrying value.
We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which generally means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1 billion in non-convertible debt securities during the prior three-year period.
As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 107 Table of Contents We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which generally means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1 billion in non-convertible debt securities during the prior three-year period.
Our primary sources of cash generally consist of unused borrowing capacity under the Revolving Credit Facility and the AFCF Credit Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.
Our primary sources of cash generally consist of unused borrowing capacity under the Revolving Credit Facility, TCGSL Credit Facility, the net proceeds of future debt or equity offerings, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.
Unless the context otherwise requires, as used in this section the terms “we,” “us,” “our,” or “AFC,” refers to Advanced Flower Capital Inc. Business Overview Advanced Flower Capital Inc. is an institutional lender that was founded in July 2020 by a veteran team of investment professionals.
Unless the context otherwise requires, as used in this section the terms “we,” “us,” “our,” or “AFC,” refers to Advanced Flower Capital Inc. Business Overview Advanced Flower Capital Inc. is an institutional lender that was founded in July 2020 by a veteran team of investment professionals. We are a Maryland corporation and externally managed by AFC Management, LLC.
In February 2025, AFC Agent, on behalf of the Company and the other lenders, initiated a mortgage foreclosure proceeding in connection with the 2024 Subsidiary of Private Company G Forbearance Agreement over a cultivation facility owned by Subsidiary of Private Company G.
In February 2025, AFC Agent, on behalf of the Company and the other lenders, initiated a mortgage foreclosure proceeding in connection with the forbearance agreement entered into by the Company and Subsidiary of Private Company 87 Table of Contents G in March 2024 (the “2024 Subsidiary of Private Company G Forbearance Agreement”) over a cultivation facility owned by Subsidiary of Private Company G.
The increase of approximately $3.0 million during the year ended December 31, 2023 to December 31, 2024 was primarily due to an increase in net income from discontinued operations of $2.7 million and changes in working capital of $0.3 million, respectively.
The decrease of approximately $(3.3) million during the year ended December 31, 2024 to December 31, 2025 was primarily due to a decrease in net income from discontinued operations of $(2.9) million and changes in working capital of $(0.3) million, respectively.
Dividends We have elected to be taxed as a REIT for United States federal income tax purposes and, as such, intend to annually distribute to our shareholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and excluding our net capital gain.
Dividends During the year ended December 31, 2025, we elected to be taxed as a REIT for United States federal income tax purposes and, as such, intended to distribute to our shareholders at least 90% of our REIT taxable income during the year, prior to the deduction for dividends paid and excluding our net capital gain.
We follow Accounting Standards Codification (“ASC”) 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASC 825-10”), which provides companies the option to report selected financial assets and liabilities at fair value.
During the year ended December 31, 2025, we followed Accounting Standards Codification (“ASC”) 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASC 825-10”), which provides companies the option to report selected financial assets and liabilities at fair value.
Net Cash Provided by (Used in) Financing Activities of Continuing Operations Net cash used in financing activities of continuing operations during the year ended December 31, 2024 was approximately $(34.7) million, compared to approximately $(68.5) million for the same period in 2023.
Net Cash Used in Financing Activities of Continuing Operations Net cash used in financing activities of continuing operations during the year ended December 31, 2025 was approximately $(111.1) million, compared to approximately $(34.7) million for the same period in 2024.
In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below: • Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. • Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. • Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. 91 Table of Contents If inputs used to measure fair value fall into different levels of the fair value hierarchy, a loan’s level is based on the lowest level of input that is significant to the fair value measurement.
In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below: • Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. • Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. • Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
To continue to qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually to our shareholders at least 90% of our REIT taxable income prior to the deduction for dividends paid and excluding our net capital gain.
To qualify as a REIT, we were required during the year ended December 31, 2025 and during prior periods, to meet a number of organizational and operational requirements, including a requirement that we distribute annually to our shareholders at least 90% of our REIT taxable income prior to the deduction for dividends paid and excluding our net capital gain.
In cases where the loans do not amortize, the PIK interest is collected upon repayment of the outstanding principal. To maintain our status as a REIT, this non-cash source of income is included in taxable income and will increase the dividend paid to shareholders for the year earned, even though the Company has not yet collected the cash.
To maintain our status as a REIT, this non-cash source of income is included in taxable income and will increase the dividend paid to shareholders for the year earned, even though the Company has not yet collected the cash.
We also follow ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements.
During the year ended December 31, 2025, we also followed ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements.
Delayed draw loans earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income in the period earned. Other fees, including prepayment fees and exit fees, are also recognized as interest income when received.
Delayed draw loans earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income in the period earned. Other fees, including prepayment fees and exit fees, are also recognized as interest income when received. Any such fees will be generated in connection with our investments and recognized as earned in accordance with GAAP.
The Indenture also requires us to offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101% of the principal amount of the 2027 Senior Notes, plus accrued and unpaid interest if a “change of control triggering event” (as defined in the Indenture) occurs. 87 Table of Contents The Indenture governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of our assets.
The Indenture governing the 2027 Senior Notes contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of our consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of our assets.
Results of Operations f or the years ended December 31, 2024 and 2023 Our net income from continuing operations allocable to our common shareholders for the year ended December 31, 2024, was approximately $13.9 million, or $0.64 per basic weighted average common share from continuing operations, compared to net income from continuing operations allocable to our common shareholders of approximately $20.7 million, or $1.01 per basic weighted average common share from continuing operations for the year ended December 31, 2023, respectively.
Our net loss from continuing operations allocable to our common shareholders for the year ended December 31, 2025, was approximately $(20.7) million, or $(0.95) per basic common share from continuing operations, compared to net income from continuing operations allocable to our common shareholders of approximately $13.9 million, or $0.64 per basic common share from continuing operations for the year ended December 31, 2024, respectively.
The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.
The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. As of December 31, 2025, the ATM Program was no longer in effect.
The following tables summarize our loans held at carrying value as of December 31, 2024 and 2023 : As of December 31, 2024 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 301,755,791 $ (8,493,417) $ 293,262,374 1.9 Total loans held at carrying value $ 301,755,791 $ (8,493,417) $ 293,262,374 1.9 As of December 31, 2023 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 314,376,929 $ (13,111,531) $ 301,265,398 2.2 Total loans held at carrying value $ 314,376,929 $ (13,111,531) $ 301,265,398 2.2 (1) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.
The following tables summarize our loans held at carrying value as of December 31, 2025 and 2024 : As of December 31, 2025 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 259,626,556 $ (6,001,437) $ 253,625,119 1.4 Total loans held at carrying value $ 259,626,556 $ (6,001,437) $ 253,625,119 1.4 As of December 31, 2024 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior term loans $ 301,755,791 $ (8,493,417) $ 293,262,374 1.9 Total loans held at carrying value $ 301,755,791 $ (8,493,417) $ 293,262,374 1.9 (1) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.
Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts.
No repurchases took place during the year ended December 31, 2024. Unrealized losses. Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts.
See “Developments During the Year Ended December 31, 2024— AFCF Credit Facility” above. 2027 Senior Notes On November 3, 2021, we issued $100.0 million in aggregate principal amount of the 2027 Senior Notes. The 2027 Senior Notes accrue interest at a rate of 5.75% per annum.
As of December 31, 2025, the AFCF Credit Facility was no longer in effect. 2027 Senior Notes On November 3, 2021, we issued $100.0 million in aggregate principal amount of the 2027 Senior Notes. The 2027 Senior Notes accrue interest at a rate of 5.75% per annum.
Management fees decreased approximately $(0.1) million, or (2.9)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by lower outside fees earned and offset by lower equity attributable to the Spin-Off of SUNS completed on July 9, 2024.
Management fees decreased approximately $(0.7) million, or (18.5)%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease period over period was driven by lower equity, attributable to the Spin-Off of SUNS completed on July 9, 2024.
Cash Flows Cash provided by (used in) operating, investing and financing activities of continuing operations for the year ended December 31, 2024 and 2023 is as follows: Years ended December 31, 2024 2023 Net cash provided by (used in) operating activities of continuing operations $ 18,286,230 $ 20,984,312 Net cash provided by (used in) investing activities of continuing operations $ 42,362,420 $ 28,519,379 Net cash (used in) provided by financing activities of continuing operations $ (34,724,749) $ (68,494,701) Net Cash Provided by (Used in) Operating Activities of Continuing Operations Net cash provided by operating activities of continuing operations during the year ended December 31, 2024 was approximately $18.3 million, compared to approximately $21.0 million for the same period in 2023.
Cash Flows Cash provided by (used in) operating, investing and financing activities of continuing operations for the years ended December 31, 2025 and 2024 is as follows: Years ended December 31, 2025 2024 Net cash provided by operating activities of continuing operations $ 11,235,352 $ 18,286,230 Net cash provided by investing activities of continuing operations $ 34,904,497 $ 42,362,420 Net cash used in financing activities of continuing operations $ (111,144,802) $ (34,724,749) Net Cash Provided by Operating Activities of Continuing Operations Net cash provided by operating activities of continuing operations during the year ended December 31, 2025 was approximately $11.2 million, compared to approximately $18.3 million for the same period in 2024.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities. 90 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP which requires the use of estimates and assumptions that involve the exercise of judgment as to future uncertainties.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code during the year ended December 31, 2025, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
Loans are generally collateralized by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of borrowers to the extent permitted by applicable laws and the regulations governing such borrowers.
Refer to Note 13 to our consolidated financial statements titled “Fair Value” for more information on the valuations of the loans. Loans are generally collateralized by real estate, equipment, cash flows and the value associated with licenses (where applicable) and/or other assets of borrowers to the extent permitted by applicable laws and the regulations governing such borrowers.
Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers.
Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty.
The court-appointed receiver is determining the amount of principal payments the borrower is able to repay either from operations or from sale of collateral assets on a monthly basis.
The court-appointed receiver is determining the amount of principal payments the borrower is able to repay either from operations or from sale of collateral assets on a monthly basis. 96 Table of Contents (4) Effective December 1, 2023, the Company placed the borrower on nonaccrual status. (5) Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
The following tables summarize our loans held at fair value as of December 31, 2024 and 2023 : As of December 31, 2024 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loan $ 30,510,804 $ 50,241,018 $ 53,108,449 0.0 Total loan held at fair value $ 30,510,804 $ 50,241,018 $ 53,108,449 0.0 83 Table of Contents As of December 31, 2023 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (4) Senior term loans $ 61,720,705 $ 71,644,003 $ 71,883,402 0.4 Total loans held at fair value $ 61,720,705 $ 71,644,003 $ 71,883,402 0.4 (1) Refer to Note 14 to our consolidated financial statements titled “Fair Value” .
The following tables summarize our loans held at fair value as of December 31, 2025 and 2024 : As of December 31, 2025 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loans $ 26,080,763 $ 53,744,253 $ 57,790,684 3.9 Total loans held at fair value $ 26,080,763 $ 53,744,253 $ 57,790,684 3.9 As of December 31, 2024 Fair Value (1) Carrying Value (2) Outstanding Principal (2) Weighted Average Remaining Life (Years) (3) Senior term loans $ 30,510,804 $ 50,241,018 $ 53,108,449 0.0 Total loans held at fair value $ 30,510,804 $ 50,241,018 $ 53,108,449 0.0 (1) Refer to Note 13 to our consolidated financial statements titled “Fair Value” .
Loans Held at Fair Value We originate commercial real estate debt and related instruments generally to be held for investment. Although we generally hold our target investments as long-term loans, we may occasionally classify some of our loans as held for sale. We may carry our loans at fair value or amortized cost in our consolidated balance sheet.
Loans Held at Fair Value During the year ended December 31, 2025, we originated commercial real estate debt and related instruments generally to be held for investment. Although we generally hold our target investments as long-term loans, we may occasionally classify some of our loans as held for sale.
The net change in unrealized gain (loss) of approximately $(9.8) million and $(8.5) million for the years ended December 31, 2024 and 2023, respectively, was mainly driven by the sale of our loan with Private Company B with an unrealized loss that was recovered, maturity of our loan with Public Company A with an unrealized loss that was realized, as well as the net change in the valuation of the loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.
The net change in unrealized losses of approximately $1.9 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, respectively, was driven by the net change in the valuation of the loans, which was impacted by changes in recovery rates, market yields, and revenue multiples, partially offset by the sale of our loan with Private Company B in the prior period with an unrealized loss that was recovered.
The balance as of December 31, 2023 was approximately $26.4 million, or 8.71%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $303.3 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan 81 Table of Contents receivable held at carrying value of approximately $26.3 million and (ii) a liability for unfunded commitments of approximately $0.1 million.
Our CECL Reserve as of December 31, 2025 was approximatel y $46.1 million , or 18.19%, of our total loans held at carrying value with a balance of approximately $253.6 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of approximately $46.1 million and (ii) a liability for unfunded commitments of approximately $0.1 million .
Loan Portfolio As of December 31, 2024 , our portfolio was comprised of 16 loans (such portfolio, our “Existing Portfolio”). The aggregate originated commitment under these loans was approximately $361.3 million and outstanding principal was approximately $356.8 million as of December 31, 2024.
Loan Portfolio As of December 31, 2025 , our portfolio was comprised of 15 loans (such portfolio, our “Existing Portfolio”). The aggregate commitment under these loans was approximately $332.6 million and outstanding principal was approximately $317.4 million as of December 31, 2025.
Our net cash provided by operating activities for the year ended December 31, 2024 of approximately $21.6 million was less than our dividend payments of $40.0 million made during the same period due to earned OID of $8.0 million and PIK repayments of $5.5 million related to the exits from Private Company I, Private Company C and Private Company B during such period.
Our net cash provided by operating activities for the year ended December 31, 2025 of approximately $11.2 million was less than our dividends declared of $12.0 million made during the same period due to earned OID of $3.5 million and PIK repayments of $3.2 million related to the repayment from Private Company J and Private Company P during such period.
Loan Names Original Funding Date (1) Loan Maturity AFC Loan, net of Syndication % of Total AFC Principal Balance as of 12/31/2024 Cash Interest Rate PIK Fixed/ Floating Amortization During Term YTM (2)(3) Public Co. A - Equipment Loans (4) 8/5/2019 3/31/2025 $ 4,000,000 1.1% $ 1,897,324 12.0% N/A Fixed Yes 7% Private Co.
Loan Names Original Funding Date (1) Loan Maturity AFC Loan, net of Syndication % of Total AFC Principal Balance as of 12/31/2025 Cash Interest Rate PIK Fixed/ Floating Amortization During Term YTM (2) Private Co. A (3) 5/8/2020 5/8/2024 $ 38,125,129 11.5% $ 46,790,684 13.0% 2.5% Fixed No —% Sub of Private Co.
We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of mortgage loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.
During the year ended December 31, 2025, we primarily originated, structured, underwrote, invested in and managed senior secured loans and other types of mortgage loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.
N - Non-Real Estate 3/22/2024 4/1/2028 17,200,000 4.8% 17,200,000 12.5% N/A Floating Yes 16% Private Co. O 5/20/2024 6/1/2028 7,500,000 2.1% 3,347,647 13.5% N/A Floating Yes 18% Private Co. P (9) 6/18/2024 7/1/2027 15,126,433 4.2% 15,609,914 13.0% N/A Fixed Yes 16% Private Co. Q 8/16/2024 9/1/2028 11,000,000 3.0% 5,817,755 13.8% N/A Floating Yes 17% Private Co.
N - Real Estate 3/22/2024 4/1/2028 19,327,505 5.8% 19,327,505 12.5% N/A Floating Yes 16% Private Co. N - Non-Real Estate 3/22/2024 4/1/2028 17,200,000 5.2% 17,200,000 12.5% N/A Floating Yes 16% Private Co. O 5/20/2024 6/1/2028 10,500,000 3.2% 5,358,890 13.5% N/A Floating Yes 20% Private Co. Q 8/16/2024 9/1/2028 11,000,000 3.2% 7,479,626 13.8% N/A Floating Yes 18% Private Co.
On January 24, 2025, the Company entered into Amendment Number Three to Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, among other things, the parties agreed to reduce the procedural requirements for obligor loan receivables to become eligible under the borrowing base.
The term loan under the Subsidiary of Public Company T Credit Facility accrues interest at a fixed rate per annum of 10.5% and matures in December 2030. 89 Table of Contents Revolving Credit Facility In January 2025, we entered into Amendment Number Three to Loan and Security Agreement, by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, among other things, the parties agreed to reduce the procedural requirements for obligor loan receivables to become eligible under the borrowing base.
The PIK interest computed at the contractual rate specified in each applicable agreement is accrued and added to the principal balance of the loan and recorded as interest income. The PIK interest added to the principal balance is typically amortized and paid in accordance with the loan agreements.
Payment-in-Kind Interest We have loans in our portfolio that contain PIK provisions. The PIK interest computed at the contractual rate specified in each applicable agreement is accrued and added to the principal balance of the loan and recorded as interest income.
The decrease of approximately $33.8 million during the year ended December 31, 2023 to December 31, 2024 was primarily due to an increase in borrowings on the Revolving Credit Facility and the AFCF Credit Facility of $222.0 million in the aggregate, offset by an increase in repayments on the Revolving Credit Facility of $(146.0) million, an increase in proceeds from the ATM program of $15.8 million, a decrease in repayments of the 2027 Senior Notes of approximately $7.7 million, and an increase in cash distributions in connection with the Spin-Off of SUNS of approximately $(67.9) million, respectively.
The decrease of approximately $(76.4) million during the year ended 2024 to 2025 was primarily due to a decrease in borrowings on the Revolving Credit Facility and the AFCF Credit Facility of $(193.4) million in the aggregate, partially offset by a decrease in repayments on the Revolving Credit Facility and the AFCF Credit Facility of $56.4 million in the aggregate and decrease in cash distributions in connection with the Spin-Off of SUNS of approximately $67.9 million, respectively.
A s of December 31, 2024 and 2023 , the aggregate originated commitment under these loans was approximately $312.8 million and $333.1 million, respectively, and outstanding principal was approximately $301.8 million and $314.4 million, respectively.
The aggregate commitment under these loans was approximately $49.1 million and $44.4 million, respectively, and outstanding principal was approximately $57.8 million and $53.1 million as of December 31, 2025 and 2024, respectively.
Provision for Current Expected Credit Losses The provision for current expected credit losses decreased approximately $(8.0) million, or (65.7)%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023 .
Provision for Current Expected Credit Losses The provision for current expected credit losses increased approximately $18.4 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024, respectively .
See “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” Recent Developments In January 2025, AFC Agent placed Private Company K in a consensual receivership to operate the collateral assets for the benefit of the Company, as a secured lender, and all other stakeholders.
Developments During the Year Ended December 31, 2025: Updates to Our Loan Portfolio During the Year Ended December 31, 2025 In January 2025, AFC Agent placed Private Company K in a consensual receivership to operate the collateral assets for the benefit of the Company, as a secured lender, and all other stakeholders.
Incentive fees decreased approximately $(3.6) million, or (34.7)%, for the year ended December 31, 2024, as compared to the year ended December 31, 2023, driven by lower Core Earnings (as defined in the Management Agreement), as well as lower Adjusted Capital (as defined in the Management Agreement) attributable to the Spin-Off.
In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $115 million. Incentive fees decreased approximately $(6.8) million, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, driven by lower Core Earnings (as defined in the Management Agreement).
R 10/4/2024 11/1/2027 41,000,000 11.3% 39,519,968 12.0% N/A Floating Yes 15% Sub. of Public Co. S 11/19/2024 8/12/2026 10,000,000 2.8% 10,000,000 9.5% N/A Fixed No 10% Private Co.
R 10/4/2024 11/1/2027 41,000,000 12.3% 33,179,518 12.0% N/A Floating Yes 15% Private Co. U 2/14/2025 3/1/2028 15,000,000 4.5% 15,000,000 14.0% N/A Fixed Yes 17% Sub of Private Co. V 4/1/2025 4/1/2029 14,000,000 4.2% 12,370,245 12.5% 1.5% Fixed Yes 17% Sub. of Public Co. S 8/13/2025 8/13/2030 10,000,000 3.0% 10,000,000 12.5% N/A Fixed No 15% Private Co.
Interest income decreased approximately $(18.3) million, or (26.0)%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Interest income. Interest income decreased $(20.7) million, or (39.8)%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

19 edited+11 added−4 removed27 unchanged
Biggest changeWe evaluate our loans on a quarterly basis and fair value is determined by our Board through its independent Audit and Valuation Committee. We use an independent third-party valuation firm to provide input in the valuation of all of our unquoted investments, which we consider along with other various subjective and objective factors in making our evaluations.
Biggest changeWe used an independent third-party valuation firm to provide input in the valuation of all of our unquoted investments, which we consider along with other various subjective and objective factors in making our evaluations. Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers.
We estimate that a hypothetical 100 basis points increase in the floating benchmark rate would result in an increase in annual interest income of approximately $8.3 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $0.1 million.
We estimate that a hypothetical 100 basis points increase in the floating benchmark rate would result in an increase in annual interest income of approximately $0.3 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in annual interest income of approximately $(0.1) million.
Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that we may in the future acquire other than as necessary to maintain our exemption from registration under the Investment Company Act and our qualification as a REIT.
Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that we may in the future acquire other than as necessary to maintain our exemption from registration under the 1940 Act and our qualification as a REIT.
Quantitative and Qualitative Disclosures About Market Risk Risk Management To the extent consistent with maintaining our REIT qualification and our exemption from registration under the Investment Company Act, we seek to manage risk exposure by closely monitoring our portfolio and actively managing financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a loan to changes in interest rates) risks associated with holding our portfolio.
Quantitative and Qualitative Disclosures About Market Risk Risk Management To the extent consistent with maintaining our REIT qualification and our exemption from registration under the 1940 Act, we seek to manage risk exposure by closely monitoring our portfolio and actively managing financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a loan to changes in interest rates) risks associated with holding our portfolio.
Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans, while a decrease in revenue multiples and recovery rates may result in a decrease in the fair value of certain of our loans; however, this is mitigated to the extent our loans bear interest at a floating rate.
Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans, while a decrease in revenue 108 Table of Contents multiples and recovery rates may result in a decrease in the fair value of certain of our loans ; however, this is mitigated to the extent our loans bear interest at a floating rate.
This could result in our receipt of cash income from such assets in an amount that is less than the amount that we would need to pay the interest cost on our related borrowings.
This could result in our receipt of cash income from such assets in an amount that is less 109 Table of Contents than the amount that we would need to pay the interest cost on our related borrowings.
As loans held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield 94 Table of Contents debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
As loans held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
As of December 31, 2024, a decrease of 50 bps or increase of 50 bps of the market yield would have resulted in a change in unrealized gain (loss) of approximately $0.3 million and $(0.3) million, respectively. As of December 31, 2024, we had eight floating-rate loans, representing approximately 44% of our portfolio based on aggregate outstanding principal balances.
As of December 31, 2025, a decrease of 50 bps or increase of 50 bps of the market yield would have resulted in a change in unrealized gain (loss) of approximately $0.3 million and $(0.3) million, respectively. As of December 31, 2025, we had seven floating-rate loans, representing approximately 38% of our portfolio based on aggregate outstanding principal balances.
Also, should a loan default or otherwise be seized, we may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case we would look to sell the loan, which could result in us realizing a loss on the transaction.
Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, we may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case we would look to sell the loan, which could result in us realizing a loss on the transaction.
These floating benchmark rates included one-month SOFR subject to a weighted average floor of 3.8% and quoted at 4.3%.
These floating benchmark rates included one-month SOFR quoted at 3.7% and subject to a weighted average floor of 4.3% based on outstanding principal.
Our loan portfolio as of December 31, 2024 was concentrated with the top three borrowers representing approximately 48.2% of the aggregate outstanding principal balances and approximately 44.0% of the total loan commitments.
Our loan portfolio as of December 31, 2025 was concentrated with the top three borrowers representing approximately 51.1% of the aggregate outstanding principal balances and approximately 44.4% of the total loan commitments.
As of December 31, 2024 and 2023, one and two of our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, respectively, with changes in fair value recorded through earnings.
As of December 31, 2025 and 2024, our portfolio included three loans and one loan held for investment at fair value within loans held at fair value in our consolidated balance sheets, respectively, with changes in fair value recorded through earnings.
New laws that are adverse to our borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede our ability to grow and could materially adversely affect our business. 96 Table of Contents Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate.
New laws that are adverse to our borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede our ability to grow and could materially adversely affect our business.
Our largest credit facility represented approximately 22.2% of the aggregate outstanding principal balances of our portfolio and approximately 20.3% of our total loan commitments as of December 31, 2024.
Our largest credit facility represented approximately 24.8% of the aggregate outstanding principal balances of our portfolio and approximately 22.0% of our total loan commitments as of December 31, 2025.
To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk.
Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk.
This senior term loan accrues interest at a fixed rate of 12.5%, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind.
This senior term loan accrues interest at a fixed rate of 12.5%, a minimum portion of which is payable in cash pursuant to the excess cash flow sweep, and the remainder of which, if any, is paid in kind. We placed Subsidiary of Private Company G on nonaccrual status effective December 1, 2023 and previously during various periods in 2023.
These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations. 95 Table of Contents Interest Rate Mismatch Risk We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on various benchmarks, while the interest rates on these assets may be fixed or indexed to SOFR, or another index rate.
Interest Rate Mismatch Risk We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on various benchmarks, while the interest rates on these assets may be fixed or indexed to SOFR, or another index rate.
If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations. We are exposed to market risks in the ordinary course of our business. These risks primarily relate to fluctuations in interest rates.
If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations. Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates.
If we were required to liquidate our investment in a loan in a forced or liquidation sale, we could realize significantly less than the value at which we had recorded such loan investment.
If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.
Removed
Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers. Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis.
Added
During the year ended December 31, 2025, we evaluated our loans on a quarterly basis and fair value was determined by our Board through its independent Audit and Valuation Committee.
Removed
Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of our loans may fluctuate from period to period.
Added
We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private and public middle-market companies.
Removed
Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that we may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities.
Added
Most of our investments will not have a readily available market price, and, following the Conversion, the fair value of such investments will be valued at fair value, as determined in good faith by the Adviser, in its capacity as “valuation designee” under, and in accordance with, Rule 2a-5 under the 1940 Act, based on, among other things, the input of independent third-party valuation firms retained by the Company, and in accordance with the Adviser’s valuation policy.
Removed
Our portion of the senior term loan provided to such borrower has a principal amount of $79.2 million outstanding as of December 31, 2024, which is fully funded.
Added
There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make.
Added
We intend to fund portions of our investments with borrowings, and at such time, our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow.
Added
Accordingly, we cannot assure shareholders that a significant change in market interest rates will not have a material adverse effect on our net investment income. We are exposed to market risks in the ordinary course of our business. These risks primarily relate to fluctuations in interest rates.
Added
These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.
Added
As of December 31, 2025, the loan with Subsidiary of Private Company G had an outstanding principal amount of approximately $78.8 million and an amortized cost of approximately $77.3 million, respectively. During the year ended December 31, 2025, we recognized interest income of $0.7 million related to this loan, which was received in cash.
Added
As full recovery of principal and accrued interest is doubtful, future cash receipts received in accordance with terms of the forbearance agreement are accounted for under the cost recovery method. 110 Table of Contents During the year ended December 31, 2025, $0.4 million of contractual interest payments were received and applied as a reduction to this loan’s amortized cost.
Added
We may in the future hedge against interest rate fluctuations by using hedging instruments such as interest rate swaps, futures, options and forward contracts.
Added
While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of changes in interest rates with respect to our portfolio investments.

Other AFCG 10-K year-over-year comparisons