What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-08-13 compared with 2026-05-07 · 205 added, 97 removed, 239 unchanged (56% of the section changed)

1 unchanged sentence

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Form 10-Q”).

This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q, and “Risk Factors” in our 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.

Effective January 1, 2026, we are an externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as

amended (the “1940 Act”).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”), filed by Advanced Flower Capital Inc.

(the “Company,” “AFC”, “we,” “us,” and “our”), and the information incorporated by reference herein, or made in other reports, filings with the SEC, and press releases contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend such statements to be covered by the safe harbor provisions contained therein.

These forward-looking statements are based on our current intent, belief, expectations and views of future events.

The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “could,” “would,” “will,” “can,” “continuing,” “may,” “aim,” “intend,” “ongoing,” “plan,” “predict,” “potential,” “should,” “seeks,” “likely to” or words or phrases of similar meaning.

Specifically, this Quarterly Report includes forward-looking statements regarding (i) the conversion to a business development company (“BDC”) (the “Conversion”) and the other related transactions, as well as the future financial and operating results, plans, objectives, expectations and intentions of the Company, (ii) our portfolio and strategies for the growth of our lending business;

(iii) our working capital, liquidity and capital requirements;

(iv) potential state and federal legislative and regulatory matters;

(v) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers;

(vi) the amount, collectability and timing of cash flows, if any, from our loans;

(vii) our expected ranges of originations and repayments;

(viii) estimates relating to our ability to make distributions to our shareholders in the future;

and (ix) our investment strategy.

These forward-looking statements reflect management’s current views about future events, and are subject to risks, uncertainties and assumptions.

Our actual results may differ materially from the future results and events expressed or implied by the forward-looking statements.

Key factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:

• our expanded business and investment strategy;

• our ability to maintain our status as a BDC;

• our ability to maintain our status under Subchapter M of the Internal Revenue Code of 1986, as amended, as a regulated investment company (“RIC”) and our qualification for tax treatment as a RIC;

• the ability of our Adviser (as defined below) to locate suitable loan opportunities for us and to monitor and actively manage our portfolio and implement our expanded investment strategy;

• our expectations for origination targets and repayments;

• our ability to obtain our target mix of loan and collateral types with our expected ranges of yields;

• the allocation of loan opportunities to us by our Adviser;

• actual and potential conflicts of interest with our Adviser and its affiliates;

• our projected operating results;

• the state of the U.S.

economy generally or in the specific geographic regions in which we operate, including as a result of the impact of natural disasters;

• the impact of a protracted decline in the liquidity of credit markets on our business;

• the amount, collectability and timing of our cash flows, if any, from our loans;

• our ability to obtain and maintain competitive financing arrangements;

• our ability to achieve expected leverage;

• changes in the value of our loans;

• our being subject to regulations and SEC oversight as a BDC, including limits on affiliated transactions, co-investments, asset diversification requirements, and limits on issuance of debt.

If we fail to comply with applicable requirements, it may adversely impact our results relative to companies that are not subject to such regulations;

• losses that may arise due to the concentration of our portfolio in a limited number of loans and borrowers;

• our investment and underwriting process;

• the rates of default or recovery rates on our loans;

• the estimated growth in and evolving market dynamics of private credit, including in the cannabis market;

• changes in general economic conditions, in our industry and in the commercial finance and real estate markets;

• the demand for cannabis cultivation and processing facilities;

• shifts in public opinion and state regulation regarding cannabis;

• actions and initiatives of the U.S.

or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law and certain state laws;

• the degree to which our hedging strategies may or may not protect us from interest rate volatility;

• the availability of investment opportunities for us within our investment guidelines;

• changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans;

• interest rate mismatches between our loans and our borrowings used to fund such loans;

• the departure of any of the executive officers or key personnel supporting and assisting us from our Adviser, Administrator (as defined below) and/or their affiliates;

• impact of and changes in governmental regulations, tax law and rates, accounting guidance, tariffs and similar matters;

• estimates relating to our ability to make distributions to our shareholders in the future;

• our understanding of our competition;

• market trends in our industry, interest rates, real estate values, the securities markets or the general economy.

The above list of factors is not exhaustive or necessarily in order of importance.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions may be based on the work of third parties and any of those assumptions could prove to be inaccurate;

as a result, forward-looking statements based on those assumptions also could prove to be inaccurate.

In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved.

You should not place undue reliance on these forward-looking statements.

Please see the section entitled “ Risk Factors ” located in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 4, 2026, for further discussion of these and other risks and uncertainties which could affect our future results.

These forward-looking statements apply only as of the date of this Quarterly Report and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.

Advanced Flower Capital Inc.

is an institutional lender that was founded in July 2020 by a veteran team of investment professionals.

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 its capacity as investment adviser, the “Adviser”) pursuant to an investment advisory agreement (the “Advisory Agreement”), and we entered into an administration agreement (the “Administration Agreement”) with AFC Management, LLC (in its capacity as administrator, the “Administrator”).

We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 2021.

We commenced operations on July 31, 2020 and completed our initial public offering in March 2021.

The Advisory Agreement reflects an expanded investment mandate approved by our Board, including the ability to invest in a broader range of debt and other investments than was permitted under our prior REIT structure.

While we continue to pursue lending opportunities within the cannabis industry, such investments are no longer our primary focus and are evaluated alongside opportunities in other industries, including private publicly held middle-market companies and businesses ancillary to the cannabis industry, subject to the requirements of the 1940 Act as applicable to BDCs.

We primarily originate, structure, underwrite, invest in and manage senior secured mortgage loans and other types of loans and debt securities to companies ancillary to the cannabis industry as well as companies outside of the cannabis industry.

We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of loans and debt securities to companies ancillary to the cannabis industry as well as companies outside of the cannabis industry.

Businesses ancillary to the cannabis industry may include, but are not limited to, brand developers, business services providers, and equipment and consumables providers.

8 unchanged sentences

federal income tax purposes.

Prior to the Conversion, w e 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.

Prior to the Conversion, w e elected to be taxed as a REIT under Section 856 of the Internal Revenue Code of 1986, as amended Internal Revenue Code of 1986, as amended, commencing with our taxable year ended December 31, 2020 and ending with our taxable year ended December 31, 2025.

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.

18 unchanged sentences

Costs and expenses of the Administrator and the Adviser that are eligible for reimbursement by us will be reasonably allocated on the basis of time spent, assets under management, usage rates, proportionate holdings, a combination thereof or other reasonable methods determined by the Administrator.

Updates to Our Loan Portfolio During the Three Months Ended March 31, 2026

Updates to Our Loan Portfolio During the Six Months Ended June 30, 2026

In January 2026, we were fully repaid on our loan with Bloom Hold Co.

16 unchanged sentences

AFC Agent continues to monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors.

In April 2026, we entered into a forbearance agreement with High End Holdings LLC (“High End”), under which the Company agreed to forbear from exercising its rights and remedies with respect to the specified defaults for a defined

forbearance period, subject to High End’s compliance with certain payment and other obligations.

In May 2026, after failing to meet certain milestones under the forbearance agreement, we entered into a forbearance and modification agreement, which extended the forbearance period through June 8, 2026, subject to High End’s compliance with certain payment, capital raise, and other obligations, and amended certain provisions of the credit facilities, including, but not limited to, adjusted monthly amortization payments and amended the maturity date to December 15, 2027.

In June 2026, High End met the capital raise obligations, as required in the forbearance and modification agreement, which resulted in a principal repayment and reduction in commitment of $2.0 million under the credit facilities.

High End is current on all interest and amortization obligations under the credit facilities.

In April 2026, we funded the remaining unfunded commitment on our investment with BCIS AH Borrower LLC.

We funded approximately $9.7 million of additional principal.

In April 2026, we committed $2.5 million to each of the notes with Kristoff Buyer, LLC (“Kristoff Buyer”) and Kristoff Parent, LLC (“Kristoff Parent”), respectively.

We committed $2.5 million to a $50.0 million term loan as part of a $80.0 million senior secured credit facility with Kristoff Buyer, with the commitment fully funded at closing.

The loan was originated at a discount of 2.0% and matures April 2031.

The loan bears cash interest at a rate of SOFR plus 5.75%, with a rate index floor of 2.50%.

Concurrently, we committed $2.5 million of a $25.0 million senior secured credit facility with Kristoff Parent, which was fully funded at closing.

The loan was originated at a discount of 2.25% and matures October 2031.

The loan bears cash interest at a rate of 10.0% and 3.0% interest paid-in kind, with the option for the borrower to elect to pay interest at a rate of 15.0% paid-in kind.

In May 2026, our credit facility to Justice Cannabis Company and certain affiliates matured without repayment.

We are pursuing all rights and remedies against the borrowers under the credit facility.

In June 2026, we provided Story of Ohio LLC (“Story of Ohio”) a waiver of certain financial covenants simultaneously with an amendment of the credit facility.

The amendment included, among other items, an increase in monthly amortization payments, an amended maturity date of November 1, 2027, the addition of borrowers and assets to the collateral pool, and cross collateralization of the facility with Story of Maryland LLC (“Story of Maryland”).

All other material terms of the credit agreement remained substantially unchanged.

In June 2026, we provided Story of Maryland a waiver of certain financial covenants and unauthorized restricted payments simultaneously with an amendment of the credit facility.

The amendment included, among other items, an increase in monthly amortization payments, a reduction of permitted restricted payments, the addition of a parent guaranty, and cross collateralization of the facility with Story of Ohio.

All other material terms of the credit agreement remained substantially unchanged.

Portfolio and Investment Activity

Our investment activity is presented below (information presented herein is at amortized cost unless otherwise indicated):

Three months ended

Six months ended

Total investments, beginning of period $ 307,369,372 $ 345,399,030

3 unchanged sentences

PIK interest 1,106,637 266,550

Loan write-off

— (1,777,246)

Total investments, end of period $ 354,320,536 $ 349,265,092

The following table presents certain selected information regarding our investment portfolio as of March 31, 2026:

March 31, 2026

Number of portfolio companies 15

The following table presents certain selected information regarding our investment portfolio as of June 30, 2026:

June 30, 2026

Number of investments

Weighted average yield on debt and income producing investments, at amortized cost (1)

7 unchanged sentences

(2) As a percentage of total amortized cost of investments.

Investments on nonaccrual represented 23.5% of total fair value of investments as of March 31, 2026.

Investments on nonaccrual represented 22.7% of total fair value of investments as of June 30, 2026.

Our investments consisted of the following:

As of March 31, 2026

As of June 30, 2026

Amortized cost (1)

21 unchanged sentences

The risk ratings are primarily based on historical data as well as taking into account future economic conditions.

The following table shows the composition of our debt portfolio on the 1 to 5 rating scale as of March 31, 2026:

As of March 31, 2026

The following table shows the composition of our debt portfolio on the 1 to 5 rating scale as of June 30, 2026:

As of June 30, 2026

Fair Value % of Portfolio Number of Companies

3 unchanged sentences

Total $ 289,763,599 100.0 % 17

As of March 31, 2026, the weighted average grade of the investments in our portfolio at fair value was 3.2.

As of March 31, 2026, we had three loans on nonaccrual status, and nonaccrual investments as a percentage of total debt investments at cost and fair value were 36.6% and 23.5%, respectively.

Results of Operations f or the three months ended March 31, 2026 and 2025

Due to the prospective application of a change in accounting as required under ASC 946-10-25-3, we have determined that the presentation of our consolidated financial statements for periods beginning after December 31, 2025 are not comparable to the consolidated financial statements previously prepared for prior periods for which we did not apply ASC 946.

The following table summarizes our consolidated results of operations for the three months ended March 31, 2026:

As of June 30, 2026, the weighted average grade of the investments in our portfolio at fair value was 3.1.

As of June 30, 2026, we had three loans on nonaccrual status, and nonaccrual investments as a percentage of total debt investments at cost and fair value were 35.7% and 22.7%, respectively.

Results of Operations f or the three and six months ended June 30, 2026 and 2025

Due to the prospective application of a change in accounting as required under Accounting Standards Codification (“ASC”) 946, Financial Services–Investment Companies (“ASC 946”), we have determined that the presentation of our consolidated financial statements for periods beginning after December 31, 2025 are not comparable to the consolidated financial statements previously prepared for prior periods for which we did not apply ASC 946.

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2026:

Three months ended

March 31, 2026

June 30, 2026 Six months ended

June 30, 2026

Total investment income $ 8,691,805 $ 18,505,023

9 unchanged sentences

Net increase in net assets resulting from operations $ 5,360,048 $ 16,787,395

The following table summarizes our consolidated results of operations for the three months ended March 31, 2025:

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2025:

Three months ended

March 31, 2025

June 30, 2025 Six months ended

June 30, 2025

Interest income $ 8,061,509 $ 16,519,757

1 unchanged sentence

Net interest income 6,203,335 12,846,312

Management and incentive fees, net (less rebate of $128,580)

Management and incentive fees, net (less rebate of $260,742 and $389,322, respectively)

680,358 1,496,548

General and administrative expenses 845,750 1,580,707

1 unchanged sentence

Professional fees 361,104 733,040

BDC conversion expenses 226,780 226,780

Total expenses 2,598,494 5,075,326

Reversal of current expected credit losses 699,424

Provision for current expected credit losses (15,851,566) (15,152,142)

Change in unrealized losses on loans at fair value, net (1,055,970) (1,741,448)

Net income before income taxes 4,180,091

Income tax expense 112,406

Net income $ 4,067,685

Net increase (decrease) in net assets resulting from operations can vary from period to period due to various factors, including, but not limited to, including acquisitions, the level of new investment commitments, expenses, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio.

Net loss before income taxes (13,302,695) (9,122,604)

Income tax benefit (138,044) (25,638)

Net loss $ (13,164,651) $ (9,096,966)

Net increase (decrease) in net assets resulting from operations can vary from period to period due to various factors, including, but not limited to, acquisitions, the level of new investment commitments, expenses, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio.

Investment income

Three months ended

June 30, Six months ended

2026 2025 2026 2025

Interest income $ 7,908,745 $ 7,852,166 $ 15,579,535 $ 16,130,654

3 unchanged sentences

Investment income.

Investment income increased approximately $1.4 million, or 16%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.

Interest income decreased $(0.6) million period

over period primarily due to lower interest income of $(0.7) million on our loan with Justice Cannabis Company, which was on nonaccrual status in the current and prior period.

While accruing debt investments outstanding principal balance increased approximately $4.0 million, comparing March 31, 2026 to March 31, 2025, the weighted average yield decreased approximately (0.1)% for the same period, based on outstanding principal, excluding loans on nonaccrual, due to a decline in benchmark interest rates.

This is offset by an increase in other income of $1.7 million, driven by fees recognized associated with the loan exits of Bloom Hold Co.

Investment income increased approximately $0.6 million, or 8%, for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025.

Investment income increased period over period due to an increase in the outstanding principal balance of accruing investments of approximately $15.7 million, comparing June 30, 2026 to June 30, 2025.

The weighted average yield increased by 0.4% for the same period, based on outstanding principal, excluding loans on nonaccrual.

Investment income.

Investment income increased approximately $2.0 million, or 12%, for the six months ended June 30, 2026, as compared to the six months ended June 30, 2025.

The change period over period is primarily due to an increase in other income of approximately $1.7 million, driven by fees recognized associated with the loan exits of Bloom Hold Co.

and Gron Holdings, Inc.

Three months ended

June 30, Six months ended

2026 2025 2026 2025

Interest expense $ 1,921,879 $ 1,858,174 $ 3,648,419 $ 3,673,445

5 unchanged sentences

Professional fees 356,055 297,354 819,966 600,819

BDC conversion expenses — 226,780 — 226,780

Total expenses 5,176,241 4,717,410 10,287,948 9,138,093

2 unchanged sentences

Interest expense.

Interest expense decreased approximately $(0.1) million, or (4.9)%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, driven by $(0.2) million lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of $(13.0) million relating to the repurchase of $13.0 million of our 2027 Senior Notes in the prior year.

This is partially offset by an increase in the duration borrowings were outstanding on our Revolving Credit Facility, resulting in additional interest expense of $0.1 million.

Average borrowings on the Revolving Credit Facility increased $13.0 million period over period, offset by a lower weighted average interest rate on borrowings of (0.75)% due to a lower benchmark rate.

Interest expense increased approximately $0.1 million, or 3.4%, and decreased $0.03 million, or 0.7%, respectively, for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025.

During the three and six months ended, June 30, 2026 average borrowings on the Revolving Credit Facility increased $14.0 million each comparative period, offset by a lower weighted average interest rate on borrowings of (0.75)% due to a lower benchmark rate.

This is partially offset by lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of $13.0 million relating to the repurchase of $13.0 million of our 2027 Senior Notes in the prior year.

Management fees.

Management fees increased approximately $28.5 thousand, or 3.0%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.

Management fees increased approximately $0.1 million, or 14.6%, and $0.2 million, or 8.8%, respectively, for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025.

Following the Conversion, the compensation arrangement under the Advisory Agreement took effect as of January 1, 2026.

2 unchanged sentences

Following the Conversion, the income-based incentive fee under the Advisory Agreement took effect as of January 1, 2026.

Incentive fees increased approximately $1.0 million, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.

There was no incentive fee incurred during the three months ended March 31, 2025.

Incentive fees increased approximately $0.7 million and $1.8 million, respectively, for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025.

There was no incentive fee incurred during each of the three and six months ended June 30, 2025.

General and administrative expenses.

General and administrative expenses increased $0.1 million, or 17.1%, for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.

General and administrative expenses increased $0.2 million, or 20.3%, and $0.3 million, or 19%, respectively, for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025.

Stock-based compensation .

Stock-based compensation decreased $(0.6) million, or (100.0)%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.

Because externally managed BDCs are not permitted under the 1940 Act to issue or have outstanding restricted stock or stock options, the Company’s Board, in advance of the Conversion, approved the accelerated vesting of its outstanding restricted stock and cancelled its outstanding stock options.

Stock-based compensation decreased $0.5 million and $1.0 million, respectively, for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025.

Because externally managed BDCs are not permitted under the 1940 Act to issue or have outstanding restricted stock or stock options, the Board, in advance of the Conversion, approved the accelerated vesting of its outstanding restricted stock and cancelled its outstanding stock options.

Following the Conversion, there was no stock-based compensation activity.

Professional fees .

Professional fees increased approximately $0.2 million, or 52.9%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, respectively.

Professional fees increased approximately $0.1 million, or 20%, and $0.2 million, or 36.5%, respectively, for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025.

Income tax (benefit) expense .

Income tax expense on net investment income decreased $(0.1) million, or (33.7)%, for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025.

The provision for taxes on

unrealized appreciation on investments increased $0.6 million, driven by an increase in temporary differences relating to the net change in unrealized appreciation on investments.

Income tax expense on net investment income increased $0.4 million and $0.3 million, respectively, for the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025.

The provision for taxes on unrealized appreciation on investments decreased $0.2 million and $0.8 million, respectively, for the three and six months ended June 30, 2026, driven by an increase in temporary differences relating to the net change in unrealized appreciation on investments.

Net change in unrealized appreciation (depreciation)

Three months ended

June 30, Six months ended

2026 2025 2026 2025

Net change in unrealized appreciation (depreciation) on investments $ 2,124,417 $ (1,055,970) $ 9,242,860 $ (1,741,448)

2 unchanged sentences

An unrealized appreciation arises when the fair value of the investment exceeds its cost and an unrealized depreciation arises when the fair value of the investment is less than its cost.

The net change in unrealized appreciation on investments of approximately $7.1 million for the three months ended March 31, 2026, 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, as well as the number of investments in our portfolio held at fair value.

The net change in unrealized appreciation on investments of approximately $3.2 million and $11.0 million, respectively, for the three and six months ended June 30, 2026, 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, as well as the number of investments in our portfolio held at fair value.

In the prior period, only one loan was held at fair value, compared to 17 loans held at fair value in the current period, as a result of our Conversion to a BDC on January 1, 2026.

3 unchanged sentences

The sources of financing for our target investments are described below.

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.

As of March 31, 2026 and December 31, 2025, all of our cash was unrestricted and totaled approximately $112.7 million and $38.6 million, respectively.

As of March 31, 2026, 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.

Our primary sources of cash generally consist of unused borrowing capacity under the Revolving Credit Facility, TCGSL Credit Facility, 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.

As of June 30, 2026 and December 31, 2025, all of our cash was unrestricted and totaled approximately $106.5 million and $38.6 million, respectively.

As of June 30, 2026, 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.

From time to time, we review opportunities to proactively manage our balance sheet by evaluating transactions that may potentially improve our overall debt profile.

3 unchanged sentences

The amount of leverage that we may employ depends on our Adviser’s and our Board’s assessment of market conditions and other factors at the time of any proposed borrowing.

As of March 31, 2026 and December 31, 2025, we had an aggregate amount of $203.0 million and $98.0 million, respectively, of principal debt outstanding and our asset coverage ratio was 191% and 278%, respectively.

As of June 30, 2026 and December 31, 2025, we had an aggregate amount of $207.0 million and $98.0 million, respectively, of principal debt outstanding and our asset coverage ratio was 190% and 278%, respectively.

Distributions Declared Per Share

For the three months ended March 31, 2026 and 2025, we declared the following cash distributions:

For the six months ended June 30, 2026 and 2025, we declared the following cash distributions:

Date Declared Payable to Shareholders of Record at the Close of Business on Payment Date Amount per Share Total Amount

March 11, 2025 March 31, 2025 April 15, 2025 $ 0.23 $ 5,197,082

June 13, 2025 June 30, 2025 July 15, 2025 0.15 3,389,267

2025 Period Subtotal

1 unchanged sentence

March 2, 2026 March 31, 2026 April 15, 2026 $ 0.05 $ 1,176,442

June 15, 2026 June 30, 2026 July 15, 2026 0.05 1,134,883

2026 Period Subtotal $ 0.10 $ 2,311,325

As of March 31, 2026 As of December 31, 2025

Share Repurchase Program

On May 4, 2026, our Board authorized a program for the purpose of repurchasing up to $5.0 million of our common stock (the “Repurchase Program”).

Under the Repurchase Program, we may, but are not obligated to, repurchase our outstanding common stock in the open market from time to time, provided that we comply with the prohibitions under our compliance policies and procedures adopted in accordance with Rule 38a-1 under the 1940 Act and a code of ethics adopted pursuant to Rule 17j-1 under the 1940 Act.

and the guidelines specified in Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including certain price, market, volume, and timing constraints.

In addition, any repurchases will be conducted in accordance with the 1940 Act.

Unless amended or extended by our Board, we expect the Repurchase Program to be in place until the earlier of such time that $5.0 million of our outstanding shares of common stock have been repurchased, or May 4, 2027.

During the three and six months ended June 30, 2026, we repurchased 839,406 shares of our common stock under the Repurchase Program, totaling $2.8 million, including commissions, at a weighted average net price of $3.29 per share.

As of June 30, 2026 As of December 31, 2025

Aggregate Principal Committed Outstanding Principal Carrying Value Aggregate Principal Committed Outstanding Principal Carrying Value

9 unchanged sentences

As amended, the Revolving Credit Facility contains aggregate commitments of $80.0 million ($110.0 million solely during the 2026 temporary increase period (defined below)) from a FDIC-insured banking institution (which may be increased up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Agreement.

Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 7.00%, as provided in the Revolving Credit Agreement, as amended, payable in cash in arrears.

Our obligations under the Revolving Credit Facility are secured by certain assets of ours comprising of or relating to loan obligations designated for inclusion in the borrowing base.

Interest is payable on the Revolving

Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 7.00%, as provided in the Revolving Credit Agreement, as amended, payable in cash in arrears.

Our obligations under the Revolving Credit Facility are secured by substantially all of our assets.

In addition, we are subject to various financial and other covenants, including:

(1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.50 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of us and our subsidiaries.

To the best of our knowledge, as of March 31, 2026, 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 June 30, 2026, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

In January 2026, we entered into Amendment Number Six to the Loan and Security Agreement (“Amendment Number Six”), by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative party thereto.

Amendment Number Six, among other things, includes provisions relevant in light of our conversion from a REIT to a BDC.

Amendment Number Six, among other things, includes provisions relevant in light of our Conversion to a BDC.

In March 2026, we entered into Amendment Number Seven to the Loan and Security Agreement (“Amendment Number Seven”), by and among the Company, as borrower, the lenders party thereto and the lead arranger, bookrunner and administrative agent party thereto.

Amendment Number Seven, among other things, added TCGDL LLC, a subsidiary of

the Company, as a borrower under the Revolving Credit Facility and amended certain provisions related to the inclusion of TCGDL LLC as a Borrower.

Amendment Number Seven, among other things, added TCGDL LLC, a subsidiary of the Company, as a borrower under the Revolving Credit Facility and amended certain provisions related to the inclusion of TCGDL LLC as a Borrower.

In March 2026, we entered into Amendment Number Eight to the Loan and Security Agreement (“Amendment Number Eight”), by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative party thereto.

Amendment Number Eight, among other things, increased the commitment from the lenders by $56.0 million, from $50.0 million to $106.0 million, consisting of (i) a $30.0 million permanent increase in revolver commitments and (ii) a $26.0 million increase in revolver commitments during a specified temporary increase period beginning on March 27, 2026 and ending on April 10, 2026 (the “Temporary Increase Period”).

Upon expiration of the Temporary Increase Period, the aggregate revolving commitments and the maximum revolver amount under the facility was automatically reduced to $80.0 million.

As of March 31, 2026, outstanding borrowings under the Revolving Credit Facility were $106.0 million and zero was available for borrowing.

As of March 31, 2026, the interest rate on the Company’s borrowings under the Revolving Credit Facility was 7.25%.

On April 1, 2026, we repaid $88.0 million on our outstanding debt obligations under the Revolving Credit Facility.

Upon expiration of the Amendment Number Eight Temporary Increase Period, the aggregate revolving commitments and the maximum revolver amount under the facility was automatically reduced to $80.0 million.

In June 2026, we entered into Amendment Number Nine to the Loan and Security Agreement (“Amendment Number Nine”), by and among the Company, as borrower, the lenders party thereto, and the lead arranger, bookrunner and administrative party thereto.

Amendment Number Nine, among other things, conformed certain reporting information to market standard for BDCs, set certain conditions for including specific credit facilities in the borrower base, and increased the aggregate revolver commitments under the facility to $110.0 million, consisting of a $30.0 million temporary increase in revolver commitments during a specified temporary increase period beginning on June 26, 2026 and ending on July 3, 2026 (the “Amendment Number Nine Temporary Increase Period”).

Upon expiration of the Amendment Number Nine Temporary Increase Period, the aggregate revolving commitments and the maximum revolver amount under the facility will automatically be reduced to $80.0 million.

As of June 30, 2026, outstanding borrowings under the Revolving Credit Facility were $110.0 million and $0 was available for borrowing.

As of June 30, 2026, the interest rate on the Company’s borrowings under the Revolving Credit Facility was 7.25%.

On July 1, 2026, we repaid $84.4 million on our outstanding debt obligations under the Revolving Credit Facility.

TCGSL Credit Facility

In January 2026, we entered into the TCGSL Credit Facility, which provides for an unsecured revolving credit facility with a $20.0 million commitment, which may be borrowed, repaid and redrawn, subject to a draw fee and the other conditions provided in the TCGSL Credit Agreement .

As of March 31, 2026, outstanding borrowings on the TCGSL Credit Facility were $20.0 million and zero was available for borrowing.

On April 1, 2026, we repaid $20.0 million on our outstanding debt obligations under the TCGSL Credit Facility.

As of June 30, 2026, outstanding borrowings on the TCGSL Credit Facility were $20.0 million and $0 was available for borrowing.

On July 1, 2026, we repaid $20.0 million on our outstanding debt obligations under the TCGSL Credit Facility.

2027 Senior Notes

2 unchanged sentences

Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, which began on May 1, 2022.

The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by us.

The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees

and expenses payable by us.

We used the net proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes.

2 unchanged sentences

TRS1 is currently a subsidiary guarantor under the Indenture.

As of March 31, 2026, we had $77.0 million in principal amount of the 2027 Senior Notes outstanding.

As of June 30, 2026, we had $77.0 million in principal amount of the 2027 Senior Notes outstanding.

Prior to February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part, at a price equal to the greater of 100% of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date.

5 unchanged sentences

If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable.

These events of default are subject to a number of important exceptions and

qualifications set forth in the Indenture.

These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture.

We were in compliance with the terms of the Indenture as of the date of this Quarterly Report.

11 unchanged sentences

We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.

As of March 31, 2026 , 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.

As of June 30, 2026 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, TCGSL Credit Facility, principal repayments we expect to receive on our investment portfolio, and cash flows from operations will be sufficient to satisfy the operating requirements of our business, to service our outstanding debt, and to meet our contractual obligations, including repayment of the 2027 Senior Notes at maturity, through at least the next twelve months.

Recent Developments

In February 2026, we delivered a notice of default and reservation of rights to High End Holdings LLC under the credit facilities governing the real estate and non-real estate loans, following the breach of certain financial covenants.

Subsequently, in April 2026, we entered into a forbearance agreement with High End Holdings LLC, under which the Company agreed to forbear from exercising its rights and remedies with respect to the specified defaults for a defined forbearance period, subject to High End Holdings LLC’s compliance with certain payment and other obligations.

In May 2026, after failing to meet certain milestones under the forbearance agreement, we entered into a forbearance and modification agreement, which extended the forbearance period through June 8, 2026, subject to High End Holdings LLC’s compliance with certain payment, capital raise, and other obligations, and amended certain provisions of the credit facilities, including, but not limited to, adjusted monthly amortization payments and amended maturity date to December 15, 2027.

High End Holdings LLC is current on all interest and amortization obligations under the credit facilities.

In April 2026, we funded the remaining unfunded commitment on our investment with BCIS AH Borrower LLC.

We funded approximately $9.7 million of additional principal.

In April 2026, we committed $2.5 million to each of the notes with Kristoff Buyer, LLC and Kristoff Parent, LLC, respectively.

We committed $2.5 million to a $50.0 million term loan as part of a $80.0 million senior secured credit facility with Kristoff Buyer, LLC, with the commitment fully funded at closing.

The loan was originated at a discount of 2.0% and matures April 2031.

The loan bears cash interest at a rate of SOFR plus 5.75%, with a rate index floor of 2.50%.

Concurrently, we committed $2.5 million of a $25.0 million senior secured credit facility with Kristoff Parent, LLC, which was fully funded at closing.

The loan was originated at a discount of 2.25% and matures October 2031.

The loan bears cash interest at a rate of 10.0% and 3.0% interest paid-in kind, with the option for the borrower to elect to pay interest at a rate of 15.0% paid-in kind.

In May 2026, our credit facility to Justice Cannabis Company matured without repayment.

We are pursuing all rights and remedies against the borrowers under the credit facility.

In July 2026, a borrower, Devi Holdings Inc.

(“Devi”) entered into a binding term sheet, through its court-appointed receiver, to sell its Massachusetts and New Mexico assets to J Brrothers LLC for $12.5 million, of which we expect to be allocated our pro rata portion of the sale proceeds.

Devi earned a non-refundable deposit of $2.0 million in connection with entering into the binding term sheet.

The transaction remains subject to definitive documentation and court approval.

No assurance can be provided that it will be consummated by the terms described herein, or at all.

AFC Agent continues to

monitor the court-appointed receivership installed to maintain the borrower’s operations and maximize value for the benefit of its creditors.

In July 2026, we committed $7.0 million of a $25.0 million senior secured credit facility with CM Counsel Management LLC, of which $3.1 million was funded at closing.

The loan was originated at a discount of 3.0% and matures July 10, 2030.

The loan bears cash interest at a rate of three-month SOFR plus 4.5%, with a rate index floor of 4.0%, and 5.0% interest paid-in kind.

In July 2026, we entered into an amendment with Story of Natures Medicine LLC (“Story of Natures Medicine”) to extend the maturity date from July 31, 2026 to December 31, 2026 in exchange for an amendment fee of 1.5% of the outstanding principal balance and the addition of an exit fee of 1.5% of the outstanding principal balance.

Story of Natures Medicine is current on all interest and amortization obligations under the credit facility.

On July 1, 2026, we repaid $84.4 million and $20.0 million, respectively, on our outstanding debt obligations under the Revolving Credit Facility and TCGSL Credit Facility.

In August 2026, we entered into a forbearance agreement under the existing credit facility with Theratrue, Inc.

and its affiliates (“Theratrue”), as borrowers, whereby we agreed to waive certain financial covenants and forbear from exercising certain rights, subject to certain conditions.

In exchange, the parties amended certain terms regarding Theratrue’s repayment obligations thereunder and Theratrue paid an amendment fee and will pay an exit fee, totaling approximately $0.4 million in the aggregate.

Approximately $8.0 million remains outstanding under the credit facility.

Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements

Our contractual obligations as of March 31, 2026 are as follows:

As of March 31, 2026

Our contractual obligations as of June 30, 2026 are as follows:

As of June 30, 2026

1 year 1-3 years 3-5 years More than

2 unchanged sentences

Total $ 3,029,030 $ — $ — $ — $ 3,029,030

As of March 31, 2026 , all unfunded commitments were related to our total loan commitments and were available for funding in less than one year.

We also had the following contractual obligations as of March 31, 2026 relating to the 2027 Senior Notes:

As of March 31, 2026

As of June 30, 2026 , all unfunded commitments were related to our total loan commitments and were available for funding in less than one year.

We also had the following contractual obligations as of June 30, 2026 relating to the 2027 Senior Notes:

As of June 30, 2026

1 year 1-3 years 3-5 years More than

3 unchanged sentences

Total $ 81,427,500 $ — $ — $ — $ 81,427,500

(1) Amounts include projected interest payments during the period based on interest rates in effect as of March 31, 2026 .

(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2026 .

We may enter into certain contracts that may contain a variety of indemnification obligations.

4 unchanged sentences

Critical Accounting Policies and Estimates

As of March 31, 2026 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.

For a description of our critical accounting policies and estimates, see Note 2 “Significant Accounting Policies” to our consolidated financial statements.

We consider the most significant accounting policies to be those related to our Valuation of Portfolio Investments, Use of Estimates in the Preparation of Financial Statements, and Basis of Presentation.

As of June 30, 2026 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

description of our critical accounting policies and estimates, see Note 2 “Significant Accounting Policies” to our consolidated financial statements.

We consider the most significant accounting policies to be those related to our Valuation of Portfolio Investments, Use of Estimates in the Preparation of the Consolidated Financial Statements, and Basis of Presentation.

As of January 1, 2026, we are an investment company under GAAP and follow the accounting and reporting guidance applicable to investment companies in ASC 946 and SEC Regulation S-X.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis