What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 132 added, 117 removed, 298 unchanged (46% of the section changed)

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AFC Gamma, Inc.

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

We originate, structure, underwrite, and invest in senior secured loans and other types of loans and debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

is primarily an institutional lender to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals.

We primarily originate, structure, underwrite, and invest in senior secured loans and other types of loans and debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

As states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing.

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Our loans typically have up to a five-year maturity and contain amortization and/or cash flow sweeps.

We have also recently expanded our investment strategy to include (i) first lien loans secured by mortgages to businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities.

We expect our underwriting and investment process for these types of investments to be substantially similar to the process we deploy for our loans to cannabis operators.

We are a Maryland corporation and externally managed by our Manager, AFC Management, LLC, a Delaware limited liability company, pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, by and between AFC Gamma, Inc.

and AFC Management, LLC (as amended from time-to-time, the “Management Agreement”).

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

and AFC Management, LLC (as amended, the “Management Agreement”).

We have elected to be taxed as a real estate investment trust (a “REIT”), commencing with our taxable year ended December 31, 2020.

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On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1.

These two loans constituted substantially all of the assets of TRS1 as of June 30, 2022.

On July 1, 2022, our investment in the senior secured loan to Private Company J was transferred to TRS1.

These three loans constituted substantially all of the assets of TRS1 as of September 30, 2022.

The financial statements of TRS1 have been consolidated within our consolidated financial statements.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take

advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

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We could remain an “emerging growth company” for up to five years from our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

Developments during the Second Quarter of 2022:

Updates to our Loan Portfolio during the Second Quarter of 2022

During the second quarter of 2022, we closed two loans with new commitments of approximately $107.8 million and funded approximately $82.1 million of principal amount of new and existing commitments, including approximately $32.0 million which was refinanced from existing borrowers.

On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1.

In April 2022, each of the credit facilities with Private Company D and Private Company F were terminated and repaid in full in connection with the Company’s new loan to Private Company L, an affiliate of Private Company D and Private Company F.

The loans to Private Company D and Private Company F had original maturity dates of January 2026 and May 2026, respectively.

The outstanding principal of Private Company D and Private Company F on the date of repayment was approximately $12.1 million and $12.9 million, respectively.

In addition to the repayment of the outstanding principal amounts of the loans to Private Company D and Private Company F, the Company received approximately $0.2 million and $2.0 million related to exit fees and other fees upon repayment of the loans, respectively.

In April 2022, the credit facilitiy with Private Company K was terminated and repaid in full in connection with the Company’s refinancing and restructuring the loan under a new credit facility with Private Company K.

Under the new credit facility with Private Company K, the Company increased its total loan commitment to approximately $24.8 million, from $19.8 million, and restructured the construction obligations of the borrowers, among other things.

As restructured, the Private Company K loan accrues interest at a floating rate, with a floor of 13%, and matures in May 2027.

Following the repayment of Private Company K loan, five of the Company’s loans have been repaid and/or refinanced prior to maturity since March 2021.

Developments during the Third Quarter of 2022:

Updates to our Loan Portfolio during the Third Quarter of 2022

During the third quarter of 2022, we purchased one investment with new commitments of approximately $10.0 million, increased commitments to current borrowers of approximately $9.0 million and funded approximately $24.8 million of principal amount of new and existing commitments.

In August 2022, we purchased $10.0 million in outstanding principal amount of 9.5% senior secured notes issued at an 8.75% discount by the Subsidiary of Public Company M, an operator publicly listed in the United States.

In August 2022, we committed an additional $8.1 million under Credit Facility with the Subsidiary of Private Company G.

Following the expansion, we now hold $73.5 million in commitments, of which we have funded approximately $66.8 million in total principal amount.

As part of the expansion, the interest rate increased from a blended weighted-average rate across three tranches of 13.7% to Prime plus 10.3%, subject to a floor of 4.5%, per annum and the PIK interest decreased from a blended weighted-average rate across three tranches of 1.8% to 0.0% per annum.

At-the-Market Offering Program

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Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.

During the three months ended June 30, 2022, we sold an aggregate of 114,932 shares of our common stock under the Sales Agreement at an average price of $18.08 per share.

The sales generated net proceeds of approximately $1.3 million.

Revolving Credit Facility

On April 29, 2022, we entered into the Revolving Credit Facility.

The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), with a maturity date of April 29, 2025.

Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears.

Upon our entry into the Revolving Credit Facility, we terminated the AFCF Revolving Credit Facility with AFC Finance, LLC, an affiliate of the Company’s management, which was secured by substantially all of the assets of the Company.

During the three and nine months ended September 30, 2022, we sold an aggregate of 506,466 and 621,398 shares of our common stock under the Sales Agreement at an average price of $18.35 and $18.30 per share, respectively.

The sales generated net proceeds of approximately $9.0 million and $10.4 million for the three and nine months ended September 30, 2022, respectively.

Dividends Declared Per Share

In June 2022, we declared a regular cash dividend of $0.56 per share of our common stock, relating to the quarter ended June 30, 2022, which was paid on July 15, 2022 to shareholders of record as of June 30, 2022.

In September 2022, we declared a regular cash dividend of $0.56 per share of our common stock, relating to the quarter ended September 30, 2022, which was paid on October 14, 2022 to shareholders of record as of September 30, 2022.

The aggregate amount of the regular cash dividend payment was approximately $11.4 million.

For the six months ended June 30, 2022 and 2021, we paid the following cash dividends:

For the nine months ended September 30, 2022 and 2021, we paid the following cash dividends:

Date Declared Payable to Shareholders of Record at the Close of Business on Date Paid Amount per Share Aggregate Amount Paid

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May 7, 2021 June 15, 2021 June 30, 2021 0.38 5.1 million

September 15, 2021 September 30, 2021 October 15, 2021 0.43 7.1 million

2021 Period Subtotal $1.17 $14.4 million

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June 15, 2022 June 30, 2022 July 15, 2022 0.56 11.1 million

September 15, 2022 September 30, 2022 October 14, 2022 0.56 11.4 million

2022 Period Subtotal $1.67 $33.4 million

Recent Developments

Subsequent to th e end of the second quarter, we funded approximately $1.9 million of principal amount of existing commitments.

Based on current estimates and market conditions, we expect to target between $300.0 million and $500.0 million in originations with future new and existing borrowers for the fiscal year 2022 and expect between $100.0 million and $200.0 million in repayments by borrowers, in each case, for the fiscal year 2022.

However, our goals and expectations are preliminary and may change.

See the sections titled “ Cautionary Note Regarding Forward-Looking Statements ” in this Form 10-Q and “ Risk Factors ” located in our Annual Report on Form 10-K, filed with the SEC on March 10, 2022.

Subsequent to th e end of the third quarter, we increased commitments to to one borrower in the amount of $30.0 million, were repaid $86.6 million in full by Public Company F, reduced its commitment to one borrower by $19.5 million, and funded approximately $9.2 million of principal amount of new and existing commitments.

In October 2022, the Credit Agreement with the Subsidiary of Public Company H was amended to, among other things, increase the total loan commitment by $50.0 million, of which $30.0 million of the new loan commitment was allocated to us and $7.8 million was funded by us.

As part of the expansion, the interest rate increased from a fixed rate of 9.8% to U.S.

Prime plus 5.8%, subject to a Prime floor of 5.5%.

In October 2022, Public Company F repaid its loan in full.

The loan was comprised of three tranches with original maturity dates of May 30, 2023, April 28, 2023 and August 28, 2023.

The aggregate amount of outstanding principal on the date of repayment was $86.6 million.

We received a prepayment premium and make-whole premium of approximately $0.1 million and $0.6 million, respectively.

Following the repayment of Public Company F, six of our loans have repaid prior to maturity since the Company’s IPO in March 2021.

In November 2022, the Company and Private Company L agreed to reduce the total loan commitment under the credit facility from $82.5 million to $63.0 million.

Key Financial Measures and Indicators

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The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive Compensation earned under the Management Agreement for the applicable time period, and thus Core Earnings is calculated without giving effect to Incentive Compensation expense, while the calculation of Distributable Earnings accounts for any Incentive Compensation earned for such time period.

We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss);

loss and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

comprehensive income or loss, or in net income (loss);

provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses, (v) TRS (income) loss and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business.

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Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

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Depreciation and amortization — — — —

Unrealized (gains), losses or other non-cash items 1,005,454 483,159 924,611 627,561

Unrealized losses, (gains) or other non-cash items 637,279 (1,423,929) 1,561,890 (796,368)

Provision for current expected credit losses 541,958 660,612 3,040,135 1,372,498

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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 June 30, 2022 and December 31, 2021 was approximately $17.03 and $16.61, respectively.

The book value per share of our common stock as of September 30, 2022 and December 31, 2021 was approximately $17.06 and $16.61, respectively.

Factors Impacting our Operating Results

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Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.

Results of Operations f or the three and six months ended June 30, 2022 and 2021

Our net income allocable to our common shareholders for the three and six months ended June 30, 2022 was approximately $11.4 million and $21.5 million or $0.58 and $1.10 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $4.6 million and $6.0 million or $0.34 and $0.58 per basic weighted average common share for the prior year periods.

Interest income increased approximately $12.9 million and $26.9 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively.

This increase was primarily due to an increase in principal outstanding of approximately $164.0 million at June 30, 2021 compared to $424.8 million at June 30, 2022.

Interest expense increased approximately $1.7 million and $3.4 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021.

This increase was due to interest expense incurred and amortization of deferred financing costs relating to our AFCF Revolving Credit Facility, which was terminated in April 2022, our Revolving Credit Facility that began in April 2022 and our 2027 Senior Notes that were issued in November 2021.

General and administrative expenses increased approximately $0.5 million and $1.2 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively.

Results of Operations f or the three and nine months ended September 30, 2022 and 2021

Our net income allocable to our common shareholders for the three and nine months ended September 30, 2022 was approximately $11.5 million and $33.0 million or $0.57 and $1.68 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $7.9 million and $14.0 million or $0.48 and $1.13 per basic weighted average common share, respectively, for the prior year periods.

Interest income increased approximately $9.2 million and $36.0 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was primarily due to an increase in the average principal outstanding of approximately $231.9 million and $246.4 million for the three and nine months September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

Interest expense increased approximately $1.6 million and $5.1 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021.

This increase was due to interest expense incurred and amortization of deferred financing costs relating to our 2027 Senior Notes that were issued in November 2021, our AFCF Revolving Credit Facility, which was terminated in April 2022, and our Revolving Credit Facility that began in April 2022.

For the three months ended September 30, 2022, total interest expense for the 2027 Senior Notes, Revolving Credit Facility and AFCF Revolving Credit Facility was approximately $1.6 million, $0.0 million and $0.0 million, respectively.

For the nine months ended September 30, 2022, total interest expense for the 2027 Senior Notes, Revolving Credit Facility and AFCF Revolving Credit Facility was approximately $4.8 million, $0.1 million and $0.2 million, respectively.

No interest expense was incurred for either the three and nine months ended September 30, 2021.

General and administrative expenses increased approximately $0.2 million and $1.3 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was primarily due to an increase in expenses relating to personnel, overhead, and occupancy costs as the Company continues to expand.

Management fees increased approximately $0.2 million and $0.8 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively.

Management fees increased approximately $0.1 million and $0.9 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was primarily due to an increase in the Company’s Equity from approximately $274.4 million to $347.4 million.

Incentive fees increased by approximately $2.0 million and $4.3 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively.

Incentive fees increased by approximately $1.2 million and $5.4 million for the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021, respectively.

This increase was driven by the increase in Core Earnings as defined in the Management Agreement.

Provision for Current Expected Credit Losses

For the three and six months ended June 30, 2022, the increase to our provision for current expected credit loss was approximately $1.6 million and $2.5 million, respectively.

The balance as of June 30, 2022 was approximatel y $5.6 million or 176 basis points of our total loans held at carrying value and loans receivable at carrying value balance of approximately $318.1 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 loans receivable at carrying value of approximately $5.0 million and (ii) a liability for unfunded commitments of approximately $0.6 million.

For the six months ended June 30, 2021, the increase to our provision for current expected credit loss was approximately $0.7 million and the balance as of June 30, 2021 was approximately $1.2 million or 109 basis points of our total loans held at carrying value and loans receivable at carrying value balance of approximately $108.4 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 loans receivable at carrying value of approximately $0.7 million and (ii) a liability for unfunded commitments of approximately $0.5 million.

For the three and nine months ended September 30, 2022, the increase to our provision for current expected credit loss was approximately $0.5 million and $3.0 million, respectively.

The balance as of September 30, 2022 was approximatel y $6.2 million, or 1.80%, of our total loans held at carrying value and loans receivable at carrying value balance of approximately $341.4 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 loans receivable at carrying value of approximately $5.5 million and (ii) a liability for unfunded commitments of approximately $0.7 million.

For the nine months ended September 30, 2021, the increase to our provision for current expected credit loss was approximately $1.4 million and the balance as of September 30, 2021 was approximately $1.8 million, or 1.18%, of our total loans held at carrying value and loans receivable at carrying value balance of approximately $155.9 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 loans receivable at carrying value of approximately $1.1 million and (ii) a liability for unfunded commitments of approximately $0.7 million.

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.

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We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.

The increase in the provision for current expected credit losses for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.

The increase in the provision for current expected credit losses for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 is primarily due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.

Loan Portfolio

As of June 30, 2022 and December 31, 2021, our portfolio included three loans held at fair value.

The aggregate originated commitment under these loans was approximately $96.2 million and $75.9 million as of June 30, 2022 and December 31, 2021, respectively, and outstanding principal was approximately $96.4 million and $77.6 million as of June 30, 2022 and December 31, 2021, respectively.

For the six months ended June 30, 2022, we funded approximately $17.3 million of additional principal of loans held at fair value and we had no repayments of loans held at fair value.

As of June 30, 2022 and December 31, 2021, none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of June 30, 2022 and December 31, 2021:

As of June 30, 2022

As of September 30, 2022 and December 31, 2021, our portfolio included three loans held at fair value.

The aggregate originated commitment under these loans was approximately $97.1 million and $75.9 million as of September 30, 2022 and December 31, 2021, respectively, and outstanding principal was approximately $95.6 million and $77.6 million as of

September 30, 2022 and December 31, 2021, respectively.

For the nine months ended September 30, 2022, we funded approximately $18.7 million of additional principal of loans held at fair value and we had approximately $3.0 million of principal repayments of loans held at fair value.

As of September 30, 2022 and December 31, 2021, none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of September 30, 2022 and December 31, 2021:

As of September 30, 2022

Fair Value (1)

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(2) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.

(3) Weighted average remaining life is calculated based on the fair value of the loans as of June 30, 2022 and December 31, 2021.

The following table presents changes in loans held at fair value as of and for the six months ended June 30, 2022:

(3) Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2022 and December 31, 2021.

The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2022:

Principal Original Issue

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New fundings 18,737,988 (479,276) — 18,258,712

Loan repayments (1,960,000) — — (1,960,000)

Loan amortization payments (1,089,776) — — (1,089,776)

Accretion of original issue discount — 1,076,212 — 1,076,212

PIK interest 2,256,569 — — 2,256,569

Total loans held at fair value at June 30, 2022 $ 96,382,983 $ (2,442,401) $ 1,258,550 $ 95,199,132

As of June 30, 2022 and December 31, 2021, our portfolio included zero and one investments in debt securities, respectively, held at fair value.

Total loans held at fair value at September 30, 2022 $ 95,575,523 $ (2,120,648) $ 621,271 $ 94,076,146

As of September 30, 2022 and December 31, 2021, our portfolio included zero and one investments in debt securities, respectively, held at fair value.

We sold our investment in debt securities in the first quarter of 2022 for approximately $15.9 million, which was previously designated as available-for-sale as of December 31, 2021, recognizing a loss on the sale of marketable securities of approximately $0.2 million in the first quarter of 2022.

The following table summarizes our debt securities held at fair value as of December 31, 2021.

We did not hold any investments in debt securities as of June 30, 2022.

We did not hold any investments in debt securities as of September 30, 2022.

As of December 31, 2021

Fair Value (1)

Carrying Value (2)

Fair Value Carrying Value (1)

Principal (1)

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(2) Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2021.

The following table presents changes in debt securities held at fair value as of and for the six months ended June 30, 2022:

The following table presents changes in debt securities held at fair value as of and for the nine months ended September 30, 2022:

Principal Original Issue Discount Unrealized Gains (Losses) Fair Value

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Sale of securities (15,000,000) (900,000) — (15,900,000)

Total debt securities held at fair value at June 30, 2022 $ — $ — $ — $ —

As of June 30, 2022 and December 31, 2021, our portfolio included nine and twelve loans, respectively, held at carrying value.

The aggregate originated commitment under these loans was approximately $383.0 million and $324.3 million, respectively, and outstanding principal was approximately $326.2 million and $270.8 million, respectively, as of June 30, 2022 and December 31, 2021.

During the six months ended June 30, 2022, we funded approximately $116.2 million of additional principal.

As of June 30, 2022 and December 31, 2021, approximately 38% and 48%, respectively, of our loans held at carrying value have floating interest rates.

As of June 30, 2022, t hese floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 1.787%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 1.686% and U.S.

Prime Rate subjected to a weighted average floor of 4.0% quoted at 4.750%.

The following tables summarize our loans held at carrying value as of June 30, 2022 and December 31, 2021:

As of June 30, 2022

Total debt securities held at fair value at September 30, 2022 $ — $ — $ — $ —

As of September 30, 2022 and December 31, 2021, our portfolio included ten and twelve loans, respectively, held at carrying value.

The aggregate originated commitment under these loans was approximately $401.1 million and $324.3 million, respectively, and outstanding principal was approximately $349.3 million and $270.8 million, respectively, as of September 30, 2022 and December 31, 2021.

During the nine months ended September 30, 2022, we funded approximately $139.6 million of additional principal.

As of September 30, 2022 and December 31, 2021, approximately 39% and 48%, respectively, of our loans held at carrying value have floating interest rates.

As of September 30, 2022, t hese floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 3.143%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 3.042% and U.S.

Prime Rate subject to a weighted average floor of 4.4% quoted at 6.250%.

The following tables summarize our loans held at carrying value as of September 30, 2022 and December 31, 2021:

As of September 30, 2022

Principal (1)

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(1) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of June 30,2022 and December 31, 2021.

The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2022:

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of September 30,2022 and December 31, 2021.

The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2022:

Principal Original Issue

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Loan amortization payments (1,830,286) — (1,830,286)

Total loans held at carrying value at June 30, 2022 $ 326,181,229 $ (10,299,185) $ 315,882,044

As of June 30, 2022 and December 31, 2021, our portfolio included one loan receivable at carrying value.

The originated commitment under this loan was approximately $4.0 million and outstanding principal was approximately $2.2 million and $2.5 million as of June 30, 2022 and December 31, 2021, respectively.

During the six months ended June 30, 2022, we received repayments of approximately $0.3 of outstanding principal.

The following table presents changes in loans receivable as of and for the six months ended June 30, 2022:

Total loans held at carrying value at September 30, 2022 $ 349,337,390 $ (10,173,360) $ 339,164,030

As of September 30, 2022 and December 31, 2021, our portfolio included one loan receivable at carrying value.

The originated commitment under this loan was $4.0 million and outstanding principal was approximately $2.2 million and $2.5 million as of September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022, we received repayments of approximately $0.3 million of outstanding principal.

The following table presents changes in loans receivable as of and for the nine months ended September 30, 2022:

Principal Original Issue

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PIK interest 26,187 — 26,187

Total loan receivable at carrying value at June 30, 2022 $ 2,222,339 $ (2,060) $ 2,220,279

The below table summarizes our total loan portfolio as of June 30, 2022:

Total loan receivable at carrying value at September 30, 2022 $ 2,222,339 $ (1,873) $ 2,220,466

The below table summarizes our total loan portfolio as of September 30, 2022:

Loan Names Original

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Floating Amortization

A - Real Estate Loan 7/3/2019 1/26/2023 $ 2,940,000 0.6 % $ 3,069,437 10.0 % 4.0% Fixed No 19 %

A - Real Estate Loan (4)

7/3/2019 9/30/2023 $ 2,940,000 0.6 % $ 1,198,639 7.5 % 7.5% Fixed No 21 %

A - Equipment Loans 8/5/2019 3/31/2025 4,000,000 0.8 % 2,222,339 12.0 % N/A Fixed Yes 18 %

5/8/2020 5/8/2024 77,785,000 15.5 % 79,772,976 12.8 % 2.7% Fixed Yes 21 %

B 9/10/2020 9/1/2023 15,500,000 3.2 % 13,011,852 13.0 % 4.0% Fixed Yes 28 %

9/10/2020 9/1/2023 16,402,988 3.3 % 14,603,908 14.7 % 4.0% Fixed Yes 30 %

C 11/5/2020 12/1/2025 24,000,000 4.8 % 24,159,078 14.5 % 4.0% Floating Yes 24 %

Sub of Private Co.

4/30/2021 5/1/2026 65,400,000 13.5 % 55,349,240 13.2 % 1.8% Floating Yes 21 %

4/30/2021 5/1/2026 73,500,000 14.6 % 67,912,444 16.5 % N/A Floating Yes 23 %

Sub of Private Co.

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L 4/20/2022 5/1/2026 82,500,000 16.4 % 50,000,000 12.0 % N/A Fixed Yes 16 %

Sub of Public Co.

M 8/26/2022 8/27/2025 10,000,000 2.0 % 10,000,000 9.5 % N/A Fixed No 14 %

$ 502,184,382 100.0 % $ 447,135,252 12.4 % 1.1% 19 %

Information is as of June 30, 2022 unless otherwise specified.

Information is as of September 30, 2022 unless otherwise specified.

Borrower names have been kept confidential due to confidentiality agreement obligations.

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Estimated YTM is based on current management estimates and assumptions, which may change.

Estimated YTM is calculated using the interest rate as of September 30, 2022 applied through maturity.

Actual results could differ from those estimates and assumptions.

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The purchase discounts accrete to income over the respective remaining terms of the applicable loan.

(4) As amended, cash interest is deferred from July 1, 2022 until November 1, 2022.

(5) PIK interest rate for Private Co.

A represents a blended rate of differing PIK interest rates applicable to each of the three tranches to which we are a lender under the senior secured term loan credit facility with Private Company A (as may be amended, supplemented, amended and restated or otherwise modified from time to time, the ‘‘Private Company A Credit Facility’’).

(5) Cash interest and PIK interest rates for the Subsidiary of Private Company G and Public Co.

F represents a blended rate of differing cash interest and PIK interest rates applicable to each of the three tranches with differing rates.

(6) Cash interest and PIK interest rates for Private Co.

B are weighted average rates.

(7) Loan to Subsidiary of Private Company H does not reflect the borrower’s option to request up to two maturity extensions each for an additional six months from the then-existing loan maturity date.

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The second extension is subject to the approval of all lenders.

(8) Cash interest and PIK interest rates for Public Co.

F represents a blended rate of differing cash interest and PIK interest rates applicable to each of the three tranches with differing rates.

(9) The interest and PIK subtotal rates are weighted average rates.

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The documents governing our loans also include a variety of provisions intended to provide remedies against the value associated with licenses.

example, some loan documents require a grant of a security interest in all property of the entities holding licenses to the extent not prohibited by applicable law or regulations (or requiring regulatory approval), equity pledges of entities holding licenses, receivership remedies and/or other remedies to secure the value associated with the borrowers’ licenses.

For example, some loan documents require a grant of a security interest in all property of the entities holding licenses to the extent not prohibited by applicable law or regulations (or requiring regulatory approval), equity pledges of entities holding licenses, receivership remedies and/or other remedies to secure the value associated with the borrowers’ licenses.

Upon default of a loan, we may seek to sell the loan to a third party or have an affiliate or a third-party work with the borrower to have the borrower sell collateral securing the loan to a third party or institute a foreclosure proceeding to have such collateral sold, in each case, to generate funds towards the payoff of the loan.

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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.

As of June 30, 2022, our portfolio of loans had a weighted average real estate collateral coverage of approximately 1.1 times our aggregate committed principal amount of such loans.

As of September 30, 2022, our portfolio of loans had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans.

Our real estate collateral coverage for each of our loans was measured at the time of underwriting and based on various sources of data available at such time.

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Our primary sources of cash generally consist of unused borrowing capacity under our Revolving 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 net cash provided by operating activities for the six months ended June 30, 2022 of approximately $15.2 million was less than our dividend payments of $19.1 million made during the same period due to earned OID of $8.3 million and PIK repayments of $1.2 million related to repayments from Private Company D, Private Company F and Private Company E during such period.

Our net cash provided by operating activities for the nine months ended September 30, 2022 of approximately $27.5 million was less than our dividend payments of $30.2 million made during the same period due to earned OID of $9.7 million and PIK repayments of $1.2 million related to repayments from Private Company D, Private Company F and Private Company E during such period.

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.

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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.

We may also access liquidity through our ATM Program, which was

established in April 2022 pursuant to which we may sell, from time to time, up to $75.0 million of our common stock.

As of June 30, 2022, we sold an aggregate of 114,932 shares of the Company’s common stock under the Sales Agreement at an average price of $18.08 per share.

We may also access liquidity through our ATM Program, which was established in April 2022, pursuant to which we may sell, from time to time, up to $75.0 million of our common stock.

As of September 30, 2022, we sold an aggregate of 621,398 shares of the Company’s common stock under the Sales Agreement at an average price of $18.30 per share.

The sales generated net proceeds of approximately $10.4 million.

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As the cannabis industry continues to evolve and to the extent that additional states legalize cannabis, the demand for capital continues to increase as operators seek to enter and build out new markets.

We expect the principal amount of the loans we originate to increase and that we will need to raise additional equity and/or debt funds to increase our liquidity in the near future.

As of June 30, 2022 and December 31, 2021, all of our cash was unrestricted and totaled approximately $45.6 million and $109.2 million, respectively.

As of June 30, 2022, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

We expect the principal amount of the loans we originate for cannabis operators to increase.

We also expect that our expanded investment focus to require additional capital.

As a result, we expect we will need to raise additional equity and/or debt funds to increase our liquidity in the near future.

As of September 30, 2022 and December 31, 2021, all of our cash was unrestricted and totaled approximately $36.3 million and $109.2 million, respectively.

As of September 30, 2022, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Revolving Credit Facility

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On April 29, 2022, upon our entry into the Revolving Credit Facility, we terminated the AFCF Revolving Credit Facility with AFC Finance, LLC.

In connection with the termination, we paid the outstanding amounts remaining in connection with the commitment fee of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million.

There were no other payments, premiums or penalties required to be paid in connection with the termination.

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Subsequent to the transfer of our investment in the senior secured loan to Private Company I to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture.

As of June 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.

As of September 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.

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

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.

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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 June 30, 2022, we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the three and six months ended June 30, 2022 and 2021:

Six months ended June 30,

As of September 30, 2022 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the nine months ended September 30, 2022 and 2021:

September 30,

Net income $ 32,994,312 $ 13,959,222

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Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2022 was approximately $15.2 million, compared to approximately $7.5 million for the same period in 2021.

The increase from June 30, 2021 to June 30, 2022 was primarily due to an increase in net income of approximately $15.5 million, offset by an increase in accretion of OID of approximately $(6.1) million and increase in PIK interest of approximately $(2.2) million.

Net cash provided by operating activities during the nine months ended September 30, 2022 was approximately $27.5 million, compared to approximately $7.6 million for the same period in 2021 .

The increase from September 30, 2021 to September 30, 2022 was primarily due to an increase in net income of approximately $19.0 million, offset by an increase in accretion of OID of approximately $(5.7) million, increase in PIK interest of approximately $(2.3) million, increase in provision for current expected credit losses of approximately $1.7 million, increase in unrealized losses (gains) on loans held at fair value of approximately $2.4 million and an increase in interest reserve of approximately $3.4 million.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities during the six months ended June 30, 2022 was approximately $49.1 million, compared to approximately $61.7 million for the same period in 2021.

The change was caused primarily by loan issuance and fundings of approximately $103.8 million during the six months ended June 30, 2022, compared to approximately $76.9 million for the same period in 2021, offset by repayment of loans of approximately $28.2 million during the six months ended June 30, 2022, compared to $12.9 million during the six months ended June 30, 2021, and proceeds received from the sale of loans and marketable securities of approximately $26.5 million during the six months ended June 30, 2022, compared to $0 for the same period in 2021.

Net cash used in investing activities during the nine months ended September 30, 2022 was approximately $68.5 million, compared to approximately $121.5 million for the same period in 2021 .

The change was caused primarily by loan issuance and fundings of approximately $127.2 million during the nine months ended September 30, 2022 , compared to approximately $156.3 million for the same period in 2021 , offset by repayment of loans of approximately $32.2 million during the nine months ended September 30, 2022 , compared to $22.2 million during the nine months ended September 30, 2021, proceeds received from the sale of loans and marketable securities of $26.5 million during the nine months ended September 30, 2022 , compared to $10.4 million for the same period in 2021 and proceeds received from the sale of Assigned Rights of $0.0 million during the nine months ended September 30, 2022, compared to $2.3 million for the same period in 2021.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities during the six months ended June 30, 2022 was approximately $29.8 million, compared to net cash provided by financing activities of approximately $169.2 million for the same period in 2021.

The change was caused primarily by the change in proceeds from the sale of common stock of approximately $66.0 million in the current period versus approximately $180.3 million in the prior year period as well as the repayments on the AFCF Revolving Credit Facility of approximately $75.0 million in the current period, versus $0 for the same period in 2021.

Net cash used in financing activities during the nine months ended September 30, 2022 was approximately $31.9 million, compared to net cash provided by financing activities of approximately $174.2 million for the same period in 2021 .

The change was caused primarily by the change in proceeds from the sale of common stock of approximately $75.1 million in the current period versus approximately $185.5 million in the prior year period, repayments on the AFCF Revolving Credit Facility of $75.0 million in the current period versus $0.0 million for the same period in 2021 and dividends paid of approximately $30.2 million in the current period versus $7.3 million for the same period in 2021.

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

Our contractual obligations as of June 30, 2022 are as follows:

As of June 30, 2022

Our contractual obligations as of September 30, 2022 are as follows:

As of September 30, 2022

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

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Total $ 9,181,538 $ 46,979,621 $ — $ — $ 56,161,159

As of June 30, 2022, all unfunded commitments relate 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, 2022 relating to the 2027 Senior Notes:

As of June 30, 2022

As of September 30, 2022 , all unfunded commitments relate to our total loan commitments and were available for funding in less than two years.

We also had the following contractual obligations as of September 30, 2022 relating to the 2027 Senior Notes:

As of September 30, 2022

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

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Total $ 7,666,667 $ 11,500,000 $ 109,583,333 $ — $ 128,750,000

(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2022.

(1) Amounts include projected interest payments during the period based on interest rates in effect as of September 30, 2022 .

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

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Critical Accounting Policies and Estimates

As of June 30, 2022, 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.

As of September 30, 2022 , 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.

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