Quarterly Earnings Discussion Transcript for AFC Gamma (AFCG) in the Second Quarter of 2025
AFC Gamma Expands Investment Mandate and Proposes Conversion to Business Development Company
AFC Gamma, Inc., a leading lender in the cannabis industry, has announced several significant changes, including the approval of an expanded investment mandate and the intention to convert from a Real Estate Investment Trust (REIT) to a Business Development Company (BDC).
The expanded mandate now includes direct lending opportunities outside the cannabis industry, aiming to broaden the company's deal flow and growth opportunities. As a BDC, AFC Gamma could finance cannabis operators who do not own real estate and other ancillary businesses. This move could position the company better for potential industry changes, such as federal cannabis rescheduling, which might lead to more capital flowing to operators lacking real estate.
The proposed conversion to a BDC offers potential benefits, including a broader lending scope, better positioning for industry changes, and portfolio diversification. However, it also comes with risks and challenges, such as regulatory and shareholder approval uncertainty, ongoing credit quality and portfolio stress, market uncertainty, dividend reductions, and operational and strategic execution risks.
In the second quarter of 2025, AFC Gamma paid a dividend of $0.15 per common share to shareholders of record as of June 30, 2025, on July 15, 2025. The company's total assets and total shareholder equity stood at $290.6 million and $184.7 million, respectively, as of June 30, 2025, with a book value per share of $8.18.
However, the company's loan portfolio has faced challenges. Loans to private companies P and Justice Grown were reported as underperforming, with Justice Grown loan being subject to three ongoing legal cases concerning credit facility enforcement and shareholder guarantee. The CECL reserve was $44 million, or approximately 14.6% of loans at carrying value, as of Q2 2025.
The company's senior secured revolving credit facility was increased from $30 million to $50 million with a lead FDIC-insured bank in 2025. Brandon Hetzel, the Chief Financial Officer, reported net interest income of $6.2 million and distributable earnings of $3.4 million or $0.15 per basic weighted average common share for Q2 2025.
AFC Gamma's management team, with over 30 years of direct lending experience and $10 billion in transactions, and 20 years managing and scaling Business Development Companies, will lead the company through this transition.
The date for the conference call discussing these changes is set for Thursday, August 14, 2025, at 10 a.m. ET. Participants will include Daniel Neville (CEO), Robyn Tannenbaum (President and Board Member), and Brandon Hetzel (CFO).
[1] Source: AFC Gamma, Inc. Press Release, August 1, 2025 [2] Source: AFC Gamma, Inc. Investor Presentation, August 1, 2025 [3] Source: AFC Gamma, Inc. 10-Q Filing, July 30, 2025 [4] Source: AFC Gamma, Inc. Conference Call Transcript, August 14, 2025 [5] Source: AFC Gamma, Inc. Earnings Release, July 31, 2025
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