Q2 2021 AFC Gamma Inc Earnings Call

August 5, 2021

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Operator 1: Good day, and thank you for standing by, and welcome to the AFC Gamma Q2 2021 Earnings Call. At this time, all participants' lines will be now in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Francesca Smith. Ma'am, please go ahead.

Operator: Good day, and thank you for standing by, and welcome to the AFC Gamma Q2 2021 Earnings Call. At this time, all participants' lines will be now in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Francesca Smith. Ma'am, please go ahead.

Good day, and thank you for standing by and welcome to the AFC gone the quad to the 2021earnings call. At this time, all participants' lines have been the listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you want the depressed SAR 1 on the telephone keypad and place.

Be advised of the this conference is being reported its red bar and the further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today and the spread checklist Smith Ma'am. Please go ahead.

Francesca Smith: Thank you, ma'am. Good morning, and welcome to AFC Gamma, Inc.'s Q2 2021 earnings conference call. I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Jonathan Kalikow, Head of Real Estate, Robyn Tannenbaum, Head of Origination, and Thomas Geoffroy, Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our 14 July 2021 press release and is posted on the investor relations section of AFC Gamma's website at afcgamma.com, along with our Q2 2021 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, anticipated market size, expected consolidation in the industry, future events, and financial performance. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions.

Thank you Mel and good morning, and welcome to AFC Gamma Inc's second quarter 2021 earnings Conference call I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Jonathan Calico head of real estate, Robin and Tanenbaum head of origination and Thomas Jeffries, Chief Financial Officer before.

To begin I would like to note that this call is being recorded replay information is included in our July 14th 2021 press release and is posted on the Investor Relations section of AFC Gamma website at AFC Gamma Dot com, along with our second quarter 2021 earnings release and Investor.

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Francesca Smith: Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, anticipated market size, expected consolidation in the industry, future events, and financial performance. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions.

Today's conference call includes forward looking statements and projections that reflect the company's current views with respect to among other things anticipated market size expected consolidation in the industry future events and financial performance. These forward looking statements are subject to the inherent uncertainties and.

Predicting future results and conditions.

Francesca Smith: Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect it. Therefore, you should not place undue reliance on these forward-looking statements. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations of net income, the most comparable GAAP measure to distributable earnings, can be found in our earnings release or in the investor presentation available on our website. The format for today's call is as follows. Len will provide introductory remarks, an overview of our Q2 results, and strategic commentary.

Certain factors could cause actual results to differ materially from those projected and these forward looking statements.

New risks and uncertainties arise over time and it is not possible for the company to predict those events or how they may affect it.

Therefore, you should not place undue reliance on these forward looking statements.

Francesca Smith: We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations of net income, the most comparable GAAP measure to distributable earnings, can be found in our earnings release or in the investor presentation available on our website.

And we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward looking statements and projections.

During this call we will refer to distributable earnings which is the non-GAAP financial measure reconciliations of net income the most comparable GAAP measure to distributable earnings can be found and our earnings release or and the investor presentation available on our website.

Francesca Smith: The format for today's call is as follows. Len will provide introductory remarks, an overview of our Q2 results, and strategic commentary. John will discuss the real estate lending environment, Robyn will discuss the origination pipeline, and Tom will summarize the financials. We will then open the line for Q&A. With that, I will now turn the call over to our Chief Executive Officer, Leonard Tannenbaum.

The format for todays call is as follows Len will provide introductory remarks and overview of our second quarter results and strategic commentary John will discuss the real estate lending environment, Robyn will discuss the origination pipeline and Tom will summarize the financial the financials.

Francesca Smith: John will discuss the real estate lending environment, Robyn will discuss the origination pipeline, and Tom will summarize the financials. We will then open the line for Q&A. With that, I will now turn the call over to our Chief Executive Officer, Leonard Tannenbaum.

We will then open the line for Q&A.

With that I will now turn the call over to our Chief Executive Officer Len Tannenbaum.

Leonard Tannenbaum: Thank you, Francesca, and welcome to AFC Gamma's Q2 earnings conference call. I would like to thank our current shareholders, prospective shareholders, and analysts for joining us. Today, I will provide you with an update on AFC Gamma's business, the many opportunities we have ahead of us, and the current state of the cannabis industry. AFC Gamma is an institutional provider of loans to the cannabis industry, typically secured by three pillars: cash flow, licenses, and real estate. The companies that we lend to are domestic, single and multi-state operators, which include those that are privately held, as well as those listed on the Canadian exchanges. During Q2, we closed on new commitments of $71.3 million. As of 1 August 2021, we lend to 14 borrowers, which have operations in 14 states.

And Francesca and welcome the AFC cameras second quarter earnings Conference call I would like to thank our current shareholders prospective shareholders and analysts for joining us.

Today I will provide you with an update on AFC gamma business. The many opportunities. We have ahead of us and the current state of the cannabis industry.

Leonard Tannenbaum: AFC Gamma is an institutional provider of loans to the cannabis industry, typically secured by three pillars: cash flow, licenses, and real estate. The companies that we lend to are domestic, single and multi-state operators, which include those that are privately held, as well as those listed on the Canadian exchanges. During Q2, we closed on new commitments of $71.3 million. As of 1 August 2021, we lend to 14 borrowers, which have operations in 14 states.

AFC gamma is and institutional provider of loans and the cannabis industry typically secured by 3 pillars cash flow licenses and real estate.

The companies that we lend to of domestic single and multi state operators, which include those set of privately held as well as those listed on the Canadian exchanges.

During the second quarter, we closed on new commitments of $71.3 million as of August 1.2021, we learnt the 14th borrowers which of operations in 14 states.

Leonard Tannenbaum: We are pleased that we have continued to diversify our portfolio across states and borrowers. In mid-June, we experienced a significant increase in the actionable pipeline, which was driven by an inflow of deals from large multi-state operators, as well as smaller multi-state and single state operators. Notably, this increase in the pipeline excludes any capital tied to New York, which has recently allowed adult-use cannabis as the legislation there is not yet finalized. Since mid-June, our actionable pipeline has remained at elevated levels, which was the primary reason for the follow-on offering that we completed in June. As a reminder, the deals in our actionable pipeline, should they convert, could take between 3 and 9 months to close. Many of the deals that we complete are high touch, require significant due diligence, and potentially require regulatory approval, making it difficult to predict the exact timing of closings.

We are pleased that we've continued to diversify our portfolio across states and borrowers.

And mid June we experienced a significant increase and the actionable pipeline, which was driven by an inflow of deals from large multistate operators as well as smaller multifamily and single state operators.

Notably this increase and the pipeline excludes any capital tied to New York, which recently allowed the.

Adult use cannabis as the legislation there is not yet finalized.

Leonard Tannenbaum: Since mid-June, our actionable pipeline has remained at elevated levels, which was the primary reason for the follow-on offering that we completed in June. As a reminder, the deals in our actionable pipeline, should they convert, could take between 3 and 9 months to close. Many of the deals that we complete are high touch, require significant due diligence, and potentially require regulatory approval, making it difficult to predict the exact timing of closings.

Since mid June our actionable pipeline has remained at elevated levels, which was the primary reason for the follow on offering that we completed and Jim.

As a reminder, the deals and our actionable pipeline should they convert could take between 3 and 9 months to close.

Many of the deals that we complete our high touch and require significant due diligence and potentially require regulatory approval and making it difficult to predict exact timing of closings.

Leonard Tannenbaum: Our robust pipeline of potential borrowers includes many operators expanding into new states. Growth and demand for debt capital that we provide will come from the issuance of new licenses in states such as Georgia and additional new licenses in states such as Ohio, Illinois, and Florida. We are pleased that one of the recently issued Georgia licenses was awarded to our largest borrower, Nature's Medicines. We've also noticed that our customers are accelerating construction to meet the state-imposed limitation on build time and to gain a first-mover advantage. During the quarter, we received an investment-grade rating of triple B minus from Egan-Jones Ratings Company. This is an important step when we seek to issue debt. As our actionable pipeline converts into signed deals, it is our intention to seek long-term unsecured financing for part of those capital needs.

Our robust pipeline of potential borrowers includes many operators expanding into new states.

Growth and demand for debt capital that we provide will come from the issuance of new licenses and states, such as Georgia, and additional new licenses and states, such as the Ohio, Illinois and Florida.

We are pleased that 1 of the recently issued Georgia licenses was awarded to our largest borrower nature of the medicines. We have also noticed that our customers are accelerating construction to meet the state imposed limitation on bill time and to gain a first mover advantage.

Leonard Tannenbaum: We've also noticed that our customers are accelerating construction to meet the state-imposed limitation on build time and to gain a first-mover advantage. During the quarter, we received an investment-grade rating of triple B minus from Egan-Jones Ratings Company. This is an important step when we seek to issue debt. As our actionable pipeline converts into signed deals, it is our intention to seek long-term unsecured financing for part of those capital needs.

During the quarter, we received an investment grade rating of Triple B minus from Egan Jones rating company.

This is an important step when we seek to issue debt.

As our actionable pipeline convert into signed deals is our intention to seek long term unsecured financing for part of those capital needs.

Leonard Tannenbaum: We believe issuing debt and establishing a benchmark for our debt cost of capital is important as we continue to execute on our business plan. Conceptually, we believe that using leverage against lower-yielding assets of the portfolio is a good way to generate strong returns on equity for our shareholders. In addition, we are pleased that AFC Gamma was added to the Russell 2000, and we expect the inclusion in this world-class market index will bring increased visibility across the investment community. Turning to the industry, the legislative environment surrounding the cannabis market continues to evolve. Senator Schumer of New York recently put forth the Cannabis Administration and Opportunity Act, which, if passed in its current form, would, among other things, remove marijuana from the Controlled Substances Act. Given the current political landscape, we believe it is very unlikely that this piece of legislation will succeed.

We believe issuing debt and establishing a benchmark for of debt cost of capital is important as we continue to execute on our business plan.

Conceptually, we believe that using leverage against lower yielding assets of the portfolio.

It's a good way to generate strong returns on equity for our shareholders.

In addition, we are pleased that AFC gamma was added to the Russell 2000, and we expect the inclusion and this world class market index will bring increased visibility across the investment community.

Leonard Tannenbaum: Turning to the industry, the legislative environment surrounding the cannabis market continues to evolve. Senator Schumer of New York recently put forth the Cannabis Administration and Opportunity Act, which, if passed in its current form, would, among other things, remove marijuana from the Controlled Substances Act. Given the current political landscape, we believe it is very unlikely that this piece of legislation will succeed.

Turning to the industry the legislative environment surrounding the cannabis market continues to evolve.

Senator Schumer of New York recently put forward the candidates administration and opportunity Act, which if passed and its current form would among other things removed marijuana from the controlled substances Act.

Given the current political landscape. We believe it is very unlikely that this piece of legislation will succeed.

Leonard Tannenbaum: That said, we remain optimistic that legislation consistent with the goals of the SAFE Act will eventually pass. The SAFE Act may allow for credit cards to be used at cannabis dispensaries and should certainly increase the number of banks accepting deposits from the industry. We recognize that increased competition because of the SAFE Act may drive lower yields for our borrowers. However, the SAFE Act will also potentially lower AFC Gamma's cost of capital as more banks could lend to us and more institutions could invest in us. Additionally, we continue to believe the states will have the right to set regulations around their own cannabis programs and will attempt to protect the significant source of tax revenue and job creation that cannabis provides these states.

That said, we remain optimistic that legislation consistent with the goals of the feedback will eventually pass.

The Safe Act may allow for credit cards to be use of cannabis dispensaries and should certainly increase the number of banks accepting deposits from the industry.

And we recognize that increased competition because of the feedback may drive lower yields for our borrowers.

Leonard Tannenbaum: However, the SAFE Act will also potentially lower AFC Gamma's cost of capital as more banks could lend to us and more institutions could invest in us. Additionally, we continue to believe the states will have the right to set regulations around their own cannabis programs and will attempt to protect the significant source of tax revenue and job creation that cannabis provides these states.

The Safe Act will also potentially lower AFC gamma is cost of capital as more banks could lend to us and more institutions could invest and us.

Additionally, we continue to believe the states will have the right to set regulations around their own cannabis programs and we will attempt to protect the significant source of tax revenue and job creation of the cannabis provides these states.

Yeah.

Leonard Tannenbaum: The M&A boom that we mentioned during last quarter's earnings call continues, with many large public multi-state operators using a combination of equity, debt, and cash as methods to acquire smaller single-state operators. We believe that we're in a 1 to 2-year period of rapid consolidation, where the big operators will continue to get bigger. Our goal is to be the lender of choice to at least half of the top 15 multi-state operators, as well as companies that are seeking to achieve scale or be acquired by an MSO. We lend at different rates to the top MSOs, the mid-size operators, and the smaller state operators. We are seeing some yield compression for the top-tier multi-state operators due to their size, scale, and access to capital. Going forward, we will continue to employ a high degree of selectivity in the deals that we underwrite and invest in.

On the M&A boom that we mentioned during last quarter's earnings call continues with many large public multistate operators using a combination of equity debt and cash as the methods to acquire smaller single state operators. We believe that we were in the 1 to 2 year period of rapid consolidation where the.

Big operators will continue to get bigger.

Leonard Tannenbaum: Our goal is to be the lender of choice to at least half of the top 15 multi-state operators, as well as companies that are seeking to achieve scale or be acquired by an MSO. We lend at different rates to the top MSOs, the mid-size operators, and the smaller state operators. We are seeing some yield compression for the top-tier multi-state operators due to their size, scale, and access to capital. Going forward, we will continue to employ a high degree of selectivity in the deals that we underwrite and invest in.

Our goal is to be lender of choice to at least half of the top 15 multistate operators as well as companies that are seeking to achieve scale or be acquired by and NSO.

We learned the different rates to the top msos, the mid size operators and the smaller state operators.

We are seeing some yield compression for the top tier multistate operators due to their size and scale and access to capital.

Going forward, we will continue to employ a high degree of selectivity and the deals that we underwrite and investor.

Leonard Tannenbaum: As we continue to source and evaluate new transactions, we have further expanded our team to over 20 employees and continue to build our corporate infrastructure to support our business plan. We are pleased to announce the hiring of Brett Kaufman, the new Chief Financial Officer for AFC Gamma. For 12 years, Brett served as CFO at Ladenburg Thalmann, a diversified financial services company, which has $1.5 billion in trailing twelve-month revenue prior to its sale in 2020. Before that, he spent 9 years at Bear Stearns, serving in various roles of increasing responsibility, including managing director, and director of financial planning and analysis. We are very excited to have Brett join our team and look forward to introducing him to our investors and analysts in the coming months.

As we continue to source and evaluate new transactions.

We have further expanded our team to over 20 employees and continue to build our corporate infrastructure to support our business plan.

We are pleased to announce the hiring of bread Kaufman and the new Chief Financial Officer for FC Gamma from.

And for 12 years, Brett served as CFO at Ladenburg Thalmann of diversified financial services company, which is $1.5 billion trailing 12 month revenue prior to its sale and 2020.

Leonard Tannenbaum: Before that, he spent 9 years at Bear Stearns, serving in various roles of increasing responsibility, including managing director, and director of financial planning and analysis. We are very excited to have Brett join our team and look forward to introducing him to our investors and analysts in the coming months.

Before that he spent 9 years at bear Stearns, serving in various roles of increasing responsibility, including managing director and director of financial planning and analysis.

We're very excited to have <unk> join our team and look forward to introducing him to our investors and analysts and the coming months.

Leonard Tannenbaum: We also would like to thank Tom Jeffrey for his contributions, hard work, and diligence as AFC Gamma CFO. Tom will continue in his role as CFO of AFC Gamma's external manager, AFC Management. Turning to our dividend policy, the board of directors intends to declare a dividend for the Q3 on or about 15 September, which will have a record date of 30 September and be payable 15 October. It is anticipated that the quarterly dividend declared by the board will be greater than or equal to the $0.38 dividend that was paid in the Q2. This dividend schedule is similar to many other REITs. We intend to follow this schedule for future quarters as this timing provides our board with additional visibility into the earnings of that given quarter when declaring the dividend.

We also would like to thank Tom Jeffrey first contributions hard work and diligence of FC Gamma CFO Tom.

Tom will continue and his role as CFO of FC Gamma is the external manager AFC management.

Turning to our dividend policy the.

The board of directors intends to declare a dividend for the September quarter on.

On or about September 15th.

Which will have a record date of September 30th and.

The payable October 15th.

Leonard Tannenbaum: It is anticipated that the quarterly dividend declared by the board will be greater than or equal to the $0.38 dividend that was paid in the Q2. This dividend schedule is similar to many other REITs. We intend to follow this schedule for future quarters as this timing provides our board with additional visibility into the earnings of that given quarter when declaring the dividend. As a reminder, our dividend policy is to pay between 90% and 100% of distributable earnings over the year with a special dividend at the end of the year if necessary. I will now turn it over to John.

And as anticipated that the quarterly dividend declared by the board will be greater than or equal to the 38% dividend that was paid and the June quarter.

This dividend schedule.

To many other Reits.

And we intend to follow the schedule for future quarters. As this timing provides our board with additional visibility into the earnings of that given quarter when declaring the dividend.

Leonard Tannenbaum: As a reminder, our dividend policy is to pay between 90% and 100% of distributable earnings over the year with a special dividend at the end of the year if necessary. I will now turn it over to John.

As a reminder, our dividend policy at the paid between 90% and 100% of distributable earnings over the year with a special dividend at the end of the year if necessary I will now turn it over to John.

Jonathan Kalikow: Thank you, Len. One of our core competencies and key differentiating factors as a lender focused on cannabis is our expertise and experience in construction financing. Construction lending itself is complex, and cannabis adds an additional layer of complexity. For example, cannabis facilities require unique heating and cooling units to regulate the temperature effectively to create the optimal grow environment. These units may require the building's roof to be reinforced and must be installed correctly to prevent mold. Our in-house construction manager and team of construction professionals make sure that the borrower and its contractors understand these nuances. As a secured lender, we want to make sure the collateral securing our loan is built to the best possible standards by builders with requisite size and experience. As of 1 August, about 70% of our loans at face value are construction loans.

And 1 of our core competencies and key differentiating factors as a lender focused on cannabis is our expertise and experience and construction financing and.

Construction lending itself is complex and cannabis adds an additional layer of complexity.

For example, cannabis facilities required unique heating and cooling units to regulate the temperature of effectively to create the optimal grow environment. These units may require the building's roof to be reinforced and must be installed correctly to prevent mold.

Jonathan Kalikow: These units may require the building's roof to be reinforced and must be installed correctly to prevent mold. Our in-house construction manager and team of construction professionals make sure that the borrower and its contractors understand these nuances. As a secured lender, we want to make sure the collateral securing our loan is built to the best possible standards by builders with requisite size and experience. As of 1 August, about 70% of our loans at face value are construction loans.

Our in house construction manager and team of construction professionals make sure that the borrower and its contractors understand these nuances.

As a secured lender we want to make sure the collateral securing our loan is built to the best possible standards by builders with requisite size and experience.

As of August 1st about 70% of our loans at face value our construction loans construction loans of drawn over time and with each draw we must make sure we of all needed lean releases, we must make sure our borrowers remain and material compliance with state and local ordinances.

Jonathan Kalikow: Construction loans are drawn over time, and with each draw, we must make sure we have all needed lien releases. We must make sure our borrowers remain in material compliance with state and local ordinances and build in line with the construction plans. Construction loans are relatively new to the cannabis industry. In fact, prior to AFC Gamma, sale-leasebacks were a major source of external financing available to cannabis companies.

And build in line with the construction plans and construction loans of relatively new to the cannabis industry and fact prior to AFC gamma sale leasebacks, where a major source of external financing available to cannabis company under a sale leaseback of cannabis company with sellers of property and take a long.

Jonathan Kalikow: Construction loans are relatively new to the cannabis industry. In fact, prior to AFC Gamma, sale-leasebacks were a major source of external financing available to cannabis companies. Under a sale-leaseback, a cannabis company would sell its property and take a long-term lease, one with annual rent escalations. Locking into such long-term and potentially expensive obligations is no longer necessary. The potential for legislation such as the SAFE Banking Act, along with more flexible financing options, encourages borrowers to own their real estate and to take loans they could refinance in three to five years. If borrowers expect that financing costs will decrease over time, then a loan, such as those provided by AFC Gamma, would provide more flexibility over the near and long term. Now let me turn the call over to Robyn.

Jonathan Kalikow: Under a sale-leaseback, a cannabis company would sell its property and take a long-term lease, one with annual rent escalations. Locking into such long-term and potentially expensive obligations is no longer necessary. The potential for legislation such as the SAFE Banking Act, along with more flexible financing options, encourages borrowers to own their real estate and to take loans they could refinance in three to five years. If borrowers expect that financing costs will decrease over time, then a loan, such as those provided by AFC Gamma, would provide more flexibility over the near and long term. Now let me turn the call over to Robyn.

Term lease 1 with annual rent Escalations Lockheed.

Locking into such long term and potentially expensive obligations is no longer necessary.

The potential for legislation such as the Safe Act, along with more flexible financing options encourages borrowers to own their real estate and to take loans and they can refinance and 3 to 5 years and.

And of borrowers expect the financing cost will decrease over time, then alone such as those provided by FC Gamma would provide more flexibility over the near and long term now.

Now, let me turn the call over to Robyn.

Robyn Tannenbaum: Thank you, John. As a relationship lender, we strive to help operators build their businesses and succeed while acting as a flexible partner to help fill capital needs along the way. Incumbency has proven to give us an important edge when sourcing potential deals, as we've expanded loans with a variety of our existing borrowers as they continue to grow both organically and via acquisitions. For example, when one of our borrowers decided to purchase a dispensary rather than lease it, we were able to provide a simple amendment to increase the size of the loan to provide them with the capital they needed to execute on their business plan. Once we complete a loan, we have all of the documentation in place to grow with that borrower.

Thank you John.

As the relationship lender, we strive to help operators felt their businesses and succeed while acting as the flexible partner to help sell capital needs along the way incumbency has proven to give us an important edge and sourcing potential deals as we've expanded loans with a variety of our existing borrowers as they continue to grow both organically.

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Robyn Tannenbaum: For example, when one of our borrowers decided to purchase a dispensary rather than lease it, we were able to provide a simple amendment to increase the size of the loan to provide them with the capital they needed to execute on their business plan. Once we complete a loan, we have all of the documentation in place to grow with that borrower.

For example, when 1 of our borrowers decided to purchase the dispensary rather than lease. It we were able to provide a simple amendment to increase the size of the loan to provide them with the capital they needed to execute on their business plan.

Once we complete alone we of all of the documentation in place to grow with that borrower and addition to our construction expertise that John mentioned another key differentiator is AFC gamma is available capital and the ability of its external manager to act as agent. This allows our borrowers to deal with 1 lender.

Robyn Tannenbaum: In addition to our construction expertise that John mentioned, another key differentiator is AFC Gamma's available capital and the ability of its external manager to act as agent. This allows our borrowers to deal with one lender when changes or amendments need to be completed versus going to a larger syndicate of lenders. AFC Gamma seeks to hold a majority of a borrower's debt tranche, and its external manager's ability to act as lead agent is another differentiating factor that provides our borrowers with flexibility and ease of execution. As of 1 August 2021, AFC Management agented about 76% of our loans at face value. From January 2020 through 30 June 2021, we have sourced over $6.7 billion of transactions, which represents over 344 deals.

When changes or amendments need to be completed versus going to a larger syndicate of lenders.

Robyn Tannenbaum: AFC Gamma seeks to hold a majority of a borrower's debt tranche, and its external manager's ability to act as lead agent is another differentiating factor that provides our borrowers with flexibility and ease of execution. As of 1 August 2021, AFC Management agented about 76% of our loans at face value. From January 2020 through 30 June 2021, we have sourced over $6.7 billion of transactions, which represents over 344 deals. We have built strong relationships with our borrowers, and we believe our reputation in the industry for being a trusted lender continues to grow. I will now turn it over to Tom to talk about the financials.

<unk> gamma seeks to hold the majority of the borrowers debt tranche and its external manager's ability to active lead agent is another differentiating factor.

And that provides our borrowers with flexibility and ease of execution as of August 1.2021, AFC management agents at about 76% of our loans at face value from January 2020 through June 32021, we absorbed over $6.7 billion of.

<unk> transactions, which represents over 344 deals we have built strong relationships with our borrowers and we believe our reputation and the industry for being a trusted lender continues to grow I will now turn it over to Tom to talk about the financials.

Robyn Tannenbaum: We have built strong relationships with our borrowers, and we believe our reputation in the industry for being a trusted lender continues to grow. I will now turn it over to Tom to talk about the financials.

Thomas Geoffroy: Thank you, Robyn. We ended Q2 2021 with total assets of $278.5 million, as compared to $221.5 million at 31 March 2021. Portfolio investments totaled $164 million of principal outstanding, with a carrying value of $153.3 million spread across 13 companies as of 30 June 2021. In July 2021, the company completed its secondary offering, which resulted in the issuance of 2,750,000 shares at $20.50 per share, with total net proceeds after fees and expenses of $52.6 million.

Thank you Robyn.

We ended the second fiscal quarter of 2021 with total assets of $278.5 million as compared to $221.5 million at March 31.2021.

Portfolio of investments totaled $164 million of principal outstanding with the carrying value of $153.3 million spread across 13 companies as of June 32021.

And July 2021, the company completed the secondary offering which resulted and the issuance of $2 million 750000 shares at $20.50 per share with total net proceeds after fees and expenses of $52.6 million.

Thomas Geoffroy: In July 2021, the underwriters partially exercised their over-allotment option to purchase an additional 269,650 shares at $20.50 per share, with $5.2 million in net proceeds to the company after fees and expenses. Currently, AFC Gamma has 16,386,527 shares outstanding. At the end of the Q2 quarter, book value per share was $16.66, as compared to $16.18 and $14.83 for the quarters ended March 2021 and December 2020 respectively. As of 30 June 2021, AFC Gamma's portfolio consisted of $187.7 million of transactions, with $163.7 million funded.

In July 2021, the underwriters, partially exercised their over allotment option to purchase an additional 269650 shares at $20.50 per share with $5.2 million and net proceeds to the company after fees and expenses.

Currently AFC gamma has $16 million 386527 shares outstanding.

At the end of the June quarter book value per share was $16.66.

As compared to $16.18, and $14.83 for the quarters ended March 2021, and December 2020, respectively.

As of June 32021, AFC Gamma is portfolio consisted of $187.7 million of transactions with $163.7 million funded.

Thomas Geoffroy: As of 1 August 2021, we've completed $195.3 million of transactions, with $175.3 million of principal outstanding to 14 companies in 14 states. All of the loans in the portfolio are current and performing. The weighted average portfolio yield to maturity, which is measured for each loan for the life of the loan, is approximately 21% as of 30 June 2021, compared to 21% as of 31 March 2021. The weighted average yield to maturity of the portfolio as of 1 August 2021 was also approximately 21%, which is consistent with the last two quarters ended March and June 2021. For the quarter ended 30 June 2021, we had GAAP net income of $4.6 million, or earnings of $0.34 per basic weighted average common share.

As of August 1.2021, we've completed $195.3 million of transactions with $175.3 million of principal outstanding to 14 companies and 14 states.

All of the loans and the portfolio are current and performing.

The weighted average portfolio yield to maturity, which is measured for each loan for the life of the loan is approximately 21% as of June 32021.

Compared to 21% as of March 31, 2021, the <unk>.

Thomas Geoffroy: The weighted average yield to maturity of the portfolio as of 1 August 2021 was also approximately 21%, which is consistent with the last two quarters ended March and June 2021. For the quarter ended 30 June 2021, we had GAAP net income of $4.6 million, or earnings of $0.34 per basic weighted average common share.

Weighted average yield to maturity of the portfolio as of August..1 2021 was also approximately 21% which is consistent with the last 2 quarters ended March and June 2021.

For the quarter ended June 30 of 2021, we had GAAP net income of $4.6 million or earnings of 34 per.

Per basic weighted average common share.

Thomas Geoffroy: For the three months ended 30 June 2021, we generated total investment income of $8.7 million and distributable earnings of $5.8 million, or $0.43 per basic weighted average common share. Distributable earnings represents the net income computed in accordance with GAAP, excluding non-cash items such as non-cash equity compensation expense, any unrealized gains or losses, provision for current expected credit losses, commonly referred to as CECL, or other non-cash items recorded in net income for the period. CECL was early adopted by the company in fiscal year 2020. As of 30 June 2021, the CECL reserve represents approximately 1.1% of loans at carrying value compared to approximately 1.3% at 31 March 2021.

For the 3 months ended June 32021, we generated total investment income of $8.7 million and distributable earnings of $5.8 million or <unk> 43 per basic weighted average common share.

Distributable earnings represents the net income computed in accordance with GAAP, excluding noncash items, such as noncash equity compensation expense.

Any unrealized gains or losses.

Provision for current expected credit losses, commonly referred to of seasonal.

Or other noncash items recorded in net income for the period.

Thomas Geoffroy: CECL was early adopted by the company in fiscal year 2020. As of 30 June 2021, the CECL reserve represents approximately 1.1% of loans at carrying value compared to approximately 1.3% at 31 March 2021. Adjustments to arrive at distributable earnings of $0.43 per basic weighted average common share of common stock amounted to $0.09 per basic weighted average common share in aggregate, and included both the impact of non-cash adjustments to the CECL reserve and change in unrealized gains.

Seasonal was early adopted by the company and fiscal year 2020.

As of June 32021, the seasonal reserve represents approximately 1.1% of loans of carrying value compared to approximately 1.3% at March 31.2021 of.

Thomas Geoffroy: Adjustments to arrive at distributable earnings of $0.43 per basic weighted average common share of common stock amounted to $0.09 per basic weighted average common share in aggregate, and included both the impact of non-cash adjustments to the CECL reserve and change in unrealized gains. We believe providing distributable earnings is helpful to stockholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income. We believe that dividends are generally one of the principal reasons that stockholders invest in our common stock. We generally intend to pay dividends to our stockholders in an amount between 90% and 100% of our annual taxable income.

Adjustments to arrive at distributable earnings of 43 per basic weighted average common share of common stock amounted to 9.

Per basic weighted average common share and aggregate.

And included both the impact of noncash adjustments to the seasonal reserve and change in unrealized gains.

Thomas Geoffroy: We believe providing distributable earnings is helpful to stockholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income. We believe that dividends are generally one of the principal reasons that stockholders invest in our common stock. We generally intend to pay dividends to our stockholders in an amount between 90% and 100% of our annual taxable income.

We believe providing distributable earnings is helpful to stockholders and assessing the overall performance of our business as a REIT. We are required to distribute at least 90% of our annual REIT taxable income.

We believe the dividends are generally 1 of the principal reasons, the stockholders invest and our common stock and.

And we generally intend to pay dividends to our stockholders and and an amount between 90 and 100% of our annual taxable income.

Thomas Geoffroy: On 30 June 2021, AFC Gamma paid a dividend of $0.38 per common share outstanding for the June quarter, which represented approximately 87% of distributable earnings for the quarter. The company has distributed $7.3 million of distributable earnings for the six months ended 30 June 2021, or approximately 80% of its distributable income. The board of directors intends to declare a dividend for the September quarter on or about 15 September, which will have a record date of 30 September and be payable on 15 October. It is anticipated that the quarterly dividend declared by the board of directors will be greater than or equal to the $0.38 dividend that was paid for the June quarter.

On June 32021, AFC gamma paid a dividend of <unk> 38.

Per common share outstanding for the June quarter, which represented approximately 87% of distributable earnings for the quarter.

The company has distributed $7.3 million of distributable earnings for the 6 months ended June 32021, or approximately 80% of its distributable income.

Thomas Geoffroy: The board of directors intends to declare a dividend for the September quarter on or about 15 September, which will have a record date of 30 September and be payable on 15 October. It is anticipated that the quarterly dividend declared by the board of directors will be greater than or equal to the $0.38 dividend that was paid for the June quarter.

The board of directors intends to declare a dividend for the September quarter on or about September 15th.

It will have a record date of September 30th.

And be payable on October 15th.

It is anticipated that the quarterly dividend declared by the board of directors will be greater than or equal to the 38 <unk>.

Dividend that was paid for the June quarter.

Thomas Geoffroy: In May 2021, the company amended its secured revolving credit loan agreement to, among other things, increase the loan commitment from $40 million to $50 million, decrease the interest rate from 8% to 6% per year, and extend the maturity date up to 31 December 2021. Currently, no draws on the revolving credit facility have occurred during the fiscal year to date, and no interest or fee expenses were incurred related to the revolving credit facility. The revolving credit facility is an important component to the company's business strategy to offer greater flexibility, manage liquidity, and bridge its investment commitments through future capital raises, thereby potentially reducing the impact of cash drag on the returns to investors. I will now turn it back over to Len.

And May 2021, the company amended its secured revolving credit loan agreement to among other things increase the low commitment from $40 million to $50 million decrease the interest rate from 8% to 6% per year and extend the maturity date up to December 31.2021.

Currently no draws on the revolving credit facility of occurred during the fiscal year to date and no interest or fee expenses were incurred related to the revolving credit facility.

Thomas Geoffroy: The revolving credit facility is an important component to the company's business strategy to offer greater flexibility, manage liquidity, and bridge its investment commitments through future capital raises, thereby potentially reducing the impact of cash drag on the returns to investors. I will now turn it back over to Len.

And the revolving credit facility is an important components of the company's business strategy to offer greater flexibility manage liquidity and bridge is the investment commitments for future capital raises and thereby potentially reducing the impact of cash drag on the returns to investors.

I will now turn it back over to loans.

Leonard Tannenbaum: AFC Gamma has a best-in-class team, strong balance sheet, and increased access to capital. Entering H2 2021, we are well-positioned as a first mover and leader in the rapidly growing cannabis lending market. I will now turn it back over to the operator to start Q&A. Operator?

AFC Gamma has the best in class team.

<unk> balance sheet and increased access to capital entering the second half of 2021, we are well positioned as a first mover and leader and the rapidly growing cannabis lending market I will now turn it back over to the operator to start Q&A.

Operator.

Operator 2: Thank you. We will now take questions. If you need to ask a question, you will need to press star one on your telephone keypad. Again, that will be star one on your telephone keypad to ask a question. Please stand by while we compile the Q&A roster. We have the first question comes from Gerald Pascarelli of Cowen. Your line is now open. You may ask your question.

Operator: Thank you. We will now take questions. If you need to ask a question, you will need to press star one on your telephone keypad. Again, that will be star one on your telephone keypad to ask a question. Please stand by while we compile the Q&A roster. We have the first question comes from Gerald Pascarelli of Cowen. Your line is now open. You may ask your question.

We will now take the question.

The need to ask a question you will need the press star 1 on the telephone keypad again that will be the power wanting the telephone keypad to ask the question.

Please standby will be compile the Q&A roster.

We have the first question comes from Gerard <unk> of Cowen. Your line is now open you may ask the question.

Gerald Pascarelli: Great. Thanks. Good morning, team. Thanks very much for taking the questions. Len, I think it's definitely encouraging that the notable pipeline increase that the company has seen from early June through current date doesn't include New York. Just sticking with the Northeast, can you just talk about how you view the potential white space opportunity, not only in New York, but in states like Connecticut, Virginia, and New Jersey, that recently legalized for adult use that are presumably going to require, you know, notable capital expenditures to build out capacity, you know, over the medium to long term? Any color you could provide there would be helpful. Thank you.

Great. Thanks, Good morning, Tim Thanks, very much for taking the questions.

And I think its definitely encouraging that the.

Notable pipeline increase the debt that the company has seen from from early June from current day doesn't include New York, but just sticking with the northeast can you just talk about how you view the potential white space opportunity not only in New York and States like Connecticut, and Virginia, New Jersey debt.

Recently legalize for adult use net of presumably going to require notable capital expenditures to build out capacity over the medium to long term any color you could provide there would be helpful. Thank you.

Leonard Tannenbaum: It's very exciting that a lot of people that have been sitting on their licenses, watching them appreciate in value, are actually starting to take action in building those licenses and building to the benefit of the consumers in that state. The states are all waking up to the fact that they issued these licenses for a purpose, right? To have these cultivation and dispensaries built. In states like Missouri and others, we're watching them pull licenses from people that haven't started building or not building according to plan. That goes for New Jersey as well. Circling back to your question, there's a number of New Jersey licenses that just haven't built yet.

I think it's very exciting that a lot of people that have been sitting on their licenses, Washington, and we appreciate and value.

And actually starting to take action and building those licenses and building to the benefit of the consumers and that state and the states are all waking up to the fact that the issued these licenses for a purpose right to have these cultivation and dispensaries belt and states like Missouri, and and others, we're watching them pull licenses from people that happens.

Leonard Tannenbaum: To have these cultivation and dispensaries built. In states like Missouri and others, we're watching them pull licenses from people that haven't started building or not building according to plan. That goes for New Jersey as well. Circling back to your question, there's a number of New Jersey licenses that just haven't built yet. What we're seeing is a huge demand for capital to start building out these licenses as per the agreements and why they got issued in the first place. That is a large supply of the demand.

Started building or not building. According to plan. So it goes for new Jersey as well about circling back to your question. There is a number of new Jersey licenses that just haven't built yet and so what we're seeing is a huge demand for capital to start building out these licenses as per the agreements and why they got it and the first place and that is of March supply of the demand.

Leonard Tannenbaum: What we're seeing is a huge demand for capital to start building out these licenses as per the agreements and why they got issued in the first place. That is a large supply of the demand.

Gerald Pascarelli: Got it. That's helpful. Just another one from me is just on the competitive landscape as of today. You know, you're the only cannabis mortgage REIT trading on a major exchange. I guess, like, over the past few months, in your conversations, what are your expectations for, you know, the evolution of the competitive landscape, maybe over the H2 of this year into early 2022, you know, with more competition coming online to capitalize on these high yields?

Got it.

That's helpful. Just another 1 from me is just on the competitive landscape as of today.

Kind of just mortgage re trading on a major exchange.

Yes.

Guests like over the past few months and your conversations what are your expectations for.

Sure.

The evolution of the competitive landscape, maybe over the back half of this year into early 2022.

And with more competition coming on line to capitalize on these high yields.

Leonard Tannenbaum: Look, I think from a public standpoint, and obviously the public currency is really important. It's very hard for a new competitor to get even the scale. Every day that passes increases the moat around our position and our competitive position, at least from a public standpoint. I will say that there's plenty of competition to large multi-state operators. There are large private companies, large hedge funds, and large institutions that are investing with the multi-state operators' debt. It's really about that. It's about relationship, what we can deliver, helping them in their business plan and helping them as a partner, even more than capital. Because there is plenty of capital at the very high end, where it seems like the new institutions or large institutions feel most comfortable.

Look I think from the public standpoint, and that is of the public currency is really important.

It's very hard for a new competitor they get and the scale.

Everyday that passes increases the moat around our position and our competitive position at least from a public standpoint, I will say that there is plenty of competition to the large multi state operators. There are large private companies large hedge funds and large institutions that are investing with the multistate operators debt.

Leonard Tannenbaum: There are large private companies, large hedge funds, and large institutions that are investing with the multi-state operators' debt. It's really about that. It's about relationship, what we can deliver, helping them in their business plan and helping them as a partner, even more than capital. Because there is plenty of capital at the very high end, where it seems like the new institutions or large institutions feel most comfortable.

And so it's really about there it's about relationship what we can deliver and helping them and their business plan and helping them as the partner.

Even more than capital because there is plenty of capital.

At the very high and where it seems like the new institutions or or large institutions feel most comfortable.

Gerald Pascarelli: Very helpful, caller. Thanks, Len. I'll pass it on.

Very helpful color.

Thanks, and I'll pass.

Has it on.

Yes.

Operator 2: Thank you. We have the next question comes from the line of Aaron Gray of JMP Securities. Your line is now open. You may ask your question.

Operator: Thank you. We have the next question comes from the line of Aaron Gray of JMP Securities. Your line is now open. You may ask your question.

Thank you.

The question comes from comes from the line of Diovan and <unk> of JMP Securities. Your line is now open you may ask your question.

Aaron Gray: Hey, everyone. Morning, and great job putting capital to work this quarter. Had a question around that. The active pipeline obviously up pretty significantly, about $300 million, give or take, quarter to quarter. The terms in that pipeline, the yield profile, is that changing much? I guess that's part of that is gonna be involved with the larger MSOs and kind of the exposure there. Any insight on the exposure to the larger MSOs within that pipeline would be helpful. Thanks.

Aaron Hecht: Hey, everyone. Morning, and great job putting capital to work this quarter. Had a question around that. The active pipeline obviously up pretty significantly, about $300 million, give or take, quarter to quarter. The terms in that pipeline, the yield profile, is that changing much? I guess that's part of that is gonna be involved with the larger MSOs and kind of the exposure there. Any insight on the exposure to the larger MSOs within that pipeline would be helpful. Thanks.

Hey, everyone. Good morning.

And great job, putting capital to work this quarter.

Had a question around that the the active pipeline, obviously up pretty significantly.

300 million Bucks give or take.

The quarter.

The terms and that pipeline the yield profile that Jamie changing much and I guess that's.

And part of that is going to be involved with.

The larger msos and kind of the exposure there so any any insight on the exposure.

So the larger msos within the pipeline would be helpful. Thanks.

Leonard Tannenbaum: The pipeline itself has a mixture of the large MSOs, which are much safer and lower yielding, the mid-tier providers, which are a couple of states with operations that are looking to expand, and the single state operators, which are starting to build a license, and we back them. We have them put a certain amount of equity in; there's some seller notes or sometimes there's unsecured debt, and then we lend the senior debt with first liens on the property. They all hold different yields, as we said before. As we look forward to the deals that we've done and the deals we've announced, we look at the quarters; we've held consistent with over 20% weighted average yield to maturity.

So the pipeline itself has a mixture of the large msos, which are much set which are much safer and lower yielding the mid tier providers, which are a couple of states with operations that are looking to expand and the single state operators, which are starting to build of license and so we back them.

And put a certain amount of equity and Theres. Some seller notes or sometimes is unsecured debt and then we learned the senior debt. The first liens on the property they all whole different yields as we said before.

Leonard Tannenbaum: They all hold different yields, as we said before. As we look forward to the deals that we've done and the deals we've announced, we look at the quarters; we've held consistent with over 20% weighted average yield to maturity. By the way, when I say that, we all know that things aren't held to maturity. There's gonna be velocity, therefore, the yields are actually even higher, if a deal pays off early. When we say it's a 20% held yield to maturity, that's actually. I know that sounds very high. That's actually conservative. Having said that, it just depends on which deals we close and when we close them, and how that weighted average yield changes.

As we look forward to the deals that we've done and the deals we've announced that we've looked at the quarter's withheld consistent with over 21, 20% weighted average yield held to maturity and by the way when I say that we all know that things are and held to maturity. There is kind of the velocity. Therefore, the yields are actually even higher.

Leonard Tannenbaum: By the way, when I say that, we all know that things aren't held to maturity. There's gonna be velocity, therefore, the yields are actually even higher, if a deal pays off early. When we say it's a 20% held yield to maturity, that's actually. I know that sounds very high. That's actually conservative. Having said that, it just depends on which deals we close and when we close them, and how that weighted average yield changes.

If a deal pays off early.

And so when we say, it's a 20% held year from maturity, that's actually I know that sounds very high that's actually conservative.

Having said that it just depends on which deals we close and when we close them and how that weighted average yield changes and I think you've heard me say and.

Leonard Tannenbaum: I think you heard me say it in the transcript that if we did sign a big multi-state operator at lower yields and higher safety, our intention is to relever the return to increase the return on equity for the investors just by applying a better cost to our cost of leverage versus their cost of leverage and capturing a spread. It's hard to tell where weighted average yield goes. It depends on the mix, but we're very focused on the return on equity to our shareholders.

The transcript that if we if we did sign the big Multistate, operator at lower yields and higher safety. We would just be our intention is to re lever of the return to increase the return on equity for the investors just by applying a better cost of our cost of leverage versus the aircraft of leverage and capturing of scribe and so it's.

Hard to tell where weighted average yield goes it depends on the mix, but we're very focused on the return of the return on equity to our shareholders.

Aaron Gray: Great. Makes sense. Then the deployment pace, obviously very strong in Q2. If we look into the first month or so, Q3, a little bit slower, but the commitments are up in total. Any insight you can give us on pace of deployment over the remainder of the year, or how we should think about it? Is this gonna be a chunky situation?

Aaron Hecht: Great. Makes sense. Then the deployment pace, obviously very strong in Q2. If we look into the first month or so, Q3, a little bit slower, but the commitments are up in total. Any insight you can give us on pace of deployment over the remainder of the year, or how we should think about it? Is this gonna be a chunky situation?

Great Alright makes sense and then the deployment pace, obviously very strong and the second quarter. If we look into the first month or so the third quarter of little bit slower, but the commitments are up in total and any insight you can give us on pace of deployment over the remainder of the year.

Or how we should think about it is this going to be a chunky situations.

Leonard Tannenbaum: Let's see how I want to answer that. You're right. I'm a little disappointed that some deals didn't close in the beginning of the quarter, which could have closed. You can see by our 10-Q and our disclosures that we got some of the way there on some loans, and they haven't quite closed all the way there yet. It is chunky. We are sitting in August, which is kind of interesting. It's typical for a lot of deals. In the past, when I've managed money for Fifth Street for 15 years, there was definitely a spurt after Labor Day. Magically, that's when everybody likes to close, in September. This could be a back-end loaded quarter or that may slip into October, November.

Let's say Hello and answer that.

Right and I'm, a little disappointed that some deals didn't close and the beginning of the quarter, which could have closed you can see by our 10-Q and our disclosures that we got some of the way there on some loans and they havent quite closed all the way there yet.

It is chunky were sitting in August which is kind of interesting its typical for a lot of deals and in the past 1 of managed money for fifth Street for 15 years, there was definitely a spurt after labor day.

Leonard Tannenbaum: Magically, that's when everybody likes to close, in September. This could be a back-end loaded quarter or that may slip into October, November. We just don't know because these deals are cannabis, and cannabis is very chunky but very uncertain to timings of closings. We do plan to continue to announce material agented closings as they occur. I think that's gonna be the best indicator of our progression.

<unk>, that's where and everybody likes the close in September. So this could be of backend loaded quarter and all of that may slip into October and November. We just don't know because these deals are cannabis and cannabis is very chunky, but very uncertain. The timings of closings, we do plan to continue to announce material agents agent.

Leonard Tannenbaum: We just don't know because these deals are cannabis, and cannabis is very chunky but very uncertain to timings of closings. We do plan to continue to announce material agented closings as they occur. I think that's gonna be the best indicator of our progression.

<unk> as they occur so I think that's going to be the best indicator of our progression.

Aaron Gray: One more for me, if I could. You did make the comment that New York wasn't included in the active deal pipeline. Does that imply that you're already looking at deals there? Any thought on what that would mean for the more near term as opposed to long term?

And then 1 more 1 more from me if I could.

Aaron Hecht: One more for me, if I could. You did make the comment that New York wasn't included in the active deal pipeline. Does that imply that you're already looking at deals there? Any thought on what that would mean for the more near term as opposed to long term?

You did make the call on the.

New York wasn't included in the deal pipeline does that imply that you are already looking at deals there and.

And any thought on.

What that would mean.

From the more near term as opposed to the long term.

Leonard Tannenbaum: I would think New York is a next year event from a deal flow perspective because New York still hasn't figured out its own regulations. Opt-out programs for the different locales are not until 31 December. It seems like everybody's talking to us, not everybody. Many people are talking to us about New York, but there's no definitive questions around how much they need or how big they wanna build. But New York's just one of them. I think Florida is gonna be very active. I think Georgia, which just announced licenses, will start to be active even with only 6 winners. I think the Ohio build, the 72 dispensaries, everybody's lining up to apply and build those out, and which means they also need cultivation. We're seeing...

I would think New York as of next year event from a deal flow perspective, because New York still hasn't figured out it's on regulations opt out program for the different locales theyre not until December 31. So it seems like everybody is talking to us of <unk>.

Body. Many people are talking to us about New York, but Theres no definitive.

Questions around how much the need or how big they want to build.

Leonard Tannenbaum: But New York's just one of them. I think Florida is gonna be very active. I think Georgia, which just announced licenses, will start to be active even with only 6 winners. I think the Ohio build, the 72 dispensaries, everybody's lining up to apply and build those out, and which means they also need cultivation. We're seeing...

But new York is just 1 of them I think Florida is going to be very active I think Georges and Georgia, which just announced licenses will start we will start to be active even the only 6 winners.

I think the Ohio build the 72 dispensaries, everybody is lining up to apply and build those out and which means they also need cultivation. So we're seeing and Illinois 1 of the reasons, we think Illinois stagnated.

Leonard Tannenbaum: In Illinois, you know, one of the reasons we think Illinois stagnated was the lack of retail distribution with Illinois's new retail allocations, over 100 retail allocations. Cultivators now are saying, "Okay, now we can increase cultivation because we see the retail coming on, therefore, we anticipate demand." All of it flows into capital expansion as new licenses across the country are issued. We also now might as well say something new. We also are, for the first time, looking at California. We haven't done anything in California. We don't have anything yet signed in California, but we are considering California, where we hadn't in the past, especially given the $1.2 billion confiscation that we saw in California as the black market starts to get restricted. California gets more interesting to us.

Lack of retail distribution, with Illinois, and new retail allocations over 100 retail allocations. The cultivators now are saying, okay. Now we can increase cultivation, because we see the retail coming on therefore, we anticipate demand. So all of it flows into capital expansion as new licenses across the country are issued and we also.

Leonard Tannenbaum: We also now might as well say something new. We also are, for the first time, looking at California. We haven't done anything in California. We don't have anything yet signed in California, but we are considering California, where we hadn't in the past, especially given the $1.2 billion confiscation that we saw in California as the black market starts to get restricted. California gets more interesting to us.

And I might as well say something new we also are for the first time looking at California, We Havent done anything, California, we don't have anything get signed and California, but we are considering California, where we hadn't in the past, especially given the $1.2 billion complication that.

And that we saw and California is the black market starts to get restricted California gets more interesting to us.

Aaron Gray: Gotcha. Great insight. Thanks, Len.

Aaron Hecht: Gotcha. Great insight. Thanks, Len.

Sure Great insight thanks, Glenn.

Operator 2: Thank you. We have the next question comes from the line of John Hecht of Jefferies. So your line is now open. You may ask your question.

Operator: Thank you. We have the next question comes from the line of John Hecht of Jefferies. So your line is now open. You may ask your question.

Thank you we have the next question comes from the line of John Hecht of Jefferies. Your line is now open you may ask your question.

John Hecht: Good morning, guys. Thanks very much for taking my questions. I'm just wondering how we think about cost of capital opportunities and kind of how you would toggle leverage given the rating you guys just got?

Good morning, guys. Thanks, very much for taking my questions. I was just wondering how do we think about cost of capital opportunities and kind of how you would toggles average given given the rating you guys just Scott.

Leonard Tannenbaum: Look, we have one benchmark out there, which is the industry leader in sale-leasebacks, IIPR. IIPR's debt, about a $300 million tranche trades, I mean, not pretty liquidly, at sub 4.5% yields on a 5-year unsecured piece of paper. Their Egan-Jones rating is BBB+. Those are all facts. I'm not saying we have anything close to 4.5% cost of capital, but at least that's the benchmark at which people are looking, and we're gonna see where the market is. I'm starting to get a pretty good idea. I don't wanna put on leverage until we are close to putting on the assets that I would wanna take leverage against. It's always a timing issue. We do have a credit line that we could use as well.

So look we have 1 benchmark out there, which is the industry leader and sale leasebacks IPR IPR as debt about $300 million tranche trades.

And pretty liquid Lee.

And at sub 4.5% yields on the 5 year unsecured piece of paper, they're Egan Jones rating as Triple B plus so those are all facts.

Im not saying, we have anything close to 4.5% cost of capital, but at least that's the bench market, which people are looking and we're going to we're going to see where the market is starting to get a pretty good idea, but I don't want to put on leverage until we are close to putting on the assets that I wouldn't want to take leverage against so it's always the timing issue, we do have of credit.

Leonard Tannenbaum: I'm starting to get a pretty good idea. I don't wanna put on leverage until we are close to putting on the assets that I would wanna take leverage against. It's always a timing issue. We do have a credit line that we could use as well. We do anticipate putting on leverage in the medium term.

Line that we could use as well.

Leonard Tannenbaum: We do anticipate putting on leverage in the medium term.

And so, but we do anticipate putting on leverage.

And the medium term.

John Hecht: Okay. You guys have had remarkably stable yield to maturities in your book. You know, assuming you hit your objectives for the year, do you still think you'd be in the low 20% range, or how do we think about the migration of that over time, given the pipeline and so forth?

Okay and then.

You guys have had remarkably stable yield to maturities and your book.

Assuming you hit your objectives for the year do you do you.

Do you still think you'd be in the low 20% range or how do we think about the migration of that over time, given the pipeline and so forth.

Leonard Tannenbaum: It's a great question. Look, this year we're on plan, and we have an aggressive plan, and we're on it. Next year is, we know we're gonna have growth. We don't know where that growth is gonna be. It's gonna be in all three segments, I think, seeing what the forward-looking discussions are. M&A activity also is actually just starting to drive growth, where you have acquisitions of companies that are not necessarily by the big MSOs, you know, at 7x multiples or so of EBITDA, and that's tiered out by equity seller debt and senior debt, where we're typically 3x senior debt. Very similar to the middle market loans that I used to do in normal middle market lending, you're seeing that activity start to happen from both individual private equity sponsors and private equity funds.

Okay. Great question electric this year, we're on plan and.

We had an aggressive plan and we're on it next year as well.

We know we're going to of growth. We felt we don't know where that growth is going to be it's going to be and all 3 segments I think seeing what the forward looking of discussions are.

M&A activity also is actually starting to drive growth, where you have acquisitions of companies that are not necessarily by the big Msos.

At.

7 times multiples or so of EBITDA and that's tiered out by equity seller of debt and senior debt, where we are typically 3 type of senior debt very similar to the middle market loans that I used to do and normal middle market lending youre seeing that activity start to happen from book.

Leonard Tannenbaum: Very similar to the middle market loans that I used to do in normal middle market lending, you're seeing that activity start to happen from both individual private equity sponsors and private equity funds. I think there's a variety of drivers, and every day it changes. Cannabis moves faster than anything, so it's very hard to predict that, but I'm really pleased that the yields right now are holding up over 20%.

Both individual private equity sponsors and private equity funds. So I think theres a variety of drivers.

Leonard Tannenbaum: I think there's a variety of drivers, and every day it changes. Cannabis moves faster than anything, so it's very hard to predict that, but I'm really pleased that the yields right now are holding up over 20%. As I said to you, if you saw SAFE Act pass, and I said we think so there's some yield compression, those refinancings will cause actually our earnings to go even higher because we would get prepayment penalties in some cases. We'd have a write-up to OID. We'd have exit fees in some cases. To remind all of our investors, exit fees, which we do have on many deals, are not accrued into income. So as we receive them, you know, they provide additional bumps to income.

And every day of changes candidates moves faster than anything so it's very hard to predict that but I'm really pleased that the yields right now are holding up over 20% as I said to you <unk> past and eisai.

Leonard Tannenbaum: As I said to you, if you saw SAFE Act pass, and I said we think so there's some yield compression, those refinancings will cause actually our earnings to go even higher because we would get prepayment penalties in some cases. We'd have a write-up to OID. We'd have exit fees in some cases. To remind all of our investors, exit fees, which we do have on many deals, are not accrued into income. So as we receive them, you know, they provide additional bumps to income.

We think there's some yield compression those refinancings.

Cause actually are in the earnings to go even higher because.

And we would get prepayment penalties and some cases and we'd have a write up the OID, we'd have exit fees and some cases and to remind all of our investors exit fees, which we do have on many deals are not accrued into the income so as yet and prudent income so as we receive them.

They provide additional bumps to income.

John Hecht: Okay, wonderful. Thanks very much for the details.

Okay wonderful thanks, very much of the detail.

Operator 2: Thank you. Again, in order to ask a question, you will need to press star one on your cellphone keypad. We have the next question comes from the line of Mark Smith of Lake Street Capital. Your line is now open. You may ask a question.

Operator: Thank you. Again, in order to ask a question, you will need to press star one on your cellphone keypad. We have the next question comes from the line of Mark Smith of Lake Street Capital. Your line is now open. You may ask a question.

Thank you again in light of to ask the question you will need the press star 1 on your telephone keypad.

Next question comes from the line of Mike Smith of Lake Street Capital. Your line is now open you may ask the question.

Mark Smith: Hi, guys. First question from me is, you know, pipeline looks really solid out there. You know, do you guys have everybody on the team, you know, that you feel like you need at this point, or are there additions in human capital that you guys need to make?

Hi, guys first question from me is pipeline looks really solid out there.

You guys have everybody on the team that you feel like you need at this point are the additions and human capital that you guys need to make.

Leonard Tannenbaum: Oh, good. I get to make an advertisement to for more employees, which is always a positive on the call, so thanks for asking the question. We're looking to hire many people. We've hired a lot, right? We've grown to nicely over 20 employees. We've added Brett recently, which adds a really good institutional person to the infrastructure, but also the team, as we build our leadership team. We're continuing to hire. We need another originator for sure, because as you know, as good as Robin and Krista are at uncovering opportunities and managing the processes, we continue to expand and have more touch points, and origination is a very intensive process.

Oh, God I got to make and advertisement to 2 for more employees, which is always a positive on the call. So thanks for asking the question.

We're looking to hire many people that we've hired a lot right we've grown total.

And nicely over 20 employees with added Bret recently, which adds a really good institutional institutional person to the infrastructure, but also the team.

As we build our leadership team and we're continuing to hire we need another originator for sure because of this.

Leonard Tannenbaum: We're continuing to hire. We need another originator for sure, because as you know, as good as Robin and Krista are at uncovering opportunities and managing the processes, we continue to expand and have more touch points, and origination is a very intensive process. We are hiring more in underwriting, though our underwriting team is coming up to speed very nicely and developing terrific processes.

And as good as Robin and Chris are at uncovering opportunities and managing the processes, we continue to expand and have more touch points and the origination is of very intensive process, we're hiring more and underwriting of our underwriting team that is coming up to speed very nicely and developing terrific processes, we have in house.

Leonard Tannenbaum: We are hiring more in underwriting, though our underwriting team is coming up to speed very nicely and developing terrific processes. We have in-house construction management now, which has been a huge plus both for our customers and our underwriting. That's already taken care of. We have probably four or five open positions at any given time, and we expect anybody who knows people that, you know, want a terrific job in a fast-growing company, in a terrific industry, be great to send them our way.

Leonard Tannenbaum: We have in-house construction management now, which has been a huge plus both for our customers and our underwriting. That's already taken care of. We have probably four or five open positions at any given time, and we expect anybody who knows people that, you know, want a terrific job in a fast-growing company, in a terrific industry, be great to send them our way.

Construction management, now, which has been which has been a huge plus both for our customers and our underwriting so that's already taken care of.

But we have probably 4 or 5 open positions of any given time and we expect anybody who is knows people that want a terrific job in the fast growing company and the terrific industry the greater at certain of our way.

Mark Smith: Perfect. Then you touched on it a bit early, you know, in your commentary as well as early in the Q&A, but looking at geographic expansion, you know, a lot of people, obviously, New York is hot. People are talking about the Northeast. You know, as we look through the rest of the country, you know, what other states are attractive, maybe smaller states for you to move into, you know, where the licenses are attractive? You know, then as you look at, you know, possibly increased competition, you know, will that maybe push you into some smaller states at some point?

Perfect and then you touched on it a bit early and your commentary as well. This early in the Q&A, but looking at geographic expansion and a lot of people, obviously and New York is hot and people talking about the northeast.

But as we look through the rest of the country. Other states are attractive maybe smaller states for you to move into where the licenses are attractive and.

And then as you look at.

Possibly increased competition will that maybe push you into some <unk>.

<unk> states at some point.

Yeah.

Leonard Tannenbaum: Look, we look throughout the country at the limited license states and the supply and demand dynamics. We now have a lot more data than we did a year ago, all through the supply and demand equations. We know price per pound and how it's fluctuating seasonally. Our new data that we're really applying is seasonal changes in price and demand on a state basis as different grows, especially greenhouse grows, achieve different throughputs depending if it's summer or winter or fall, and now we're incorporating that into our charts and our thinking. If you think about Texas, someday that'll be a great state, not for a while, not at cannabis one percent. You have smaller states like Arkansas that we definitely are looking at and looking at financing.

But we've looked throughout the country at the limited license states and the supply and demand dynamics.

And now have a lot more data that we did a year ago.

All through the supply and demand equations, we know price per pound and how thats fluctuating and seasonal.

Our new data that we're really applying as seasonal changes and price and demand on the state basis as different growth, especially greenhouse growth achieved different throughput depending of the summer or winter of fall and now we're incorporating that into our our charts and our thinking but if you think about Texas. Some day that will be of great state and.

Leonard Tannenbaum: If you think about Texas, someday that'll be a great state, not for a while, not at cannabis one percent. You have smaller states like Arkansas that we definitely are looking at and looking at financing. Again, there are not a lot of players in the smaller states and not a lot of room for players in smaller states. I think the demand will continue to be driven by Illinois, Ohio, New York, Maryland. Maryland needs a lot of grow build-out, and that seems to be happening.

For a while and not the cannabis 1%.

Smaller states like Arkansas.

That we definitely are looking at and looking at financing, but the again, they're not of lot of players and the smaller states and that a lot of room for players and the smaller states I think the demand will continue to be driven by Illinois, Ohio, and New York.

Leonard Tannenbaum: Again, there are not a lot of players in the smaller states and not a lot of room for players in smaller states. I think the demand will continue to be driven by Illinois, Ohio, New York, Maryland. Maryland needs a lot of grow build-out, and that seems to be happening. If Virginia expands its licenses, then that'll be a good growth area in Virginia. I think West Virginia did maybe too many licenses, so we're a little bit careful in West Virginia. Arizona is a terrific state, one of the highest throughputs in the country, and the licenses on the distribution side are very valuable. We like the distributors a lot in Arizona. Look, it constantly varies.

Maryland, Maryland needs a lot of growth build out and that seems to be happening.

Leonard Tannenbaum: If Virginia expands its licenses, then that'll be a good growth area in Virginia. I think West Virginia did maybe too many licenses, so we're a little bit careful in West Virginia. Arizona is a terrific state, one of the highest throughputs in the country, and the licenses on the distribution side are very valuable. We like the distributors a lot in Arizona. Look, it constantly varies.

And Virginia expands its licenses then that'll be a good growth area and Virginia, I think West Virginia did maybe too many licenses. So we're a little bit careful and west Virginia.

Arizona is a terrific state 1 of the highest throughput from the country and the licenses on the distribution side are very valuable so we'd like the distributors a lot and Arizona. So look at constantly varies I think what we haven't done and over a third of the or 40% of the volume is and states that we do not yet learned too.

Leonard Tannenbaum: I think what we haven't done, and over a third of the, or 40% of the volume is in states that we do not yet lend to. If we're starting, as I said, to find select opportunities in California that may be interesting, that's gonna expand 30%, probably the way we look at the United States, if we can find some good opportunities there.

So if we were starting to flow as I said to find select opportunities in California that may be interesting, that's going to expand 30% probably the way the way we look at the.

I'd States, if we can find some good opportunities there.

Mark Smith: Okay, great. Thank you.

Okay, great. Thank you.

Operator 2: Thank you. There are no further questions at this time. I would like to turn the call over to Ms. Leonard Tannenbaum.

Operator: Thank you. There are no further questions at this time. I would like to turn the call over to Ms. Leonard Tannenbaum.

Thank you there are no further questions at this time I would like to turn the call over to MS line Tannenbaum.

Leonard Tannenbaum: Thank you so much, and thank you, thank you all for listening to the call.

Thank you so much and thank you. Thank you all for listening to the call.

Operator 2: Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.

Operator: Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.

Thank you. This concludes today's conference call. Thank you all for participating you may now disconnect.

Okay.

[music].

Yes.

[music] and.

[music].

Operator 1: Good day, thank you for standing by, and welcome to the AFC Gamma Q2 2021 Earnings Call. At this time, all participants' lines will be placed in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ms. Francesca Smith. Ma'am, please go ahead.

Good day, and thank you for standing by and welcome to the AFC gone. According to the 2021 or the earnings call. At this time, all participants' lines have been noticed and only mode. After the speaker's presentation. There will be a question and answer session. The asked the question. During the session you will need the press star 1 on the telephone keypad.

And please be advised that the the conference is being reported its red bar and the further assistance. Please press star zero and I would now like the hand, the conference over to your speaker today and the spread check the Smith Ma'am. Please go ahead.

Thank you Mel and good morning, and welcome to AFC Gamma Inc's second quarter 2021earnings conference call I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Jonathan Calico head of real estate Robin Tanenbaum head of origination and Thomas Jeffries, Chief Financial Officer before.

We begin I would like to note that this call is being recorded replay information is included in our July 14th 2021 press release and is posted on the Investor Relations section of AFC Gamma website at AFC Gamma Dot com, along with our second quarter of 2021 earnings release and Investor.

Asian <unk>.

Predicting future results and conditions.

Francesca Smith: Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect it. Therefore, you should not place undue reliance on these forward-looking statements. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations of net income, the most comparable GAAP measure to distributable earnings can be found in our earnings release or in the investor presentation available on our website. The format for today's call is as follows. Len will provide introductory remarks, an overview of our Q2 results, and strategic commentary.

Certain factors could cause actual results to differ materially from those projected and these forward looking statements.

New risks and uncertainties arise over time and it is not possible for the company to predict those events or how they may affect it.

Therefore, you should not place undue reliance on these forward looking statements.

And we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward looking statements and projections.

During this call we will refer to distributable earnings which is of non-GAAP financial measure reconciliations of net income the most comparable GAAP measure to distributable earnings can be found in our earnings release or and the investor presentation available on our website.

The format for todays call is as follows Len will provide introductory remarks and overview of our second quarter results and strategic commentary.

Francesca Smith: John will discuss the real estate lending environment. Robyn will discuss the origination pipeline, and Tom will summarize the financials. We will then open the line for Q&A. With that, I will now turn the call over to our Chief Executive Officer, Len Tannenbaum.

John will discuss the real estate Monday and environment, Robyn will discuss the origination pipeline and Tom will summarize the financial the financials.

We will then open the line for Q&A.

With that I will now turn the call over to our Chief Executive Officer Len Tannenbaum. Thank.

Leonard Tannenbaum: Thank you, Francesca, and welcome to AFC Gamma's Q2 earnings conference call. I would like to thank our current shareholders, prospective shareholders, and analysts for joining us. Today, I will provide you with an update on AFC Gamma's business, the many opportunities we have ahead of us, and the current state of the cannabis industry. AFC Gamma is an institutional provider of loans to the cannabis industry, typically secured by three pillars, cash flow, licenses, and real estate. The companies that we lend to are domestic, single and multi-state operators, which include those that are privately held as well as those listed on the Canadian exchanges. During Q2, we closed on new commitments of $71.3 million. As of 1 August 2021, we lend to 14 borrowers, which have operations in 14 states.

Thank you Francesca and welcome the AFC kind of second quarter earnings Conference call I would like to thank our current shareholders prospective shareholders and analysts for joining us.

Today I will provide you with an update on AFC gamma business. The many opportunities. We have ahead of us and the current state of the cannabis industry average.

AFC gamma is and institutional provider of loans the cannabis industry typically secured by 3 pillars cash flow licenses and real estate.

The companies that we lend to of domestic single and multi state operators, which include those that are privately held as well as those listed on the Canadian and exchanges.

During the second quarter, we closed on new commitments of $71.3 million as of <unk>.

All of its first 2021, we lend to 14 borrowers which of operations in 14 states.

Leonard Tannenbaum: We are pleased that we have continued to diversify our portfolio across states and borrowers. In mid-June, we experienced a significant increase in the actionable pipeline, which was driven by an inflow of deals from large multi-state operators as well as smaller multi-state and single-state operators. Notably, this increase in the pipeline excludes any capital tied to New York, which has recently allowed adult-use cannabis as the legislation there is not yet finalized. Since mid-June, our actionable pipeline has remained at elevated levels, which was the primary reason for the follow-on offering that we completed in June. As a reminder, the deals in our actionable pipeline, should they convert, could take between 3 and 9 months to close. Many of the deals that we complete are high touch, require significant due diligence and potentially require regulatory approval, making it difficult to predict the exact timing of closings.

We are pleased that we've continued to diversify our portfolio across states and borrowers.

And mid June we experienced the significant increase and the actionable pipeline, which was driven by an inflow of deals from large multistate operators as well as smaller multi state of it and single state operators.

Notably this increase and the pipeline excludes any capital tied to New York, which recently allowed the.

Adult use cannabis as the legislation there is not yet finalized.

Since mid June our actionable pipeline has remained at elevated levels, which was the primary reason for the follow on offering that we completed and Jim.

As a reminder, the deals and our actionable pipeline should they convert could take between 3 and 9 months to close.

Many of the deals that we complete our high touch and require a significant due diligence and potentially require regulatory approval and making it difficult to predict the exact timing of closings.

Leonard Tannenbaum: Our robust pipeline of potential borrowers includes many operators expanding into new states. Growth and demand for debt capital that we provide will come from the issuance of new licenses in states such as Georgia and additional new licenses in states such as Ohio, Illinois, and Florida. We are pleased that one of the recently issued Georgia licenses was awarded to our largest borrower, Nature's Medicines. We've also noticed that our customers are accelerating construction to meet the state-imposed limitation on build time and to gain a first-mover advantage. During the quarter, we received an investment-grade rating of BBB- from Egan-Jones Ratings Company. This is an important step when we seek to issue debt. As our actionable pipeline converts into signed deals, it is our intention to seek long-term unsecured financing for part of those capital needs.

Our robust pipeline of potential borrowers includes many operators expanding into new states.

The growth and demand for debt capital that we provide will come from the issuance of new licenses and states, such as Georgia, and additional new licenses and states, such as the Ohio, Illinois and Florida.

We are pleased that 1 of the recently issued Georgia licenses was awarded to our largest borrower nature of the medicines. We've also noticed that our customers are accelerating construction to meet the of state imposed limitation on build time and to gain our first mover advantage.

During the quarter, we received an investment grade rating of Triple B minus from Egan Jones rating company.

This is an important step when we seek to issue debt.

As our actionable pipeline convert into signed deals is our intention to seek long term unsecured financing for part of those capital needs.

We believe issuing debt and establishing a benchmark for of debt cost of capital is important as we continue to execute on our business plan.

Conceptually, we believe that using leverage against lower yielding assets of the portfolio.

It's a good way to generate strong returns on equity for our shareholders.

In addition, we are pleased that AFC cameras added to the Russell 2000, and we expect the inclusion and this world class market index will bring increased visibility across the investment community.

Turning to the industry the legislative environment surrounding the candidates market continues to evolve.

Senator Schumer of New York recently put forward the candidates administration and opportunity Act, which if passed and its current form would among other things remove marijuana from the controlled substances Act.

Given the current political landscape. We believe it is very unlikely at this piece of legislation will succeed.

Leonard Tannenbaum: That said, we remain optimistic that legislation consistent with the goals of the SAFE Act will eventually pass. The SAFE Act may allow for credit cards to be used at cannabis dispensaries and should certainly increase the number of banks accepting deposits from the industry. We recognize that increased competition because of the SAFE Act may drive lower yields for our borrowers. However, the SAFE Act will also potentially lower AFC Gamma's cost of capital as more banks could lend to us and more institutions could invest in us. Additionally, we continue to believe that states will have the right to set regulations around their own cannabis programs and will attempt to protect the significant source of tax revenue and job creation that cannabis provides these states.

That said, we remain optimistic that legislation consistent with the goals of the feedback will eventually pass.

The Safe Act may allow for credit cards to be use of cannabis dispensaries and should certainly increase the number of banks accepting deposits from the industry.

We recognize that increased competition because of the Safe Act may drive lower yields for our borrowers. However, the sales that will also potentially lower AFC gamma is cost of capital as more banks could lend to us and more institutions can invest and us.

Sure.

Leonard Tannenbaum: The M&A boom that we mentioned during last quarter's earnings call continues, with many large public multi-state operators using a combination of equity, debt, and cash as methods to acquire smaller single-state operators. We believe that we are in a 1 to 2-year period of rapid consolidation, where the big operators will continue to get bigger. Our goal is to be the lender of choice to at least half of the top 15 multi-state operators, as well as companies that are seeking to achieve scale or be acquired by an MSO. We lend at different rates to the top MSOs, the midsize operators, and the smaller state operators. We are seeing some yield compression for the top-tier multi-state operators due to their size, scale, and access to capital. Going forward, we will continue to employ a high degree of selectivity in the deals that we underwrite and invest in.

The M&A boom that we mentioned during last quarter's earnings call continues with many large public multistate operators using a combination of equity debt and cash as the methods to acquire smaller single state operators. We believe that we were in the 1 to 2 year period of rapid consolidation where the.

Big operators will continue to get bigger.

Our goal is to be the lender of choice to at least half of the top 15 multistate operators as well as companies that are seeking to achieve scale or be acquired by and MSL.

We learned the different rates to the top msos, the mid size operators and the smaller state operators.

We are seeing some yield compression for the top tier multistate operators due to their size and scale and access the capital.

Going forward, we will continue to employ a high degree of selectivity and the deals that we underwrite and investor.

Yes.

Leonard Tannenbaum: As we continue to source and evaluate new transactions, we have further expanded our team to over 20 employees and continue to build our corporate infrastructure to support our business plan. We are pleased to announce the hiring of Brett Kaufman, the new Chief Financial Officer for AFC Gamma. For 12 years, Brett served as CFO at Ladenburg Thalmann, a diversified financial services company, which has $1.5 billion in trailing 12-month revenue prior to its sale in 2020. Before that, he spent 9 years at Bear Stearns, serving in various roles of increasing responsibility, including managing director and director of financial planning and analysis. We are very excited to have Brett join our team and look forward to introducing him to our investors and analysts in the coming months.

As we continue to source and evaluate new transactions and we have further expanded our team to over 20 employees and continue to build our corporate infrastructure to support our business plan.

We are pleased to announce the hiring of bread Kaufman and the new Chief financial officer for apps the gamma.

And for 12 years, Brett served as CFO at Ladenburg Thalmann of diversified financial services company, which is $1.5 billion and trailing 12 month revenue prior to its sale and 2020.

Before that he spent 9 years at bear Stearns, serving in various roles of increasing responsibility, including managing director and director of financial planning and analysis.

We're very excited to have Brian join our team and look forward to introducing him to our investors and analysts and the coming months.

Leonard Tannenbaum: We also would like to thank Tom Jeffrey for his contributions, hard work, and diligence as AFC Gamma CFO. Tom will continue in his role as CFO of AFC Gamma's external manager, AFC Management. Turning to our dividend policy, the board of directors intends to declare a dividend for the Q3 on or about 15 September, which will have a record date of 30 September and be payable 15 October. It is anticipated that the quarterly dividend declared by the board will be greater than or equal to the $0.38 dividend that was paid in the Q2. This dividend schedule is similar to many other REITs. We intend to follow this schedule for future quarters, as this timing provides our board with additional visibility into the earnings of that given quarter when declaring the dividend.

We also would like to thank Tom Jeffrey first contributions hard work and diligence of FC Gamma CFO Tom.

Tom will continue and his role as CFO of FC Gamma is the external manager AFC management.

Turning to our dividend policy the.

The board of directors intends to declare a dividend for the September quarter on or about September 15th.

We'll have a record date of September 30th and <unk>.

Payable October 15th.

And as anticipated that the quarterly dividend declared by the board will be greater than or equal to the 38% dividend that was paid and the June quarter.

This dividend schedule is similar to many other Reits.

And we intend to follow the schedule for future quarters. As this timing provides our board with additional visibility into the earnings of that given quarter when declaring the dividend.

As a reminder, our dividend policy is the pay between 90% and 100% of distributable earnings over the year with a special dividend at the end of the year if necessary I will now turn it over to John. Thank you land 1 of our core competencies and key differentiating factors as the lender focused on cannabis.

And is our expertise and experience and construction financing and construction.

Construction lending itself is complex and cannabis adds an additional layer of complexity.

For example, cannabis facilities required unique heating and cooling units to regulate the temperature effectively to create the optimal grow environment.

These units may require the building's roof to be reinforced and.

And must be installed correctly to present more of.

Our in house construction manager and team of construction professionals make sure that the borrower and its contractors understand these nuances.

As a secured lender we want to make sure the collateral securing our loan is built to the best possible standards by builders with requisite size and experience <unk>.

Thomas Geoffroy: is built to the best possible standards by builders with requisite size and experience. As of 1 August, about 70% of our loans at face value are construction loans. Construction loans are drawn over time, and with each draw, we must make sure we have all needed lien releases. We must make sure our borrowers remain in material compliance with state and local ordinances and build in line with construction plans. Construction loans are relatively new to the cannabis industry. In fact, prior to AFC Gamma, sale-leasebacks were a major source of external financing available to cannabis companies. Under a sale-leaseback, a cannabis company would sell its property and take a long-term lease, one with annual rent escalations. Locking into such long-term and potentially expensive obligations is no longer necessary.

As of August 1st about 70% of viral loans of states value are construction loans.

Construction loans of drawn over time and with each draw we must make sure we of all needed lean releases, we must make sure our borrowers remain and materials compliance with state and local ordinances and build in line with the construction plans.

Construction loans of relatively new to the cannabis industry in fact prior to AFC gamma sale leasebacks, where a major source of external financing available to cannabis company under the sale leaseback of cannabis company with sellers of property and take a long term lease 1 with annual rent escalations.

<unk>.

Locking into such long term and potentially expensive obligations is no longer necessary.

Thomas Geoffroy: The potential for legislation such as the SAFE Act, along with more flexible financing options, encourages borrowers to own their real estate and to take loans they could refinance in 3 to 5 years. If borrowers expect that financing costs will decrease over time, then a loan, such as those provided by AFC Gamma, would provide more flexibility over the near and long term. Now let me turn the call over to Robyn.

The potential for legislation such as the Safe Act, along with more flexible financing options encouraging borrowers to own their real estate and to take loans. They can refinance and 3 to 5 years and of borrowers expect the financing cost will decrease over time then alone.

Such as those provided by FC Gamma would provide more flexibility over the near and long term.

Now, let me turn the call over to Robyn. Thank you John as the relationship lender, we strive to help operators felt their businesses and succeed while acting as the flexible partner to help sell capital needs along the way incumbency has proven to give us an important edge when sourcing potential deals as we've expanded loans with a very.

The of our existing borrowers as they continue to grow both organically and the acquisition for example, when 1 of our borrowers decided to purchase the dispensary rather than lease. It we were able to provide a simple amendment to increase the size of the loan to provide them with the capital they needed to execute on their business plan.

Once we complete alone we of all of the documentation in place to grow with that borrower and addition to our construction expertise that John mentioned another key differentiator is AFC gamma available capital and the ability of its external manager to act as agent. This allows our borrowers to deal with 1 lender.

And when it changes or amendments need to be completed versus going to a larger syndicate of lenders.

<unk> gamma speaks to hold the majority of the borrowers debt tranche and the external managers ability to active lead agent is another differentiating factor.

And that provides our borrowers with flexibility and ease of execution as of August 1.2021, AFC management agent did about 76% of our loans at face value from January 2020 through June 32021, we have sourced over $6.7 billion of.

Transactions, which represents over 344 deals we have built strong relationships with our borrowers and we believe our reputation and the industry for being a trusted lender continues to grow I will now turn it over to Tom to talk about the financials.

Thank you Robyn.

We ended the second fiscal quarter of 2021 with total assets of $278.5 million as compared to $221.5 million at March 31.2021.

Portfolio of investments totaled $164 million of principal outstanding with the carrying value of $153.3 million spread across 13 companies as of June 32021.

Thomas Geoffroy: In July 2021, the underwriters partially exercised their over-allotment option to purchase an additional 269,650 shares at $20.50 per share, with $5.2 million in net proceeds to the company after fees and expenses. Currently, AFC Gamma has 16,386,527 shares outstanding. At the end of the Q2, book value per share was $16.66 as compared to $16.18 and $14.83 for the quarters ended March 2021 and December 2020 respectively. As of 30 June 2021, AFC Gamma's portfolio consisted of $187.7 million of transactions with $163.7 million funded.

Currently AFC gamma has $16 million 386527 shares outstanding.

At the end of the June quarter book value per share was $16.66.

As compared to $16.18, and $14.83 for the quarters ended March 2021, and December 2020, respectively.

As of June 32021, AFC Gamma is portfolio consisted of $187.7 million of transactions with $163.7 million funded.

Thomas Geoffroy: As of 1 August 2021, we've completed $195.3 million of transactions with $175.3 million of principal outstanding to 14 companies in 14 states. All of the loans in the portfolio are current and performing. The weighted average portfolio yield to maturity, which is measured for each loan for the life of the loan, is approximately 21% as of 30 June 2021, compared to 21% as of 31 March 2021. The weighted average yield to maturity of the portfolio as of 1 August 2021, was also approximately 21%, which is consistent with the last two quarters ended March and June 2021. For the quarter ended 30 June 2021, we had GAAP net income of $4.6 million, or earnings of $0.34 per basic weighted average common share.

As of August 1.2021, we've completed $195.3 million of transactions with $175.3 million of principal outstanding to 14 companies and 14 states.

All of the loans and the portfolio are current and performing.

The weighted average portfolio yield to maturity, which is measured for each loan for the life of the loan is approximately 21% as of June 32021.

Compared to 21% as of March 31, 2021, the <unk>.

Weighted average yield to maturity of the portfolio as of August..1 2021 was also approximately 21% which is consistent with the last 2 quarters ended March and June 2021.

For the quarter ended June 30 of 2021, we had GAAP net income of $4.6 million or earnings of 34 cents per.

Per basic weighted average common share.

Thomas Geoffroy: For the three months ended 30 June 2021. We generated total investment income of $8.7 million and distributable earnings of $5.8 million, or $0.43 per basic weighted average common share. Distributable earnings represents the net income computed in accordance with GAAP, excluding non-cash items such as non-cash equity compensation expense, any unrealized gains or losses, provision for current expected credit losses, commonly referred to as CECL, or other non-cash items recorded in net income for the period. CECL was early adopted by the company in fiscal year 2020. As of 30 June 2021, the CECL reserve represents approximately 1.1% of loans at carrying value compared to approximately 1.3% at 31 March 2021.

For the 3 months ended June 32021, we generated total investment income of $8.7 million and distributable earnings of $5.8 million or <unk> 43 per basic weighted average common share.

Distributable earnings represents the net income computed in accordance with GAAP, excluding noncash items, such as noncash equity compensation expense and.

Any unrealized gains or losses per.

Provision for current expected credit losses, commonly referred to as seasonal.

Or other noncash items recorded in net income for the period.

Seasonal was early adopted by the company and fiscal year 2020.

As of June 32021, the seasonal reserve represents approximately 1.1% of loans of carrying value compared to approximately 1.3% at March 31.2021 of.

Adjustments to arrive of distributable earnings of 43 per basic weighted average common share of common stock amounted to 9.

Per basic weighted average common share in aggregate.

And included both the impact of noncash adjustments to the seasonal reserve and change in unrealized gains.

We believe the dividends are generally 1 of the principal reasons, the stockholders invest and our common stock and.

And we generally intend to pay dividends to our stockholders and and an amount between 90 and 100% of our annual taxable income.

Thomas Geoffroy: On 30 June 2021, AFC Gamma paid a dividend of $0.38 per common share outstanding for the Q2, which represented approximately 87% of distributable earnings for the quarter. The company has distributed $7.3 million of distributable earnings for the six months ended 30 June 2021, or approximately 80% of its distributable income. The board of directors intends to declare a dividend for the Q3 on or about 15 September, which will have a record date of 30 September and be payable on 15 October. It is anticipated that the quarterly dividend declared by the board of directors will be greater than or equal to the $0.38 dividend that was paid for the Q2.

On June 32021, AFC gamma paid a dividend of <unk> 38.

Per common share outstanding for the June quarter, which represented approximately 87% of distributable earnings for the quarter.

The company has distributed $7.3 million of distributable earnings for the 6 months ended June 30 of 2021 or approximately 80% of its distributable income.

The board of directors intends to declare a dividend for the September quarter on or about September 15th.

It will have a record date of September 30th.

And be payable on October 15th.

It is anticipated that the quarterly dividend declared by the board of directors will be greater than or equal to the 38 <unk>.

Dividend that was paid for the June quarter.

Thomas Geoffroy: In May 2021, the company amended its secured revolving credit loan agreement to, among other things, increase the loan commitment from $40 million to $50 million, decrease the interest rate from 8% to 6% per year, and extend the maturity date up to December 31, 2021. Currently, no draws on the revolving credit facility have occurred during the fiscal year to date, and no interest or fee expenses were incurred related to the revolving credit facility. The revolving credit facility is an important component to the company's business strategy to offer greater flexibility, manage liquidity, and bridge its investment commitments through future capital raises, thereby potentially reducing the impact of cash drag on the returns to investors. I will now turn it back over to Len.

And May 2021, the company amended the secured revolving credit loan agreement to among other things increase the low commitment from $40 million to $50 million decrease the interest rate from 8% to 6% per year and extend the maturity date up to December 31.2021.

Currently no draws on the revolving credit facility of occurred during the fiscal year to date and no interest or fee expenses were incurred related to the revolving credit facility.

The revolving credit facility is an important component to the companys business strategy to offer greater flexibility manage liquidity and bridge is the investment commitments for future capital raises thereby potentially reducing the impact of cash drag on the returns to investors.

I will now turn it back over to Lynn.

AFC Gamma has the best in class team strong balance sheet and increased access to capital and during the second half of 2021, we are well positioned as a first mover and leader and the rapidly growing cannabis lending market I will now turn it back over to the operator to start Q&A.

Operator.

Thank you we will now take the question.

And can you just ask a question you will need the press star 1 on the telephone keypad again that will be the power wanting the telephone keypad to ask the question.

Please standby will be compile the Q&A roster.

We have the first question comes from Gerard <unk> of Cowen. Your line is now open you may ask your question.

Gerald Pascarelli: Great, thanks. Good morning, team. Thanks very much for taking the questions. Len, I think it's definitely encouraging that the notable pipeline increase that the company has seen from early June through current day doesn't include New York. Just sticking with the Northeast, can you just talk about how you view the potential white space opportunity, not only in New York, but in states like Connecticut, Virginia, and New Jersey, that recently legalized for adult use that are presumably going to require, you know, notable capital expenditures to build out capacity, you know, over the medium to long term? Any color you could provide there would be helpful. Thank you.

Great. Thanks, Good morning, Tim Thanks, very much for taking the questions.

And I think its definitely encouraging that the.

Notable pipeline increase the debt the company and as seen from from early June through current day doesn't include New York, but just sticking with the northeast can you just talk about how you view the potential white space opportunity not only in New York and States like Connecticut, and Virginia Jersey.

And that recently legalize for adult use net of presumably you're going to require notable capital expenditures to build out capacity over the medium to long term any color you could provide there would be helpful. Thank you.

Leonard Tannenbaum: It's very exciting that a lot of people that have been sitting on their licenses, watching them appreciate in value, are actually starting to take action in building those licenses and building, to the benefit of the consumers in that state. The states are all waking up to the fact that they issued these licenses for a purpose, right? To have these cultivation and dispensaries built. In states like Missouri and others, we're watching them pull licenses from people that haven't started building or not building according to plan. That goes for New Jersey as well. Circling back to your question, there's a number of New Jersey licenses that just haven't built yet.

I think it's very exciting that a lot of people that have been sitting on their licenses, Washington, and we appreciate and value.

And we're actually starting to take action and building those licenses and building to the benefit of the consumers and that state and the states are waking up to the fact that the issued these licenses for a purpose right to have these cultivation and dispensaries belt and states like Missouri, and and others, we're watching them pull licenses from people that happened.

Started building or not building according to plan.

And that goes for new Jersey, as well that circling back to your question. There is a number of new Jersey licenses that just haven't built yet and so what we're seeing as of a huge demand for capital to start building out of these licenses as part of the agreements and why they got it should and the first place and that is a large supply of the demand.

Leonard Tannenbaum: What we're seeing is a huge demand for capital to start building out these licenses as per the agreements and why they got issued in the first place. That's a large supply of the demand.

Gerald Pascarelli: Got it. That's helpful. Just another one from me is just on the competitive landscape as of today. You know, you're the only cannabis mortgage REIT trading on a major exchange. I guess, like, over the past few months, in your conversations, what are your expectations for the evolution of the competitive landscape, maybe over the back half of this year into early 2022, you know, with more competition coming online to capitalize on these high yields.

Got it.

That's helpful. Just another 1 from me is just on the competitive landscape as of today Your day.

The only kind.

Candidates mortgage re trading on a major exchange.

I guess like over the past few months and your conversations what are your expectations for.

The.

Evolution of the competitive landscape, maybe over the back half of this year into early 2022.

With more competition coming on line to capitalize on these high yields.

Leonard Tannenbaum: Look, I think from a public standpoint, and obviously the public currency is really important, it's very hard for a new competitor to get even the scale. Every day that passes increases the moat around our position and our competitive position, at least from a public standpoint. I will say that there's plenty of competition to large multi-state operators. There are large private companies, large hedge funds, and large institutions that are investing with the multi-state operators' debt. It's really about there. It's about relationship, what we can deliver, helping them in their business plan and helping them as a partner, even more than capital. 'Cause there is plenty of capital at the very high end where it seems like the new institutions or large institutions feel most comfortable.

Okay. Thank from of public standpoint, and obviously the public currency is really important.

It's very hard for a new competitor because they get and the scale everyday that passes increases the moat around our position and our competitive position at least from a public standpoint, I will say that there is plenty of competition to the large multistate operators. There are large private companies large hedge funds and large institutions.

And that are investing with the multistate operators debt.

And so it's really about there it's about relationship what we can deliver and helping them and their business plan and helping them as the partner.

And even more than capital because there is plenty of capital.

At the very high and it seems like the new institutions or or large institutions feel most comfortable.

Gerald Pascarelli: Very helpful color. Thanks, Len. I'll pass it on.

Very helpful color, Thanks, and then I'll.

Pass it on.

Yes.

Operator 2: Thank you. We have the next question comes from the line of Aaron Gray of JMP Securities. Your line is now open. You may ask your question.

Thank you.

Question comes from comes from the line of Diovan and <unk> of JMP.

The Securities. Your line is now open you may ask your question.

Aaron Gray: Hey, everyone. Morning, and great job putting capital to work this quarter. Had a question around that. The active pipeline obviously up pretty significantly, about $300 million, give or take quarter to quarter. The terms in that pipeline, the yield profile, is that changing much? I guess that's part of that is gonna be involved with the larger MSOs and kind of the exposure there. Any insight on the exposure to the larger MSOs within that pipeline would be helpful. Thanks.

Hey, everyone.

And great job, putting capital to work this quarter.

Had a question around that the the active pipeline, obviously up pretty significantly about 300 million bucks give or take.

Quarter to quarter.

The terms and that pipeline and the yield profile is that cheney changing much and I guess, that's part of that is going to be involved with the.

And the larger msos and kind of the exposure there so any day any insight on the exposure.

So the larger msos and within the pipeline would be helpful. Thanks.

Leonard Tannenbaum: The pipeline itself has a mixture of the large MSOs, which are much safer and lower yielding, the mid-tier providers, which are a couple of states with operations that are looking to expand, and the single state operators, which are starting to build a license. We back them. We have them put a certain amount of equity in. There's some seller notes or sometimes there's unsecured debt. We lend the senior debt with first liens on the property. They all hold different yields, as we said before. As we look forward to the deals that we've done and the deals we've announced and we look at the quarters, we've held consistent with over 21-20% weighted average yield to maturity.

Leonard Tannenbaum: By the way, when I say that, we all know that things aren't held to maturity. There's gonna be velocity. Therefore, the yields are actually even higher, if a deal pays off early. So when we say it's a 20% held yield to maturity, that's actually conservative. I know that sounds very high. Having said that, it just depends on which deals we close and when we close them, and how that weighted average yield changes. I think you heard me say it in the transcript that if we did sign a big multi-state operator at lower yields and higher safety, we would just, we...

If a deal pays off early.

And so when we say, it's a 20% held ear from maturity, that's actually and I know that sounds very high that's actually conservative having said that it just depends on which deals we close and when we close them and how that weighted average yield changes and I think you've heard me say and.

The transcript that if we if we did sign the big Multistate, operator at lower yields and higher safety. We would just be our intention is to re lever of the return to to increase the return on equity for the investors just by applying a better cost of our cost of leverage versus the aircraft of leverage and capturing a spread and so it's hard.

Leonard Tannenbaum: Our intention is to relever the return to increase the return on equity for the investors just by applying a better cost to our cost of leverage versus their cost of leverage and capturing a spread. It's hard to tell where weighted average yield goes. It depends on the mix, but we're very focused on the return on equity to our shareholders.

The <unk> weighted average yield goes it depends on the mix, but we're very focused on the return of the return on equity to our shareholders.

Alright, Alright makes sense and then the deployment pace, obviously very strong and the second quarter. If we look into the first month or so the third quarter of little bit slower, but the commitments are up and total any insight you can give us on pace of deployment over the remainder of the year.

Or how we should think about it is this gonna be a chunky situations.

Leonard Tannenbaum: Let's see how I wanna answer that. You're right. I'm a little disappointed that some deals didn't close in the beginning of the quarter, which could have closed. You could see by our 10-Q and our disclosures that we got some of the way there on some loans, and they haven't quite closed all the way there yet. It is chunky. We are sitting in August, which is kind of interesting. It's typical for a lot of deals. In the past, when I've managed money for Fifth Street for 15 years, there was definitely a spurt after Labor Day. Magically, that's when everybody likes to close, in September. This could be a back-end loaded quarter, or that may slip into October, November.

Let's see how all of the answer that you are.

It is chunky were sitting in August which is kind of interesting its typical for a lot of deals and in the past when Ive managed money for fifth Street for 15 years, there was definitely a spurt after labor day.

<unk> and Thats when everybody likes the close in September. So this could be of backend loaded quarter and all of that May slip into October and November. We just don't know because these deals are Canada, and Canada is very chunky, but very uncertain timing of closings. We do plan to continue to announce material agents agent that club.

Leonard Tannenbaum: We just don't know because these deals are cannabis, and cannabis is very chunky but very uncertain to timings of closings. We do plan to continue to announce material agents, agented closings as they occur. I think that's gonna be the best indicator of our progression.

<unk> as they occur so I think that that's going to be the best indicator of our progression.

Aaron Gray: Then one more for me, if I could. You did make the comment that New York wasn't included in the active deal pipeline. Does that imply that you're already looking at deals there? Any thought on what that would mean for the more near term as opposed to long term?

And then 1 more 1 more from me if I could.

You did make the call on bad debt.

The work wasn't included in the deal pipeline does that imply that youre already looking at deals there and.

And any thought on.

But what that would mean.

For the more near term as opposed to the long term.

Leonard Tannenbaum: I would think New York is a next year event from a deal flow perspective because New York still hasn't figured out its own regulations. Opt-out programs for the different locales are not until December 31. It seems like everybody's talking to us, not everybody. Many people are talking to us about New York, but there's no definitive questions around how much they need or how big they wanna build. New York's just one of them. I think Florida is gonna be very active. I think Georgia, which has announced licenses, will start to be active even with only 6 winners. I think the Ohio build, the 72 dispensaries, everybody's lining up to apply and build those out, and which means they also need cultivation.

Many people are talking to us about New York, but Theres no definitive.

Questions around how much the need or how big they want to build.

But new York is just 1 of them I think Florida is going to be very active I think Georges and Georgia, which just announced licenses. We will start we will start to the active even of the only 6 winners.

I think the Ohio build the 72 dispensaries everybody's lining up to apply and build those out and which means they also need cultivation. So we're seeing and Illinois 1 of the reasons, we think Illinois stagnated.

Leonard Tannenbaum: We're seeing in Illinois, you know, one of the reasons we think Illinois stagnated was the lack of retail distribution. With Illinois' new retail allocations, over 100 retail allocations, cultivators now are saying, "Okay, now we can increase cultivation because we see the retail coming on, therefore we anticipate demand." All of it flows into capital expansion as new licenses across the country are issued. Now, I might as well say something new. We also are, for the first time, looking at California. We haven't done anything in California. We don't have anything yet signed in California, but we are considering California, where we hadn't in the past, especially given the $1.2 billion confiscation that we saw in California. As the black market starts to get restricted, California gets more interesting to us.

<unk> of retail distribution, with Illinois, and new retail allocations over 100 retail allocations. The cultivators now are saying, okay. Now we can increase cultivation, because we see the retail coming on therefore, we anticipate demand. So all of it flows into capital expansion as new licenses across the country are issued and we also now.

And I might as well and say something new we also are for the first time looking at California, We Havent done anything, California, we don't have anything get signed and California, but we are considering in California, where we hadn't in the past, especially given the $1.2 billion complication that.

And that we saw and California as the black market starts to get restricted California gets more interesting to us.

Aaron Gray: Gotcha. Great insight. Thanks, Len.

Sure Great insight thanks, a lot.

Operator 2: Thank you. We have the next question comes from the line of John Hecht of Jefferies. So your line is now open. You may ask your question.

Thank you we have the next question comes from the line of John Hecht of Jefferies. Your line is now open you may ask your question.

John Hecht: Good morning, guys. Thanks very much for taking my questions. I'm just wondering, how do we think about cost of capital opportunities and kind of how you would toggle leverage given the rating you guys just got?

Good morning, guys. Thanks, very much for taking my questions and I'm just wondering how do we think about cost of capital opportunities and kind of how you would toggles average given given the rating you guys just Scott.

Leonard Tannenbaum: Look, we have one benchmark out there, which is the industry leader in sale-leasebacks, IIPR. IIPR's debt, about a $300 million tranche trades, I mean, not pretty liquidly, at sub-4.5% yields on a 5-year unsecured piece of paper. Their Egan-Jones rating is BBB+. Those are all facts. I'm not saying we have anything close to 4.5% cost of capital, but at least that's the benchmark at which people are looking, and we're gonna see where the market is. I'm starting to get a pretty good idea. I don't wanna put on leverage until we are close to putting on the assets that I would wanna take leverage against. It's always a timing issue. We do have a credit line that we could use as well.

So look we have 1 benchmark out there, which is the industry leader and sale leasebacks IPR IPR as debt, that's about a $300 million tranche trades.

And pretty liquid Lee.

And at sub 4 and 5% yields on the 5 year unsecured piece of paper, they're Egan Jones rating as Triple B plus so those are all facts.

Line that we could use as well.

Leonard Tannenbaum: We do anticipate putting on leverage in the medium term.

And so, but we do anticipate putting on leverage.

And the medium term.

Okay and then.

You guys have had remarkably stable yield to maturities and your book.

Assuming you hit your objectives for the year do you do you.

Do you still think you'd be in the low 20% range or how do we think about the migration of that over time, given the pipeline and so forth.

Leonard Tannenbaum: It's a great question. Look, this year we're on plan and we have an aggressive plan, and we're on it. Next year is, we know we're gonna have growth. We don't know where that growth is gonna be. It's gonna be in all three segments, I think, seeing what the forward-looking discussions are. M&A activity also is actually just starting to drive growth, where you have acquisitions of companies that are not necessarily by the big MSOs, at, you know, 7x multiples or so of EBITDA, and that's tiered out by equity seller debt and senior debt, where we're typically 3x senior debt. Very similar to the middle market loans that I used to do in normal middle market lending. You're seeing that activity start to happen from both individual private equity sponsors and private equity funds.

Okay. Great question I'll look at this year, we're on plan and.

We had an aggressive plan and we're on it next year as well.

We know we're going to of growth. We felt we don't know where that growth is going to be it's going to be and all 3 segments I think seeing what the forward looking of discussions are.

M&A activity also is actually starting to drive growth, where you have acquisitions of companies that are not necessarily by the big Msos.

At.

7 times multiples or so of the EBITDA and that's tiered out by equity seller of debt and senior debt, where we're typically 3 types of senior debt very similar to the middle market loans that I used to do and normal middle market lending youre seeing that activity start to happen from a book.

Both individual private equity sponsors and private equity funds. So I think theres a variety of drivers.

Leonard Tannenbaum: I think there's a variety of drivers, and every day it changes. Cannabis moves faster than anything, so it's very hard to predict that. I'm really pleased that the yields right now are holding up over 20%. As I said to you, if you saw SAFE Act pass, I said we think there's some yield compression. Those refinancings will cause actually our income to go even higher because we would get prepayment penalties in some cases. We'd have a write-up to OID. We'd have exit fees in some cases. To remind all of our investors, exit fees, which we do have on many deals, are not accrued into income. As we receive them, you know, they provide additional bumps to income.

We think there's some yield compression those refinancings.

Cause actually are in the earnings to go even higher because.

<unk> got prepayment penalties and some cases, we would have a right of the OID and we'd have exit fees and some cases and to remind all of our investors exit fees, which we do have on many deals are not accrued into the income so as yet prudent income so as we receive them.

They provide additional bumps to income.

John Hecht: Okay. Wonderful. Thanks very much for the details.

Okay wonderful thanks, very much of the detail.

Operator 2: Thank you. Again, in order to ask a question, you will need to press star one on your telephone keypad. We have the next question comes from the line of Mark Smith of Lake Street Capital Markets. Your line is now open. You may ask a question.

Thank you again and I wanted to ask the question you will need the press star 1 on your telephone keypad.

Next question comes from the line of Mark Smith of Lake Street Capital. Your line is now open you may ask the question.

Mark Smith: Hi, guys. First question for me is, you know, pipeline looks really solid out there. You know, do you guys have everybody on the team, you know, that you feel like you need at this point, or are there additions in human capital that you guys need to make?

Hi, guys first question from me is pipeline looks really solid out there.

To have everybody on the team that you feel like you need at this point are the additions and human capital that you guys need to make.

Leonard Tannenbaum: Oh, good. I get to make an advertisement to for more employees, which is always a positive on the call, so thanks for asking the question. We're looking to hire many people. We've hired a lot, right? We've grown to nicely over 20 employees. We've added Brett recently, which adds a really good institutional person to the infrastructure but also the team as we build our leadership team. We're continuing to hire. We need another originator for sure because as you know, as good as Robyn and Krista are at uncovering opportunities and managing the processes, we continue to expand and have more touch points, and origination is a very intensive process.

Oh, good I guess make and advertisement to 2 for more employees, which is always a positive on the call. So thanks for asking the question.

We're looking to hire many people we've hired a lot right we've grown total.

And nicely over 20 employees with added Bret recently, which adds it really good institutional institutional person to the infrastructure.

Sure, but also the team.

And we as we build our leadership team and we're continuing to hire we need another originator for sure because of this.

And as good as Robin and Chris are at uncovering opportunities and managing the processes, we continue to expand and have more touch points and the origination is of very intensive.

Leonard Tannenbaum: We are hiring more in underwriting, though our underwriting team is coming up to speed very nicely and developing terrific processes. We have in-house construction management now, which has been a huge plus both for our customers and our underwriting. That's already taken care of. We have probably 4 or 5 open positions at any given time, and we expect anybody who knows people that, you know, want a terrific job in a fast-growing company in a terrific industry, be great to send them our way.

We're hiring more and underwriting that we're underwriting team that is coming up to speed very nicely and developing terrific processes. We are in the house construction management, now, which has been which has been a huge plus both for our customers and our underwriting so that's already taken care of.

But we have probably 4 or 5 open positions of any given time, and we expect anybody who knows people that want a terrific job and the fast growing company and the terrific industry the greater at certain of our way.

Mark Smith: Perfect. You touched on it a bit early, you know, in your commentary as well as early in the Q&A, but looking at geographic expansion, you know, a lot of people, obviously New York is hot. People are talking about the Northeast. Yeah, but as we look through the rest of the country, you know, what other states are attractive, maybe smaller states for you to move into, you know, where the licenses are attractive, you know. Then as you look at, you know, possibly increased competition, you know, will that maybe push you into some smaller states at some point?

Perfect and then you touched on it a bit early and your commentary is where all of this early in the Q&A, but looking at geographic expansion and a lot of people, obviously and New York is hot and people talking about the northeast.

And as we look through the rest of the country. What other states are attractive maybe smaller states for you to move into where the licenses are attractive.

And then as you look at.

Possibly increased competition will that maybe push you into some <unk>.

Mauler states at some point.

Yeah.

Leonard Tannenbaum: Look, we look throughout the country at the limited license states and the supply and demand dynamics. We now have a lot more data than we did a year ago, all through the supply and demand equations. We know price per pound and how it's fluctuating seasonally. Our new data that we're really applying is seasonal changes in price and demand on a state basis as different grows, especially greenhouse grows, achieve different throughputs depending if it's summer, winter, or fall. Now we're incorporating that into our charts and our thinking. If you think about Texas someday, that'll be a great state, not for a while, not at cannabis 1%. You have smaller states like Arkansas, that we definitely are looking at and looking at financing.

Look we've looked throughout the country at the limited license states and the supply and demand dynamics. We now have a lot more data that we did a year ago.

All through the supply and demand equations, we know price per pound and how that's fluctuating and seasonal.

Our new data that we're really applying of seasonal changes and price and demand on the state basis as different growth, especially greenhouse growth achieved different throughput the kind of give the summer or winter of fall and now we're incorporating that into our our charts and our thinking but if you think about Texas. Some day that it'll be of great state and.

For a while and cannabis 1%.

On smaller states like Arkansas.

Debt, we definitely are looking at and looking at financing, but the again, they're not of lot of players and the smaller states and that a lot of room for players and the smaller states I think the demand will continue to be driven by Illinois, Ohio, and New York.

The Maryland, Maryland needs a lot of growth build out and that seems to be happening.

And Virginia expands its licenses then that'll be a good growth area and Virginia, I think west Virginia. It may be too many licenses. So we're a little bit careful and west Virginia.

Arizona is a terrific day, 1 of the highest throughput from the country and the licenses on the distribution side are very valuable so we'd like the distributors a lot and Arizona. So look at constantly varies I think what we haven't done and over a third of the 40% of the volume is and states that we do not yet learned too.

Leonard Tannenbaum: I think what we haven't done, and over a third of the, or 40% of the volume is in states that we do not yet lend to. We're starting to fly, as I said, to find select opportunities in California that may be interesting, that's gonna expand 30%, probably the way we look at the United States if we can find some good opportunities there.

So if we were starting to flow as I said to find select opportunities in California that may be interesting, that's going to expand 30% probably the way the way we look at the <unk>.

And I'd states, if we can find some good opportunities there.

Mark Smith: Okay, great. Thank you.

Okay, great. Thank you.

Operator 2: Thank you. There are no further questions at this time. I would like to turn the call over to Ms. Len Tannenbaum.

Thank you there are no further questions at this time I would like to turn the call over to MS line Tannenbaum.

Leonard Tannenbaum: Thank you so much, and thank you, thank you all for listening to the call.

Thank you so much and thank you. Thank you all for listening to the call.

Operator 2: Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.

Thank you. This concludes today's conference call. Thank you all for participating you may now disconnect.

Q2 2021 AFC Gamma Inc Earnings Call

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