Q3 2021 AFC Gamma Inc Earnings Call

November 4, 2021

Okay.

Operator: Good morning. My name is Cree, and I will be your conference operator today. At this time, I'd like to welcome everyone to the AFC Gamma Q3 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference over to your speaker. You may now begin.

Good morning, My name is Craig and I will be your conference operator today at this time I'd like to welcome everyone. Today F. T camera keep three 2021 earnings conference call all lines have been placed on mute to prevent any background noise.

The Speakers' remarks, a question and answer session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to move to your question press. The pound key. Thank you I would now like to turn the conference over to your Speaker you may now begin.

Thank you Craig good morning, and thank you for joining the call I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Jonathan Calico head of real estate, Robyn Tanenbaum head of origination and Brett Kaufmann, our Chief Financial Officer.

Gabe Katz: Thank you, Cree. Good morning, and thank you for joining the call. I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Jonathan Calico, Head of Real Estate, Robin Tannenbaum, Head of Origination, and Brett Kaufman, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our October 13, 2021 press release and is posted on the investor relations section of AFC Gamma's website at afcgamma.com, along with our Q3 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 and financial performance. These statements are subject to inherent uncertainties in predicting future results and conditions, and certain factors could cause results to differ materially from those projected in these forward-looking statements.

Gabe Katz: Thank you, Cree. Good morning, and thank you for joining the call. I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Jonathan Calico, Head of Real Estate, Robyn Tannenbaum, Head of Origination, and Brett Kaufman, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our October 13, 2021 press release and is posted on the investor relations section of AFC Gamma's website at afcgamma.com, along with our Q3 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 and financial performance. These statements are subject to inherent uncertainties in predicting future results and conditions, and certain factors could cause results to differ materially from those projected in these forward-looking statements.

Before we begin I would like to note that this call is being recorded replay information is included in our in our October 13th 2021 press release and is posted on the Investor Relations section of <unk> website at AFC Gamma Dot com, along with our third quarter 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 and financial performance. These statements are subject to inherent uncertainties and predicting future results and conditions and certain factors could cause results to differ materially from those projected in these forward looking statements.

Gabe Katz: New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect these statements. 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 and an overview of our Q3 results and strategic commentary. John will then discuss the real estate lending environment.

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

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 those from these forward looking statements and projections. During this call. We will refer to distributable earnings which is a non-GAAP financial measure reconciled.

Filiation 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.

For today's call is as follows Len will provide introductory remarks, an overview of our third quarter results and strategic commentary John will then discuss the real estate lending environment, Robin who will discuss the origination pipeline and Brett will summarize our financials. We will then open the line for Q&A with that I'll now turn the call over to art.

Gabe Katz: Robin will discuss the origination pipeline, and Brett will summarize our financials. We will then open the line for Q&A. With that, I now turn the call over to our Chief Executive Officer, Leonard Tannenbaum.

Gabe Katz: Robyn will discuss the origination pipeline, and Brett will summarize our financials. We will then open the line for Q&A. With that, I now turn the call over to our Chief Executive Officer, Leonard Tannenbaum.

<unk> Executive Officer, Leonard Tannenbaum, Thank you Gail and good morning, and welcome to FC Gamma <unk> third quarter earnings call for those who are joining us for the first time FC Gamma is a leading institutional lender cannabis industry. We issued loans that are typically secured by three pillars cash flow licenses and.

Leonard Tannenbaum: Thank you, Gabe, and good morning, and welcome to AFC Gamma's Q3 earnings call. For those who are joining us for the first time, AFC Gamma is a leading institutional lender to the cannabis industry. We issue loans that are typically secured by three pillars, cash flow, licenses, and real estate. These companies that we lend to are domestic, single, and multi-state cannabis operators, which include those that are privately held, as well as those listed on the Canadian exchanges. Before we dive into our quarterly results, I'd like to highlight what makes AFC Gamma unique. AFC Gamma is an institutional lender that combines my expertise in cash flow lending, having run a $5 billion credit-focused asset manager, John's real estate expertise, having run a real estate finance development company with billions of dollars in real estate transactions, and Robin's healthcare and investment banking background.

Real estate.

These companies that we lend to our domestic single and multistate cannabis operators, which include those that are privately held as well as those listed on the Canadian exchanges.

Before we dive into our quarterly results I'd like to highlight what makes AMC gamma unique.

AMC cameras, an institutional lender that combines my expertise in cash flow lending, having run a $5 billion credit focused asset manager Johns real estate expertise, having run a real estate finance development company with billions of dollars in real estate transactions, and Robin's healthcare and investment banking background.

Leonard Tannenbaum: The investment committee's expertise, combined with the experienced team that we are continuing to build, helps differentiate AFC Gamma from other lenders in this market. Over the last quarter, we have further built out our in-house capabilities to continue providing our borrowers with customized financing solutions. One key area that we continue to build out is our in-house construction expertise led by Martin Bixler III. As John will describe in further detail, we believe our ability to consult on construction projects is unique and valuable, and we have financed our borrowers in building many construction projects. Additionally, as we announced last quarter, we are pleased that Brett Kaufman has joined us as AFC Gamma's Chief Financial Officer. Brett's expertise and leadership have strengthened the executive team, and we look forward to him continuing to meet with our investors and analysts. Turning now to our capital structure.

The investment committees expertise combined with the experienced team that we are continuing to build helps differentiate AFC gamma from other lenders in this market.

Over the last quarter, we have further built out our in house capabilities to continue providing our borrowers with customized financing solutions.

Key area that we continue to build out is our in house construction expertise.

Led by Martin VIX load a third.

As John will describe in further detail, we believe our ability to consult on construction projects is unique and valuable and we have financed our borrowers and building many construction projects.

Additionally, as we announced last quarter. We are pleased that Brett Kaufman has joined us as a FC Gamma <unk> Chief Financial Officer, Brett expertise and leadership have strengthened the executive team and we look forward to him continuing to meet with our investors and analysts.

Turning now to our capital structure.

Leonard Tannenbaum: A third important differentiator for AFC Gamma is our cost of capital as the first NASDAQ-listed lender in the industry. This allows us to access both public and private debt and equity markets. As discussed last quarter, we are striving to establish an industry-leading benchmark for our cost of capital. Subsequent to quarter end, we are pleased to have received an increase in our credit rating from Egan-Jones, moving to a BBB+ investment grade rating. Leveraging our investment grade rating, we closed on an offering of $100 million of unsecured notes due in 2027, led by Seaport Global Securities, which Brett will describe in further detail. We are further encouraged by the fact that the debt raise was completed with strong institutional support.

A third important differentiator for AFC gamma is our cost of capital as the first NASDAQ listed lender in the industry.

This allows us to access both public and private debt and equity markets.

As discussed last quarter, we are striving to establish an industry, leading benchmark for our cost of capital.

Subsequent to quarter end, we are pleased to have received an increase in our credit rating from Egan Jones moving to a triple B plus investment grade rating.

Leveraging our investment grade rating, we closed on an offering of $100 million of unsecured notes due in 2027 led by Seaport Global Securities, which Brett will describe in further detail. We are further encouraged by the fact that the debt raise we completed with strong institutional support.

Leonard Tannenbaum: Going forward, we expect to utilize a mix of debt and equity to fund our growth with a target of 0.5 times debt to equity. Typically, our lower-yielding assets in our portfolio are comprised of larger, more diversified operators. Conceptually, we believe that using leverage against these types of assets in the portfolio is a good way to generate strong returns on equity for our shareholders. With this debt offering as our first step, we continue to remain focused on developing the best cost of capital among the limited number of alternative lenders in the industry. I believe that we have all the necessary components in place to scale this business and serve this rapidly growing industry. As we continue to scale the business, we will continue to aim to improve our cost of capital. Separately, our actionable pipeline continues to remain strong.

Going forward, we expect to utilize a mix of debt and equity to fund our growth with a target of five times debt to equity.

Typically our lower yielding assets in our portfolio are comprised of larger more diversified operators.

Sexually.

We believe that using leverage against these types of assets in the portfolio is a good way to generate strong returns on equity for our shareholders.

With this debt offering as our first step we continue to remain focused on developing the best cost of capital among the limited number of alternative lenders in the industry.

I believe that we have all the necessary components in place to scale this business and serve this rapidly growing industry.

As we continue to scale the business, we will continue to aim to improve our cost of capital.

Separately, our actionable pipeline continues to remain strong.

Leonard Tannenbaum: As we have previously discussed, deals typically take between 3 and 9 months to close, which makes it difficult to predict the timing of closings. In structuring our investments, we lend at different rates to the top MSOs, the mid-size operators, and the smaller single-state operators. Due to the size and scale of the top MSOs, we continue to see those operators borrowing at lower yields. Now turning to our quarterly results. During Q3, we continued to execute on our pipeline, which led to record originations. We closed on new commitments of $119.2 million and had net fundings of $79.3 million. As of 1 November 2021, we have 14 borrowers that have operations in 14 states, which Robin will discuss later during the call.

As we have previously discussed deals typically take between three and nine months to close which makes it difficult to predict the timing of closings in.

In structuring our investments we lend at different rates to the top msos the mid size operators and the smaller single state operators.

Due to the size and scale of the top Msos, we continued to see those operators borrowing at lower yields.

Now turning to our quarterly results during.

During the third quarter, we continued to execute on our pipeline, which led to record originations. We closed on new commitments of $119 million $119 2 million and had net fundings of $79 3 million.

As of November one 2021, 14 borrowers that have operations in 14 States, which Robyn will discuss later during the call.

The closing of active deals in our pipeline resulted in distributable earnings of <unk> 44.

Leonard Tannenbaum: The closing of active deals in our pipeline result in distributable earnings of $0.44 per basic weighted average share. This increase in earnings drove a 13.2% increase in our quarterly dividend, moving from $0.38 a share in Q2 to $0.43 a share in Q3. 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. Before turning the call over to John, I would like to highlight a notable transaction that we recently closed. Subsequent to quarter end, AFC Gamma funded $50 million as part of a new $120 million tranche of Verano Holdings Corp's credit facility.

Per basic weighted average share this increase in earnings drove a 13, 2% increase in our quarterly dividend moving from 38 cents per share in the second quarter to 43.

Share in the third quarter 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.

Before turning the call over to John I would like to highlight a notable transaction that we recently closed.

Subsequent to quarter end FC Gamma funded $50 million as part of a new 120 million tranche of Hirano Holdings Corp's credit facility.

Leonard Tannenbaum: We are pleased to expand our relationship with Verano and believe the company is a top-tier credit, given its strong brand reputation, real estate ownership, business execution, and experienced management team. With that, I will turn the call over to John.

We are pleased to expand our relationship with Toronto and believe the company is a top tier credit given its strong brand reputation.

Real estate ownership business execution and experienced management team with that I will turn the call over to John Thank you Len.

Operator: Thank you, Len.

Jonathan Kalikow: Thank you, Len. Today, we wanted to highlight one of our core competencies and key differentiating factors as a lender focused on the cannabis industry. That is our ability to finance construction projects. Because the legal cannabis industry is still in its infancy, we believe construction financing will be a dominant part of our cannabis cultivation, production, and dispensary lending program. Most banks and lenders shun such financing given their lack of requisite know-how and expertise and experience that our team has. Lending to cannabis operators adds an additional layer of complexity. Besides zoning, permitting, and environmental factors, cannabis cultivation facilities require specialized heating, cooling, ventilation, backup power generation, and enhanced lighting to create an optimal growth environment. Many jurisdictions have ordinances requiring fire suppression, life safety, and security measures well in excess of those required on other types of real estate.

Jonathan Calico: Today, we wanted to highlight one of our core competencies and key differentiating factors as a lender focused on the cannabis industry. That is our ability to finance construction projects. Because the legal cannabis industry is still in its infancy, we believe construction financing will be a dominant part of our cannabis cultivation, production, and dispensary lending program. Most banks and lenders shun such financing given their lack of requisite know-how and expertise and experience that our team has. Lending to cannabis operators adds an additional layer of complexity. Besides zoning, permitting, and environmental factors, cannabis cultivation facilities require specialized heating, cooling, ventilation, backup power generation, and enhanced lighting to create an optimal growth environment. Many jurisdictions have ordinances requiring fire suppression, life safety, and security measures well in excess of those required on other types of real estate.

Today, we wanted to highlight one of our core competencies and key differentiating factors as the lender focused on the cannabis industry.

That is our ability to finance construction projects.

Because the legal cannabis industry is still in its infancy. We believe construction financing will be a dominant part of our cannabis cultivation production and dispensary lending program, most banks and lenders, Sean such financing given their lack of requisite knowhow and expertise.

Expertise and experience that our team has.

Lending to cannabis operators as an additional layer of complexity.

Side zoning permitting and environmental factors cannabis cultivation facilities require specialized heating cooling and ventilation backup power generation and enhanced lighting to create an optimal growth environment.

Any jurisdictions have ordinances, requiring fire suppression like safety and security measures well in excess of those required and other types of real estate. This is where our in house construction expertise becomes a vital component of our strategy, we know firsthand the issues that often arise.

Jonathan Calico: This is where our in-house construction expertise becomes a vital component of our strategy. We know firsthand the issues that often arise and how to mitigate them, information we are happy to share with our borrowers. Construction loans are drawn over time, and with each draw, we ensure we have all the needed lien releases and that the building aligns with construction documents and that construction remains in compliance with state and local ordinances. We also make sure that the borrowers stay on budget and on schedule. Of course, we have a vested interest in the quality of our collateral underpinning our loans. Now let me turn the call over to Robyn.

Jonathan Kalikow: This is where our in-house construction expertise becomes a vital component of our strategy. We know firsthand the issues that often arise and how to mitigate them, information we are happy to share with our borrowers. Construction loans are drawn over time, and with each draw, we ensure we have all the needed lien releases and that the building aligns with construction documents and that construction remains in compliance with state and local ordinances. We also make sure that the borrowers stay on budget and on schedule. Of course, we have a vested interest in the quality of our collateral underpinning our loans. Now let me turn the call over to Robyn.

And how to mitigate them information, we are happy to share with our borrowers construction loans are drawn over time and with each draw. We ensure we have all the needs leading releases and that the building aligns with construction documents and that construct remains in compliance with state and local ordinances we all.

Make sure that the borrowers stay on budget and on schedule and of course, we have a vested interest in the quality of our collateral underpinning our loans now let me turn the call over to Robyn.

Robin Tannenbaum: Thank you, John. As of 1 November 2021, AFC Management acted as agent for about 76% of our current commitments. From 1 January 2020 through 1 November 2021, we have sourced over $9.4 billion of transactions, which represents over 400 deals. We continue to expand our lending platform, and our reputation as a trusted lender in the industry continues to grow. 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.

Robyn Tannenbaum: Thank you, John. As of 1 November 2021, AFC Management acted as agent for about 76% of our current commitments. From 1 January 2020 through 1 November 2021, we have sourced over $9.4 billion of transactions, which represents over 400 deals. We continue to expand our lending platform, and our reputation as a trusted lender in the industry continues to grow. 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.

Thank you John as of November one 2021, AFC management acted as agent for about 76% of our current commitment from January 2020 through November 2021, we have sourced over nine 4 billion of transactions, which represents over 400 deals we.

<unk> continued to expand our lending platform and a reputation as a trusted vendor in the industry continues to grow in 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 one lender when changes or amendments need to be completed versus going to a larger syndicate of lenders.

Robin 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. We see ourselves as a relationship lender, financing cannabis operators to build successful businesses. Our origination platform is focused on both expanding loans with a variety of our existing borrowers and continually sourcing new borrowers. When sourcing deals, incumbency has proven to give us an important edge. In Q3, we expanded upon our initial loans to two borrowers, Nature's Medicines and Justice Cannabis Co. In addition, during Q4, we expanded upon our initial loan to Verano, providing the company with another $50 million of debt. I will now turn the call over to Brett to talk about our financial results.

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. We see ourselves as a relationship lender, financing cannabis operators to build successful businesses. Our origination platform is focused on both expanding loans with a variety of our existing borrowers and continually sourcing new borrowers. When sourcing deals, incumbency has proven to give us an important edge. In Q3, we expanded upon our initial loans to two borrowers, Nature's Medicines and Justice Cannabis Co. In addition, during Q4, we expanded upon our initial loan to Verano, providing the company with another $50 million of debt. I will now turn the call over to Brett to talk about our financial results.

<unk> seeks to hold the majority of our borrowers that tons and its external manager's ability to active lead agent is another differentiating factor that provides our borrowers the flexibility and ease of execution.

We see ourselves as a relationship lender financing candidates operator to build successful businesses. Our origination platform is focused on both expanding loan with a variety of our existing borrowers and continually sourcing new borrowers when sourcing deals incumbency has proven to give us an important edge in the third quarter.

Expanded upon our initial loans to two borrowers nature medicine and candidates company.

In addition, during the fourth quarter.

We expanded upon our initial lines of run out providing the company with another $50 million of debt I will now turn the call over to Brad to talk about our financial results.

Brett Kaufman: Hello, everyone. I am very happy to be participating in my first AFC Gamma earnings call and look forward to speaking with many of you soon. For those of you that have not met me, I have over 25 years of capital markets experience within global organizations overseeing accounting and finance. Prior to coming on board with AFC Gamma, I served as CFO at Ladenburg Thalmann Financial Services for 12 years. Prior to that, I spent 9 years at Bear Stearns, serving in various roles of increasing responsibility, including Managing Director and Director of Financial Planning and Analysis. For the quarter ended 30 September 2021, we had GAAP net income of $7.9 million, or earnings of $0.48 per basic weighted average common share.

Hello, everyone I am very happy to be participating in my first AFC Gamma earnings call and look forward to speaking with many of you soon.

For those of you that have not met me I have over 25 years of capital markets experience with it within global organizations overseeing accounting and finance.

Prior to coming on board with AFC Gamma I served as CFO at Ladenburg Thalmann financial services for 12 years.

Prior to that I spent nine years at bear Stearns, serving in various roles of increasing responsibility, including managing director and director of financial planning and analysis.

For the quarter ended September 32021, we had GAAP net income of $7 $9 million or earnings of 48 per basic weighted average common share for.

Brett Kaufman: For the three months ended 30 September 2021, we generated total interest income of $10.6 million and distributable earnings of $7.2 million or $0.44 per basic weighted average common share. We believe providing distributable earnings is helpful to stockholders in assessing the overall performance of our business. Distributable earnings represents the net income computed in accordance with GAAP, excluding non-cash items such as equity compensation expense, any unrealized gains or losses, provision for current expected credit losses, also known as CECL, or other non-cash items recorded in net income or loss for the period. CECL was early adopted by AFC Gamma in its 2020 fiscal year. As of 30 September 2021, the CECL reserve represents approximately 1.18% of our loans at carrying value, compared to approximately 1.09% at 30 June 2021.

For the three months ended September 32021, we generated total interest income of $10 6 million and distributable earnings of $7 2 million or <unk> 44 per basic weighted average common share.

We believe providing distributable earnings is helpful to stockholders in assessing the overall performance of our business.

Distributable earnings represents the net income computed in accordance with GAAP.

Excluding noncash items, such as equity compensation expense any unrealized gains or losses provision for current expected credit losses also known as seasonal or other noncash items recorded in net income or loss for the period.

Seasonal was early adopted by AFC gamma in its 2020 fiscal year.

As of September 32021, the <unk> reserve represents approximately $1, one 8% of our loans at carrying value compared to approximately 1.09% at June 32021.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income.

Brett Kaufman: 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. On 15 October 2021, AFC Gamma paid a dividend of $0.43 per common share outstanding for the Q3, which represented an increase of 13.2% from the prior quarter. The company has distributed $14.4 million of distributable earnings for the nine months ended 30 September 2021, or approximately 89% of its distributable income. At the end of the Q3, our total stockholders' equity was $274.5 million, and our book value per share was $16.69, as compared to $14.83 as of 31 December 2020.

We believe that dividends are generally one of the principal reasons that stockholders invest in our common stock.

On October 15, 2021, AMC gamma paid a dividend of <unk> 43.

Per common share outstanding for the September quarter, which represented an increase of 13, 2% from the prior quarter.

The company has distributed $14 4 million of distributable earnings for the nine months ended September 32021, or approximately 89% of its distributable income.

At the end of the third quarter, our total stockholders' equity was $274 $5 million and our book value per share was $16 69.

As compared to $14 83 as of December 31, 2020.

Brett Kaufman: The increase in our book value per share as of 30 September 2021, compared to 31 December 2020, was primarily attributable to our IPO and follow-on equity offering in Q1 and Q2 of 2021 respectively, each of which were accretive to our book value. As Len mentioned, we recently hit another milestone as a public company. On 3 November 2021, we closed on $100 million aggregate principal amount of senior unsecured notes. This was a private offering available to qualified institutional buyers. The notes have a fixed cash interest rate of 5.75% and do not mature until 2027. In connection with the closing of our senior notes offering and subsequent to quarter end, we executed a second amendment to our revolving credit facility.

The increase in our book value per share as of September 32021, compared to December 31, 2020 was primarily attributable to our IPO and follow on equity offering in the first and second quarters of 2021, respectively, each of which were accretive to our book value.

As Glenn mentioned, we recently hit another milestone as a public company on November three 2021, we closed on a $100 million aggregate principal amount of senior unsecured notes. This was a private offering available to qualified institutional buyers.

The notes have a fixed cash interest rate of 575% and do not mature until 2027.

In connection with the closing of our senior notes offering and subsequent to quarter end, we executed a second amendment to our revolving credit facility. The amendment increases the revolving credit commitment from 50 million to $75 million.

Brett Kaufman: The amendment increases the revolving credit commitment from $50 million to $75 million, lowers our interest rate from 6% to 4.75% per annum, and extends the maturity date of our revolving facility from 31 December 2021 to 30 September 2022. The second amendment also requires that all payments of interest and fees will be paid directly or indirectly to support charitable organizations. For the three and nine months ended 30 September 2021, and through 3 November 2021, the company has not drawn on the revolving credit facility or incurred any interest expense related to the revolving credit facility. Turning to our portfolio, we ended Q3 2021 with total assets of $303.9 million as compared to $278.5 million at 30 June 2021.

Lowers our interest rate from 6% to 475% per annum and extend the maturity date of our revolving facility from December 31, 2021 to September 32022.

The second amendment also requires that all payments of interest and fees will be paid directly or indirectly to support charitable organizations.

For the three and nine months ended September 32021, and through November three 2021. The company has not drawn on the revolving credit facility or encourage any interest expense related to the revolving credit facility.

Turning to our portfolio. We ended the third quarter of 2021 with total assets of $303 9 million as compared to $278 5 million at June 32021.

Brett Kaufman: Portfolio investments totaled $244.1 million of principal outstanding, spread across 15 companies as of 30 September 2021. As of the end of Q3, AFC Gamma's portfolio consisted of $296.9 million of current commitments with $243 million funded. Following quarter end, we closed an additional $50 million of new commitments. We sold a $5 million loan and also funded $52.3 million of new and existing commitments. As of 1 November 2021, we have $341.9 million of current commitments with $292.4 million of principal outstanding across 14 companies. All of our loans in the portfolio are current and performing.

Portfolio investments totaled $244 1 million of principal outstanding spread across 15 companies as of September 32021.

As of the end of the third quarter AFC gamut portfolio consisted of $296 $9 million of current commitments with 243 million funded.

Following quarter end, we closed an additional $50 million of new commitments, we sold a $5 million loan and also funded $52 3 million of new and existing commitments as.

As of November one 2021, we have $341 9 million of current commitments with $292 4 million of principal outstanding across 14 companies.

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

The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan was approximately 21% as of September 32021, compared to the weighted average yield to maturity of the portfolio of approximately 20% as of November one 2021.

Brett Kaufman: The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 21% as of 30 September 2021, compared to the weighted average yield to maturity of the portfolio of approximately 20% as of 1 November 2021. With that, we will now open the call to questions. I will now turn it back over to the operator to start the Q&A. Operator?

With that we will now open the call to questions.

I'll now turn it back over to the operator to start the Q&A.

Operator.

Operator: If you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that's star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question is from Joe Pasquale with Cowen.

I'd like to ask a question. Please press Star then the number one.

Thank you Pat again.

Number one on your telephone keypad, where pause for just a moment.

Comparable between the roster.

Our next question is from John Quealy with Cowen.

Hi, good morning.

Joe Pasquale: Hi, good morning. Thanks for taking the questions. So in Q3, you clearly had a lot of momentum towards the end of the quarter, really starting on Labor Day, with a few of these deal announcements. That's continued into Q4, with the $50 million Verano announcement. Len, I know you've spoken about seasonality in the lending business before. Can we just get an update on what you're seeing in the market and whether you expect this level of momentum to continue throughout the duration of Q4? Any color you could provide there would be helpful. Thank you.

Gerald Pascareli: Hi, good morning. Thanks for taking the questions. So in Q3, you clearly had a lot of momentum towards the end of the quarter, really starting on Labor Day, with a few of these deal announcements. That's continued into Q4, with the $50 million Verano announcement. Len, I know you've spoken about seasonality in the lending business before. Can we just get an update on what you're seeing in the market and whether you expect this level of momentum to continue throughout the duration of Q4? Any color you could provide there would be helpful. Thank you.

Hi, Thanks, Thanks for taking the questions.

So <unk>.

<unk> you clearly had a lot of momentum towards the end of the quarter really starting on labor day.

With a few of these deal announcement that's continued into <unk>.

With a $50 million burrito announcement, and so when I I know you've spoken about seasonality in that.

Lending business before can we just get an update on what you're seeing in the market and whether you expect this level of momentum to continue throughout the duration of the fourth quarter any color you could provide there would be helpful. Thank you.

Thanks, Charles for the question if there certainly is an always an IV.

Leonard Tannenbaum: Thanks, Joe, for the question. There certainly is, and always, and I've operated in the middle market industry for 10+ years or 15+ years. Q4 is usually the strongest quarter as people wanna get things done before year-end. It sometimes materializes quickly. Remembering that cannabis is this 3- to 9-month cycle, I can imagine that some of the things in Q4 could slip into January in Q1. To exactly estimate where we are at any point is really difficult, only because deals take a long time to complete. There's a lot of diligence to those deals. There's environmentals and phase ones and phase twos and all of the things, quality of earnings and the things that we have to accomplish before we can make loans.

<unk> operated in this industry and in the middle market industry for 10, plus years or 15 plus years.

Fourth quarter is usually the strongest quarter as people want to get things done before year end.

And it's sometimes materialize as quickly but remembering the cannabis is is three to nine month cycle I can imagine that some of the things in the fourth quarter could slip into January in the first quarter. So to exactly estimate where we are at any at any point is really difficult.

Only because deals take a long time to complete there is a lot of diligence to those deals this environmentally and phase ones and phase twos and all of the quality of earnings that are things that we have to accomplish before we can make loans.

Leonard Tannenbaum: Having said that, you know, we do anticipate Q4 to be the strongest quarter, but whether it's Q4 or Q4 plus January into February, I can't tell.

Having said that we do anticipate the fourth quarter to be the strongest quarter, but whether it's the fourth quarter or the fourth quarter plus January into February I can't tell.

Got it.

Joe Pasquale: Got it. That makes total sense. Just in terms of your outlook for next year, I know you haven't guided for anything, but you do have a target, which I believe is 700 in gross originations. It seems like the top credits, you know, really starting with Verano at 8.5, and I know that's the headline rate. But then the day after Verano, we saw Jushi raise 100 at 9.5, which is probably lower than the rate would have been a couple of months prior. As you think about, you know, building out your loan portfolio, can you just talk about the ideal mix, and how you think about the relative spreads for the top credits amid a yield compressing environment?

Gerald Pascareli: Got it. That makes total sense. Just in terms of your outlook for next year, I know you haven't guided for anything, but you do have a target, which I believe is 700 in gross originations. It seems like the top credits, you know, really starting with Verano at 8.5, and I know that's the headline rate. But then the day after Verano, we saw Jushi raise 100 at 9.5, which is probably lower than the rate would have been a couple of months prior. As you think about, you know, building out your loan portfolio, can you just talk about the ideal mix, and how you think about the relative spreads for the top credits amid a yield compressing environment?

That makes total sense.

Just in terms of your outlook for next year I know you haven't guided for anything but you do have a target, which I believe is 700 and gross originations.

It seems like the top credits.

You don't really starting with Toronto at eight and a half and I know thats the headline rate.

But then the day after Burana, we saw <unk> raised 195.

Which is probably lower than the rate would have been.

A couple of months prior and so.

As you think about.

Building out your loan portfolio can you just talk about the ideal mix.

And how you think about the relative spreads for the top credits image.

Yields compressing environment, given that based on some of the numbers you've thrown out your cost of capital. It seems like you are your own cost of capital was also coming down. So just I guess in terms of the spread if you could just provide some color.

Joe Pasquale: Given that, you know, based on some of the numbers you've thrown out, your cost of capital, it seems like your own cost of capital is also coming down. Just, I guess, in terms of the spread, if you could just provide some color on your outlook, that would be helpful.

Gerald Pascareli: Given that, you know, based on some of the numbers you've thrown out, your cost of capital, it seems like your own cost of capital is also coming down. Just, I guess, in terms of the spread, if you could just provide some color on your outlook, that would be helpful.

On your outlook that would be helpful.

Look I do think that larger msos are all in and Thats inclusive of things like agency fees OID and other things that you may not see in a headline rate of borrowing between 10 and 12%.

Leonard Tannenbaum: Look, I do think that larger MSOs are all in, and that's inclusive of things like agency fees, OID, and other things that you may not see in a headline rate are borrowing between 10% and 12%. I do think that many of the funds and hedge funds that have participated are filled up, and we're seeing that in some of the syndicated transactions being weaker than expected, which may mean that yields are leveling off at that 10% to 12% total IRR. But when we talk about IRRs and yields, just remember we're talking about yields to maturity. Back to my first comment is, it's very rare for something ever to be held to maturity. It's almost always a higher velocity.

And I think thats it.

Do think that many of the funds and hedge funds that have participated are filled up and we're seeing that in some of the syndicated transactions being weaker than expected, which is which is which may mean that yields a leveling off at that 10% to 12%.

Total IRR, but when we talk about.

Irr's and yields just remember we're talking about yields to maturity and back to my first comment is it's very rare for something effort to be held to maturity. It's almost always a higher velocity than that a five year loan is typically repaid in three or four year loan in two five or 2.2, and so the yields the effective <unk>.

Leonard Tannenbaum: Than that, a 5-year loan is typically repaid in 3, a 4-year loan in 2.5 or 2.2. The yields, the effective yields are gonna be higher, usually, than the yields to maturity. You know, we've been able to, I think, as Brett said, maintain a 20% yield, basically a 20% yield to maturity on the current portfolio, despite doing things like Verano and at a lower yield as they deserved. You know, I think we're able to maintain those types of yield to maturities. We do expect it to be potentially higher at this additional velocity.

Those are going to be higher usually than the yields to maturity. So.

We've been able to I think as Brett said maintain a 20% yield basically at 20% yield to maturity on the current portfolio.

Despite doing things like pronto and at a lower yield as they deserved and so I think we're able to maintain those types of yield to maturities. We do expect it to be potentially higher additional velocity as to next year I think there will be a mix of larger msos that we will support and the <unk>.

Leonard Tannenbaum: As to next year, I think there will be a mix of larger MSOs that we will support and the smaller mid-size operators that we'd like to grow and help them acquire and build out that institutional platform. I still imagine next year at 50/50, but that's like, that's just a shot in the sky. There's no magic to the projection.

Small the smaller mid size operators that we that we'd like to grow and help them acquire and build out that institutional platform.

And so I would.

I still I imagine next year at 50, 50, but thats like that just a shock.

The sky.

No magic there is no magic to that projection.

Super helpful color.

Joe Pasquale: Super helpful color. Thanks very much, Len.

Gerald Pascareli: Super helpful color. Thanks very much, Len.

Thanks, very much aligned.

Your next question is from Avon.

Operator: Your next question is from Aaron Hecht with the JMP Securities.

JMP Securities.

Got it thanks for taking my questions.

Aaron Hecht: Yeah. Thanks for taking my questions. In terms of the Verano credit facility, $50 million commitment, is there a percentage of that that you believe goes out the door immediately? Is it a longer term drawdown? Any thoughts around timeframe that commitments go out the door?

In terms of the Murano credit facility.

<unk> million dollars commitment is there a percentage of that that you believe goes out the door immediately.

The longer term draw down any thoughts around timeframe that commitments go out the door.

In this case, all 50 million funded.

Leonard Tannenbaum: In this case, all $50 million funded. You're right. Sometimes we do part funding and part commitment, in which case we charge an unused fee on the balance until it's drawn, and we have one-year draw periods, typically, sometimes a little bit longer. In the case of Verano, they had immediate use for the capital, and we funded all $50 million.

But you are right, sometimes we do do.

Funding in part commitment in which case, we charge an unused fee on the balance until it's strong and we have one one year draw periods, typically sometimes a little bit longer but in the case of <unk>. They had a immediate use for the capital.

And we funded all $50 million.

Aaron Hecht: Gotcha. I know you talked about 50/50 split possibly next year, with larger MSOs and smaller operators. Any thoughts on more near term, maybe Q4 pipeline, if we were gonna have a mix? Obviously, I understand there can be some variability on how much money goes out the door, but any thoughts about near term versus next year, large MSOs versus smaller operators?

And then I know you talked about 50 50 split possibly next year.

With larger Msos and smaller operators any thoughts on more near term maybe fourth quarter pipelines, we were going to have a mix.

Obviously I understand there can be some variability on how much money goes out the door, but any thoughts about near term versus next year large msos versus smaller operators.

Leonard Tannenbaum: Oh, I think you'll continue. It's all lumpy when things close, but you will continue to see a mix in the Q4 and probably all next year between the larger operators where they are more established with a diversified license stack and diversified operations and the smaller operators with one, two, three states of operations, you know, ramping cash flows and construction. You'll see a mix in the Q4, and I think you'll see a mix throughout next year.

Oh, I think Youll continue it's a lumpy when things close, but we will continue to see a mix in the fourth quarter and.

All next year between the larger operators, where they are more established with the diversified license stack and diversified operations and a smaller operators with 123 states of operations.

Ramping cash flows and construction, so youll see a mix in the fourth quarter and I think youll see a mix throughout next year.

Aaron Hecht: Right. Lastly, on the amended credit facility, I think, 4.75 great rate. Any detail on the other fees that may be in there, the maybe undrawn fees, that we need to be considering?

And then lastly on the amended credit facility.

For sub five great right.

Any detail on the other fees that may be in there maybe undrawn fees.

So we need to be considering.

So remember I'm still I'm still writing this credit facility and and I'm getting all of the proceeds net of taxes, hopefully you won't get taxed on it.

Leonard Tannenbaum: Remember, I am still writing this credit facility, and I'm giving all of the proceeds net of taxes. Hopefully, I don't get taxed on it to charity. We're gonna back the AFC Foundation to benefit primarily children in states that we operate in. All of it's gonna be given on behalf of AFC to benefit the communities that we operate in as we think it's really important to give back. I made the rate pretty much equal to the rates that we're talking to some external banks about. We intend still to take an external bank credit facility. As you know, as you just pointed out, there are other fees and expenses in doing that.

Charity, we're going to back the AFC foundation to benefit.

Primarily children in states that we operate in so all of it is going to be given on behalf of AFC to benefit the communities that we operate in as we think it's really important to get back and.

And I made the rate pretty much equal to the rates that we're talking to some external banks about.

We intend still to take an external bank credit facility as you know as you just pointed out there are other fees and expenses and doing that typically those types of fees or let's call. It 25 basis points upfront and there is.

Leonard Tannenbaum: Typically, those types of fees are, let's call it 25 basis points up front, and there's, you know, 25 basis points unused that are waived in some cases. So there's little bits of, there's an agency fee, maybe. If you think about the sort of cost of a credit facility that we're talking about, we're talking about maybe $100,000 a year of extra cost, but that's not really what the cost of shareholders is. It's the legal cost, believe it or not. It's the legal cost on their side that we have to pay for and the legal cost on our side that we have to pay for and all of the borrowing bases, and borrowing-based certificates, and all that. We're now prepared to do that. We have a robust platform.

25 basis points unused that are waived in some cases.

So there's a little bit in this agency feet, maybe if you think about the sort of cost of a credit facility that we're talking about.

Maybe $100000 a year of extra cost, but thats not really with the cost of shareholders visits the legal costs believe it or not it's the legal cost on their site that we have to pay for it and legal costs on our side that we have to pay for and all of the all of the borrowing basis embargo based certificates and all of that so.

We're now prepared to do that we have a robust platform. We have a fully built out accounting team to fully build out legal team. We can definitely take an external bank and manage that and manage that efficiently and take it in a size that makes sense and I think you will see us do that next year.

Leonard Tannenbaum: We have a fully built-out accounting team. We have a fully built-out legal team. We can definitely take an external bank and manage that, and manage that efficiently and take it in a size that makes sense. I think you will see us do that next year. It doesn't mean that I'm not gonna continue to maybe backstop and lend and or give any proceeds to charity on behalf of AFC. I'll probably add to that credit facility because there's still not a lot of banks lending to the, to the space.

And it doesn't mean that I'm not going to continue to maybe backstop and lens and give all my all give any proceeds to charity on behalf of FC I'd, probably add to that product facility, because theres still not a lot of banks lending to be to the space.

It was terrible doing sounds like a great idea thanks for the color alone.

Aaron Hecht: The charitable giving sounded like a great idea. Thanks for the color, Will.

Leonard Tannenbaum: No problem.

No problem.

Your next question is from Mark Smith with Lake Street capital.

Operator: Your next question is from Mark Smith with Lake Street Capital Markets.

Hi, guys first off I, just wanted to ask Big picture, Whats Youre seeing and kind of the cannabis industry primarily in the states.

Mark Smith: Hi, guys. First off, I just wanted to ask, you know, big picture, what you're seeing in kind of the cannabis industry, primarily in the states that you are currently operating in versus maybe the Californias and some of the other states.

Currently operated now versus maybe the California some of the other states.

Leonard Tannenbaum: Well, thank God that we underwrote and we determined not to invest in cannabis in the state of California. Watching the collapse in cannabis prices to less than $300 for outside grows, I think will cause a lot of havoc in the California. I wrote about this in my LinkedIn platform, if any of you wanna watch, see the post and see the responses. I'll give a plug for that. I think that a lot of cannabis operators, especially small and mid-size operators, are gonna have severe trouble making their interest payments and maybe performing on their loans. That's leaked in, of course, to Oregon and Washington, which are unlimited license states. We do not operate in any of those states.

Thank God.

We underwrote and we determined not to invest and cannabis in the state of California watching the collapse and cannabis prices to less than $300 four for outside growth.

I think will cause a lot of havoc in the caliber and I've heard about this.

And my Linkedin platform, if any of you want to see the potency the responses.

I'll give it a day.

Leonard Tannenbaum: We are considering our first Colorado deal, by the way, but we don't operate in the unlimited license states. In the limited license states, we did see a little bit of a dip to Croptober, which basically is when your outdoor grows come to fruition. It just happened to be a very good growing season pretty much across the country. There was a lot of supply. That's starting to actually be worked down, and we're seeing prices starting to rebound in some of the, I mean, limited license states. California definitely has a flood of product and a flood of inventory that it has to work through, and we do not intend to do investments in California anytime soon.

Mark Smith: Perfect. And then similarly, you know, what are you seeing in the competitive landscape and kind of changes here recently? You talked about maybe some of the hedge funds that have been involved kinda topping out, but what else are you seeing in the competitive landscape today?

I'm Gonna pop you know, but what else you've seen in the competitive landscape today.

I think.

Leonard Tannenbaum: I think it's when I sold my company, Fifth Street to Oaktree, I realized, I learned a very important lesson, the big win. Oaktree has one of the best platforms in the world or country in terms of what lending platform. It was very difficult to compete to the Ares and the Oaktrees of the world and BlackRock, et cetera. I think us as the leading lender, developing the best cost of capital, be a great team that continues to grow to support us institutionally, having multiple prongs into our clients, having incumbency in our important clients, you know, should be a very huge differentiator. It's all about size, scale, cost of capital, but also institutionalized approach. You have to have a commercial and institutionalized approach, and many of our competitors do not have that relationship approach.

When I sold my company.

<unk> Street to Oak tree, I realized I learned a very important lesson the big one.

<unk> has one of the best platforms.

World our country in terms of lending platform and it was very difficult to compete to the hour rocks and the oak trees at the world Blackrock et cetera, I think us as the leading lender developing the best cost of capital B, a great team that continues to grow to support us institutionally, having multiple <unk>.

<unk> into our clients have an incumbency and are important clients.

Should be a very huge differentiator and it's all about size scale cost of capital, but also institutionalised approach you have to have a commercial and institutionalised approach and many of our competitors do not have that relationship approach. They are still draconian lenders that think that they can learn a different way.

Leonard Tannenbaum: They're still draconian lenders that think that they can lend a different way. We're not those people. We've operated in commercial lending for 20 years, and we can, you know, continue to build those relationships. I think that's a really important approach that the industry needs. I'm excited about our prospects, and I'm excited about continuing to separate ourselves, our cost of capital, our size, and scale from our competitors.

We are not those people we we've operated any commercial lending for 20 years, and we continue to build those relationships.

And I think that's a really important approach that the industry needs and so I'm excited about our prospects and I'm excited about continuing to separate ourselves our cost of capital R size and scale from our competitors.

Great. Thank you.

Mark Smith: Great. Thank you.

And next question is Russell Stanley with Bacon.

Operator: Your next question is from Russell Stanley with Beacon.

Good morning, and thank.

Russell Stanley: Good morning, and thank you for taking my question. Perhaps, somewhat out of necessity, especially publicly traded borrowers, a number of them are, of course, reevaluating what their capital structure should look like. Just wondering what structure you think is healthy for a cannabis company and what kind of leverage levels would concern you as a lender.

For taking my question.

Perhaps.

Somewhat out of necessity, especially publicly traded borrowers numbers of our course reevaluating what their capital structure should look like.

Just wondering what structure do you think is healthy.

Four candidates company and what kind of leverage levels would concern you as a lender.

Now it's interesting when when when you think about leverage levels and I know Beacon writes about a lot of different companies and cannabis.

Leonard Tannenbaum: You know, it's interesting when you think about leverage levels, and I know Beacon writes about a lot of the different companies in cannabis. Our investors and our institutional investors are asking me that question all the time. Oh, what leverage level should it be at? I say, "Well, are you including all the sale-leasebacks, which are creeping up at 3% escalators? Are you including that in leverage? Because that's effective leverage. All the unsecured guarantees that they get. Are you including in leverage the seller notes that are below? Are you including in that the contingent liabilities from acquisitions that these MSOs are making or not? There's a lot of leverage, and leverage is not so simple, and headline leverage is certainly not so simple.

I've been to our investors in our institutional investors are asking me that question all the time, Oh, what's leveraged level or should it be at and I said, well, including all the sale leaseback, which are creeping up at 3% escalators and argue including that leverage because that's effective leverage and all the uncertainty guarantees that that they get are you, including and leverage the cellar notes that are below.

Including in that the contingent liabilities from from acquisitions that these episodes are making or not.

So there's a lot of leverage is not so simple and headline leverages certainly not so simple it takes an enormous amount of work and diligence in cannabis to really get to the bottom line. When you look at the public cannabis operators. Many of them reported Ifr US you have to do the gap conversion you have to ask what's below the line and.

Leonard Tannenbaum: It takes enormous amounts of work and diligence in cannabis to really get to the bottom line. When you look at the public cannabis operators, many of them report IFRS. You have to do the GAAP conversion. You have to ask what's below the line and what's above the line. We do all of this analysis when we determine what real leverage is, not headline leverage. Just like I say, an 8.5% coupon sounds like it's 8.5% money, but it's not. All of that is very important when we lend and who we partner with. Obviously, you've seen us write a very large check to Verano, and we asked all of those questions. What's the GAAP conversion? What does your real estate look like?

Above the line and so we do all of this analysis when we determined re a real leverage is not headline leverage just like I say at eight 5% coupon it sounds like it's eight 5% money, but it's not and so all all of that is very important and when we learned in who we partner with.

And obviously, you've seen us right, a very large Chuck to Verona, and we asked all of those questions. What's the gap conversion what is your real estate looked like.

Leonard Tannenbaum: You know, how do you own it? What sale-leasebacks have you, if anything? What equipment leases do you have, if any? You know, Verano is one of the cleaner operators in the space where they own their real estate, and they really haven't succumbed to very expensive and, in the future, even more expensive sale-leasebacks. You know, we really wanna target those types of companies that want to benefit as SAFE Act passes, et cetera, for yield compression.

How do you own it would've you say at least fact, if anything what equipment leases do you have any <unk>.

Toronto is one of the cleaner operators in the space, where they owned their real estate and it really haven't succumb to us very expensive and in the future even more expensive say at least backs and so we're really want a target those types of companies that want to.

Best benefit safe back passes et cetera, et cetera from your compression.

Got it that's a great color and just one more question if I could.

Russell Stanley: Got it. That's great color. Just one more question, if I could, just around Robin's comments around the value of incumbency earlier on the call. Just wondering, what you're seeing in terms of new relationships coming forward, especially given the debt financings we've seen announced by the larger MSOs of late. Thank you.

Just around.

Robbins comments around the value of incumbency earlier on the call just wondering what you're seeing in terms of new relationships coming.

Coming forward, especially given the the debt financing so we've seen announced by by the larger and as soon as of late Thank you.

I think incumbencies very very powerful and I.

Leonard Tannenbaum: I think incumbency is very, very powerful. I think if you have a good lender that's working well with you and that understands your business model, it's very hard for a new lending relationship to go take that over. You know, we're proud to have the support, really great companies like Jushi, Nature's Medicines, Verano, and others, where we really believe the business model, and we believe in what they're doing and how to build that over time. You know, I think as long as we continue to be good commercial partners, and it's not to say that you give in to everything. You just have to be commercial about your approach.

I think it's fair.

But good lender that that's working well with you and that understands your business model.

It's very hard for a new lending relationship to go take that over we're proud to support really great companies like Justice grown Nature's medicine for auto and others, where we really believe business model and we believe in what they're doing and how to build that over time and I think as long as we.

Need to be great. Good commercial partners and it's not to say that you've given to everything you just have to be commercial about your approach.

Leonard Tannenbaum: I think that we'll continue to be lenders to those and other companies as we continue to build that relationship, and we look forward to you guys seeing that happen over the next year.

I think that will continue to be lenders to those and other companies as we continue to build that relationship and we look forward to you guys seen that happen over the next year.

Excellent.

Russell Stanley: Excellent. Thanks for the color.

Thanks for the color.

Operator: Final question is from Lance Jessurun with Jefferies.

Consider some lamps with Jeffrey.

Taking my question.

Lance Jessurun: Thank you. My question, two really quick ones. I wanted to chat on the, you know, how you view the balance of debt and equity and where you kind of see your optimal leverage going over the course of the next quarters.

Really quick ones I wanted to chat on the how.

How you view the balance of debt and equity and where you where you kind of see your optimal leverage going over the course of the next quarters.

So I think that and thank you for asking the question because I wanted to clarify a little bit I said, there's our targets 0.5 times leverage I mean by the end of next year when I made that comment.

Leonard Tannenbaum: I think that, and thank you for asking the question, because I wanted to clarify a little bit. I said as our target's 0.5x leverage, I mean by the end of next year when I made that comment. It's a stair step approach, right? Now we have debt cost of capital. We're gonna watch to see how that debt trades. It's already trading well after we did the issuance a week ago. We're monitoring that, monitoring the interest, continuing to talk to institutions about our debt now that we have a $100 million tranche that trades with Seaport. We're also taking a look at equity issuance to balance that to eventually get to the end of next year at a 0.5x around a point.

It's a stair step approach right now we have that cost of capital were watch we're going to watch to see how that that trades, it's already trading while after we did the.

A week ago that we did this issuance and then so we're monitoring that monitoring the interest continuing to talk to institutions about our debt now that we have.

$100 million trumps the traits with seaport and.

We're also taking a look at equity issuance to balance that eventually get to the end of next year at a 0.5 times.

Around my target as a 0.5 times debt to equity race.

Leonard Tannenbaum: My target is 0.5x debt to equity ratio.

Russia.

Which.

Okay. Thank you and then the last question I have is just around the corner.

Lance Jessurun: Okay. Thank you. The last question I have is just around the competitive space. You know, any new competitors coming up, anything on the regulatory side or the SAFE Act as well?

Competitive space, new competitors coming up.

Anything on the regulatory side or the Safe Act as well.

Look I think there are a number of competitors, but continued to try to get public and or.

Leonard Tannenbaum: Look, I think there are a number of competitors that continue to try to get public and or, you know, enter the space, but none of them I view as true institutional competitors that have built large businesses as John and I have built. I mean, I built a $5 billion asset manager. I've scaled it to 100 people. I've had over 100 credits. I've portfolio managed through those credits. There's really not anyone yet with that type of track record and expertise in middle market lending and/or the expertise that John has in real estate, having done that for 20 years and managing billions of dollars of real estate assets. Look, if an Apollo or an Ares or an Oaktree decide to come into our space, that is going to, right?

Or enter the space, but none of them I view as true institutional competitors that have built large businesses is John and I have built I built a $5 billion asset manager scale that to 100 people.

I have had over 100 credits at portfolio manage through those credits, there's really not anyone get with that type of track record and expertise and middle market Monday, and or <unk> or the expertise that John has some real estate, having done that for 20 years and magic billions of dollars of real estate assets. So look.

If in a power in Iraq, or an oak tree decided that come into our space that is going to break our fortress that is going to be a significant competitor to us.

Leonard Tannenbaum: Fortress, that is going to be a significant competitor to us. I think I can differentiate not in the next year for sure, but I mean, none of those types of competitors. Our expertise in cannabis and experience over the last 3 to 4 years, and we have so much data, we really believe we're in the center of the industry in terms of data mining in the 14, 15, 16 states that we're really focused on, understanding the legislative changes, understanding the very quickly changing dynamics in terms of even construction builds and how long that takes and the delays in orders and how what orders you have to do first.

And I think I can differentiate nothing that next in the next year for sure but but.

But I mean, none none of those types of competitors and our expertise in cannabis and experience over the last three to four years and we have so much data. We really believe we're in the center of the industry in terms of data data mining in the 14 15 16 states that we're really focused on understand the legislative changes understanding to the.

Very quickly changing dynamics.

In terms of even construction builds and how long that takes and the delays and orders and.

Orders you have to do first so.

But with so many different differentiating factors that I view the other ones.

Leonard Tannenbaum: We have so many different differentiating factors that I view the other ones really as far behind where we are. The other lenders, that is. Obviously, IIPR has a dominant position in sale-leasebacks. We're not talking about that. We're talking about the lending environment, not the sale-leasebacks.

Really as far behind where we are.

You have a lender that is obviously, obviously IPR as a dominant position and say at least back. Some we're not we're not talking about that we're talking about the lending environment not that say at least box.

Got it thank you.

Lance Jessurun: Got it. Thank you.

This time there are no questions I would like to return call back over to how can we do have a question from.

Operator: At this time, there are no questions. Okay, we do have a question from Thomas Catherwood with BTIG.

Owen Saint Peter.

It.

Hey, good morning, Latin and Robin and Jon can we just go back to the earlier question on yields and you mentioned that you see a potential leveling off of rates for the top tier Msos would you say that you are seeing that for the two other tiers of borrowers that you learned too as well are those dropping relative to the top tier may be a little bit more.

Thomas Catherwood: Hey, good morning, Len, Robin, and John. Can we just go back to the earlier question on yields? You mentioned that you see a potential leveling off of rates for the top-tier MSOs. Would you say that you are seeing that for the two other tiers of borrowers that you lend to as well? Are those dropping relative to the top tier? Maybe a little bit more color on there would be helpful.

Color on there would be helpful.

So.

Leonard Tannenbaum: The primary, my view, not necessarily the. There's no right answer, right? My view of why the MSOs have gotten better pricing is you've seen a very good effort from Canaccord and Seaport in attracting a lot of the hedge funds and credit funds into the space, in a syndicated manner that felt like they had the clearance because Seaport was leading or Canaccord was leading, and that started driving the rates down. Look, they do a very good job of doing that and packaging it correctly. Now, remember, they charge a fee which, you know, which if we led the deal or originated the deal, we would get that fee as OID and be the same cost to the borrower. I think that our competitive positioning versus them, and they're important parts of the market.

Primary my view.

Not necessarily that there is no right answer, but my view of why the msos have gotten better pricing.

You've seen a very good effort from Canaccord, and seaport and attracting a lot of hedge funds and credit funds into the space.

And a syndicated manner that felt like they had the clearance because seaport was leading our canaccord was leaving and that started driving the rates down.

And look.

They do a very good job of of doing that and packaging. It correctly now remember they charge a fee which.

Which if we let the deal or originated the deal we would get that fee.

And be the same costs to the borrower.

I think they are competitive.

Positioning versus them and they are important parts of the market look canaccord CPR doing great job and they are going to continue to be very important parts of the market.

Leonard Tannenbaum: Look, Canaccord and Seaport are doing a great job, and they're going to continue to be very important parts of the market. Our positioning is, look, you want us to lead this deal and agent this deal, and if it's a $400 million deal, maybe you want us to write the $150 million check or $200 million check. Yes, Seaport and Canaccord will do a great job syndicating the rest of it with us as a lead check, and we'd be able to capture their fee. But also you'll have some control over amendments, waivers, and things like that, versus have a very disparate holder base that doesn't necessarily build a relationship with the company.

But our positioning is look you want us to lead this deal an agent this deal and if it's a 400 million dollar deal maybe you want us to write the $150 million check or 200 million dollar check and yes, seaport and counterpart will do a great job syndicating the rest of it with us as a lead check and we'd be able to capture their fee and but also you will have some some.

Some control over madmen said waivers and things like that versus have a very disparate hold their base that doesn't necessarily bill.

Build a relationship with the company and so look at there's a place for everything, but I think seaport and can't afford it did a pretty good job.

Leonard Tannenbaum: Look, there's a place for everything, but I think Seaport and Canaccord did a pretty good job developing a more competitive environment for the larger products.

Being a more competitive environment fourth larger crowds.

Got it very interesting and then and then on the competitive landscape them learn as the industry continues to mature and evolve how would you characterize the demand for sale leaseback financing versus secured loans from each of the tears of borrowers generally.

Thomas Catherwood: Got it. Very interesting. On the competitive landscape, Len, as the industry continues to mature and evolve, how would you characterize the demand for the sale-leaseback financing versus secured loans from each of the tiers of borrowers generally?

So.

Leonard Tannenbaum: There is gonna be a demand for sale-leasebacks, and there's going to be a demand for lending. Both of them serve different parts of the market, and certainly if a company's gone down the sale-leaseback route, my expectation is it will continue to go down that route for a variety of reasons, including the hooks that a lot of the sale-leaseback firms, you know, have in those companies. And the fact that firms like IIPR have been good partners to their borrowers. I mean, they've been there with capital when they need it.

There is going to be a demand for sale leaseback and is going to be a demand for lending there's both of them served differ.

Aren't parts of the market and certainly if a company has gone down the sale leaseback route my expectation is that we will continue.

To go down that route for a variety of reasons, including the hooks that a lot of the sale leaseback firms.

Have in those companies.

And the fact that firms like IPR have been good partners to their to their powers I mean, they've been there with capital when they need that.

Leonard Tannenbaum: I expect that to continue, and I expect newer companies that haven't done sale-leasebacks to really think about in a potentially compressing yield environment over the next 1 to 5 years, do you wanna own your real estate for now and borrow against it versus do sale-leasebacks because your effective cost of capital over the medium term is gonna be much better. Not every firm can afford to do that, right? Some of them have to do sale-leasebacks. You know, we expect both of them to be important components to the market.

And so I expect that to continue and I expect newer companies that haven't done sale leasebacks to really think about in a in a potentially compressing yield environments over the next one to five years do you want to own your real estate for now and borrow against that versus do say at least fax because you are effective cost of capital of with medium.

Term is going to be much better not every firm can afford to do that right. Some of happy to sally's facts, but we expect both of them to be an important components of the market.

But.

Thomas Catherwood: Thanks very much.

Thanks very much.

Thanks, everyone.

Leonard Tannenbaum: Thanks, everyone.

I would now like to turn the conference back over to management for closing remarks.

Operator: I would now like to turn the conference back over to management for closing remarks.

Thank you all for listening and we look forward to reporting a year on the results next year.

Leonard Tannenbaum: Thank you all for listening. We look forward to reporting our year-end results next year.

This concludes today's conference you may now disconnect.

Operator: This concludes today's conference. You may now disconnect.

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Okay.

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