Q3 2024 AFC Gamma Inc Earnings Call

Okay.

Operator: Good morning and welcome to Advanced Flower Capital's third quarter 2024 earnings. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session and instructions will be given at that time. As a reminder, this call is being recorded.

Speaker Change: Good morning, and welcome to the advanced Flower Capitals third quarter 2024 earnings call. At this time, all participants are in a listen only mode.

Speaker Change: Later, we will conduct a question and answer session and instructions will be given at that time.

Speaker Change: As a reminder, this call is being recorded.

Gabriel Katz: I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.

Speaker Change: I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.

Gabriel Katz: Good morning and thank you all for joining AFC's earnings call for the quarter ended September 30, 2024.

Speaker Change: Good morning, and thank you all for joining Amc's earnings call for the quarter ended September 32024, I'm joined this morning by Robyn Tannenbaum, our President and Chief Investment Officer, Daniel <unk>, Our Chief Executive Officer, and Brandon Hensel, Our Chief Financial Officer before we begin I would like to note that this call is being recorded.

Gabriel Katz: I'm joined this morning by Robyn Tannenbaum, our President and Chief Investment Officer, Daniel Neville, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded.

Gabriel Katz: Replay information is included in our October 14, 2024 press release and is posted on the investor relations portion of AFC's website at advancedflowercapital.com along with our third quarter earnings release and investor presentation.

Speaker Change: Replay information is included in our October 14th 2024 press release and is posted on the Investor Relations portion of Afg's website at advanced flower capital Dot Com, along with our third quarter earnings release and Investor presentation.

Gabriel Katz: 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 developments, portfolio yield, and financial performance in 2024 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to AFC's most recent periodic filings with the SEC for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections.

Speaker Change: 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 developments portfolio yield and financial performance in 2024 and beyond these statements are subject to inherent uncertainties in predicting future results. Please refer to <unk>. Most recent periodic filings with the SEC.

Speaker Change: For certain conditions as significant factors that could cause actual results to differ materially from these forward looking statements and projections.

Gabriel Katz: During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations to net income, the most comparable GAAP measure to distributable earnings, can be found in AFC's earnings release and investor presentation available on AFC's website.

Speaker Change: During this call we will refer to distributable earnings which is a non-GAAP financial measure reconciliations to net income the most comparable GAAP measure to distributable earnings can be found in the afcs earnings release and Investor presentation available on Afg's website.

Gabriel Katz: Today's call will begin with Robyn providing some introductory remarks, Dan will then provide an overview of our third quarter 2024 performance and an update on the cannabis industry.

Speaker Change: Today's call will begin with Robin providing some introductory remarks, Dan will then provide an overview of our third quarter 2020 for performance and an update on the cannabis industry. Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A.

Gabriel Katz: Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A.

Gabriel Katz: With that, I will now turn the call over to President and CEO, CIO, excuse me, Robyn Tannenbaum.

Speaker Change: With that I will now turn the call over to President and CEO CIO excuse me Robin Tannenbaum.

Robyn Tannenbaum: Thanks, Gabriel, and good morning to all our investors and analysts that have joined us today. I'm thrilled to share that we've had a very active quarter. Following the spin-off of our commercial real estate portfolio on July 9th, we have operated as a pure play cannabis mortgage REIT. Since the start of the third quarter, we have originated approximately $59 million in new loans, and we've now exceeded our $100 million origination target for the year. reaching $116 million in total new originations so far. This milestone is not just a number. It represents our renewed commitment to provide the cannabis sector with timely, flexible capital at a moment when the industry needs it.

Thanks, Gabriel and good morning to all our investors and analysts that have joined US today I'm thrilled to share that we've had a very active partner following the spin off of our commercial real estate portfolio on July nine we have operated as a pure play cannabis mortgage REIT since the start of the third quarter.

Speaker Change: We have originated approximately $59 million in new loans, and we've now exceeded our 100 million dollar origination target for the year reached.

Speaker Change: Reaching $116 million in total new originations. So far this milestone is not just a number it represents our renewed commitment to provide the cannabis sector with timely flexible capital at a moment when the industry needs that Dan will dive deeper into the new deals we closed during this.

Robyn Tannenbaum: Dan will dive deeper into the new deals we closed during the third quarter. We've deployed capital into promising cannabis 3.0 operators and continue to see attractive opportunities for additional investments. As of November 1st, we had an active pipeline of over $400 million of potential deals. We are pleased to have the capital to support our existing borrowers and fund future opportunities. During the quarter, we raised capital accretively through our ATM stock offering program, which will allow us to continue supporting this rapidly evolving industry. With the Republican sweep, we expect access to capital in the cannabis sector to remain scarce.

Speaker Change: Third quarter, we deployed capital into promising candidates three dato operators and continue to see attractive opportunities for additional investment as of November 1st we had an active pipeline of over $400 million of potential deals. We are pleased to have the capital to support our.

Speaker Change: Listing borrowers and fund future opportunities.

Speaker Change: During the quarter, we raised capital Accretively through our ATM stock offering program, which will allow us to continue supporting this rapidly evolving industry.

Speaker Change: The Republican sweep, we expect access to capital in the cannabis sector to remain scarce, while president elect Trump has demonstrated some support for cannabis broader cannabis legislation may not be the Republican administrations top priority. We believe that any progress will move at a measured rate rescheduling.

Robyn Tannenbaum: While President-elect Trump has demonstrated some support for cannabis, broader cannabis legislation may not be the Republican administration's top priority. We believe that any progress will move at a measured rate. Rescheduling to Schedule III is still expected to advance, although at a slower pace than it would under a Democratic administration. The path for the SAFE Banking Act appears more challenging, as the momentum needed to push it forward may not be strong enough. With the prospect of progress at the federal level slowing down, we believe that there will be favorable conditions for AFC to deploy capital into deals with strong risk-adjusted returns over the medium term.

To schedule III is still expected to advance although at a slower pace than it would under a Democratic administration.

Speaker Change: The path for the Safe Banking Act appears more challenging as the momentum needed to push its about where it may not be strong enough with the prospect of progress at the federal level slowing down we believe that there will be favorable conditions for AFC to deploy capital into deals with strong risk adjusted returns over the medium.

Robyn Tannenbaum: With that, I'll turn it over to Dan, who will discuss our third quarter performance and what lies ahead. Thank you, Dan.

Speaker Change: Sure.

Speaker Change: With that I'll turn it over to Dan who will discuss our third quarter performance and what lies ahead.

Daniel Neville: Thanks Robyn, and good morning everyone. This quarter saw strong performance and key achievements in our origination effort. I'll begin with an overview of our results, followed by an update on our recent deals and some commentary on the cannabis industry before concluding. For the third quarter, AFC generated distributable earnings of $0.35 per basic weighted average share of common stock. As a reminder, distributable earnings is the primary metric our Board of Directors considers when declaring AFC's quarterly dividend.

Thanks, Robin and good morning, everyone.

Dan: This quarter saw strong performance and key achievements and our origination efforts I'll begin with an overview of our results followed by an update on our recent deals and some commentary on the cannabis industry before concluding.

Dan: So the third quarter AFC generated distributable earnings of 35 cents per basic weighted average share of common stock.

Dan: As a reminder, distributable earnings as the primary metric our board of directors considers when declaring afcs quarterly dividend.

Daniel Neville: The board declared our first post spin dividend of 33 cents per share, which was paid on October 15, 2024 to shareholders of record as of September 30, 2020. Since going public, we have generated distributable earnings that met or exceeded our dividend each quarter and paid out $6.98 in dividends per share.

The board declared our first post spin dividend of 33 per share, which was paid on October 15, 2024 to shareholders of record as of September 32024.

Dan: Since going public we have generated distributable earnings that met or exceeded our dividend each quarter.

Dan: Paid out $6 98 in dividends per share.

Daniel Neville: When I joined AFC last November, one of my key priorities was to reinvigorate the Origination Engine. I'm proud to say we've made significant strides in this area. During the third quarter, we closed several key deals, including an $11 million senior secured credit facility for private company Q, a vertically integrated operator in Georgia. We also expanded Senior Secured Facilities to two existing borrowers by a total of $7.3 million to support their continued growth. Additionally, subsequent to quarter end, we closed a $41 million senior secured credit facility for Story Maryland, a leading vertically integrated operator in Maryland's adult use cannabis market.

Speaker Change: I joined AFC last November one of my key priorities was to reinvigorate the origination Amgen I'm proud to say we've made significant strides in this area.

Speaker Change: During the third quarter, we closed several key deals, including an $11 million senior secured credit facility for private company Q, a vertically integrated operator in Georgia.

Speaker Change: We also expanded senior secured facilities to two existing borrowers by a total of $7 3 million to support their continued growth. Additionally.

Speaker Change: Additionally, subsequent to quarter end, we closed a $41 million senior secured credit facility for story, Maryland, a leading vertically integrated operator, and Maryland's adult use cannabis market.

Daniel Neville: These deals reflect our continued focus on partnering with strong operators in limited license dates and further diversifying our portfolio. Cannabis industry remains capital intensive. requiring significant investments in cultivation and distribution infrastructure. The demand for debt capital is growing, driven by refinancing activity, adult use, and medical expansion. and increased M&A across the cannabis sector. However, traditional lenders remain cautious and will likely remain so given the election results. With the number of cannabis debt portfolios winding down and only a handful of active lenders remaining, AFC is well positioned to capitalize on the opportunities in cannabis lending. As the first NASDAQ-listed cannabis lender and a leading debt provider in the space, we have built a diversified portfolio across limited license dates with favorable supply-demand dynamics.

These deals reflect our continued focus on partnering with strong operators and limited license states and further diversifying our portfolio.

Speaker Change: Cannabis industry remains capital intensive requiring significant investments in cultivation and distribution infrastructure.

The demand for debt capital is growing driven by refinancing activity adult use and medical expansions.

Speaker Change: And increased M&A across the cannabis sector.

Speaker Change: However, traditional lenders remain cautious and will likely remain so given the election results.

Speaker Change: The number of cannabis dot portfolios winding down and only a handful of active lenders remaining AFC is well positioned to capitalize on the opportunities in cannabis London.

Speaker Change: The first NASDAQ listed cannabis wonder and a leading debt provider in this space. We have built a diversified portfolio across a limited license states with favorable supply demand dynamics, our ability to provide flexible funding enables us to remain at the forefront.

Daniel Neville: Our ability to provide flexible funding enables us to remain at the forefront of the industry. Our current portfolio has a weighted average yield to maturity of 18%. We remain focused on continuing to deploy capital into solid credits with attractive risk-adjusted returns.

Speaker Change: One of the industry's growth.

Speaker Change: Our current portfolio has a weighted average yield to maturity of 18% we remain focused on continuing to deploy capital into solid credits with attractive risk adjusted returns.

Daniel Neville: Strategy is quick. move up the quality curve while continuing to target a portfolio yielding in the mid- to high-teen IRR. As of November 1, 2024, 67% of outstanding principal was comprised of fixed rate loans and floating rate loans with floors greater than or equal to the prevailing SOFR rate of 4.61%. An additional 23% of Outstanding Principal is 11 bits above their floor with 4.5% SOFR Simplifying that down, 90% of our portfolio is currently fixed or has a SOFR floor at 4.5% or above. Given our high fixed exposure and high sulfur floors, we are very well positioned for a falling interest rate in Foxconn.

Speaker Change: Strategy is clear.

Speaker Change: Move up the quality curve, while continuing to target a portfolio yielding in the mid to high teen IRR.

Speaker Change: As of November one 2024, 67% of outstanding principal was comprised of fixed rate loans and floating rate loans with floors greater than or equal to the prevailing sulfur rate of 461% and.

Speaker Change: An additional 23% of outstanding principle is 11 bps above their floor.

Four 5% sulfur floors.

Simplifying that down 90% of our portfolio is currently fixed or has a sulfur floor at four 5% or above.

Speaker Change: Given our high fixed exposure and high sulfur floors, we are very well positioned for a falling interest rate environment.

Daniel Neville: Reflecting on my last year at AFC, I'm incredibly proud of our accomplishment. Since last year, we've made substantial progress. exiting, restructuring, or securing significant paydowns on seven key loans. Our disciplined approach has led to approximately $150 million in capital repaid, allowing us to redeploy that capital into new vintage deals with attractive risk-adjusted returns.

Speaker Change: Reflecting on my last year at AFC I'm incredibly proud of our accomplishments.

Speaker Change: Since last year, we made substantial progress exiting restructuring or securing significant paydowns on <unk> loans. Our disciplined approach has led to approximately $150 million in capital repaid, allowing us to redeploy that capital into new vintage deals.

Speaker Change: With attractive risk adjusted returns.

Daniel Neville: On the origination front, we set the ambitious goal of $100 million in originations and exceeded it, achieving $116 million in new originations across seven deals today.

Speaker Change: On the origination front, we set the ambitious goal of $100 million in originations and exceeded achieving the $116 million in new originations across seven deals today.

Daniel Neville: The spinoff of our commercial real estate portfolio marked another milestone, enabling us to operate as a pure play cannabis dealer. Finally, we raise capital accretively through our ATM program, which has bolstered our ability to provide timely, flexible capital to the These accomplishments wouldn't have been possible without our team's hard work and dedication, and I'm truly grateful for their efforts.

Speaker Change: The spinoff of our commercial real estate portfolio marked another milestone, enabling us to operate as a pure play cannabis one <unk>.

Finally, we raised capital Accretively through our ATM program, which has bolstered our ability to provide timely flexible capital to the industry.

Speaker Change: These accomplishments wouldn't have been possible without our team's hard work and dedication and I'm truly grateful for their efforts.

Daniel Neville: As we look ahead, I'm confident we're on track to drive further growth and create long-term value for our shareholders.

Speaker Change: As we look ahead I am confident we're on track to drive further growth and create long term value for our shareholders.

Brandon Hetzel: Now, I'll turn it over to Brandon to discuss our financial results in more detail. Thank you, Dan. For the quarter ended September 30, 2024, we generated net interest income of $8.9 million and distributable earnings of $7.2 million or $0.35 per basic weighted average common share and had a gap net income of $1.4 million or $0.06 per basic weighted average common share. As previously mentioned, we believe providing distributable earnings is helpful to shareholders in assessing the overall performance of AFC's business. Distributable Earnings represents the net income computed in accordance with GAAP, excluding non-cash items such as stock compensation expense, any unrealized gains or losses, provisions for current expected credit losses, also known as CECL, taxable re-subsidiary income or loss, net of dividends, and other non-cash items recorded in net income or loss for the period.

Speaker Change: Now I'll turn it over to Brendan to discuss our financial results in more detail.

Brendan: Thank you Dan for the quarter ended September 32024, we generated net interest income of $8 9 million and distributable earnings of $7 2 million or <unk> 35 per basic weighted average common share and had a GAAP net income of $1 4 million or <unk> <unk> per basic weighted average.

Brendan: Common share.

As previously mentioned, we believe providing distributable earnings is helpful to shareholders in assessing the overall performance of Amc's business.

Brendan: Distributable earnings represents the net income computed in accordance with GAAP, excluding noncash items, such as stock compensation expense any unrealized gains or losses provision for current expected credit losses also known as seasonal taxable REIT subsidiary income or loss net of dividends and other noncash items recorded in net.

Brendan: Income or loss for the period.

Brandon Hetzel: We ended the third quarter of 2024 with $298.7 million of principal outstanding spread across 13 loans. As of September-November 1st, 2024, our portfolio consisted of $338 million of principal outstanding across 14 loans following the completion of the spinoff of our commercial real estate portfolio. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 18%. as of September 30th, 2024 and November 1st, 2024. As of September 30, 2024, we had total assets of $366.6 million, including cash and cash equivalents of $122.2 million, which included $60 million drawn on our line of credit that was subsequently repaid in full on October 1, 2024.

Brendan: We ended the third quarter of 2024 with $298 7 million of principal outstanding spread across 13 loans.

Brendan: As of September November one 2024, our portfolio consisted of $338 million of principal outstanding across 14 loans. Following the completion of the spinoff of our commercial real estate portfolio.

Brendan: The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loans was approximately 18%.

Brendan: As of September 32024, and November one 2024.

As of September 32024, we had total assets of $366 6 million, including cash and cash equivalents of $122 2 million, which included $60 million drawn on our line of credit that was subsequently repaid in full on October one 2024.

Brandon Hetzel: Our line of credit provides us with up to $60 million in available funds that can be drawn as needed. During the three months ended September 30, 2024, we sold approximately 1.2 million shares under our at the market offering program at an average price of $10 and 39 cents per share, generating net proceeds of approximately $12.2 million. This was a creative to our book value and help bolster our capital base during the course. As of September 30, 2024, the CECL reserve was $25.3 million, or approximately 10.7% of our loans at carrying value, which increased $0.2 million from the June 30, 2024 reserve of $25.1 million.

Brendan: Our line of credit provides us with up to $60 million in available funds that can be drawn as needed.

Brendan: During the three months ended September 32024, we sold approximately one 2 million shares under our aftermarket offering program at an average price of $10 39 per share generating net proceeds of approximately $12 $2 million.

This was accretive to our book value and help bolster our capital base during the quarter.

Brendan: As of September 32024, the <unk> reserve was $25 3 million or approximately 10, 7% of our loans at carrying value, which increased $2 2 million from the June 32024 reserve of $25 1 million.

Brandon Hetzel: During the third quarter, we also had an increase in our unrealized losses on loans at fair value of $4.6 million, increasing the current total unrealized loss included on the balance sheet to $19.6 million. as of September 30th, 2024.

Brendan: During the third quarter. We also had an increase in our unrealized losses on loans at fair value of $4 6 million increasing the current total unrealized loss included on the balance sheet to $19 6 million.

Brendan: As of September 32024.

Brandon Hetzel: Total shareholder equity was $206.1 million and our book value per share was $9.42.

Brendan: Total shareholder equity was $206 1 million and our book value per share was $9 42.

Brandon Hetzel: On October 15, 2024, we paid our first post-spend dividend of $0.33 per common share for the third quarter to shareholders of record as of September 30, 2024. As a reminder, on an annual basis, our current dividend policy is to pay between 85% and 100% of distributable earnings over the year.

Brendan: On October 15th 2024, we paid our first post spin dividend of 33 per common share for the third quarter to shareholders of record as of September 32024.

Brendan: As a reminder, on an annual basis, our current dividend policy is to pay between 85% and 100% of distributable earnings over the year.

Operator: With that, I will now turn it back over to the operator to start the Q&A. Thank you. Ladies and gentlemen, to ask a question, please press star one one on your telephone and wait for your name to be announced. To draw your question, please press star 1 1 again.

Speaker Change: With that I will now turn it back over to the operator to start the Q&A.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: One moment please.

Pablo Zuanic: And our first question comes from the line of Pablo Zuanic with Zuanic & Associates. Thank you. Good morning. I guess, first of all, congratulations on exceeding your target of $100 million in loan origination for the year. Can you talk about, you know, just in terms of modeling, I don't know if you're giving guidance for 2025, but is it reasonable to assume that you would have a similar target for 2025? You talked about a pipeline of $400 million that would be like, you know, 25% of that being realized. Just give some color in terms of how to think about this going forward.

Speaker Change: And our first question comes from the line of Pablo <unk> with <unk> Associates.

Pablo: Thank you good morning.

Speaker Change: I guess first of all congratulations on.

Speaker Change: Exceeding your target of 100 million.

Speaker Change: Loan originations for the year.

Speaker Change: Talk about just in terms of modeling I don't know if we're giving guidance for 2025, but is it reasonable to assume that you would have a similar target for 2025, you talked about your pipeline of 400 million that would be like 25% of that being realized just some quarter in terms of how to think about these going forward and again congratulations on exceeding the target.

Pablo Zuanic: And again, congratulations on that.

Daniel Neville: Thanks, Pablo. So we've talked about having greater than $75 million of liquidity from We want to get fully invested, but we also want to make sure that we're cautiously deploying capital into good credits and new vintage loans with solid offers. And so we judiciously deployed over the course of the year into a number of those credits, and you should expect the same in 2025.

Thanks Pablo.

Speaker Change: So we've talked about having.

Greater than $75 million of liquidity from here.

Speaker Change: We wanted to get fully invested but.

Speaker Change: But we also want to make sure that we're cautiously deploying capital into good credits and new vintage loans with solid operators and so we judiciously deployed over the course of the year into a number of those credits and you should expect the same in 2025.

Daniel Neville: I think in terms of a target, we'll probably come back with something on the fourth quarter call. But we've got a lot of good things in the pipeline. I'm very pleased with the quality of the things in the pipeline. And given a little bit of the turmoil in the cannabis markets and the election results, the election results last Tuesday, we're happy to have dry powder to deploy to new borrowers out there in the space and at attractive risk adjustment.

Speaker Change: I think in terms of a target.

Speaker Change: We'll probably come back with something on the fourth quarter call.

But we've got a lot of good things in the pipeline I am very pleased with the quality of the things in the pipeline.

<unk>.

Speaker Change: Given.

Speaker Change: Given a little bit at the turmoil in the cannabis markets in the election results.

Speaker Change: The election results last Tuesday, we're happy to have dry powder to deploy two new borrowers out there in the space.

And at attractive risk adjusted returns.

Pablo Zuanic: Okay, thank you. And just following up on that, you know, if we think about the current earnings season, right, a lot of companies missing estimates. It's challenging out there.

Speaker Change: Okay. Thank you and then just following up on that if we think about the the current earnings season, Right Bureau companies missing estimates, it's challenging out there like you said in your prepared remarks, I think Robyn.

Pablo Zuanic: Like you say in your prepared remarks, I think, Robyn, you know, yes, we may get rescheduling, but that may be delayed. So from your perspective, are we, compared to six months ago, are we into choppier, riskier waters? And that maybe also impacts the way you think about your pipeline and originating loans? Or am I exaggerating the context compared to six months ago in terms of the risk of that?

Speaker Change: Yes, we may get rescheduling by that may be delayed so from.

From your perspective.

Compared to six months ago, our winter Chop your riskier waters and then maybe also impacted the way you think about your pipeline originating loans, what am I exaggerating the context compared to six months ago in them. So the risk of the industry.

Robyn Tannenbaum: So I think if you look at the results thus far, generally speaking, revenue growth has been hard. And the reason is that you have some AU flips like Ohio, that was a partial quarter, you have some potentials in the future in terms of PA in Minnesota. But you also have markets that are kind of mature on that AU curve. Illinois, New Jersey on the retail side of things is another one. You know, Massachusetts and Michigan were probably a year ahead of them in terms of maturity. And so places where a lot of MSOs have a lot of exposure, Illinois and New Jersey are getting more competitive, particularly on the retail side.

Speaker Change: So I think if you look at their results. Thus far generally speaking revenue growth has been hard to come by.

Speaker Change: And the reason is that you have some au flat like Ohio that was a partial quarter you have some potentials in the future in terms of PAA in Minnesota.

Speaker Change: But you also have markets that are kind of mature on that curve.

Speaker Change: Illinois, New Jersey on the retail side of things is another one.

Speaker Change: Massachusetts, Michigan, and we're probably a year ahead of them in terms of maturity and so places where a lot of msos have a lot of exposure.

Speaker Change: Hi, Illinois, and New Jersey are getting more competitive, particularly on the retail side effects.

Robyn Tannenbaum: Now, a lot of these companies, I think, are looking for strategies to further densify those markets through partnership structures or other strategies to take the existing distribution infrastructure that they have in those states and get more out of it. I think that's a good trend. But you're kind of fighting, you know, you have these growth curves on the AU markets and the flips, and they're largely being offset by declines in more mature markets. The results, I think you have a little bit of pressure on profitability, but generally speaking, you know, profitability has been pretty decent.

Speaker Change: Now a lot of these companies I think are looking for strategies to further densify those net those markets through partnership structures or other strategies to take the existing distribution infrastructure that they have in those states and get more out of it I think thats a good.

Speaker Change: Trend.

Speaker Change: But you are kind of fighting you have these growth curves on the EU markets in the flats.

Speaker Change: And they are largely being offset by declines in more mature markets.

Speaker Change: The results I think you have a little bit of pressure on profitability, but generally speaking profitability has been pretty decent.

Robyn Tannenbaum: Revenue growth hasn't been there. I think for us as a debt lender, that's generally a fine place to be in.

Revenue growth hasn't gotten there I think for us as a debt lender.

Speaker Change: Generally a fine place to be in.

Robyn Tannenbaum: I think as an equity investor, it's a little more problematic because if you're going to get growth multiples, like the industry has historically argued for, you've got to have growth, and at least this past quarter, you're not seeing that much. And so I think that's why you've seen a reaction in the stocks, a combination of, obviously, the results themselves, but also AU and Florida failing, which would have been big for a few companies combined with a shift to the right and potentially slowing pace of federal work.

Speaker Change: Thank as an equity investor.

Speaker Change: It's a little more problematic because if youre going to get growth multiples like the industry has historically argued for you've got to have growth and at least this past quarter youre not seeing that much growth.

Speaker Change: So I think that's why you've seen a reaction in the stocks a combination of obviously the results themselves, but also <unk> in Florida, failing, which would've been big for a few companies combined with a shift to the right and potentially slowing pace of federal work for them.

Pablo Zuanic: Thank you.

Pablo Zuanic: Let me just use it as a segue for Florida. I don't know if you can, you know, comment or in terms of what, you know, your clients are based in Florida. You know, what type of color are you getting from them? I mean, you know, are we going to see, you know, more price competition? A lot of companies have a capacity in stores. I hear A3 didn't happen. How are you thinking about your Florida exposure and what type of comments are you getting from your operators?

Speaker Change: Thank you and let me just use that as I say wafer, Florida I don't know if you can comment or so.

Speaker Change: So.

Your compliance center based in Florida, you know what type of corridor or are you getting from them.

Speaker Change: Are we speaking how are we going to see more price competition.

Speaker Change: There are companies that lead capacity in stores.

Speaker Change: III didn't happen how do you think your for your exposure and what type of comments are you getting from your operators there. Thank you.

Daniel Neville: Yeah, so our Florida exposure is pretty modest, 10% of the portfolio overall. And I would say generally, we don't underwrite for the future here, right? Projections in the cannabis industry have been, you know, we have a long history of borrowers providing us projections and a lot of them falling well short. So we really underwrite to the current stage without AU flips. And that's how we underwrote our exposure in Florida, just a medical market and being able to continue to take markets.

Speaker Change: Yes, so our our Florida exposure is is pretty modest 10% of the portfolio overall and I would say generally we don't underwrite for their future here right projections in the cannabis industry have been.

Speaker Change: We have a long history of borrowers, providing us projections and a lot of them following falling well short so we really underwrite to their current state without au flaps and Thats, how we underwrote our exposure in Florida, just the medical market and being able to continue to take market share.

Daniel Neville: I think in terms of the landscape in Florida, I would much rather be a challenger and somebody who's moving up the growth curve, who has additional white space to fill in, an additional market share to gain, than an incumbent with a large profit. because the challengers in these type of markets, where you're probably looking at two more years of stagnation, are just on a much better footing than the incumbents with an existing profit. And so, that's how we view our exposure. I think, generally speaking, we're hearing operators are going to button down the hatches, it looks like at least another two years, run lean, be aggressive about fulfilling out of their own stores and maximizing profitability.

Speaker Change: I think in terms of the landscape in Florida, I would much rather be a challenger and somebody who is moving up the growth curve, who has additional white space to fill in and additional market share to gain than an incumbent with a large profit pool.

Speaker Change: The challengers in these type of markets, where youre, probably looking at two more years of stagnation or just on a much better footing than the incumbents with an existing profit pool and so that's how we view our exposure I think generally speaking we're hearing operators are gone.

Speaker Change: And down the hatches it looks like at least another two years run lean.

Speaker Change: Be aggressive about fulfilling out of their own stores and maximizing profitability and I think that's absolutely the right approach.

Robyn Tannenbaum: And I think that's absolutely the right approach.

Robyn Tannenbaum: And I think that, just to add to Dan's point, the operator that we back here has been very prudent with their capital and did not build out in anticipation of REC, so decided to take the wait and see approach, which as a lender, you really appreciate, right? Because now they're, as Dan described, right sized to attack the market, and also leading from a position of strength versus just having spent a lot of money on building out excess capacity that's not going to happen. That's right. Yeah.

Think that just to add to Dan's point, the operator that we back here has been very prudent with their capital and did not build out in anticipation of rack, so decided to take the wait and see approach, which as a lender you really appreciate right because now there as Dan described right sized to attack the market.

Speaker Change: And also leading from a position of strength versus just having spent a lot of money on building out excess capacity, that's not going to be it.

Speaker Change: Oh, that's right yeah. Thank you one last one so.

Pablo Zuanic: Thank you.

Pablo Zuanic: Look, one last one. So, obviously, you talked about the continued demand and supply imbalance on debt capital, on capital in general, and probably even more so on the equity side now. So you're in a great place. Totally agree with that. So when we hear about, you know, about this, like, Relief recently, a regional bank, I think they refinanced or got a new loan for 7.99 interest rate, are those more like exceptions to the rule, or are we seeing more regional? And I've asked this before, but are we seeing more regional banks come in, or like you said before, some are just running down their portfolio?

Speaker Change: You talked about the continued demand and supply imbalance that capital on capital in general and probably even more so on that we decided now. So so you are in a great place totally agree with that.

Speaker Change: So when we hear about you know about this like relief recently.

Speaker Change: Redo on bonds I think the refi now and so we've got a new loan for $7 99 interest rate are those more like exceptions to the rule or are we seeing more reach out and I've asked this before but are we seeing more regional ones come in or like you said before someone just running down their portfolio, but we're getting mixed signals on that front. That's the last question. Thank you.

Daniel Neville: We're getting mixed signals on that front. I think, I, I, I, I think more coming out or getting more cautious than are coming in. I think you may see people come in and you may get a headline rate to the strongest operators in the space, you know, the GTI facility that they did. I think that is the exception rather than the rule. And generally speaking, people are de-emphasizing activity or slowing down activity in the space. And that doesn't mean you won't see headlines here and there. That's going to happen. But I would honestly say the competitive intensity, Robyn and I have talked about it, running across these regionals, we ran across them a lot more two, three years ago than we are today.

Speaker Change: I I think.

Speaker Change: More coming out or getting more cautious than are coming in.

Speaker Change: You may see people come in.

Speaker Change: And you may get a headline rate too.

Speaker Change: The strongest operators in this space the GTI facility that they did I think that is the exception rather than the rule.

And generally speaking.

Speaker Change: People are deemphasizing.

Speaker Change: Activity or slowing down activity in this space and that doesn't mean, you won't see headlines here and there.

Speaker Change: That's going to happen, but I would honestly say the competitive intensity, Robyn and I have talked about it running across these regionals. We ran we ran across some a lot more two or three years ago than we are today.

Daniel Neville: and I think a very tricky industry to lend into and you have to be specialized and very focused. And I think, you know, the tourists in the industry have come and gone, and some of them have had a rough experience. And so having dedicated focus on cannabis, having both the top-down and the bottoms-up operating experience. And having, you know, five, six, seven years of history in the industry is a really valuable asset for us. And those without that type of specialization are generally taking a more cautious approach.

Speaker Change: And I think that comes from the fact that this is.

Speaker Change: A very tricky industry to lend into and you ought to be specialized and very focused on it and I think that.

Speaker Change: <unk> in the industry have come and gone and some of them have had a rough experience.

Speaker Change: And so having.

Speaker Change: The dedicated focus on cannabis, having bought the top down and a bottoms up operating experience.

And having 567 years of history in the industry is a really valuable asset for us.

And those without that type of specialization.

<unk> are generally taking a more cautious approach.

Speaker Change: Got it thank you.

Operator: And I'm showing no further questions.

Speaker Change: Thank you and I'm showing no further questions. So with that we would like to thank you for participating. This does conclude today's program and you may now disconnect.

Operator: So with that, we would like to thank you for participating.

Operator: This does conclude today's program and you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].