Q1 2025 Advanced Flower Capital Inc Earnings Call
Operator: Good day and welcome to the Advance Flower Capital Q1 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Good day and welcome to the advance flower capital Q1, 2025 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will.
Operator: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again.
Youre, an automated message advising your hand is raised.
A question Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. Gabriel Katz Chief Legal Officer. Please go ahead.
Operator: Please be advised that today's conference is being recorded.
Gabriel Katz: I would now like to hand the conference over to your speaker, Mr. Gabriel Katz, Chief Legal Officer. Please go ahead.
Gabriel Katz: Good morning, and thank you all for joining Advanced Flower Capital's earnings call for the quarter ended March 31st, 2025. 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.
Good morning, and thank you all for joining advanced flower Capital's earnings call for the quarter ended March 31, 2025, I'm joined this morning by Robin Tannenbaum, Our President and Chief Investment Officer, Daniel novel, Our Chief Executive Officer, and Brendan Hensel, Our Chief Financial Officer before we begin I would like to note that this call is being run.
Gabriel Katz: Replay information is included in our April 15th, 2025 press release and is posted on the investor relations portion of AFC's website at advancedflowercapital.com, along with our first quarter 2025 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, market developments, anticipated portfolio yield, and financial performance and projections in 2025 and beyond. These statements are subject to inherent uncertainties in predicting future results.
Replay information is included in our April 15th 2025 press release and is posted on the Investor Relations portion of Amc's website at advance flower capital Dot Com, along with our first quarter 2025 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 market developments anticipated portfolio yield.
Actual performance and projections in 2025 and beyond these statements are subject to inherent uncertainties in predicting future results. Please refer to advanced by our capital is most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning for certain conditions and significant factors that could cause actual.
Gabriel Katz: Please refer to Advance Flower Capital's most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning, for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. During today's conference call, management will refer to non-GAAP financial measures, including distributable earnings.
<unk> results to differ materially from these forward looking statements and projections.
During today's conference call management will refer to non-GAAP financial measures, including distributable earnings. Please see our first quarter earnings release uploaded to our website for reconciliations of the non-GAAP financial measures with the most directly comparable GAAP measures.
Gabriel Katz: Please see our first quarter earnings release uploaded to our website for reconciliations of the non-GAAP financial measures with the most directly comparable GAAP measures.
Robyn Tannenbaum: Today's call will begin with Robyn providing a high-level overview of the capital markets and our origination pipeline.
Today's call will begin with Robin providing a high level overview of the capital markets and our origination pipeline. Dan will then provide an overview of our portfolio and an update on the cannabis industry. Finally, Brandon will conclude with a summary of our financial results before opening the lines for Q&A with that I will now turn the call over to our president and CIO.
Daniel Neville: Dan will then provide an overview of our portfolio and an update on the cannabis industry.
Brandon Hetzel: Finally, Brandon will conclude with a summary of our financial results before opening the lines for Q&A.
Robyn Tannenbaum: With that, I will now turn the call over to our President and CIO, Robyn Tannenbaum. Thanks, Gabe, and good morning to all our investors and analysts that have joined us today. Looking at the state of the cannabis industry, we continue to see many capital markets participants remaining on the sidelines as the lack of clarity around federal reform continues. Many operators continue to seek additional equity and or debt capital to support their businesses, yet the supply of capital in the industry remains scarce. We see a growing supply and demand imbalance for capital across the sector, with demand outpacing an already limited supply.
Speaker Change: Robyn Thanks, Gabe and good morning to all our investors and analysts that have joined US today looking at the state of the cannabis industry. We continue to see many capital markets participants remaining on the sidelines as the lack of clarity around federal reform continues many operators continue to seek additional.
Speaker Change: Equity or debt capital to support their businesses you have to supply of capital in the industry remains scarce, we see a growing supply and demand imbalance for capital across the sector with demand outpacing and already limited supply. This demand is driven by refinancing activity, which we expect to excel.
Robyn Tannenbaum: This demand is driven by refinancing activity, which we expect to accelerate in the second half of this year due to adult use and medical expansions and increased M&A in the cannabis As lenders, our investments are underwritten with a primary goal of protecting principles. In times of cannabis and broader market volatility, we may not find investments that meet our criteria. And as a result, originations may be muted.
Speaker Change: The rate in the second half of this year due to adult use and medical expansions and increased M&A in the cannabis space.
Speaker Change: As lenders are investments are underwritten with a primary goal of protecting principal in times of cannabis and broader market volatility we may not find investments that meet our criteria and as a result originations may be muted as it may 1st 2025, our active pipeline has 200.
Robyn Tannenbaum: As of May 1, 2025, our active pipeline has $287 million of deals. As we have previously discussed, we are focused on sourcing deals and backing operators with a prior track record of success and selectively providing construction financing to operators with existing operations in other states. We currently have one signed term sheet for a deal in documentation.
Speaker Change: And $87 million of deals.
As we have previously discussed we are focused on sourcing deals and backing operators with a prior track record of success and selectively providing construction financing to operators with existing operations in other states.
Speaker Change: We currently have one signed term sheet for a deal and documentation with that I'll turn it over to Dan who will discuss our fourth first quarter performance and provide an update on our portfolio.
Daniel Neville: With that, I'll turn it over to Dan who will discuss our first first quarter performance and provide an update on our portfolio. Thanks Robyn, and good morning everyone. I'll begin with an overview of our results, followed by some commentary on the industry, and an update on our portfolio.
Dan: Thanks, Robin and good morning, everyone.
Dan: I'll begin with an overview of our results followed by some commentary on the industry and an update on our portfolio.
Daniel Neville: For the first quarter of 2025, AFC generated distributable earnings of 21 cents per basic weighted average share of common While we have made significant progress over the last year reducing our exposure to underperforming credits, there is still work to be done, and our earnings in the first quarter and going forward will be impacted by the underperformance of some of our legacy loans.
Dan: For the first quarter of 2025, AMC generated distributable earnings of 21 cents per basic weighted average share of common stock.
Dan: While we have made significant progress over the last year, reducing our exposure to underperforming credits there was still work to be done.
Our earnings in the first quarter and going forward will be impacted by the underperformance of some of our legacy loans.
Daniel Neville: Before turning to our existing portfolio, I would like to highlight a recent transaction that we closed subsequent to the end of the In early April, we committed to a $14 million senior secured credit facility to subsidiaries of Standard Wellness. Standard Wellness is a privately held multi-state operator and intends to use the proceeds of this loan to acquire a dispensary in Missouri, relocate a dispensary in Utah, and refinance and consolidate other debt facilities. Transaction reflects our continued focus on supporting strong operators in attractive limited license dates and further diversifying our portfolio.
Dan: Before turning to our existing portfolio I would like to highlight a recent transaction that we closed subsequent to the end of the quarter.
Dan: In early April we committed to a $14 million senior secured credit facility to subsidiaries of standard wellness holdings.
Dan: Standard wellness is a privately held multistate, operator and intend to use the proceeds of this one to acquire a dispensary in Missouri, we locate a dispensary in Utah and refinance and consolidated other debt facilities.
Dan: Transaction reflects our continued focus on supporting strong operators and attractive limited license states and further diversifying our portfolio.
Daniel Neville: turning to our current portfolio management app.
Dan: Turning to our current portfolio management efforts.
Daniel Neville: As we discussed last quarter, we have continued the liquidation process for private company A, which recently completed the sale of its Georgia assets for $15 million. We are awaiting approval from the receivership to direct the distribution of these proceeds, some of which should go to pay down the debt. Regarding private company A, K, the receiver has received LOIs for the sale of two of the three main assets, and he is in active discussions for the sale of the third. The receiver has been efficient in the management of the assets and timely with the sale options to return capital.
Dan: As we discussed last quarter, we have continued the liquidation process for private company, yet, which recently completed the sale of its Georgia assets for $15 million.
Dan: We are awaiting approval from the receiver ship to direct the distribution of these proceeds some of which should go to pay down this loan.
Dan: Regarding private company yet okay. The receiver has received LOI for the sale of two of the three main assets and he is in active discussions for the sale of their fair.
Dan: The receiver has been efficient in the management of the assets and timely with the sale options to return on capital.
Daniel Neville: Lastly, we wanted to take a minute to touch on Subsidiary of Private Company G, which is known as and operates as Justice Group. We are currently engaged in three legal proceedings with justice ground entities related to enforcing certain rights under the credit facility in collection with in connection with the alleged We recently received a pre-discovery, preliminary injunction in one of the actions barring us from exercising rights with respect to certain alleged... We are currently evaluating the best course of action to protect our shareholders' capital under the credit facility and have nothing further to share in the pending litigation at this time.
Dan: Lastly, we wanted to take a minute to touch on subsidiary of private company G, which is known as an operator of justice graph.
Dan: We are currently engaged in three legal proceedings with justice ground entities related to enforcing certain rights under the credit facility in collection with in connection with the <unk> Stifel.
Dan: We recently received a pre discovery preliminary injunction and one of the actions barring us from exercising rights with respect to certain <unk> Stifel.
Dan: We are currently evaluating the best course of action to protect our shareholders' capital under the credit facility and have nothing further to share on the pending litigation at this time.
Daniel Neville: As a reminder, our loan to Justice Grown matures in less than a year and is secured by Vertical Assets in New Jersey, including an owned cultivation facility and three dispensaries, two of which are owned. We are also secured by three operational dispensaries and an owned cultivation facility in Pennsylvania, which is currently not operational.
Dan: As a reminder, our lung to justice grown matures in less than a year and is secured by vertical assets in new Jersey, including an own cultivation facility and three dispensaries two of which are owned.
Dan: We're also secured by three operational dispensaries, and then own cultivation facility in Pennsylvania, which is currently not operational.
Daniel Neville: We are laser focused on unlocking value from underperforming loans and evaluating new lending opportunities that we are seeing.
Dan: We are laser focused on unlocking value from underperforming loans and evaluating new lending opportunities that we are seeing.
Brandon Hetzel: Now, I'll turn it over to Brandon to discuss our financial results in more Thank you, Dan. For the quarter ended March 31, 2025, we generated net interest income of $6.6 million and distributable earnings of $4.5 million, or $0.21 per basic weighted average common share, and had a GAAP net income of $4.1 million, or $0.18 per basic weighted average common share. We believe providing distributable earnings is helpful to shareholders in assessing the overall performance of AFC.
Dan: Now I'll turn it over to Brendan to discuss our financial results in more detail.
Brendan: Dan for the quarter ended March 31, 2025, we generated net interest income of $6 6 million and distributable earnings of $4 5 million or <unk> 21 per basic weighted average common share and had a GAAP net income of $4 1 million or <unk> 18 per basic weighted average common shares.
Brendan: We believe providing distributable earnings is helpful to shareholders in assessing the overall performance of Afg's business distributable earnings represents the net income computed in accordance with GAAP, excluding noncash items, such as stock compensation expense.
Brandon Hetzel: Distributable Earnings represents the net income computed in accordance with GAAP, excluding non-cash items such as stock compensation. and the unrealized games we're lost to.
Brendan: Unrealized gains or losses provision for current expected credit losses also known as diesel.
Brandon Hetzel: Provision 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. We ended the first quarter of 2025 with 366.3 million of principal outstanding spread across 17 levels. As of May 1st, 2025, our portfolio consisted of $372.5 million of principal outstanding across 18 The Weighted Average Portfolio Yield to Matric, which is measured for each loan over the life of such loan, was approximately 18% as of March 31, 2025 and May 1, 2025.
Brendan: Taxable REIT subsidiary income or loss net of dividends.
Brendan: Other noncash items recorded in net income or loss for the period.
Brendan: We ended the first quarter of 2025 with $366 3 million of principal outstanding spread across 17 loans.
Brendan: As of May one 2025, our portfolio consisted of $372 5 million of principal outstanding across 18 months.
Brendan: The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan was approximately 18% as of March 31.
Brendan: 2025, and May one 2025.
Brandon Hetzel: As of March 31, 2025, the CECL reserve was $29.9 million, or approximately 9.75% of our loans at carrying value, and had a total unrealized loss included on the balance sheet of $20.4 million for our loans held at fair value.
Brendan: As of March 31, 2025, the diesel reserve was $29 9 million or approximately 975% of our loans at carrying value and had a total unrealized loss included on the balance sheet of $20 4 million for our loans held at fair value.
Brandon Hetzel: On May 2, 2025, we announced that we had renewed our Senior Secured Credit Facility with a LEED commitment from an FDIC insured bank with over $75 billion in assets. The credit facility, which includes the ability to expand to 100 million, subject to lender participation in available borrowing base, has a maturity date of April 29, 2028, and bears interest at a floating rate of prime plus 50 basis points, subject to a prime floor of 6.5%. As of March 31st, 2025, we have total assets of $321.7 million. Total shareholder equity of $200.8 million and a book value per share of $8.89.
Brendan: On May <unk> 2025, we announced that we had renewed our senior secured credit facility with a lead commitment from an FDIC insured bank with over $75 billion in assets.
Brendan: The credit facility, which includes the ability to expand to 100 million subject to lender participation and available borrowing base has a maturity date of April 29, 2028, and bears interest at a floating rate of prime plus 50 basis points subject to a prime floor of six 5%.
Brendan: As of March 31, 2025, we had total assets of $321 7 million.
Brendan: Total shareholder equity of $200 8 million and a book value per share of $8 89.
Operator: With that, I will now turn it back over to the operator to start the Q&A. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. One moment while we compile the Q&A roster.
Brendan: With that I will now turn it back over to the operator to start the Q&A.
Brendan: Thank you.
Speaker Change: Minder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment, while we compile the Q&A roster.
Pablo Zuanic: And our first question will come from the line of Pablo Zuanic with Zuanic & Associates. Your line is now open. Thank you. Good morning, everyone. Maybe one for Brandon to start. Looking at the interest income number, $8.5 million in the first quarter compared to $9.2 in the fourth, can you just maybe unpack that number, what caused the decline, and whether there were any non-recurring fees in the first quarter number and the fourth quarter number, a reminder. I'm sorry if it's on the press release. I didn't see it. Thanks. problem. Two main things to point out regarding the interest revenue.
Speaker Change: And our first question will come from the line of Pablo <unk> with <unk> Associates. Your line is now open.
Speaker Change: Yes.
Speaker Change: Good morning, everyone, maybe one for Brandon to start.
Speaker Change: Looking at the interest income number $8 5 million in the first quarter compared to $9. During the fourth can you just maybe unpack that number what caused the decline and whether there were any non recurring fees in the first quarter number in the fourth quarter number as a reminder, and I'm sorry, if it is on the press release I Didnt see it.
Speaker Change: No problem.
Speaker Change: Two main things to point out regarding the interest revenue one is in the.
Brandon Hetzel: One is in the fourth quarter of 2024, we did receive More income related to Cytheria private company G, which you can see in the quarter. In Q4, it was approximately $1.6 million. In Q1, it was about $600,000. So that was one driver of the difference. The other... driver is in Q4. There were dividends up from the TRS, which we did not have in the first quarter. And then those two decreases were offset by our new originations during the quarter. But those are the main drivers for the change.
Speaker Change: Fourth quarter of 2024, we did <unk>.
Speaker Change: Steve.
Speaker Change: More income related to subsidiary of private company G, which you can see in the quarter in Q4. It was approximately $1 6 million in Q1. It was about 600000, so that was one driver of.
Speaker Change: The difference the other <unk>.
Speaker Change: The driver is in Q4.
Speaker Change: There were dividends up from the Trs, which we did not have them in.
Speaker Change: In the first quarter.
Speaker Change: And then those two decreases were offset by our new originations during the quarter, but those are the main drivers for the change.
Brandon Hetzel: Right, that's good, thank you. That's good color. And then just, I mean, obviously, the distributed earnings per share, 21 cents in the first quarter, your dividend is 23 cents. How, I know you cannot give guidance, but how should we think of appropriation for the rest of the year in terms of net book growth and whether, you know, distributed earnings can go over 23 cents in the next quarter?
Speaker Change: All right. That's good. Thank you that's good color and then just.
Speaker Change: Obviously, the skew toward earnings per share of <unk> 21 in the first quarter Youre D. V. Then its 23 cents.
Speaker Change: I know you're going to give guidance, but.
Speaker Change: How should we think of our progression for the rest of the year in terms of net book growth and whether you know just you either.
Speaker Change: Earnings can go over 23 cents in the next quarters.
Brandon Hetzel: So I can take just on the book growth and originations, and then I'll turn it over to Robyn on the other portion of the question. Given the volatility in the cannabis market overall and the uncertainty surrounding progress at the federal level, We're going to be very opportunistic in our originations, and we'll be looking, really, to find and source high-quality borrowers and lend to proven operators. And so, in terms of the originations, we think that originating simply for the sake of originating to hit a target is probably not the right idea, given the market volatility, and we're going to be opportunistic and find the right loans to do with the right counterparties and base our originations off of that, as opposed to a target.
Speaker Change: So I can take just on the book growth in originations and.
Robyn: And then I'll turn it over to Robyn.
Robyn: On the other portion of the question.
Robyn: Given the volatility in the cannabis market overall and the uncertainty surrounding.
Robyn: Progress at the federal level.
Robyn: Going to be very opportunistic in our originations and we will be looking really to find and source high quality borrowers.
Robyn: Wanted to proven operators and so in terms of the originations, we think that originating simply for the sake of originating to hit a target.
Robyn: It is probably not the right idea given the market volatility and we're going to be opportunistic and find the right one to do with the right Counterparties.
Robyn: And base, our originations off of that as opposed to.
Robyn: Target.
Brandon Hetzel: Thanks Dan.
Brandon Hetzel: And then in terms of the dividend, as we've publicly stated in the past, the board looks at the dividend policy as 85-100% over the course of an entire year, and the board will meet, and we expect the board to make a dividend declaration on its normal cadence, which is on or about June 1st. Right, thank you.
Speaker Change: Thanks, Dan and then in terms of the dividend.
Speaker Change: As we've publicly stated in the past the board looks at the dividend policy is 85% to 100% over the course of an entire year and the board will need and we expect the board to make a dividend declaration on its normal cadence, which is on or about June 15.
Right. Thank you.
Pablo Zuanic: And then just in terms of problem loans, I know you gave some color there.
Speaker Change: And then just in terms of our problem loans I know you gave some color there.
Daniel Neville: In the case of one company, A, right, you said how much should we be assuming in terms of inflows from the proceeds to the Georgia asset? So I think, look, we are the agent of the loan, we own a portion of the loan, we don't own the whole loan. So we would not receive a full pay down from the proceeds. But timing around that is uncertain and out of our control, quite frankly. So to give any guidance around that would be be difficult?
Speaker Change: And because you have one company a right you said.
Speaker Change: How much how much should we be assuming in terms of.
Speaker Change: Inflows from the proceeds of the Georgia asset.
Speaker Change: So I think luck.
And we are the agent it alone we owned a portion of them, we don't know own the whole zone.
Speaker Change: So we would not receive a full paydown from the proceeds but timing around that is uncertain and out of our control great quite frankly, so to give any guidance around that would be.
Daniel Neville: I think as we discussed last quarter, Pablo, we are, you know, if there is one senior secured credit facility within this loan, AFC is a participant in that loan. But the trying to bet on the timing of court processes and recommendations is really just outside of our scope and control. So, what I can say is that we are actively seeking that, and that is something that the receiver is in support of. But speaking to the timing is just difficult, given the fact that it's out of our control. Right.
Speaker Change: It would be difficult.
Speaker Change: I think as we discussed last quarter Pablo we are.
Speaker Change: There is one senior secured credit facility within this alone.
Speaker Change: AFC is a participant in that loan.
Speaker Change: But the trying to bet on the timing of court processes and recommendations.
Speaker Change: It was really just outside of our scope and control what.
Speaker Change: What what I can say is that we are.
Speaker Change: We are actively seeking that and that is something that were.
Speaker Change: The receiver as in support of.
Speaker Change: But speaking to the timing is just difficult given.
Speaker Change: The fact that it's out of our control.
Daniel Neville: And again, sorry, maybe you're going to disclose this, but not so much on timing, but of the $15 million, should we assume that you get about a third of that? What can we assume? I think we're not ready to speak to that at this time. It's really the receiver's job to make a recommendation on the distribution. And so we certainly don't want to front run the receiver's recommendation or the court's determination. Right.
Speaker Change: Right.
Speaker Change: Again, sorry, maybe you are going to disclose this but not so much on timing, but over 15 million should we assume that you would get about a third of that what can we assume.
Speaker Change: I think we're not ready to speak to that.
Speaker Change: At this time, its really the receivers job to make a recommendation on the distribution and so we certainly don't want to front run the receivers recommendation or the court's determination.
Daniel Neville: Again, and the same question on Company K, and I understand there's only so much you can disclose, but what can we assume there in terms of timing and process? We're not going to give any guidance around timing. Once again, this is a receiver handling the situation, and we're not going to front run anything or get ahead of anything. But as we've always done in the past, as we have updates on these credits and closings of deals and other credits, we will update everyone as they come. Right. What I will say is that the receiver came in in January and is being efficient and moving relatively quickly here and we're happy with the progress thus far.
Speaker Change: Right again, the same question on company and I understand there's only so much you can disclose but what can we assume there in terms of the timing on proceeds.
Speaker Change: Where we're not going to give any guidance around timing. Once again. This is a receiver handling the situation and we're not going to front run anything or get ahead of anything but as we've always done in the past as we have updates on these credits and <unk>.
Speaker Change: Closings of deals and other credits, we will update everyone as they come.
Speaker Change: Right, but what I will say is that the receiver came in in January.
Speaker Change: And is being efficient and.
Speaker Change: Moving relatively quickly here and we're happy with the progress thus far but again speaking to timing we cannot.
Daniel Neville: But again, speaking to timing, we... Right.
Pablo Zuanic: And then, look, I understand in the case of Justice Zuanic it's difficult, you know, to make comments. There's litigation going on.
Speaker Change: Right.
Speaker Change: And as.
Speaker Change: Starting to get suggest is growing it's difficult.
To my comments as we began showing on them but.
Gabriel Katz: But, well, what more color can you share? I mean, I thought the federal judge had issued some decisions so far, or it's all in process. What more can you share publicly here? Thanks.
Speaker Change: Well, what what more current can you share I mean.
Speaker Change: The federal Judge said cause issue. Some some decision so far are that it's all in process what more can you share public nishu. Thank you.
Gabriel Katz: I'll turn it to Gabe for this one. We've described it in the 10-Q, so you can take a look there describing the actions and the claims, but it's early in this pending litigation and we're not prepared to provide any comment or description beyond what we've included there. Right.
Gabe: Turning to Gabe for this one.
Gabe: Yes, we've described it in the 10-Q. So you can take a look there describing the actions and the claims but it's early and this is pending litigation and we're not prepared to provide any comment or description beyond.
Gabe: What we've included there.
Gabriel Katz: But just to be clear, in terms of, you have cross-default provisions, right, between although the loan was made to New Jersey, you have access to the Pennsylvania assets also in theory. Is that true? Pablo, given this is pending litigation and this is a public earnings call, we're not going to comment any further than what's in the 10-Q or the script.
Speaker Change: Right, but just to be Gerry thanks.
Speaker Change: You have cross default provisions right, although I don't what might be New Jersey, you have access to the Pennsylvania assets also in theory is that true.
Speaker Change: Pablo given this is pending litigation and this is a public earnings call, we're not going to comment any further than what's in the 10-Q the script.
Pablo Zuanic: Okay, thank you. That's all for me, Robyn. Thank you.
Speaker Change: Okay. Thank you that's all for me. Thank you.
Operator: One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Chris Muller: And that will come from the line of Chris Muller with Citizens Capital Markets. Your line is open. Hey guys, thanks for taking the questions.
Speaker Change: And that will come from the line of Chris Muller with citizens capital markets. Your line is open.
Chris Muller: Hey, guys. Thanks for taking my questions. So I know, it's a fluid situation, but with Pennsylvania trying to set up a state wrong framework and I see them highlighted in your back but is there an opportunity for private lenders like you guys in that scenario, if they do end up going state Ron and if so does the $100 million opportune.
Chris Muller: So I know it's a fluid situation, but with Pennsylvania trying to set up a state run framework, and I see them highlighted in your deck, but is there an opportunity for private lenders like you guys in that scenario if they do end up going state run? And if so, does the hundred million opportunity you cite in the deck, does that assume a state run model?
Speaker Change: You cite in the that guide does that assume a state run model.
Robyn Tannenbaum: So, I think this is fresh off the tape, but I believe that the Pennsylvania Senate Law and Justice Committee rejected the House proposal on the state-run model yesterday, 7-3. And I think just speaking more generally, there has to be a compromise between the Senate and the House in Pennsylvania. The Senate has been very steadfast and unsupportive of a state-run model. And so, I don't view that as the likely outcome for adult use legalization in PA, and therefore not an opportunity for us. And to your question about the DEC, that does not assume a state-run model when we ran those Correct.
Speaker Change: So I think this is fresh off the table, but I believe that the.
Speaker Change: Pennsylvania Senate Lawn Justice Committee rejected the house proposal on the state run model yesterday.
Speaker Change: <unk> three and I think just speaking more generally.
Speaker Change: There has to be a compromise between the Senate and the house in Pennsylvania. The Senate has been.
Speaker Change: Very steadfast in support of the state run model and so I don't view that as.
Speaker Change: The likely outcome for adult use legalization NPA and therefore, not an opportunity for us.
Speaker Change: And to your question about the DAC that does not assume the state run model when we ran those correct.
Chris Muller: Got it. That's helpful.
Robyn Tannenbaum: And then looking at your slide on the pipeline and assuming your deal selectivity was around that 4% mark, I'm backing into roughly a $7.5 billion of loans that you guys looked at to get to that 287 pipeline. So my question is, is all of that cannabis capital, and that number seems big when we look at it, but being that you guys are one of the only lenders out there, maybe it's not so big. So just any comments on that pipeline and any type of growth expectations on that 287 that you guys could comment on?
Speaker Change: Got it that's helpful.
Speaker Change: Then looking at your slide on the pipeline and assuming your deal flow.
Speaker Change: Productivity was around that 4% Mark I'm backing into roughly a 75 billion of loans that you guys looked at to get to that 287 pipeline. So my question is is all of that cannabis capital and that number seems big one when you look at it by being that you guys are one of the only lenders out there maybe it is not so big so just any comment.
Speaker Change: On that pipeline and any type of growth expectations on that.
Speaker Change: 287 that you guys could comment on.
Robyn Tannenbaum: So in terms of the active pipeline, remember, things come in and out over time. And our numbers are cumulative numbers. I think that these are cannabis deals, yes. They don't include ancillary outside of cannabis businesses. And in terms of action, I'd really go back to what Dan said and even what I said in my comments. And currently, we see a lot of volatility in the cannabis market. And in times like this, origination.
Speaker Change: So so in terms of the active pipeline remember things come in and out over time.
Speaker Change: And our numbers are cumulative numbers I think that these are cannabis Diaz yes.
Speaker Change: They don't include ancillary.
Speaker Change: Outside of the cannabis businesses and in terms of action I'd really go back to what Dan said and even what I said in my comments and currently we see a lot of volatility in the in the cannabis market.
Speaker Change: And in times like this originations.
Robyn Tannenbaum: you know, will most likely be muted, and given that we're going to be extremely selective, we just don't at this point feel that it's prudent to give a target. Got it. That's fair.
Speaker Change: We'll most likely be muted and given that we're going to be extremely selective.
Speaker Change: Just don't at this point and feel that it's prudent to give a target.
Robyn Tannenbaum: And if I could just throw one last one out there. With all the terrorist talk and uncertainty out there, are you guys hearing anything from your borrowers? Are they feeling any of the impact of terrorists from fertilizers or any other components that they need to source? So the typically you'll see in cannabis where you have the most exposure and cost of goods sold is in hardware and packaging. Some of that can be sourced stateside or in Mexico, but a decent amount is sourced from China. That's typically a low number, 3-4% of your cost of goods sold and weighted towards the hardware side of things.
Speaker Change: Got it that's fair, Matt if I could just throw one last one out there with.
Speaker Change: With all the tariff talk and uncertainty out there are you guys hearing anything from your borrowers are they are going to be the impact of tariffs from fertilizers or any other components.
Speaker Change: I need to source.
Speaker Change: So the typically youll seen cannabis, where you have the most exposure in cost of goods sold than hardware and packaging.
Speaker Change: That can be sore state side or in Mexico, but a decent amount of sourced from China.
Speaker Change: It's typically a low number three 4% of your cost of goods sold.
Speaker Change: And waited towards the hardware side of things.
Robyn Tannenbaum: Obviously, it's a bigger number when you have 145 or 200% tariffs, a lot more reasonable at the current level, but we aren't seeing much impact. I'd estimate that probably half of product is sourced stateside, half is sourced out of China. And that's the biggest area. Stuff like fertilizer or any other consumables within the grow are typically sourced stateside. This is a very valuable product that you sell for $2,000 a pound plus. You want to make sure that you don't have any problems in the grow given the sourcing of medium or the quality of the material and therefore people get it.
Speaker Change: So obviously, it's a bigger number when you have $145 or 200% tariffs a lot more reasonable.
Speaker Change: Current level, but we aren't seeing much impact I would estimate that probably half of product hit stores as source stateside half is sourced out of China.
Speaker Change: And that's the biggest area of stuff like fertilizer or any other consumables within the grow.
Speaker Change: Our typically sourced state side.
Speaker Change: This is a very valuable product that you sell for $2000 a pound plus you want to make sure that you don't have any problems in the grow given the sourcing of medium or the quality of the material and therefore people get it state side. So this is one of the few industries that <unk>.
Chris Muller: So this is, I think, one of the few industries that probably is going to see a pretty de minimis impact on the tariff side of things regardless of which way this trade war goes. Got it. Very helpful. Thanks for taking the question. Thank you. One moment for our next question.
Speaker Change: He is going to see a pretty de minimis impact on.
Speaker Change: On the tariff side of things, regardless of which way.
Speaker Change: The trade War goes.
Speaker Change: Got it very helpful. Thanks for taking my questions.
Speaker Change: Thank you one moment our next question.
Aaron Grey: And that will come from the line of Aaron Grey with Alliance Global Partners. Your line is open. I'm for Aaron Grey.
Aaron Grey: And that will come from the line of Aaron Grey with Alliance Global Partners. Your line is open.
Aaron Grey: Thank you for the questions. So I know you touched on the pipeline a little bit, but could you maybe offer a little more detail on the timing? You know, how we can think of the pipeline coming to fruition in the form of new originations? And secondarily, in terms of those deals, could you expect to the, or could you speak to the expected yields you're seeing? Has that come down? Or is it still at the portfolio average?
Speaker Change: On for Erinn, great. Thank you for the questions.
Speaker Change: So I know you touched on the pipeline a little bit, but could you maybe offer a little more detail on the timing.
Speaker Change: How we can think of the pipeline coming to fruition in the form of new originations and secondarily in terms of those deals could you expect to the or could you speak to the expected yields you are seeing is that come down or is it still at the portfolio average.
Daniel Neville: So I'd say we're not going to give any updates on timing. And I apologize that we're being vague in our originations, but our comments that we've made today, Dan, so we're not going to give updates on timing. But as we've done in the past, as we close deals, we will announce them.
Speaker Change: So I would say, we're not going to give any updates on timing and I apologize that we're being vague and originations, but our comments.
Speaker Change: Today's Dan So we're not going to give updates on timing, but as we've done in the past as we close deals we will announce them.
Daniel Neville: In terms of yields.
Daniel Neville: I'll pass it over to Dan. Yeah, so I think yields, certainly, I think, relative to, I would point towards recent history have ticked up, ticked up a bit, but I think we're, we're really focused here on moving up the quality curve and lending to proven operators and making sure that we We protect our shareholders capital in the underwrite. And so I think what you'll see is yields consistent, generally speaking on originations with deals that we've done in the recent past, while moving up the quality curve and with the borrowers that we lend capital.
Speaker Change: Terms of yields.
Speaker Change: I'll pass it over to Dan.
Speaker Change: Yes, so I think.
Yields certainly I think relative to <unk> I would point towards recent history have ticked up.
Speaker Change: Ticked up a bit, but I think where we're really focused here on moving up the quality curve and lending to proven operators and making sure that we.
Speaker Change: To protect our shareholders' capital and the underwrite and so I think what Youll see.
Speaker Change: Is yields.
Yields consist then generally speaking on originations with deals that we've done in the recent past.
Speaker Change: While moving up the quality curve and with the borrowers that we land capital too.
Operator: All righty, I'm showing no further questions at this time.
Speaker Change: Alrighty I'm showing no further questions at this time I would.
Daniel Neville: I would now like to turn the call back over to Mr. Dan Neville for any closing remarks. Thank you to everyone for joining today and have a nice day. Thank you for participating.
Speaker Change: I'd now like to turn the call back over to Mr. Dan novel for any closing remarks.
Dan novel: Thank you to everyone for joining today and have a nice day.
Dan novel: Thank you for participating. This concludes today's program you may now disconnect.
Operator: This concludes today's program. You may now disconnect.
Dan novel: Yeah.
Dan novel: Yeah.
Dan novel: [music].
Operator: Thanks for watching!