Good morning and welcome to AFC Gamma’s Earnings Conference Call for the Fourth Quarter and Fiscal Year ended December 31, 2023. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.

Good morning and thank you all for joining AFC Gamma’s earnings call for the fourth quarter and fiscal year ended December 31, 2023. I am joined this morning by Leonard Tannenbaum, our Executive Chairman; Daniel Neville, our Chief Executive Officer; Robyn Tannenbaum, our President; and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our January 31, 2024 press release and is posted on the Investor Relations portion of AFC Gamma’s website at afcgamma.com, along with our fourth quarter and fiscal year 2023 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, future market developments, anticipated portfolio yield and financial performance and projections in 2024 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to AFC Gamma’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. 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 AFC Gamma’s earnings release and investor presentation available on AFC Gamma’s website. The format for today’s call is as follows. Len and Dan will provide introductory remarks, an overview of our fourth quarter and full year performance as well as some strategic commentary. Brandon will summarize our financial results, and we will then open the lines for Q&A. With that, I will now turn the call over to our Executive Chairman, Leonard Tannenbaum.

Thank you. Good morning and welcome to AFC earnings call for the quarter and fiscal year ended December 31, 2023. I would like to thank everyone for joining us today to discuss our results. For the quarter ended December 31, 2023, AFC generated distributable earnings of $0.49 per basic weighted average share of common stock. As a reminder, distributable earnings is the primary metric the Board considers when declaring AFC’s quarterly dividend. The Board of Directors declared a $0.48 dividend per share for the December quarter, which was in line with the previous two quarters. Since going public, we have generated distributable earnings that have met or exceeded our dividend each quarter and paid out $5.54 per share in dividends, including paying out $2 per share during fiscal 2023. For the full year 2023, AFC paid out approximately 99% of its distributable earnings in the form of dividends. For the first quarter of 2024, the Board of Directors has declared a fourth consecutive $0.48 dividend, which will be paid on April 15 to shareholders as of record March 31, 2024. Since Dan’s appointment as CEO in mid-November, the team has been very busy as we continue to evaluate our portfolio with Dan’s operating lens and bottoms-up investment approach. I am pleased with the progress the team has made on some of our underperforming assets. As we have discussed 2 weeks ago, AFC will return to its exclusive focus on lending to the cannabis industry after the spin-off of our commercial real estate portfolio is complete. As a reminder, the commercial real estate portfolio will spin off into an independent, publicly traded REIT, Sunrise Realty Trust, which is expected to trade on the NASDAQ Exchange under the ticker symbol SUNS upon completion of the separation. We have decided to pursue this transaction because we believe that both AFC and SUNS will be better positioned to grow and realize their full potential as independent, pure-play capital providers in the cannabis and commercial real estate space, respectively. The separation will allow each company to focus on its respective portfolio, articulate their own clear investment thesis and have the flexibility to tailor their business strategies to best capture market opportunities within their specialization. We expect the spin-off to be completed by mid-2024, subject to SEC review as well as final approval by our Board of Directors. As Executive Chairman and the largest shareholder of both entities post spin-off, I am very excited about the future for AFC and SUNS. CRE debt markets today represent a significant opportunity to capitalize on market dislocations, precipitated by the rise in interest rates, declining liquidity and a pullback of regional banks from CRE lending. We are also seeing a large increase in CRE deal flow in the past few weeks. With that, I will pass it to Dan to discuss our AFC cannabis portfolio.

Thanks, Len. Good morning. I’m excited to be speaking to you for my first earnings call as CEO of AFC. It has been a busy and productive 4 months since I joined AFC as CEO and delve into our portfolio and future opportunities. Before turning to our portfolio, pipeline and the state of the industry, I wanted to take a minute to introduce myself to analysts and investors. I bring over 15 years of leadership experience in the areas of cannabis operations, M&A and portfolio management. Previously, I was at Ascend Wellness Holdings, a multistate, vertically integrated cannabis operator where I held various roles, including CFO and a stint at Interim CEO. I was one of the first employees at Ascend and have the valuable opportunity to help grow the company’s operation across 7 states to 2,200 employees and over $500 million in revenue. Prior to that, I was a Managing Director at SLS Capital, a special situations hedge fund. And before that, I was an investment banker at Credit Suisse. Turning to AFC. We are one of the leading debt providers of institutional capital to the cannabis industry, which is the growing $30 billion market with a limited supply of institutional capital. We are seeing our pipeline expand, mainly driven by what we call Cannabis 3.0 players. These are entrepreneurs that have founded businesses in cannabis or other industries, were successful and are now entering or reentering the cannabis industry. Many of these companies are building through a combination of organic growth and opportunistically acquiring distressed assets. We are excited to finance many of these operators that have clean capital stacks and are unburdened with debt, sale-leasebacks or legacy tax liabilities. As the March toward legalization continues, demand for capital will only increase. Between Ohio, Pennsylvania, Florida and Virginia,…

Thank you, Dan. We are pleased to report strong results in the fourth quarter and fiscal year 2023. Beginning with the quarterly results, for the quarter ended December 31, 2023, we generated net interest income of $16 million and distributable earnings of $10 million or $0.49 per basic weighted average common share and had a GAAP net loss of $9.2 million or $0.45 per basic weighted average common share. The difference between our distributable earnings of $10 million and our GAAP net loss of $9.2 million is mainly driven by an increase in our unrealized losses on loans held at fair value of $7.4 million and an increase in our CECL reserve of $12 million for the fourth quarter. On an annual basis, for the year ended December 31, 2023, we generated net interest income of $64.2 million and distributable earnings of $41.4 million or $2.04 per basic weighted average common share and had GAAP net income of $21 million or earnings of $1.02 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 represent 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 CECL; taxable REIT subsidiary income or loss, net of dividends; and other non-cash items recorded in net income or loss for the period. We ended the fourth quarter of 2023 with $388.3 million of principal outstanding spread across 12 borrowers. Subsequent to December 31, 2023, AFC committed $56.4 million, of which $48.9 million was funded across two commercial real estate mezzanine loans, and we continue to see attractive CRE deals and have an active pipeline of $701…

[Operator Instructions] Our first question comes from the line of Pablo Zuanic with Zuanic & Associates.

Congratulations on all the progress the company is making. Just regarding the comment I think you made in the prepared remarks about the regional banks pulling out of the industry. Can you give more color or context on that? On the one hand, we saw bank Needham getting more active in this space, some refinancing there. The Dales Report talked about First Citizens Bank, 19th largest bank, entering this space in terms of lending. I don’t know if there are sort of exceptions or more of a trend. If you can just give more color in terms of the competition you are seeing from the banking side. Thank you.

Yes. So, Pablo, thanks for the question. This is Dan. You are seeing a little bit more activity. Needham did come into the space. They were looking to grow their loan book ahead of their IPO transaction. Our understanding is that now that they have deployed some of the capital into the space, they are kind of taking a step back and digesting a bit. For the most part, Needham has been lending to larger public companies. Those companies often do not have the real estate coverage that we require for our REIT status. So, I still see very good opportunities, and we are not really running into some of the commercial banks like Needham or others that have played in the space. And the second thing I would say is that this is a $30 billion industry that’s sitting within a $100 billion industry between the legal and illicit market. And so as more and more states flip, there is going to be a lot more capital that is required. I was just thinking last night, North Carolina is a great example. That state is going to have 10 verticals, 13 million people. It’s a very attractive market and it probably implements a medical program sometime in the next year or 2 years. Those 10 verticals come with eight stores apiece. So, one vertical is $20 million for a grow and $2 million per store. That’s $36 million of capital multiplied by the 10 verticals. When we look at a state flipping and $360 million of capital – incremental capital demand, that seems like a pretty good opportunity. And I think there continues to be a mismatch between the supply of available institutional capital and the demand for that capital.

Thank you. That’s good color. And maybe as a follow-up, in terms of the – maybe for Len or Robyn, but maybe just more context about the pivot that you have made, right? A year ago, the idea was that you were exiting, diversifying to commercial real estate. And then now, of course, you are obviously doubling down on cannabis and hired Dan. What is it that you are seeing, right, that I guess made you change. On the one hand, we see more deflation, more licensing in some states, creating more competition, so tougher industry conditions. But of course, on the other – and no progress at the Federal level, but on the other hand, of course we are seeing more states going medical or going direct, right? But just remind us of why the change and I guess why the more apparently more positive view about industry trends that made you refocus on cannabis again? Thank you.

I think the positives that happened was Ohio going rec, Pennsylvania probably going rec, and really a very good experience that we had in Missouri with our borrowers and that’s really helped out a lot of the quality of the earnings. I am actually very excited about Georgia. I think Georgia is going to be a great state too. I think there is a number of other positive states in the horizon. And of course, where we are sitting in Florida where the Governor has changed his view after he has left the presidential race and started to support rec here, it’s years away, by the way. But that dynamic creates a lot of demand, as Dan sort of outlined. And so we see that. And plus you see the Cannabis 3.0 players, I have literally said this for six consecutive quarters. We are sitting – we are going to wait for the Cannabis 3.0, 2.0 was done. I think a lot of the legacy players have a lot of problems. We are happy to get the liquidations and exits that we did. We think we did a good job. Dan’s done a phenomenal job really from an operating lens, taking a look at these – the operating businesses, what they are worth and how they should be run. And that’s a very different approach. Maybe I should have done that a year or 2 years ago, but happy to have Dan here now with that approach. So, I am excited about cannabis, and I am equally excited about real estate. Look, our shareholders AFC are going to own about one-third of their stock in SUNS and SUNS will be spun out. And I am pretty excited about that too. The opportunity in real estate, I am a direct lender by background. I build a $5 billion direct lending industry. In direct lending – also direct-lending in real estate, direct lending in private equity is same things. The regionals are pulled back. They are taking lower LTCs and that opportunity set is going to be phenomenal for SUNS and we are excited about – I am excited about the opportunity set there and the cannabis. So, I think you have got two really great opportunities that are going to be led by two great leaders.

Thank you. That’s very helpful. Thank you.

That concludes today’s question-and-answer session. This concludes today’s conference call. Thank you for participating. You may now disconnect.