Good day, and welcome to the Advanced Flower Capital Q1 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] 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.

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 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. Replay information is included in our April 15, 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. Please refer to Advanced 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. 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. Today's call will begin with Robyn 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, 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. 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 space. As lenders, our 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 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. With that, I'll turn it over to Dan, who will discuss our 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. For the first quarter of 2025, AFC generated distributable earnings of $0.21 per basic weighted average share of common stock. 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. Before turning to our existing portfolio, I would like to highlight a recent transaction that we closed subsequent to the end of the quarter. In early April, we committed to a $14 million senior secured credit facility to subsidiaries of Standard Wellness Holdings. Standard Wellness is a privately held, multistate operator and intent 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 states and further diversifying our portfolio. Turning to our current portfolio management efforts. 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 this loan. 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. Lastly, we wanted to take a minute to touch on subsidiary of private company G, which is known as and operates as Justice Grown. We are currently engaged in three legal proceedings with Justice Grown entities related to enforcing certain rights under the credit facility in collection with -- in connection with the alleged defaults. We recently received a pre-discovery preliminary injunction in one of the actions barring us from exercising rights with respect to certain alleged defaults. 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. 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. We are laser-focused on unlocking value from underperforming loans and evaluating new lending opportunities that we are seeing. Now, I'll turn it over to Brandon to discuss our financial results in more detail.

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'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, 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 first quarter of 2025 with $366.3 million of principal outstanding spread across 17 loans. As of May 1, 2025, our portfolio consisted of $372.5 million of principal outstanding across 18 loans. 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, 2025, and May 1, 2025. 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. On May 2, 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. 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 6.5%. As of March 31, 2025, we had total assets of $321.7 million, total shareholder equity of $200.8 million, and a book value per share of $8.89. With that, I will now turn it back over to the operator to start the Q&A.

Thank you. [Operator Instructions] 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 million 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? And I'm sorry if it's on the press release, I didn't see it. Thanks.

No problem. Two main things to point out regarding the interest revenue. One is, in the fourth quarter of 2024, we did receive 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 $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 were the main drivers for the change.

Right. That's good. Thank you. That's good color. And then just -- I mean, obviously, the distributable earnings per share, $0.21 in the first quarter, your dividend is $0.23. I know you cannot give guidance, but how should we think about progression for the rest of the year in terms of net book growth, and whether distributable earnings can go over $0.23 in the next quarters?

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.

Thanks, Dan. And then, in terms of the dividend, as we've publicly stated in the past, the Board looks at the dividend policy, it's 85% to 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 15.

Right. Thank you. And then just in terms of your problem loans, I know you gave some color there. In the case of one company A, right, you said -- how much should we be assuming in terms of inflows from the proceeds of 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 difficult.

Yeah. I think as we discussed last quarter, Pablo, we are -- if there is one senior secured credit facility within this loan, AFC is a participant in that loan. But trying to bet on the timing of court processes and recommendations is really just outside of our scope and control. 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. And again, sorry, maybe you cannot 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. And the same question on company K. I understand there's only so much you can disclose, but what can we assume there in terms of timing and proceeds?

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. Thank you.

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. But again, speaking to timing, we cannot.

Right. And then, look, I understand in the case of Justice Grown, it's difficult to make comments, there's litigation going on, but 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? Thank you.

I'll turn it to Gabe for this one.

Yeah. 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. But just to be clear, in terms of -- you have cross-default provisions, right, between -- although a loan was made to New Jersey, you have access to a 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.

Okay. Thank you. That's all for me, Robyn. Thank you.

Thank you. One moment for our next question. And that will come from the line of Chris Muller with Citizens Capital Markets. Your line is open.

Hey, guys. Thanks for taking our questions. 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 $100 million opportunity you cite in the deck, does that assume a state-run model?

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 to 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 deck, that does not assume a state-run model when we ran those...

Correct.

Got it. That's helpful. 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 million 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 million that you guys could comment on?

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, originations 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. And then, if I could just put one last one out there. With all the tariff talk and uncertainty out there, are you guys hearing anything from your borrowers? Are they feeling any of the impact of tariffs on fertilizers or any other components that they need to source?

So, typically, you'll see in cannabis where you have the most exposure in 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. So, 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 stateside. 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 my questions.

Thank you. One moment for our next question. And that will come from the line of Aaron Grey with Alliance Global Partners. Your line is open.

[indiscernible] on for 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, 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?

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 stand. 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. In terms of yields, 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 a bit, but I think we are really focused here on moving up the quality curve and lending to proven operators and making sure that 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 to.

All righty. I'm showing no further questions at this time. 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. This concludes today's program. You may now disconnect.