UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31, 2021~~

June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ~~___________~~

__________

Commission File Number: 001-39995

AFC GAMMA, INC.

(Exact name of registrant as specified in its charter)


Maryland						85-1807125
(State or other jurisdiction of incorporation or organization)						~~85-1807125~~ (I.R.S. Employer Identification Number)

525 Okeechobee Blvd., Suite ~~1770,~~ 1650, West Palm Beach, FL33401

(Address of principal executive offices) (Zip Code)

(561) 510-2390

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	~~Trading Symbol(s)~~ AFCG	~~Name of each exchange on which registered~~ The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. ☐

Large accelerated filer ☐

☐

Accelerated filer ☐

☐

Non-accelerated filer ☒

☒

Smaller reporting company ☐

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.~~


Class			Outstanding at August 8, 2022
Common stock, $0.01 par value per share			~~Outstanding at May 11, 2021~~ ~~13,366,877~~ 19,857,872

Index

AFC GAMMA, INC.

TABLE OF CONTENTS

INDEX

~~Part I.~~	~~Financial Information~~
~~Item 1.~~Part I.		Financial Information
Item 1.		Financial Statements	1
		Consolidated Balance Sheets as of ~~March 31, 2021~~June 30, 2022 (unaudited) and December 31, ~~2020~~2021	1
		~~Statement~~Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 (unaudited)	2
		Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021 (unaudited)	2 3
		~~Statement~~Consolidated Statements of ~~Stockholders’~~S hare holders’ Equity for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 (unaudited)	3 4
		~~Statement~~Consolidated Statements of Cash Flows for the ~~three~~ six months ended ~~March 31,~~June 30, 2022 and 2021 (unaudited)	4 6
		Notes to Consolidated Financial Statements (unaudited)	5 7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 28
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	31 42
Item 4.		Controls and Procedures	34 45
Part II.		Other Information	35 46
Item 1.		Legal Proceedings	35 46
Item 1A.		Risk Factors	35 46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	35 46
Item 3.		Defaults Upon Senior Securities	36 46
Item 4.		Mine Safety Disclosures	36 46
Item 5.		Other Information	36 46
Item 6.		Exhibits	36

~~Table of Contents~~

Index

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AFC GAMMA, INC.

CONSOLIDATED BALANCE SHEETS


	As Of							As of
	March 31, 2021			December 31, 2020				June 30, 2022		December 31, 2021
	(unaudited)							(unaudited)
Assets							Assets
Loans held for investment at fair value (cost of $48,833,111 and $46,994,711 at March 31, 2021 and December 31, 2020, respectively, net)	$	50,252,049		$	48,558,051
Loans held for investment at fair value (cost of $93,940,582 and $74,913,157 at June 30, 2022 and December 31, 2021, respectively, net)							Loans held for investment at fair value (cost of $93,940,582 and $74,913,157 at June 30, 2022 and December 31, 2021, respectively, net)	$	95,199,132	$	77,096,319
Debt securities available for sale held at fair value (cost of $16,050,000 at December 31, 2021)							Debt securities available for sale held at fair value (cost of $16,050,000 at December 31, 2021)	—		15,881,250

Loans held for investment at carrying value		39,152,936			31,837,031
Loan receivable at carrying value		3,240,855			3,348,263
Loans held for investment at carrying value, net							Loans held for investment at carrying value, net	315,882,044		257,163,496
Loan receivable at carrying value, net							Loan receivable at carrying value, net	2,220,279		2,530,588
Current expected credit loss reserve		(248,317	)		(404,860	)	Current expected credit loss reserve	(5,018,072)		(2,431,558)
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve		42,145,474			34,780,434		Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve	313,084,251		257,262,526

Cash and cash equivalents		126,793,972			9,623,820		Cash and cash equivalents	45,583,533		109,246,048
Interest receivable		1,205,304			927,292		Interest receivable	4,797,315		4,412,938
Prepaid expenses and other assets		1,109,038			72,095		Prepaid expenses and other assets	619,973		949,279
Total assets	$	221,505,837		$	93,961,692		Total assets	$	459,284,204	$	464,848,360

Liabilities							Liabilities
Interest reserve	$	3,243,484		$	1,325,750		Interest reserve	$	5,186,615	$	4,782,271
Accrued interest							Accrued interest	958,333		991,840
Due to affiliate							Due to affiliate	6,140		—
Dividends payable							Dividends payable	11,120,409		8,221,406
Current expected credit loss reserve		283,180			60,537		Current expected credit loss reserve	594,840		683,177
Accrued management fees		876,662			222,127
Accrued management and incentive fees							Accrued management and incentive fees	4,201,567		2,823,044
Accrued direct administrative expenses		365,567			550,671		Accrued direct administrative expenses	1,205,793		1,324,457
Accounts payable and other liabilities		404,939			154,895		Accounts payable and other liabilities	986,728		1,528,980
Senior notes payable, net							Senior notes payable, net	96,823,414		96,572,656
Line of credit payable to affiliate, net							Line of credit payable to affiliate, net	—		74,845,355
Total liabilities		5,173,832			2,313,980		Total liabilities	121,083,839		191,773,186
Commitments and contingencies (Note 10)							Commitments and contingencies (Note 10)	0		0
Stockholders' Equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at March 31, 2021 and December 31, 2020 and 125 shares issued and outstanding at March 31, 2021 and December 31, 2020		1			1
Common stock, par value $0.01 per share, 25,000,000 and 15,000,000 shares authorized at March 31, 2021 and December 31, 2020, respectively, and 13,366,877 and 6,179,392 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		133,669			61,794
Shareholders’ equity							Shareholders’ equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at June 30, 2022 and December 31, 2021 and 125 shares issued and outstanding at June 30, 2022 and December 31, 2021							Preferred stock, par value $0.01 per share, 10,000 shares authorized at June 30, 2022 and December 31, 2021 and 125 shares issued and outstanding at June 30, 2022 and December 31, 2021	1		1
Common stock, par value $0.01 per share, 50,000,000 and 25,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively, and 19,857,872 and 16,442,812 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively							Common stock, par value $0.01 per share, 50,000,000 and 25,000,000 shares authorized at June 30, 2022 and December 31, 2021, respectively, and 19,857,872 and 16,442,812 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	197,933		163,866
Additional paid-in-capital		216,504,726			91,068,197		Additional paid-in-capital	339,568,041		274,172,934
Accumulated earnings (deficit)		(306,391	)		517,720
Total stockholders' equity		216,332,005			91,647,712
Accumulated other comprehensive income (loss)							Accumulated other comprehensive income (loss)	—		(168,750)
Accumulated (deficit) earnings							Accumulated (deficit) earnings	(1,565,610)		(1,092,877)
Total shareholders’ equity							Total shareholders’ equity	338,200,365		273,075,174

Total liabilities and stockholders' equity	$	221,505,837		$	93,961,692
Total liabilities and shareholders’ equity							Total liabilities and shareholders’ equity	$	459,284,204	$	464,848,360

(See accompanying notes to the ~~Financial Statements)~~

consolidated financial statements)

~~Table of Contents~~

Index

AFC GAMMA, INC.

~~STATEMENT~~CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	For the three months ended March 31, 2021				Three months ended June 30,				Six months ended June 30,
	(unaudited)				2022		2021		2022		2021
Revenue				Revenue
Interest Income	$	4,685,005
Total revenue		4,685,005
Interest income				Interest income	$	21,651,207	$	8,748,519	$	40,287,060	$	13,433,524
Interest expense				Interest expense	(1,747,004)		—		(3,447,119)		—
Net interest income				Net interest income	19,904,203		8,748,519		36,839,941		13,433,524
Expenses				Expenses
Management and incentive fees, net (less rebate of $237,743)		876,662
General and administrative expense		462,518
Management and incentive fees, net (less rebate of $488,050, $182,707, $875,543 and $420,450, respectively)				Management and incentive fees, net (less rebate of $488,050, $182,707, $875,543 and $420,450, respectively)	4,201,568		2,078,871		8,048,781		2,955,533
General and administrative expenses				General and administrative expenses	1,177,437		706,865		2,321,881		1,169,383
Stock-based compensation		1,599,115		Stock-based compensation	117,397		11,457		1,107,420		1,610,572
Professional fees		135,453		Professional fees	293,311		194,594		692,679		330,047
Total expenses		3,073,748		Total expenses	5,789,713		2,991,787		12,170,761		6,065,535
Provision for current expected credit losses		(66,100	)	Provision for current expected credit losses	(1,593,048)		(645,786)		(2,498,177)		(711,886)
Change in unrealized gains / (losses) on loans at fair value, net		(144,402	)
Realized gains (losses) on sales of investments, net				Realized gains (losses) on sales of investments, net	—		—		450,000		—
Change in unrealized (losses) gains on loans at fair value, net				Change in unrealized (losses) gains on loans at fair value, net	(1,005,454)		(483,159)		(924,611)		(627,561)
Net income before income taxes		1,400,755		Net income before income taxes	11,515,988		4,627,787		21,696,392		6,028,542
Income tax expense		-		Income tax expense	164,315		—		182,599		—
Net income	$	1,400,755		Net income	$	11,351,673	$	4,627,787	$	21,513,793	$	6,028,542

Earnings per common share:				Earnings per common share:
Basic earnings per common share (in dollars per share)	$	0.20		Basic earnings per common share (in dollars per share)	$	0.58	$	0.34	$	1.10	$	0.58
Diluted earnings per common share (in dollars per share)	$	0.19		Diluted earnings per common share (in dollars per share)	$	0.57	$	0.34	$	1.10	$	0.57

Weighted average number of common shares outstanding:				Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding (in shares)		7,144,670		Basic weighted average shares of common stock outstanding (in shares)	19,715,749		13,457,536		19,518,964		10,318,542
Diluted weighted average shares of common stock outstanding (in shares)		7,485,048		Diluted weighted average shares of common stock outstanding (in shares)	19,811,594		13,775,246		19,614,809		10,636,252

(See accompanying notes to the ~~Financial Statements)~~

consolidated financial statements)

~~Table of Contents~~

Index

AFC GAMMA, INC.

~~STATEMENT~~CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~

~~For the three months ended March 31, 2021~~COMPREHENSIVE INCOME

(unaudited)

Preferred
Stock
      Common Stock
Additional Paid-
In-Capital

Accumulated
Earnings
(Deficit)

Total
Stockholders'
Equity

Shares Amount
Balance at December 31, 2020 $ 1 6,179,392 $ 61,794 $ 91,068,197 $ 517,720 $ 91,647,712
Issuance of common stock, net of offering cost
-

7,187,485

71,875

123,837,414
-
123,909,289

Stock-based compensation
-

-

-

1,599,115
-
1,599,115

Dividends declared and paid on common shares ($0.36 per share)
-

-

-

-

(2,224,866
)

(2,224,866
)
Net income - - -
-

1,400,755

1,400,755

Balance at March 31, 2021 (unaudited) $ 1 13,366,877 $ 133,669 $ 216,504,726 $ (306,391 ) $ 216,332,005


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net income	$	11,351,673	$	4,627,787	$	21,513,793	$	6,028,542

Other comprehensive income (loss):
Reversal of unrealized loss to recognized loss on debt securities available for sale held at fair value	—		—		168,750		—
Total other comprehensive income (loss)	—		—		168,750		—
Total comprehensive income	$	11,351,673	$	4,627,787	$	21,682,543	$	6,028,542

(See accompanying notes to the ~~Financial Statements)~~

consolidated financial statements)

~~Table of Contents~~

Index

AFC GAMMA, INC.

~~STATEMENT~~CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY

(unaudited)

For the three
months ended
March 31, 2021

Operating activities: (unaudited)
Net income $ 1,400,755
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities:
Provision for current expected credit losses
66,100

Change in unrealized gains / (losses) on loans at fair value, net
144,402

Accretion of deferred loan original issue discount and other discounts
(707,751
)
Stock-based compensation
1,599,115

PIK interest
(559,004
)
Changes in operating assets and liabilities:
Interest reserve
(82,266
)
Interest receivable
(278,012
)
Prepaid expenses and other assets
67,971

Accrued management fees, net
654,535

Accrued direct administrative expenses
(185,104
)
Accounts payable and other liabilities
250,044

Net cash provided by / (used in) operating activities 2,370,785

Cash flows from investing activities:
Issuance of and fundings on loans
(7,096,075
)
Proceeds from sales of Assigned Rights
103,302

Principal repayment of loans
107,717

Net cash provided by / (used in) investing activities (6,885,056 )

Cash flows from financing activities:
Proceeds from sale of common stock
127,003,125

Payment of offering costs
(3,093,836
)
Dividends paid
(2,224,866
)
Net cash provided by / (used in) financing activities 121,684,423

Change in cash, cash equivalents and restricted cash 117,170,152
Cash, cash equivalents and restricted cash, beginning of period 9,623,820
Cash, cash equivalents and restricted cash, end of period $ 126,793,972

Supplemental disclosure of non-cash financing and investing activity:
Interest reserve withheld from funding of loan $ 2,000,000
Sale of Assigned Rights $ 1,104,914

Supplemental information:
Interest paid during the period $ -
Income taxes paid during the period $ -


Three months ended June 30, 2022
	Preferred Stock		Common Stock			Additional Paid-In- Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Deficit)		Total Shareholders’ Equity
			Shares	Amount
Balance at March 31, 2022	$	1	19,742,940	$	196,784	$	338,102,982	$	—	$	(1,789,374)	$	336,510,393
Issuance of common stock, net of offering costs	—		114,932	1,149		1,347,662		—		—		1,348,811
Stock-based compensation	—		—	—		117,397		—		—		117,397
Dividends declared on common shares ($0.56 per share)	—		—	—		—		—		(11,120,409)		(11,120,409)
Dividends declared on preferred shares ($60 per share)	—		—	—		—		—		(7,500)		(7,500)
Net income	—		—	—		—		—		11,351,673		11,351,673
Balance at June 30, 2022	$	1	19,857,872	$	197,933	$	339,568,041	$	—	$	(1,565,610)	$	338,200,365


Three months ended June 30, 2021
	Preferred Stock		Common Stock			Additional Paid-In- Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Deficit)		Total Shareholders’ Equity
			Shares	Amount
Balance at March 31, 2021	$	1	13,366,877	$	133,669	$	216,504,726	$	—	$	(306,391)	$	216,332,005
Issuance of common stock, net of offering costs	—		2,750,000	27,500		52,544,886		—		—		52,572,386
Stock-based compensation	—		—	—		11,457		—		—		11,457
Dividends declared on common shares ($0.38 per share)	—		—	—		—		—		(5,079,413)		(5,079,413)
Dividends declared on preferred shares ($60 per share)	—		—	—		—		—		(7,500)		(7,500)
Net income	—		—	—		—		—		4,627,787		4,627,787
Balance at June 30, 2021	$	1	16,116,877	$	161,169	$	269,061,069	$	—	$	(765,517)	$	268,456,722

(See accompanying notes to the ~~Financial Statements)~~

consolidated financial statements)

~~Table of Contents~~

Index

AFC GAMMA, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)


Six months ended June 30, 2022
	Preferred Stock		Common Stock			Additional Paid-In- Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Deficit)		Total Shareholders’ Equity
			Shares	Amount
Balance at December 31, 2021	$	1	16,442,812	$	163,866	$	274,172,934	$	(168,750)	$	(1,092,877)	$	273,075,174
Issuance of common stock, net of offering costs	—		3,406,764	34,067		64,287,687		—		—		64,321,754
Stock-based compensation	—		8,296	—		1,107,420		—		—		1,107,420
Dividends declared on common shares ($1.11 per share)	—		—	—		—		—		(21,979,026)		(21,979,026)
Dividends declared on preferred shares ($60 per share)	—		—	—		—		—		(7,500)		(7,500)
Other comprehensive income (loss)	—		—	—		—		168,750		—		168,750
Net income	—		—	—		—		—		21,513,793		21,513,793
Balance at June 30, 2022	$	1	19,857,872	$	197,933	$	339,568,041	$	—	$	(1,565,610)	$	338,200,365


Six months ended June 30, 2021
	Preferred Stock		Common Stock			Additional Paid-In- Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Deficit)		Total Shareholders’ Equity
			Shares	Amount
Balance at December 31, 2020	$	1	6,179,392	$	61,794	$	91,068,197	$	—	$	517,720	$	91,647,712
Issuance of common stock, net of offering costs	—		9,937,485	99,375		176,382,300		—		—		176,481,675
Stock-based compensation	—		—	—		1,610,572		—		—		1,610,572
Dividends declared on common shares ($0.74 per share)	—		—	—		—		—		(7,304,279)		(7,304,279)
Dividends declared on preferred shares ($60 per share)	—		—	—		—		—		(7,500)		(7,500)
Net income	—		—	—		—		—		6,028,542		6,028,542
Balance at June 30, 2021	$	1	16,116,877	$	161,169	$	269,061,069	$	—	$	(765,517)	$	268,456,722

(See accompanying notes to the consolidated financial statements)

Index

AFC GAMMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six months ended June 30,
	2022		2021
Operating activities:
Net income	$	21,513,793	$	6,028,542
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for current expected credit losses	2,498,177		711,886
Realized (gains) losses on sale of investments, net	(450,000)		—
Change in unrealized losses (gains) on loans at fair value, net	924,611		627,561
Accretion of deferred loan original issue discount and other discounts	(8,337,513)		(2,275,032)
Amortization of deferred financing costs	507,883		—
Stock-based compensation	1,107,420		1,610,572
Payment-in-kind interest	(3,475,182)		(1,267,093)
Changes in operating assets and liabilities
Interest receivable	(384,377)		(223,377)
Prepaid expenses and other assets	226,826		(116,905)
Interest reserve	404,344		(702,887)
Accrued interest	(33,507)		—
Accrued management and incentive fees, net	1,378,523		1,856,744
Accrued direct administrative expenses	(118,664)		(19,732)
Accounts payable and other liabilities	(536,112)		1,265,608
Net cash provided by (used in) operating activities	15,226,222		7,495,887

Cash flows from investing activities:
Issuance of and fundings on loans	(103,799,812)		(76,918,926)
Proceeds from sales of Assigned Rights	—		2,313,130
Proceeds from sales of loans	10,600,000		—
Sale of available-for-sale debt securities	15,900,000		—
Principal repayment of loans	28,176,844		12,921,065
Net cash provided by (used in) investing activities	(49,122,968)		(61,684,731)

Cash flows from financing activities:
Proceeds from sale of common stock	65,971,445		180,277,500
Payment of offering costs - equity offering	(1,649,691)		(3,795,825)
Dividends paid to common and preferred shareholders	(19,087,523)		(7,311,779)
Repayment on the line of credit	(75,000,000)		—
Net cash provided by (used in) financing activities	(29,765,769)		169,169,896

Net (decrease) increase in cash and cash equivalents	(63,662,515)		114,981,052
Cash and cash equivalents, beginning of period	109,246,048		9,623,820
Cash and cash equivalents, end of period	$	45,583,533	$	124,604,872

Supplemental disclosure of non-cash activity:
Interest reserve withheld from funding of loans	$	—	$	4,925,000
OID withheld from funding of loans	$	4,682,675	$	8,075,730
Change in other comprehensive income (loss) during the period	$	168,750	$	—
Dividends declared and not yet paid	$	11,120,409	$	—

Supplemental information:
Interest paid during the period	$	2,972,743	$	—
Income taxes paid during the period	$	40,588	$	—

(See accompanying notes to the consolidated financial statements)

Index

AFC GAMMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of ~~March 31, 2021~~June 30, 2022

(unaudited)

1.	~~ORGANIZATION~~

1. ORGANIZATION

AFC Gamma, Inc. (the “Company” or “AFCG”) is an institutional lender to the cannabis industry that was founded in July 2020 by a ~~commercial real estate (“CRE”) finance company primarily engaged~~veteran team of investment professionals. The Company originates, structures, underwrites, and invests in ~~originating, structuring, and underwriting~~ senior secured loans and other types of ~~loans. The Company was formed~~loans and ~~commenced operations on July 31, 2020.~~ debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in March 2021. The Company is externally managed by AFC Management, LLC ~~(“AFC Management” or the~~(the Company’s “Manager”), a Delaware limited liability company, pursuant to the terms of ~~a management agreement~~the Amended and Restated Management Agreement, dated March 10, 2022 (as amended, the “Management Agreement”).

The Company’s wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), a Delaware limited liability company, operates as a taxable real estate investment trust subsidiary (a “TRS”). TRS1 began operating in July 2021, and the financial statements of TRS1 have been consolidated within the Company’s consolidated financial statements beginning with the quarter ended September 30, 2021.

The Company operates as ~~one~~1 operating segment and is primarily focused on financing senior secured loans and other types of loans ~~for established~~to cannabis industry operators in states where medical ~~and /or adult use~~and/or adult-use cannabis is legal. These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers.

The Company ~~intends to elect~~has elected to be taxed as a real estate investment trust (“REIT”) for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2020. The Company generally will not be subject to United States federal income taxes on its REIT taxable income as long as it annually distributes all of its REIT taxable income prior to the deduction for dividends paid to ~~stockholders~~shareholders and complies with various other requirements as a REIT.

2.	~~SIGNIFICANT ACCOUNTING POLICIES~~

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements ~~and the related management's discussion and analysis of financial condition~~ and results of operations included in the ~~Company's final prospectus relating to our IPO~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the ~~Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”) on March 19, 2021 (the “Final Prospectus”).~~

SEC.

Refer to Note 2 to the Company’s ~~financial statements in the Final Prospectus~~Annual Report on Form 10-K for a description of the Company’s significant accounting policies. The Company has included ~~disclosure~~disclosures below regarding basis of presentation and other accounting policies that (i) are required to be disclosed quarterly, (ii) have material changes or ~~(ii)~~(iii) the Company views as critical as of the date of this report.

Basis ofPresentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared on the accrual basis of accounting in conformity with ~~United States~~ generally accepted accounting principles in the United States (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information. These unaudited interim consolidated financial statements reflect all adjustments ~~and reclassifications~~ that, in the opinion of management, are considered necessary for a fair statement of the ~~balance sheets, statement~~Company’s results of operations ~~statement~~and financial condition as of ~~stockholders’ equity,~~ and ~~statement of cash flows~~ for the periods presented.

The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, ~~2021.~~2022.

Investment in Marketable Securities

Marketable debt securities in the Company’s portfolio are recorded at fair value and unrealized gains or losses are excluded from net income on the consolidated statement of operations and reported as a component of accumulated other comprehensive income within shareholders’ equity.

Index

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include the valuation of ~~investments.~~loans held for investment at fair value and current expected credit losses (“CECL”).

The spread of a novel strain of coronavirus (“COVID-19”) has caused significant business disruptions in the United States beginning in the first quarter of 2020 and has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as quarantines, shelter-in-place or total lock-down orders and business imitations and shutdowns (subject to exceptions for certain “essential” operations and businesses). Over the course of the ~~COVID-19~~coronavirus (“COVID-19”) pandemic, medical cannabis companies have been deemed “essential” by 29almost all states ~~administering shelter-in-place orders~~with legalized cannabis and ~~adult use cannabis has been deemed “essential” in eight of those states.~~stay-at-home orders. Consequently, the impact of the COVID-19 pandemic and the related regulatory and private sector response on our financial and operating results for the ~~period~~ periods ended ~~March 31,~~June 30, 2022 and 2021 was somewhat mitigated as all of our borrowers were permitted to continue to operate during this pandemic. Regardless, the full extent of the economic impact of the business disruptions caused by COVID-19 is uncertain. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving, and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the regulated cannabis industry. Although ~~some~~most of these measures have been lifted or scaled back, ~~a recent resurgence~~surges of COVID-19 in certain parts of the world, including the United States, have resulted and may in the future result in the re-imposition of certain restrictions and may lead to more restrictions to reduce the spread of COVID-19. The ~~extent of any~~full effect that these disruptions may have on the operations and financial performance of the Company will depend on future developments, including possible impacts on the performance of the Company’s loans, general business activity, and ability to generate revenue, which cannot be determined.

~~Table of Contents~~

Recent Accounting Pronouncements

In March 2020, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Updated (“ASU”)~~ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company ~~is currently evaluating~~does not believe the ~~impact~~adoption of ~~adopting~~ this ASU will have a material impact on its consolidated financial statements.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. ~~2021-01is~~2021-01 is effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. ~~The amendments~~They do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship ~~(including~~including periods after December 31, ~~2022).~~2022. The Company is currently evaluating the impact, if any, of this ASU on its consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, which is an update to clarify that an entity should reevaluate whether a callable debt security is within the scope of 310-20-35-33 for each reporting period. ASU No. 2020-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, the amendments in ASU No. 2020-08 are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted for all other entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. All entities should apply the amendments in this update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company has adopted this new standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial statements.

~~Table of Contents~~

3.	3. LOANS HELD FOR INVESTMENT AT FAIR VALUE

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company’s portfolio included ~~four~~3 loans held at fair value. The aggregate originated commitment under these loans was approximately ~~$62.4~~$96.2 million and ~~$59.9~~$75.9 million, respectively, and outstanding principal was approximately ~~$52.2~~$96.4 million and ~~$50.8~~$77.6 million, ~~respectively,~~ as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020.~~2021, respectively. For the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2022, the Company funded approximately ~~$1.0~~$17.3 million of ~~outstanding principal.~~additional principal and had no repayments. As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020, approximately 0% and 6.0%, respectively,~~2021, none of the Company’s loans held at fair value ~~have~~had floating interest rates. As of December 31, 2020, these floating rates were subject to LIBOR floors, with a weighted average floor of 2.5%, calculated based on loans with LIBOR floors. References to LIBOR or “L” are to 30-day LIBOR (unless otherwise specifically stated).

Index

The following tables summarize the Company’s loans held at fair value as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~2021:


	As of June 30, 2022
	Fair Value (1)		Carrying Value (2)		Outstanding Principal (2)		Weighted Average Remaining Life (Years) (3)

Senior term loans	$	95,199,132	$	93,940,582	$	96,382,983	1.7
Total loans held at fair value	$	95,199,132	$	93,940,582	$	96,382,983	1.7

	As of March 31, 2021
	Fair Value ⁽²⁾		Carrying Value ⁽¹⁾		Outstanding Principal ⁽¹⁾		Weighted Average Remaining Life (Years)⁽³⁾			As of December 31, 2021
										Fair Value (1)		Carrying Value (2)		Outstanding Principal (2)		Weighted Average Remaining Life (Years) (3)
Senior Term Loans	$	50,252,049	$	48,833,111	$	52,212,608		3.1

Senior term loans									Senior term loans	$	77,096,319	$	74,913,157	$	77,630,742	2.2
Total loans held at fair value	$	50,252,049	$	48,833,111	$	52,212,608		3.1	Total loans held at fair value	$	77,096,319	$	74,913,157	$	77,630,742	2.2

As of December 31, 2020

Fair Value ⁽²⁾

Carrying Value ⁽¹⁾

Outstanding
Principal ⁽¹⁾

Weighted Average
Remaining Life
(Years)⁽³⁾

Senior Term Loans $ 48,558,051 $ 46,994,711 $ 50,831,235 3.3
Total loans held at fair value $ 48,558,051 $ 46,994,711 $ 50,831,235 3.3

(1)Refer to Note 14 to the Company's unaudited consolidated financial statements.

~~(1)~~

~~The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs.~~

(2)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount (“OID”) and loan origination costs.

~~(2)~~

~~Refer to Footnote 14.~~

~~(3)~~

~~Weighted average remaining life is calculated based on the fair value of the loans as of March 31, 2021 and December 31, 2020.~~

(3)Weighted average remaining life is calculated based on the fair value of the loans as of June 30, 2022 and December 31, 2021.

The following table presents changes in loans held at fair value as of and for the ~~three~~six months ended ~~March 31, 2021:~~June 30, 2022:

Principal
Original Issue
Discount

Unrealized Gains
/ (Losses)
Fair Value

Total loans held at fair value at December 31, 2020 $ 50,831,235 $ (3,836,524 ) $ 1,563,340 $ 48,558,051
Change in unrealized gains / (losses) on loans at fair value, net - - (144,402 ) (144,402 )
New fundings 992,000 (142,982 ) - 849,018
Accretion of original issue discount - 600,009 - 600,009
PIK Interest 389,373 - - 389,373
Total loans held at fair value at March 31, 2021 $ 52,212,608 $ (3,379,497 ) $ 1,418,938 $ 50,252,049


	Principal		Original Issue Discount		Unrealized Gains (Losses)		Fair Value

Total loans held at fair value at December 31, 2021	$	77,630,742	$	(2,717,584)	$	2,183,161	$	77,096,319
Change in unrealized (losses) gains on loans at fair value, net	—		—		(924,611)		(924,611)
New fundings	17,285,000		(429,275)		—		16,855,725
Accretion of original issue discount	—		704,458		—		704,458
PIK interest	1,467,241		—		—		1,467,241
Total loans held at fair value at June 30, 2022	$	96,382,983	$	(2,442,401)	$	1,258,550	$	95,199,132

A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of ~~March 31, 2021~~June 30, 2022 is as follows:


	Collateral Location	Collateral Type (1)	Fair Value (2)		Carrying Value (3)		Outstanding Principal (3)		Interest Rate			Maturity Date (4)	Payment Terms (5)

Private Co. A	AZ, MI, MD, MA	C, D	$	79,320,829	$	78,314,293	$	80,301,694	15.5	%	(6)	5/8/2024	P/I
Public Co. A	NV	C	3,009,582		3,069,437		3,069,437		14.0	%	(7)	1/26/2023	I/O
Private Co. B	MI	C	12,868,721		12,556,852		13,011,852		17.0	%	(8)	9/1/2023	P/I
Total loans held at fair value			$	95,199,132	$	93,940,582	$	96,382,983

Collateral Location
Collateral
Type ⁽⁹⁾

Fair Value ⁽²⁾

Carrying
Value ⁽¹⁾

Outstanding
Principal ⁽¹⁾

Interest
Rate

Maturity Date ⁽³⁾

Payment
Terms ⁽⁴⁾

Private Co. A AZ, MI, MD, MA C , D
$ 32,834,697 $ 32,384,888 $ 34,672,331 17.0 %
⁽⁵⁾
5/8/2024 P/I
Private Co. B MI C
2,495,922 2,290,381 2,548,159 17.0 %
⁽⁶⁾
9/1/2023 P/I

Public Co. A NV C
2,874,629 2,840,108 2,945,317 14.0 %
⁽⁷⁾
12/21/2021 I/O

Sub. Of Public Co. C FL C
12,046,801 11,317,734 12,046,801 18.0 %
⁽⁸⁾
2/18/2025 P/I

Total loans held at fair value $ 50,252,049 $ 48,833,111 $ 52,212,608
(1)C = Cultivation Facilities, D = Dispensary/Retail Facilities.

(2)Refer to Note 14 to the Company’s unaudited consolidated financial statements.

Index

7(3)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of OID and loan origination costs.

(4)Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.

~~Table of Contents~~

~~(1)~~

~~The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount (“OID”) and loan origination costs.~~

~~(2)~~

~~Refer to Footnote 14.~~

~~(3)~~

Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.

~~(4)~~

~~I/O = interest only, P/I = principal and interest. P/I loans may include interest only periods for a portion of the loan term.~~

~~(5)~~

~~Base interest rate of 13% and payment-in-kind (“PIK”) interest rate of 4%.~~

~~(6)~~

~~Base interest rate of 13% and PIK interest rate of 4%.~~

~~(7)~~

~~Base interest rate of 12% and PIK interest rate of 2%.~~

~~(8)~~

Loan to Subsidiary of Public Company C is a $15,000,000 aggregate loan commitment with an initial funding of $3,000,000 at a base interest rate of 13.5% and PIK interest rate of 3% and subsequent advances of $9,000,000 at a base interest rate of 19%. The weighted average interest rate is 18.0% at March 31, 2021.

~~(9)~~

~~C = Cultivation Facilities, D = Dispensaries~~

4.	~~LOANS HELD FOR INVESTMENT AT CARRYING VALUE~~

(5)I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term.

(6)Base weighted interest rate of 12.8% and payment-in-kind (“PIK”) interest rate of 2.7%.

(7)Base interest rate of 10% and PIK interest rate of 4%.

(8)Base interest rate of 13% and PIK interest rate of 4%.

4. LOANS HELD FOR INVESTMENT AT CARRYING VALUE

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company’s portfolio included ~~four~~9 and ~~three~~12 loans, respectively, held at carrying value. The aggregate originated commitment amount under these loans was approximately ~~$65~~$383.0 million and ~~$44~~$324.3 million, respectively, and outstanding principal was approximately ~~$42.9~~$326.2 million and ~~$33.9~~$270.8 million, ~~respectively,~~ as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020. During~~2021, respectively. For the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2022, the Company funded approximately ~~$8.9~~$116.2 million of outstanding principal. As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, approximately ~~49%~~38% and ~~35%~~48%, respectively, of the Company’s loans held at carrying value have floating interest rates. ~~These~~As of June 30, 2022, these floating benchmark rates ~~are~~include one-month LIBOR subject to ~~LIBOR floors, with~~ a weighted average floor of 1%1.0% and 1%quoted at 1.787%, ~~respectively, calculated based on loans with LIBOR floors. References~~one-month Secured Overnight Financing Rate (“SOFR”) subject to ~~LIBOR or “L” are~~a weighted average floor of 1.0% and quoted at 1.686% and U.S. Prime Rate subjected to ~~30-day LIBOR (unless otherwise specifically stated)~~a weighted average floor of 4.0% quoted at 4.750%.

The following tables summarize the Company’s loans held at carrying value as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~2021:


	As of June 30, 2022
	Outstanding Principal (1)		Original Issue Discount		Carrying Value (1)		Weighted Average Remaining Life (Years) (2)

Senior term loans	$	326,181,229	$	(10,299,185)	$	315,882,044	2.9
Total loans held at carrying value	$	326,181,229	$	(10,299,185)	$	315,882,044	2.9

	As of March 31, 2021
	Outstanding Principal ⁽¹⁾		Original Issue Discount			Carrying Value ⁽¹⁾		Weighted Average Remaining Life (Years)⁽²⁾			As of December 31, 2021
	��										Outstanding Principal (1)		Original Issue Discount		Carrying Value (1)		Weighted Average Remaining Life (Years) (2)
Senior Term Loans	$	42,940,850	$	(3,787,914	)	$	39,152,936		4.5

Senior term loans										Senior term loans	$	270,841,715	$	(13,678,219)	$	257,163,496	3.4
Total loans held at carrying value	$	42,940,850	$	(3,787,914	)	$	39,152,936		4.5	Total loans held at carrying value	$	270,841,715	$	(13,678,219)	$	257,163,496	3.4

As of December 31, 2020

Outstanding
Principal ⁽¹⁾

Original Issue
Discount

Carrying
Value ⁽¹⁾

Weighted Average
Remaining Life
(Years)⁽²⁾

Senior Term Loans $ 33,907,763 $ (2,070,732 ) $ 31,837,031 4.7
Total loans held at carrying value $ 33,907,763 $ (2,070,732 ) $ 31,837,031 4.7

~~(1)~~

~~The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount and loan origination costs.~~

(1)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.

~~(2)~~

~~Weighted average remaining life is calculated based on the carrying value of the loans as of March 31, 2021 and December 31, 2020.~~

(2)Weighted average remaining life is calculated based on the carrying value of the loans as of June 30, 2022 and December 31, 2021.

~~Table of Contents~~

Index

The following table presents changes in loans held at carrying value as of and for the ~~three~~six months ended ~~March 31, 2021:~~June 30, 2022:

Principal
Original Issue
Discount
Carrying Value

Total loans held at carrying value at December 31, 2020 $ 33,907,763 $ (2,070,732 ) $ 31,837,031
New Fundings 8,863,455 (1,824,614 ) 7,038,841
Accretion of original issue discount - 107,432 107,432
PIK Interest 169,632 169,632
Total loans held at carrying value at March 31, 2021 $ 42,940,850 $ (3,787,914 ) $ 39,152,936


	Principal		Original Issue Discount		Carrying Value

Total loans held at carrying value at December 31, 2021	$	270,841,715	$	(13,678,219)	$	257,163,496
New fundings	116,200,972		(4,253,401)		111,947,571
Accretion of original issue discount	—		7,632,435		7,632,435
Loan repayments	(52,014,211)		—		(52,014,211)
Sale of loans	(10,000,000)		—		(10,000,000)
PIK interest	1,981,755		—		1,981,755
Loan amortization payments	(829,002)		—		(829,002)
Total loans held at carrying value at June 30, 2022	$	326,181,229	$	(10,299,185)	$	315,882,044

A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of ~~March 31, 2021~~June 30, 2022 is as follows:


	Collateral Location	Collateral Type (1)	Outstanding Principal (2)		Original Issue Discount		Carrying Value (2)		Interest Rate			Maturity Date (3)	Payment Terms (4)

Private Co. C	PA	C, D	$	24,534,371	$	(658,414)	$	23,875,957	17.8	%	(5)	12/01/2025	P/I
Sub. of Private Co. G	NJ	C, D	55,349,240		(2,089,607)		53,259,633		14.9	%	(6)	05/01/2026	P/I
Public Co. F	AR, AZ, IL, FL, NV, OH, MA, MI, MD, NV	C, D	86,600,000		(1,184,533)		85,415,467		8.6	%	(7)	05/30/2023	I/O
Sub. of Private Co. H	IL	C	5,781,250		(66,732)		5,714,518		15.0	%	(8)	05/11/2023	I/O
Private Co. K	MA	C, D	9,730,000		(965,656)		8,764,344		13.7	%	(9)	05/03/2027	P/I
Private Co. I	MD	C, D	10,661,155		(189,629)		10,471,526		16.3	%	(10)	08/01/2026	P/I
Private Co. J	MO	C	23,525,213		(623,185)		22,902,028		17.8	%	(11)	09/01/2025	P/I
Sub. of Public Co. H	IA, IL, MI, NJ, PA	C, D	60,000,000		(2,057,143)		57,942,857		9.8	%	(12)	01/01/2026	I/O
Private Co. L	MO, NJ, OH	C, D	50,000,000		(2,464,286)		47,535,714		12.0	%	(13)	05/01/2026	P/I
Total loans held at carrying value			$	326,181,229	$	(10,299,185)	$	315,882,044

Collateral Location
Collateral
Type ⁽⁸⁾

Outstanding
Principal ⁽¹⁾

Original Issue
Discount

Carrying
Value ⁽¹⁾

Interest
Rate

Maturity Date ⁽²⁾

Payment
Terms ⁽³⁾

Private Co. C PA C , D
$ 13,895,465 $ (807,869 ) $ 13,087,596 17.0 %
⁽⁴⁾
12/1/2025 P/I

Private Co. D OH, AR D

12,045,385 (983,237 ) 11,062,148 15.0 %
⁽⁵⁾
1/1/2026 P/I

Sub. of Public Co. D PA C
10,000,000 (172,194 ) 9,827,806 12.9 %
⁽⁶⁾
12/18/2024 I/O

Private Co. E OH C , D

7,000,000 (1,824,614 ) 5,175,386 17.0 %
⁽⁷⁾
4/1/2026 P/I

Total loans held at carry value $ 42,940,850 $ (3,787,914 ) $ 39,152,936

(1)C = Cultivation Facilities, D = Dispensary/Retail Facilities.

~~(1)~~

~~The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs.~~

(2)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.

~~(2)~~

(3)Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.

~~(3)~~

~~I/O = interest only, P/I = principal and interest. P/I loans may include interest only periods for a portion of the loan term.~~

(4)I/O = interest-only, P/I = principal and interest. P/I loans may include interest-only periods for a portion of the loan term.

~~(4)~~

~~Base interest rate of 12% plus LIBOR (LIBOR floor of 1%) and PIK interest rate of 4%.~~

(5)Base interest rate of 9.0% plus Prime (Prime floor of 4.0%) and PIK interest rate of 4.0%.

~~(5)~~

~~Base interest rate of 13% and PIK interest rate of 2%.~~

(6)Base weighted average interest rate of 11.5% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 1.8%.

~~(6)~~

~~Base interest rate of 12.9%.~~

(7)Base weighted average interest rate of 8.6%.

~~(7)~~

~~Base interest rate of 12% plus LIBOR (LIBOR floor of 1%) and PIK interest rate of 4%.~~

(8)Base interest rate of 15.0%.

~~(8)~~

~~C = Cultivation Facilities, D = Dispensaries~~

(9)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%)

(10)Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.5%.

(11)Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 4.0%.

(12)Base interest rate of 9.8%.

(13)Base interest rate of 12.0%.

Index

5. LOAN RECEIVABLE AT CARRYING VALUE

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company’s portfolio included ~~one~~1 loan receivable at carrying value. The originated commitment under this loan was approximately $4$4.0 million and outstanding principal was approximately ~~$3.2~~$2.2 million and ~~$3.4~~$2.5 million as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, respectively. During the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2022, the Company received repayments of ~~$0.1~~approximately $0.3 million of outstanding principal.

The following table presents changes in loans receivable as of and for the ~~three~~six months ended ~~March 31, 2021:~~June 30, 2022:

	Principal			Original Issue Discount			Carrying Value
											Principal		Original Issue Discount		Carrying Value
Total loans receivable at carrying value at December 31, 2020	$	3,352,176		$	(3,913	)	$	3,348,263

Total loan receivable at carrying value at December 31, 2021										Total loan receivable at carrying value at December 31, 2021	$	2,533,266	$	(2,678)	$	2,530,588
Principal repayment of loans		(107,717	)		-			(107,717	)	Principal repayment of loans	(337,114)		—		(337,114)
Accretion of original issue discount		-			309			309		Accretion of original issue discount	—		618		618
Total loans receivable at carrying value at March 31, 2021	$	3,244,459		$	(3,604	)	$	3,240,855
PIK interest										PIK interest	26,187		—		26,187
Total loan receivable at carrying value at June 30, 2022										Total loan receivable at carrying value at June 30, 2022	$	2,222,339	$	(2,060)	$	2,220,279

6. CURRENT EXPECTED CREDIT LOSSES

~~Table of Contents~~

6.	~~CURRENT EXPECTED CREDIT LOSSES~~

The Company estimates its current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”) using a model that considers multiple datapoints and methodologies that may include the likelihood of default and expected loss given default for each individual loan, discounted cash flows (“DCF”), and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment if applicable. Calculation of the CECL Reserve requires loan specific data, which includes fixed charge coverage ratio, loan-to-value, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of the Company’s loan portfolio and (iv) the Company’s current and future view of the macroeconomic environment. The Company may consider loan-specific qualitative factors on certain loans to estimate its CECL Reserve, which may include (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and (iii) the liquidation value of collateral. For loans where ~~we have~~the Company has deemed the borrower/sponsor to be experiencing financial difficulty, wethe Company may elect to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a ~~Specific~~specific CECL ~~Allowance.~~allowance. In order to estimate the future expected loan losses relevant to the Company’s portfolio, the Company may consider historical market loan loss data provided by a third-party data service. The third party’s loan database includes historical loss data for commercial mortgage-backed securities, or CMBS which the Company believes is a reasonably comparable and available data set to its type of loans. The Company utilized macroeconomic data that reflects a current recession; however, the short and long-term economic implications of the COVID-19 pandemic and its financial impact on the Company are highly uncertain. The CECL Reserve takes into consideration the macroeconomic impact of the COVID-19 pandemic on ~~CRE~~commercial real estate properties and is not specific to any loan losses or impairments on the Company’s loans held for investment.

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company’s CECL Reserve for its loans held at carrying value and ~~loans~~loan receivable at carrying value is ~~$531,497~~approximately $5.6 million and ~~$465,397,~~$3.1 million, respectively, or ~~125~~176 and ~~132~~120 basis points, respectively, of the Company’s total loans held at carrying value and loans receivable at carrying value of ~~$42,393,791~~approximately $318.1 million and ~~$35,185,294,~~$259.7 million, respectively, and is bifurcated between the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of ~~$248,317~~approximately $5.0 million and ~~$404,860,~~$2.4 million, respectively, and a liability for unfunded commitments of ~~$283,180~~approximately $0.6 million and ~~$60,537,~~$0.7 million, respectively. The liability was based on the unfunded portion of the loan commitment over the full contractual period over which the Company is exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion.

Index

Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loans receivable at carrying value as of and for the three and six months ended ~~March 31, 2021~~June 30, 2022 was as follows:

	Outstanding ⁽¹⁾			Unfunded ⁽²⁾		Total
Balance at December 31, 2020	$	404,860		$	60,537	$	465,397
									Outstanding (1)		Unfunded (2)		Total
Balance at March 31, 2022								Balance at March 31, 2022	$	3,390,676	$	629,188	$	4,019,864
Provision for current expected credit losses		(156,543	)		222,643		66,100	Provision for current expected credit losses	1,627,396		(34,348)		1,593,048
Write-offs		-			-		-	Write-offs	—		—		—
Recoveries		-			-		-	Recoveries	—		—		—
Balance at March 31, 2021	$	248,317		$	283,180	$	531,497
Balance at June 30, 2022								Balance at June 30, 2022	$	5,018,072	$	594,840	$	5,612,912

~~(1)~~

As of March 31, 2021 and December 31, 2020, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company's balance sheets.


	Outstanding (1)		Unfunded (2)		Total
Balance at December 31, 2021	$	2,431,558	$	683,177	$	3,114,735
Provision for current expected credit losses	2,586,514		(88,337)		2,498,177
Write-offs	—		—		—
Recoveries	—		—		—
Balance at June 30, 2022	$	5,018,072	$	594,840	$	5,612,912

~~(2)~~

~~As of March 31, 2021 and December 31, 2020, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within other liabilities in the Company's balance sheets.~~

(1)As of June 30, 2022 and December 31, 2021, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.

(2)As of June 30, 2022 and December 31, 2021, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability in the Company’s consolidated balance sheets.

The Company continuously evaluates the credit quality of each loan by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:

	~~Rating~~	~~Definition~~
Rating		Definition
1			Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan
2		2		Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan
3		3		Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved
4		4		High Risk/ Potential for Loss — Collateral performance falls short of underwriting, material differences from business plans, defaults may exist, or may soon exist absent material improvement. Risk of recovery of interest exists
5		5		Impaired/Loss Likely — Performance is significantly worse than underwriting with major variances from business plan observed. Loan covenants or financial milestones have been breached; exit from loan or refinancing is uncertain. Full recovery of principal is unlikely

~~Table of Contents~~

The risk ratings are primarily based on historical data as well as taking into account future economic conditions.

Index

As of ~~March 31, 2021,~~June 30, 2022, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loans receivable at carrying value within each risk rating by year of origination is as follows:


Risk Rating:	2022		2021		2020		Total
1	$	—	$	—	$	—	$	—
2	26,103,466		59,312,000		—		85,415,466
3	56,300,058		116,917,010		26,096,236		199,313,304
4	—		33,373,553		—		33,373,553
5	—		—		—		—
Total	$	82,403,524	$	209,602,563	$	26,096,236	$	318,102,323

Risk Rating: 2021 2020 Total
1 $ - $ - $ -
2 - - -
3 5,175,386 33,977,550 39,152,936
4 - 3,240,855 3,240,855
5 - - -
Total $ 5,175,386 $ 37,218,405 $ 42,393,791

7.	7. INTEREST RECEIVABLE

The following ~~tables summarize~~table summarizes the interest receivable by the Company as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~2021:

As of
March 31, 2021

As of
December 31, 2020

Interest receivable $ 954,349 $ 675,795
PIK receivable 210,588 177,183
Unused fees 40,367 74,314
Total interest receivable $ 1,205,304 $ 927,292

8.	~~INTEREST RESERVE~~


	As of June 30, 2022		As of December 31, 2021

Interest receivable	$	4,072,292	$	3,562,566
PIK receivable	546,790		554,357
Unused fees receivable	178,233		296,015
Total interest receivable	$	4,797,315	$	4,412,938

8. INTEREST RESERVE

At ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company had ~~two~~2 and ~~one~~7 loans, respectively, that included a ~~loan funded~~loan-funded interest reserve. For the three and six months ended ~~March 31, 2021,~~June 30, 2022, approximately ~~$82 thousand~~$1.4 million and $5.6 million, respectively, of aggregate interest income was earned and disbursed from the interest ~~reserve.~~

reserves.

The following table presents changes in the interest reserve as of and for the three and six months ended ~~March 31,~~June 30, 2022 and 2021:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Beginning reserves	$	607,163	$	3,243,484	$	4,782,271	$	1,325,750
New reserves	6,000,000		2,925,000		6,000,000		4,925,000
Reserves disbursed	(1,420,548)		(620,621)		(5,595,656)		(702,887)
Ending reserves	$	5,186,615	$	5,547,863	$	5,186,615	$	5,547,863

Three months ended
March 31, 2021

Initial reserves
$
1,325,750

New reserves
2,000,000

Reserves disbursed
(82,266
)
Total Interest reserve $ 3,243,484

~~DEBT~~

9. DEBT

Revolving Credit Facility

On April 29, 2022, the Company entered into the Loan and Security Agreement (the “Revolving Credit Agreement”) by and among the Company, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, the Company obtained a $60.0 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility has a maturity date of April 29, 2025.

The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions (which may be increased to up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Facility. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2)

Index

4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. The Company incurred a one-time commitment fee expense of approximately $0.5 million, which is amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, to be paid semi-annually in arrears, which will be included within interest expense in the Company’s consolidated statements of operations. For the three and six months ended June 30, 2022, the Company had not drawn on the Revolving Credit Facility or incurred any interest expense related to the Revolving Credit Facility.

The obligations of the Company under the Revolving Credit Facility are secured by certain assets of the Company comprising of or relating to loan obligations designated for inclusion in the borrowing base. In addition, the Company is subject to various financial and other covenants, including: (1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.5 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of the Company and its subsidiaries.

Termination of AFC Finance Revolving Credit Facility

In July 2020, the Company obtained a secured revolving credit ~~loan~~line (the ~~“Revolving Loan”~~“AFCF Revolving Credit Facility”) from AFC Finance, LLC ~~an affiliate~~and Gamma Lending HoldCo LLC, each affiliates of the Company’s ~~management.~~management, secured by the assets of the Company. The AFCF Revolving ~~Loan has~~Credit Facility originally had a loan commitment of ~~$40,000,000 and bears~~$40.0 million at an interest rate of 8% per annum, payable in cash in arrears. The ~~Company did not incur any fees or cost related to the origination of the Revolving Loan and the Revolving Loan does not have any unused fees. The~~ maturity date of the AFCF Revolving ~~Loan is~~Credit Facility was the earlier of (i) July 31, 2021 and (ii) the date of the closing of any ~~Refinancing~~credit facility where the proceeds are incurred to refund, refinance or replace the AFCF Revolving Credit ~~Facility (as defined below)~~Agreement, in accordance with terms of the credit agreement governing the AFCF Revolving Credit Facility (the “AFCF Revolving Credit Agreement”).

On May 7, 2021, the Company amended the AFCF Revolving Credit Agreement (the “First Amendment”). The First Amendment (i) increased the loan commitment from $40.0 million to $50.0 million, (ii) decreased the interest rate from 8% per annum to 6% per annum, (iii) removed Gamma Lending Holdco LLC as a lender and (iv) extended the maturity date from July 31, 2021 to the earlier of (A) December 31, 2021 or (B) the date of the closing of any refinancing credit facility.

On November 3, 2021, the Company entered into the Second Amendment to the AFCF Revolving Credit Agreement (the “Second Amendment”). Under the Second Amendment, payments to AFC Finance, LLC for interest, commitment fees and unused fees (net applicable taxes) were required to be paid directly or indirectly through AFC Finance, LLC to charitable organizations designated by AFC Finance, LLC. The Second Amendment also (i) increased the loan commitment from $50.0 million to $75.0 million (ii) decreased the interest rate from 6% per annum to 4.75% per annum; (iii) introduced a one-time commitment fee of 0.25%, to be paid in 3 equal quarterly installments, and an unused line fee of 0.25% per annum, to be paid quarterly in arrears; (iv) provided an optional buyout provision for the holders of the 2027 Senior Notes upon an event of default under the AFCF Revolving Credit Agreement; (v) extended the fixed element of the maturity date from December 31, 2021 to September 30, 2022. Pursuant to the Second Amendment, the Company incurred a one-time commitment fee expense of $187,500 in November 2021, payable in 3 quarterly installments that began in the ~~Revolving Loan agreement. The Revolving Loan~~first quarter of 2022, which is ~~secured by~~amortized over the ~~assets~~life of the ~~Company.~~loan. As of June 30, 2022 and December 31, 2021, the outstanding loan balance under the AFCF Revolving Credit Facility was $0.0 million and $75.0 million, respectively. All borrowings that were previously outstanding as of December 31, 2021 were repaid in full on January 3, 2022. For the three and six months ended ~~March 31,~~June 30, 2022, the Company incurred interest expense on the AFCF Revolving Credit Facility of $0 and $19,792, respectively. For the three and six months ended June 30, 2021, the Company did not ~~utilize its Revolving Loan and therefore no~~incur any interest expense ~~was incurred. The~~on the AFCF Revolving ~~Loan was amended~~Credit Facility.

On April 29, 2022, upon the Company’s entry into the Revolving Credit Facility, the Company terminated the AFCF Revolving Credit Agreement. In connection with the termination, the Company paid the remaining amount of the commitment fee outstanding of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million. There were no other payments, premiums or penalties required to be paid in connection with the termination.

2027 Senior Notes

On November 3, 2021, the Company issued $100.0 million in aggregate principal amount of senior unsecured notes due in May ~~2021, see Note 17. Subsequent Events.~~2027 (the “2027 Senior Notes”). The 2027 Senior Notes accrue interest at a rate of 5.75% per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, beginning on May 1, 2022. The net proceeds from the offering were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by the Company. The Company intends to use the proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with the

Index

Company’s investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by an indenture, dated November 3, 2021, among us, as issuer, and TMI Trust Company, as trustee (the “Indenture”).

11Under the Indenture, the Company is required to cause all of its existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. Subsequent to the Company’s investment in the senior secured loan to Private Company I being transferred to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture. As of June 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.

Prior to February 1, 2027, the Company may redeem the 2027 Senior Notes in whole or in part at a price equal to the greater of 100% of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date. On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100% of the principal amount of the 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Indenture also requires us to offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101% of the principal amount of the 2027 Senior Notes, plus accrued and unpaid interest if a ‘‘change of control triggering event’’ (as defined in the Indenture) occurs.

The Indenture contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on the Company’s ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of the Company’s consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of the Company’s consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of the Company’s assets. In addition, the Indenture also provides for customary events of default. If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable. These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture.

The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of June 30, 2022 are as follows:

~~Table of Contents~~
	2027 Senior Notes
Year
2022 (remaining)	$	—
2023	—
2024	—
2025	—
2026	—
Thereafter	100,000,000
Total principal	$	100,000,000

~~10.~~

The following table reflects a summary of interest expense incurred during the three and six months ended June 30, 2022. There was 0 interest expense incurred during the three and six months ended June 30, 2021.


	Three months ended June 30, 2022
	2027 Senior Notes		Revolving Credit Facility		AFCF Revolving Credit Facility		Total Borrowings

Interest expense	$	1,437,499	$	—	$	—	$	1,437,499
Unused fee expense	—		—		14,583		14,583
Amortization of deferred financing costs	163,779		27,480		103,663		294,922
Total interest expense	$	1,601,278	$	27,480	$	118,246	$	1,747,004

Index


	Six months ended June 30, 2022
	2027 Senior Notes		Revolving Credit Facility		AFCF Revolving Credit Facility		Total Borrowings

Interest expense	$	2,859,027	$	—	$	19,792	$	2,878,819
Unused fee expense	—		—		60,417		60,417
Amortization of deferred financing costs	325,758		27,480		154,645		507,883
Total interest expense	$	3,184,785	$	27,480	$	234,854	$	3,447,119

10. COMMITMENTS AND CONTINGENCIES

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company had the following commitments to fund various senior term loans, investment in debt securities, equipment loans and bridge ~~loans.~~loans:


	As of March 31, 2021			As of December 31, 2020				As of June 30, 2022		As of December 31, 2021

Total original loan commitments	$	130,684,459		$	107,292,176		Total original loan commitments	$	483,181,394	$	419,198,125
Less: drawn commitments		(97,214,795	)		(87,467,057	)	Less: drawn commitments	(421,199,287)		(363,659,505)
Total undrawn commitments	$	33,469,664		$	19,825,119		Total undrawn commitments	$	61,982,107	$	55,538,620

The Company from time to time may be a party to litigation in the normal course of business. As of ~~March 31, 2021,~~ June 30, 2022, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations.

~~We provide~~The Company provides loans to ~~established~~ companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against the Company’s borrowers of ~~federal laws regarding~~ the federal illegality of cannabis, the Company’s borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and wethe Company could lose all or part of any of ~~our investments.~~the Company’s loans.

~~Our~~The Company’s ability to grow or maintain ~~our~~its business depends on state laws pertaining to the cannabis industry. New laws that are adverse to ~~our portfolio companies~~the Company’s borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede ~~our~~the Company’s ability to grow and could materially adversely affect ~~our~~the Company’s business.

Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, the Company may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case the Company would look to sell the loan, which could result in the Company realizing a loss on the transaction.

~~11.~~

~~STOCKHOLDERS’ EQUITY~~

11. SHAREHOLDERS’ EQUITY

Series A Preferred Stock

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, the Company has authorized 10,000 preferred shares and issued 125 of the preferred shares designated as 12.0% Series A Cumulative Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”).

The Series A Preferred Stock entitles the holders thereof to receive cumulative cash dividends at a rate per annum of 12.0% of the liquidation preference of $1,000 per share plus all accumulated and unpaid dividends thereon. The Company generally may not declare or pay, or set apart for payment, any dividend or other distribution on any shares of the Company’s stock ranking junior to the Series A Preferred Stock as to dividends, including the Company’s common stock, or redeem, repurchase or otherwise make payments on any such shares, unless full, cumulative dividends on all outstanding shares of Series A Preferred Stock have been declared and paid or set apart for payment for all past dividend periods. The holders of the Series A Preferred Stock generally have no voting rights except in limited circumstances, including certain

Index

amendments to the Company’s charter and the authorization or issuance of equity securities senior to or on parity with the Series A Preferred Stock. The Series A Preferred Stock is not convertible into shares of any other class or series of our stock. The Series A Preferred Stock is senior to all other classes and series of shares of the Company’s stock as to dividend and redemption rights and rights upon the Company’s liquidation, dissolution and winding up.

Upon written notice to each record holder of the Series A Preferred Stock as to the effective date of redemption, the Company may redeem the shares of the outstanding Series A Preferred Stock at the Company’s option, in whole or in part, at any time for cash at a redemption price equal to $1,000 per share, for a total of $125,000 for the 125 shares outstanding, plus all accrued and unpaid dividends thereon up to and including the date fixed for ~~redemption, plus a redemption premium of $50 per share if the shares are redeemed on or before December 31, 2021.~~redemption. Shares of the Series A Preferred Stock that are redeemed shall no longer be deemed outstanding shares of the Company and all rights of the holders of such shares will terminate.

Common Stock

The Board of Directors of the Company (the “Board”) approved a ~~seven-for-one~~7-for-one stock split of the ~~Company's~~Company’s common stock effective on January 25, 2021. All common shares, stock options, and per share information presented in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented, including reclassifying an amount equal to the increase in par value of common stock from additional paid-in capital. There was no change in the par value of the ~~Company's~~Company’s common stock. Upon consummation of the Company’s IPO, any ~~stockholder~~shareholder that held fractional shares received cash in lieu of such fractional shares based on the public offering price of the shares of the Company’s common stock at IPO. This resulted in the reduction of 15 shares issued and outstanding.

On March 23, 2021, the Company completed its IPO of 6,250,000 shares of its common stock at a price of $19.00 per share, raising ~~$118,750,000~~approximately $118.8 million in gross proceeds. The underwriters also exercised their over-allotment option to purchase up to an additional 937,500 shares of the Company’s common stock at a price of $19.00 per share, which was completed on March 26, 2021, raising ~~$17,812,500~~approximately $17.8 million in additional gross proceeds. The underwriting commissions of ~~$8,312,500~~approximately $8.3 million and ~~$1,246,875,~~$1.2 million, respectively, are reflected as a reduction of additional paid-in capital on the ~~statement~~consolidated statements of ~~stockholders’~~shareholders’ equity. The Company incurred approximately ~~$3,093,836~~$3.1 million of expenses in connection with the IPO, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately ~~$123,909,289.~~$123.9 million.

On June 28, 2021, the Company completed an offering of 2,750,000 shares of its common stock at a price of $20.50 per share, raising approximately $56.4 million in gross proceeds. The underwriting commissions of approximately $3.1 million are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company ~~intends~~incurred approximately $0.7 million of expenses in connection with the offering, which is reflected as a reduction in additional paid-in capital. The net proceeds to ~~use~~ the Company totaled approximately $52.6 million.

On July 6, 2021, the underwriters partially exercised their over-allotment option to purchase 269,650 shares of the Company’s common stock at a price of $20.50 per share raising approximately $5.5 million in additional gross proceeds or approximately $5.2 million in net proceeds after underwriting commissions of approximately $0.3 million, which is reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity.

On January 10, 2022, the Company completed an underwritten offering of 3,000,000 shares of our common stock, at a price to the public of $20.50 per share. The gross proceeds to the Company from the offering were $61.5 million, before deducting underwriting discounts and commissions, a structuring fee and offering expenses payable by the Company. In connection with the offering, the underwriters were granted an over-allotment option to purchase up to an additional 450,000 shares of the Company’s common stock. On January 14, 2022, the underwriters partially exercised the over-allotment option with respect to 291,832 shares of common stock, which was completed on January 19, 2022. The underwriting commissions of approximately $3.5 million are reflected as a reduction of additional paid-in capital in the first quarter of fiscal year 2022. The Company incurred approximately $1.0 million of expenses in connection with the offering. After giving effect to the partial exercise of the over-allotment option, the total number of shares sold by the Company in the public offering was 3,291,832 shares and total gross proceeds, before deducting underwriting discounts and commissions, a structuring fee and other offering expenses payable by the Company, were approximately $67.5 million. The net proceeds to the Company totaled approximately $63.0 million.

Pursuant to the Articles of Amendment, dated March 10, 2022, the Company increased the number of authorized shares of common stock to 50,000,000 shares at $0.01 par value per share.

Index

Shelf Registration Statement

On April 5, 2022, the Company filed a shelf registration statement on Form S-3 (File No. 333-264144) (the “Shelf Registration Statement”), which was declared effective on April 18, 2022. Under the Shelf Registration Statement, the Company may, from time to time, issue and sell up to $1.0 billion of the Company’s common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of the Company’s common stock or preferred stock.

At-the-Market Offering Program (“ATM Program”)

On April 5, 2022, the Company entered into an Open Market Sales Agreement (the “Sales Agreement”) with Jefferies LLC and JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). During the three and six months ended June 30, 2022, the Company sold an aggregate of 114,932 shares of the Company’s common stock under the Sales Agreement at an average price of $18.08 per share. The sales generated net proceeds of approximately $1.3 million.

As of June 30, 2022, the IPO (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with the Company’s investment strategy and (iii) for working capital and other general corporate purposes. Until appropriate investments can be identified, the Company may invest this balance in interest-bearing short-term investments, including money market accounts or funds, commercial mortgage-backed securities and corporate bonds, which are consistent with the Company’s intention to qualify as a REIT and to maintain our exclusion from registrationshares of common stock sold under the ~~Investment Company Act of 1940, as amended.~~

~~Table of Contents~~

ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.

Equity Incentive Plan

The Company has established an equity incentive compensation plan (the ~~“Plan”~~“2020 Plan”). The Company’s Board authorized the adoption of the Plan (the “2020 Plan”) and approved stock option grants of 1,616,098 shares of common stock as of March 31, 2021. The Board or one or more committees appointed by the Board will administer the 2020 ~~Plan. The~~ Plan authorizes stock options, stock appreciation rights, restricted stock, stock bonuses, stock units and other forms of awards granted or denominated in the Company’s common stock or units of common stock. The 2020 Plan retains flexibility to offer competitive incentives and to tailor benefits to specific needs and circumstances. Any award may be structured to be paid or settled in cash. The Company has, and currently intends to continue to grant stock options to participants in the 2020 Plan, but it may also grant any other type of award available under the 2020 Plan in the future. Persons eligible to receive awards under the 2020 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, employees of the Manager and certain directors and consultants and other service providers to the Company or any of its subsidiaries.

During the first quarter of 2022, the Company’s Board of Directors approved grants of restricted stock and stock options to the Company’s directors and officers, as well as employees of the Manager. In January 2022, the Company granted an aggregate of 8,296 shares of restricted stock and 742,000 stock options to certain of our officers and other eligible persons. The restricted stock granted under the 2020 Stock Incentive Plan vest over a four-year period with approximately 33% vesting on each of the second, third and fourth anniversaries of the vesting commencement date. The stock options granted under the 2020 Stock Incentive Plan have a strike price of $20.18 and contain vesting periods that vary from immediately vested to vesting over a four-year period. As of June 30, 2022, there were 2,380,687 shares of common stock granted under the 2020 Plan, underlying 2,316,106 options and 64,581 shares of restricted stock.

~~The current~~As of June 30, 2022, the maximum number of shares of the ~~Company~~Company’s common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equals ~~2,100,000 shares.~~ 2,742,641 shares, which is an increase of 11,493 shares compared to March 31, 2022. This Share Limit increased in the second quarter of 2022 under the evergreen provision in the 2020 Plan in connection with the shares issued under the ATM Program during such time. Shares that are subject to or underlie awards that expire or for any reason are cancelled, or terminated, ~~are~~ forfeited, fail to vest, or for any other reason are not paid or delivered under the 2020 Plan will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan. Shares that are exchanged by a participant or withheld by the Company as full or partial payment in connection with any award granted under the 2020 Plan, as well as any shares exchanged by a participant or withheld by us to satisfy tax withholding obligations related to any award granted under the 2020 Plan, will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan. To the extent that an award is settled in cash or a form other than shares, the shares that would have been delivered had there been no such cash or other settlement will not be counted against the Share Limit and will again be available for subsequent awards under the 2020 Plan.

The exercise price of any options granted under the 2020 Plan will be at net asset value or greater; provided, however, the exercise price will be at least equal to the market price of the underlying shares on the grant date. The options granted under the 2020 Plan have an ordinary term of up to ten years. An option may either be an incentive stock option or a nonqualified stock option. Options generally may not be transferred to third parties for value and do not include dividend equivalent rights.

Index

The following table summarizes the (i) non-vested options granted, (ii) vested options granted and (iii) forfeited options granted for the Company’s directors and officers and employees of the Manager as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~2021:


	As of March 31, 2021			As of December 31, 2020				As of June 30, 2022	As of December 31, 2021
Non-vested		183,114			142,814		Non-vested	325,114	183,114
Vested		1,449,518			800,618		Vested	2,049,518	1,449,518
Forfeited		(16,534	)		(16,534	)	Forfeited	(58,526)	(28,396)
Balance		1,616,098			926,898		Balance	2,316,106	1,604,236

The Company uses the Black-Scholes option pricing model to value stock options in determining the ~~share-based~~stock-based compensation expense. Forfeitures are recognized as they occur. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield was based on the Company’s expected dividend yield at grant date. Expected volatility is based on the estimated average volatility of similar companies due to the lack of historical volatilities of the Company’s common stock. Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period. The ~~share-based~~stock-based compensation expense for the Company was ~~approximately $1,599,115~~$117,397 and $1,107,420 for the three and six months ended ~~March 31, 2021.~~

June 30, 2022, respectively, and $11,457 and $1,610,572 for the three and six months ended June 30, 2021, respectively.

The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan:

~~Assumptions~~	~~Range~~
Assumptions		Range
Expected volatility			40% - 50		%50%
Expected dividend yield			10% - 20		%20%
Risk-free interest rate			0.5% - ~~1.5~~		%2.0%
Expected forfeiture rate				0	%0%

~~Table of Contents~~

The following ~~table summarizes~~tables summarize stock option activity during the three and six months ended ~~March~~June 30, 2022 and 2021:


	Three months ended June 30, 2022	Weighted Average Grant Date Fair Value Per Option
Balance as of March 31, 2022	2,321,106	$	1.21
Granted	—	—
Exercised	—	—
Forfeited	(5,000)	1.43
Balance as of June 30, 2022	2,316,106	$	1.21


	Three months ended June 30, 2021	Weighted Average Grant Date Fair Value Per Option
Balance as of March 31, 2021	1,616,098	$	1.08
Granted	—	—
Exercised	—	—
Forfeited	(3,000)	1.31
Balance as of June 30, 2021	1,613,098	$	1.08

Index


	Six months ended June 30, 2022	Weighted Average Grant Date Fair Value Per Option
Balance as of December 31, 2021	1,604,236	$	1.08
Granted	742,000	1.46
Exercised	—	—
Forfeited	(30,130)	1.05
Balance as of June 30, 2022	2,316,106	$	1.21


	Six months ended June 30, 2021	Weighted Average Grant Date Fair Value Per Option
Balance as of December 31, 2020	926,898	$	0.91
Granted	689,200	1.31
Exercised	—	—
Forfeited	(3,000)	1.31
Balance as of June 30, 2021	1,613,098	$	1.08

The following table summarizes the (i) non-vested restricted stock granted, (ii) vested restricted stock granted and (iii) forfeited restricted stock granted for the Company’s directors and officers and employees of the Manager as of June 30, 2022 and December 31, 2021:


	As of June 30, 2022	As of December 31, 2021
Non-vested	64,581	56,285
Vested	—	—
Forfeited	—	—
Balance	64,581	56,285

Three months ended
March 31, 2021

Weighted-Average
Grant Date Fair
Value Per Option

Balance as of December 31, 2020 926,898 $ 0.91
Granted 689,200 1.31
Exercised - -
Forfeited - -
Balance as of March 31, 2021 1,616,098 $ 1.08

The fair value of the Company’s restricted stock awards is based on the Company’s stock price on the date of grant. The following tables summarize the restricted stock activity during the three and six months ended June 30, 2022 and 2021:

~~12.~~
			Three months ended June 30, 2022
Balance as of March 31, 2022			64,581
Granted			—
Exercised			—
Forfeited			—
Balance as of June 30, 2022			64,581


			Three months ended June 30, 2021
Balance as of March 31, 2021			—
Granted			—
Exercised			—
Forfeited			—
Balance as of June 30, 2021			—

Index


			Six months ended June 30, 2022
Balance as of December 31, 2021			56,285
Granted			8,296
Exercised			—
Forfeited			—
Balance as of June 30, 2022			64,581


			Six months ended June 30, 2021
Balance as of December 31, 2020			—
Granted			—
Exercised			—
Forfeited			—
Balance as of June 30, 2021			—

12. EARNINGS PER SHARE

The following information sets forth the computations of basic and diluted weighted average earnings per common share for the three and six months ended ~~March 31,~~June 30, 2022 and 2021:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net income attributable to common shareholders	$	11,351,673	$	4,627,787	$	21,513,793	$	6,028,542
Divided by:
Basic weighted average shares of common stock outstanding	19,715,749		13,457,536		19,518,964		10,318,542
Diluted weighted average shares of common stock outstanding	19,811,594		13,775,246		19,614,809		10,636,252
Basic weighted average earnings per common share	$	0.58	$	0.34	$	1.10	$	0.58
Diluted weighted average earnings per common share	$	0.57	$	0.34	$	1.10	$	0.57

Three months ended
March 31, 2021

Net income / (loss) attributable to common stockholders $ 1,400,755
Divided by:
Basic weighted average shares of common stock outstanding 7,144,670
Diluted weighted average shares of common stock outstanding 7,485,048
Basic weighted average earnings per common share $ 0.20
Diluted weighted average earnings per common share $ 0.19

~~13.~~

~~INCOME TAX~~

13. INCOME TAX

A TRS is an entity taxed as a corporation that has not elected to be taxed as a REIT, in which a REIT directly or indirectly holds equity, and that has made a joint election with such REIT to be treated as a TRS. A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income. In addition, as a REIT, the Company also may be subject to a 100% excise tax on certain transactions between it and its TRS that are not conducted on an arm’s-length basis. The income tax provision is included in the line item income tax expense, including excise tax in the consolidated statements of operations included in these unaudited interim consolidated financial statements.

The income tax ~~provisions~~provision for the Company was $0$164,315 and $182,599 for the three and six months ended ~~March 31,~~June 30, 2022, respectively. The Company did not incur any tax expense for the three and six months ended June 30, 2021.

For the three and six months ended ~~March 31,~~June 30, 2022 and 2021, the Company incurred no expense for United ~~Stated~~States federal excise tax. Excise tax represents a 4% tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period. If it is determined that an excise tax liability exists for the current period, the Company will accrue excise tax on estimated excess taxable income as such taxable income is earned. The expense is calculated in accordance with applicable tax regulations.

Index

The Company does not have any unrecognized tax benefits and the Company does not expect that to change in the next 12 months.

~~14.~~

~~FAIR VALUE~~

14. FAIR VALUE

Loans Held for Investment

The Company’s loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to ~~portfolio companies~~borrowers where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the ~~portfolio company.~~borrower. As loans held by the Company are substantially illiquid with no active loan market, the Company depends on primary market data, including newly funded loans, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

The following tables present fair value measurements of loans held at fair value as of June 30, 2022 and December 31, 2021:


	Fair Value Measurement as of June 30, 2022
	Total		Level 1		Level 2		Level 3
Loans held at fair value	$	95,199,132	$	—	$	—	$	95,199,132
Total	$	95,199,132	$	—	$	—	$	95,199,132


	Fair Value Measurement as of December 31, 2021
	Total		Level 1		Level 2		Level 3
Loans held at fair value	$	77,096,319	$	—	$	—	$	77,096,319
Total	$	77,096,319	$	—	$	—	$	77,096,319

The following table presents changes in loans that use Level 3 inputs as of and for the six months ended June 30, 2022:


	Six months ended June 30, 2022
Total loans using Level 3 inputs at December 31, 2021	$	77,096,319
Change in unrealized (losses) gains on loans at fair value, net	(924,611)
Additional fundings	17,285,000
Original issue discount and other discounts, net of costs	(429,275)
Accretion of original issue discount	704,458
PIK interest	1,467,241
Total loans using Level 3 inputs at June 30, 2022	$	95,199,132

The change in unrealized depreciation included in the unaudited interim consolidated statement of operations attributable to loans held at fair value, categorized as Level 3, held at June 30, 2022 is $(924,611).

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020.~~2021. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of March 31, 2021

Unobservable Input

As of June 30, 2022

Fair Value

Primary Valuation

Techniques

Input

Estimated Range

Weighted

Average

Unobservable Input

Senior Term Loans

50,252,049

Yield analysis

Market Yield

17.07% - 20.61

20.33

Fair Value

Primary Valuation
Techniques

Input

Estimated Range

Weighted

Average

Senior term loans

95,199,132

Yield analysis

Market yield

17.26% - 22.90%

18.03

Total Investments

50,252,049

Total Investments

95,199,132

Index

~~Table of Contents~~

As of December 31, 2020

Unobservable Input

As of December 31, 2021

Fair Value

Primary Valuation

Techniques

Input

Estimated Range

Weighted

Average

Unobservable Input

Senior Term Loans

48,558,051

Yield analysis

Market Yield

15.79% - 20.75

20.20

Fair Value

Primary Valuation Techniques

Input

Estimated Range

Weighted Average

Senior term loans

77,096,319

Yield analysis

Market yield

17.71% - 20.96%

18.22

Total Investments

48,558,051

Total Investments

77,096,319

Changes in market yields may change the fair value of certain of the Company’s loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans.

Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period. Additionally, the fair value of the Company’s loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that the Company may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a loan in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.

In addition, changes in the market environment and other events that may occur over the life of the loans may cause the gains or losses ultimately realized on these loans to be different than the unrealized gains or losses reflected in the valuations currently assigned.

Investment in Marketable Securities

As of June 30, 2022, the Company’s portfolio did not include any debt securities. As of December 31, 2021, the Company’s portfolio included one investment in debt securities held at fair value of approximately $15.9 million. The Company sold the investment in debt securities in March of 2022, which was previously designated as available-for-sale as of December 31, 2021. For the six months ended June 30, 2022, the realized loss on the sale of debt securities was approximately $0.2 million.

The following table presents changes in debt securities held at fair value as of and for the six months ended June 30, 2022:


	Principal		Original Issue Discount		Unrealized Gains (Losses)		Fair Value

Total debt securities held at fair value at December 31, 2021	$	15,000,000	$	1,050,000	$	(168,750)	$	15,881,250
Realized (losses) gains on securities at fair value, net	—		(150,000)		—		(150,000)
Change in accumulated other comprehensive income	—		—		168,750		168,750
Sale of securities	(15,000,000)		(900,000)		—		(15,900,000)
Total debt securities held at fair value at June 30, 2022	$	—	$	—	$	—	$	—

The following table presents fair value measurements of ~~loans~~debt securities held at fair value as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~

Fair Value Measurement Using as of March 31, 2021
Total Level 1 Level 2 Level 3
Loans held at fair value $
50,252,049

-

-
$
50,252,049

Total $
50,252,049 - - $
50,252,049

Fair Value Measurement Using as of December 31, 2020
Total Level 1 Level 2 Level 3
Loans held at fair value $
48,558,051

-

-
$
48,558,051

Total $
48,558,051 - - $
48,558,051

~~The following table presents changes in loans that use Level 3 inputs as of and for the three months ended March 31,~~ 2021:

Fair Value Measurement as of June 30, 2022

Total

Level 1

Level 2

Level 3

Debt securities held at fair value

—

Total

—

Three months ended
March 31, 2021

Total loans using Level 3 inputs at December 31, 2020
$
48,558,051

Change in unrealized gains / (losses) on loans at fair value, net
(144,402
)
Additional funding
992,000

Original issue discount and other discounts, net of costs
(142,982
)
Accretion of original issue discount
600,009

PIK Interest
389,373

Total loans using Level 3 inputs at March 31, 2021 $ 50,252,049

Index


	Fair Value Measurement as of December 31, 2021
	Total		Level 1		Level 2		Level 3
Debt securities held at fair value	$	15,881,250	$	—	$	15,881,250	$	—
Total	$	15,881,250	$	—	$	15,881,250	$	—

Fair Value of Financial Instruments

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheet, for which it is practicable to estimate that value.

~~Table of Contents~~

The following table details the book value and fair value of the Company’s financial instruments not recognized at fair value in the balance sheet:


	As of March 31, 2021					As of June 30, 2022
	Carrying Value		Fair Value			Carrying Value		Fair Value
Financial assets					Financial assets
Cash and cash equivalents	$	126,793,972	$	126,793,972	Cash and cash equivalents	$	45,583,533	$	45,583,533
Loans held for investment at carrying value	$	39,152,936	$	41,661,386	Loans held for investment at carrying value	$	315,882,044	$	312,489,029
Loan receivable at carrying value	$	3,240,855	$	3,066,014	Loan receivable at carrying value	$	2,220,279	$	2,165,669

Estimates of fair value for cash and cash equivalents are measured using observable, quoted market prices, or Level 1 inputs. ~~All other fair value significant estimates~~The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The Company’s investments in debt securities are measured using readily available quoted prices for similar assets, or Level 2 inputs.

~~15.~~

~~RELATED PARTY TRANSACTIONS~~

15. RELATED PARTY TRANSACTIONS

Management Agreement

Pursuant to the Management Agreement, the Manager manages the loans and day-to-day operations of the Company, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as may be imposed from time to time by the Company’s Board.

The Manager ~~will receive~~receives base management fees (the “Base Management Fee”) that are calculated and payable quarterly in arrears, in an amount equal to 0.375% of the Company’s Equity (as defined below), subject to certain adjustments, less 50% of the aggregate amount of any other fees (“Outside Fees”), including any agency fees relating to our loans, but excluding the Incentive Compensation (as defined below) and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the ~~Manager's~~Manager’s due diligence of potential ~~loans~~.loans.

Prior to the IPO, the quarterly base management fee was equal to 0.4375% of the Company’s Equity, subject to certain adjustments, less 100% of the aggregate amount of any Outside Fees, including any agency fees relating to ~~our~~the Company’s loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the ~~Manager's~~Manager’s due diligence of potential ~~loans~~.

loans.

In addition to the Base Management Fee, the Manager is entitled to receive incentive compensation (the “Incentive Compensation” or “Incentive Fees”) under the Management Agreement. Under the Management Agreement, the Company ~~will pay~~pays Incentive Fees to the Manager based upon the Company’s achievement of targeted levels of Core Earnings. “Core Earnings” is defined in the Management Agreement as, for a given period means the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors.

Index

The Incentive Compensation for the three and six months ended ~~March 31,~~June 30, 2022 was approximately $3.4 million and $6.4 million, respectively. The Incentive Compensation for the three and six months ended June 30, 2021 was approximately ~~$662,730.~~

$1.4 million and $2.1 million, respectively.

The Company shall pay all of its costs and expenses and shall reimburse the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on behalf of the Company, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement.

With respect to certain office expenses incurred by the Manager on behalf of the Company and other funds managed by the Manager or its affiliates, such as rent, the Manager determines each fund’s pro rata portion of such expenses based on the fair value of the fund’s assets under management, excluding cash and cash equivalents, as a percentage of the total assets under management by all such related funds.

The following table summarizes the related party costs incurred by the Company for the three and six months ended ~~March 31, 2021.~~June 30, 2022 and 2021:

	Three months ended March 31, 2021
Affiliate Payments
					Three months ended June 30,				Six months ended June 30,
					2022		2021		2022		2021
Affiliate Costs				Affiliate Costs
Management fees	$	451,675		Management fees	$	1,294,594	$	819,531	$	2,550,461	$	1,271,206
Less other fees earned		(237,743	)
Less outside fees earned				Less outside fees earned	(488,050)		(182,707)		(875,543)		(420,450)
Base management fees				Base management fees	806,544		636,824		1,674,918		850,756
Incentive fees earned		662,730		Incentive fees earned	3,395,024		1,442,047		6,373,864		2,104,777
General and administrative expenses reimbursable to Manager		365,567		General and administrative expenses reimbursable to Manager	973,886		423,939		1,880,603		789,506
Total	$	1,242,229		Total	$	5,175,454	$	2,502,810	$	9,929,385	$	3,745,039

Amounts payable to the Company’s Manager as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020~~2021 were ~~$1,242,229~~$5,407,360 and ~~$728,298,~~$4,147,501, respectively.

Due to Affiliate

~~Table of Contents~~

Amounts due to an affiliate of the Company as of June 30, 2022 and December 31, 2021 were $6,140 and $0, respectively.

Investments in Loans

From time to time, the Company may co-invest with other investment vehicles managed by the Company’s Manager or its affiliates ~~including the Manager,~~ and their portfolio companies, including by means of splitting loans, participating in loans or other means of syndicating loans. The Company is not obligated to provide, nor has it provided, any financial support to the other managed investment vehicles. As such, the Company’s risk is limited to the carrying value of its investment in any such loan. As of ~~and for the three months ended March 31, 2021,~~June 30, 2022, there were ~~no co-investments~~5 co-invested loans held by the Company and an affiliate of the Company.

In March 2022, the Company entered into the fourth amendment of the Amended and Restated Credit Agreement with Public Company F to, among other things, increase the total loan commitments by $100.0 million, with approximately (i) $26.6 million of the new loan commitments allocated to us; (ii) $15.0 million of the new loan commitments allocated to Flower Loan Holdco LLC, an affiliated entity in which Leonard Tannenbaum, our Chief Executive Officer and Chairman, is the majority ultimate beneficial owner; and (iii) the remaining loan commitments allocated to third-party lenders by the third-party agent.

In connection with investments in loans, the Company may receive the option to assign the right (the “Assigned Right”) to acquire warrants and/or equity of the borrower. The Company may sell the Assigned Right, and the sale may be to an affiliate of the Company. During the three and six months ended June 30, 2022, the Company neither received nor sold any Assigned Right. For the three and six months ended ~~March 31,~~June 30, 2021, the Company sold approximately ~~$1,208,216~~$1.1 million and $2.3 million, respectively, of Assigned Rights to an affiliate which are accounted for as additional original issue discount and accreted over the life of the loans. As of March 31, 2021, the Company had a receivable from an affiliate related to the Assigned Rights sold during the three months ended March 31, 2021 in the amount of approximately $1,104,914 which is included on the balance sheet in the prepaid expense and other assets line.

Index

Secured Revolving Credit Facility From Affiliate

~~The~~In April 2022, the Company ~~has a secured revolving credit loan (the “Revolving Loan”) from AFC Finance, LLC, an affiliate of~~terminated the AFCF Revolving Credit Facility. Refer to Note 9 to the Company’s ~~management. Refer to footnote 9~~unaudited consolidated financial statements for more information.

~~16.~~

~~DIVIDENDS AND DISTRIBUTIONS~~

16. DIVIDENDS AND DISTRIBUTIONS

The following table summarizes the Company’s dividends declared ~~and paid~~ during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021:


	Record Date	Payment Date	Common Share Distribution Amount		Taxable Ordinary Income		Return of Capital		Section 199A Dividends

Regular cash dividend	3/15/2021	3/31/2021	$	0.36	$	0.36	$	—	$	0.36
Regular cash dividend	6/15/2021	6/30/2021	$	0.38	$	0.38	$	—	$	0.38
2021 Period Subtotal			$	0.74	$	0.74	$	—	$	0.74
Regular cash dividend	3/31/2022	4/15/2022	$	0.55	$	0.55	$	—	$	0.55
Regular cash dividend	6/30/2022	7/15/2022	$	0.56	$	0.56	$	—	$	0.56
2022 Period Subtotal			$	1.11	$	1.11	$	—	$	1.11

Record Date
Payment
Date

Common Share
distribution
amount

Taxable
Ordinary
Income

Return of
Capital

Section
199A
Dividends

Regular cash dividend 3/15/2021 3/31/2021 $ 0.36 $ 0.36 $ - $ 0.36
Total cash dividend $ 0.36 $ 0.36 $ - $ 0.36

~~17.~~

17. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were available to be issued. There were no material subsequent events ~~other than that described below,~~ that required disclosure in these financial statements.

~~In April 2021, Sub. Of Public Co. C repaid their loan in full. The loan had an original maturity date of February 2025~~

Index

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, filed by AFC Gamma, Inc. (the “Company,” “we,” “us,” and “our”), and the ~~outstanding principal on~~information incorporated by reference in it, or made in other reports, filings with the ~~date of repayment was approximately $12.1 million. The Company received an exit fee of $750,000 and a prepayment premium of $750,000 upon repayment of the loan.~~

In April 2021, the Company entered into a commitment for a $13 million senior term loan and funded $5.25 million at closing. The loan has an interest rate of 13% and PIK interest of 4% with a step down to 2% once certain criteria are met as defined in the loan agreement. The loan has a maturity date of May 2026, an unused fee of 3%, an exit fee of 15% and OID of 15.5%.

In April 2021, the Company entered into a commitment for a $15 million senior term loan and funded $15 million at closing. The loan has an interest rate of 13%. The loan has a maturity date of April 2025 and OID of 7%.

In April 2021, the Company entered into a commitment for a $22 million senior term loan and funded $22 million at closing, including a $2 million interest reserve. The loan has an interest rate of 12% plus LIBOR, with a 1% LIBOR floor, and PIK interest of 4% with step downs to 2% and 1.5% once certain criteria are met as defined in the loan agreement. The loan has a maturity date of May 2026, an exit fee of 10%, provided that if certain criteria are met as defined in the loan agreement the exit fee is 2%, and OID of 4%.

On May 7, 2021, the Company amended its secured revolving credit loan (the “Revolving Loan”) from AFC Finance, LLC, an affiliate of the Company’s management. The amendment to the Revolving Loan increased the loan commitment from $40,000,000 to $50,000,000, decreased the interest rate from 8% per annum to 6% per annum, removed Gamma Lending Holdco LLC as a lender and extended the maturity date from July 31, 2021 to the earlier of (i) December 31, 2021 or (ii) the date of the closing of any credit facility where the proceeds are incurred to refund, refinance or replace the Revolving Credit Agreement with an aggregate principal amount equal to or greater than $50 million. The Company did not incur any fees or cost related to the amendment of the Revolving Loan and the Revolving Loan does not have any unused fees. As of the date of these financial statements, the Company has not drawn on the Revolving Loan or incurred any fees or interest expense related to the Revolving Loan.

~~Table of Contents~~

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~Statement Regarding Forward-Looking Information~~

~~Some of the statements contained in this quarterly report constitute forward-looking statements,~~SEC, press releases contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, ~~(the “Exchange Act”),~~ and we intend such statements to be covered by the safe harbor provisions contained therein. The ~~information contained~~forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "could," "would," "will," or words or phrases of similar meaning. Specifically, this Quarterly Report includes forward-looking statements regarding (i) the conditions in ~~this section should be read in conjunction with~~the adult-use, and medicinal cannabis markets and their impact on our business; (ii) our portfolio and strategies for the growth thereof; (iii) our working capital, liquidity and capital requirements; (iv) potential state and federal legislative and regulatory matters; (v) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers; (vi) our expectations regarding our portfolio companies and ~~notes thereto appearing elsewhere in this quarterly report on Form 10-Q. This description contains forward-looking statements that involve risks~~their businesses, including demand, sales volume, profitability, and ~~uncertainties. Actual results could differ significantly~~future growth; (vii) the amount, collectability and timing of cash flows, if any, from ~~the results discussed in the forward-looking statements due to the factors set forth in “Risk Factors” in~~ our ~~final prospectus~~loans; (viii) our expected ranges of originations and repayments; and (ix) estimates relating to our initial public offering filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”) on March 19, 2021 (the “Final Prospectus”). In addition, some of the statements in this quarterly report (includingability to make distributions to our shareholders in the ~~following discussion) constitute~~future.

These forward-looking statements ~~which relate to~~reflect management’s current views about future events, orand are subject to risks, uncertainties and assumptions. Our actual results may differ materially from the future ~~performance~~results and events expressed or ~~financial condition of AFC Gamma, Inc. (“AFCG”~~implied by the forward-looking statements. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the ~~“Company,” “we,” “us” and “our”). The~~actual results to differ materially from those expressed in or implied by those forward-looking statements ~~contained in this report involve a number of risks and uncertainties, including statements concerning:~~

include, but are not limited to, the following:

~~use of proceeds of the IPO;~~

~~our business and investment strategy;~~

~~our projected operating results, including our projections for distributable earnings for the second quarter of 2021;~~

~~the impact of the COVID-19 pandemic, on our business and the United States and global economies;~~

•the ability of ~~our~~the Manager to locate suitable ~~loan opportunities~~investments for us and to monitor ~~service~~ and administer our ~~loans~~investments;

•changes in, and ~~execute~~volatility of the general economy and its impact on the industries in which we invest;

•the impact of a protracted decline in the liquidity of credit markets on our ~~investment strategy;~~

business;

•increased competition;

~~allocation~~•fluctuations in interest rates negatively affecting our business and our portfolio companies;

•ability to maintain and enforce our contractual arrangements and relationships with third parties;

•lack of ~~loan opportunities~~liquidity of investments in our portfolio, particularly those having no liquid trading market;

•actual and potential conflicts of interest with the Manager, and/or their respective affiliates;

•potential inability of our portfolio companies to ~~us by~~ achieve their objectives;

•our ~~Manager;~~

ability to obtain and maintain financing arrangements;

•our ~~projected operating results;~~

ability to maintain our exemption from registration under the Investment Company Act;

•our ability to qualify for treatment as a REIT for U.S. federal income tax purposes and to comply with and conduct our business in accordance with such rules;

•actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law;

•the ~~state~~ability of ~~the United States, European Union and Asian economies generally~~ our Manager to attract and/or ~~in specific geographic regions;~~

retain highly talented professionals;

~~the estimated growth in and evolving market dynamics of the cannabis market;~~

~~the demand for cannabis cultivation and processing facilities;~~

~~shifts in public opinion regarding cannabis;~~

~~the state of the U.S. economy generally or in specific geographic regions;~~

~~economic trends and economic recoveries; and~~

~~the collectability and timing of cash flows, if any, from our loans;~~

~~our ability to obtain and maintain financing arrangements;~~

~~our expected leverage;~~

~~Changes~~•increase in the ~~value of our loans;~~

~~our expected portfolio of loans;~~

~~our expected investment and underwriting process;~~

rates of default or decreased recovery rates on debt investments in our ~~loans;~~

portfolio;

~~the degree to which our hedging strategies may or may not protect us from interest rate volatility;~~

•changes in interest rates ~~of our loans~~ and impacts of such changes on our results of operations, cash flows and the market value of our loans;

and

•interest rate mismatches between our ~~loans~~debt investments and ~~our borrowings~~any leverage used to fund such ~~loans;~~

investments.

Please see the ~~departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates;~~

~~impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;~~

~~our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the “1940 Act”);~~

~~our ability to qualify and maintain our qualification as a real estate investment trust (“REIT”) for United States federal income tax purposes;~~

~~estimates relating to our ability to make distributions to our stockholders in the future;~~

~~our understanding of our competition;~~

~~market trends~~section entitled “Risk Factors” located in our ~~industry, interest rates, real estate values,~~Annual Report on Form 10-K, filed with the ~~securities markets or the general economy.~~

~~Table of Contents~~

~~We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may”~~SEC on March 10, 2022, for a further discussion of these and ~~similar expressions to identify~~other risks and uncertainties which could affect our future results. These forward-looking statements although not all forward-looking statements include these words. Our actual results and financial condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and the other information included in our Final Prospectus and elsewhere in this quarterly report on Form 10-Q.

~~We have based the forward-looking statements included in this quarterly report on information available to us on~~apply only as of the date of this ~~quarterly~~ report and ~~we assume no obligation to update any such forward-looking statements. Although~~ we undertake no obligation to ~~revise~~update or ~~update~~revise any forward-looking statements ~~whether as a result of new information, future~~to reflect events or ~~otherwise, you~~circumstances after the date of such statements or to reflect the occurrence

Index

of anticipated or unanticipated events, except to the extent we are ~~advised~~legally required to ~~consult any additional disclosures that we may make directly to you~~disclose certain matters in SEC filings or ~~through reports that we have filed or~~otherwise.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the ~~future may file with the SEC, including annual reports on Form 10-K, registration statements on Form S-11, quarterly reports~~accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Form 10-Q”). This discussion and ~~current reports on Form 8-K.~~

~~Available Information~~

~~We routinely post important information for investors on~~analysis contains forward-looking statements that involve risks and uncertainties which could cause our ~~website, www.afcgamma.com. We intend~~actual results to ~~use this webpage as a means of disclosing material information, for complying with our disclosure obligations under Regulation FD~~differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and to post and update investor presentations and similar materials on a regular basis. AFCG encourages investors, analysts, the media and others interested in AFCG to monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations, webcasts and other information we post from time to time on our website. To sign-up for email-notifications, please visit the “Email Alerts” section of our websiteuncertainties discussed under the ~~“IR Resources” section and enter the required information to enable notifications.~~heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q.

Business Overview

AFC Gamma, Inc. ~~(the ‘Company” or “AFCG” or “we”)~~ is ~~a commercial real estate finance company~~an institutional lender to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals. We originate, structure, underwrite, and ~~underwrite~~invest in senior secured loans and other types of loans and debt securities for ~~established~~ cannabis industry operators in states that have legalized ~~medicinal~~medical and/or ~~adult use~~adult-use cannabis. As states continue to legalize cannabis for medical and ~~adult use,~~adult-use, an increasing number of companies operating in the cannabis industry need financing. Due to the currently capital constrained cannabis market which does not typically have access to traditional bank financing, we believe we are well positioned to ~~become~~continue as a prudent financing source to ~~established~~ cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure. Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation by providing loans to state law compliant cannabis companies. The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. ~~Our targeted~~Some of our borrowers ~~will sometimes be publicly traded~~have their equity securities listed for public trading on the Canadian ~~Stock~~Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States. Our loans typically have up to a five-year maturity and contain amortization and/or cash flow sweeps. ~~As of~~We commenced operations on July 31, 2020 and completed our initial public offering (“IPO”) in March 31, 2021, members of our management team, provided by our Manager, and the members of the Investment Committee of our Manager, who advises on our investments and operations, had sourced loans worth approximately $5.5 billion across the cannabis industry in various states while maintaining a robust pipeline of potentially actionable opportunities.

2021.

We are a Maryland corporation and externally managed by our Manager, AFC Management, LLC, a Delaware limited liability company, pursuant to the terms of ~~our~~the Amended and Restated Management ~~Agreement.~~

Agreement, dated March 10, 2022, by and between AFC Gamma, Inc. and AFC Management, LLC (as amended, the “Management Agreement”).

We ~~commenced operations on July 31, 2020 and completed our IPO in March 2021. We are incorporated in Maryland and intend to elect and qualify~~have elected to be taxed as a real estate investment trust ~~(“REIT”~~(a “REIT”), commencing with our taxable year ~~ending~~ended December 31, 2020. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all or substantially all of our taxable income to ~~stockholders~~shareholders and maintain our intended qualification as a REIT. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company ~~Act~~Act.

Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operates as a taxable REIT subsidiary. TRS1 began operating in July 2021. Our investment in the equipment loan to Public Company A was transferred to TRS1 on July 31, 2021. On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1. These two loans constituted substantially all of ~~1940,~~the assets of TRS1 as ~~amended (the “Investment Company Act”).~~

~~Table of Contents~~

of June 30, 2022. The financial statements of TRS1 have been consolidated within our consolidated financial statements.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.

Index

We could remain an “emerging growth company” for up to five years from our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds ~~$700~~$700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding ~~three year~~three-year period.

Developments during the ~~First~~Second Quarter of ~~2021:~~2022:

Updates to our Loan Portfolio during the Second Quarter of 2022

During the second quarter of 2022, we closed two loans with new commitments of approximately $107.8 million and funded approximately $82.1 million of principal amount of new and existing commitments, including approximately $32.0 million which was refinanced from existing borrowers.

On April 1, 2022, our investment in the senior secured loan to Private Company I was transferred to TRS1.

In April 2022, each of the credit facilities with Private Company D and Private Company F were terminated and repaid in full in connection with the Company’s new loan to Private Company L, an affiliate of Private Company D and Private Company F. The loans to Private Company D and Private Company F had original maturity dates of January 2026 and May 2026, respectively. The outstanding principal of Private Company D and Private Company F on the date of repayment was approximately $12.1 million and $12.9 million, respectively. In addition to the repayment of the outstanding principal amounts of the loans to Private Company D and Private Company F, the Company received approximately $0.2 million and $2.0 million related to exit fees and other fees upon repayment of the loans, respectively.

In April 2022, the credit facilitiy with Private Company K was terminated and repaid in full in connection with the Company’s refinancing and restructuring the loan under a new credit facility with Private Company K. Under the new credit facility with Private Company K, the Company increased its total loan commitment to approximately $24.8 million, from $19.8 million, and restructured the construction obligations of the borrowers, among other things. As restructured, the Private Company K loan accrues interest at a floating rate, with a floor of 13%, and matures in May 2027. Following the repayment of Private Company K loan, five of the Company’s loans have been repaid and/or refinanced prior to maturity since March ~~23, 2021,~~2021.

At-the-Market Offering Program

In April 2022, we ~~completed~~filed our ~~initial public~~shelf registration statement on Form S-3 with the SEC, registering the offer and sale of up to $1.0 billion of securities (the “Shelf Registration Statement”). The Shelf Registration Statement enables us to issue shares of common stock, preferred stock, debt securities, warrants, rights, as well as units that include one or more of such securities. The Shelf Registration Statement also included a prospectus for an at-the-market offering ~~(“IPO”)~~program to sell up to an aggregate of ~~6,250,000~~$75.0 million of shares of our common stock at(the “ATM Program”) that may be issued and sold from time to time under the Sales Agreement, dated April 5, 2022 (the “Sales Agreement”), with Jefferies LLC and JMP Securities LLC, as Sales Agents. Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a ~~price~~commission of ~~$19.00 per share, raising $118.8 million in gross proceeds. The underwriters also exercised their over-allotment option to purchase~~ up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.

During the three months ended June 30, 2022, we sold an ~~additional 937,500~~aggregate of 114,932 shares of our common stock under the Sales Agreement at aan average price of ~~$19.00~~$18.08 per ~~share, which was completed on May 26, 2021, raising $17.8 million in gross proceeds.~~share. The underwriting commissions of $8.3 million and $1.2 million, respectively, are reflected as a reduction of additional paid-in capital on the statement of stockholders’ equity. We incurred approximately $3.1 million of expenses in connection with the IPO, which is reflected as a reduction in additional paid-in capital. The net proceeds to us totaled approximately $123.9 million. We intend to use thesales generated net proceeds of the IPO (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. Until appropriate investments can be identified, we may invest this balance in interest-bearing short-term investments, including money market accounts or funds, commercial mortgage-backed securities and corporate bonds, which are consistent with our intention to qualify as a REIT and to maintain our exclusion from registration under the Investment Company Act.approximately $1.3 million.

Revolving Credit Facility

~~Updates to Our Loan Portfolio during the First Quarter of 2021~~

In January 2021, Public Company A and its related loan parties entered into Modification Agreements for each of the Public Company A loans pursuant to which we agreed, subject to certain terms and conditions, to forbear from exercising our rights and remedies regarding defaults by the loan parties resulting from, among other things, the loan parties’ failure to timely pay taxes due, incurrence of mechanic’s liens and tax liens on assets, failure to notify the lenders of such failure to pay and incurrence of liens, failure to make payments due in January 2021 under the Public Company A loans in an aggregate amount of $789,177 owed to all lenders, failure to make payment obligations owed to third party creditors and failure to enter into specified debt restructuring transactions. In exchange for such agreement to forbear, we and the other lenders received certain consideration. Such defaults were unrelated to the COVID-19 pandemic. Under the modification agreement relating to the Public Company A real estate loan (the “RE Modification Agreement”), we and the other lenders agreed to forbear until the earlier of December 21, 2021 and the existence of any new event of default, and the terms of the real estate loan were modified to, among other things, (i) extend the maturity date from June 27, 2021 to December 21, 2021, (ii) modify the interest rate to 14.0%, with 12.0% paid monthly and 2.0% paid at maturity and (iii) add an exit fee of $1.0 million payable upon payment in full of the real estate loan on the maturity date. The RE Modification Agreement also provided for the establishment of an interest reserve for the payment of the last three months of interest on the real estate loan. Additional consideration for the RE Modification Agreement included (w) a modification fee in an amount equal to 3.0% per annum on the outstanding principal of the real estate loan from May 19, 2020 to the effective date of the RE Modification Agreement less certain fees previously paid, (x) the right to acquire common shares of Public Company A in an aggregate amount equal to $1.2 million, (y) the right to acquire warrants to purchase common shares of Public Company A and (z) reimbursement of certain expenses. We sold our portion of the rights to acquire the common shares and warrants received as considerations for the RE Modification Agreement to the administrative agent under the Public Company A real estate loan documents. Under the modification agreement relating to Public Company A equipment loan (the “Equipment Modification Agreement” and, together with the RE Modification Agreement, the “Modification Agreements”), we and the other lenders agreed to forbear until the earlier of February 5, 2024 and the existence of any new event of default, and the terms of the equipment loan were modified to, among other things, (i) amend the payment schedule allowing for reduced monthly payments for three months, with the reduced amounts amortized equally over the remaining monthly payments, (ii) add an exit fee of $500,000 due at the end of the term of the agreement governing the equipment loan, (iii) release a certain guarantor, and (iv) add a new parent company guarantee. Additional consideration for the Equipment Modification Agreement included (x) a modification fee in an amount equal to 6.0% per annum on the outstanding principal of the equipment loan from May 19, 2020 through and including the effective date of the Equipment Modification Agreement less certain fees previously paid, (y) an additional fee of $500,000 payable in equal monthly installments commencingOn April 5, 2021 and (z) reimbursement of certain expenses. In connection with the Modification Agreements, Public Company A consummated the initial closing of $10.1 million of its non-brokered convertible debenture offering for up to $25.0 million of debenture units. The net proceeds received by Public Company A from the convertible debenture offering are intended to be used for working capital, previous debt obligations and general corporate purposes. The loan parties have since paid the January 2021 payments under the Public Company A loans and there are no delinquent payment obligations owed to us under the agreements governing the Public Company A loans. To the best of our knowledge, Public Company A has repaid in full the other monetary obligations it owed under the Modification Agreement. While Public Company A was able to obtain these modifications and consummate the above-referenced convertible debentures offering, Public Company A and its related loan parties may have difficulty meeting their future obligations. None of our other borrowers are now, or have previously been, in default under their respective loan agreements with us.

~~Table of Contents~~

~~In March 2021,~~29, 2022, we entered into ~~a commitment~~the Revolving Credit Facility. The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to ~~Private Co. E for a $21~~up to $100.0 million ~~senior term loan~~in aggregate (subject to available borrowing base and ~~funded $7 million at closing, including a $2 million interest reserve. The loan has an interest rate of 12% plus LIBOR per annum~~additional commitments), with ~~a LIBOR floor of 1% and PIK interest of 4%. The loan has~~ a maturity date of April ~~2026, an unused fee~~29, 2025. Interest is payable on the Revolving Credit Facility at the greater of 3%(1) the applicable base rate plus 0.50% and ~~OID of 8.7%. Private Co. E is a single-state medical cannabis operator~~(2) 4.50%, as provided in ~~Ohio. Its operations consist of a cultivation facility currently~~the Revolving Credit Agreement, payable in ~~construction and an operational dispensary. The real estate collateral for this senior term loan includes both~~cash in arrears. Upon our entry into the ~~dispensary and cultivation facility in Ohio.~~

~~Sale of Assigned Rights~~

~~In January 2021~~Revolving Credit Facility, we sold our Assigned Rights to acquire and/or assign (i) 578,476 common shares of Public Company A and (ii) warrants to purchase approximately 289,238 common shares of Public Company A at an exercise price based on a specified formula tied toterminated the ~~volume weighted average trading price of such common shares, to the third-party administrative agent under the Public Company A loans for an aggregate purchase price of $103,302.~~

~~In March 2021, we sold to~~ AFCF Revolving Credit Facility with AFC ~~Warehouse Holding,~~Finance, LLC, an affiliate of the Manager and us, an Assigned Right to acquire and/or assign a warrant to purchase 1,382,000 common shares of Private Co. E at an exercise price of $0.01 per share for an aggregate purchase price of $1,104,614, representing the fair value of such Assigned Right asCompany’s management, which was secured by substantially all of the ~~date~~assets of ~~such sale, as determined by management and~~ the ~~majority of independent directors (based on various subjective and objective factors, including input from an independent third-party valuation firm).~~Company.

Index

Dividends Declared Per Share

In December 2020, we declared a seven-for-one stock split in the form of a stock dividend, pursuant to which six additional shares of our common stock shall be issued for each outstanding share of our common stock, payable on January 25, 2021 to each stockholder of record as of the close of business on January 21, 2021 out of our authorized but unissued shares of common stock.

~~In March 2021,~~June 2022, we declared a regular cash dividend of ~~$0.36~~$0.56 per share of our common stock, relating to the ~~first~~ quarter ~~of 2021,~~ended June 30, 2022, which was paid on ~~March 31, 2021~~July 15, 2022 to ~~stockholders~~shareholders of record as of ~~March 15, 2021.~~June 30, 2022. The aggregate amount of the regular cash dividend payment was approximately ~~$2.2~~$11.1 million.

For the six months ended June 30, 2022 and 2021, we paid the following cash dividends:

~~The payment of these dividends are not indicative of our ability to pay such dividends in the future.~~

Date Declared

Payable to Shareholders of Record at the Close of Business on

Date Paid

Amount per Share

Aggregate Amount Paid

March 12, 2021

March 15, 2021

March 31, 2021

$0.36

$2.2 million

May 7, 2021

June 15, 2021

June 30, 2021

0.38

5.1 million

2021 Period Subtotal

$0.74

$7.3 million

March 10, 2022

March 31, 2022

April 15, 2022

$0.55

$10.9 million

June 15, 2022

June 30, 2022

July 15, 2022

0.56

11.1 million

2022 Period Subtotal

$1.11

$22.0 million

Recent Developments

~~In May 2021, we declared a regular cash dividend~~Subsequent to the end of ~~$0.38 per share of our common stock, relating to~~ the second quarter, we funded approximately $1.9 million of ~~2021 which will be paid on June 30, 2021 to stockholders of record as of June 15, 2021. The aggregate~~principal amount of ~~the regular cash dividend payment will be approximately $5.1 million. The payment of this dividend is not indicative of our ability~~existing commitments.

Based on current estimates and market conditions, we expect to ~~pay such dividends in the future.~~

~~Subsequent to March 31, 2021, we closed 3 loans, committed to $50 million, funded $42.3~~target between $300.0 million and ~~were repaid approximately $12.1~~$500.0 million in originations with future new and existing borrowers for ~~net fundings of approximately $30.2 million.~~

~~Table of Contents~~

~~In April 2021, Sub. Of Public Co. C repaid their loan~~the fiscal year 2022 and expect between $100.0 million and $200.0 million in ~~full. The loan had an original maturity date of February 2025~~repayments by borrowers, in each case, for the fiscal year 2022. However, our goals and expectations are preliminary and may change. See the ~~outstanding principal on the date of repayment was approximately $12.1 million. We received an exit fee of $750,000~~sections titled “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q and ~~a prepayment premium of $750,000 upon repayment of the loan.~~

In April 2021, we entered into a commitment to a $13 million senior term loan and funded $5.25 million at closing, including a $925,000 interest reserve. The loan has an interest rate of 13% and PIK interest of 4% with a step down to 2% once certain criteria are met as defined in the loan agreement. The loan has a maturity date of May 2026, an unused fee of 3%, an exit fee of 15% and OID of 15.5%. The borrower is a medical cannabis operator in Missouri. The real estate collateral for this senior term loan includes the borrower’s cultivation and two dispensary facilities in Missouri.

In April 2021, we entered into a commitment to a $15 million senior term loan and funded $15 million at closing. The loan has an interest rate of 13%. The loan has a maturity date of April 2025 and OID of 7%. The borrower is a multi-state medical and recreational cannabis provided with operations in Florida, Texas, Michigan and Pennsylvania. The real estate collateral for this senior term loan includes the borrower’s cultivation facility in Michigan.

In April 2021, we entered into a commitment to a $22 million senior term loan and funded $22 million at closing, including a $2 million interest reserve. The loan has an interest rate of 12% plus LIBOR, with a 1% LIBOR floor, and PIK interest of 4% with step downs to 2% and 1.5% once certain criteria are met as defined in the loan agreement. The loan has a maturity date of May 2026, an exit fee of 10%, provided that if certain criteria are met as defined in the loan agreement the exit fee is 2%, and OID of 4%. The borrower’s parent entity has licenses across nine states, and the real estate collateral for this senior term loan includes the borrower’s retail facility in New Jersey and its cultivation facility under construction in New Jersey. This senior term loan relates to the Syndication Letters, as defined and discussed“Risk Factors” located in our Final Prospectus, whereby the loan was initially contemplated as a $46,150,000 commitment and our Manager had syndicated $22 million to us and $24,150,000 to an affiliate, AFC Investments, LLC, subject to satisfactory diligence and definitive loan documentation. The final negotiated loan commitment was for $22 million and AFCG holds the entire amount, with no portion syndicated AFC Investments, LLC.

In May 2021, we amended our senior secured revolving credit agreement, dated August 18, 2020, by and among us, as borrower, and AFC Finance, LLC, an affiliate of ours and our management, as a lender and agent and Gamma Lending Holdco LLC, an entity controlled by Jonathan Kalikow, our Head of Real Estate and one of our directors, and his father , as a lender (as may be amended, supplemented, amended and restated or otherwise modified from time to time, the “Revolving Credit Agreement”). The amendment to the Revolving Credit Agreement increased the loan commitment from $40 million to $50 million, decreased the interest rate from 8% per annum to 6% per annum, removed Gamma Lending Holdco LLC as a party thereto and extended the maturity date from July 31, 2021 to the earlier of (i) December 31, 2021 or (ii) the date of the closing of any credit facility where the proceeds are incurred to refund, refinance or replace the Revolving Credit Agreement with an aggregate principal amount equal to or greater than $50 million (any such financing, a “Refinancing Credit Facility”) in accordanceAnnual Report on Form 10-K, filed with the terms in the Revolving Credit Agreement. We did not incur any fees or cost related to the amendment of the Revolving Credit Agreement and the Revolving Credit Agreement does not have any unused fees. As of the date of this quarterly report, we have not drawnSEC on ~~the Revolving Credit Agreement or incurred any fees or interest expense related to the Revolving Credit Agreement.~~

March 10, 2022.

Key Financial Measures and Indicators

As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, ~~Adjusted Distributable Earnings,~~ book value per share and dividends declared per share.

Non-GAAP Metrics

~~Distributable Earnings and Adjusted~~ Distributable Earnings

In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use ~~Distributable Earnings and Adjusted~~ Distributable Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. ~~Each of Distributable Earnings and Adjusted~~ Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use these non-GAAP financial measures both to explain our results to ~~stockholders~~shareholders and the investment community and in the internal evaluation and management of our businesses. Our management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors and ~~stockholders~~shareholders to assess the overall performance of our business using the same tools that our management uses to evaluate our past performance and prospects for future performance.

The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive ~~Fees~~Compensation earned under the Management Agreement for the applicable time period, and thus Core Earnings is calculated ~~prior~~without giving effect to Incentive ~~Fee~~Compensation expense, while the calculation of Distributable Earnings accounts for any Incentive ~~Fees~~Compensation earned for such time period.

We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) ~~non-cash equity~~stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses, (v) TRS (income)

Index

loss and ~~(v)~~(vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors. We define Adjusted Distributable Earnings, for a specified period, as Distributable Earnings excluding certain non-recurring organizational expenses (such as one-time expenses related to our formation and start-up).

We believe providing ~~Distributable Earnings and Adjusted~~ Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to ~~stockholders~~shareholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that ~~stockholders~~shareholders invest in our common stock, we generally intend to attempt to pay dividends to our ~~stockholders~~shareholders in an amount at least equal to ~~our net~~such REIT taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in ~~declaring~~authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.

~~Table of Contents~~

Distributable Earnings ~~and Adjusted Distributable Earnings are “non-GAAP~~is a non-GAAP financial ~~measures”~~measure and should not be considered as ~~substitutes~~a substitute for GAAP net income. We caution readers that our methodology for calculating ~~Distributable Earnings and Adjusted~~ Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings ~~and Adjusted Distributable Earnings~~ may not be comparable to similar measures presented by other REITs.

The following table provides a reconciliation of GAAP net income to Distributable ~~Earnings and Adjusted Distributable~~ Earnings:

For the three
months ended
March 31, 2021

Net Income $ 1,400,755
Adjustments to net income
Non-Cash Equity compensation expense 1,599,115
Depreciation and amortization -
Unrealized (gain), losses or other non-cash items 144,402
Provision for current expected credit losses 66,100
One-time events pursuant to changes in GAAP and certain non-cash charges -
Distributable Earnings $ 3,210,372
Adjustments to Distributable Earnings
Organizational expense -
Adjusted Distributable Earnings $ 3,210,372
Basic weighted average shares of common stock outstanding (in shares) 7,144,670
Adjusted Distributable Earnings per weighted Average Share $ 0.45


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net income	$	11,351,673	$	4,627,787	$	21,513,793	$	6,028,542
Adjustments to net income:
Stock-based compensation expense	117,397		11,457		1,107,420		1,610,572
Depreciation and amortization	—		—		—		—
Unrealized (gains), losses or other non-cash items	1,005,454		483,159		924,611		627,561
Provision for current expected credit losses	1,593,048		645,786		2,498,177		711,886
TRS (income) loss	(487,474)		—		(548,545)		—
One-time events pursuant to changes in GAAP and certain non-cash charges	—		—		—		—
Distributable earnings	$	13,580,098	$	5,768,189	$	25,495,456	$	8,978,561
Basic weighted average shares of common stock outstanding (in shares)	19,715,749		13,457,536		19,518,964		10,318,542
Distributable earnings per basic weighted average share	$	0.69	$	0.43	$	1.31	$	0.87

Book Value Per Share

We believe that book value per share is helpful to ~~stockholders~~shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020~~2021 was approximately ~~$16.18~~$17.03 and ~~$14.83, respectively, on a post-split basis.~~$16.61, respectively.

~~Dividends Declared Per Share~~

In December 2020, we declared a seven-for-one stock split in the form of a stock dividend, pursuant to which six additional shares of our common stock were issued for each outstanding share of our common stock, payable on January 25, 2021 to each stockholder of record as of the close of business on January 21, 2021 out of our authorized but unissued shares of common stock.

In March 2021, we declared a regular cash dividend of $0.36 per share of our common stock, relating to the first quarter of 2021which was paid on March 31, 2021 to stockholders of record as of March 15, 2021. The aggregate amount of the regular cash dividend payment was approximately $2.2 million. The payment of this dividend is not indicative of our ability to pay such dividends in the future.

In May 2021, we declared a regular cash dividend of $0.38 per share of our common stock, relating to the second quarter of 2021 which will be paid on June 30, 2021 to stockholders of record as of June 15, 2021. The aggregate amount of the regular cash dividend payment will be approximately $5.1million. The payment of this dividend is not indicative of our ability to pay such dividends in the future.

~~Table of Contents~~

Factors Impacting our Operating Results

The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest ~~income,~~margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest ~~income,~~margin, which includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.

Index

Results of Operations

~~We commenced operations on July 31, 2020 and therefore, have no period to compare results for~~ for the three and six months ended ~~March 31, 2021.~~ We are currently in the process of investing the proceeds of our IPO. Results for the initial period of our operations are not indicative of the results we expect when our investment strategy has been fully implemented.

June 30, 2022 and 2021

Our net income allocable to our common ~~stockholders~~shareholders for the three and six months ended ~~March 31, 2021~~June 30, 2022 was approximately ~~$1.4~~$11.4 million and $21.5 million or ~~$0.20~~$0.58 and $1.10 per basic weighted average common ~~share. Net~~share, respectively, compared to net income allocable to our common shareholders of approximately $1.4 million was comprised of approximately $4.7 million in total revenues, operating expenses of approximately $0.6 million, stock-based compensation expense of approximately $1.6 million, management and incentive fees of approximately $0.9 million, change in the provision for current expected credit losses of approximately $0.1$4.6 million and ~~a net change in unrealized gain on loans of~~$6.0 million or $0.34 and $0.58 per basic weighted average common share for the prior year periods.

Interest income increased approximately ~~$0.1 million.~~

Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts. An unrealized gain arises when the value the loan portfolio exceeds its cost$12.9 million and ~~an unrealized loss arises when the value of the loan portfolio is less than its cost. The net change in unrealized gain of approximately $0.1~~$26.9 million for the three and six months ended ~~March 31,~~June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was ~~mainly~~primarily due to an increase in principal outstanding of approximately $164.0 million at June 30, 2021 compared to $424.8 million at June 30, 2022.

Interest expense increased approximately $1.7 million and $3.4 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021. This increase was due to interest expense incurred and amortization of deferred financing costs relating to our AFCF Revolving Credit Facility, which was terminated in April 2022, our Revolving Credit Facility that began in April 2022 and our 2027 Senior Notes that were issued in November 2021.

General and administrative expenses increased approximately $0.5 million and $1.2 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was primarily due to an increase in expenses relating to personnel, overhead, and occupancy costs as the Company continues to expand.

Management fees increased approximately $0.2 million and $0.8 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was primarily due to an increase in the Company’s Equity from approximately $268.5 million to $338.2 million. Incentive fees increased by approximately $2.0 million and $4.3 million for the three and six months ended June 30, 2022 as compared to the three and six months ended June 30, 2021, respectively. This increase was driven by the ~~net change~~increase in Core Earnings as defined in the ~~valuation of the loans.~~

~~For the three months ended March 31, 2021, we incurred fees payable to our manager for a Base~~ Management ~~Fee of $213,932, which was net of a Base Management Fee Rebate of $237,743. The Incentive Compensation fee payable to our manager for the three months ended March 31, 2021 was $662,730.~~

~~For the three months ended March 31, 2021, our Manager will be reimbursed for approximately $365,567 for out-of-pocket costs incurred on our behalf.~~

Agreement.

Provision for Current Expected Credit Losses

For the three and six months ended ~~March 31, 2021,~~June 30, 2022, the increase to our provision for current expected credit loss was ~~$66,100~~approximately $1.6 million and ~~the~~$2.5 million, respectively. The balance as of ~~March 31, 2021~~June 30, 2022 was ~~$531,497~~approximately $5.6 million or ~~125~~176 basis points of our total loans held at carrying value and loans receivable at carrying value ~~commitment~~ balance of ~~$42,393,791~~approximately $318.1 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of ~~$248,317~~approximately $5.0 million and (ii) a liability for unfunded commitments of ~~$283,180.~~approximately $0.6 million. For the six months ended June 30, 2021, the increase to our provision for current expected credit loss was approximately $0.7 million and the balance as of June 30, 2021 was approximately $1.2 million or 109 basis points of our total loans held at carrying value and loans receivable at carrying value balance of approximately $108.4 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of approximately $0.7 million and (ii) a liability for unfunded commitments of approximately $0.5 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.

The increase in the provision for current expected credit losses for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, and changes in other data points we use in estimating the reserve.

Loan Portfolio

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020, the Company’s~~2021, our portfolio included ~~four~~three loans ~~respectively,~~ held at fair value. The aggregate originated commitment under these loans was approximately ~~$62.4~~$96.2 million and ~~$59.9~~$75.9 million as of June 30, 2022 and December 31, 2021, respectively, and outstanding principal was approximately ~~$52.2~~$96.4 million and ~~$50.8~~$77.6 million ~~respectively,~~ as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020.~~ 2021, respectively. For the ~~three~~six months ended ~~March 31, 2021, the Company~~June 30, 2022, we funded approximately ~~$1.0~~$17.3 million of ~~outstanding principal. As~~additional principal of ~~March 31, 2021 and December 31, 2020, approximately 0% and 6.0%, respectively, of the Company’s~~ loans held at fair value ~~have~~and we had no repayments of loans held at fair value. As of June 30, 2022 and December 31, 2021, none of our loans held at fair value had floating interest rates. As of December 31, 2020, these floating rates were subject to LIBOR floors, with a weighted average floor of 2.5%, calculated based on loans with LIBOR floors. References to LIBOR or “L” are to 30-day LIBOR (unless otherwise specifically stated).

~~Table of Contents~~

Index

The following tables summarize ~~the Company’s~~our loans held at fair value as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~2021:


	As of June 30, 2022
	Fair Value (1)		Carrying Value (2)		Outstanding Principal (2)		Weighted Average Remaining Life (Years) (3)

Senior term loans	$	95,199,132	$	93,940,582	$	96,382,983	1.7
Total loans held at fair value	$	95,199,132	$	93,940,582	$	96,382,983	1.7

	As of March 31, 2021
	Fair Value ⁽²⁾		Carrying Value ⁽¹⁾		Outstanding Principal ⁽¹⁾		Weighted Average Remaining Life (Years)⁽³⁾			As of December 31, 2021
										Fair Value (1)		Carrying Value (2)		Outstanding Principal (2)		Weighted Average Remaining Life (Years) (3)
Senior Term Loans	$	50,252,049	$	48,833,111	$	52,212,608		3.1

Senior term loans									Senior term loans	$	77,096,319	$	74,913,157	$	77,630,742	2.2
Total loans held at fair value	$	50,252,049	$	48,833,111	$	52,212,608		3.1	Total loans held at fair value	$	77,096,319	$	74,913,157	$	77,630,742	2.2

(1)Refer to Note 14 to our unaudited interim consolidated financial statements titled “Fair Value.”

~~(1)~~

~~The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs.~~

(2)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.

~~(2)~~

~~Refer to Footnote 14 to our unaudited financial statements included elsewhere in this quarterly report.~~

~~(3)~~

~~Weighted average remaining life is calculated based on the fair value of the loans as of March 31, 2021 and December 31, 2020.~~

(3)Weighted average remaining life is calculated based on the fair value of the loans as of June 30, 2022 and December 31, 2021.

The following table presents changes in loans held at fair value as of and for the ~~three~~six months ended ~~March 31, 2021:~~June 30, 2022:


	Principal		Original Issue Discount		Unrealized Gains (Losses)		Fair Value

Total loans held at fair value at December 31, 2021	$	77,630,742	$	(2,717,584)	$	2,183,161	$	77,096,319
Change in unrealized (losses) gains on loans at fair value, net	—		—		(924,611)		(924,611)
New fundings	17,285,000		(429,275)		—		16,855,725
Accretion of original issue discount	—		704,458		—		704,458
PIK interest	1,467,241		—		—		1,467,241
Total loans held at fair value at June 30, 2022	$	96,382,983	$	(2,442,401)	$	1,258,550	$	95,199,132

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020, the Company’s~~2021, our portfolio included ~~four~~zero and ~~three~~one investments in debt securities, respectively, held at fair value. We sold our investment in debt securities in the first quarter of 2022 for approximately $15.9 million, which was previously designated as available-for-sale as of December 31, 2021, recognizing a loss on the sale of marketable securities of approximately $0.2 million in the first quarter of 2022.

The following table summarizes our debt securities held at fair value as of December 31, 2021. We did not hold any investments in debt securities as of June 30, 2022.

Index


	As of December 31, 2021
	Fair Value (1)		Carrying Value (2)		Outstanding Principal (2)		Weighted Average Remaining Life (Years) (3)

Debt securities	$	15,881,250	$	16,050,000	$	15,000,000	2.9
Total debt securities held at fair value	$	15,881,250	$	16,050,000	$	15,000,000	2.9

(1)The difference between the carrying value and the outstanding principal amount of the securities consists of unaccreted purchase premium and loan origination costs.

(2)Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2021.

The following table presents changes in debt securities held at fair value as of and for the six months ended June 30, 2022:


	Principal		Original Issue Discount		Unrealized Gains (Losses)		Fair Value

Total debt securities held at fair value at December 31, 2021	$	15,000,000	$	1,050,000	$	(168,750)	$	15,881,250
Realized (losses) gains on securities at fair value, net	—		(150,000)		—		(150,000)
Change in accumulated other comprehensive income	—		—		168,750		168,750
Sale of securities	(15,000,000)		(900,000)		—		(15,900,000)
Total debt securities held at fair value at June 30, 2022	$	—	$	—	$	—	$	—

As of June 30, 2022 and December 31, 2021, our portfolio included nine and twelve loans, respectively, held at carrying value. The aggregate originated commitment under these loans was approximately ~~$65~~$383.0 million and ~~$44~~$324.3 million, respectively, and outstanding principal was approximately ~~$42.9~~$326.2 million and ~~$33.9~~$270.8 million, respectively, as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020.~~2021. During the ~~three~~six months ended ~~March 31, 2021, the Company~~June 30, 2022, we funded approximately ~~$8.9~~$116.2 million of ~~outstanding~~additional principal. As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, approximately ~~49%~~38% and ~~35%~~48%, respectively, of ~~the Company’s~~our loans held at carrying value have floating interest rates. ~~These~~As of June 30, 2022, these floating benchmark rates ~~are~~include one-month LIBOR subject to ~~London Interbank Offered Rate (“LIBOR”) floors, with~~ a weighted average floor of 1%1.0% and 1%quoted at 1.787%, ~~respectively, calculated based on loans with LIBOR floors. References~~one-month Secured Overnight Financing Rate (“SOFR”) subject to ~~LIBOR or “L” are~~a weighted average floor of 1.0% and quoted at 1.686% and U.S. Prime Rate subjected to ~~30-day LIBOR (unless otherwise specifically stated)~~a weighted average floor of 4.0% quoted at 4.750%.

~~Table of Contents~~

The following tables summarize ~~the Company’s~~our loans held at carrying value as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020:~~2021:


	As of June 30, 2022
	Outstanding Principal (1)		Original Issue Discount		Carrying Value (1)		Weighted Average Remaining Life (Years) (2)

Senior term loans	$	326,181,229	$	(10,299,185)	$	315,882,044	2.9
Total loans held at carrying value	$	326,181,229	$	(10,299,185)	$	315,882,044	2.9

As of March 31, 2021

Outstanding
Principal ⁽¹⁾

Original Issue
Discount

Carrying Value ⁽¹⁾

Weighted Average
Remaining Life
(Years)⁽²⁾

Senior Term Loans $ 42,940,850 $ (3,787,914 ) $ 39,152,936 4.5
Total loans held at carrying value $ 42,940,850 $ (3,787,914 ) $ 39,152,936 4.5

As of December 31, 2020

Outstanding Principal ⁽¹⁾

Original Issue
Discount

Carrying Value ⁽¹⁾

Weighted Average
Remaining Life
(Years)⁽²⁾

Senior Term Loans $ 33,907,763 $ (2,070,732 ) $ 31,837,031 4.7
Total loans held at carrying value $ 33,907,763 $ (2,070,732 ) $ 31,837,031 4.7

Index

~~(3)~~

~~The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount and loan origination costs.~~


	As of December 31, 2021
	Outstanding Principal (1)		Original Issue Discount		Carrying Value (1)		Weighted Average Remaining Life (Years) (2)

Senior term loans	$	270,841,715	$	(13,678,219)	$	257,163,496	3.4
Total loans held at carrying value	$	270,841,715	$	(13,678,219)	$	257,163,496	3.4

~~(4)~~

~~Weighted average remaining life is calculated based on the carrying value of the loans as of March 31, 2021 and December 31, 2020.~~

(1)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.

(2)Weighted average remaining life is calculated based on the carrying value of the loans as of June 30,2022 and December 31, 2021.

The following table presents changes in loans held at carrying value as of and for the ~~three~~six months ended ~~March 31, 2021:~~June 30, 2022:


	Principal		Original Issue Discount		Carrying Value

Total loans held at carrying value at December 31, 2021	$	270,841,715	$	(13,678,219)	$	257,163,496
New fundings	116,200,972		(4,253,401)		111,947,571
Accretion of original issue discount	—		7,632,435		7,632,435
Loan repayments	(52,014,211)		—		(52,014,211)
Sale of loans	(10,000,000)		—		(10,000,000)
PIK interest	1,981,755		—		1,981,755
Loan amortization payments	(829,002)		—		(829,002)
Total loans held at carrying value at June 30, 2022	$	326,181,229	$	(10,299,185)	$	315,882,044

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020, the Company’s~~2021, our portfolio included one loan receivable at carrying value. The originated commitment under this loan was approximately $4$4.0 million and outstanding principal was approximately ~~$3.2~~$2.2 million and ~~$3.4~~$2.5 million as of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, respectively. During the ~~three~~six months ended ~~March 31, 2021, the Company~~June 30, 2022, we received repayments of ~~$0.1 million~~approximately $0.3 of outstanding principal.

The following table presents changes in loans receivable as of and for the ~~three~~six months ended ~~March 31, 2021:~~June 30, 2022:


	Principal		Original Issue Discount		Carrying Value

Total loan receivable at carrying value at December 31, 2021	$	2,533,266	$	(2,678)	$	2,530,588
Principal repayment of loans	(337,114)		—		(337,114)
Accretion of original issue discount	—		618		618
PIK interest	26,187		—		26,187
Total loan receivable at carrying value at June 30, 2022	$	2,222,339	$	(2,060)	$	2,220,279

Principal
Original Issue
Discount
Carrying Value

Total loans receivable at carrying value at December 31, 2020 $ 3,352,176 $ (3,913 ) $ 3,348,263
Principal repayment of loans (107,717 ) - (107,717 )
Accretion of original issue discount - 309 309
Total loans receivable at carrying value at March 31, 2021 $ 3,244,459 $ (3,604 ) $ 3,240,855

Index

The below table summarizes our total loan portfolio as of ~~March 31, 2021,~~June 30, 2022:


Loan Names	Original Funding Date(1)	Loan Maturity	AFCG Loan, net of Syndication		% of Total AFCG		Principal Balance as of 6/30/2022		Cash Interest Rate		PIK	Fixed/ Floating	Amortization During Term	YTM (2)(3)
Public Co. A - Real Estate Loan	7/3/2019	1/26/2023	$	2,940,000	0.6	%	$	3,069,437	10.0	%	4.0%	Fixed	No	19	%
Public Co. A - Equipment Loans	8/5/2019	3/3/2025	4,000,000		0.8	%	2,222,339		12.0	%	N/A	Fixed	Yes	19	%
Private Co. A(4)	5/8/2020	5/8/2024	77,785,000		16.1	%	80,301,694		12.8	%	2.7%	Fixed	Yes	22	%
Private Co. B	9/10/2020	9/1/2023	15,500,000		3.2	%	13,011,852		13.0	%	4.0%	Fixed	Yes	28	%
Private Co. C	11/5/2020	12/1/2025	24,000,000		5.0	%	24,534,371		13.8	%	4.0%	Floating	Yes	23	%
Sub of Private Co. G(5)	4/30/2021	5/1/2026	65,400,000		13.5	%	55,349,240		13.2	%	1.8%	Floating	Yes	21	%
Sub of Private Co. H(6)	5/11/2021	5/11/2023	5,781,250		1.2	%	5,781,250		15.0	%	N/A	Fixed	No	20	%
Public Co. F(5)	5/21/2021	5/30/2023	86,600,000		17.9	%	86,600,000		8.6	%	N/A	Fixed	No	11	%
Private Co. I	7/14/2021	8/1/2026	10,430,144		2.2	%	10,661,155		13.8	%	2.5%	Floating	Yes	22	%
Private Co. K	4/28/2022	5/3/2027	25,245,000		5.2	%	9,730,000		13.7	%	N/A	Floating	Yes	18	%
Private Co. J	8/30/2021	9/1/2025	23,000,000		4.8	%	23,525,212		13.8	%	4.0%	Floating	Yes	22	%
Sub of Public Co. H	12/16/2021	1/1/2026	60,000,000		12.4	%	60,000,000		9.8	%	N/A	Fixed	No	14	%
Private Co. L	4/20/2022	5/1/2026	82,500,000		17.1	%	50,000,000		12.0	%	N/A	Fixed	Yes	16	%
SubTotal (7)			$	483,181,394	100.0	%	$	424,786,550	11.6	%	1.4%			18	%
														Wtd Average

Information is as of June 30, 2022 unless otherwise specified.

Loan Names Status
Original
Funding Date⁽¹⁾

Loan
Maturity

Total Loan
Commitment

% of Total
AFCG

Principal
Balance as of
3/31/2021

Cash Interest
Rate

Paid In Kind
("PIK")

Fixed/
Floating

Amortization
During Term

YTM ⁽²⁾

Public Co. A - Real Estate Loan⁽³⁾
Funded: 7/3/2019 1/26/2023 $ 2,940,000 2.3 % $ 2,945,479 12.0 % 2.0 % Fixed No 20
%
Public Co. A - Equipment Loan⁽³⁾
Funded: 8/5/2019 3/5/2024 4,000,000 3.1 % 3,244,459 12.0 % N/A Fixed Yes 17 %
Sub. of Public Co. C⁽⁴⁾⁽⁵⁾
Funded: 2/12/2020 2/18/2025 15,000,000 11.7 % 12,046,801 16.8 % 3.0 % Fixed Yes 49. %
Private Co. A Funded: 5/8/2020 5/8/2024 34,000,000 26.5 % 34,672,331 13.0 % 4.0 % Fixed Yes 24 %
Private Co. B Funded: 9/10/2020 9/1/2023 10,500,000 8.2 % 2,548,159 13.0 % 4.0 % Fixed Yes 26 %
Private Co. C Funded: 11/5/2020 12/1/2025 22,000,000 17.1 % 13,895,465 13.0 % 4.0 % Floating Yes 22 %
Sub. of Public Co. D⁽⁶⁾
Funded: 12/18/2020 12/18/2024 10,000,000 7.8 % 10,000,000 12.9 % N/A Fixed No 14 %
Private Co. D Funded: 12/23/2020 1/1/2026 12,000,000 9.3 % 12,045,385 13.0 % 2.0 % Fixed Yes 20
%
Private Co. E
Funded: 3/30/2021 4/1/2026 21,000,000 14.0 % 7,000,000 13.0 % 4.0 % Floating Yes 23 %
Subtotal $ 131,440,000 100.0 % $ 98,398,079 13.4 % 3.0 % 23 %
Wtd Average

~~Table of Contents~~

Borrower names have been kept confidential due to confidentiality agreement obligations.

(1)All loans originated prior to ~~7/31/~~July 31, 2020 were purchased from an affiliated entity at fair value which approximated accreted and/or amortized cost plus accrued interest on ~~7/31/~~July 31, 2020.

(2) ~~Yield to Maturity (“YTM”)~~Estimated YTM includes a variety of fees and features that ~~enhance~~affect the total yield, which may include, ~~Original Issue Discount (“OID”),~~but is not limited to, OID, exit fees, prepayment fees, ~~extension~~unused fees and ~~unused fees. Original Issue Discount or "OID"~~contingent features. OID is recognized as a discount to the funded loan principal and ~~are~~is accreted to income over the term of the loan. Loans originated before ~~7/31/~~July 31, 2020 were acquired by ~~AFC,~~us, net of unaccreted OID, which ~~AFC accretes~~we accrete to income over the remaining term of the loan. In some cases, additional OID is recognized from additional purchase discounts attributed to the fair value of equity positions that were separated from the loans prior to our acquisition of such loans.

The estimated YTM calculations require management to make estimates and assumptions, including, but not limited to, the timing and amounts of loan draws on delayed draw loans, the timing and collectability of exit fees, ~~and~~ the probability and timing of ~~prepayments.~~prepayments and the probability of contingent features occurring. For example, certain credit agreements contain provisions pursuant to which certain PIK interest rates and fees earned by us under such credit agreements will decrease upon the satisfaction of certain specified criteria which we believe may improve the risk profile of the applicable borrower. To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Actual results could differ from those ~~estimates. To be conservative, no prepayment penalties or early payoffs were assumed.~~estimates and assumptions.

(3) ~~The yield to maturity or “YTM”~~Estimated YTM for ~~Loans Public Co.~~the loan with Private Company A ~~- Real Estate Loan, Public Co. A - Equipment Loan, Private Co. A, Private Co. D, Private Co. E~~ is enhanced by purchase discounts attributed to the fair value of equity warrants that were separated from the ~~loans~~loan prior to ~~the AFC's~~our acquisition of ~~the Loans.~~such loan. The purchase discounts accrete to income over the respective remaining ~~term~~terms of the applicable loan.

(4)PIK interest rate for Private Co. ~~E equity value is~~A represents a ~~preliminary value.~~

~~(4) Loan includes a $3,000,000 initial funding,~~blended rate of ~~a $15,000,000 loan commitment, which has~~differing PIK interest that includes 3% PIK; amortization exceeds PIK. The loan also includes two early advances totaling $9,000,000 against the $15,000,000 total loan commitment, with a 19% interest rate. Statistics shown are for the $15,000,000 loan commitment, except the weighted average interest rate, which is based on the weighted average interest rate currently.

~~(5) YTM for Sub. Of Public Co. C assumes a repayment date of 4/13/2021. Refer~~rates applicable to ~~recent developments for information on the repayment of this loan.~~

~~(6) Loan has an optional extension for 364 days, but we do not have to participate in the extension, so it was not included nor assumed.~~

~~Illustrative Description of Borrowers:~~

~~Public Company A~~

Single-state cultivator, producer and full-service brand fulfillment partner that produces a wide range of products in the Nevada market. Public Company A operates a +/- 400,000 square foot greenhouse and 55,000 square foot processing and custom packaging facility, which is capable of producing 140,000 pounds of dry flower per year. Public Company A also operates a +/- 25,000 square foot indoor cultivation facility and commercial kitchen. The real estate collateral of Public Company A includes a greenhouse and processing facility in Nevada.

~~Subsidiary of Public Company C~~

~~Single-state vertically-integrated cultivator and retailer with operations in Florida, one~~each of the ~~fastest growing markets in~~three tranches to which we are a lender under the United States. Operations consist of two greenhouse cultivation facilities, eight dispensaries and a car delivery system to extend its retail network. The real estate collateral of Subsidiary of Public Company C includes two cultivation facilities in Florida.

~~Private Company A~~

~~Multi-state operator~~senior secured term loan credit facility with ~~operations in seven states.~~ Private Company A ~~is a vertically integrated cultivator~~(as may be amended, supplemented, amended and ~~retailer of both medical and adult-use cannabis that primarily operates under its own brand.~~ restated or otherwise modified from time to time, the ‘‘Private Company ~~A’s business segments include cultivation, extraction~~A Credit Facility’’).

(5)Cash interest and ~~processing, retail products, and dispensaries. The real estate collateral~~PIK interest rates for the Subsidiary of Private Company ~~A includes~~G and Public Co. F represents a blended rate of differing cash interest and PIK interest rates applicable to each of the three ~~cultivation facilities across Arizona and Michigan and nine dispensaries across Arizona, Maryland, Massachusetts and Michigan.~~tranches with differing rates.

~~Private Company B~~

~~Single-state operator currently constructing an indoor cultivation facility~~(6)Loan to wholesale product to the medical and adult use markets in Michigan. Private Company B produces high-end cannabis strains and intends to focus on the high-end, top-tier cannabis niche. The management team has over 20 years’ experience in the cannabis industry, including ten years in Michigan. The real estate collateral for Private Company B includes a cultivation facility in Michigan.

~~Private Company C~~

Single-state vertically integrated cultivator and retailer of medical cannabis. Private Company C operates under a Chapter 20 Clinical Registrant license and has partnered to collaborate on multifaceted studies to substantiate safety and positive therapeutic outcomes. Private Company C currently operates a cultivation facility and three dispensaries with the ability to add three additional dispensary locations. The real estate collateralSubsidiary of Private Company ~~C includes a cultivation facility and dispensary in Pennsylvania.~~

~~Subsidiary of Public Company D~~

~~Public Company D participates in~~H does not reflect the ~~medical and adult use market across Canada and in several US states where cannabis has been legalized~~borrower’s option to request up to two maturity extensions each for therapeutic or adult use. Subsidiary of Public Company D is a premier medical marijuana cultivator, processor and distributor in Pennsylvania. Public Company D also has operators in California and New Jersey. The real estate collateral for Subsidiary of Public Company D includes a cultivation facility in Pennsylvania.

~~Private Company D~~

Multi-state operator who operates five dispensaries, the maximum number of dispensaries allowed by law for any operator, in the State of Ohio and one dispensary in Arkansas. Private Company D historical focus has been dispensary operations and has licenses in other states, where it also operates dispensaries. The real estate collateral for Private Company D includes two dispensaries in Ohio and one in Arkansas.

~~Table of Contents~~

~~Private Company E~~

~~Single-state operator who operates one dispensary and is currently constructing~~ an ~~indoor cultivation facility to wholesale product for medical use in Ohio. Private Company E approaches the medical cannabis market~~additional six months from the ~~healthcare~~then-existing loan maturity date. The first extension, which is available at the borrower’s sole option, is subject to a payment of a 2.0% fee. The second extension is subject to the approval of all lenders.

(7)The interest and ~~scientific perspectives of its founders and key executives, differentiating it in the industry.~~

PIK subtotal rates are weighted average rates.

Collateral Overview

Our loans are secured by various types of assets of our borrowers, including real property and certain personal property, including value associated with licenses, equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers. We do not have liens on cannabis inventory and are generally restricted from taking ownership of state licenses by current statutory prohibitions and exchange listing standards. The documents governing our loans also include a variety of provisions intended to provide remedies against the value associated with licenses. For

Index

~~The below represents~~example, some loan documents require a grant of a security interest in all property of the entities holding licenses to the extent not prohibited by applicable law or regulations (or requiring regulatory approval), equity pledges of entities holding licenses, receivership remedies and/or other remedies to secure the value associated with the borrowers’ licenses. Upon default of a loan, we may seek to sell the loan to a third party or have an affiliate or a third-party work with the borrower to have the borrower sell collateral securing the loan to a third party or institute a foreclosure proceeding to have such collateral sold, in each case, to generate funds towards the payoff of the loan. While we believe that the appraised value of any real estate assets or other collateral securing our loans asmay impact the amount of ~~March 31, 2021. The values~~the recovery in each such scenario, the ~~table below were~~amount of any such recovery from the sale of such real estate or other collateral may be less than the appraised value of such collateral and the sale of such collateral may not be sufficient to pay off the remaining balance on the defaulted loan. Becoming the holder of a license through foreclosure or otherwise, the sale of a license or other realization of the value of licenses requires the approval of regulatory authorities. As of June 30, 2022, our portfolio of loans had a weighted average real estate collateral coverage of approximately 1.1 times our aggregate committed principal amount of such loans. Our real estate collateral coverage for each of our loans was measured at the time of underwriting and based on various sources of data available at such time.

Borrower Status Date
AFCG
Commitment,
net of
Syndication
% of Total AFCG
Total Funded
Debt Issuance

AFCG %
of the
Total Loan

Est.
Real Estate
Value ⁽¹⁾

Real Estate
Collateral Coverage

Implied
Real Estate
Collateral
for AFCG
��
AFCG
Real Estate
Collateral
Coverage

Public Co. A - Real Estate Loan⁽²⁾
Funded 7/3/2019 $ 2,940,000 2.3 % $ 30,000,000 9.8 % $ 72,000,000 2.40 x $ 7,056,000 2.40 x
Public Co. A - Equipment Loan Funded 8/5/2019 $ 4,000,000 3.1 % $ 20,000,000 20.0 % $ 0 0.00 x $ 0 0.00 x
Subsidiary of Public Co. C⁽³⁾
Funded 2/12/2020 $ 15,000,000 11.7 % $ 15,000,000 100.0 % $ 30,723,143 2.05 x $ 30,723,143 2.05 x
Private Co. A⁽⁴⁾
Funded 5/8/2020 $ 34,000,000 26.5 % $ 42,500,000 80.0 % $ 51,339,031 1.21 x $ 41,071,225 1.21 x
Private Co. B⁽⁵⁾
Funded 9/10/2020 $ 10,500,000 8.2 % $ 10,500,000 100.0 % $ 19,536,098 1.86 x $ 19,536,098 1.86 x
Private Co. C⁽⁶⁾
Funded 11/5/2020 $ 22,000,000 17.1 % $ 22,000,000 100.0 % $ 23,733,050 1.08 x $ 23,733,050 1.08 x
Subsidiary of Public Co. D⁽⁷⁾
Funded 12/18/2020 $ 10,000,000 7.8 % $ 120,000,000 8.3 % $ 26,058,332 0.22 x $ 2,171,528 0.22 x
Private Co. D⁽⁸⁾
Funded 12/23/2020 $ 12,000,000 9.3 % $ 12,000,000 100.0 % $ 7,538,589 0.63 x $ 7,538,589 0.63 x
Private Co. E⁽⁹⁾
Funded 3/30/2021 $ 21,000,000 14.0 % $ 21,000,000 100.0 % $ 16,102,000 0.89 x $ 16,102,000 0.77 x
$ 131,440,000 100.0 % $ 293,000,000 $ 247,030,242 0.85 x $ 147,931,632 1.13 x

~~(1) Real Estate~~ We calculate our weighted average real estate collateral coverage by estimating the underlying value of our real estate collateral based on ~~appraised value, if available. In addition, if loan funds acquisition and/or construction, figure includes expected total basis on future construction and/or acquisitions plus appraised value.~~

~~(2) Public Company A real estate based on cost basis.~~

~~(3) Subsidiary of Public Company C real estate based on existing cultivation property~~various objective and ~~the completed and stabilized value of the to-be-built facility.~~

~~(4) Private Company A real estate based on appraised value plus future basis.~~

~~(5) Private Company B real estate based on~~subjective factors, including, without limitation, third party appraisals, total cost basis ~~as completed.~~of the subject property and/or our own internal estimates.

~~(6) Private Company C~~We may pursue a sale of a defaulted loan if we believe that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale. To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral, we will be subject to the rules and regulations under state law that govern foreclosure sales and Nasdaq listing standards that do not permit us to take title to real estate ~~based on total cost basis, as completed.~~

~~(7) Subsidiary~~while it is involved in commercial sales of ~~Public Company D~~cannabis. In addition, the sale of the collateral securing our loans may be difficult and may be to a party outside of the cannabis industry. Therefore, any appraisal-based value of our real estate ~~based on total cost basis.~~

~~(8) Private Company D~~and other collateral may not equal the value of such collateral if it were to be sold to a third party in a foreclosure or similar proceeding. We may seek to sell a defaulted loan prior to commencing a foreclosure proceeding or during a foreclosure proceeding to a purchaser that is not required to comply with Nasdaq listing standards. We believe a third-party purchaser that is not subject to Nasdaq listing standards may be able to realize greater value from real estate ~~based on appraised value.~~

~~(9) Private Company E~~and other collateral securing our loans. However, we can provide no assurances that a third party would buy such loans or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees. We will not own real estate ~~based on total cost basis,~~ as ~~completed.~~long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our ~~stockholders~~shareholders and meet other general business needs. We use significant cash to purchase our target investments, repay principal and interest on our borrowings, make distributions to our ~~stockholders~~shareholders and fund our operations. The sources of financing for our target investments are described below.

Our primary sources of cash generally consist of unused borrowing capacity under our Revolving Credit ~~Agreement,~~Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results. ~~We expect that~~

Our net cash provided by operating activities for the six months ended June 30, 2022 of approximately $15.2 million was less than our ~~primary sources~~dividend payments of ~~financing~~$19.1 million made during the same period due to earned OID of $8.3 million and PIK repayments of $1.2 million related to repayments from Private Company D, Private Company F and Private Company E during such period. OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows.

Capital Markets

Our Shelf Registration Statement became effective on April 18, 2022, allowing us to sell, from time to time in one or more offerings, up to $1.0 billion of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our ATM Program, which was

Index

established in April 2022 pursuant to ~~the extent available~~which we may sell, from time to ~~us, through (a) credit facilities and (b) public and private offerings~~time, up to $75.0 million of our common stock. As of June 30, 2022, we sold an aggregate of 114,932 shares of the Company’s common stock under the Sales Agreement at an average price of $18.08 per share. The sales generated net proceeds of approximately $1.3 million.

We may seek to raise further equity capital and issue debt ~~securities. In the~~securities in order to fund our future ~~we may utilize other sources of financing to the extent available to us.~~investments in loans. As the cannabis industry continues to evolve and to the extent that additional states legalize cannabis, the demand for capital continues to increase as operators seek to enter and build out new markets. We expect the principal amount of the loans we originate to increase and that we will need to raise additional equity and/or debt funds to increase our liquidity in the near future.

As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, all of our cash was unrestricted and totaled approximately ~~$126.8~~$45.6 million and ~~$9.6~~$109.2 million, respectively.

~~Table of Contents~~

~~The sources~~As of ~~financing for~~June 30, 2022, we believe that our ~~target investments are described below.~~

cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Revolving Credit Facility

On April 29, 2022, we entered into a Revolving Credit Agreement by and among us, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, we obtained a $60.0 million senior-secured revolving credit facility.

~~Pursuant~~The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to ~~the terms~~up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), and contains a maturity date of April 29, 2025. Interest is payable on the Revolving Credit ~~Agreement, our revolving credit facility provides revolving loan commitments~~Facility at the greater of ~~up to $50.0 million~~(1) the applicable base rate plus 0.50% and ~~bears interest at a fixed rate of 6% per annum,~~(2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. AsWe incurred a one-time commitment fee expense of ~~each~~approximately $0.4 million, which is amortized over the life of ~~March 31, 2021 and December 31, 2020, we did not have any borrowings outstanding under our Revolving Credit Agreement. Future proceeds under~~the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit ~~Agreement are available~~Facility has an unused line fee of 0.25% per annum, to ~~fund loans and bridge capital contributions and for general corporate purposes. We did not incur any fees or costs related to~~be paid semi-annually in arrears, which will be included within interest expense in the ~~origination~~Company’s consolidated statements of ~~the Revolving Credit Agreement and we are not required to pay any commitment fees under the Revolving Credit Agreement.~~ operations.

Our obligations under the Revolving Credit ~~Agreement and the other loan documents delivered in connection therewith~~Facility are secured by certain assets of ours comprising of or relating to loan obligations designated for inclusion in the borrowing base. In addition, we are subject to various financial and other covenants, including: (1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.50 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of us and our subsidiaries.

Termination of AFC Finance Credit Facility

On April 29, 2022, upon our entry into the Revolving Credit Facility, we terminated the AFCF Revolving Credit Facility with AFC Finance, LLC. In connection with the termination, we paid the outstanding amounts remaining in connection with the commitment fee of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million. There were no other payments, premiums or penalties required to be paid in connection with the termination.

2027 Senior Notes

On November 3, 2021, we issued $100.0 million in the aggregate principal amount of the 2027 Senior Notes. The 2027 Senior Notes accrue interest at a ~~first priority security interest in substantially~~rate of 5.75% per annum. Interest on the 2027 Senior Notes is due semi-annually on May 1 and November 1 of each year, beginning on May 1, 2022. The net proceeds from the issuance of the 2027 Senior Notes were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by us.

Under the Indenture, we are required to cause all of our existing and future ~~assets. The maturity date~~subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. Subsequent to the transfer of our investment in the senior secured loan to Private Company I to TRS1 on April 1, 2022, TRS1 was added as a subsidiary guarantor under the Indenture. As of June 30, 2022, the 2027 Senior Notes are guaranteed by TRS1.

Prior to February 1, 2027, we may redeem the 2027 Senior Notes at any time, in whole or from time to time in part, at a redemption price equal to the greater of 100% of the ~~Revolving Credit Agreement is~~principal amount thereof or a make-whole premium set forth in the ~~earlier~~Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after February 1, 2027, we

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may redeem the 2027 Senior Notes in whole or in part at a price equal to 100% of ~~(i) December 31, 2021~~the principal amount of the 2027 Senior Notes being redeemed, plus accrued and ~~(ii) a Refinancing Credit Facility.~~unpaid interest, if any, to, but excluding, the applicable redemption date. The ~~Revolving Credit Agreement provides for certain covenants, including requiring~~Indenture also requires us to ~~deliver financial information~~offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101% of the principal amount of the 2027 Senior Notes, plus accrued and ~~any notices~~unpaid interest if a “change of ~~default, and conducting business~~control triggering event” (as defined in the ~~normal course. To~~Indenture) occurs.

The Indenture contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on our ability to (1) incur additional indebtedness unless the ~~best~~Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of our ~~knowledge, as~~consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of ~~March 31, 2021, we were~~our consolidated Total Assets (as defined in ~~compliance in~~the Indenture); and (4) merge, consolidate or sell substantially all ~~material respects with all covenants contained in~~of our ~~Revolving Credit Agreement.~~assets. In addition, the ~~Revolving Credit Agreement contains~~Indenture also provides for customary events of default. ~~In the case of an~~If any event of default ~~the lenders may terminate the commitments~~occurs, any amount then outstanding under the ~~secured revolving credit facility~~Indenture may immediately become due and ~~require immediate repayment~~payable. These events of ~~all outstanding borrowings. Such termination~~default are subject to a number of important exceptions and ~~acceleration would occur automatically~~qualifications set forth in the ~~event~~Indenture. We were in compliance with the terms of ~~certain bankruptcy events.~~

the Indenture as of the date of this quarterly report.

The table below sets forth the material terms of our outstanding senior notes as of the date of this quarterly report:

Senior Notes

Issue
Date

Amount
Outstanding

Interest
Rate Coupon

Maturity
Date

Interest
Due Dates

Optional
Redemption Date

2027 Senior Notes

November 3, 2021

$100.0 million

5.75%

May 1, 2027

May 1 and November 1

February 1, 2027

Other Credit Facilities, Warehouse Facilities and Repurchase Agreements

In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.

Debt Service

~~Capital Markets~~As of June 30, 2022, we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

~~We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans.~~

Cash Flows

The following table sets forth changes in cash and cash equivalents ~~and restricted cash~~ for the three and six months ended ~~March 31,~~June 30, 2022 and 2021:


	Six months ended June 30,
	2022		2021
Net income	$	21,513,793	$	6,028,542
Adjustments to reconcile net income to net cash (used in) provided by operating activities and changes in operating assets and liabilities	(6,287,571)		1,467,345
Net cash provided by (used in) operating activities	15,226,222		7,495,887
Net cash (used in) provided by investing activities	(49,122,968)		(61,684,731)
Net cash (used in) provided by financing activities	(29,765,769)		169,169,896
Change in cash and cash equivalents	$	(63,662,515)	$	114,981,052

For the three
months ended
March 31, 2021

Net Income
$
1,400,755

Adjustments to reconcile net income to net cash provided by / (used in) operating activities and changes in operating assets and liabilities
970,030

Net cash provided by operating activities
2,370,785

Net cash used in investing activities
(6,885,056
)
Net cash provided by financing activities
121,684,423

Change in cash, cash equivalents and restricted cash $ 117,170,152

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2022 was approximately $15.2 million, compared to approximately $7.5 million for the same period in 2021. The increase from June 30, 2021 to June 30, 2022 was primarily due to an increase in net income of approximately $15.5 million, offset by an increase in accretion of OID of approximately $(6.1) million and increase in PIK interest of approximately $(2.2) million.

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Net Cash Provided by ~~Operating Activities~~

For the three months ended March 31, 2021, net cash provided by operating activities totaled approximately $2.4 million. For the three months ended March 31, 2021, adjustments to net income related to operating activities primarily included net change in unrealized gain on loans at fair value of approximately $0.1 million, stock-based compensation expense of approximately $1.6 million, PIK interest of approximately $0.6 million, accretion of deferred loan original issue discount and other discounts of approximately $0.7 million and change in other assets and liabilities of approximately $0.7 million.

~~Net Cash Used in~~(Used in) Investing Activities

~~For the three months ended March 31, 2021, net~~Net cash used in investing activities ~~totaled~~during the six months ended June 30, 2022 was approximately ~~$6.9 million. The net cash used in investing activities was primarily a result of the cash used~~$49.1 million, compared to approximately $61.7 million for the ~~origination~~same period in 2021. The change was caused primarily by loan issuance and ~~funding of loans held for investment~~fundings of approximately ~~$7.1~~$103.8 million ~~exceeding~~during the ~~cash received from principal~~six months ended June 30, 2022, compared to approximately $76.9 million for the same period in 2021, offset by repayment of loans ~~held for investment~~ of approximately ~~$0.1~~$28.2 million during the six months ended June 30, 2022, compared to $12.9 million during the six months ended June 30, 2021, and ~~cash~~proceeds received from the sale of ~~Assigned Rights~~loans and marketable securities of approximately ~~$0.1~~$26.5 million during the six months ended June 30, 2022, compared to $0 for the ~~three months ended March 31,2021.~~

same period in 2021.

Net Cash Provided by (Used in) Financing Activities

~~For~~Net cash used in financing activities during the ~~three~~six months ended ~~March 31, 2021,~~June 30, 2022 was approximately $29.8 million, compared to net cash provided by financing activities ~~totaled~~of approximately ~~$121.7~~$169.2 million ~~and related to~~for the same period in 2021. The change was caused primarily by the change in proceeds from the ~~issuance~~sale of ~~our~~ common stock ~~in our IPO~~ of approximately ~~$123.9 million, less approximately $2.2~~$66.0 million in ~~dividends paid.~~the current period versus approximately $180.3 million in the prior year period as well as the repayments on the AFCF Revolving Credit Facility of approximately $75.0 million in the current period, versus $0 for the same period in 2021.

Contractual Obligations, ~~and~~ Other Commitments,

and Off-Balance Sheet Arrangements

Our contractual obligations as of ~~March 31, 2021 and December 31, 2020~~June 30, 2022 are as follows:


	As of June 30, 2022
	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Unfunded commitments	$	61,982,107	$	—	$	—	$	—	$	61,982,107
Total	$	61,982,107	$	—	$	—	$	—	$	61,982,107

As of March 31, 2021

Less than
1 year
1-3 years 3-5 years
More than
5 years
Total
Unfunded Commitments $
33,469,664 - - - $
33,469,664
Total $
33,469,664 - - - $
33,469,664

As of December 31, 2020

Less than
1 year
1-3 years 3-5 years
More than
5 years
Total
Unfunded Commitments $
19,825,119 - - - $
19,825,119
Total $
19,825,119 - - - $
19,825,119

As of ~~March 31, 2021 and December 31, 2020,~~June 30, 2022, all unfunded commitments relate to our total loan commitments and were ~~due~~available for funding in less than one year.

We also had the following contractual obligations as of June 30, 2022 relating to the 2027 Senior Notes:


	As of June 30, 2022
	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Contractual obligations(1)	$	6,229,167	$	11,500,000	$	111,020,833	$	—	$	128,750,000
Total	$	6,229,167	$	11,500,000	$	111,020,833	$	—	$	128,750,000

(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2022.

We may enter into certain contracts that may contain a variety of indemnification obligations. The maximum potential future payment ~~amount~~amounts we could be required to pay under these indemnification obligations may be unlimited.

~~Off-Balance Sheet Arrangements~~

Off-balance sheet commitments consist of unfunded commitments on delayed draw loans. Other than as set forth in this quarterly report on Form 10-Q, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities.

Leverage Policies

We currently do not intend to have leverage of more than one times ~~equity and intend to have substantially less drawn on any revolving credit agreements than available commitments under those agreements. Although~~equity. While we are ~~not~~ required to maintain ~~any particular~~our leverage ratio in compliance with the 2027 Senior Notes Indenture, we expect to employ prudent amounts of leverage and, when appropriate, to use debt as a means of providing additional funds for the acquisition of loans, to refinance existing debt or for general corporate purposes. Leverage is primarily used to provide capital for forward commitments until additional equity is raised or additional medium- to long-term financing is arranged. This policy is subject to change by management and our Board.

~~Table of Contents~~

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Dividends

We ~~will elect~~have elected to be taxed as a REIT for United States federal income tax purposes and, as such, ~~anticipate~~intend to annually ~~distributing~~distribute to our ~~stockholders~~shareholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and excluding our net capital gain. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the ~~Internal Revenue Code of 1986, as amended (the “Code”))~~Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any undistributed shortfall from ~~its~~our prior calendar year (the “Required Distribution”) to our ~~stockholders~~shareholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our ~~stockholders.~~shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our ~~stockholders~~shareholders and pay tax at regular corporate rates on the retained net capital gain. The ~~stockholders~~shareholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we will accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned.

To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.

Any future determination to actually pay dividends or other distributions will be at the discretion of our Board, subject to compliance with applicable law and any contractual provisions, including under agreements for indebtedness we may incur, that restrict or limit our ability to pay dividends, and will depend upon, among other factors, our results of operations, financial condition, earnings, capital requirements, the annual distribution requirements under the REIT provisions of the Code, our REIT taxable income and other factors that our Board deems relevant. Under the Maryland General Corporation Law, we generally may only pay a dividend or other distribution if, after giving effect to the distribution, we would be able to pay our indebtedness as it becomes due in the usual course of business and our total assets exceed our total liabilities.

Critical Accounting Policies and Estimates

As of ~~March 31, 2021,~~June 30, 2022, there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in ~~the Final Prospectus.~~our Annual Report on Form 10-K.

~~Item 3.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily relate to fluctuations in interest rates. Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers. Changes in market yields may change the fair value of certain of our loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of our ~~loans,~~loans; however, this is mitigated to the extent our loans bear interest at a floating rate. As of ~~March 31, 2021,~~June 30, 2022, a decrease of 50 bps or increase of 50 bps of the market yield would have resulted in a change in unrealized gain / (loss) of approximately ~~$0.3~~$0.5 million and ~~$0.5~~$(0.5) million, respectively. As of ~~March 31, 2021,~~June 30, 2022, we had ~~two~~five floating-rate loans, representing approximately ~~21%~~29% of our ~~loan~~ portfolio based on aggregate outstanding principal ~~balances,~~balances. These floating benchmark rates include one-month LIBOR subject to a weighted average ~~LIBOR~~ floor of ~~approximately~~ 1.0% ~~with LIBOR~~and quoted ~~as 0.11%~~at 1.787%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0%, and quoted at 1.686% and U.S. Prime Rate subjected to a weighted average floor of 4.0% quoted at 4.750%. We estimate that a hypothetical 100 basis points increase in ~~LIBOR~~the floating benchmark rate would result in an increase in annual interest income of approximately ~~$23,221~~$1.2 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in ~~LIBOR would not affect our~~annual interest income ~~due to the LIBOR floor on our loans. This assumes that the weighted average LIBOR floor~~ of ~~our floating-rate loans remains at~~ approximately ~~1.0%.~~$(1.0) million.

Potential Impact of LIBOR Transition

~~The Chief Executive~~As of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London Interbank Offered Rate, or LIBOR, has announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However, for U.S dollar LIBOR, the relevant date has been deferred to at least June 30, 2023 for certain tenors (including overnight and one, three, six and 12 months), at which time the LIBOR administrator has indicated that it intends to cease publication of U.S. dollar LIBOR. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot and will not be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR will be discontinued or modified prior to June 30, 2023.

~~As of March 31, 2020, two~~2022, five of our loans, representing approximately ~~21%~~29% of our ~~loan~~ portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to ~~LIBOR.~~either LIBOR, SOFR, or U.S. Prime Rate. If ~~LIBOR is~~one of these floating benchmarks are no longer available, our applicable loan documents generally allow us to choose a new index based upon comparable information. However, if ~~LIBOR is~~each of these benchmarks are no longer available, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest. ~~There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate.~~ As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our loans. In addition, the elimination of LIBOR and/or changes to another index could result in mismatches with the interest rate of loans that we are financing.

Index

Changes in Fair Value of Our Assets

We generally hold our target investments as long-term loans; however, we may occasionally classify some of our loans as held for sale. We may carry our loans at fair value or carrying value in our consolidated balance sheet. As of ~~March 31, 2021~~June 30, 2022 and December 31, ~~2020, respectively, four~~2021, three of our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, with changes in fair value recorded through earnings.

We evaluate our loans on a quarterly basis and fair value is determined by our Board through its independent Audit and Valuation Committee. We use an independent third-party valuation firm to provide input in the valuation of all of our unquoted investments, which we consider along with other various subjective and objective factors in making our evaluations.

Our loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, we consider the current contractual interest rate, the maturity and other terms of the loan relative to risk of the borrower and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the borrower. As loans held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable. Changes in market yields may change the fair value of certain of our loans.

~~Table of Contents~~

Generally, an increase in market yields may result in a decrease in the fair value of certain of our loans; however, this is mitigated to the extent our loans bear interest at a floating rate.

Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of our loans may fluctuate from period to period. Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that we may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate our investment in a loan in a forced or liquidation sale, we could realize significantly less than the value at which we had recorded such loan investment.

Changes in Market Interest Rates and Effect on Net Interest Income

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.

Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally will be based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Interest Rate Cap Risk

WeThrough our Manager, we originate both fixed and ~~may in~~floating rate loans and going forward, we intend to have the ~~future acquire floating-rate assets.~~majority of our loans by aggregate commitments accrue at floating rates. These are assets in which the loans may be subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the asset’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements may not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our floating-rate assets would effectively be limited. In addition, floating-rate assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of cash income from such assets in an amount that is less than the amount that we would need to pay the interest cost on our related borrowings. These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.

In July 2017, the Financial Conduct Authority announced its intention to phase out LIBOR by the end of 2021 and the IBA recently announced that it will be consulting on plans to extend the cessation date for certain tenors of U.S.-dollar LIBOR until 2023. It is not possible to predict the effect of any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phase out. If LIBOR is no longer available, our applicable loan documents generally allow us to choose a new index based upon comparable information Any of these proposals or consequences could have a material adverse effect on our interest expenses.

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Interest Rate Mismatch Risk

We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on ~~LIBOR,~~various benchmarks, while the interest rates on these assets may be fixed or indexed to LIBOR, SOFR, Prime Rate, or another index rate. Accordingly, any increase in ~~LIBOR~~an index rate will generally result in an increase in our borrowing costs that would not be matched by fixed-rate interest earnings and may not be matched by a corresponding increase in floating-rate interest earnings. Any such interest rate mismatch could adversely affect our profitability, which may negatively impact distributions to our ~~stockholders.~~

shareholders.

Our analysis of risks is based on our Manager’s experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of decisions by our Manager and our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results.

~~Table of Contents~~

~~Market Conditions~~

We believe that favorable market conditions, including an imbalance in supply and demand of credit to cannabis operating companies, have provided attractive opportunities for non-bank lenders, such as us, to finance commercial real estate loans and other loans that exhibit strong fundamentals but also require more customized financing structures and loan products than regulated financial institutions can presently provide. Additionally, to the extent that additional states legalize cannabis, our addressable market will increase. We intend to continue our track record of capitalizing on these opportunities and growing the size of our portfolio.

Credit Risk

We are subject to varying degrees of credit risk in connection with our loans and interest receivable. Our Manager seeks to mitigate this risk by seeking to originate loans, and may in the future acquire loans, of higher quality at appropriate prices given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated and acquired loans. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results.

We expect to be subject to varying degrees of credit risk in connection with holding our portfolio of loans. We will have exposure to credit risk on our commercial real estate loans and other targeted types of loans. Our Manager will seek to manage credit risk by performing deep credit fundamental analysis of potential assets and through the use of non-recourse financing, when and where available and appropriate.

Credit risk will also be addressed through our Manager’s on-going review, and loans will be monitored for variance from expected prepayments, defaults, severities, losses and cash flow on a quarterly basis.

Other than the acquisition of our initial portfolio of loans and certain loan commitments relating to Private Company A, we, through our Manager, have originated substantially all of our loans and intend to continue to originate our loans, but we have previously and may in the future acquire loans from time to time. Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that we may in the future acquire other than as necessary to maintain our exemption from registration under the Investment Company Act and our qualification as a REIT. Our investment decisions will depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage of our capital that will be invested in any individual target investment at any given time.

Our loan portfolio as of June 30, 2022 was concentrated with the top four borrowers representing approximately 64.1% of the aggregate outstanding principal balances and approximately 64.6% of the total loan commitments. Additionally, the industry is experiencing significant consolidation, which we expect to continue, among cannabis operations and certain of our borrowers may combine, increasing the concentration of our borrower portfolio with those consolidated operators. Our largest credit facility represented approximately 17.9% of our total loan commitments and approximately 20.4% of the aggregate outstanding principal balances of our portfolio as of June 30, 2022 and the borrower under this credit facility is Public Company F, a multi-state operator with real estate assets in several states, certain of which have been included as collateral in connection with the senior term loan. Our portion of the senior term loan provided to such borrower had an aggregate principal amount of $86.6 million outstanding as of June 30, 2022. This senior term loan accrues interest at a blended rate of 8.6% per annum, payable in cash, across the three tranches of the senior term loan facility. The Public Company F senior term loan is managed by a third-party agent, acting as sole lead arranger, administrative agent and collateral agent, which is an affiliate of one of the other lender parties.

In June 2016, the FASB issued ~~ASU~~Accounting Standards Update (“ASU”) No. 2016-13, which replaced the incurred loss impairment methodology pursuant to GAAP with a methodology that reflects current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”). We adopted ASU No. 2016-13 as of July 31, 2020, the date of our commencement of operations. Subsequent period increases and decreases to expected credit losses impact earnings and are recorded within provision for current expected credit losses in our consolidated statement of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASU No. 2016-13 is a valuation

Index

account that is deducted from the amortized cost basis of our loans held at carrying value and loans receivable at carrying value in our consolidated balance sheet. The CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within accounts payable and other liabilities in our consolidated balance sheet. Refer to ~~footnote~~Note 6 to our unaudited interim consolidated financial statements titled ~~“Current~~“Current Expected Credit Losses” for more information on CECL.

We provide loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against our borrowers of the federal illegality of cannabis, our borrowers’ inability to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, and such loans lack of liquidity, and we could lose all or part of any of our loans.

Our ability to grow or maintain our business depends on state laws pertaining to the cannabis industry. New laws that are adverse to our borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede our ability to grow and could materially adversely affect our business.

Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, we may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case we would look to sell the loan, which could result in us realizing a loss on the transaction.

Real Estate Risk

Commercial real estate loans are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loan or loans, as the case may be, which could also cause us to suffer losses.

Risk Management

To the extent consistent with maintaining our REIT qualification and our exemption from registration under the Investment Company Act, we seek to manage risk exposure by closely monitoring our portfolio and actively managing ~~the~~ financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a loan to changes in interest rates) risks associated with holding our ~~portfolio of loans.~~portfolio. Generally, with the guidance and experience of our Manager:

•we manage our portfolio through an interactive process with our Manager and service our self-originated loans through our Manager’s servicer;

•we invest in a mix of ~~floating-rate~~floating- and fixed-rate loans to mitigate the interest rate risk associated with the financing of our portfolio;

•we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager’s risk management tools such as software and services licensed or purchased from third-parties and proprietary analytical methods developed by our Manager; and

•we seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, prior to origination or acquisition our Manager’s investment team evaluates, among other things, relative valuation, comparable company analysis, supply and demand trends, shape-of-yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.

~~Table of Contents~~

~~Item 4.~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~We maintain~~The Company maintains disclosure controls and procedures (as that term is defined in ~~Rule~~Rules 13a-15(e) ofand 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed ~~by us~~ in the Company’s reports ~~that we file or submit~~ under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to ~~our~~the Company’s management, including ~~our chief executive officer~~its Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Index

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

AsAn evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report ~~we carried out an evaluation~~on Form 10-Q was made under the supervision and with the participation of our management, including our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer, of the effectiveness of our disclosure controls and procedures.~~Chief Financial Officer. Based upon this evaluation, our ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer have concluded that our disclosure controls and procedures ~~were~~(a) are effective ~~at a reasonable assurance level~~to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as ~~of March 31, 2021.~~

appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control ~~Over~~over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended ~~March 31, 2021~~June 30, 2022 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II - OTHER INFORMATION

~~Item 1.~~

Item 1. Legal Proceedings

InFrom time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ~~normal~~ordinary course of ~~business, we~~business. Furthermore, third parties may ~~be subject~~try to ~~various legal proceedings from time~~seek to ~~time.~~impose liability on us in connection with our loans. As of ~~March 31, 2021,~~June 30, 2022, we were not subject to any material ~~pending~~ legal proceedings.

~~Item 1A.~~

Item 1A. Risk Factors

~~For a discussion of our potential risks and uncertainties, see~~During the ~~information under the heading "Risk Factors" in our Final Prospectus, included in the Company's Registration Statement on Form S-11, as amended (SEC File No. 333-251762). There have been~~quarter ended June 30, 2022, there were no material changes to the ~~risk factors~~Risk Factors disclosed in Item 1A - “Risk Factors” in the ~~Final Prospectus.~~Company’s Annual Report on Form 10-K.

~~Item 2.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities ~~and Use of Proceeds~~

~~Unregistered Sales of Equity Securities~~

There were no unregistered sales of equity securities during the ~~three~~six months ended ~~March 31, 2021.~~June 30, 2022.

~~Use of Proceeds~~

On March 18, 2021, the SEC declared effective our registration statement on Form S-11 (Registration No. 333-251762) (the “Registration Statement”) with respect to our IPO. On March 23, 2021, we completed our IPO of 6,250,000 shares of our common stock at a price of $19.00 per share, raising $118.8 million in gross proceeds. JMP Securities, Ladenburg Thalmann and Seaport Global Securities served as joint book-running managers and Lake Street served as co-manager. The underwriters also exercised their over-allotment option to purchase up to an additional 937,500 shares of common stock at a price of $19.00 per share, which was completed on March 26, 2021, raising $17.8 million in additional gross proceeds. The offering commenced on March 19, 2021 and did not terminate before all of the securities registered in the Registration Statement were sold.

We received net proceeds of approximately $123.9 million from our IPO, including through the exercise of the over-allotment by the underwriters. The underwriting commissions were $8.3 million and $1.2 million, from the closing of the IPO and the over-allotment, respectively. We incurred approximately $3.1 million of expenses in connection with the IPO. All of the underwriting discounts and other expenses were direct or indirect payments to persons other than: (i) our directors, officers or any of their associates; (ii) persons owning ten percent (10%) or more of our common stock; or (iii) our affiliates.

As of the date of the quarterly report we have used $52.1 million of the net proceeds to fund loans related to new commitments since the IPO and $3.9 million of the net proceeds to fund previously unfunded commitments. We intend to use the balance of the net proceeds (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy and (iii) for working capital and other general corporate purposes. Until appropriate investments can be identified, we may invest this balance in interest-bearing, short-term investments, including money market accounts or funds, commercial mortgage-backed securities and corporate bonds, which are consistent with the Company’s intention to qualify as a REIT and to maintain our exclusion from registration under the Investment Company Act. None of the proceeds were used to make payments to: (i) our directors, officers or any of their associates; (ii) persons owning ten percent (10%) or more of our common stock; or (iii) our affiliates. There has been no material change in the use of proceeds as described in the Final Prospectus.

Repurchases of Common Stock

There were no issuer repurchases of common stock during the quarter ended ~~March 31, 2021.~~June 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Index

Item 6. Exhibits

~~Table~~
Exhibit No.			Description of ~~Contents~~ Exhibits

~~Item 3.~~

~~Defaults Upon Senior Securities~~

~~None.~~

~~Item 4.~~

~~Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5.~~

~~Other Information~~

On May 7, 2021, we amended our Revolving Credit Agreement to increase the loan commitment from $40 million to $50 million, decrease the interest rate from 8% per annum to 6% per annum, remove Gamma Lending Holdco as a lender and extend the maturity date from July 31, 2021 to the earlier of (i) December 31, 2021 or (ii) the date of the closing of any credit facility where the proceeds are incurred to refund, refinance or replace the Revolving Credit Agreement with an aggregate principal amount equal to or greater than $50.0 million in accordance with the terms in the Revolving Credit Agreement. We did not incur any fees or cost related to the amendment of the Revolving Credit Agreement and the Revolving Credit Agreement does not have any unused fees. As of the date of this quarterly report, we have not drawn on the Revolving Credit Agreement or incurred any fees or interest expense related to the Revolving Credit Agreement.

~~Item 6.~~

~~Exhibits~~

3.1		Articles of Amendment and Restatement of AFC Gamma, Inc. ~~(incorporated by reference to~~(filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 ~~as amended (File No. 333-251762))~~on January 22, 2021 and incorporated herein by reference).
~~3.2~~3.1A		Articles of Amendment, dated March 10, 2022 (filed as Exhibit 3.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference).
3.4		Amended and Restated Bylaws of AFC Gamma, Inc. ~~(incorporated by reference to~~(filed as Exhibit 3.4 to the Company’s Registration Statement on Form S-11 ~~as amended (File No. 333-251762))~~on January 22, 2021 and incorporated herein by reference).
~~10.1~~10.1A		First Amendment to Amended and Restated Management Agreement, dated ~~January 14, 2021,~~March 10, 2022 by and between AFC Gamma, Inc. and AFC Management, LLC ~~(incorporated~~(filed as Exhibit 10.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by ~~reference to~~reference).
10.7†		Loan and Security Agreement, dated April 29, 2022, by and among AFC Gamma, Inc., as Borrower, and the lenders that are party thereto (filed as Exhibit ~~10.1~~10.7 to the Company’s Current Report on Form 8-K ~~filed~~ on ~~March 23, 2021)~~May 2, 2022 and incorporated herein by reference).
~~10.2~~31.1*		Amendment dated May 7, 2021, to the Secured Revolving Credit Agreement, dated August 18, 2020, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC, as agent, and AFC Finance, LLC and Gamma Lending Holdco LLC, as lenders.
~~31.1~~	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2~~31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.1~~32.1**		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.2~~32.2**		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance ~~Document.~~ Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
~~101.CAL~~ 101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
~~101.DEF~~ 104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Definition Linkbase Document.~~ and contained in Exhibit 101)

36* Filed herewith

** Furnished herewith

† The registrant has omitted portions of the referenced exhibit pursuant to Item 601(b) of Regulation S-K because such portions are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed.

~~Table of Contents~~

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: ~~May 11, 2021~~August 9, 2022
	AFC GAMMA, INC.

	By:		/s/ Leonard MM. Tannenbaum
		Leonard M. Tannenbaum
	~~Leonard M Tannenbaum~~	Chief Executive Officer ~~Chairman~~ and ~~Director~~ Chairman
		(Principal Executive Officer)

~~By:~~	~~/s/ Thomas Geoffroy~~

	~~Thomas Geoffroy~~ By:	/s/ Brett Kaufman
		Brett Kaufman
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

	Preferred Stock		Common Stock				Additional Paid- In-Capital		Accumulated Earnings (Deficit)			Total Stockholders' Equity
	Preferred Stock		Shares		Amount		Additional Paid- In-Capital		Accumulated Earnings (Deficit)			Total Stockholders' Equity
Balance at December 31, 2020	$	1		6,179,392	$	61,794	$	91,068,197	$	517,720		$	91,647,712
Issuance of common stock, net of offering cost		-		7,187,485		71,875		123,837,414		-			123,909,289
Stock-based compensation		-		-		-		1,599,115		-			1,599,115
Dividends declared and paid on common shares ($0.36 per share)		-		-		-		-		(2,224,866	)		(2,224,866	)
Net income		-		-		-		-		1,400,755			1,400,755
Balance at March 31, 2021 (unaudited)	$	1		13,366,877	$	133,669	$	216,504,726	$	(306,391	)	$	216,332,005

	Principal		Original Issue Discount			Unrealized Gains / (Losses)			Fair Value

Total loans held at fair value at December 31, 2020	$	50,831,235	$	(3,836,524	)	$	1,563,340		$	48,558,051
Change in unrealized gains / (losses) on loans at fair value, net		-		-			(144,402	)		(144,402	)
New fundings		992,000		(142,982	)		-			849,018
Accretion of original issue discount		-		600,009			-			600,009
PIK Interest		389,373		-			-			389,373
Total loans held at fair value at March 31, 2021	$	52,212,608	$	(3,379,497	)	$	1,418,938		$	50,252,049

	Collateral Location	Collateral Type ⁽⁹⁾		Fair Value ⁽²⁾		Carrying Value ⁽¹⁾		Outstanding Principal ⁽¹⁾		Interest Rate				Maturity Date ⁽³⁾	Payment Terms ⁽⁴⁾

Private Co. A	AZ, MI, MD, MA		C , D	$	32,834,697	$	32,384,888	$	34,672,331		17.0	%	⁽⁵⁾	5/8/2024		P/I
Private Co. B	MI		C		2,495,922		2,290,381		2,548,159		17.0	%	⁽⁶⁾	9/1/2023		P/I
Public Co. A	NV		C		2,874,629		2,840,108		2,945,317		14.0	%	⁽⁷⁾	12/21/2021		I/O
Sub. Of Public Co. C	FL		C		12,046,801		11,317,734		12,046,801		18.0	%	⁽⁸⁾	2/18/2025		P/I
Total loans held at fair value				$	50,252,049	$	48,833,111	$	52,212,608

	Collateral Location	Collateral Type ⁽⁸⁾		Outstanding Principal ⁽¹⁾		Original Issue Discount			Carrying Value ⁽¹⁾		Interest Rate				Maturity Date ⁽²⁾	Payment Terms ⁽³⁾

Private Co. C	PA		C , D	$	13,895,465	$	(807,869	)	$	13,087,596		17.0	%	⁽⁴⁾	12/1/2025		P/I
Private Co. D	OH, AR		D		12,045,385		(983,237	)		11,062,148		15.0	%	⁽⁵⁾	1/1/2026		P/I
Sub. of Public Co. D	PA		C		10,000,000		(172,194	)		9,827,806		12.9	%	⁽⁶⁾	12/18/2024		I/O
Private Co. E	OH		C , D		7,000,000		(1,824,614	)		5,175,386		17.0	%	⁽⁷⁾	4/1/2026		P/I
Total loans held at carry value				$	42,940,850	$	(3,787,914	)	$	39,152,936

	Three months ended March 31, 2021
Initial reserves	$	1,325,750
New reserves		2,000,000
Reserves disbursed		(82,266	)
Total Interest reserve	$	3,243,484

	Three months ended March 31, 2021		Weighted-Average Grant Date Fair Value Per Option
Balance as of December 31, 2020		926,898	$	0.91
Granted		689,200		1.31
Exercised		-		-
Forfeited		-		-
Balance as of March 31, 2021		1,616,098	$	1.08

	Three months ended March 31, 2021

Net income / (loss) attributable to common stockholders	$	1,400,755
Divided by:
Basic weighted average shares of common stock outstanding		7,144,670
Diluted weighted average shares of common stock outstanding		7,485,048
Basic weighted average earnings per common share	$	0.20
Diluted weighted average earnings per common share	$	0.19

	As of December 31, 2020
	Outstanding Principal ⁽¹⁾		Original Issue Discount			Carrying Value ⁽¹⁾		Weighted Average Remaining Life (Years)⁽²⁾

Senior Term Loans	$	33,907,763	$	(2,070,732	)	$	31,837,031		4.7
Total loans held at carrying value	$	33,907,763	$	(2,070,732	)	$	31,837,031		4.7

Loan Names	Status	Original Funding Date⁽¹⁾	Loan Maturity	Total Loan Commitment		% of Total AFCG			Principal Balance as of 3/31/2021		Cash Interest Rate			Paid In Kind ("PIK")			Fixed/ Floating	Amortization During Term	YTM ⁽²⁾
Public Co. A - Real Estate Loan⁽³⁾	Funded:	7/3/2019	1/26/2023	$	2,940,000		2.3	%	$	2,945,479		12.0	%		2.0	%	Fixed	No		20	%
Public Co. A - Equipment Loan⁽³⁾	Funded:	8/5/2019	3/5/2024		4,000,000		3.1	%		3,244,459		12.0	%		N/A		Fixed	Yes		17	%
Sub. of Public Co. C⁽⁴⁾⁽⁵⁾	Funded:	2/12/2020	2/18/2025		15,000,000		11.7	%		12,046,801		16.8	%		3.0	%	Fixed	Yes		49.	%
Private Co. A	Funded:	5/8/2020	5/8/2024		34,000,000		26.5	%		34,672,331		13.0	%		4.0	%	Fixed	Yes		24	%
Private Co. B	Funded:	9/10/2020	9/1/2023		10,500,000		8.2	%		2,548,159		13.0	%		4.0	%	Fixed	Yes		26	%
Private Co. C	Funded:	11/5/2020	12/1/2025		22,000,000		17.1	%		13,895,465		13.0	%		4.0	%	Floating	Yes		22	%
Sub. of Public Co. D⁽⁶⁾	Funded:	12/18/2020	12/18/2024		10,000,000		7.8	%		10,000,000		12.9	%		N/A		Fixed	No		14	%
Private Co. D	Funded:	12/23/2020	1/1/2026		12,000,000		9.3	%		12,045,385		13.0	%		2.0	%	Fixed	Yes		20	%
Private Co. E	Funded:	3/30/2021	4/1/2026		21,000,000		14.0	%		7,000,000		13.0	%		4.0	%	Floating	Yes		23	%
			Subtotal	$	131,440,000		100.0	%	$	98,398,079		13.4	%		3.0	%				23	%
																				Wtd Average

Borrower	Status	Date	AFCG Commitment, net of Syndication		% of Total AFCG			Total Funded Debt Issuance		AFCG % of the Total Loan			Est. Real Estate Value ⁽¹⁾		Real Estate Collateral Coverage			Implied Real Estate Collateral for AFCG		��	AFCG Real Estate Collateral Coverage
Public Co. A - Real Estate Loan⁽²⁾	Funded	7/3/2019	$	2,940,000		2.3	%	$	30,000,000		9.8	%	$	72,000,000		2.40	x	$	7,056,000			2.40	x
Public Co. A - Equipment Loan	Funded	8/5/2019	$	4,000,000		3.1	%	$	20,000,000		20.0	%	$	0		0.00	x	$	0			0.00	x
Subsidiary of Public Co. C⁽³⁾	Funded	2/12/2020	$	15,000,000		11.7	%	$	15,000,000		100.0	%	$	30,723,143		2.05	x	$	30,723,143			2.05	x
Private Co. A⁽⁴⁾	Funded	5/8/2020	$	34,000,000		26.5	%	$	42,500,000		80.0	%	$	51,339,031		1.21	x	$	41,071,225			1.21	x
Private Co. B⁽⁵⁾	Funded	9/10/2020	$	10,500,000		8.2	%	$	10,500,000		100.0	%	$	19,536,098		1.86	x	$	19,536,098			1.86	x
Private Co. C⁽⁶⁾	Funded	11/5/2020	$	22,000,000		17.1	%	$	22,000,000		100.0	%	$	23,733,050		1.08	x	$	23,733,050			1.08	x
Subsidiary of Public Co. D⁽⁷⁾	Funded	12/18/2020	$	10,000,000		7.8	%	$	120,000,000		8.3	%	$	26,058,332		0.22	x	$	2,171,528			0.22	x
Private Co. D⁽⁸⁾	Funded	12/23/2020	$	12,000,000		9.3	%	$	12,000,000		100.0	%	$	7,538,589		0.63	x	$	7,538,589			0.63	x
Private Co. E⁽⁹⁾	Funded	3/30/2021	$	21,000,000		14.0	%	$	21,000,000		100.0	%	$	16,102,000		0.89	x	$	16,102,000			0.77	x
			$	131,440,000		100.0	%	$	293,000,000				$	247,030,242		0.85	x	$	147,931,632			1.13	x