Index
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

September 30, 2023
☐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



AFCGamma_new_logo.jpg
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 November 8, 2023
Common stock, $0.01 par value per share
Outstanding at May 11, 2021
13,366,877
20,457,697


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, 2021September 30, 2023 (unaudited) and December 31, 20202022
1
StatementConsolidated Statements of Operations for the three and nine months ended March 31, 2021September 30, 2023 and 2022 (unaudited)
2
StatementConsolidated Statements of Stockholders’Comprehensive Income for the three and nine months ended September 30, 2023 and 2022 (unaudited)
3
Consolidated Statements of Shareholders’ Equity for the three and nine months ended March 31, 2021September 30, 2023 and 2022 (unaudited)
3
4
StatementConsolidated Statements of Cash Flows for the threenine months ended March 31, 2021September 30, 2023 and 2022 (unaudited)
4
6
Notes to the Consolidated Financial Statements (unaudited)
5
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
32
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
31
50
Item 4.
Controls and Procedures
34
53
Part II.
Other Information
35
54
Item 1.
Legal Proceedings
35
54
Item 1A.
Risk Factors
35
54
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
35
54
Item 3.
Defaults Upon Senior Securities
36
54
Item 4.
Mine Safety Disclosures
36
54
Item 5.
Other Information
36
54
Item 6.
Exhibits
36

55

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 September 30, 2023December 31, 2022
 (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 $72,573,622 and $100,635,985 at September 30, 2023 and December 31, 2022, respectively, net)Loans held for investment at fair value (cost of $72,573,622 and $100,635,985 at September 30, 2023 and December 31, 2022, respectively, net)$70,010,878 $99,226,051 
        
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, netLoans held for investment at carrying value, net308,011,076 285,177,112 
Loan receivable held at carrying value, netLoan receivable held at carrying value, net2,040,058 2,220,653 
Current expected credit loss reserve  (248,317)  (404,860)Current expected credit loss reserve(14,274,997)(13,538,077)
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 held at carrying value, net of current expected credit loss reserveLoans held for investment at carrying value and loan receivable held at carrying value, net of current expected credit loss reserve295,776,137 273,859,688 
        
Cash and cash equivalents  126,793,972   9,623,820 Cash and cash equivalents73,204,542 140,372,841 
Interest receivable  1,205,304   927,292 Interest receivable4,584,002 5,257,475 
Due from affiliateDue from affiliate1,000,000 — 
Prepaid expenses and other assets  1,109,038   72,095 Prepaid expenses and other assets526,236 460,844 
Total assets $221,505,837  $93,961,692 Total assets$445,101,795 $519,176,899 
        
Liabilities        Liabilities
Interest reserve $3,243,484  $1,325,750 Interest reserve$550,950 $3,200,944 
Accrued interestAccrued interest2,166,750 1,036,667 
Due to affiliateDue to affiliate19,714 18,146 
Dividends payableDividends payable9,819,695 11,403,840 
Current expected credit loss reserve  283,180   60,537 Current expected credit loss reserve166,845 754,128 
Accrued management fees  876,662   222,127 
Accrued management and incentive feesAccrued management and incentive fees3,574,867 3,891,734 
Accrued direct administrative expenses  365,567   550,671 Accrued direct administrative expenses1,344,628 1,843,652 
Accounts payable and other liabilities  404,939   154,895 Accounts payable and other liabilities821,570 836,642 
Senior notes payable, netSenior notes payable, net87,864,345 97,131,777 
Line of credit payable, netLine of credit payable, net— 60,000,000 
Total liabilities  5,173,832   2,313,980 Total liabilities106,329,364 180,117,530 
Commitments and contingencies (Note 10)        Commitments and contingencies (Note 10)
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
 
Additional paid-in-capital  
216,504,726
   
91,068,197
 
Accumulated earnings (deficit)  
(306,391
)
  
517,720
 
Total stockholders' equity  216,332,005   91,647,712 
Shareholders’ equityShareholders’ equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at September 30, 2023 and December 31, 2022 and 125 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectivelyPreferred stock, par value $0.01 per share, 10,000 shares authorized at September 30, 2023 and December 31, 2022 and 125 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively1 1 
Common stock, par value $0.01 per share, 50,000,000 shares authorized at September 30, 2023 and December 31, 2022 and 20,457,697 and 20,364,000 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectivelyCommon stock, par value $0.01 per share, 50,000,000 shares authorized at September 30, 2023 and December 31, 2022 and 20,457,697 and 20,364,000 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively204,577 203,640 
Additional paid-in capitalAdditional paid-in capital349,510,418 348,817,914 
        
Total liabilities and stockholders' equity $221,505,837  $93,961,692 
Accumulated (deficit) earningsAccumulated (deficit) earnings(10,942,565)(9,962,186)
Total shareholders’ equityTotal shareholders’ equity338,772,431 339,059,369 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$445,101,795 $519,176,899 
(See accompanying notes to the Financial Statements)

consolidated financial statements
1
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Index
AFC GAMMA, INC.
STATEMENTCONSOLIDATED STATEMENTS OF OPERATIONS

    
For the three
months ended
March 31, 2021
  
  (unaudited) 
Revenue   
Interest Income $4,685,005 
Total revenue  4,685,005 
Expenses    
Management and incentive fees, net (less rebate of $237,743)  876,662 
General and administrative expense  462,518 
Stock-based compensation  1,599,115 
Professional fees  135,453 
Total expenses  3,073,748 
Provision for current expected credit losses  (66,100)
Change in unrealized gains / (losses) on loans at fair value, net  (144,402)
Net income before income taxes  1,400,755 
Income tax expense  - 
Net income $1,400,755 
     
Earnings per common share:    
Basic earnings per common share (in dollars per share) 
$
0.20
 
Diluted earnings per common share (in dollars per share) 
$
0.19
 
     
Weighted average number of common shares outstanding:    
Basic weighted average shares of common stock outstanding (in shares)  
7,144,670
 
Diluted weighted average shares of common stock outstanding (in shares)  
7,485,048
 

(unaudited)
(
Three months ended
September 30,		Nine months ended
September 30,
 20232022 20232022
Revenue
Interest income$16,806,193 $19,785,583 $52,981,867 $60,072,643 
Interest expense(1,532,928)(1,644,088)(4,776,863)(5,091,207)
Net interest income15,273,265 18,141,495 48,205,004 54,981,436 
Expenses
Management and incentive fees, net (less rebate of $405,276, $432,426, $1,311,501 and $1,307,969, respectively)3,574,867 3,824,735 10,592,579 11,873,516 
General and administrative expenses986,772 1,050,932 4,068,780 3,372,813 
Stock-based compensation294,014 114,062 705,361 1,221,482 
Professional fees295,502 324,846 1,135,977 1,017,525 
Total expenses5,151,155 5,314,575 16,502,697 17,485,336 
Provision for current expected credit losses(1,053,398)(541,958)(149,637)(3,040,135)
Realized gains (losses) on investments, net(1,213,416)— (1,239,800)450,000 
Gain (loss) on extinguishment of debt— — 1,986,381 — 
Change in unrealized gains (losses) on loans at fair value, net787,799 (637,279)(1,152,810)(1,561,890)
Net income before income taxes8,643,095 11,647,683 31,146,441 33,344,075 
Income tax expense663,220 167,164 1,005,959 349,763 
Net income$7,979,875 $11,480,519 $30,140,482 $32,994,312 
Earnings per common share:
Basic earnings per common share (in dollars per share)$0.39 $0.57 $1.47 $1.67 
Diluted earnings per common share (in dollars per share)$0.39 $0.57 $1.47 $1.66 
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding (in shares)20,324,125 20,019,760 20,315,162 19,687,730 
Diluted weighted average shares of common stock outstanding (in shares)20,342,880 20,112,033 20,390,385 19,780,003 
See accompanying notes to the Financial Statements)consolidated financial statements

2
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Index
AFC GAMMA, INC.
STATEMENTCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three months ended March 31, 2021COMPREHENSIVE 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
September 30,		Nine months ended
September 30,
 20232022 20232022
Net income$7,979,875 $11,480,519 $30,140,482 $32,994,312 
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$7,979,875 $11,480,519 $30,140,482 $33,163,062 
See accompanying notes to the Financial Statements)
consolidated financial statements
3
Table of Contents
Index
AFC GAMMA, INC.
STATEMENTCONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY

   
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 $- 

(unaudited)
(
Three months ended September 30, 2023
Preferred
Stock		Common StockAdditional
Paid-In
Capital		Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)		Total
Shareholders’
Equity
SharesAmount
Balance at June 30, 2023$1 20,457,697 $204,577 $349,216,404 $— $(9,102,745)$340,318,237 
Stock-based compensation— — — 294,014 — — 294,014 
Dividends declared on common shares ($0.48 per share)— — — — — (9,819,695)(9,819,695)
Net income— — — — — 7,979,875 7,979,875 
Balance at September 30, 2023$1 20,457,697 $204,577 $349,510,418 $— $(10,942,565)$338,772,431 
Three months ended September 30, 2022
Preferred
Stock		Common StockAdditional
Paid-In
Capital		Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)		Total
Shareholders’
Equity
SharesAmount
Balance at June 30, 2022$1 19,857,872 $197,933 $339,568,041 $— $(1,565,610)$338,200,365 
Issuance of common stock, net of offering costs— 506,466 5,065 9,018,824 — — 9,023,889 
Stock-based compensation— (338)642 114,062 — — 114,704 
Dividends declared on common shares ($0.56 per share)— — — — — (11,403,840)(11,403,840)
Net income— — — — — 11,480,519 11,480,519 
Balance at September 30, 2022$1 20,364,000 $203,640 $348,700,927 $— $(1,488,931)$347,415,637 
See accompanying notes to the Financial Statements)consolidated financial statements


4
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Index
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Nine months ended September 30, 2023
 Preferred
Stock		Common StockAdditional
Paid-In-
Capital		Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)		Total
Shareholders’
Equity
 SharesAmount
Balance at December 31, 2022$1 20,364,000 $203,640 $348,817,914 $— $(9,962,186)$339,059,369 
Stock-based compensation— 93,697 937 692,504 — — 693,441 
Dividends declared on common shares ($1.52 per share)— — — — — (31,113,361)(31,113,361)
Dividends declared on preferred shares ($60 per share)— — — — — (7,500)(7,500)
Net income— — — — — 30,140,482 30,140,482 
Balance at September 30, 2023$1 20,457,697 $204,577 $349,510,418 $— $(10,942,565)$338,772,431 
Nine months ended September 30, 2022
 Preferred
Stock		Common StockAdditional
Paid-In-
Capital		Accumulated Other Comprehensive Income (Loss)Accumulated
Earnings
(Deficit)		Total
Shareholders’
Equity
 SharesAmount
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— 3,913,230 39,694 73,306,511 — — 73,346,205 
Stock-based compensation— 7,958 80 1,221,482 — — 1,221,562 
Dividends declared on common shares ($1.67 per share)— — — — — (33,382,866)(33,382,866)
Dividends declared on preferred shares ($60 per share)— — — — — (7,500)(7,500)
Other comprehensive income (loss)— — — — 168,750 — 168,750 
Net income— — — — — 32,994,312 32,994,312 
Balance at September 30, 2022$1 20,364,000 $203,640 $348,700,927 $— $(1,488,931)$347,415,637 
See accompanying notes to the consolidated financial statements
5
Index
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
20232022
Operating activities: 
Net income$30,140,482 $32,994,312 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Provision for current expected credit losses149,637 3,040,135 
Realized (gains) losses on investments, net1,239,800 (450,000)
(Gain) loss on extinguishment of debt(1,986,381)— 
Change in unrealized (gains) losses on loans at fair value, net1,152,810 1,561,890 
Accretion of deferred loan original issue discount and other discounts(4,435,186)(9,710,278)
Amortization of deferred financing costs - revolving credit facility212,833 222,255 
Amortization of deferred financing costs - senior notes482,698 492,216 
Stock-based compensation693,441 1,221,482 
Payment-in-kind interest(9,404,473)(5,051,007)
Changes in operating assets and liabilities  
Interest receivable673,473 (29,742)
Prepaid expenses and other assets(79,474)217,685 
Interest reserve(4,149,994)894,159 
Accrued interest1,130,083 1,403,993 
Accrued management and incentive fees, net(316,867)1,001,691 
Accrued direct administrative expenses(499,024)27,209 
Accounts payable and other liabilities(13,504)(379,934)
Net cash provided by (used in) operating activities14,990,354 27,456,066 
Cash flows from investing activities:  
Issuance of and fundings on loans(51,757,225)(127,248,748)
Proceeds from sales of loans21,312,827 10,600,000 
Sale of available-for-sale debt securities— 15,900,000 
Due from affiliate(1,000,000)— 
Principal repayment of loans49,953,251 32,227,904 
Net cash provided by (used in) investing activities18,508,853 (68,520,844)
Cash flows from financing activities:  
Proceeds from sale of common stock— 75,057,650 
Payment of offering costs - equity offering— (1,711,365)
Payment of financing costs(225,000)— 
Borrowings on revolving credit facility21,000,000 — 
Dividends paid to common and preferred shareholders(32,705,006)(30,207,932)
Repayment of senior notes(7,737,500)— 
Repayment on revolving credit facility(81,000,000)(75,000,000)
Net cash provided by (used in) financing activities(100,667,506)(31,861,647)
Net (decrease) increase in cash and cash equivalents(67,168,299)(72,926,425)
Cash and cash equivalents, beginning of period140,372,841 109,246,048 
Cash and cash equivalents, end of period$73,204,542 $36,319,623 
Supplemental disclosure of non-cash activity:  
Interest reserve withheld from funding of loans$1,500,000 $450,000 
OID withheld from funding of loans$7,398,475 $5,607,675 
Change in other comprehensive income (loss) during the period$— $168,750 
Dividends declared and not yet paid$9,819,695 $11,403,840 
Supplemental information:  
Interest paid during the period$2,951,250 $2,972,743 
Income taxes paid during the period$1,078,959 $41,287 
See accompanying notes to the consolidated financial statements
6
Index
AFC GAMMA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2021September 30, 2023
(unaudited)
1.ORGANIZATION
1.    ORGANIZATION
AFC Gamma, Inc. (the “Company” or “AFCG”) is aan institutional lender to the commercial real estate (“CRE”) finance companysector that was founded in July 2020 by a veteran team of investment professionals. The Company primarily engagedoriginates, structures, underwrites, invests in originating, structuring, and underwritingmanages senior secured commercial real estate loans and other types of loans. The Company was formedloans and commenced operations on July 31, 2020.  debt securities, with a specialization in loans to 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 Company’s “Manager”), a Delaware limited liability company (the Company’s “Manager”), pursuant to the terms of a management agreementthe Amended and Restated Management Agreement, dated January 14, 2021, between the parties (as amended from time to time, the “Management Agreement”).

The Company’s wholly-owned subsidiary, AFCG TRS1, LLC, a Delaware limited liability company (“TRS1”), 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 asin one operating segment and is primarily focused on financing senior secured loans and other types of loans for establishedprimarily to (i) senior secured loans to cannabis industry operators in states where medical and /or adult useand/or adult-use cannabis is legal.legal and (ii) secured loans to commercial real estate owners, operators and related businesses. These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses (where applicable) and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers.

The Company intends to electhas 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 stockholdersshareholders 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 IPOCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 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 ProspectusAnnual Report on Form 10-K for a description of the Company’s significant accounting policies. The Company has included disclosuredisclosures 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 accounting principles generally accepted in the United States generally accepted accounting principlesof America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information.  Theseinformation and include the accounts of the Company, and its wholly-owned subsidiaries. The unaudited interim consolidated financial statements reflect all adjustments and reclassifications that, in the opinion of management, are considered necessary for athe fair statementpresentation of the balance sheets, statementCompany’s results of operations statementand financial condition as of stockholders’ equity, and statement of cash flows for the periods presented.

All intercompany balances and transactions have been eliminated in consolidation.
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, 2021.2023.


7
Index
Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated 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.

The spread of a novel strain of coronavirusloans held for investment at fair value and current expected credit losses (“COVID-19”CECL”) 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 pandemic, medical cannabis companies have been deemed “essential” by 29 states administering shelter-in-place orders and adult use cannabis has been deemed “essential” in eight of those states. 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 ended March 31, 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 of these measures have been lifted or scaled back, a recent resurgence of COVID-19 in certain parts of the world, including the United States, may lead to more restrictions to reduce the spread of COVID-19. The extent of any 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.
5
Table of Contents
Recent Accounting Pronouncements
In March 2020,October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): FacilitationASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedientsSEC’s existing disclosures with those entities that were not previously subject to the requirements, 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 referencealign 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.requirements in the FASB accounting standard codification with the SEC’s regulations. The Company is currently evaluating the impact of adopting this ASU on its 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 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 anyprovisions of the amendments for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as ofand the date the entity applies the election. The amendments 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 periods after December 31, 2022).  The Company is currently evaluating the impact, if any, of this ASU on its 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 future consolidated financial statements.
63.    LOANS HELD FOR INVESTMENT AT FAIR VALUE
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3.LOANS HELD FOR INVESTMENT AT FAIR VALUE
As of March 31, 2021September 30, 2023 and December 31, 2020,2022, the Company’s portfolio included fourtwo and three loans held at fair value.value, respectively. The aggregate originated commitment under these loans was approximately $62.4$94.2 million and $59.9$104.3 million, respectively, and outstanding principal was approximately $52.2$73.0 million and $50.8$102.4 million respectively, as of March 31, 2021September 30, 2023 and December 31, 2020.2022, respectively. For the threenine months ended March 31, 2021,September 30, 2023, the Company funded approximately $1.0$1.9 million of outstanding principal.additional principal and had approximately $33.0 million of principal repayments of loans held at fair value. As of March 31, 2021September 30, 2023 and December 31, 2020, approximately 0% and 6.0%, respectively,2022, none of the Company’s loans held at fair value havehad 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).
The following tables summarize the Company’s loans held at fair value as of March 31, 2021September 30, 2023 and December 31, 2020:2022:
As of September 30, 2023
Fair Value(1)
Carrying Value(2)
Outstanding
Principal(2)
Weighted Average
Remaining Life
(Years)(3)(4)
Senior term loans$70,010,878 $72,573,622 $73,005,930 0.6
Total loans held at fair value$70,010,878 $72,573,622 $73,005,930 0.6
 As of March 31, 2021 
 
Fair Value (2)
  
Carrying Value (1)
  
Outstanding
Principal (1)
  
Weighted Average
Remaining Life
(Years)(3)
 As of December 31, 2022
         
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 loansSenior term loans$99,226,051 $100,635,985 $102,376,546 1.2
Total loans held at fair value $50,252,049 $48,833,111 $52,212,608  3.1 Total loans held at fair value$99,226,051 $100,635,985 $102,376,546 1.2
  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 interim 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
(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.
(3)Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2023 and December 31, 2022.
(4)As of September 30, 2023, the weighted average remaining life only reflects the remaining life of the Private Company A Credit Facility.
8
Index
(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.
The following table presents changes in loans held at fair value as of and for the threenine months ended March 31, 2021:September 30, 2023:
PrincipalOriginal Issue
Discount		Unrealized Gains (Losses)Fair Value
Total loans held at fair value at December 31, 2022$102,376,546 $(1,740,561)$(1,409,934)$99,226,051 
Realized gains (losses) on loans at fair value, net(1,213,416)— — (1,213,416)
Change in unrealized gains (losses) on loans at fair value, net— — (1,152,810)(1,152,810)
New fundings1,881,840 — — 1,881,840 
Accretion of original issue discount— 1,308,253 — 1,308,253 
Loan repayments(33,032,561)— — (33,032,561)
PIK interest2,993,521 — — 2,993,521 
Total loans held at fair value at September 30, 2023$73,005,930 $(432,308)$(2,562,744)$70,010,878 
  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 

In September 2023, the credit facility with Public Company A matured without repayment. The agent on the credit facility has placed the borrower in default, and the Company has recorded a realized loss of approximately $(1.2) million.
A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of March 31, 2021September 30, 2023 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. AAZ, MI, MA, NMC, D$52,722,454 $54,249,907 $54,682,215 15.7 %(6)5/8/2024P/I
Private Co. BMIC, D17,288,424 18,323,715 18,323,715 18.7 %(7)9/1/2023P/I
Total loans held at fair value$70,010,878 $72,573,622 $73,005,930   
 

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 interim consolidated financial statements.
(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.
(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 average interest rate of 13.0% and payment-in-kind (“PIK”) weighted average interest rate of 2.7%. In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility.
(7)The maturity date passed on the credit facility to Private Company B without repayment. The agent on the credit facility sent the borrower a notice of default and placed the borrower in receivership to maintain the borrower’s operations that were disrupted as a result of a management dispute. The Company has been in discussions with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of the business in order to repay the loan. Until the loan is repaid, the borrower is obligated to pay interest at a base weighted average interest rate of 14.7% and PIK interest rate of 4.0%, plus a default interest rate of 4.0%. As amended by the forbearance and modification agreement entered into with Private Company B in February 2023, the 4.0% default interest rate is applicable from January 15, 2023 and is paid in kind. Outstanding principal balance also includes a protective advance of approximately $0.2 million made in September 2023 to cover certain expenses and was repaid in November 2023. Interest on the protective advance is calculated at the same rate as standard monthly cash interest and PIK interest, plus default interest.
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7
Index
4.    LOANS HELD FOR INVESTMENT AT CARRYING VALUE
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
As of March 31, 2021September 30, 2023 and December 31, 2020,2022, the Company’s portfolio included four and threenine loans respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $65$335.1 million and $44$338.9 million, respectively, and outstanding principal was approximately $42.9$322.7 million and $33.9$296.6 million, respectively, as of March 31, 2021September 30, 2023 and December 31, 2020.2022. During the threenine months ended March 31, 2021,September 30, 2023, the Company funded approximately $8.9$59.1 million of outstanding principal.new loans and additional principal, had approximately $16.7 million of principal repayments of loans held at carrying value and sold $22.6 million in the aggregate of the Company’s investment in Subsidiary of Public Company M and Private Company I. As of March 31, 2021September 30, 2023 and December 31, 2020,2022, approximately 49%84% and 35%73%, respectively, of the Company’s loans held at carrying value havehad floating interest rates. TheseAs of September 30, 2023, these floating benchmark rates areincluded one-month Secured Overnight Financing Rate (“SOFR”) subject to LIBOR floors, with a weighted average floor of 1%3.3% and 1%, respectively, calculated based on loans with LIBOR floors. Referencesquoted at 5.3% and U.S. prime rate subject to LIBOR or “L” are to 30-day LIBOR (unless otherwise specifically stated)a weighted average floor of 4.9% and quoted at 8.5%.
The following tables summarize the Company’s loans held at carrying value as of March 31, 2021September 30, 2023 and December 31, 2020:2022:
As of September 30, 2023
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
Senior term loans$322,737,668 $(14,726,592)$308,011,076 2.5
Total loans held at carrying value$322,737,668 $(14,726,592)$308,011,076 2.5
 As of March 31, 2021 
 
Outstanding
Principal (1)
  
Original Issue
Discount
  
Carrying
Value (1)
  
Weighted Average
Remaining Life
(Years)(2)
  As of December 31, 2022
 ��       
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 loansSenior term loans$296,584,529 $(11,407,417)$285,177,112 3.1
Total loans held at carrying value $42,940,850 $(3,787,914) $39,152,936  4.5 Total loans held at carrying value$296,584,529 $(11,407,417)$285,177,112 3.1
  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 September 30, 2023 and December 31, 2022.

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10
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Index
The following table presents changes in loans held at carrying value as of and for the threenine months ended MarchSeptember 30, 2023:
PrincipalOriginal Issue
Discount		Carrying Value
Total loans held at carrying value at December 31, 2022$296,584,529 $(11,407,417)$285,177,112 
New fundings59,088,860 (7,713,475)51,375,385 
Accretion of original issue discount— 3,126,933 3,126,933 
Loan repayments(12,676,917)— (12,676,917)
Sale of loans(22,606,578)1,267,367 (21,339,211)
PIK interest6,410,952 — 6,410,952 
Loan amortization payments(4,063,178)— (4,063,178)
Total loans held at carrying value at September 30, 2023$322,737,668 $(14,726,592)$308,011,076 
As of September 30, 2023, the Company had one loan held at carrying value on non-accrual status. As of May 1, 2023, Private Company I was placed on non-accrual status with an outstanding principal amount of approximately $3.8 million.
Subsidiary of Private Company G was placed on non-accrual status from June 1, 2023 to August 31, 2021:
  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 

2023. In September 2023, a forbearance agreement was entered into with Subsidiary of Private Company G. In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, sell certain assets, including certain collateral, the proceeds of which will be applied to the outstanding obligations under the credit agreement with Private Company G, to provide certain additional collateral, and to contribute additional cash equity to be held in escrow by AFC Agent.As amended by the forbearance agreement entered into with Subsidiary of Private Company G, the borrower was required to pay interest of $0.8 million pro rata to the lender group for the month of September and must pay $1.0 million pro rata to the lender group for each of the months of October, November, and December. Subsidiary of Private Company G paid September and October interest in accordance with the terms of the forbearance agreement, which was due October 1, 2023 and November 1, 2023, respectively, and the credit facility was restored to accrual status.
A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of March 31, 2021September 30, 2023 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. CPAC, D$15,023,186 $(289,545)$14,733,641 19.5 %(5)12/1/2025P/I
Sub. of Private Co. GMO, NJ, PAC, D80,625,124 (1,544,492)79,080,632 18.8 %(6)5/1/2026P/I
Private Co. KMAC, D13,378,015 (715,917)12,662,098 19.3 %(7)5/3/2027P/I
Private Co. IMDC, D3,767,454 (50,036)3,717,418 21.8 %(8)8/1/2026P/I
Private Co. JMOC, D22,121,889 (377,191)21,744,698 21.3 %(9)9/1/2025P/I
Sub. of Public Co. HCT, IA, IL, ME, MI, NJ, PAC, D84,000,000 (2,747,942)81,252,058 14.3 %(10)1/1/2026I/O
Private Co. LMO, OHC, D53,000,000 (1,965,871)51,034,129 13.7 %(11)5/1/2026P/I
Sub. of Public Co. MIL, MI, MA, NJ, OH, PAC, D20,822,000 (2,513,150)18,308,850 9.5 %(12)8/27/2025I/O
Private Co. MAZD30,000,000 (4,522,448)25,477,552 9.0 %(13)7/31/2026P/I
Total loans held at carrying value$322,737,668 $(14,726,592)$308,011,076 

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)
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.
11
(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.
Index
(4)
Base interest rate of 12% plus LIBOR (LIBOR floor of 1%) and PIK interest rate of 4%.
(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.
(5)
Base interest rate of 13% and PIK interest rate of 2%.
(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.
(6)
Base interest rate of 12.9%.
(5)Base interest rate of 9.0% plus U.S. prime rate (U.S. prime rate floor of 4.0%) and PIK interest rate of 2.0%.
(7)
Base interest rate of 12% plus LIBOR (LIBOR floor of 1%) and PIK interest rate of 4%.
(6)Base interest rate of 10.25% plus U.S. prime rate (U.S. prime rate floor of 4.5%). As amended, 75.0% of the monthly cash interest was paid in kind from December 1, 2022 to May 1, 2023. Subsidiary of Private Company G was placed on non-accrual status from June 1, 2023 to August 31, 2023. In September 2023, a forbearance agreement was entered into with Subsidiary of Private Company G. As amended by the forbearance agreement entered into with Subsidiary of Private Company G, the borrower was required to pay interest of $0.8 million pro rata to the lender group for the month of September and must pay $1.0 million pro rata to the lender group for each of the months of October, November, and December. Subsidiary of Private Company G paid September and October interest in accordance with the terms of the forbearance agreement, which was due October 1, 2023 and November 1, 2023, respectively, and the credit facility was restored to accrual status. Outstanding principal balance also includes a protective advance of approximately $1.6 million made in September 2023 to cover certain construction expenses and was repaid in October 2023. Interest on the protective advance is calculated at the same rate as standard monthly cash interest, plus an additional 5.0% default interest rate.
(8)
C = Cultivation Facilities, D = Dispensaries
(7)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%) and PIK interest rate of 2.0%.
5.
(8)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%) and PIK interest rate of 4.5%. As amended, between 50.0% and 60.0% of the monthly cash interest was paid in kind from October 1, 2022 to April 1, 2023 and an additional 5.0% default rate has been applied since May 8, 2023 and the agent on this credit facility has since initiated a foreclosure proceeding. As of May 1, 2023, this loan was placed on non-accrual status. Effective July 2023, the floating interest rate under the credit agreement for Private Company I transitioned from LIBOR to SOFR.
(9)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%) and PIK interest rate of 4.0%.
(10)Base interest rate of 5.8% plus U.S. prime rate (U.S. prime rate floor of 5.5%).
(11)Base interest rate of 8.4% plus SOFR (SOFR floor of 5.0%). Effective September 2023, Private Company L transitioned from a fixed interest rate to a floating interest rate tied to SOFR.
(12)Base interest rate of 9.5%.
(13)Base interest rate of 9.0%. Quarterly cash interest is paid in kind from closing to February 1, 2024 and then payable in cash thereafter.
5.    LOAN RECEIVABLE HELD AT CARRYING VALUE
As of March 31, 2021September 30, 2023 and December 31, 2020,2022, the Company’s portfolio included one loan receivable held at carrying value. The originated commitment under this loan was approximately $4$4.0 million and outstanding principal was approximately $3.2$2.0 million and $3.4$2.2 million as of March 31, 2021September 30, 2023 and December 31, 2020,2022, respectively. During the threenine months ended March 31, 2021,September 30, 2023, the Company receivedhad approximately $0.2 million of principal repayments of $0.1 million of outstanding principal.
loan receivable held at carrying value.
The following table presents changes in loans receivable as of and for the threenine months ended March 31, 2021:September 30, 2023:
PrincipalOriginal Issue
Discount		Carrying
Value
Total loan receivable held at carrying value at December 31, 2022$2,222,339 $(1,686)$2,220,653 
Loan repayments(180,595)— (180,595)
Total loan receivable held at carrying value at September 30, 2023$2,041,744 $(1,686)$2,040,058 
  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 
As of September 30, 2023, the Company had one loan receivable held at carrying value on non-accrual status with an outstanding principal amount of approximately $2.0 million.
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6.6.    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 (thethe “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 includesmay include 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 but not limited to (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 havethe 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 Specificspecific 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(“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 properties and is not specific to any loan losses or impairments on the Company’s loans held for investment.

As of March 31, 2021September 30, 2023 and December 31, 2020,2022, the Company’s CECL Reserve for its loans held at carrying value and loansloan receivable held at carrying value is $531,497approximately $14.4 million and $465,397,$14.3 million, respectively, or 1254.66% and 132 basis points,4.97%, respectively, of the Company’s total loans held at carrying value and loansloan receivable held at carrying value of $42,393,791approximately $310.1 million and $35,185,294,$287.4 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 loansloan receivable held at carrying value of $248,317approximately $14.3 million and $404,860,$13.5 million, respectively, and a liability for unfunded commitments of $283,180approximately $0.2 million and $60,537,$0.8 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.

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Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loansloan receivable held at carrying value as of and for the three and nine months ended March 31, 2021September 30, 2023 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 June 30, 2023Balance at June 30, 2023$13,129,270 $259,174 $13,388,444 
Provision for current expected credit losses (156,543) 222,643 66,100 Provision for current expected credit losses1,145,727 (92,329)1,053,398 
Write-offs - - - Write-offs— — — 
Recoveries  -  -  - Recoveries— — — 
Balance at March 31, 2021 $248,317 $283,180 $531,497 
Balance at September 30, 2023Balance at September 30, 2023$14,274,997 $166,845 $14,441,842 
(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, 2022$13,538,077 $754,128 $14,292,205 
Provision for current expected credit losses736,920 (587,283)149,637 
Write-offs— — — 
Recoveries— — — 
Balance at September 30, 2023$14,274,997 $166,845 $14,441,842 
(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 September 30, 2023 and December 31, 2022, the CECL Reserve related to outstanding balances on loans held at carrying value and loan receivable held at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.

(2)As of September 30, 2023 and December 31, 2022, 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:
RatingDefinition
RatingDefinition
1Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan
22Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan
33Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved
44High 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
55Impaired/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
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The risk ratings are primarily based on historical data as well as taking into account future economic conditions.

14
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As of March 31, 2021,September 30, 2023, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loansloan receivable held at carrying value within each risk rating by year of origination is as follows:

Risk Rating:2023202220212020Total
1$— $— $— $— $— 
2— — — — — 
325,477,552 82,005,077 102,996,756 14,733,641 225,213,026 
4— — 82,798,050 — 82,798,050 
5— — — 2,040,058 2,040,058 
Total$25,477,552 $82,005,077 $185,794,806 $16,773,699 $310,051,134 
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 summarizetable summarizes the interest receivable by the Company as of March 31, 2021September 30, 2023 and December 31, 2020:2022:
  
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
September 30, 2023		As of
December 31, 2022
Interest receivable$3,733,028 $3,722,134 
PIK receivable825,974 1,409,678 
Unused fees receivable25,000 125,663 
Total interest receivable$4,584,002 $5,257,475 
8.    INTEREST RESERVE
At March 31, 2021September 30, 2023 and December 31, 2020,2022, the Company had twoone and onethree loans, respectively, that included a loan fundedloan-funded interest reserve. For the three and nine months ended March 31, 2021,September 30, 2023, approximately $82 thousand$0.6 million and $4.2 million, respectively, of aggregate interest income was earned and disbursed from the interest reserve.
reserves. For the three and nine months ended September 30, 2022, approximately $3.0 million and $8.6 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves.
The following table presents changes in interest reserve as of and for the three and nine months ended MarchSeptember 30, 2023 and 2022:
Three months ended
September 30,		Nine months ended
September 30,
2023202220232022
Beginning reserves$1,130,541 $5,186,615 $3,200,944 $4,782,271 
New reserves— 3,970,958 1,526,065 9,970,958 
Reserves disbursed(579,591)(3,031,143)(4,176,059)(8,626,799)
Ending reserves$550,950 $6,126,430 $550,950 $6,126,430 
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.
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Index
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) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. During the year ended December 31, 2021:2022, the Company incurred a one-time commitment fee expense of approximately $0.5 million, which was included in prepaid expenses and other assets on the Company’s consolidated balance sheets and 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, payable semi-annually in arrears, which is included within interest expense in the Company’s unaudited interim consolidated statements of operations. Based on the terms of the Revolving Credit Agreement, the Company’s estimated average cash balance will exceed the minimum balance required to waive the unused line fee and as such, the Company did not incur an unused line fee for the three months ended September 30, 2023. As of September 30, 2023 and December 31, 2022, the outstanding loan balance under the Revolving Credit Facility was $0.0 million and $60.0 million, respectively. All borrowings that were previously outstanding as of December 31, 2022 were repaid in full on January 3, 2023. During the third quarter of 2023, the Company drew $21.0 million under the Revolving Credit Facility, which was repaid prior to the end of the third quarter of 2023.
  
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 

9.DEBT
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
TheIn July 2020, the Company obtained a secured revolving credit loanline (the “Revolving Loan”“AFCF Revolving Credit Facility”) from AFC Finance, LLC an affiliateand Gamma Lending HoldCo LLC, each affiliates of the Company’s management.management, secured by the assets of the Company. The AFCF Revolving Loan hasCredit 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 isCredit Facility was the earlier of (i) July 31, 2021 and (ii) the date of the closing of any Refinancingcredit facility where the proceeds are incurred to refund, refinance or replace the AFCF Revolving Credit Facility (as defined below)Agreement, in accordance with terms in the Revolving Loan agreement.  The Revolving Loan is secured by the assets of the Company. Forcredit agreement governing the three months ended March 31,AFCF Revolving Credit Facility (the “AFCF Revolving Credit Agreement”).
On May 7, 2021, the Company did not utilizeamended 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 three 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 and (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 approximately $0.2 million in November 2021, payable in three quarterly installments that began in the first quarter of 2022, which was amortized over the life of the loan.
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 in the second quarter of 2022. There were no other payments, premiums or penalties required to be paid in connection with the termination.
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Index
2027 Senior Notes
On November 3, 2021, the Company issued $100.0 million in aggregate principal amount of senior unsecured notes due in May 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, which began 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 used 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 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”).
Under the Indenture, the Company is required to cause all of its Revolving Loanexisting and thereforefuture 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 September 30, 2023, 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.
During the nine months ended September 30, 2023, the Company repurchased $10.0 million in principal amount of the Company’s 2027 Senior Notes at 77.4% of par value, plus accrued interest. This resulted in a gain on extinguishment of debt of approximately $2.0 million, recorded within the unaudited interim consolidated statements of operations. As of September 30, 2023, the Company had $90.0 million in principal amount of the 2027 Senior Notes outstanding.
The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of September 30, 2023 are as follows:
2027 Senior Notes
Year
2023 (remaining)$— 
2024— 
2025— 
2026— 
202790,000,000 
Thereafter— 
Total principal$90,000,000 
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Index
The following tables reflect a summary of interest expense was incurred. The Revolving Loan was amended in May 2021, see Note 17. Subsequent Events.incurred during the three and nine months ended September 30, 2023 and 2022:

Three months ended
September 30, 2023
2027 Senior NotesRevolving Credit FacilityAFCF Revolving Credit FacilityTotal Borrowings
Interest expense$1,293,750 $10,500 $— $1,304,250 
Unused fee expense— (26,667)— (26,667)
Amortization of deferred financing costs158,964 96,381 — 255,345 
Total interest expense$1,452,714 $80,214 $— $1,532,928 

Three months ended
September 30, 2022
2027 Senior NotesRevolving Credit FacilityAFCF Revolving Credit FacilityTotal Borrowings
Interest expense$1,437,500 $— $— $1,437,500 
Unused fee expense— — — — 
Amortization of deferred financing costs166,458 40,130 — 206,588 
Total interest expense$1,603,958 $40,130 $— $1,644,088 

Nine months ended
September 30, 2023
2027 Senior NotesRevolving Credit FacilityAFCF Revolving Credit FacilityTotal Borrowings
Interest expense$3,996,250 $37,167 $— $4,033,417 
Unused fee expense— 47,915 — 47,915 
Amortization of deferred financing costs482,698 212,833 — 695,531 
Total interest expense$4,478,948 $297,915 $— $4,776,863 

Nine months ended
September 30, 2022
2027 Senior NotesRevolving Credit FacilityAFCF Revolving Credit FacilityTotal Borrowings
Interest expense$4,296,527 $— $19,792 $4,316,319 
Unused fee expense— — 60,417 60,417 
Amortization of deferred financing costs492,216 67,610 154,645 714,471 
Total interest expense$4,788,743 $67,610 $234,854 $5,091,207 
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10.10.    COMMITMENTS AND CONTINGENCIES
As of March 31, 2021September 30, 2023 and December 31, 2020,2022, the Company had the following commitments to fund various senior term loans, equipment loans and bridge loans.investments:
 As of March 31, 2021 As of December 31, 2020 As of
September 30, 2023		As of
December 31, 2022
     
Total original loan commitments $130,684,459 $107,292,176 Total original loan commitments$433,239,913 $447,101,864 
Less: drawn commitments  (97,214,795)  (87,467,057)Less: drawn commitments(423,239,913)(401,476,418)
Total undrawn commitments $33,469,664 $19,825,119 Total undrawn commitments$10,000,000 $45,625,446 
The Company from time to time may be a party to litigation in the normal course of business. As of March 31, 2021, September 30, 2023, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations.
On March 17, 2023, the Company appointed Brandon Hetzel to serve as its Chief Financial Officer and Treasurer in place of Brett Kaufman, effective as of such date, with Mr. Kaufman’s employment with AFC Management, LLC, the Company’s external manager (the “Manager”), terminated, effective as of April 17, 2023 (the “Separation Date”). In connection with his termination, Mr. Kaufman will receive (i) twelve (12) months’ worth of his current base salary, (ii) his annual target bonus, (iii) continued payment by our Manager of 100% of the COBRA premiums for him and his dependents for a period of twelve (12) months following his Separation Date, (iv) accelerated vesting of one (1) additional tranche of each of Mr. Kaufman’s outstanding equity awards, and (v) extension of the exercise period for Mr. Kaufman’s outstanding options until one (1) year following the Separation Date, contingent on Mr. Kaufman executing and not revoking a release of claims in favor of the Company. During the nine months ended September 30, 2023, the Company recorded approximately $0.7 million in severance expense, recorded within general and administrative expenses within the unaudited interim consolidated statements of operations.
We provideThe Company primarily provides loans to established companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement of federal laws regardingagainst the Company’s borrowers on 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.
OurThe Company’s ability to grow or maintain ourits business with respect to the loans it makes to companies operating in the cannabis industry depends on state laws pertaining to the cannabis industry. New laws that are adverse to our portfolio companiesthe 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 ourthe Company’s ability to grow and could materially adversely affect ourthe 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, 2021September 30, 2023 and December 31, 2020,2022, 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”).

19
Index
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 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 stock split of the Company's common stock effective onOn January 25, 2021. All common shares, stock options, and per share information presented in the 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 common stock.  Upon consummation of the Company’s IPO, any stockholder 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, 2021,10, 2022, the Company completed its IPOan underwritten offering of 6,250,0003,000,000 shares of itsour common stock, at a price to the public of $19.00$20.50 per share, raising $118,750,000 inshare. The gross proceeds.  Theproceeds 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 also exercised theirwere granted an over-allotment option to purchase up to an additional 937,500450,000 shares of the Company’s common stock at a pricestock. On January 14, 2022, the underwriters partially exercised the over-allotment option with respect to 291,832 shares of $19.00 per share,common stock, which was completed on March 26, 2021, raising $17,812,500 in additional gross proceeds.January 19, 2022. The underwriting commissions of $8,312,500 and $1,246,875, respectively, areapproximately $3.5 million were reflected as a reduction of additional paid-in capital onin the statementfirst quarter of stockholders’ equity.fiscal year 2022. The Company incurred approximately $3,093,836$1.0 million of expenses in connection with the IPO, which is reflected asoffering. 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 reduction in additional paid-in capital.structuring fee and other offering expenses payable by the Company, were approximately $67.5 million. The net proceeds to the Company totaled approximately $123,909,289. The$63.0 million.
Pursuant to the Articles of Amendment, dated March 10, 2022, the Company intendsincreased the number of authorized shares of common stock to use50,000,000 shares at $0.01 par value per share.
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 nine months ended September 30, 2023, the Company did not sell any shares of the Company’s common stock under the Sales Agreement. During the year ended December 31, 2022, the Company sold an aggregate of 621,398 shares of the Company’s common stock under the Sales Agreement at an average price of $18.30 per share generating net proceeds of approximately $10.4 million.
As of September 30, 2023, the IPO (i)shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.
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Share Repurchase Program
On June 13, 2023, the Company's Board of Directors authorized a share repurchase program providing for the repurchase of up to fund loans related$20.0 million of the Company's outstanding common stock (the “Repurchase Program”). The timing, price, and volume of repurchases will be based on the Company’s stock price, general market conditions, applicable legal requirements and other factors. The repurchase of the Company’s common stock may be made from time to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operatingtime in the cannabis industry that are consistentopen market, in privately negotiated transactions or otherwise in compliance with Rule 10b-18 and Rule 10b5-1 under the Company’s investment strategySecurities Exchange Act of 1934. The Company expects to finance any share repurchases under the Repurchase Program using cash on hand, capacity available under our line of credit and (iii) for working capitalcash flows from operations. The Repurchase Program may be discontinued, modified or suspended at any time. During the three and other general corporate purposes.  Until appropriate investments can be identified,nine months ended September 30, 2023, 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 withdid not repurchase any shares of its common stock pursuant to the Company’s intention to qualify as a REIT and to maintain our exclusion from registration under the Investment Company Act of 1940, as amended.Repurchase Program.

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EquityStock Incentive Plan
The Company has established an equitya stock 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 in January 2022 under the 2020 Plan vests 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 in January 2022 under the 2020 Plan have a strike price of $20.18 and contain vesting periods that vary from immediately vested to vesting over a four-year period.
During the first quarter of 2023, the Company’s Board of Directors approved grants of restricted stock to the Company’s directors and officers, as well as certain employees of the Manager. In January 2023, the Company granted an aggregate of 125,234 shares of restricted stock to certain of our directors, officers and other eligible persons. The currentrestricted stock granted in January 2023 under the 2020 Plan contain vesting periods that vary from immediately vested to vesting over a three-year period, with approximately 33% vesting on each of the first, second and third anniversaries of the vesting commencement date. On June 20, 2023, the Company granted 1,159 shares of restricted stock to James C. Fagan in connection with his recent appointment to the Company’s Board of Directors, which will vest upon the one-year anniversary of the grant date. As of September 30, 2023, there were 2,326,892 shares of common stock granted under the 2020 Plan, underlying 2,169,852 options and 157,040 shares of restricted stock.
As of September 30, 2023, the maximum number of shares of the CompanyCompany’s common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equals 2,100,000 shares.2,793,288 shares, which is consistent with the Share Limit as of June 30, 2023. 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.
21
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, (iii) exercised and (iii)(iv) forfeited options granted for the Company’s directors and officers and employees of the Manager as of March 31, 2021September 30, 2023 and December 31, 2020:2022:
 
As of
March 31, 2021
 
As of
December 31, 2020
 As of
September 30, 2023		As of
December 31, 2022
Non-vested 183,114 142,814 Non-vested213,538 293,420 
Vested 1,449,518 800,618 Vested2,161,094 2,081,212 
ExercisedExercised(5,511)(5,511)
Forfeited  (16,534)  (16,534)Forfeited(200,169)(88,749)
Balance  1,616,098  926,898 Balance2,168,952 2,280,372 
The Company uses the Black-Scholes option pricing model to value stock options in determining the share-basedstock-based compensation expense. Forfeitures are recognizedThe Company has elected to recognize forfeitures as they occur. Previously recognized compensation expense related to forfeitures are reversed in the period awards are forfeited. 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 the 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-basedstock-based compensation expense for the Company was approximately $1,599,115$0.3 million and $0.7 million for the three and nine months ended March 31, 2021.
September 30, 2023, respectively, and approximately $0.1 million and $1.2 million for the three and nine months ended September 30, 2022, respectively.
The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan:
AssumptionsRange
AssumptionsRange
Expected volatility40% - 50%50%
Expected dividend yield10% - 20%20%
Risk-free interest rate0.5% - 1.5%2.0%
Expected forfeiture rate0%0%
13
The following table summarizestables summarize stock option activity during the three and nine months ended MarchSeptember 30, 2023 and 2022:
Three months ended
September 30, 2023		Weighted-average
grant date fair
value per option
Balance as of June 30, 20232,273,272 $1.21 
Granted— — 
Exercised— — 
Forfeited(104,320)1.23 
Balance as of September 30, 20232,168,952 $1.20 

Three months ended
September 30, 2022		Weighted-average
grant date fair
value per option
Balance as of June 30, 20222,316,106 $1.21 
Granted— — 
Exercised(5,511)0.90 
Forfeited(24,023)1.20 
Balance as of September 30, 20222,286,572 $1.21 
22
Index
Nine months ended
September 30, 2023		Weighted-average
grant date fair
value per option
Balance as of December 31, 20222,280,372 $1.21 
Granted— — 
Exercised— — 
Forfeited(111,420)1.23 
Balance as of September 30, 20232,168,952 $1.20 
Nine months ended
September 30, 2022		Weighted-average
grant date fair
value per option
Balance as of December 31, 20211,604,236 $1.08 
Granted742,000 1.46 
Exercised(5,511)0.90 
Forfeited(54,153)1.12 
Balance as of September 30, 20222,286,572 $1.21 
The following table summarizes the restricted stock (i) granted, (ii) vested and (iii) forfeited for the Company’s directors and officers and employees of the Manager as of September 30, 2023 and December 31, 2021:2022:
As of
September 30, 2023		As of
December 31, 2022
Granted190,974 64,581 
Vested(38,028)— 
Forfeited(33,934)(1,238)
Balance119,012 63,343 
  
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 nine months ended September 30, 2023 and 2022:
12.
Three months ended
September 30, 2023		Weighted-average value at award date
Balance as of June 30, 2023137,482 $16.06 
Granted— — 
Vested(18,470)16.24 
Forfeited— — 
Balance as of September 30, 2023119,012 $16.03 
Three months ended
September 30, 2022		Weighted-average value at award date
Balance as of June 30, 202264,581 $20.40 
Granted— — 
Vested— — 
Forfeited(1,238)20.18 
Balance as of September 30, 202263,343 $20.40 
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Index
Nine months ended
September 30, 2023		Weighted-average value at award date
Balance as of December 31, 202263,343 $20.40 
Granted126,393 15.55 
Vested(38,028)17.97 
Forfeited(32,696)20.39 
Balance as of September 30, 2023119,012 $16.03 
Nine months ended
September 30, 2022		Weighted-average value at award date
Balance as of December 31, 202156,285 $20.43 
Granted8,296 20.18 
Vested— — 
Forfeited(1,238)20.18 
Balance as of September 30, 202263,343 $20.40 
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 nine months ended March 31, 2021:September 30, 2023 and 2022:

Three months ended
September 30,		Nine months ended
September 30,
2023202220232022
Net income attributable to common shareholders$7,979,875 $11,480,519 $30,140,482 $32,994,312 
Dividends paid on preferred shares— — (7,500)(7,500)
Dividends paid on unvested restricted stock(65,991)(36,165)(205,268)(99,827)
Net income attributable to common shareholders7,913,884 11,444,354 29,927,714 32,886,985 
Divided by:
Basic weighted average shares of common stock outstanding20,324,125 20,019,760 20,315,162 19,687,730 
Weighted average unvested restricted stock and dilutive stock options18,755 92,273 75,223 92,273 
Diluted weighted average shares of common stock outstanding20,342,880 20,112,033 20,390,385 19,780,003 
Basic weighted average earnings per common share$0.39 $0.57 $1.47 $1.67 
Diluted weighted average earnings per common share$0.39 $0.57 $1.47 $1.66 
  
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 
Diluted EPS was computed using the treasury stock method for stock options and restricted stock. Diluted weighted average earnings per common share excluded 2,288,419 and 2,247,328 weighted average unvested restricted stock and stock options due to anti-dilutive effect for the three and nine months ended September 30, 2023, respectively, and 1,406,700 and 1,406,700 for the three and nine months ended September 30, 2022, respectively.
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.
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Index
The income tax provisionsprovision for the Company was $0approximately $0.7 million and $1.0 million for the three and nine months ended March 31, 2021.September 30, 2023, respectively. The income tax provision for the Company was approximately $0.2 million and $0.3 million for the three and nine months ended September 30, 2022, respectively. The income tax expense for the three and nine months ended September 30, 2023 and 2022 primarily relates to activities of the Company’s taxable REIT subsidiary.
For the three and nine months ended March 31, 2021,September 30, 2023 and 2022, the Company incurred no expense for United StatedStates 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.
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 companiesborrowers 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 yieldhigh-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 September 30, 2023 and December 31, 2022:
Fair Value Measurement as of September 30, 2023
TotalLevel 1Level 2Level 3
Loans held at fair value$70,010,878 $— $— $70,010,878 
Total$70,010,878 $— $— $70,010,878 
 Fair Value Measurement as of December 31, 2022
 TotalLevel 1Level 2Level 3
Loans held at fair value$99,226,051 $— $— $99,226,051 
Total$99,226,051 $— $— $99,226,051 
The following table presents changes in loans that use Level 3 inputs as of and for the nine months ended September 30, 2023:
Nine months ended
September 30, 2023
Total loans using Level 3 inputs at December 31, 2022$99,226,051
Realized gains (losses) on loans at fair value, net(1,213,416)
Change in unrealized gains (losses) on loans at fair value, net(1,152,810)
Additional fundings1,881,840 
Loan repayments(33,032,561)
Accretion of original issue discount1,308,253 
PIK interest2,993,521 
Total loans using Level 3 inputs at September 30, 2023$70,010,878
25
Index
The change in unrealized losses included in the unaudited interim consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held as of September 30, 2023 is $(1,152,810).
The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of March 31, 2021September 30, 2023 and December 31, 2020.2022. 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 
  Fair Value 
Primary Valuation
Techniques
 Input Estimated Range  
Weighted
Average
 
Senior Term Loans $
50,252,049
 Yield analysis Market Yield  
17.07% - 20.61
%
  
20.33
%
Total Investments $
50,252,049            
As of September 30, 2023
Unobservable Input
Fair ValuePrimary Valuation TechniquesInputEstimated Range
Weighted Average
Senior term loans$52,722,454 Yield analysisMarket yield32.61% - 39.06%34.05%
Senior term loans17,288,424 Market approachRevenue multiple0.60x - 0.80x0.70x
Total investments$70,010,878 
14
  As of December 31, 2020 
        Unobservable Input 
  Fair Value 
Primary Valuation
Techniques
 Input Estimated Range  
Weighted
Average
 
Senior Term Loans $
48,558,051
 Yield analysis Market Yield  
15.79% - 20.75
%
  
20.20
%
Total Investments $
48,558,051            
As of December 31, 2022
Unobservable Input
Fair ValuePrimary Valuation TechniquesInputEstimated RangeWeighted Average
Senior term loans$99,226,051 Yield analysisMarket yield19.99% - 31.72%21.81%
Total investments$99,226,051     
Changes in market yields and revenue multiples 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, while a decrease in revenue multiples 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
The following table presents fair value measurementsAs of loans held at fair value as of March 31, 2021September 30, 2023 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 of2022, the Company’s portfolio did not include any debt securities. For the three and for the threenine months ended March 31, 2021:
    
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 

September 30, 2023, the Company had no sales of debt securities. For the three and nine months ended September 30, 2022, the realized loss on the sale of debt securities was approximately zero and $0.2 million, respectively.
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.

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Index
The following table details the book value and fair value of the Company’s financial instruments not recognized at fair value in the unaudited interim consolidated balance sheet:sheet as of September 30, 2023:

 As of March 31, 2021 
 
Carrying
Value
  Fair Value  As of September 30, 2023
Financial assets
     
Carrying ValueFair Value
Financial assets:Financial assets:  
Cash and cash equivalents $
126,793,972 $
126,793,972 Cash and cash equivalents$73,204,542 $73,204,542 
Loans held for investment at carrying value $
39,152,936 $
41,661,386 Loans held for investment at carrying value$308,011,076 $296,997,094 
Loan receivable at carrying value $
3,240,855 $
3,066,014 
Loan receivable held at carrying valueLoan receivable held at carrying value$2,040,058 $1,020,872 
Financial liabilities:Financial liabilities:
Senior notes payable, netSenior notes payable, net$87,864,345 $75,600,000 
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 estimatesThe Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The fair value of the Company’s 2027 Senior Notes is estimated by discounting expected cash flows using readily available quoted prices for similar debt, 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 receivereceives 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)in the Management Agreement), 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'sManager’s due diligence of potential 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 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 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 paypays 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.
The Incentive Compensation for the three and nine months ended March 31, 2021September 30, 2023 was approximately $662,730.

$2.6 million and $7.9 million, respectively. The Incentive Compensation for the three and nine months ended September 30, 2022 was approximately $2.9 million and $9.3 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.
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The following table summarizes the related party costs incurred by the Company for the three and nine months ended March 31, 2021.September 30, 2023 and 2022:
 
Three months ended
March 31, 2021
 
Affiliate Payments   
Three months ended
September 30,		Nine months ended
September 30,
2023202220232022
Affiliate CostsAffiliate Costs
Management fees $451,675 Management fees$1,347,378 $1,318,563 $4,046,179 $3,869,023 
Less other fees earned (237,743)
Less: outside fees earnedLess: outside fees earned(405,276)(432,426)(1,311,501)(1,307,969)
Base management feesBase management fees942,102 886,137 2,734,678 2,561,054 
Incentive fees earned 662,730 Incentive fees earned2,632,765 2,938,598 7,857,901 9,312,462 
General and administrative expenses reimbursable to Manager  365,567 General and administrative expenses reimbursable to Manager817,985 910,243 2,801,214 2,790,846 
Total $1,242,229 Total$4,392,852 $4,734,978 $13,393,793 $14,664,362 
Amounts payable to the Company’s Manager as of March 31, 2021September 30, 2023 and December 31, 20202022 were $1,242,229approximately $4.9 million and $728,298,$5.7 million, respectively.
Due to/from Affiliate
16Amounts due to an affiliate of the Company as of September 30, 2023 and December 31, 2022 were approximately $19.7 thousand and $18.1 thousand, respectively.
Table of Contents
Amounts due from an affiliate of the Company as of September 30, 2023 and December 31, 2022 were $1.0 million and zero, respectively. The amount due from the affiliate, AFC Agent LLC (“AFC Agent”), was contributed to AFC Agent in anticipation of a funding and was subsequently repaid to the Company in October 2023.
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,September 30, 2023, there were no co-investmentsfour co-invested loans held by the Company.
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 affiliateaffiliates of the Company.  For
In July 2021, the three months ended March 31,senior secured loan facility with Private Company I, consisting of an aggregate of $15.5 million in loan commitments, was syndicated by the Company’s Manager between the Company and A BDC Warehouse, LLC (“ABW”), an entity wholly-owned by the Company’s Chief Executive Officer and Chairman of the Board and President. ABW’s commitment in the loan facility was ultimately transferred to AFC Institutional Fund LLC (“AFCIF”), an entity beneficially owned in part, by the Company’s (i) Chief Executive Officer and Chairman of the Board, (ii) President and (iii) former Head of Real Estate and a former Director, while each such owner also maintained a beneficial ownership of the Company’s Manager at the time of the investment. AFCIF holds approximately one-third of the loan’s aggregate principal amount as of September 30, 2023. On April 1, 2022, the Company’s investment in the senior secured loan to Private Company I was transferred to TRS1. In May 2023, Private Company I failed to pay its full principal and interest payments due May 1, 2023. The agent on the credit facility, AFC Agent, promptly delivered a notice of an event of default based on this payment default and certain other defaults under the credit agreement, accelerated all obligations due thereunder and subsequently initiated a foreclosing procedure in the State of Maryland.In June 2023, the Company sold two-thirds of the Private Company I credit facility at par plus accrued interest to a multi-state cannabis operator and has a put right on the remaining one-third immediately prior to the transfer of one of the borrower’s cannabis licenses. Following the sale, the Company’s outstanding principal balance under the credit facility with Private Company I was approximately $3.8 million, which is fully funded.
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In September 2021, the Company sold approximately $1,208,216entered into the September Commitment Assignment with our Manager, pursuant to which our Manager assigned to us its commitment to make loans to Private Company A in a principal amount of Assigned Rightsup to an affiliate$20.0 million, which are accountedwas funded in September 2021. The loans were purchased at accreted cost plus accrued PIK interest. We did not pay any fees or premium to our Manager for as additional original issue discount and accreted over the lifeCompany’s acquisition of the loans.  As of March 31,Company’s Manager’s loan commitments under the Credit Agreement with Private Company A pursuant to the September Commitment Assignment. In December 2021, the Company had a receivable from an affiliate relatedentered into the second amendment to the Assigned Rights sold duringPrivate Company A Credit Facility to, among other things, increase the threetotal loan commitments by $20.0 million in an additional tranche, with $2.5 million allocated to Flower Loan Holdco, LLC (“FLH”), an entity wholly-owned by the Company’s Chief Executive Officer and Chairman of the Board and President, and the remaining new commitment allocated to third-party lenders. In February 2022, the Company entered into the third amendment to the Private Company A Credit Facility to, among other things, increase the total loan commitments by $16.3 million in an additional tranche, with approximately $15.3 million allocated to the Company and approximately $1.0 million allocated to a third-party lender. In November 2022, the Company entered into a fourth amendment to the Private Company A Credit Facility to, among other things, increase the total loan commitments by $10.0 million in an additional tranche, with approximately $7.1 million allocated to the Company, $1.4 million allocated to FLH and the remaining $1.5 million allocated to third-party lenders. In March 2023, the Company entered into a fifth amendment to the Private Company A Credit Facility to, among other things and subject to certain terms and conditions, (i) increase the interest rate of certain tranches such that the facility has a uniform interest rate of 13.0% across certain tranches; (ii) reprioritize the allocation of principal and interest payments to first be applied to a specific tranche under the facility; and (iii) establish the requirement for a blocked account to hold the cash proceeds from the sale of certain assets and distribute such proceeds to the lenders. During the nine months ended March 31, 2021September 30, 2023, AFC Agent received approximately $48.2 million in total loan principal prepayments and $1.4 million in related exit fees from the amountborrower’s sale of its collateral assets, of which approximately $1,104,914$34.7 million in principal prepayments and $1.1 million in related exit fees were allocated to the Company relating to its pro rata portion of the Private Company A Credit Facility and was applied to the outstanding principal balance. Following the prepayment, the Company’s outstanding principal balance under the Private Company A Credit Facility was approximately $54.7 million, which is includedfully funded. Refer to Note 17 to the Company’s unaudited interim consolidated financial statements for more information on the balance sheet in the prepaid expensePrivate Company A prepayments that occurred subsequent to September 30, 2023. In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors.
In September 2021, the Company entered into the second amended and restated credit agreement with Subsidiary of Private Company G to, among other things, increase the total loan commitments by $53.4 million in three tranches, with approximately $10.0 million allocated to ABW and the remaining $43.4 million allocated to the Company. ABW’s commitment was ultimately transferred to AFCIF. In August 2022, the Company committed an additional $8.1 million under credit agreement with Subsidiary of Private Company G. Following the expansion, the Company now holds $73.5 million in commitments. The Company’s outstanding principal balance under the credit facility with Subsidiary of Private Company G was approximately $80.6 million, which is fully funded. Subsidiary of Private Company G failed to make its cash interest payment due July 1, 2023 in arrears for the month of June, and the Company placed the borrower on non-accrual as of June 1, 2023. In connection therewith, the Company has initiated a consensual foreclosure proceeding with respect to certain of the borrower’s assets line.in Pennsylvania, with the expectation that the net cash proceeds of the public auction will be used to prepay a portion of the principal outstanding under the credit facility. The Company entered into a forbearance agreement with Subsidiary of Private Company G in September 2023, which carves out the consensual foreclosure proceeding described above, pursuant to which the Company agreed to forbear from exercising certain remedies as a result of certain defaults under the credit agreement. In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, sell certain assets, including certain collateral, the proceeds of which will be applied to the outstanding obligations under the credit agreement with Private Company G, to provide certain additional collateral, and to contribute additional cash equity to be held in escrow by AFC Agent. As amended by the forbearance agreement entered into with Subsidiary of Private Company G, the borrower was required to pay interest of $0.8 million pro rata to the lender group for the month of September and must pay $1.0 million pro rata to the lender group for each of the months of October, November, and December. Subsidiary of Private Company G paid September and October interest in accordance with the terms of the forbearance agreement, which was due October 1, 2023 and November 1, 2023, respectively, and the credit facility was restored to accrual status.
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In December 2021, the Company entered into a credit agreement with Subsidiary of Public Company H, which provides Subsidiary of Public Company H with a $100.0 million senior secured credit facility, of which, we committed $60.0 million, a predecessor-in-interest to AFCIF committed $10.0 million, and third-party lenders committed $30.0 million of the aggregate principal amount. In October 2022, the credit agreement with Subsidiary of Public Company H was amended to, among other things, increase the total loan commitment by $50.0 million, of which $30.0 million of the new loan commitment was allocated pro rata to the Company, $5.0 million was allocated to AFCIF and the remaining $15.0 million was allocated to a third-party lender. In April 2023, the credit agreement with Subsidiary of Public Company H was amended to, among other things, (i) reduce the total loan commitment by $10.0 million ratably amongst the lenders, including the Company, of which $6.0 million of the reduced commitment was allocated to the Company and $9.0 million of additional principal was funded by the Company, (ii) strengthen the real estate coverage covenants and (iii) require certain conditions precedent be met prior to disbursing funds to construction projects. Following the amendment, the Company now holds $84.0 million in commitments. The Company’s outstanding principal balance under the credit facility with Subsidiary of Public Company H was $84.0 million, which is fully funded.
In September 2023, Mr. Bernard Berman, a member of the Company’s investment committee, purchased a 3.0% membership interest in certain income of the Manager.
Secured Revolving Credit Facility From Affiliate
TheIn April 2022, the Company has a secured revolving credit loan (the “Revolving Loan”) from AFC Finance, LLC, an affiliate ofterminated the AFCF Revolving Credit Facility. Refer to Note 9 to the Company’s management.  Refer to footnote 9unaudited interim 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 threenine months ended March 31, 2021:September 30, 2023 and 2022:
Record DatePayment
Date		Common Share
Distribution
Amount		Aggregate Amount Paid
Regular cash dividend3/31/20224/15/2022$0.55 $10,858,617 
Regular cash dividend6/30/20227/15/20220.56 11,120,408 
Regular cash dividend9/30/202210/14/20220.56 11,403,840 
2022 Period Subtotal$1.67 $33,382,865 
Regular cash dividend3/31/20234/14/2023$0.56 $11,473,971 
Regular cash dividend6/30/20237/14/20230.48 9,819,695 
Regular cash dividend9/30/202310/13/20230.48 9,819,695 
2023 Period Subtotal$1.52 $31,113,361 

Record Date 
Payment
Date
 
Common Share
distribution
amount
  
Taxable
Ordinary
Income
  
Return of
Capital
  
Section
199A
Dividends
 
                
Regular cash dividend3/15/2021 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 consolidated financial statements were available to be issued. There were no material subsequent events, other than thatthose described below, that required disclosure in these unaudited interim consolidated financial statements.

In October 2023, AFC Agent received approximately $2.3 million in total loan principal prepayments and $0.1 million in related exit fees from Private Company A’s sale of its collateral assets, of which approximately $1.7 million in principal prepayments and $0.1 million in related exit fees were allocated to the Company relating to the Company’s pro rata portion of the Private Company A Credit Facility and was applied to the outstanding principal balance. Following the prepayment, the Company’s outstanding principal balance under the Private Company A Credit Facility was approximately $53.2 million.
In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors.
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In April 2021, Sub. Of Public Co. C repaid their loan in full.  The loan had an originalOctober 2023, Private Company B was placed into receivership following the maturity date of February 2025the credit facility, which has not been repaid. The Company has been in discussions with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of the business in order to repay the loan.
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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 oninformation 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.

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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 containedforward-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 withthe 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 riskstheir businesses, including demand, sales volume, profitability, and uncertainties. Actual results could differ significantlyfuture 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 prospectusloans; (viii) our expected ranges of originations and repayments; (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) constitutefuture; and (x) our expanded investment strategy.
These forward-looking statements which relate toreflect management’s current views about future events, orand are subject to risks, uncertainties and assumptions. Our actual results may differ materially from the future performanceresults 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”). Theactual 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 Manager to locate suitable loan opportunities for us and to monitor service and administeractively manage our loansportfolio and executeimplement our investment strategy;
•our expected ranges of originations and repayments;
•the allocation of loan opportunities to us by our Manager;
•our projected operating results;
•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; thelaw and certain state of the United States, European Union and Asian economies generally or in specific geographic regions;
laws;
•the estimated growth in and evolving market dynamics of the cannabis market;
•changes in general economic conditions, in our industry and in the commercial finance and real estate markets;
•the demand for cannabis cultivation and processing facilities;
•shifts in public opinion and state regulation regarding cannabis;
•the state of the U.S. economy generally or in specific geographic regions;
economic trends and economic recoveries; and
•the impact of a protracted decline in the liquidity of credit markets on our business;
•the amount, collectability and timing of our cash flows, if any, from our loans;
•our ability to obtain and maintain financing arrangements;
•our expected leverage;
Changes•changes in the value of our loans;
•losses that may arise due to the concentration of our expected portfolio in a limited number of loans;
loans and borrowers;
•our expected investment and underwriting process;
•the rates of default or decreased recovery rates on our loans;
•the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•the availability of investment opportunities in mortgage-related and real estate-related instruments and other securities;
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•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;
•interest rate mismatches between our loans and our borrowings used to fund such loans;
•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”);
Act;
•our ability to qualify and maintain our qualification as a real estate investment trust (“REIT”)REIT for United StatesU.S. federal income tax purposes;
•estimates relating to our ability to make distributions to our stockholdersshareholders in the future;
•our understanding of our competition;
and
•market trends in our industry, interest rates, real estate values, the securities markets or the general economy.

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We use words such as “anticipates,Please see the section entitled “Risk Factors” “believes,” “expects,” “intends,” “will,” “should,” “may”located in our Annual Report on Form 10-K, filed with the SEC on March 7, 2023, for a further discussion of these and similar expressions to identifyother 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 onapply 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 reviseupdate or updaterevise any forward-looking statements whether as a result of new information, futureto reflect events or otherwise, youcircumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except to the extent we are advisedlegally required to consult any additional disclosures that we may make directly to youdisclose certain matters in SEC filings or through reports that we have filed orotherwise.
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 reportsaccompanying 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 onanalysis contains forward-looking statements that involve risks and uncertainties which could cause our website, www.afcgamma.com. We intendactual results to use this webpage as a means of disclosing material information, for complying with our disclosure obligations under Regulation FDdiffer 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 aan institutional lender to the commercial real estate finance companysector that was founded in July 2020 by a veteran team of investment professionals. We primarily originate, structure, underwrite, invest in and underwritemanage senior secured loans and other types of commercial real estate loans for establishedand debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medicinalmedical and/or adult-use cannabis. We have recently expanded our investment guidelines to deploy capital in attractive lending opportunities secured by commercial real estate. Our expanded investment guidelines now include (i) first and second lien loans secured by mortgages to commercial real estate owners, operators and related businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities, in addition to our prior sole focus on first lien loans secured by mortgages to cannabis operators in states that have legalized medical and/or adult use cannabis. As states continueWe expect the underwriting and investment process for these investments under our expanded guidelines to legalize cannabis for medical and adult use, an increasing number of companies operating in the cannabis industry need financing. Duebe substantially similar to the capital constrainedprocess we deploy for our loans to cannabis market which does not typically have access to traditional bank financing, we believe we are well positioned to become a prudent financing source to established cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure. operators.
Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to real estate developers and state law compliant cannabis companies. The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. Our targetedSome of our cannabis-related borrowers will sometimes be publicly tradedhave their equity securities listed for public trading on the Canadian StockSecurities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States. Our loans typically
We have upexpanded our investment guidelines to invest in attractive commercial real estate financing opportunities emerging from the current interest rate environment. As the Federal Reserve began to increase interest rates in 2022 to curb rising inflation, we believe the higher interest rates and associated pressures have created an opportunity in real estate lending, where there is currently less capital available in the marketplace to finance real estate projects. As a five-year maturityresult of these market dynamics, we have identified a number of opportunities to provide acquisition and contain amortization and/or cash flow sweeps. Asconstruction financing for real estate owners, operators and related businesses at attractive rates and secured by valuable real estate collateral.
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Separately, as states continue to legalize cannabis for medical and adult-use, an increasing number of 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 acrosscompanies operating in the cannabis industry in various states while maintainingneed financing. Due to the current capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we continue to be well positioned to act as a robust pipelineprudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of potentially actionable opportunities.

operations and institutional infrastructure.
We are a Maryland corporation and externally managed by our Manager, AFC Management, LLC, a Delaware limited liability company (our “Manager”), pursuant to the terms of ourthe Amended and Restated Management Agreement.

Agreement, dated January 14, 2021, by and between AFC Gamma, Inc. and AFC Management, LLC (as amended from time to time, the “Management Agreement”). We commenced operations on July 31, 2020 and completed our IPOinitial public offering (“IPO”) in March 2021.
We are incorporated in Maryland and intend to elect and qualifyhave elected to be taxed as a real estate investment trust (“REIT”(a “REIT”), commencing with our taxable year ending December 31, 2020. under Section 856 of the Internal Revenue Code of 1986, as amended (the “Code”). We generally will not be subject to U.S. federal income taxes on our taxable income to the extentbelieve that we annually distribute allhave qualified as a REIT and that our current and proposed method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or substantially all of our taxable income to stockholders and maintain our intendedexpectations will be fulfilled, since qualification as a REIT.REIT depends on us continuing to satisfy numerous asset, income and distribution tests, which in turn depends, in part, on our operating results and ability to obtain financing. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company ActAct.
Our wholly-owned subsidiary, AFCG TRS1, LLC (“TRS1”), operates as a taxable REIT subsidiary. TRS1 began operating in July 2021 and the financial statements of 1940, as amended (the “Investment Company Act”).

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TRS1 have been consolidated within our unaudited interim 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.

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$1.235 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 yearthree-year period.

Developments during the FirstThird Quarter of 2021:2023:

Updates to our Loan Portfolio during the Third Quarter of 2023
On March 23, 2021,In August 2023, AFC Agent received approximately $37.6 million in total loan principal prepayments and $1.3 million in related exit fees from Private Company A’s sale of certain collateral assets, of which approximately $27.1 million in principal prepayments and $1.0 million in related exit fees were allocated to us relating to our pro rata portion of the Private Company A Credit Facility and was applied to the outstanding principal balance.
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In July 2023, TRS1 purchased a secured seller promissory note from Private Company A (the “seller note”) that was issued by Private Company M in favor of Private Company A as a portion of the total purchase price for certain of Private Company A and its subsidiaries’ assets and operations in Arizona. The seller note is for an amount equal to $30.0 million and is secured by substantially all the assets of Private Company M. The seller note is also guaranteed by the parent company of Private Company M. The seller note matures on July 31, 2026 and accrues interest at a rate of 9.0% per annum until February 2026, and at a rate of 15.0% per annum thereafter. TRS1 purchased the seller note from Private Company A at a discount of approximately 16.0% for a purchase price equal to approximately $25.2 million.
Subsidiary of Private Company G failed to make its cash interest payment due July 1, 2023 in arrears for the month of June, and we completedplaced the borrower on non-accrual from June 1, 2023 to August 31, 2023. We entered into a forbearance agreement with Subsidiary of Private Company G in September 2023, pursuant to which we agreed to forbear from exercising certain remedies as a result of certain defaults under the credit agreement. In exchange for such forbearance, Subsidiary of Private Company G agreed to, among other things, sell certain assets, including certain collateral, the proceeds of which will be applied to the outstanding obligations under the credit agreement with Private Company G, to provide certain additional collateral, and to contribute additional cash equity to be held in escrow by AFC Agent.As amended by the forbearance agreement entered into with Subsidiary of Private Company G, the borrower was required to pay interest of $0.8 million pro rata to the lender group for the month of September and must pay $1.0 million pro rata to the lender group for each of the months of October, November, and December. Subsidiary of Private Company G paid September and October interest in accordance with the terms of the forbearance agreement, which was due October 1, 2023 and November 1, 2023, respectively, and the credit facility was restored to accrual status.
The outstanding principal balance of the loan to Subsidiary of Private Company G includes a protective advance of approximately $1.6 million made in September 2023 to cover certain construction expenses and was repaid in October 2023. Interest on the protective advance is calculated at the same rate as standard monthly cash interest, plus an additional 5.0% default interest rate.
The maturity date passed on the credit facility to Private Company B without repayment. The agent on the credit facility sent the borrower a notice of default and placed the borrower in receivership to maintain the borrower’s operations that were disrupted as a result of a management dispute. We have been in discussion with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of the business in order to repay the loan. Until the loan is repaid, the borrower is obligated to pay interest at a base weighted average interest rate of 14.7% and PIK interest rate of 4.0%, plus a default interest rate of 4.0%. As amended by the forbearance and modification agreement entered into with Private Company B in February 2023, the 4.0% default interest rate is applicable from January 15, 2023 and is paid in kind. Outstanding principal balance also includes a protective advance of approximately $0.2 million made in September 2023 to cover certain expenses and was repaid in November 2023. Interest on the protective advance is calculated at the same rate as standard monthly cash interest and PIK interest, plus default interest.
In August 2023, we entered into an amendment with Private Company K, which among other things, (i) amended the minimum cash balance financial covenant, (ii) delayed the start date for amortization payments and (iii) the total loan commitment under the credit facility with Private Company K was reduced from approximately $14.5 million to $13.2 million, which is fully funded.
In September 2023, we entered into an amendment with Private Company L, which, among other things, amended the interest rate to a base interest rate of 8.4% per annum plus SOFR, with a SOFR floor of 5.0%.
In October 2023, AFC Agent delivered a notice of default to Private Company A based on certain financial and other covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in accordance with the terms of the Private Company A Credit Facility. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the benefit of its creditors.
In September 2023, the credit facility with Public Company A matured without repayment. The agent on the credit facility has placed the borrower in default, and the Company has recorded a realized loss of approximately $(1.2) million.
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At-the-Market Offering Program
In April 2022, we filed our initial publicshelf 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 pricecommission of $19.00 per share, raising $118.8 million in gross proceeds.  The underwriters also exercised their over-allotment option to purchase up to an additional 937,5003.0% of the gross proceeds from each sale of common stock under the Sales Agreement.
During the three and nine months ended September 30, 2023, we did not sell any shares of our common stock atunder the Sales Agreement.
Share Repurchase Program
On June 13, 2023, our Board of Directors authorized a priceshare repurchase program providing for the repurchase of $19.00 per share, which was completed on May 26, 2021, raising $17.8 million in gross proceeds.  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 $3.1up to $20.0 million of expenses in connection with the IPO, which is reflected as a reduction in additional paid-in capital.our outstanding common stock (the “Repurchase Program”). The net proceedstiming, price, and volume of repurchases will be based on our stock price, general market conditions, applicable legal requirements and other factors. The repurchase of our common stock may be made from time to us totaled approximately $123.9 million. We intend to use the 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 operatingtime in the cannabis industry that are consistentopen market, in privately negotiated transactions or otherwise in compliance with our investment strategyRule 10b-18 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 registrationRule 10b5-1 under the Investment Company Act.

UpdatesSecurities Exchange Act of 1934. We expect to Our Loan Portfolio duringfinance any share repurchases under the First QuarterRepurchase Program using cash on hand, capacity available under our line of 2021

In January 2021, Public Company Acredit and its related loan parties entered into Modification Agreements for eachcash flows from operations. The Repurchase Program may be discontinued, modified or suspended at any time. During the three and nine months ended September 30, 2023, we did not repurchase any shares of the Public Company A loansour common stock 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 commencing 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.Repurchase Program.

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In March 2021, we entered into a commitment to Private Co. E for a $21 million senior term loan and funded $7 million at closing, including a $2 million interest reserve. The loan has an interest rate of 12% plus LIBOR per annum with a LIBOR floor of 1% and PIK interest of 4%. The loan has a maturity date of April 2026, an unused fee of 3% and OID of 8.7%. Private Co. E is a single-state medical cannabis operator in Ohio. Its operations consist of a cultivation facility currently in construction and an operational dispensary. The real estate collateral for this senior term loan includes both the dispensary and cultivation facility in Ohio.

Sale of Assigned Rights

In January 2021 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 to 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 AFC Warehouse Holding, 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 as of the date 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).

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,September 2023, we declared a regular cash dividend of $0.36$0.48 per share of our common stock, relating to the first quarter of 2021,ended September 30, 2023, which was paid on March 31, 2021October 13, 2023 to stockholdersshareholders of record as of March 15, 2021.September 30, 2023. The aggregate amount of the regular cash dividend payment was approximately $2.2$9.8 million.

For the nine months ended September 30, 2023 and 2022, 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 DeclaredPayable to Shareholders of Record at the Close of Business onDate PaidAmount per ShareAggregate Amount Paid
March 10, 2022March 31, 2022April 15, 2022$0.55$10.9 million
June 15, 2022June 30, 2022July 15, 20220.5611.1 million
September 15, 2022September 30, 2022October 14, 20220.5611.4 million
2022 Period Subtotal$1.67$33.4 million
March 2, 2023March 31, 2023April 14, 2023$0.56$11.5 million
June 15, 2023June 30, 2023July 14, 20230.489.8 million
September 15, 2023September 30, 2023October 13, 20230.489.8 million
2023 Period Subtotal$1.52$31.1 million

Recent Developments

In May 2021, we declared a regular cash dividendOctober 2023, AFC Agent received approximately $2.3 million in total loan principal prepayments and $0.1 million in related exit fees from Private Company A’s sale of $0.38 per shareits collateral assets, of our common stock,which approximately $1.7 million in principal prepayments and $0.1 million in related exit fees were allocated to us 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 amountour pro rata portion of the regular cash dividend payment will be approximately $5.1 million. The payment of this dividend is not indicative of our abilityPrivate Company A Credit Facility and was applied to pay such dividends in the future.

Subsequent to March 31, 2021, we closed 3 loans, committed to $50 million, funded $42.3 million, and were repaid approximately $12.1 million, for net fundings of approximately $30.2 million.

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In April 2021, Sub. Of Public Co. C repaid their loan in full.  The loan had an original maturity date of February 2025 and the outstanding principal onbalance. Following the date of repaymentprepayment, our outstanding principal balance under the Private Company A Credit Facility was approximately $12.1$53.2 million.  We received an exit fee of $750,000 and a prepayment premium of $750,000 upon repayment of the loan.

In April 2021, we entered intoOctober 2023, AFC Agent delivered a commitmentnotice of default to a $13 million senior term loanPrivate Company A based on certain financial and funded $5.25 million at closing, including a $925,000 interest reserve. The loan has an interest rate of 13%other covenant defaults and PIKbegan charging additional default interest of 4% with a step down to 2% once certain criteria are met5.0%, beginning 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 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”)1, 2023, in accordance with the terms in the Revolving Credit Agreement. We did not incur any fees or cost related to the amendment of the RevolvingPrivate Company A Credit AgreementFacility. In November 2023, Private Company A was placed into receivership to maintain the borrower’s operations and maximize value for the Revolving Credit Agreement does not have any unused fees.  Asbenefit of its creditors.
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In October 2023, Private Company B was placed into receivership following the maturity date of the datecredit facility, which has not been repaid. We have been in discussions with the borrower regarding refinancing the credit facility and with the receiver regarding a potential sale of this quarterly report, we have not drawn on the Revolving Credit Agreement or incurred any fees or interest expense relatedbusiness in order to repay the Revolving Credit Agreement.
loan.

In October 2023, the Board appointed Daniel Neville as the Chief Executive Officer of the Company and a member of its Investment Committee, effective as of November 13, 2023. Mr. Neville succeeds Leonard Tannenbaum, who will transition from his role as Chairman of the Board and Chief Executive Officer to Executive Chairman and Chief Investment Officer as of the effective date.
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 stockholdersshareholders 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 stockholdersshareholders 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 FeesCompensation earned under the Management Agreement for the applicable time period, and thus Core Earnings is calculated priorwithout giving effect to Incentive FeeCompensation expense, while the calculation of Distributable Earnings accounts for any Incentive FeesCompensation 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 equitystock-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) increase (decrease) in provision for current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS 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 stockholdersshareholders 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 stockholdersshareholders invest in our common stock, we generally intend to attempt to pay dividends to our stockholdersshareholders in an amount at least equal to our netsuch REIT taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in declaringauthorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.

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Distributable Earnings and Adjusted Distributable Earnings are “non-GAAPis a non-GAAP financial measures”measure and should not be considered as substitutesa 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.
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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
September 30,		Nine months ended
September 30,
 2023202220232022
Net income$7,979,875 $11,480,519 $30,140,482 $32,994,312 
Adjustments to net income:
Stock-based compensation expense294,014 114,062 705,361 1,221,482 
Depreciation and amortization— — — — 
Unrealized (gains) losses, or other non-cash items(787,799)637,279 1,152,810 1,561,890 
Increase (decrease) in provision for current expected credit losses1,053,398 541,958 149,637 3,040,135 
TRS (income) loss, net of dividends1,399,920 (1,019,424)(716,684)(1,567,970)
One-time events pursuant to changes in GAAP and certain non-cash charges— — — — 
Distributable earnings$9,939,408 $11,754,394 $31,431,606 $37,249,849 
Basic weighted average shares of common stock outstanding (in shares)20,324,125 20,019,760 20,315,162 19,687,730 
Distributable earnings per basic weighted average share$0.49 $0.59 $1.55 $1.89 
Book Value Per Share

We believe that book value per share is helpful to stockholdersshareholders 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, 2021September 30, 2023 and December 31, 20202022 was approximately $16.18$16.56 and $14.83, respectively, on a post-split basis.$16.65, 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.

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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.

Results of Operations

We commenced operations on July 31, 2020 and therefore, have no period to compare results for for the three and nine 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.

September 30, 2023 and 2022
Our net income allocable to our common stockholdersshareholders for the three and nine months ended September 30, 2023, was approximately $8.0 million and $30.1 million or $0.39 and $1.47 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $11.5 million and $33.0 million or $0.57 and $1.67 per basic weighted average common share for the three and nine months ended September 30, 2022.
Interest income decreased approximately $(3.0) million, or (15.1)%, for the three months ended March 31, 2021September 30, 2023 as compared to the three months ended September 30, 2022. This decrease was driven by lower fee income recognized of approximately $1.4($2.1) million, or $0.20 per common share. Netlower unused fees of approximately ($0.4) million driven by less unfunded commitments, and lower interest income of approximately $1.4($1.0) million was compriseddriven by two months of approximately $4.7 millionnon-accrual in total revenues, operating expensesthe third quarter of 2023 for Subsidiary of Private Company G interest income, partially offset by an increase in OID income of approximately $0.6 million stock-based compensation expenseduring the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, respectively.
38
Index
Interest income decreased approximately $(7.1) million, or (11.8)%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This decrease was driven by lower fee income recognized of approximately $1.6($6.3) million, management and incentivelower unused fees of approximately $0.9($1.1) million changedriven by less unfunded commitments, and lower OID income of approximately ($5.3) million due to acceleration of unaccreted OID of prior year loan repayments, partially offset by an increase in interest income of approximately $5.5 million driven by additional principal deployed as well as an increase in variable interest rates during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, respectively.
Interest expense decreased approximately $(0.1) million, or (6.8)%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The decrease was primarily due to lower interest incurred on the 2027 Senior Notes due to $90.0 million principal outstanding for the three months ended September 30, 2023, as compared to $100.0 million principal outstanding for the three months ended September 30, 2022.
Interest expense decreased approximately $(0.3) million, or (6.2)%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. The decrease was primarily due to lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the provision2027 Senior Notes principal outstanding of approximately $(7.5) million, or (7.5)%, for current expected credit lossesthe nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the nine months ended September 30, 2023. No repurchases took place during the same period in 2022.
Management fees increased approximately $0.1 million, or 6.3%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. Incentive fees decreased approximately $(0.3) million, or (10.4)%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, driven by lower Core Earnings (as defined in the Management Agreement).
Management fees increased approximately $0.2 million, or 6.8%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Incentive fees decreased approximately $(1.5) million, or (15.6)%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, driven by lower Core Earnings (as defined in the Management Agreement).
General and administrative expenses decreased approximately $(0.1) million, or (6.1)%, for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.
General and administrative expenses increased approximately $0.7 million, or 20.6%, for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. This increase was primarily due to severance expense incurred during the nine months ended September 30, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million.
Stock-based compensation increased approximately $0.2 million, or 157.8%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. This was driven by the acceleration of restricted stock owned by our former Head of Real Estate and a former Director, who resigned during the three months ended September 30, 2023.
Stock-based compensation decreased approximately $(0.5) million, or (42.3)%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This was primarily due to the majority of equity awards granted in January 2022 that vested immediately, as compared to the majority of equity awards granted in January 2023 with a three-year vesting period.
Professional fees decreased approximately $(29.3) thousand, or (9.0)%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
Professional fees increased approximately $0.1 million, or 11.6%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
The net change in unrealized gainrealized gains (losses) on loans ofinvestments for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 was $(1.2) million and approximately $0.1 million.$(1.7) million, respectively.

39
Index
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 fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost. The net change in unrealized gain (loss) of approximately $0.1$0.8 million and $(0.6) million for the three months ended March 31, 2021September 30, 2023 and 2022, respectively, and $(1.2) million and $(1.6) million for the nine months ended September 30, 2023 and 2022, respectively, was mainly driven by the net change 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,loans, which was netimpacted by changes in market yields and revenue multiples.
The gain (loss) on extinguishment of a Base Management Fee Rebate of $237,743. The Incentive Compensation fee payable to our managerdebt was zero and approximately $2.0 million for the three and nine months ended March 31, 2021 was $662,730.

ForSeptember 30, 2023 as a result of the three months ended March 31, 2021,repurchase of $10.0 million of our Manager will be reimbursed for approximately $365,567 for out-of-pocket costs incurred on our behalf.2027 Senior Notes during the period. No repurchases took place during the same period in 2022.

Provision for Current Expected Credit Losses

For the three months ended March 31, 2021, the increase to ourThe provision for current expected credit loss was $66,100 andlosses increased approximately $0.5 million, or 94.4%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The provision for current expected credit losses decreased approximately $(2.9) million, or (95.1)%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The balance as of March 31, 2021September 30, 2023 was $531,497approximately $14.4 million, or 125 basis points4.66%, of our total loans held at carrying value and loansloan receivable held at carrying value commitment balance of $42,393,791approximately $310.1 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 loansloan receivable held at carrying value of $248,317approximately $14.3 million and (ii) a liability for unfunded commitments of $283,180.approximately $0.2 million. The balance as of September 30, 2022 was approximately $6.2 million, or 1.80%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $341.4 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 loan receivable held at carrying value of approximately $5.5 million and (ii) a liability for unfunded commitments of approximately $0.7 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 change in the provision for current expected credit losses for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 was 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, 2021September 30, 2023 and December 31, 2020, the Company’s2022, our portfolio included fourtwo and three loans respectively, held at fair value. value, respectively. The aggregate originated commitment under these loans was approximately $62.4$94.2 million and $59.9$104.3 million, respectively, and outstanding principal was approximately $52.2$73.0 million and $50.8$102.4 million respectively, as of March 31, 2021September 30, 2023 and December 31, 2020.  2022, respectively. For the threenine months ended March 31, 2021, the CompanySeptember 30, 2023, we funded approximately $1.0$1.9 million of outstanding principal.additional principal and had approximately $33.0 million of principal repayments of loans held at fair value. As of March 31, 2021September 30, 2023 and December 31, 2020, approximately 0% and 6.0%, respectively,2022, none of the Company’sour loans held at fair value havehad 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).
24
The following tables summarize the Company’sour loans held at fair value as of March 31, 2021September 30, 2023 and December 31, 2020:2022:
As of September 30, 2023
Fair Value(1)
Carrying Value(2)
Outstanding
Principal(2)
Weighted Average
Remaining Life
(Years)(3)(4)
Senior term loans$70,010,878 $72,573,622 $73,005,930 0.6
Total loans held at fair value$70,010,878 $72,573,622 $73,005,930 0.6
  As of March 31, 2021 
  
Fair Value (2)
  
Carrying Value (1)
  
Outstanding
Principal (1)
  
Weighted Average
Remaining Life
(Years)(3)
 
             
Senior Term Loans $50,252,049  $48,833,111  $52,212,608   3.1 
Total loans held at fair value $50,252,049  $48,833,111  $52,212,608   3.1 

40
  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 
Index
(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.
As of December 31, 2022
Fair Value(1)
Carrying Value(2)
Outstanding
Principal(2)
Weighted Average
Remaining Life
(Years)(3)
Senior term loans$99,226,051 $100,635,985 $102,376,546 1.2
Total loans held at fair value$99,226,051 $100,635,985 $102,376,546 1.2
(2)Refer to Footnote 14 to our unaudited financial statements included elsewhere in this quarterly report.
(1)Refer to Note 14 to our unaudited interim consolidated financial statements titled “Fair Value”.
(3)
Weighted average remaining life is calculated based on the fair value of the loans as of March 31, 2021 and December 31, 2020.
(2)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.
(3)Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2023 and December 31, 2022.
(4)As of September 30, 2023, the weighted average remaining life only reflects the remaining life of the Private Company A Credit Facility.
The following table presents changes in loans held at fair value as of and for the threenine months ended March 31, 2021:September 30, 2023:
  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 

PrincipalOriginal Issue
Discount		Unrealized Gains (Losses)Fair Value
Total loans held at fair value at December 31, 2022$102,376,546 $(1,740,561)$(1,409,934)$99,226,051 
Realized gains (losses) on loans at fair value, net(1,213,416)— — (1,213,416)
Change in unrealized gains (losses) on loans at fair value, net— — (1,152,810)(1,152,810)
New fundings1,881,840 — — 1,881,840 
Accretion of original issue discount— 1,308,253 — 1,308,253 
Loan repayments(33,032,561)— — (33,032,561)
PIK interest2,993,521 — — 2,993,521 
Total loans held at fair value at September 30, 2023$73,005,930 $(432,308)$(2,562,744)$70,010,878 
In September 2023, the credit facility with Public Company A matured without repayment. The agent on the credit facility has placed the borrower in default, and we recorded a realized loss of approximately $(1.2) million.
As of MarchSeptember 30, 2023 and December 31, 20212022, our portfolio did not include any debt securities. For the three and nine months ended September 30, 2023, we had no sales of debt securities. For the three and nine months ended September 30, 2022, the realized loss on the sale of debt securities was approximately zero and $0.2 million, respectively.
As of September 30, 2023 and December 31, 2020, the Company’s2022, our portfolio included four and threenine loans respectively, held at carrying value. The aggregate originated commitment under these loans was approximately $65$335.1 million and $44$338.9 million, respectively, and outstanding principal was approximately $42.9$322.7 million and $33.9$296.6 million, respectively, as of March 31, 2021September 30, 2023 and December 31, 2020.2022. During the threenine months ended March 31, 2021, the CompanySeptember 30, 2023, we funded approximately $8.9$59.1 million of outstanding principal. Asnew loans and additional principal, had approximately $16.7 million of March 31, 2021 and December 31, 2020, approximately 49% and 35%, respectively,principal repayments of the Company’s loans held at carrying value haveand sold $22.6 million in the aggregate of the Company’s investment in Subsidiary of Public Company M and Private Company I. As of September 30, 2023 and December 31, 2022, approximately 84% and 73%, respectively, of our loans held at carrying value had floating interest rates. TheseAs of September 30, 2023, these floating benchmark rates areincluded one-month Secured Overnight Financing Rate (“SOFR”) subject to London Interbank Offered Rate (“LIBOR”) floors, with a weighted average floor of 1%3.3% and 1%, respectively, calculated based on loans with LIBOR floors. Referencesquoted at 5.3% and U.S. prime rate subject to LIBOR or “L” are to 30-day LIBOR (unless otherwise specifically stated)a weighted average floor of 4.9% and quoted at 8.5%.
25
41
Table of Contents
Index
The following tables summarize the Company’sour loans held at carrying value as of March 31, 2021September 30, 2023 and December 31, 2020:2022:
  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 

(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.
(4)
Weighted average remaining life is calculated based on the carrying value of the loans as of March 31, 2021 and December 31, 2020.
As of September 30, 2023
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
Senior term loans$322,737,668 $(14,726,592)$308,011,076 2.5
Total loans held at carrying value$322,737,668 $(14,726,592)$308,011,076 2.5
As of December 31, 2022
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
   
Senior term loans$296,584,529 $(11,407,417)$285,177,112 3.1
Total loans held at carrying value$296,584,529 $(11,407,417)$285,177,112 3.1
(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 September 30, 2023 and December 31, 2022.
The following table presents changes in loans held at carrying value as of and for the threenine months ended March 31, 2021:September 30, 2023:
  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 
PrincipalOriginal Issue
Discount		Carrying Value
Total loans held at carrying value at December 31, 2022$296,584,529 $(11,407,417)$285,177,112 
New fundings59,088,860 (7,713,475)51,375,385 
Accretion of original issue discount— 3,126,933 3,126,933 
Loan repayments(12,676,917)— (12,676,917)
Sale of loans(22,606,578)1,267,367 (21,339,211)
PIK interest6,410,952 — 6,410,952 
Loan amortization payments(4,063,178)— (4,063,178)
Total loans held at carrying value at September 30, 2023$322,737,668 $(14,726,592)$308,011,076 
As of March 31, 2021September 30, 2023 and December 31, 2020, the Company’s2022, our portfolio included one loan receivable held at carrying value. The originated commitment under this loan was approximately $4$4.0 million and outstanding principal was approximately $3.2$2.0 million and $3.4$2.2 million as of March 31, 2021September 30, 2023 and December 31, 2020,2022, respectively. During the threenine months ended March 31, 2021, the Company receivedSeptember 30, 2023, we had approximately $0.2 million of principal repayments of $0.1 million of outstanding principal.loan receivable held at carrying value.
42
Index
The following table presents changes in loans receivable as of and for the threenine months ended March 31, 2021:September 30, 2023:
PrincipalOriginal Issue
Discount		Carrying
Value
Total loan receivable held at carrying value at December 31, 2022$2,222,339 $(1,686)$2,220,653 
Loan repayments(180,595)— (180,595)
Total loan receivable held at carrying value at September 30, 2023$2,041,744 $(1,686)$2,040,058 
  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 

The below table summarizes our total loan portfolio as of March 31, 2021,September 30, 2023:
Loan Names
Original Funding Date(1)
Loan MaturityAFCG Loan, net of Syndication% of Total AFCGPrincipal Balance as of 9/30/2023Cash Interest RatePIKFixed/
Floating		Amortization During Term
YTM
(2)(3)
Public Co. A - Equipment Loans(4)
8/5/20193/31/2025$4,000,000 0.9%$2,041,744 12.0%N/AFixedYes9%
Private Co. A(5)
5/8/20205/8/202477,785,000 18.0%54,682,215 13.0%2.7%FixedYes25%
Private Co. B(6)
9/10/20209/1/202316,402,988 3.8%18,323,715 14.7%4.0%FixedYes31%
Private Co. C11/5/202012/1/202524,000,000 5.5%15,023,186 17.5%2.0%FloatingYes26%
Sub of Private Co. G(7)
4/30/20215/1/202673,500,000 17.0%80,625,124 18.8%N/AFloatingYes24%
Private Co. I(8)
7/14/20218/1/20263,500,298 0.8%3,767,454 17.3%4.5%FloatingYes18%
Private Co. J8/30/20219/1/202523,000,000 5.3%22,121,889 17.3%4.0%FloatingYes26%
Private Co. K4/28/20225/3/202713,229,626 3.1%13,378,015 17.3%2.0%FloatingYes27%
Private Co. L4/20/20225/1/202663,000,000 14.5%53,000,000 13.7%N/AFloatingYes18%
Sub of Public Co. H12/16/20211/1/202684,000,000 19.4%84,000,000 14.3%N/AFloatingNo19%
Sub of Public Co. M8/26/20228/27/202520,822,000 4.8%20,822,000 9.5%N/AFixedNo18%
Private Co. M(9)
7/31/20237/31/202630,000,000 6.9%30,000,000 N/A9.0%FixedYes18%
Subtotal(10)
$433,239,912 100.0%$397,785,342 14.0%1.6%19%
Wtd
Average
Information is as of September 30, 2023 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
 

26
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 enhanceaffect the total yield, which may include, Original Issue Discount (“OID”),but is not limited to, OID, exit fees, prepayment fees, extensionunused fees and unused fees.  Original Issue Discount or "OID"contingent features. OID is recognized as a discount to the funded loan principal and areis 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 accreteswe 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. Estimated YTM is calculated using the interest rate as of September 30, 2023 applied through maturity. 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 loansloan prior to the AFC'sour acquisition of the Loans.such loan. The purchase discounts accrete to income over the respective remaining termterms of the applicable loan. Private Co. E equity value is a preliminary value.
(4) Loan includes a $3,000,000 initial funding,As of a $15,000,000 loan commitment, which has 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 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.October 1, 2022, Public Company A operates a +/- 400,000 square foot greenhouseequipment loan receivable was placed on non-accrual status.
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Index
(5)Cash interest and 55,000 square foot processing and custom packaging facility, which is capable of producing 140,000 pounds of dry flower per year.  PublicPIK interest rates for Private Company A also operatesrepresent a +/- 25,000 square foot indoor cultivationblended rate of differing cash interest and PIK interest rates applicable to each of the tranches to which the Company is a lender under the senior secured term loan credit facility and commercial kitchen. The real estate collateral of Publicwith Private Company A includes(as may be amended, restated, and supplemented or otherwise modified from time to time, the “Private Company A Credit Facility”). In October 2023, AFC Agent delivered a greenhousenotice of default to Private Company A based on certain financial and processing facilityother covenant defaults and began charging additional default interest of 5.0%, beginning as of July 1, 2023, in Nevada.

Subsidiary of Public Company C
Single-state vertically-integrated cultivator and retaileraccordance with operations in Florida, onethe terms of the fastest growing marketsPrivate Company A Credit Facility.
(6)Cash interest and PIK interest rates for Private Co. B are weighted average rates. As amended by the forbearance and modification agreement entered into with Private Company B in February 2023, the United States. Operations consistdefault interest rate of two greenhouse cultivation facilities, eight dispensaries4.0% is applicable from January 15, 2023 and a car delivery system to extend its retail network. The real estate collateralis paid in kind.
(7)As amended, 75.0% of Subsidiary of Public Company C includes two cultivation facilities in Florida.

Private Company A
Multi-state operator with operationsG’s monthly cash interest was paid in seven states. Private Company A is a vertically integrated cultivator and retailer of both medical and adult-use cannabis that primarily operates under its own brand. Private Company A’s business segments include cultivation, extraction and processing, retail products, and dispensaries. The real estate collateralkind from December 1, 2022 to May 1, 2023. Subsidiary of Private Company A includes three cultivation facilities across Arizona and Michigan and nine dispensaries across Arizona, Maryland, Massachusetts and Michigan.

Private Company B
Single-state operator currently constructing an indoor cultivation facilityG was placed on non-accrual status from June 1, 2023 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 includesAugust 31, 2023. In September 2023, 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 dispensariesforbearance agreement was entered into 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.

G. Subsidiary of PublicPrivate Company DG paid September and October interest in accordance with the terms of the forbearance agreement, which was due October 1, 2023 and November 1, 2023, and the credit facility was restored to accrual status.
Public Company D participates in the medical and adult use market across Canada and in several US states where cannabis(8)As amended, an additional 5.0% default rate has been legalized for therapeutic or adult use. Subsidiaryapplied since May 8, 2023 and the agent on this credit facility has since initiated a foreclosure proceeding. As of Public Company DMay 1, 2023, this loan was placed on non-accrual status.
(9)Quarterly cash interest is a premier medical marijuana cultivator, processorpaid in kind from closing to February 1, 2024 and distributorthen payable in Pennsylvania. Public Company D also has operators in Californiacash thereafter.
(10)The interest 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.

27
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 from the healthcare 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, includingsuch as the value associated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

With respect to our loans to cannabis operators, 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 below representsdocuments governing our loans also include a variety of provisions intended to provide remedies against the value associated with licenses. For 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 may impact the amount of the recovery in each such scenario, the 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 September 30, 2023, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.2 times our aggregate committed principal amount of such loans, with the real estate collateral securingcoverage for each of our loans measured as of March 31, 2021. The values in the table below were measured at the time of underwritingclosing for such loan 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   2.40x $7,056,000   2.40x
Public Co. A - Equipment Loan Funded 8/5/2019 $4,000,000   3.1% $20,000,000   20.0% $0   0.00x $0   0.00x
Subsidiary of Public Co. C(3)
 Funded 2/12/2020 $15,000,000   11.7% $15,000,000   100.0% $30,723,143   2.05x $30,723,143   2.05x
Private Co. A(4)
 Funded 5/8/2020 $34,000,000   26.5% $42,500,000   80.0% $51,339,031   1.21x $41,071,225   1.21x
Private Co. B(5)
 Funded 9/10/2020 $10,500,000   8.2% $10,500,000   100.0% $19,536,098   1.86x $19,536,098   1.86x
Private Co. C(6)
 Funded 11/5/2020 $22,000,000   17.1% $22,000,000   100.0% $23,733,050   1.08x $23,733,050   1.08x
Subsidiary of Public Co. D(7)
 Funded 12/18/2020 $10,000,000   7.8% $120,000,000   8.3% $26,058,332   0.22x $2,171,528   0.22x
Private Co. D(8)
 Funded 12/23/2020 $12,000,000   9.3% $12,000,000   100.0% $7,538,589   0.63x $7,538,589   0.63x
Private Co. E(9)
 Funded 3/30/2021 $21,000,000   14.0% $21,000,000   100.0% $16,102,000   0.89x $16,102,000   0.77x
        $131,440,000   100.0% $293,000,000      $247,030,242   0.85x $147,931,632   1.13x

(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 propertyvarious 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 onsubjective 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
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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) Subsidiarywhile it is involved in commercial sales of Public Company Dcannabis. In addition, the sale of the collateral securing our loans may be difficult and even for loans to cannabis operators, the collateral securing our loans may be sold 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 Dand 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 Eand other collateral securing our loans with respect to loans to cannabis operators. 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 stockholdersshareholders 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 stockholdersshareholders 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
Our net cash provided by operating activities for the nine months ended September 30, 2023 of approximately $15.0 million was less than our dividend payments of $32.7 million made during the same period due to earned OID of $4.4 million, gain on extinguishment of debt of $2.0 million, the net change in interest reserve of $4.1 million and PIK repayments of $1.5 million related to the repayment from Private Company I and Private Company A 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.
As of September 30, 2023 and December 31, 2022, all of our cash was unrestricted and totaled approximately $73.2 million and $140.4 million, respectively.
As of September 30, 2023, we believe that our primary sourcescash on hand, capacity available under our line of financingcredit and cash flows from operations will be sufficient to satisfy the extent available to us, through (a) credit facilities and (b) public and private offeringsoperating requirements of our equitybusiness through at least the next twelve months.
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 debt securities. Inrights (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 future,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 established in April 2022, pursuant to which we may utilize other sourcessell, from time to time, up to $75.0 million of financingour common stock. During the three and nine months ended September 30, 2023, we did not sell any shares of our common stock under the Sales Agreement. During the year ended December 31, 2022, we sold an aggregate of 621,398 shares of our common stock under the Sales Agreement at an average price of $18.30 per share generating net proceeds of approximately $10.4 million.
45
Index
We may seek to the extent availableraise further equity capital and issue debt securities in order to us.fund our future 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 for cannabis operators to increase and thatincrease. We also expect our expanded investment focus to require additional capital. As a result, we expect we will need to raise additional equity and/or debt funds to increase our liquidity in the near future.

As of March 31, 2021 and December 31, 2020, all of our cash was unrestricted and totaled approximately $126.8 million and $9.6 million, respectively.

28
The sources of financing for our target investments are described below.

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. As of September 30, 2023, we had $0.0 million of borrowings outstanding and $60.0 million of availability under our Revolving Credit Agreement, which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Facility. During the third quarter of 2023, we drew $21.0 million under the Revolving Credit Facility, which was repaid prior to the end of the third quarter of 2023.
PursuantThe 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), and contains a maturity date of April 29, 2025. Interest is payable on the Revolving Credit Facility at the greater of (1) the applicable base rate plus 0.50% and (2) 4.50%, as provided in the Revolving Credit Agreement, payable in cash in arrears. During the year ended December 31, 2022, we 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, payable semi-annually in arrears, which is included within interest expense in our consolidated statements of operations. Based on the terms of the Revolving Credit Agreement, our revolving credit facility provides revolving loan commitments of upestimated average cash balance will exceed the minimum balance required to $50.0 millionwaive the unused line fee and bears interest at a fixed rate of 6% per annum, payable in cash in arrears. As of each of March 31, 2021 and December 31, 2020,as such, we did not have any borrowings outstanding under our Revolving Credit Agreement. Future proceeds underincur an unused line fee for the Revolving Credit Agreement are available to fund loans and bridge capital contributions and for general corporate purposes. We did not incur any fees or costs related to the origination of the Revolving Credit Agreement and we are not required to pay any commitment fees under the Revolving Credit Agreement. three months ended September 30, 2023.
Our obligations under the Revolving Credit Agreement and the other loan documents delivered in connection therewithFacility are secured by a first priority security interest in substantially allcertain assets of our existing and future assets. The maturity dateours comprising of the Revolving Credit Agreement is the earlier of (i) December 31, 2021 and (ii) a Refinancing Credit Facility. The Revolving Credit Agreement providesor relating to loan obligations designated for certain covenants, including requiring us to deliver financial information and any notices of default, and conducting businessinclusion in the normal course.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. To the best of our knowledge, as of March 31, 2021,September 30, 2023, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
Termination of AFC Finance Revolving 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 remaining amount of the commitment fee outstanding of approximately $0.1 million and accelerated the remaining deferred financing costs of approximately $0.1 million in the second quarter of 2022. There were no other payments, premiums or penalties that were required to be paid in connection with the termination.
2027 Senior Notes
On November 3, 2021, we issued $100.0 million in aggregate principal amount of 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, which began 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. We used the net 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 our investment strategy and (iii) for working capital and other general corporate purposes. The terms of the 2027 Senior Notes are governed by the Indenture. Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future 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 September 30, 2023, the 2027 Senior Notes are guaranteed by TRS1.
46
Index
Prior to February 1, 2027, we 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 governing the 2027 Senior Notes 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 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 consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of our consolidated Total Assets (as defined in the Indenture); and (4) merge, consolidate or sell substantially all of our assets. In addition, the Revolving Credit Agreement containsIndenture also provides for customary events of default. In the case of anIf any event of default the lenders may terminate the commitmentsoccurs, any amount then outstanding under the secured revolving credit facilityIndenture may immediately become due and require immediate repaymentpayable. These events of all outstanding borrowings. Such terminationdefault are subject to a number of important exceptions and acceleration would occur automaticallyqualifications set forth in the eventIndenture. We were in compliance with the terms of certain bankruptcy events.
the Indenture as of the date of this quarterly report.

During the nine months ended September 30, 2023, we repurchased $10.0 million in principal amount of our 2027 Senior Notes at 77.4% of par value, plus accrued interest. This resulted in a gain on extinguishment of debt of approximately $2.0 million, recorded within the unaudited interim consolidated statements of operations. Following this transaction, as of September 30, 2023, we had $90.0 million in principal amount of the 2027 Senior Notes outstanding.
The table below sets forth the material terms of our outstanding senior notes as of the date of this quarterly report:
Senior NotesIssue
Date		Amount
Outstanding		Interest
Rate Coupon		Maturity
Date		Interest
Due Dates		Optional
Redemption Date
2027 Senior NotesNovember 3, 2021$90.0 million5.75%May 1, 2027May 1 and November 1February 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 MarketsAs of September 30, 2023, 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.

47
We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans.

Index
Cash Flows

The following table sets forth changes in cash and cash equivalents and restricted cash for the threenine months ended March 31, 2021:September 30, 2023 and 2022:

  
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 

29
September 30,
20232022
Net income$30,140,482 $32,994,312 
Adjustments to reconcile net income to net cash (used in) provided by operating activities and changes in operating assets and liabilities(15,150,128)(5,538,246)
Net cash provided by (used in) operating activities14,990,354 27,456,066 
Net cash provided by (used in) investing activities18,508,853 (68,520,844)
Net cash (used in) provided by financing activities(100,667,506)(31,861,647)
Change in cash and cash equivalents$(67,168,299)$(72,926,425)
Net Cash Provided by (Used in) Operating Activities

For the three months ended March 31, 2021, netNet cash provided by operating activities totaled approximately $2.4 million. Forduring the threenine months ended March 31, 2021, adjustmentsSeptember 30, 2023 was approximately $15.0 million, compared to net income relatedapproximately $27.5 million for the same period in 2022. The decrease of approximately $(12.5) million during the nine months ended September 30, 2022 to operating activitiesSeptember 30, 2023 was primarily included net changedue to an increase in unrealizedthe gain on loans at fair valueextinguishment of debt of approximately $0.1$(2.0) million, stock-based compensation expense of approximately $1.6 million,increase in PIK interest of approximately $0.6$(4.4) million, decrease in the change in provision for current expected credit losses of approximately $(2.9) million, decrease in interest reserve of approximately $(5.0) million, increase in accrued management and incentive fees of approximately $(1.3) million, offset by a decrease in accretion of deferred loan original issue discount and other discountsOID of approximately $0.7$5.3 million, and change in other assets and liabilities of approximately $0.7 million.

respectively.
Net Cash Used inProvided by (Used in) Investing Activities

ForNet cash provided by investing activities during the threenine months ended March 31, 2021,September 30, 2023 was approximately $18.5 million, compared to net cash used in investing activities totaledof approximately $6.9 million.$(68.5) million for the same period in 2022. The increase of net cash used inprovided by investing activities of approximately $87.0 million during the nine months ended September 30, 2022 to September 30, 2023 was primarily due to a result of the cash used for the originationdecrease in issuance and funding offundings on loans held for investment of approximately $7.1$75.5 million, exceeding the cash received from principal repayment of loans held for investment of approximately $0.1 million and cash receivedan increase in proceeds from the sale of Assigned Rightsloans of approximately $0.1$10.7 million, foran increase in principal repayments of loans of approximately $17.7 million, offset by a decrease in the three months ended March 31,2021.

sale of available-for-sale debt securities of $(15.9) million, respectively.
Net Cash Provided by (Used in) Financing Activities

ForNet cash used in financing activities during the threenine months ended March 31, 2021, net cash provided by financing activities totaledSeptember 30, 2023 was approximately $121.7$(100.7) million, and relatedcompared to approximately $(31.9) million for the same period in 2022. The decrease of approximately $(68.8) million during the nine months ended September 30, 2022 to September 30, 2023 was primarily due to a decrease in proceeds from the issuancesale of our common stock in our IPO of approximately $123.9$(75.1) million, lessrepayments on the 2027 Senior Notes of approximately $2.2$(7.7) million, lower repayments on the Revolving Credit Facility of approximately $(6.0) million, offset by an increase in dividends paid.borrowings on the revolving credit facility of $21.0 million, respectively.

Contractual Obligations, and Other Commitments,

and Off-Balance Sheet Arrangements
Our contractual obligations as of March 31, 2021 and December 31, 2020September 30, 2023 are as follows:

  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 As of September 30, 2023
Unfunded Commitments $
19,825,119   -   -   -  $
19,825,119 
Less than
1 year		1-3 years3-5 yearsMore than
5 years		Total
Unfunded commitmentsUnfunded commitments$10,000,000 $— $— $— $10,000,000 
Total $
19,825,119   -   -   -  $
19,825,119 Total$10,000,000 $— $— $— $10,000,000 

As of March 31, 2021 and December 31, 2020,September 30, 2023, all unfunded commitments relate to our total loan commitments and were dueavailable for funding in less than one year.


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We also had the following contractual obligations as of September 30, 2023 relating to the 2027 Senior Notes:

As of September 30, 2023
Less than
1 year		1-3 years3-5 yearsMore than
5 years		Total
Contractual obligations(1)
$5,175,000 $10,350,000 $95,175,000 $— $110,700,000 
Total$5,175,000 $10,350,000 $95,175,000 $— $110,700,000 
(1) Amounts include projected interest payments during the period based on interest rates in effect as of September 30, 2023.
We may enter into certain contracts that may contain a variety of indemnification obligations. The maximum potential future payment amountamounts 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. Althoughequity. While we are not required to maintain any particularour 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.

Dividends

We will electhave elected to be taxed as a REIT for United States federal income tax purposes and, as such, anticipateintend to annually distributingdistribute to our stockholdersshareholders 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 itsour prior calendar year (the “Required Distribution”) to our stockholdersshareholders 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 stockholdersshareholders and pay tax at regular corporate rates on the retained net capital gain. The stockholdersshareholders 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,September 30, 2023, 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.

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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Index

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 and revenue multiplesmay 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, while a decrease in revenue multiples 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. As of March 31, 2021,September 30, 2023, 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 million and $0.5$(0.3) million, respectively. As of March 31, 2021,September 30, 2023, we had twoseven floating-rate loans, representing approximately 21%68% of our loan portfolio based on aggregate outstanding principal balances,balances. These floating benchmark rates included one-month SOFR subject to a weighted average LIBOR floor of approximately 1.0% with LIBOR3.3% and quoted as 0.11%at 5.3% and U.S. prime rate subject to a weighted average floor of 4.9% and quoted at 8.5%. We estimate that a hypothetical 100 basis points increase in LIBORthe floating benchmark rate would result in an increase in annual interest income of approximately $23,221$2.7 million and a hypothetical 100 basis points decrease in the floating benchmark rate would result in a decrease in LIBOR would not affect ourannual interest income due to the LIBOR floor on our loans. This assumes that the weighted average LIBOR floor of our floating-rate loans remains at approximately 1.0%.$(2.4) million.

Potential Impact of LIBOR Transition

The Chief Executive ofIn July 2017, the U.K.United Kingdom’s Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced its intention to cease sustaining LIBOR by the end of 2021. The ICE Benchmark Administration (the “IBA”), which regulates the London Interbank Offered Rate, or LIBOR, has announced thatis supervised by 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 ceaseended publication of U.S. dollar LIBOR. Despite this deferral, the one-week and two-month USD LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into aftertenors on December 31, 2021. These actions indicate that2021, and the continuation of U.S.remaining USD LIBOR on the current basis cannottenors (overnight, one-month, three-month, six-month and will not be guaranteed after12-month) ended following their publication on June 30, 2023. Moreover,On April 3, 2023, the FCA announced that it is possible that U.S.will compel the IBA to publish an unrepresentative synthetic USD LIBOR will be discontinued or modified prior to Junethrough September 30, 2023.
2024 for use in legacy contracts.

As of March 31, 2020, twoSeptember 30, 2023, seven of our loans, representing approximately 21%68% of our loan portfolio based on aggregate outstanding principal balances, paid interest at a variable rate tied to LIBOR. either SOFR or U.S. prime rate. If LIBOR isone of these floating benchmarks are no longer available, our applicable loan documents generally include fallback provisions that allow us to choose a new index based upon comparable information. However, if LIBOR iseach 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.

As of September 30, 2023, none of our loans paid interest at a variable rate tied to LIBOR, transitioning the remaining loan tied to LIBOR to one-month SOFR in July 2023 in accordance with the loan documents.
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, 2021September 30, 2023 and December 31, 2020, respectively, four 2022, twoand threeof our loans held for investment were carried at fair value within loans held at fair value in our consolidated balance sheets, respectively, 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 and revenue multiples 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, while a decrease in revenue multiples 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.
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50
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Index
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 infloating 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.

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, U.S. prime rate, or another index rate. Accordingly, any increase in LIBORan 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.

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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.

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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 ongoing 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 September 30, 2023 was concentrated with the top four borrowers representing approximately 68.5% of the aggregate outstanding principal balances and approximately 68.8% of the total loan commitments. Additionally, the industry is experiencing significant consolidation, which we expect to increase, 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 21.1% of the aggregate outstanding principal balances of our portfolio and approximately 19.4% of our total loan commitments as of September 30, 2023.The borrower under this credit facility is a Subsidiary of Public Company H, 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 has a principal amount of $84.0 million outstanding as of September 30, 2023, which is fully funded. This senior term loan accrues interest at a variable rate of U.S. prime rate plus 5.8%, subject to a U.S. prime rate floor of 5.5%.
In June 2016, the FASB issued ASUAccounting 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 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 liabilitiescurrent expected credit loss reserve as a liability in our consolidated balance sheet. Refer to footnoteNote 6 towithin our unaudited interim consolidated financial statements titled “Current“Current Expected Credit Losses” for more information on CECL.

We primarily 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 core 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.
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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-ratefloating- 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.

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Item 4.
Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosureAn evaluation of the effectiveness of the design and operation of our “disclosure controls and proceduresprocedures” (as defined in Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the Exchange Act)end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures (a) are designedeffective to ensure that information required to be disclosed by us in the reports that we filefiled or submitsubmitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified inby the SEC’sSEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that such 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 officerCEO and chief financial officer,CFO, as appropriate to allow timely decisions regarding required disclosures.  disclosure.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As Because of the endthese and other inherent limitations of the period covered by this quarterly report, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures.  Based upon this evaluation, our chief executive officer and chief financial officer have concluded that ourcontrol systems, even effective disclosure controls and procedures were effective at acan only provide reasonable assurance level as of March 31, 2021.

achieving their control objectives.
Changes in Internal Control Overover 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, 2021September 30, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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Index

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 normalordinary course of business, webusiness. Furthermore, third parties may be subjecttry to various legal proceedings from timeseek to time.impose liability on us in connection with our loans. As of March 31, 2021,September 30, 2023, 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, seeExcept as disclosed below, 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 beenquarter ended September 30, 2023, there were no material changes to the risk factorsRisk Factors disclosed in Item 1A - “Risk Factors” in the Final Prospectus.Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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 threenine months ended March 31, 2021.September 30, 2023.
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.September 30, 2023.

Item 3.     Defaults Upon Senior Securities
None.
Item 4.     Mine Safety Disclosures
Not applicable.
Item 5.     Other Information
None.
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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

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).
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).
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).
Indenture, dated as of November 3, 2021, by and between AFC Gamma, Inc. and TMI Trust Company, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K on November 3, 2021 and incorporated herein by reference).
Form of 5.750% Senior Notes due 2027 (included in Exhibit 4.2).
Amended and Restated Management Agreement, dated January 14, 2021 by and between AFC Gamma, Inc. and AFC Management, LLC (incorporated(filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K on March 10, 2022 and incorporated herein by referencereference).
First Amendment to Amended and Restated Management Agreement, dated March 10, 2022, by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.110.1A to the Company’s Annual Report on Form 10-K on March 10, 2022 and incorporated herein by reference).
Second Amendment to Amended and Restated Management Agreement, dated November 7, 2022, by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1B to the Company’s Quarterly Report on Form 10-Q on November 8, 2022 and incorporated herein by reference).
Third Amendment to Amended and Restated Management Agreement, dated March 6, 2023 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1C to the Company’s Annual Report on Form 10-K on March 7, 2023 and incorporated herein by reference).
Fourth Amendment to Amended and Restated Management Agreement, dated September 11, 2023 by and between AFC Gamma, Inc. and AFC Management, LLC (filed as Exhibit 10.1D to the Company’s Current Report on Form 8-K filed on March 23, 2021)September 12, 2023 and incorporated herein by reference).
Amendment dated May 7, 2021, to the Secured Revolving CreditLoan and Security Agreement, dated August 18, 2020,April 29, 2022, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC,Borrower, and the lenders that are party thereto (filed as agent,Exhibit 10.7 to the Company’s Current Report on Form 8-K on May 2, 2022 and AFC Finance, LLC and Gamma Lending Holdco LLC, as lenders.
incorporated herein by reference).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.CALInline 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
55
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, 2021November 8, 2023
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/ Brandon Hetzel
Brandon Hetzel
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)


37
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