AFCG Unveils BDC Conversion Plan to Expand Lending Beyond Cannabis-Backed Real Estate Assets

Advanced Flower Capital Inc. (AFCG) reported Q2 2025 distributable earnings of $0.15 per share and announced a second-quarter dividend of $0.15 per share. CEO Daniel Neville stated that the company has made significant progress in reducing its real estate-backed cannabis assets and is now focused on broadening its lending beyond this sector through its BDC conversion strategy.

Advanced Flower Capital Inc. (AFCG) reported its Q2 2025 financial results, revealing a GAAP net loss of $13.2 million or $0.60 per share, while also announcing distributable earnings of $3.4 million or $0.15 per share [1]. The company declared a second-quarter dividend of $0.15 per share, paid on July 15, 2025.

CEO Daniel Neville highlighted that while the company has made significant progress in reducing its exposure to underperforming real estate-backed cannabis assets, there is still work to be done. Neville noted that the exit from Public Company A's equipment loan impacted earnings but not book value, as the loan was already fully reserved. The company is also managing ongoing portfolio efforts with underperforming loans, including Private Company A and Private Company P, which was moved to nonaccrual status with a $16 million principal outstanding, backed by real estate in Michigan.

The company is currently engaged in three separate legal proceedings with Justice Grown entities related to enforcing certain rights under the credit facility in connection with alleged defaults. Neville emphasized the challenging sector environment, stating that there continues to be limited capital entering the market. To address this, AFCG is expanding its investment focus beyond real estate-backed companies to deliver value to shareholders.

President and Chief Investment Officer Robyn Tannenbaum announced that the company intends to convert from a REIT to a Business Development Company (BDC). This conversion, subject to shareholder and board approval, is expected to occur in the first quarter of 2026. Tannenbaum explained that this shift would allow AFCG to originate and invest in a broader array of opportunities, including both real estate and non-real estate-covered assets.

The expanded investment mandate now includes direct lending opportunities outside of cannabis, which management believes will help diversify credit risk profiles. Financial Results CFO Brandon Hetzel disclosed that as of June 30, 2025, AFCG ended the second quarter with $359.6 million of principal outstanding spread across 15 loans. The weighted average portfolio yield to maturity was approximately 17% as of August 1, 2025. The CECL reserve was $44 million or approximately 14.6% of loans at carrying value, and the balance sheet included a total unrealized loss of $21.5 million for loans held at fair value. The company had total assets of $290.6 million and total shareholder equity of $184.7 million, with a book value per share of $8.18.

During Q2, AFCG expanded its senior secured revolving credit facility from $30 million to $50 million, with an additional $20 million commitment from the lead arranger bank. Management’s tone was more forward-looking and proactive compared to the previous quarter’s defensive posture regarding legacy loan performance. Strategic focus evolved from protecting principal and cautious deal flow to broadening lending activities beyond cannabis real estate.

Key metrics saw declines: distributable earnings dropped from $0.21 to $0.15 per share, and net interest income decreased from $6.6 million to $6.2 million. The CECL reserve increased from $29.9 million to $44 million, reflecting higher perceived credit risk. Management underscored that the proposed conversion from a REIT to a BDC marks a strategic pivot intended to address the limited lending universe and unlock broader investment opportunities, both within and beyond cannabis. While the near-term environment remains challenging, with ongoing portfolio management and legal proceedings, the company believes diversifying its mandate and expanding its investment focus positions AFCG for greater flexibility and growth potential as market conditions evolve.

References:
[1] https://seekingalpha.com/news/4485569-afcg-outlines-bdc-conversion-strategy-to-broaden-lending-beyond-real-estate-backed-cannabis
[2] https://www.stocktitan.net/news/AFCG/advanced-flower-capital-inc-announces-financial-results-for-the-cqeww3swc3vr.html