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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 June 30, 2024
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-39995
AFC_Lockup_1_primary.jpg

AFC GAMMA, INC.
(Exact name of registrant as specified in its charter)
Maryland85-1807125
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
525 Okeechobee Blvd., Suite 1650, West Palm Beach, FL 33401
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareAFCGThe 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 growth 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 ☒
Class
Outstanding at August 7, 2024
Common stock, $0.01 par value per share20,667,094

AFC GAMMA, INC.
TABLE OF CONTENTS
INDEX
Item 2.

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AFC GAMMA, INC.
CONSOLIDATED BALANCE SHEETS
As of
June 30, 2024December 31, 2023
(unaudited)
Assets
Loans held for investment at fair value (cost of $49,618,382 and $71,644,003 at June 30, 2024 and December 31, 2023, respectively, net)
$34,661,390 $61,720,705 
Loans held for investment at carrying value, net273,580,334 301,265,398 
Loan receivable held at carrying value, net2,040,058 2,040,058 
Current expected credit loss reserve(25,009,024)(26,309,450)
Loans held for investment at carrying value and loan receivable held at carrying value, net of current expected credit loss reserve250,611,368 276,996,006 
Cash and cash equivalents170,298,050 121,626,453 
Accounts receivable— 1,837,450 
Interest receivable1,729,188 3,715,995 
Prepaid expenses and other assets691,787 688,446 
Total assets$457,991,783 $466,585,055 
Liabilities
Accrued interest$888,750 $894,000 
Due to affiliate24,490 16,437 
Dividends payable13,020,269 9,819,695 
Current expected credit loss reserve157,333 115,473 
Accrued management and incentive fees3,985,028 3,471,726 
Accrued direct administrative expenses884,310 1,486,256 
Accounts payable and other liabilities1,436,061 714,685 
Senior notes payable, net88,311,721 88,014,558 
Line of credit payable, net35,000,000 42,000,000 
Total liabilities143,707,962 146,532,830 
Commitments and contingencies (Note 10)
Shareholders’ equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at June 30, 2024 and December 31, 2023 and 0 and 125 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively
— 1 
Common stock, par value $0.01 per share, 50,000,000 shares authorized at June 30, 2024 and December 31, 2023 and 20,667,094 and 20,457,697 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively
206,671 204,577 
Additional paid-in capital350,591,362 349,805,890 
Accumulated (deficit) earnings(36,514,212)(29,958,243)
Total shareholders’ equity314,283,821 320,052,225 
Total liabilities and shareholders’ equity$457,991,783 $466,585,055 
See accompanying notes to the consolidated financial statements
1
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
June 30,		Six months ended
June 30,
 20242023 20242023
Revenue
Interest income$19,957,521 $17,675,188 $36,318,581 $36,175,674 
Interest expense(1,573,275)(1,575,775)(3,176,438)(3,243,935)
Net interest income18,384,246 16,099,413 33,142,143 32,931,739 
Expenses
Management and incentive fees, net (less rebate of $214,190, $427,581, 588,993 and 906,225, respectively)
3,985,028 3,313,493 7,447,790 7,017,712 
General and administrative expenses1,053,810 1,075,873 2,106,206 3,082,008 
Stock-based compensation369,343 130,769 912,565 411,347 
Professional fees1,014,208 419,577 1,970,776 840,475 
Total expenses6,422,389 4,939,712 12,437,337 11,351,542 
Decrease (increase) in provision for current expected credit losses6,190,240 1,606,187 1,258,566 903,761 
Realized gains (losses) on investments, net— — (93,338)(26,384)
Gain (loss) on extinguishment of debt— — — 1,986,381 
Change in unrealized gains (losses) on loans at fair value, net(1,420,001)(462,918)(5,033,694)(1,940,609)
Net income before income taxes16,732,096 12,302,970 16,836,340 22,503,346 
Income tax expense285,975 167,637 444,335 342,739 
Net income$16,446,121 $12,135,333 $16,392,005 $22,160,607 
Earnings per common share:
Basic earnings per common share (in dollars per share)$0.80 $0.59 $0.79 $1.08 
Diluted earnings per common share (in dollars per share)$0.80 $0.59 $0.79 $1.08 
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding (in shares)20,400,004 20,317,341 20,396,940 20,310,606 
Diluted weighted average shares of common stock outstanding (in shares)20,437,799 20,322,857 20,418,897 20,381,724 
See accompanying notes to the consolidated financial statements
2
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Three months ended June 30, 2024
Preferred
Stock		Common StockAdditional
Paid-In
Capital		Accumulated
Earnings
(Deficit) 		Total
Shareholders’
Equity
SharesAmount
Balance at March 31, 2024$1 20,667,094 $206,671 $350,347,018 $(39,932,564)$310,621,126 
Stock-based compensation— — — 369,343 — 369,343 
Dividends declared on common shares ($0.63 per share)
— — — — (13,020,269)(13,020,269)
Dividends declared on preferred shares ($60 per share)
— — — — (7,500)(7,500)
Redemption of preferred shares(1)— — (124,999)— (125,000)
Net income— — — — 16,446,121 16,446,121 
Balance at June 30, 2024$— 20,667,094 $206,671 $350,591,362 $(36,514,212)$314,283,821 
Three months ended June 30, 2023
Preferred
Stock		Common StockAdditional
Paid-In
Capital		Accumulated
Earnings
(Deficit)		Total
Shareholders’
Equity
SharesAmount
Balance at March 31, 2023$1 20,489,234 $204,892 $349,085,320 $(11,410,883)$337,879,330 
Stock-based compensation— (31,537)(315)131,084 — 130,769 
Dividends declared on common shares ($0.48 per share)
— — — — (9,819,695)(9,819,695)
Dividends declared on preferred shares ($60 per share)
— — — — (7,500)(7,500)
Net income— — — — 12,135,333 12,135,333 
Balance at June 30, 2023$1 20,457,697 $204,577 $349,216,404 $(9,102,745)$340,318,237 
See accompanying notes to the consolidated financial statements


3
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Six months ended June 30, 2024
 Preferred
Stock		Common StockAdditional
Paid-In-
Capital		Accumulated
Earnings
(Deficit) 		Total
Shareholders’
Equity
 SharesAmount
Balance at December 31, 2023$1 20,457,697 $204,577 $349,805,890 $(29,958,243)$320,052,225 
Stock-based compensation— 209,397 2,094 910,471 — 912,565 
Dividends declared on common shares ($1.11 per share)
— — — — (22,940,474)(22,940,474)
Dividends declared on preferred shares ($60 per share)
— — — — (7,500)(7,500)
Redemption of preferred shares(1)— — (124,999)— (125,000)
Net income— — — — 16,392,005 16,392,005 
Balance at June 30, 2024$— 20,667,094 $206,671 $350,591,362 $(36,514,212)$314,283,821 
Six months ended June 30, 2023
 Preferred
Stock		Common StockAdditional
Paid-In-
Capital		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— 93,697 937 398,490 — 399,427 
Dividends declared on common shares ($1.04 per share)
— — — — (21,293,666)(21,293,666)
Dividends declared on preferred shares ($60 per share)
— — — — (7,500)(7,500)
Net income— — — — 22,160,607 22,160,607 
Balance at June 30, 2023$1 20,457,697 $204,577 $349,216,404 $(9,102,745)$340,318,237 
See accompanying notes to the consolidated financial statements
4
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
June 30,
20242023
Operating activities: 
Net income$16,392,005 $22,160,607 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
(Decrease) increase in provision for current expected credit losses(1,258,566)(903,761)
Realized (gains) losses on investments, net93,338 26,384 
(Gain) loss on extinguishment of debt— (1,986,381)
Change in unrealized (gains) losses on loans at fair value, net5,033,694 1,940,609 
Accretion of deferred loan original issue discount and other discounts(5,313,879)(2,496,655)
Amortization of deferred financing costs - revolving credit facility191,887 116,452 
Amortization of deferred financing costs - senior notes314,664 323,734 
Stock-based compensation912,565 399,427 
Payment-in-kind interest(2,351,851)(8,109,786)
Changes in operating assets and liabilities  
Accounts receivable55 — 
Interest receivable1,991,747 2,652,172 
Prepaid expenses and other assets50,903 (145,996)
Interest reserve— (3,570,403)
Accrued interest(5,250)(147,500)
Accrued management and incentive fees, net513,302 (578,241)
Accrued direct administrative expenses(601,946)(600,983)
Accounts payable and other liabilities729,429 448,783 
Net cash provided by (used in) operating activities16,692,097 9,528,462 
Cash flows from investing activities:  
Issuance of and fundings on loans(90,087,162)(16,796,204)
Proceeds from sales of loans96,061,029 21,312,827 
Principal repayment of loans53,103,033 18,509,287 
Net cash provided by (used in) investing activities59,076,900 23,025,910 
Cash flows from financing activities:  
Payment of financing costs(225,000)(225,000)
Redemption of preferred shares(125,000)— 
Borrowings on revolving credit facility95,000,000 — 
Repayment of revolving credit facility(102,000,000)(60,000,000)
Dividends paid to common and preferred shareholders(19,747,400)(22,885,311)
Repayment of senior notes— (7,737,500)
Net cash provided by (used in) financing activities(27,097,400)(90,847,811)
Net (decrease) increase in cash and cash equivalents48,671,597 (58,293,439)
Cash and cash equivalents, beginning of period121,626,453 140,372,841 
Cash and cash equivalents, end of period$170,298,050 $82,079,402 
Supplemental disclosure of non-cash activity:  
Interest reserve withheld from funding of loans$— $1,500,000 
Non-cash funding of new loan$14,672,640 $— 
OID withheld from funding of loans$2,423,357 $2,610,000 
Payable for securities purchased$— $7,995,934 
Dividends declared and not yet paid$13,020,269 $9,819,695 
Supplemental information:  
Interest paid during the period$2,675,138 $2,951,250 
Income taxes paid during the period$567,070 $415,359 
See accompanying notes to the consolidated financial statements
5
AFC GAMMA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2024
(unaudited)
1.    ORGANIZATION
AFC Gamma, Inc. (the “Company” or “AFCG”) is an institutional lender that was founded in July 2020 by a veteran team of investment professionals. The Company primarily originates, structures, underwrites, invests in and manages senior secured mortgage loans and other types of loans and 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, a Delaware limited liability company (the Company’s “Manager”), pursuant to the terms of the 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 are consolidated within the Company’s consolidated financial statements. Sunrise Realty Trust, Inc. (“SUNS”) (f/k/a CRE South LLC), the Company’s wholly-owned subsidiary as of June 30, 2024, was formed on August 28, 2023 and converted from a Delaware limited liability company to a Maryland corporation in February 2024. The financial statements of SUNS are consolidated within the Company’s consolidated financial statements in this Quarterly Report on Form 10-Q.
On February 22, 2024, the Company announced that the Board unanimously approved a plan to spin-off (the “Spin-Off”) the Company’s wholly-owned subsidiary, SUNS, which held the Company’s commercial real estate (“CRE”) loan portfolio, into an independent, publicly traded REIT, Sunrise Realty Trust, Inc. (“SUNS”). The Spin-Off was effected by the transfer of the Company’s CRE portfolio, from the Company to SUNS and the distribution of all of the outstanding shares of SUNS common stock to the Company’s shareholders of record as of the close of business on July 8, 2024 (the “Record Date”). The Company’s shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of the Company’s common stock held as of the Record Date. The Spin-Off was completed July 9, 2024 (the “Distribution Date”). On the Distribution Date, SUNS became an independent, publicly-traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”. The Company retained no ownership interest in SUNS following the Spin-Off. Beginning in the third quarter of fiscal year 2024, the historical financial results of the SUNS business for periods prior to the Distribution Date will be reflected in the Company’s consolidated financial statements as discontinued operations.
In connection with the Spin-Off, the Company entered into several agreements with SUNS that govern the relationship between the Company and SUNS following the Spin-Off, including the Separation and Distribution Agreement and the Tax Matters Agreement. These agreements provide for the allocation between the Company and SUNS of the assets, liabilities and obligations (including, among others, investments, property and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Spin-Off.
Following the completion of the Spin-Off, the Company amended its investment guidelines such that the Company’s investments will primarily be in first and second lien loans, typically secured by mortgages and other security interests, to cannabis operators in states that have legalized medical and/or adult use cannabis.
The Company operates in one operating segment. Prior to the Spin-Off, the Company was primarily focused on financing senior secured loans and other types of loans to (i) senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal and (ii) secured loans to commercial real estate owners, operators and related businesses. Following the Spin-Off, the Company is solely focused on senior secured loans to cannabis industry operators in states where medical and/or adult-use cannabis is legal. These loans are generally held for investment and are secured, directly or indirectly, by real estate, equipment, the value associated with licenses (where applicable) and/or other assets of borrowers depending on the applicable laws and regulations governing such borrowers.
The Company has elected to be taxed as a real estate investment trust (“REIT”) for United States federal income tax purposes under the Internal Revenue Code of 1986, as amended (the “Code”). 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 shareholders and complies with various other requirements as a REIT.
6
2.    SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and results of operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC.
Refer to Note 2 to the Company’s Annual Report on Form 10-K for a description of the Company’s significant accounting policies. The Company has included disclosures below regarding basis of presentation and other accounting policies that (i) are required to be disclosed quarterly, (ii) have material changes or (iii) the Company views as critical as of the date of this report.
Basis of Presentation
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 of America (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information and include the accounts of the Company, and its wholly-owned subsidiaries. The unaudited interim consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition as of and 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 realized for the year ending December 31, 2024.
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 loans held for investment at fair value and current expected credit losses (“CECL”).
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the impact of the update on the Company’s future consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 improves the transparency of income tax disclosures related to rate reconciliation and income taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied prospectively, however retrospective application is permitted. The Company is currently evaluating the impact of the update on the Company’s future consolidated financial statements.
3.    LOANS HELD FOR INVESTMENT AT FAIR VALUE
As of June 30, 2024 and December 31, 2023, the Company’s portfolio included one and two loans held at fair value, respectively. The aggregate originated commitment under these loans was approximately $77.8 million and $94.2 million, respectively, and outstanding principal was approximately $49.7 million and $71.9 million as of June 30, 2024 and December 31, 2023, respectively. For the six months ended June 30, 2024, the Company received approximately $4.0 million of principal repayments of loans held at fair value and sold $19.3 million of the Company’s investment in Private Company B. As of June 30, 2024 and December 31, 2023, none of the Company’s loans held at fair value had floating interest rates.
7
The following tables summarize the Company’s loans held at fair value as of June 30, 2024 and December 31, 2023:
As of June 30, 2024
Fair Value(1)
Carrying Value(2)
Outstanding
Principal(2)
Weighted Average
Remaining Life
(Years)(3)
Senior term loan$34,661,390 $49,618,382 $49,729,397 0.0
Total loan held at fair value$34,661,390 $49,618,382 $49,729,397 0.0
As of December 31, 2023
Fair Value(1)
Carrying Value(2)
Outstanding
Principal(2)
Weighted Average
Remaining Life
(Years)(4)
Senior term loans$61,720,705 $71,644,003 $71,883,402 0.4
Total loans held at fair value$61,720,705 $71,644,003 $71,883,402 0.4
(1)Refer to Note 14.
(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)As of June 30, 2024, the maturity date passed on the credit facility with Private Company A without repayment.
(4)Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2023. As of December 31, 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 six months ended June 30, 2024:
Principal Original Issue
Discount 		Unrealized Gains (Losses)Fair Value
Total loans held at fair value at December 31, 2023$71,883,402 $(239,399)$(9,923,298)$61,720,705 
Change in unrealized gains (losses) on loans at fair value, net— — (5,033,694)(5,033,694)
Accretion of original issue discount— 128,384 — 128,384 
Loan repayments(4,003,945)— — (4,003,945)
Sale of loans(19,284,846)— — (19,284,846)
PIK interest1,134,786 — — 1,134,786 
Total loans held at fair value at June 30, 2024$49,729,397 $(111,015)$(14,956,992)$34,661,390 
As of June 30, 2024, the Company had one loan held at fair value on nonaccrual status. Effective March 1, 2024, the Company placed Private Company A on nonaccrual status with an outstanding principal amount of approximately $49.7 million and an unrealized loss of approximately $(15.0) million as of June 30, 2024.
8
A more detailed listing of the Company’s loan held at fair value portfolio based on information available as of June 30, 2024 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, GA, MA, NMC, D$34,661,390 $49,618,382 $49,729,397 15.8 %
(6)
5/8/2024I/O
Total loan held at fair value$34,661,390 $49,618,382 $49,729,397   
(1)C = Cultivation Facilities, D = Dispensary/Retail Facilities.
(2)Refer to Note 14.
(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 2.8%. In October 2023, AFC Agent LLC (“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. Effective March 1, 2024, the Company placed the borrower on nonaccrual status. The maturity date passed on the credit facility to Private Company A without repayment. 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. The court-appointed receiver is determining the amount of principal payments the borrower is able to repay either from operations or from sale of collateral assets on a monthly basis.
4.    LOANS HELD FOR INVESTMENT AT CARRYING VALUE
As of June 30, 2024 and December 31, 2023, the Company’s portfolio included twelve and nine loans held at carrying value, respectively. The aggregate originated commitment under these loans was approximately $311.1 million and $333.1 million, respectively, and outstanding principal was approximately $283.7 million and $314.4 million, respectively, as of June 30, 2024 and December 31, 2023. During the six months ended June 30, 2024, the Company funded approximately $107.2 million of new loans and additional principal, had approximately $49.1 million of principal repayments of loans held at carrying value and sold $90.0 million in the aggregate of the Company’s investments in Subsidiary of Public Company H and Subsidiary of Public Company M. As of June 30, 2024 and December 31, 2023, approximately 44% and 84%, respectively, of the Company’s loans held at carrying value had floating interest rates. As of June 30, 2024, these floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.7% and quoted at 5.3%.
The following tables summarize the Company’s loans held at carrying value as of June 30, 2024 and December 31, 2023:
As of June 30, 2024
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
Senior term loans(3)
$262,048,014 $(9,851,079)$252,196,935 2.1
Subordinate debt21,630,051 (246,652)21,383,399 2.9
Total loans held at carrying value$283,678,065 $(10,097,731)$273,580,334 2.1
9
 As of December 31, 2023
 
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
    
Senior term loans$314,376,929 $(13,111,531)$301,265,398 2.2
Total loans held at carrying value$314,376,929 $(13,111,531)$301,265,398 2.2
(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 each respective group of loans as of June 30, 2024 and December 31, 2023.
(3)Senior term loans include senior loans that also have a contiguous subordinate loan because as a whole, the expected credit quality of the subordinate loan is more similar to that of a senior loan.
The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2024:
Principal Original Issue
Discount 		Carrying Value
Total loans held at carrying value at December 31, 2023$314,376,929 $(13,111,531)$301,265,398 
New fundings107,183,159 (2,423,357)104,759,802 
Accretion of original issue discount— 5,185,495 5,185,495 
Loan repayments(46,879,654)— (46,879,654)
Sale of loans(90,000,000)251,662 (89,748,338)
PIK interest1,217,065 — 1,217,065 
Loan amortization payments(2,219,434)— (2,219,434)
Total loans held at carrying value at June 30, 2024$283,678,065 $(10,097,731)$273,580,334 
As of June 30, 2024, the Company had two loans held at carrying value on nonaccrual status.
The Company placed Subsidiary of Private Company G on nonaccrual status effective December 1, 2023, with an outstanding principal amount of approximately $79.2 million and an amortized cost of approximately $77.8 million. Subsidiary of Private Company G was previously placed on nonaccrual status during various periods in 2023. The Company will recognize income related to loan activity only upon receipt of cash. During the six months ended June 30, 2024, the Company recognized interest income of approximately $2.8 million related to this loan which was received in cash.
The Company placed Private Company K on nonaccrual status effective December 1, 2023, with an outstanding principal amount of approximately $12.2 million and an amortized cost of approximately $11.5 million. The Company will recognize income related to loan activity only upon receipt of cash. During the six months ended June 30, 2024, the Company received a $1.3 million payment applied to the outstanding principal balance and recognized interest income of approximately $0.5 million related to this loan received in cash.
10
A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of June 30, 2024 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)
Sub. of Private Co. GNJ, PAC, D$79,215,888 $(1,444,847)$77,771,041 12.5 %
(5)
5/1/2026I/O
Private Co. K MAC, D12,195,762 (682,619)11,513,143 19.3 %
(6)
5/3/2027P/I
Private Co. J MOC, D20,543,967 (229,595)20,314,372 19.3 %
(7)
9/1/2025P/I
Private Co. LOHC, D37,114,073 (866,681)36,247,392 13.7 %
(8)
5/1/2026P/I
Sub. of Public Co. MIL, MA, MD, MI, NJ, OH, PAC, D12,822,000 (1,252,966)11,569,034 9.5 %
(9)
8/27/2025I/O
Private Co. MAZD31,399,498 (3,325,329)28,074,169 9.0 %
(10)
7/31/2026P/I
Private Co. N - Real EstateFLC, D17,491,921 (656,499)16,835,422 13.3 %
(11)
4/1/2028P/I
Private Co. N - Non-Real EstateFLC, D17,200,000 (645,000)16,555,000 13.3 %
(12)
4/1/2028P/I
Private Co. OAZ, MD, MO, NJ, NV, NY, OH, OR, CanadaC2,728,647 (293,750)2,434,897 13.8 %
(13)
6/1/2028P/I
Private Co. PMIC, D15,126,433 (453,793)14,672,640 13.0 %
(14)
7/1/2027P/I
CRE Private Co. ATXMixed-use16,209,825 — 16,209,825 20.0 %
(15)
11/30/2024I/O
CRE Private Co. BFLResidential21,630,051 (246,652)21,383,399 13.0 %
(16)
5/12/2027I/O
Total loans held at carrying value$283,678,065 $(10,097,731)$273,580,334 
(1)For cannabis operators, C = Cultivation Facilities, D = Dispensary/Retail Facilities.
(2)The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.
(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 12.5%. Effective March 2024, pursuant to the forbearance agreement with Subsidiary of Private Company G, Subsidiary of Private Company G transitioned from a floating interest rate tied to U.S. prime rate to a fixed interest rate. Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
(6)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%) and PIK interest rate of 2.0%. As amended by the forbearance agreement entered into in March 2024, between 20.0% and 80.0% of the monthly cash interest is paid in kind from December 1, 2023 to June 1, 2024. Effective December 1, 2023, the Company placed the borrower on nonaccrual status.
(7)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%) and PIK interest rate of 2.0%.
(8)Base interest rate of 8.4% plus SOFR (SOFR floor of 5.0%).
(9)Base interest rate of 9.5%.
(10)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.
(11)Base interest rate of 8.0% plus SOFR (SOFR floor of 4.5%).
(12)Base interest rate of 8.0% plus SOFR (SOFR floor of 4.5%).
(13)Base interest rate of 8.5% plus SOFR (SOFR floor of 5.0%).
(14)Base interest rate of 13.0%.
(15)Base weighted average interest rate of 14.7% plus SOFR (SOFR floor of 4.0%). Cash interest rate for CRE Private Company A represents a blended rate of differing cash interest rates applicable to each of the senior and subordinate loans to which the Company is a lender under the credit agreements. The subordinate loan component bears interest at a base interest rate of 15.31% plus SOFR (SOFR floor of 4.0%) and the senior loan component bears interest at a base interest rate of 3.48% plus SOFR (SOFR floor of 4.0%).
(16)Base interest rate of 13.0%.
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5.    LOAN RECEIVABLE HELD AT CARRYING VALUE
As of June 30, 2024 and December 31, 2023, the Company’s portfolio included one loan receivable held at carrying value. The originated commitment under this loan was $4.0 million and outstanding principal was approximately $2.0 million as of June 30, 2024 and December 31, 2023, respectively.
The following table presents changes in loans receivable as of and for the six months ended June 30, 2024:
Principal Original Issue
Discount 		Carrying
Value
Total loan receivable held at carrying value at December 31, 2023$2,041,744 $(1,686)$2,040,058 
Loan repayments— — — 
Total loan receivable held at carrying value at June 30, 2024$2,041,744 $(1,686)$2,040,058 
As of June 30, 2024, the Company had one loan receivable held at carrying value on nonaccrual status with an outstanding principal amount of approximately $2.0 million and amortized cost of approximately $2.0 million.
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 the “CECL Reserve” using a model that considers multiple datapoints and methodologies that may include 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 may include the fixed charge coverage ratio, loan-to-value ratio, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including but not limited to the expected timing of loan repayments and 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 the Company has deemed the borrower/sponsor to be experiencing financial difficulty, the Company may elect to apply a practical expedient in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a specific CECL allowance.
As of June 30, 2024 and December 31, 2023, the Company’s CECL Reserve for its loans held at carrying value and loan receivable held at carrying value is approximately $25.2 million and $26.4 million, respectively, or 9.13% and 8.71%, respectively, of the Company’s total loans held at carrying value and loan receivable held at carrying value of approximately $275.6 million and $303.3 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 loan receivable held at carrying value of approximately $25.0 million and $26.3 million, respectively, and a liability for unfunded commitments of approximately $0.2 million and $0.1 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 loan receivable held at carrying value as of and for the three and six months ended June 30, 2024 was as follows:
Outstanding (1)
Unfunded (2)
Total
Balance at March 31, 2024$31,347,462 $9,135 $31,356,597 
(Decrease) increase in provision for current expected credit losses(6,338,438)148,198 (6,190,240)
Write-offs— — — 
Recoveries— — — 
Balance at June 30, 2024$25,009,024 $157,333 $25,166,357 
Outstanding (1)
Unfunded (2)
Total
Balance at December 31, 2023$26,309,450 $115,473 $26,424,923 
(Decrease) increase in provision for current expected credit losses(1,300,426)41,860 (1,258,566)
Write-offs— — — 
Recoveries— — — 
Balance at June 30, 2024$25,009,024 $157,333 $25,166,357 
(1)As of June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, 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
1Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan
2Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan
3Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved
4High 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
5Impaired/ 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
The risk ratings are primarily based on historical data as well as taking into account future economic conditions.
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As of June 30, 2024, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loan receivable held at carrying value within each risk rating by year of origination is as follows:
Risk Rating:20242023202220212020Total
1$16,209,825 $— $— $— $— $16,209,825 
221,383,399 — — — — 21,383,399 
350,497,959 28,074,169 47,816,426 20,314,372 — 146,702,926 
4— — — — — — 
5— — 11,513,143 77,771,041 2,040,058 91,324,242 
Total$88,091,183 $28,074,169 $59,329,569 $98,085,413 $2,040,058 $275,620,392 
7.    INTEREST RECEIVABLE
The following table summarizes the interest receivable by the Company as of June 30, 2024 and December 31, 2023:
As of
June 30, 2024		As of
December 31, 2023
Interest receivable$1,659,502 $2,680,188 
PIK receivable34,570 1,009,974 
Unused fees receivable35,116 25,833 
Total interest receivable$1,729,188 $3,715,995 
8.    INTEREST RESERVE
At June 30, 2024 and December 31, 2023, the Company had no loans that included a loan-funded interest reserve. For the three and six months ended June 30, 2024, zero of aggregate interest income was earned and disbursed from the interest reserves. For the three and six months ended June 30, 2023, approximately $0.6 million and $3.6 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves.
The following table presents changes in interest reserve as of and for the three and six months ended June 30, 2024 and 2023:
Three months ended
June 30,		Six months ended
June 30,
2024202320242023
Beginning reserves$— $1,690,334 $— $3,200,944 
New reserves— — — 1,526,065 
Reserves disbursed— (559,793)— (3,596,468)
Ending reserves$— $1,130,541 $— $1,130,541 
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 (as amended from time to time, the “Revolving Credit Facility”). The Revolving Credit Facility has a maturity date of April 29, 2025.
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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. Upon entering into the Revolving Credit Agreement, 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 and six months ended June 30, 2024. As of June 30, 2024 and December 31, 2023, outstanding borrowings under the Revolving Credit Facility were $35.0 million and $42.0 million, respectively, and $25.0 million and $18.0 million was available for borrowing as of June 30, 2024 and December 31, 2023, respectively.
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.
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 existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture. TRS1 and SUNS are currently subsidiary guarantors under the Indenture. Following the completion of the Spin-Off, SUNS will no longer be a guarantor under the Indenture.
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.
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During the six months ended June 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. No repurchases took place during the six months ended June 30, 2024. As of June 30, 2024, the Company had $90.0 million in principal amount of the 2027 Senior Notes outstanding.
The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of June 30, 2024 are as follows:
2027 Senior Notes
Year
2024 (remaining)$— 
2025— 
2026— 
202790,000,000 
2028— 
Thereafter— 
Total principal90,000,000 
Deferred financing costs included in senior notes(1,688,279)
Total due senior notes, net$88,311,721 
The following tables reflect a summary of interest expense incurred during the three and six months ended June 30, 2024 and 2023:
Three months ended
June 30, 2024
2027 Senior NotesRevolving Credit FacilityTotal Borrowings
Interest expense$1,293,750 $26,250 $1,320,000 
Unused fee expense— — — 
Amortization of deferred financing costs157,332 95,943 253,275 
Total interest expense$1,451,082 $122,193 $1,573,275 
Three months ended
June 30, 2023
2027 Senior NotesRevolving Credit FacilityTotal Borrowings
Interest expense$1,293,750 $— $1,293,750 
Unused fee expense— 38,749 38,749 
Amortization of deferred financing costs166,082 77,194 243,276 
Total interest expense$1,459,832 $115,943 $1,575,775 
16
Six months ended
June 30, 2024
2027 Senior NotesRevolving Credit FacilityTotal Borrowings
Interest expense$2,587,500 $82,387 $2,669,887 
Unused fee expense— — — 
Amortization of deferred financing costs314,664 191,887 506,551 
Total interest expense$2,902,164 $274,274 $3,176,438 
Six months ended
June 30, 2023
2027 Senior NotesRevolving Credit FacilityTotal Borrowings
Interest expense$2,702,500 $26,667 $2,729,167 
Unused fee expense— 74,582 74,582 
Amortization of deferred financing costs323,734 116,452 440,186 
Total interest expense$3,026,234 $217,701 $3,243,935 
10.    COMMITMENTS AND CONTINGENCIES
As of June 30, 2024 and December 31, 2023, the Company had the following commitments to fund various investments:
As of
June 30, 2024		As of
December 31, 2023
Total original loan commitments$392,900,838 $431,239,913 
Less: drawn commitments(375,102,310)(421,239,913)
Total undrawn commitments$17,798,528 $10,000,000 
The Company from time to time may be a party to litigation in the normal course of business. As of June 30, 2024, 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 received (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 six months ended June 30, 2024 and 2023, the Company recorded zero and approximately $0.7 million in severance expense within general and administrative expenses within the unaudited interim consolidated statements of operations, respectively.
The Company primarily provides loans to companies operating in the cannabis industry which involves significant risks, including the risk of strict enforcement against 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 the Company could lose all or part of any of the Company’s loans.
17
The Company’s ability to grow or maintain its 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 the Company’s borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede the Company’s ability to grow and could materially adversely affect the Company’s business.
Management’s plan to mitigate risks include monitoring the legal landscape as deemed appropriate. Also, should a loan default or otherwise be seized, the Company may be prohibited from owning cannabis assets and thus could not take possession of collateral, in which case the Company would look to sell the loan, which could result in the Company realizing a loss on the transaction.
11.    SHAREHOLDERS’ EQUITY
Series A Preferred Stock
As of June 30, 2024 and December 31, 2023, the Company has authorized 10,000 preferred shares designated as 12.0% Series A Cumulative Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”). As of June 30, 2024 and December 31, 2023, there were zero and 125 shares of Series A Preferred Stock issued and outstanding, respectively.
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. 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.
On June 30, 2024, the Company redeemed all 125 outstanding shares of its Series A Preferred Stock. The Series A Preferred Stock was redeemed at a price of $1,000 per share, plus all accrued and unpaid dividends thereon to and including the date fixed for redemption. As the shares were redeemed on June 30, 2024, there were no accrued and unpaid dividends.
Common Stock
During the three and six months ended June 30, 2024 and year ended December 31, 2023, the Company did not issue any shares of its common stock, other than restricted stock awards granted under the Stock Incentive Plan.
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.
18
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 Citizens JMP Securities LLC, as Sales Agents, under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). During the three and six months ended June 30, 2024 and year ended December 31, 2023, the Company did not sell any shares of the Company’s common stock under the Sales Agreement.
As of June 30, 2024, the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.
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 $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 time in the open market, in privately negotiated transactions or otherwise in compliance with Rule 10b-18 and Rule 10b5-1 under the Securities 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 cash flows from operations. The Repurchase Program may be discontinued, modified or suspended at any time. During the three and six months ended June 30, 2024 and year ended December 31, 2023, the Company did not repurchase any shares of its common stock pursuant to the Repurchase Program.
Stock Incentive Plan
The Company has established a stock incentive compensation plan (the “2020 Plan”). The 2020 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.
In January 2024, the Company’s Board of Directors approved grants of restricted stock to the Company’s directors and officers, as well as employees of the Manager, and the Company granted an aggregate of 209,397 shares of restricted stock to certain of our directors, officers and other eligible persons. The restricted stock granted in January 2024 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. As of June 30, 2024, there were 2,536,289 shares of common stock granted under the 2020 Plan, underlying 2,169,852 options and 366,437 shares of restricted stock.
In January 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, and the Company granted an aggregate of 125,234 shares of restricted stock to certain of our directors, officers and other eligible persons. The restricted 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. In June 2023, the Company granted 1,159 shares of restricted stock to James C. Fagan in connection with his appointment to the Company’s Board of Directors, which vested upon the one-year anniversary of the grant date.
As of June 30, 2024, the maximum number of shares of the Company’s common stock that may be delivered pursuant to awards under the 2020 Plan (the “Share Limit”) equals 3,202,442 shares, which is consistent with the Share Limit as of March 31, 2024. Shares that are subject to or underlie awards that expire or for any reason are cancelled, terminated, 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.
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In connection with the Spin-Off, certain of the outstanding stock options of the Company, as well as the strike price for the stock options, will be adjusted. All adjustments are made with the intent to preserve the intrinsic value of each award immediately before and after the Spin-Off.
The following table summarizes the (i) non-vested options granted, (ii) vested options granted, (iii) exercised and (iv) forfeited options granted for the Company’s directors and officers and employees of the Manager as of June 30, 2024 and December 31, 2023:
As of
June 30, 2024		As of
December 31, 2023
Non-vested161,879 206,304 
Vested2,212,753 2,168,328 
Exercised(5,511)(5,511)
Forfeited(200,169)(200,169)
Balance2,168,952 2,168,952 
The Company uses the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. The Company has elected to recognize forfeitures as they occur. Previously recognized compensation expense related to forfeitures are reversed in the period the nonvested 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 stock-based compensation expense for the Company was approximately $0.4 million and $0.9 million for the three and six months ended June 30, 2024, respectively, and approximately $0.1 million and $0.4 million for the three and six months ended June 30, 2023, respectively.
The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan:
AssumptionsRange
Expected volatility
40% - 50%
Expected dividend yield
10% - 20%
Risk-free interest rate
0.5% - 2.0%
Expected forfeiture rate
0%
The following tables summarize stock option activity as of and during the six months ended June 30, 2024:
Number of optionsWeighted-average
exercise price		Weighted-average remaining contractual termAggregate intrinsic value
Outstanding as of December 31, 20232,168,952 $17.74 
Granted— — 
Exercised— — 
Forfeited—