Advanced Flower Capital Inc.

Welcome to the Advanced Flower Capital Second Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gabriel Katz, Chief Legal Officer. Please go ahead.

Good morning, and thank you all for joining Advanced Flower Capital's earnings call for the quarter ended June 30th, 2025. I'm joined this morning by Robin Tannenbaum, our President and Chief Investment Officer, Daniel Neville, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our June 24th, 2025 press release and is posted on the investor relations portion of AFC's website at advancedflowercapital.com, along with our second quarter 2025 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, a proposed corporate conversion, and financial performance and projections in 2025 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to Advance Flower Capital's most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning, for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. During today's conference call, management will refer to non-GAAP financial measures, including distributable earnings. Please see our second quarter earnings release uploaded to our website for reconciliations of the non-GAAP financial measures with the most directly comparable GAAP measures. Today's call will begin with Dan providing an overview of our portfolio, pipeline, and the cannabis industry. Robin will then provide information about the proposed conversion to a business development and that we announced earlier this morning. Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A. With that, I will now turn the call over to our CEO, Dan Neville.

Thanks, Gabe, and good morning, everyone. I'll begin with an overview of our results followed by an update on our portfolio. For the second quarter of 2025, AFC generated distributable earnings of 15 cents per basic weighted average share of common stock. Additionally, the Board of Directors declared a second quarter dividend of 15 cents per common share outstanding, which was paid on July 15, 2025 to shareholders of record as of June 30, 2025. While over the last year, we have made significant progress reducing our exposure to underperforming credits, there is still work to be done, and our earnings may be impacted by the underperformance of some of our legacy loans and any realized losses we take on assets. During the quarter, we exited Public Company A's equipment loan, which impacted earnings. As a reminder, we were a participant in an equipment loan to a Nevada cultivator which has been in liquidation for about three years. In Q2, we received the last payment from the collateral agent as part of the liquidation and we wrote off the remaining carrying value of the loan. This impacted distributable earnings but did not impact book value as the loan was already fully reserved. Turning to our current portfolio management efforts, I would like to touch on a few of our underperforming loans. Regarding Private Company A, the receiver has executed LOIs for two of the three main assets and will be submitting for court approval in the near term. He is also in discussions for the timely sale of the third asset and has multiple parties interested. and has been efficient in the management and liquidation of these assets. Subsequent to quarter end, private company P's loan was moved to non-accrual status as of June 1st, 2025, as the company did not pay interest due July 1st. As a result, AFC provided a default and acceleration notice. We will look to exercise all rights and remedies to recover our principles. There is approximately $16 million of principal outstanding, and the loan is secured by one cultivation facility and one non-operational dispensary in Michigan, both of which are owned real estate. Lastly, we wanted to take a minute to touch on subsidiary private company G, which is Justice Grown. We are currently engaged in three separate legal proceedings with justice-grown entities related to enforcing certain rights under the credit facility in connection with the alleged defaults. We have appealed a pre-discovery preliminary injunction in one of the actions barring us from exercising rights with respect to certain alleged defaults. We also have outstanding litigation surrounding the shareholder guarantee in New York. As a reminder, our loan to Justice Grown matures in May 2026 and is secured by the vertical assets in New Jersey, including an owned cultivation facility and three dispensaries, two of which are owned. In Pennsylvania, we are secured by three dispensaries and an owned cultivation facility, which is currently not operational. We remain extremely focused on realizing maximum value from these underperforming loans. On a positive note, there's recently been talk of rescheduling being considered by the Trump administration. We believe that rescheduling cannabis would increase the supply of capital for cannabis companies and lead to potentially better recoveries for our troubled loans. At the moment, however, the sector remains in a challenging environment for many operators, as there continues to be limited capital entering the market. In light of this environment, as disciplined capital allocators, we have only sought to invest in established operators. However, many of these operators do not have real estate coverage, which limits our pipeline and our ability to invest in size. It has become clear to the board and leadership team that expanding our investment focus beyond real estate-backed companies is an important step to deliver value to our shareholders. As such, today we propose to convert the company from a REIT to a BDC, which Robin will speak to now.