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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 September 30, 2022
☐
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-39995
AFC GAMMA, INC.
(Exact name of registrant as specified in its charter)
Maryland 85-1807125
(State or other jurisdiction of incorporation or organization) (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 class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value per share AFCG 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 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 November 7, 2022
Common stock, $0.01 par value per share 20,364,000

AFC GAMMA, INC.
TABLE OF CONTENTS
INDEX
1
2
3
4
5
7
9

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
1
AFC GAMMA, INC.
CONSOLIDATED BALANCE SHEETS
As of
September 30, 2022 December 31, 2021
(unaudited)
Assets
Loans held for investment at fair value (cost of $93,454,875 and $74,913,157 at September 30, 2022 and December 31, 2021, respectively, net)
 $ 94,076,146  $ 77,096,319 
Debt securities available for sale held at fair value (cost of $16,050,000 at December 31, 2021)
 —  15,881,250 
Loans held for investment at carrying value, net 339,164,030  257,163,496 
Loan receivable at carrying value, net 2,220,466  2,530,588 
Current expected credit loss reserve (5,466,194) (2,431,558)
Loans held for investment at carrying value and loan receivable at carrying value, net of current expected credit loss reserve 335,918,302  257,262,526 
Cash and cash equivalents 36,319,623  109,246,048 
Interest receivable 4,442,680  4,412,938 
Prepaid expenses and other assets 563,984  949,279 
Total assets $ 471,320,735  $ 464,848,360 
Liabilities
Interest reserve $ 6,126,430  $ 4,782,271 
Accrued interest 2,395,833  991,840 
Due to affiliate 17,640  — 
Dividends payable 11,403,840  8,221,406 
Current expected credit loss reserve 688,676  683,177 
Accrued management and incentive fees 3,824,735  2,823,044 
Accrued direct administrative expenses 1,351,666  1,324,457 
Accounts payable and other liabilities 1,131,406  1,528,980 
Senior notes payable, net 96,964,872  96,572,656 
Line of credit payable to affiliate, net —  74,845,355 
Total liabilities 123,905,098  191,773,186 
Commitments and contingencies (Note 10)
Shareholders’ equity
Preferred stock, par value $0.01 per share, 10,000 shares authorized at September 30, 2022 and December 31, 2021 and 125 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
 1  1 
Common stock, par value $0.01 per share, 50,000,000 and 25,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively, and 20,364,000 and 16,442,812 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
 203,640  163,866 
Additional paid-in-capital 348,700,927  274,172,934 
Accumulated other comprehensive income (loss) —  (168,750)
Accumulated (deficit) earnings (1,488,931) (1,092,877)
Total shareholders’ equity 347,415,637  273,075,174 
Total liabilities and shareholders’ equity $ 471,320,735  $ 464,848,360 
(See accompanying notes to the consolidated financial statements)
2
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
September 30,		 Nine months ended
September 30,
 2022 2021  2022 2021
Revenue
Interest income $ 19,785,583  $ 10,616,538  $ 60,072,643  $ 24,050,062 
Interest expense (1,644,088) —  (5,091,207) — 
Net interest income 18,141,495  10,616,538  54,981,436  24,050,062 
Expenses
Management and incentive fees, net (less rebate of $432,426, $256,989, $1,307,969 and $677,439, respectively)
 3,824,735  2,542,936  11,873,516  5,498,469 
General and administrative expenses 1,050,932  858,663  3,372,813  2,028,046 
Stock-based compensation 114,062  51,429  1,221,482  1,662,001 
Professional fees 324,846  396,147  1,017,525  726,194 
Total expenses 5,314,575  3,849,175  17,485,336  9,914,710 
Provision for current expected credit losses (541,958) (660,612) (3,040,135) (1,372,498)
Realized gains (losses) on sales of investments, net —  400,000  450,000  400,000 
Change in unrealized (losses) gains on loans at fair value, net (637,279) 1,423,929  (1,561,890) 796,368 
Net income before income taxes 11,647,683  7,930,680  33,344,075  13,959,222 
Income tax expense 167,164  —  349,763  — 
Net income $ 11,480,519  $ 7,930,680  $ 32,994,312  $ 13,959,222 
Earnings per common share:
Basic earnings per common share (in dollars per share) $ 0.57  $ 0.48  $ 1.68  $ 1.13 
Diluted earnings per common share (in dollars per share) $ 0.57  $ 0.47  $ 1.67  $ 1.10 
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding (in shares) 20,019,760  16,402,984  19,687,730  12,368,977 
Diluted weighted average shares of common stock outstanding (in shares) 20,112,033  16,776,648  19,780,003  12,742,641 
(See accompanying notes to the consolidated financial statements)
3
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

Three months ended
September 30,		 Nine months ended
September 30,
 2022 2021 2022 2021
Net income $ 11,480,519  $ 7,930,680  $ 32,994,312  $ 13,959,222 
Other comprehensive income (loss):
Reversal of unrealized loss to recognized loss on debt securities available for sale held at fair value
 —  —  168,750  — 
Total other comprehensive income (loss) —  —  168,750  — 
Total comprehensive income $ 11,480,519  $ 7,930,680  $ 33,163,062  $ 13,959,222 
(See accompanying notes to the consolidated financial statements)
4
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Three months ended September 30, 2022
Preferred
Stock		 Common Stock Additional
Paid-In-
Capital		 Accumulated Other Comprehensive Income (Loss) Accumulated
Earnings
(Deficit)		 Total
Shareholders’
Equity
Shares Amount
Balance at 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 
Three months ended September 30, 2021
Preferred
Stock		 Common Stock Additional
Paid-In-
Capital		 Accumulated Other Comprehensive Income (Loss) Accumulated
Earnings
(Deficit)		 Total
Shareholders’
Equity
Shares Amount
Balance at June 30, 2021 $ 1  16,116,877  $ 161,169  $ 269,061,069  $ —  $ (765,517) $ 268,456,722 
Issuance of common stock, net of offering cost —  269,650  2,697  5,035,825  —  —  5,038,522 
Stock-based compensation —  56,285  —  51,429  —  —  51,429 
Dividends declared on common shares ($0.43 per share)
 —  —  —  —  —  (7,070,409) (7,070,409)
Net income —  —  —  —  —  7,930,680  7,930,680 
Balance at September 30, 2021 $ 1  16,442,812  $ 163,866  $ 274,148,323  $ —  $ 94,754  $ 274,406,944 
(See accompanying notes to the consolidated financial statements)
5
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
Nine months ended September 30, 2022
  Preferred
Stock		 Common Stock Additional
Paid-In-
Capital		 Accumulated Other Comprehensive Income (Loss) Accumulated
Earnings
(Deficit)		 Total
Shareholders’
Equity
  Shares Amount
Balance at December 31, 2021 $ 1  16,442,812  $ 163,866  $ 274,172,934  $ (168,750) $ (1,092,877) $ 273,075,174 
Issuance of common stock, net of offering costs —  3,913,230  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 
Nine months ended September 30, 2021
  Preferred
Stock		 Common Stock Additional
Paid-In-
Capital		 Accumulated Other Comprehensive Income (Loss) Accumulated
Earnings
(Deficit)		 Total
Shareholders’
Equity
  Shares Amount
Balance at December 31, 2020 $ 1  6,179,392  $ 61,794  $ 91,068,197  $ —  $ 517,720  $ 91,647,712 
Issuance of common stock, net of offering costs —  10,263,420  102,072  181,418,125  —  —  181,520,197 
Stock-based compensation —  —  —  1,662,001  —  —  1,662,001 
Dividends declared on common shares ($1.17 per share)
 —  —  —  —  —  (14,374,688) (14,374,688)
Dividends declared on preferred shares ($60 per share)
 —  —  —  —  —  (7,500) (7,500)
Net income —  —  —  —  —  13,959,222  13,959,222 
Balance at September 30, 2021 $ 1  16,442,812  $ 163,866  $ 274,148,323  $ —  $ 94,754  $ 274,406,944 
(See accompanying notes to the consolidated financial statements)
6
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
September 30,
2022 2021
Operating activities:  
Net income $ 32,994,312  $ 13,959,222 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Provision for current expected credit losses 3,040,135  1,372,498 
Realized (gains) losses on sale of investments, net (450,000) (400,000)
Change in unrealized losses (gains) on loans at fair value, net 1,561,890  (796,368)
Accretion of deferred loan original issue discount and other discounts (9,710,278) (4,038,816)
Amortization of deferred financing costs 714,471  — 
Stock-based compensation 1,221,482  1,662,001 
Payment-in-kind interest (5,051,007) (2,787,847)
Changes in operating assets and liabilities    
Interest receivable (29,742) (1,507,427)
Prepaid expenses and other assets 217,685  (319,140)
Interest reserve 894,159  (2,521,923)
Accrued interest 1,403,993  — 
Accrued management and incentive fees, net 1,001,691  2,320,808 
Accrued direct administrative expenses 27,209  296,040 
Accounts payable and other liabilities (379,934) 366,696 
Net cash provided by (used in) operating activities 27,456,066  7,605,744 
Cash flows from investing activities:    
Issuance of and fundings on loans (127,248,748) (156,345,116)
Proceeds from sales of Assigned Rights —  2,313,130 
Proceeds from sales of loans 10,600,000  10,400,000 
Sale of available-for-sale debt securities 15,900,000  — 
Principal repayment of loans 32,227,904  22,168,395 
Net cash provided by (used in) investing activities (68,520,844) (121,463,591)
Cash flows from financing activities:    
Proceeds from sale of common stock 75,057,650  185,501,295 
Payment of offering costs - equity offering (1,711,365) (3,981,098)
Dividends paid to common and preferred shareholders (30,207,932) (7,311,779)
Repayment on the line of credit (75,000,000) — 
Net cash provided by (used in) financing activities (31,861,647) 174,208,418 
Net (decrease) increase in cash and cash equivalents (72,926,425) 60,350,571 
Cash and cash equivalents, beginning of period 109,246,048  9,623,820 
Cash and cash equivalents, end of period $ 36,319,623  $ 69,974,391 
Supplemental disclosure of non-cash activity:    
Interest reserve withheld from funding of loans $ 450,000  $ 9,450,468 
OID withheld from funding of loans $ 5,607,675  $ 12,391,624 
Loans funded from amounts due to affiliate $ —  $ 9,549,625 
Change in other comprehensive income (loss) during the period $ 168,750  $ — 
Dividends declared and not yet paid $ 11,403,840  $ — 
Supplemental information:    
Interest paid during the period $ 2,972,743  $ — 
Income taxes paid during the period $ 41,287  $ — 
7
(See accompanying notes to the consolidated financial statements)
8
AFC GAMMA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2022
(unaudited)
1.    ORGANIZATION
AFC Gamma, Inc. (the “Company” or “AFCG”) is an institutional lender primarily to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals. The Company primarily originates, structures, underwrites, and invests in senior secured loans and other types of loans and debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis.
The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in March 2021. The Company is externally managed by AFC Management, LLC, 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 have been consolidated within the Company’s consolidated financial statements beginning with the quarter ended September 30, 2021.
The Company operates in one operating segment and is primarily focused on financing senior secured loans and other types of loans primarily 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 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”), 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 shareholders and complies with various other requirements as a REIT.
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, 2021 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 generally accepted accounting principles in the United States (“GAAP”) and in conformity with the rules and regulations of the SEC applicable to interim financial information. These unaudited interim consolidated financial statements reflect all adjustments that, in the opinion of management, are considered necessary for a fair statement of the Company’s results of operations and financial condition as of and for the periods presented.
The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2022.
Investment in Marketable Securities
Marketable debt securities in the Company’s portfolio are recorded at fair value and unrealized gains or losses are excluded from net income on the consolidated statement of operations and reported as a component of accumulated other comprehensive income within shareholders’ equity.
9
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant estimates include the valuation of loans held for investment at fair value and current expected credit losses (“CECL”).
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. 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. 2021-01 is effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. If an entity elects to apply any of the amendments for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. They do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship including periods after December 31, 2022. The Company has evaluated the impact of this ASU and has determined that this ASU does not have a material effect on the Company’s consolidated financial statements.
3.    LOANS HELD FOR INVESTMENT AT FAIR VALUE
As of September 30, 2022 and December 31, 2021, the Company’s portfolio included three loans held at fair value. The aggregate originated commitment under these loans was approximately $97.1 million and $75.9 million, respectively, and outstanding principal was approximately $95.6 million and $77.6 million, as of September 30, 2022 and December 31, 2021, respectively. For the nine months ended September 30, 2022, the Company funded approximately $18.7 million of additional principal and had approximately $3.0 million of principal repayments of loans held at fair value. As of September 30, 2022 and December 31, 2021, none of the Company’s loans held at fair value had floating interest rates.
The following tables summarize the Company’s loans held at fair value as of September 30, 2022 and December 31, 2021:
As of September 30, 2022
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Senior term loans $ 94,076,146  $ 93,454,875  $ 95,575,523  1.5
Total loans held at fair value $ 94,076,146  $ 93,454,875  $ 95,575,523  1.5
10
As of December 31, 2021
Fair Value (1)
Carrying Value (2)
Outstanding
Principal (2)
Weighted Average
Remaining Life
(Years) (3)
Senior term loans $ 77,096,319  $ 74,913,157  $ 77,630,742  2.2
Total loans held at fair value $ 77,096,319  $ 74,913,157  $ 77,630,742  2.2
(1)Refer to Note 14 to the Company's unaudited consolidated financial statements.
(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, 2022 and December 31, 2021.
The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2022:
Principal Original Issue
Discount		 Unrealized Gains (Losses) Fair Value
Total loans held at fair value at December 31, 2021 $ 77,630,742  $ (2,717,584) $ 2,183,161  $ 77,096,319 
Change in unrealized (losses) gains on loans at fair value, net —  —  (1,561,890) (1,561,890)
New fundings 18,737,988  (479,276) —  18,258,712 
Loan repayments (1,960,000) —  —  (1,960,000)
Loan amortization payments (1,089,776) —  —  (1,089,776)
Accretion of original issue discount —  1,076,212  —  1,076,212 
PIK interest 2,256,569  —  —  2,256,569 
Total loans held at fair value at September 30, 2022 $ 95,575,523  $ (2,120,648) $ 621,271  $ 94,076,146 
A more detailed listing of the Company’s loans held at fair value portfolio based on information available as of September 30, 2022 is as follows:
Collateral Location
Collateral
Type (1)
Fair
Value (2)
Carrying
Value (3)
Outstanding
Principal (3)
 Interest
Rate
Maturity Date (4)
Payment
Terms (5)
Private Co. A AZ, MI, MD, MA C, D $ 78,444,211  $ 78,055,662  $ 79,772,976  15.5  %
(6)
 5/8/2024 P/I
Public Co. A NV C 1,174,066  1,198,639  1,198,639  15.0  %
(7)
 9/30/2023 I/O
Private Co. B MI C, D 14,457,869  14,200,574  14,603,908  18.7  %
(8)
 9/1/2023 P/I
Total loans held at fair value $ 94,076,146  $ 93,454,875  $ 95,575,523     
(1)C = Cultivation Facilities, D = Dispensary/Retail Facilities.
(2)Refer to Note 14 to the Company’s unaudited 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 interest rate of 12.8% and payment-in-kind (“PIK”) interest rate of 2.7%.
(7)Base interest rate of 7.5% and PIK interest rate of 7.5%. As amended, cash interest is deferred from July 1, 2022 until November 1, 2022.
11
(8)Base weighted interest rate of 14.7% and PIK interest rate of 4.0%.
4.    LOANS HELD FOR INVESTMENT AT CARRYING VALUE
As of September 30, 2022 and December 31, 2021, the Company’s portfolio included ten and twelve loans, respectively, held at carrying value. The aggregate originated commitment amount under these loans was approximately $401.1 million and $324.3 million, respectively, and outstanding principal was approximately $349.3 million and $270.8 million, as of September 30, 2022 and December 31, 2021, respectively. For the nine months ended September 30, 2022, the Company funded approximately $139.6 million of outstanding principal. As of September 30, 2022 and December 31, 2021, approximately 39% and 48%, respectively, of the Company’s loans held at carrying value have floating interest rates. As of September 30, 2022, these floating benchmark rates include one-month LIBOR subject to a weighted average floor of 1.0% and quoted at 3.143%, one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 1.0% and quoted at 3.042% and U.S. Prime Rate subject to a weighted average floor of 4.4% quoted at 6.250%.
The following tables summarize the Company’s loans held at carrying value as of September 30, 2022 and December 31, 2021:
As of September 30, 2022
Outstanding
Principal (1)
 Original
Issue
Discount
Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
Senior term loans $ 349,337,390  $ (10,173,360) $ 339,164,030  2.7
Total loans held at carrying value $ 349,337,390  $ (10,173,360) $ 339,164,030  2.7
  As of December 31, 2021
 
Outstanding
Principal (1)
 Original
Issue
Discount
Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
       
Senior term loans $ 270,841,715  $ (13,678,219) $ 257,163,496  3.4
Total loans held at carrying value $ 270,841,715  $ (13,678,219) $ 257,163,496  3.4

(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, 2022 and December 31, 2021.

12
The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2022:
Principal Original Issue
Discount		 Carrying Value
Total loans held at carrying value at December 31, 2021 $ 270,841,715  $ (13,678,219) $ 257,163,496 
New fundings 139,571,920  (5,128,400) 134,443,520 
Accretion of original issue discount —  8,633,259  8,633,259 
Loan repayments (52,014,211) —  (52,014,211)
Sale of loans (10,000,000) —  (10,000,000)
PIK interest 2,768,252  —  2,768,252 
Loan amortization payments (1,830,286) —  (1,830,286)
Total loans held at carrying value at September 30, 2022 $ 349,337,390  $ (10,173,360) $ 339,164,030 
A more detailed listing of the Company’s loans held at carrying value portfolio based on information available as of September 30, 2022 is as follows:
Collateral Location
Collateral
Type (1)
Outstanding
Principal (2)
 Original
Issue
Discount
Carrying
Value (2)
 Interest
Rate
Maturity
Date (3)
Payment
Terms (4)
Private Co. C PA C, D $ 24,159,078  $ (610,238) $ 23,548,840  18.5  %
(5)
 12/01/2025 P/I
Sub. of Private Co. G NJ, PA C, D 67,912,444  (1,953,328) 65,959,116  16.5  %
(6)
 05/01/2026 P/I
Public Co. F AR, AZ, IL, FL, NV, OH, MA, MI, MD, NV C, D 86,600,000  (854,133) 85,745,867  8.6  %
(7)
 05/30/2023 I/O
Sub. of Private Co. H IL C 5,781,250  (46,712) 5,734,538  15.0  %
(8)
 05/11/2023 I/O
Private Co. K MA C, D 10,765,379  (915,708) 9,849,671  15.0  %
(9)
 05/03/2027 P/I
Private Co. I MD C, D 10,550,781  (177,777) 10,373,004  17.6  %
(10)
 08/01/2026 P/I
Private Co. J MO C, D 23,568,458  (573,986) 22,994,472  19.1  %
(11)
 09/01/2025 P/I
Sub. of Public Co. H CT, IA, IL, ME, MI, NJ, PA C, D 60,000,000  (1,910,204) 58,089,796  9.8  %
(12)
 01/01/2026 I/O
Private Co. L MO, NJ, OH C, D 50,000,000  (2,303,571) 47,696,429  12.0  %
(13)
 05/01/2026 P/I
Sub. of Public Co. M IL, MI, MA, NJ, OH, PA C, D 10,000,000  (827,703) 9,172,297  9.5  %
(14)
 08/27/2025 I/O
Total loans held at carrying value $ 349,337,390  $ (10,173,360) $ 339,164,030 
(1)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 9.0% plus Prime (Prime floor of 4.0%) and PIK interest rate of 4.0%.
(6)Base interest rate of 10.25% plus Prime (Prime floor of 4.5%).
(7)Base weighted average interest rate of 8.6%.
(8)Base interest rate of 15.0%.
(9)Base interest rate of 12.0% plus SOFR (SOFR floor of 1.0%)
(10)Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 2.5%.
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(11)Base interest rate of 12.0% plus LIBOR (LIBOR floor of 1.0%) and PIK interest rate of 4.0%.
(12)Base interest rate of 9.8%.
(13)Base interest rate of 12.0%.
(14)Base interest rate of 9.5%.
5.    LOAN RECEIVABLE AT CARRYING VALUE
As of September 30, 2022 and December 31, 2021, the Company’s portfolio included one loan receivable at carrying value. The originated commitment under this loan was $4.0 million and outstanding principal was approximately $2.2 million and $2.5 million as of September 30, 2022 and December 31, 2021, respectively. During the nine months ended September 30, 2022, the Company received repayments of approximately $0.3 million of outstanding principal.
The following table presents changes in loans receivable as of and for the nine months ended September 30, 2022:
Principal Original Issue
Discount		 Carrying
Value
Total loan receivable at carrying value at December 31, 2021 $ 2,533,266  $ (2,678) $ 2,530,588 
Principal repayment of loans (337,114) —  (337,114)
Accretion of original issue discount —  805  805 
PIK interest 26,187  —  26,187 
Total loan receivable at carrying value at September 30, 2022 $ 2,222,339  $ (1,873) $ 2,220,466 
6.    CURRENT EXPECTED CREDIT LOSSES
The Company estimates its current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broader range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”) using a model that considers multiple datapoints and methodologies that may include the likelihood of default and expected loss given default for each individual loan, discounted cash flows (“DCF”), and other inputs which may include the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment if applicable. Calculation of the CECL Reserve requires loan specific data, which may 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 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. 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 (“CMBS”), which the Company believes is a reasonably comparable and available data set to its type of loans.
As of September 30, 2022 and December 31, 2021, the Company’s CECL Reserve for its loans held at carrying value and loan receivable at carrying value is approximately $6.2 million and $3.1 million, respectively, or 1.80% and 1.20%, respectively, of the Company’s total loans held at carrying value and loans receivable at carrying value of approximately $341.4 million and $259.7 million, respectively, and is bifurcated between the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loans receivable at carrying value of approximately $5.5 million and $2.4 million, respectively, and a liability for unfunded commitments of approximately $0.7 million and $0.7 million, respectively. The liability was based on the unfunded portion of the loan commitment over the full contractual period over which the Company is exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion.
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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 loans receivable at carrying value as of and for the three and nine months ended September 30, 2022 was as follows:
Outstanding (1)
Unfunded (2)
 Total
Balance at June 30, 2022 $ 5,018,072  $ 594,840  $ 5,612,912 
Provision for current expected credit losses 448,122  93,836  541,958 
Write-offs —  —  — 
Recoveries —  —  — 
Balance at September 30, 2022 $ 5,466,194  $ 688,676  $ 6,154,870 
Outstanding (1)
Unfunded (2)
 Total
Balance at December 31, 2021 $ 2,431,558  $ 683,177  $ 3,114,735 
Provision for current expected credit losses 3,034,636  5,499  3,040,135 
Write-offs —  —  — 
Recoveries —  —  — 
Balance at September 30, 2022 $ 5,466,194  $ 688,676  $ 6,154,870 
(1)As of September 30, 2022 and December 31, 2021, the CECL Reserve related to outstanding balances on loans at carrying value and loans receivable at carrying value is recorded within current expected credit loss reserve in the Company’s consolidated balance sheets.
(2)As of September 30, 2022 and December 31, 2021, the CECL Reserve related to unfunded commitments on loans held at carrying value is recorded within current expected credit loss reserve as a liability in the Company’s consolidated balance sheets.
The Company continuously evaluates the credit quality of each loan by assessing the risk factors of each loan and assigning a risk rating based on a variety of factors. Risk factors include property type, geographic and local market dynamics, physical condition, projected cash flow, loan structure and exit plan, loan-to-value ratio, fixed charge coverage ratio, project sponsorship, and other factors deemed necessary. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:
Rating Definition
1 Very Low Risk — Materially exceeds performance metrics included in original or current credit underwriting and business plan
2 Low Risk — Collateral and business performance exceeds substantially all performance metrics included in original or current credit underwriting and business plan
3 Medium Risk — Collateral and business performance meets, or is on track to meet underwriting expectations; business plan is met or can reasonably be achieved
4 High Risk/ Potential for Loss — Collateral performance falls short of underwriting, material differences from business plans, defaults may exist, or may soon exist absent material improvement. Risk of recovery of interest exists
5 Impaired/ Loss Likely — Performance is significantly worse than underwriting with major variances from business plan observed. Loan covenants or financial milestones have been breached; exit from loan or refinancing is uncertain. Full recovery of principal is unlikely
The risk ratings are primarily based on historical data as well as taking into account future economic conditions.
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As of September 30, 2022, the carrying value, excluding the CECL Reserve, of the Company’s loans held at carrying value and loans receivable at carrying value within each risk rating by year of origination is as follows:
Risk Rating: 2022 2021 2020 Total
1 $ —  $ —  $ —  $ — 
2 26,209,866  59,536,000  —  85,745,866 
3 66,718,397  129,783,451  25,769,306  222,271,154 
4 —  33,367,476  —  33,367,476 
5 —  —  —  — 
Total $ 92,928,263  $ 222,686,927  $ 25,769,306  $ 341,384,496 
7.    INTEREST RECEIVABLE
The following table summarizes the interest receivable by the Company as of September 30, 2022 and December 31, 2021:
As of
September 30, 2022		 As of
December 31, 2021
Interest receivable $ 3,811,696  $ 3,562,566 
PIK receivable 490,284  554,357 
Unused fees receivable 140,700  296,015 
Total interest receivable $ 4,442,680  $ 4,412,938 
8.    INTEREST RESERVE
At September 30, 2022 and December 31, 2021, the Company had three and seven loans, respectively, that included a loan-funded interest reserve. 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. For the three and nine months ended September 30, 2021, approximately $1.8 million and $2.5 million, respectively, of aggregate interest income was earned and disbursed from the interest reserves.
The following table presents changes in the interest reserve as of and for the three and nine months ended September 30, 2022 and 2021:
Three months ended
September 30,		 Nine months ended
September 30,
2022 2021 2022 2021
Beginning reserves $ 5,186,615  $ 5,547,863  $ 4,782,271  $ 1,325,750 
New reserves 3,970,958  4,525,468  9,970,958  9,450,468 
Reserves disbursed (3,031,143) (1,819,036) (8,626,799) (2,521,923)
Ending reserves $ 6,126,430  $ 8,254,295  $ 6,126,430  $ 8,254,295 
9.    DEBT
Revolving Credit Facility
On April 29, 2022, the Company entered into the Loan and Security Agreement (the “Revolving Credit Agreement”) by and among the Company, the other loan parties from time to time party thereto, the lenders party thereto, and the lead arranger, bookrunner and administrative agent party thereto, pursuant to which, the Company obtained a $60.0 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility has a maturity date of April 29, 2025.
The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions (which may be increased to up to $100.0 million in aggregate, subject to available borrowing base and additional commitments) which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan
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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. The Company incurred a one-time commitment fee expense of approximately $0.5 million, which is amortized over the life of the facility. Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, to be paid semi-annually in arrears, which will be included within interest expense in the Company’s consolidated statements of operations. For the three and nine months ended September 30, 2022, the Company had not drawn on the Revolving Credit Facility or incurred any interest expense related to the Revolving Credit Facility. The Company amortized $40,130 and $67,610 of deferred financing costs for the three and nine months ended September 30, 2022, 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.
Termination of AFC Finance Revolving Credit Facility
In July 2020, the Company obtained a secured revolving credit line (the “AFCF Revolving Credit Facility”) from AFC Finance, LLC and Gamma Lending HoldCo LLC, each affiliates of the Company’s management, secured by the assets of the Company. The AFCF Revolving Credit Facility originally had a loan commitment of $40.0 million at an interest rate of 8% per annum, payable in cash in arrears. The maturity date of the AFCF Revolving Credit Facility was the earlier of (i) July 31, 2021 and (ii) the date of the closing of any credit facility where the proceeds are incurred to refund, refinance or replace the AFCF Revolving Credit Agreement, in accordance with terms of the credit agreement governing the AFCF Revolving Credit Facility (the “AFCF Revolving Credit Agreement”).
On May 7, 2021, the Company amended the AFCF Revolving Credit Agreement (the “First Amendment”). The First Amendment (i) increased the loan commitment from $40.0 million to $50.0 million, (ii) decreased the interest rate from 8% per annum to 6% per annum, (iii) removed Gamma Lending Holdco LLC as a lender and (iv) extended the maturity date from July 31, 2021 to the earlier of (A) December 31, 2021 or (B) the date of the closing of any refinancing credit facility.
On November 3, 2021, the Company entered into the Second Amendment to the AFCF Revolving Credit Agreement (the “Second Amendment”). Under the Second Amendment, payments to AFC Finance, LLC for interest, commitment fees and unused fees (net applicable taxes) were required to be paid directly or indirectly through AFC Finance, LLC to charitable organizations designated by AFC Finance, LLC. The Second Amendment also (i) increased the loan commitment from $50.0 million to $75.0 million, (ii) decreased the interest rate from 6% per annum to 4.75% per annum, (iii) introduced a one-time commitment fee of 0.25%, to be paid in 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 $187,500 in November 2021, payable in three quarterly installments that began in the first quarter of 2022, which is 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.
As of December 31, 2021, the outstanding loan balance under the AFCF Revolving Credit Facility was $75.0 million. All borrowings that were previously outstanding as of December 31, 2021 were repaid in full on January 3, 2022. For the three and nine months ended September 30, 2022, the Company incurred interest expense on the AFCF Revolving Credit Facility of $0 and $19,792, respectively. For the three and nine months ended September 30, 2021, the Company did not incur any interest expense on the AFCF Revolving Credit Facility.
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, beginning on May 1, 2022. The net
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proceeds from the offering were approximately $97.0 million, after deducting the initial purchasers’ discounts and commissions and estimated offering fees and expenses payable by the Company. The Company intends to use the proceeds from the issuance of the 2027 Senior Notes (i) to fund loans related to unfunded commitments to existing borrowers, (ii) to originate and participate in commercial loans to companies operating in the cannabis industry that are consistent with the 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. 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, 2022, the 2027 Senior Notes are guaranteed by TRS1.
Prior to February 1, 2027, the Company may redeem the 2027 Senior Notes in whole or in part at a price equal to the greater of 100% of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date. On or after February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part at a price equal to 100% of the principal amount of the 2027 Senior Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Indenture also requires us to offer to purchase all of the 2027 Senior Notes at a purchase price equal to 101% of the principal amount of the 2027 Senior Notes, plus accrued and unpaid interest if a ‘‘change of control triggering event’’ (as defined in the Indenture) occurs.
The Indenture contains customary terms and restrictions, subject to a number of exceptions and qualifications, including restrictions on the Company’s ability to (1) incur additional indebtedness unless the Annual Debt Service Charge (as defined in the Indenture) is no less than 1.5 to 1.0, (2) incur or maintain total debt in an aggregate principal amount greater than 60% of the Company’s consolidated Total Assets (as defined in the Indenture), (3) incur or maintain secured debt in an aggregate principal amount greater than 25% of the Company’s consolidated Total Assets (as defined in the Indenture), and (4) merge, consolidate or sell substantially all of the Company’s assets. In addition, the Indenture also provides for customary events of default. If any event of default occurs, any amount then outstanding under the Indenture may immediately become due and payable. These events of default are subject to a number of important exceptions and qualifications set forth in the Indenture.
The 2027 Senior Notes are due on May 1, 2027. Scheduled principal payments on the 2027 Senior Notes as of September 30, 2022 are as follows:
2027 Senior Notes
Year
2022 (remaining) $ — 
2023 — 
2024 — 
2025 — 
2026 — 
Thereafter 100,000,000 
Total principal $ 100,000,000 

The following table reflects a summary of interest expense incurred during the three and nine months ended September 30, 2022. There was no interest expense incurred during the three and nine months ended September 30, 2021.

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Three months ended
September 30, 2022
2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings
Interest expense $ 1,437,500  $ —  $ —  $ 1,437,500 
Unused fee expense —  —  —  — 
Amortization of deferred financing costs 166,458  40,130  —  206,588 
Total interest expense $ 1,603,958  $ 40,130  $ —  $ 1,644,088 

Nine months ended
September 30, 2022
2027 Senior Notes Revolving Credit Facility AFCF Revolving Credit Facility Total Borrowings
Interest expense $ 4,296,527  $ —  $ 19,792  $ 4,316,319 
Unused fee expense —  —  60,417  60,417 
Amortization of deferred financing costs 492,216  67,610  154,645  714,471 
Total interest expense $ 4,788,743  $ 67,610  $ 234,854  $ 5,091,207 
10.    COMMITMENTS AND CONTINGENCIES
As of September 30, 2022 and December 31, 2021, the Company had the following commitments to fund various investments:
As of
September 30, 2022		 As of
December 31, 2021
Total original loan commitments $ 502,184,382  $ 419,198,125 
Less: drawn commitments (446,023,223) (363,659,505)
Total undrawn commitments $ 56,161,159  $ 55,538,620 
The Company from time to time may be a party to litigation in the normal course of business. As of September 30, 2022, the Company is not aware of any legal claims that could materially impact its business, financial condition or results of operations.
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 of 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.
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.
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11.    SHAREHOLDERS’ EQUITY
Series A Preferred Stock
As of September 30, 2022 and December 31, 2021, the Company has authorized 10,000 preferred shares and issued 125 of the preferred shares designated as 12.0% Series A Cumulative Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”).
The Series A Preferred Stock entitles the holders thereof to receive cumulative cash dividends at a rate per annum of 12.0% of the liquidation preference of $1,000 per share plus all accumulated and unpaid dividends thereon. The Company generally may not declare or pay, or set apart for payment, any dividend or other distribution on any shares of the Company’s stock ranking junior to the Series A Preferred Stock as to dividends, including the Company’s common stock, or redeem, repurchase or otherwise make payments on any such shares, unless full, cumulative dividends on all outstanding shares of Series A Preferred Stock have been declared and paid or set apart for payment for all past dividend periods. The holders of the Series A Preferred Stock generally have no voting rights except in limited circumstances, including certain 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.
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 on January 25, 2021. All common shares, stock options, and per share information presented in the consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis for all periods presented, including reclassifying an amount equal to the increase in par value of common stock from additional paid-in capital. There was no change in the par value of the Company’s common stock. Upon consummation of the Company’s IPO, any shareholder that held fractional shares received cash in lieu of such fractional shares based on the public offering price of the shares of the Company’s common stock at IPO. This resulted in the reduction of 15 shares issued and outstanding.
On March 23, 2021, the Company completed its IPO of 6,250,000 shares of its common stock at a price of $19.00 per share, raising approximately $118.8 million in gross proceeds. The underwriters also exercised their over-allotment option to purchase up to an additional 937,500 shares of the Company’s common stock at a price of $19.00 per share, which was completed on March 26, 2021, raising approximately $17.8 million in additional gross proceeds. The underwriting commissions of approximately $8.3 million and $1.2 million, respectively, are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company incurred approximately $3.1 million of expenses in connection with the IPO, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately $123.9 million.
On June 28, 2021, the Company completed an offering of 2,750,000 shares of its common stock at a price of $20.50 per share, raising approximately $56.4 million in gross proceeds. The underwriting commissions of approximately $3.1 million are reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity. The Company incurred approximately $0.7 million of expenses in connection with the offering, which is reflected as a reduction in additional paid-in capital. The net proceeds to the Company totaled approximately $52.6 million.
On July 6, 2021, the underwriters partially exercised their over-allotment option to purchase 269,650 shares of the Company’s common stock at a price of $20.50 per share raising approximately $5.5 million in additional gross proceeds or approximately $5.2 million in net proceeds after underwriting commissions of approximately $0.3 million, which is reflected as a reduction of additional paid-in capital on the consolidated statements of shareholders’ equity.
On January 10, 2022, the Company completed an underwritten offering of 3,000,000 shares of our common stock, at a price to the public of $20.50 per share. The gross proceeds to the Company from the offering were $61.5 million, before
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deducting underwriting discounts and commissions, a structuring fee and offering expenses payable by the Company. In connection with the offering, the underwriters were granted an over-allotment option to purchase up to an additional 450,000 shares of the Company’s common stock. On January 14, 2022, the underwriters partially exercised the over-allotment option with respect to 291,832 shares of common stock, which was completed on January 19, 2022. The underwriting commissions of approximately $3.5 million are reflected as a reduction of additional paid-in capital in the first quarter of fiscal year 2022. The Company incurred approximately $1.0 million of expenses in connection with the offering. After giving effect to the partial exercise of the over-allotment option, the total number of shares sold by the Company in the public offering was 3,291,832 shares and total gross proceeds, before deducting underwriting discounts and commissions, a structuring fee and other offering expenses payable by the Company, were approximately $67.5 million. The net proceeds to the Company totaled approximately $63.0 million.
Pursuant to the Articles of Amendment, dated March 10, 2022, the Company increased the number of authorized shares of common stock to 50,000,000 shares at $0.01 par value per share.
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, 2022, the Company sold an aggregate of 506,466 and 621,398 shares of the Company’s common stock under the Sales Agreement at an average price of $18.35 and $18.30 per share, respectively. The sales generated net proceeds of approximately $9.0 million and $10.4 million for the three and nine months ended September 30, 2022, respectively.
As of September 30, 2022, the shares of common stock sold under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.
Equity Incentive Plan
The Company has established an equity incentive compensation plan (the “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.
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. As of September 30, 2022, there were 2,350,815 shares of common stock granted under the 2020 Plan, underlying 2,287,472 options and 63,343 shares of restricted stock.
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As of September 30, 2022, 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 2,793,288 shares, which is an increase of 50,647 shares compared to June 30, 2022. This Share Limit increased in the third quarter of 2022 under the evergreen provision in the 2020 Plan in connection with the shares issued under the ATM Program during such time. Shares that are subject to or underlie awards that expire or for any reason are cancelled, 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.
The following table summarizes the (i) non-vested options granted, (ii) vested options granted and (iii) forfeited options granted for the Company’s directors and officers and employees of the Manager as of September 30, 2022 and December 31, 2021:
As of
September 30, 2022		 As of
December 31, 2021
Non-vested 300,652  183,114 
Vested 2,068,469  1,449,518 
Forfeited (82,549) (28,396)
Balance 2,286,572  1,604,236 
The Company uses the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. Forfeitures are recognized as they occur. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield was based on the Company’s expected dividend yield at grant date. Expected volatility is based on the estimated average volatility of similar companies due to the lack of historical volatilities of the Company’s common stock. Restricted stock grant expense is based on the Company’s stock price at the time of the grant and amortized over the vesting period. The stock-based compensation expense for the Company was approximately $0.1 million and $1.2 million for the three and nine months ended September 30, 2022, respectively, and approximately $0.1 million and $1.7 million for the three and nine months ended September 30, 2021, respectively.
The following table presents the assumptions used in the option pricing model of options granted under the 2020 Plan:
Assumptions Range
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 during the three and nine months ended September 30, 2022 and 2021:
Three months ended
September 30, 2022		 Weighted-average
grant date fair
value per option
Balance as of June 30, 2022 2,316,106  $ 1.21 
Granted —  — 
Exercised (5,511) 0.90 
Forfeited (24,023) 1.20 
Balance as of September 30, 2022 2,286,572  $ 1.21 

22
Three months ended
September 30, 2021		 Weighted-average
grant date fair
value per option
Balance as of June 30, 2021 1,613,098  $ 1.08 
Granted —  — 
Exercised —  — 
Forfeited (8,862) 0.90 
Balance as of September 30, 2021 1,604,236  $ 1.08 

Nine months ended
September 30, 2022		 Weighted-average
grant date fair
value per option
Balance as of December 31, 2021 1,604,236  $ 1.08 
Granted 742,000  1.46 
Exercised (5,511) 0.90 
Forfeited (54,153) 1.12 
Balance as of September 30, 2022 2,286,572  $ 1.21 
Nine months ended
September 30, 2021		 Weighted-average
grant date fair
value per option
Balance as of December 31, 2020 926,898  $ 0.91 
Granted 689,200  1.31 
Exercised —  — 
Forfeited (11,862) 1.01 
Balance as of September 30, 2021 1,604,236  $ 1.08 
The following table summarizes the (i) non-vested restricted stock granted, (ii) vested restricted stock granted and (iii) forfeited restricted stock granted for the Company’s directors and officers and employees of the Manager as of September 30, 2022 and December 31, 2021:
As of
September 30, 2022		 As of
December 31, 2021
Non-vested 64,581  56,285 
Vested —  — 
Forfeited (1,238) — 
Balance 63,343  56,285 
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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, 2022 and 2021:
Three months ended
September 30, 2022
Balance as of June 30, 2022 64,581 
Granted — 
Exercised — 
Forfeited (1,238)
Balance as of September 30, 2022 63,343 
Three months ended
September 30, 2021
Balance as of June 30, 2021 — 
Granted 56,285 
Exercised — 
Forfeited — 
Balance as of September 30, 2021 56,285 
Nine months ended
September 30, 2022
Balance as of December 31, 2021 56,285 
Granted 8,296 
Exercised — 
Forfeited (1,238)
Balance as of September 30, 2022 63,343 
Nine months ended
September 30, 2021
Balance as of December 31, 2020 — 
Granted 56,285 
Exercised — 
Forfeited — 
Balance as of September 30, 2021 56,285 

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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 September 30, 2022 and 2021:
Three months ended
September 30,		 Nine months ended
September 30,
2022 2021 2022 2021
Net income $ 11,480,519  $ 7,930,680  $ 32,994,312  $ 13,959,222 
Divided by:
Basic weighted average shares of common stock outstanding 20,019,760  16,402,984  19,687,730  12,368,977 
Diluted weighted average shares of common stock outstanding 20,112,033  16,776,648  19,780,003  12,742,641 
Basic weighted average earnings per common share $ 0.57  $ 0.48  $ 1.68  $ 1.13 
Diluted weighted average earnings per common share $ 0.57  $ 0.47  $ 1.67  $ 1.10 
13.    INCOME TAX
A TRS is an entity taxed as a corporation that has not elected to be taxed as a REIT, in which a REIT directly or indirectly holds equity, and that has made a joint election with such REIT to be treated as a TRS. A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income. In addition, as a REIT, the Company also may be subject to a 100% excise tax on certain transactions between it and its TRS that are not conducted on an arm’s-length basis. The income tax provision is included in the line item income tax expense, including excise tax in the consolidated statements of operations included in these unaudited interim consolidated financial statements.
The income tax 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, 2022 primarily relates to activities of the Company’s taxable REIT subsidiary. The Company did not incur any tax expense for the three and nine months ended September 30, 2021.
For the three and nine months ended September 30, 2022 and 2021, the Company incurred no expense for United States federal excise tax. Excise tax represents a 4% tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the period. If it is determined that an excise tax liability exists for the current period, the Company will accrue excise tax on estimated excess taxable income as such taxable income is earned. The expense is calculated in accordance with applicable tax regulations.
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
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 borrowers where the Company does not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the borrower. As loans held by the Company are substantially illiquid with no active loan market, the Company depends on primary market data, including newly funded loans, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
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The following tables present fair value measurements of loans held at fair value as of September 30, 2022 and December 31, 2021:
Fair Value Measurement as of September 30, 2022
Total Level 1 Level 2 Level 3
Loans held at fair value $ 94,076,146  $ —  $ —  $ 94,076,146 
Total $ 94,076,146  $ —  $ —  $ 94,076,146 
  Fair Value Measurement as of December 31, 2021
  Total Level 1 Level 2 Level 3
Loans held at fair value $ 77,096,319  $ —  $ —  $ 77,096,319 
Total $ 77,096,319  $ —  $ —  $ 77,096,319 
The following table presents changes in loans that use Level 3 inputs as of and for the nine months ended September 30, 2022:
  Nine months ended
September 30, 2022
Total loans using Level 3 inputs at December 31, 2021 $ 77,096,319 
Change in unrealized (losses) gains on loans at fair value, net (1,561,890)
Additional fundings 18,737,988 
Original issue discount and other discounts, net of costs (479,276)
Loan repayments (1,960,000)
Loan amortization payments (1,089,776)
Accretion of original issue discount 1,076,212 
PIK interest 2,256,569 
Total loans using Level 3 inputs at September 30, 2022 $ 94,076,146 
The change in unrealized losses included in the unaudited interim consolidated statement of operations attributable to loans held at fair value, categorized as Level 3, held at September 30, 2022 is $(1,561,890).
The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of September 30, 2022 and December 31, 2021. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.
As of September 30, 2022
Unobservable Input
Fair Value Primary Valuation Techniques Input Estimated Range
Weighted Average
Senior term loans $ 94,076,146  Yield analysis Market yield
17.92% - 26.48%
 19.25  %
Total Investments $ 94,076,146 
As of December 31, 2021
Unobservable Input
Fair Value Primary Valuation Techniques Input Estimated Range Weighted Average
Senior term loans $ 77,096,319  Yield analysis Market yield
17.71% - 20.96%
 18.22  %
Total Investments $ 77,096,319         
Changes in market yields may change the fair value of certain of the Company’s loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans.
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Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period. Additionally, the fair value of the Company’s loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that the Company may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a loan in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.
In addition, changes in the market environment and other events that may occur over the life of the loans may cause the gains or losses ultimately realized on these loans to be different than the unrealized gains or losses reflected in the valuations currently assigned.
Investment in Marketable Securities
As of September 30, 2022, the Company’s portfolio did not include any debt securities. As of December 31, 2021, the Company’s portfolio included one investment in debt securities held at fair value of approximately $15.9 million. The Company sold the investment in debt securities in March of 2022, which was previously designated as available-for-sale as of December 31, 2021. For the nine months ended September 30, 2022, the realized loss on the sale of debt securities was approximately $0.2 million.

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

Principal Original Issue Discount Unrealized Gains (Losses) Fair Value
Total debt securities held at fair value at December 31, 2021 $ 15,000,000  $ 1,050,000  $ (168,750) $ 15,881,250 
Realized (losses) gains on securities at fair value, net —  (150,000) —  (150,000)
Change in accumulated other comprehensive income —  —  168,750  168,750 
Sale of securities (15,000,000) (900,000) —  (15,900,000)
Total debt securities held at fair value at September 30, 2022 $ —  $ —  $ —  $ — 
The following table presents fair value measurements of debt securities held at fair value as of September 30, 2022 and December 31, 2021:
Fair Value Measurement as of September 30, 2022
Total Level 1 Level 2 Level 3
Debt securities held at fair value $ —  $ —  $ —  $ — 
Total $ —  $ —  $ —  $ — 
  Fair Value Measurement as of December 31, 2021
  Total Level 1 Level 2 Level 3
Debt securities held at fair value $ 15,881,250  $ —  $ 15,881,250  $ — 
Total $ 15,881,250  $ —  $ 15,881,250  $ — 
Fair Value of Financial Instruments
GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheet, for which it is practicable to estimate that value.
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The following table details the book value and fair value of the Company’s financial instruments not recognized at fair value in the balance sheet:
  As of September 30, 2022
  Carrying Value Fair Value
Financial assets:    
Cash and cash equivalents $ 36,319,623  $ 36,319,623 
Loans held for investment at carrying value $ 339,164,030  $ 334,334,871 
Loan receivable at carrying value $ 2,220,466  $ 2,147,890 
Financial liabilities:
Senior unsecured notes, net $ 96,964,872  $ 85,034,060 
Estimates of fair value for cash and cash equivalents are measured using observable, quoted market prices, or Level 1 inputs. The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The Company’s investments in debt securities are measured using readily available quoted prices for similar assets, or Level 2 inputs. The fair value of the Company’s unsecured 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
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 receives base management fees (the “Base Management Fee”) that are calculated and payable quarterly in arrears, in an amount equal to 0.375% of the Company’s Equity (as defined below), subject to certain adjustments, less 50% of the aggregate amount of any other fees (“Outside Fees”), including any agency fees relating to our loans, but excluding the Incentive Compensation (as defined below) and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s 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 the Company’s loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s due diligence of potential 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 pays Incentive Fees to the Manager based upon the Company’s achievement of targeted levels of Core Earnings. “Core Earnings” is defined in the Management Agreement as, for a given period means the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) the Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between the Manager and the Company’s independent directors and approved by a majority of the independent directors.
The Incentive Compensation for the three and nine months ended September 30, 2022 was approximately $2.9 million and $9.3 million, respectively. The Incentive Compensation for the three and nine months ended September 30, 2021 was approximately $1.8 million and $3.9 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
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management, excluding cash and cash equivalents, as a percentage of the total assets under management by all such related funds.
The following table summarizes the related party costs incurred by the Company for the three and nine months ended September 30, 2022 and 2021:
Three months ended
September 30,		 Nine months ended
September 30,
2022 2021 2022 2021
Affiliate Costs
Management fees $ 1,318,563  $ 1,030,718  $ 3,869,023  $ 2,301,924 
Less: outside fees earned (432,426) (256,989) (1,307,969) (677,439)
Base management fees 886,137  773,729  2,561,054  1,624,485 
Incentive fees earned 2,938,598  1,769,207  9,312,462  3,873,984 
General and administrative expenses reimbursable to Manager 910,243  625,711  2,790,846  1,415,217 
Total $ 4,734,978  $ 3,168,647  $ 14,664,362  $ 6,913,686 
Amounts payable to the Company’s Manager as of September 30, 2022 and December 31, 2021 were approximately $5.2 million and $4.1 million, respectively.
Due to Affiliate
Amounts due to an affiliate of the Company as of September 30, 2022 and December 31, 2021 were $17,640 and $0, respectively.
Investments in Loans
From time to time, the Company may co-invest with other investment vehicles managed by the Company’s Manager or its affiliates 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 September 30, 2022, there were five co-invested loans held by the Company and an affiliate of the Company.
In March 2022, the Company entered into the fourth amendment of the Amended and Restated Credit Agreement with Public Company F to, among other things, increase the total loan commitments by $100.0 million, with approximately (i) $26.6 million of the new loan commitments allocated to us; (ii) $15.0 million of the new loan commitments allocated to Flower Loan Holdco LLC, an affiliated entity in which Leonard Tannenbaum, our Chief Executive Officer and Chairman, is the majority ultimate beneficial owner; and (iii) the remaining loan commitments allocated to third-party lenders by the third-party agent.
In connection with investments in loans, the Company may receive the option to assign the right (the “Assigned Right”) to acquire warrants and/or equity of the borrower. The Company may sell the Assigned Right, and the sale may be to an affiliate of the Company. During the three and nine months ended September 30, 2022, the Company neither received nor sold any Assigned Right. During the three months ended September 30, 2021, the Company neither received nor sold any Assigned Right. During the nine months ended September 30, 2021, the Company sold approximately $2.3 million of Assigned Rights to an affiliate which are accounted for as additional original issue discount and accreted over the life of the loans.
Secured Revolving Credit Facility From Affiliate
In April 2022, the Company terminated the AFCF Revolving Credit Facility. Refer to Note 9 to the Company’s unaudited consolidated financial statements for more information.
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16.    DIVIDENDS AND DISTRIBUTIONS
The following table summarizes the Company’s dividends declared during the nine months ended September 30, 2022 and 2021:
Record Date Payment
Date		 Common Share
Distribution
Amount		 Taxable
Ordinary
Income		 Return of
Capital		 Section
199A
Dividends
Regular cash dividend 3/15/2021 3/31/2021 $ 0.36  $ 0.36  $ —  $ 0.36 
Regular cash dividend 6/15/2021 6/30/2021 $ 0.38  $ 0.38  $ —  $ 0.38 
Regular cash dividend 9/30/2021 10/15/2021 $ 0.43  $ 0.43  $ —  $ 0.43 
2021 Period Subtotal $ 1.17  $ 1.17  $ —  $ 1.17 
Regular cash dividend 3/31/2022 4/15/2022 $ 0.55  $ 0.55  $ —  $ 0.55 
Regular cash dividend 6/30/2022 7/15/2022 $ 0.56  $ 0.56  $ —  $ 0.56 
Regular cash dividend 9/30/2022 10/14/2022 $ 0.56  $ 0.56  $ —  $ 0.56 
2022 Period Subtotal $ 1.67  $ 1.67  $ —  $ 1.67 
17.    SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were available to be issued. There were no material subsequent events, other than those described below, that required disclosure in these financial statements.
Subsequent to the end of the third quarter, the Company increased its commitment to one borrower in the amount of $30.0 million, were repaid $86.6 million in full by Public Company F, reduced its commitment to one borrower by $19.5 million, and funded approximately $9.2 million of principal amount of new and existing commitments.
In October 2022, the Credit Agreement with the 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 to the Company and $7.8 million was funded by the Company. As part of the expansion, the interest rate increased from a fixed rate of 9.8% to U.S. Prime plus 5.8%, subject to a Prime floor of 5.5%.
In October 2022, Public Company F repaid its loan in full. The loan was comprised of three tranches with original maturity dates of May 30, 2023, April 28, 2023 and August 28, 2023. The aggregate amount of outstanding principal on the date of repayment was $86.6 million. The Company received a prepayment premium and make-whole premium of approximately $0.1 million and $0.6 million, respectively. Following the repayment of Public Company F, six of the Company’s loans have repaid prior to maturity since the Company’s IPO in March 2021.
In November 2022, the Company and Private Company L agreed to reduce the total loan commitment under the credit facility from $82.5 million to $63.0 million.
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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 information incorporated by reference in it, or made in other reports, filings with the 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, and we intend such statements to be covered by the safe harbor provisions contained therein. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "could," "would," "will," or words or phrases of similar meaning. Specifically, this Quarterly Report includes forward-looking statements regarding (i) the conditions in the adult-use, and medicinal cannabis markets and their impact on our business; (ii) our portfolio and strategies for the growth thereof; (iii) our working capital, liquidity and capital requirements; (iv) potential state and federal legislative and regulatory matters; (v) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers; (vi) our expectations regarding our portfolio companies and their businesses, including demand, sales volume, profitability, and future growth; (vii) the amount, collectability and timing of cash flows, if any, from our loans; (viii) our expected ranges of originations and repayments; (ix) estimates relating to our ability to make distributions to our shareholders in the future; and (x) our expanded investment strategy.
These forward-looking statements reflect management’s current views about future events, and are subject to risks, uncertainties and assumptions. Our actual results may differ materially from the future results and events expressed or 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 actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
•the ability of the Manager to locate suitable investments for us and to monitor and administer our investments, especially with respect to investments as part of our expanded investment strategy;
•changes in, and volatility of the general economy and its impact on the industries in which we invest;
•the impact of a protracted decline in the liquidity of credit markets on our business;
•increased competition;
•fluctuations in interest rates negatively affecting our business and our portfolio companies;
•ability to maintain and enforce our contractual arrangements and relationships with third parties;
•lack of liquidity of investments in our portfolio, particularly those having no liquid trading market;
•actual and potential conflicts of interest with the Manager, and/or their respective affiliates;
•potential inability of our portfolio companies to achieve their objectives;
•our ability to obtain and maintain financing arrangements;
•our ability to maintain our exemption from registration under the Investment Company Act;
•our ability to qualify for treatment as a REIT for U.S. federal income tax purposes and to comply with and conduct our business in accordance with such rules;
•actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law;
•the ability of our Manager to attract and/or retain highly talented professionals;
•increase in the rates of default or decreased recovery rates on debt investments in our portfolio;
•changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans; and
•interest rate mismatches between our debt investments and any leverage used to fund such investments.
Please see the section entitled “Risk Factors” located in our Annual Report on Form 10-K, filed with the SEC on March 10, 2022, for a further discussion of these and other risks and uncertainties which could affect our future results. These forward-looking statements apply only as of the date of this report and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence
31
of anticipated or unanticipated events, except to the extent we are legally required to disclose certain matters in SEC filings or otherwise.
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Form 10-Q”). This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q.
Business Overview
AFC Gamma, Inc. is primarily an institutional lender to the cannabis industry that was founded in July 2020 by a veteran team of investment professionals. We primarily originate, structure, underwrite, and invest in senior secured loans and other types of loans and debt securities for cannabis industry operators in states that have legalized medical and/or adult-use cannabis. As states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing. Due to the currently capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we are well positioned to continue as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure. Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation by providing loans to state law compliant cannabis companies. The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. Some of our borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States. Our loans typically have up to a five-year maturity and contain amortization and/or cash flow sweeps.
We have also recently expanded our investment strategy to include (i) first lien loans secured by mortgages to businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities. We expect our underwriting and investment process for these types of investments to be substantially similar to the process we deploy for our loans to cannabis operators.
We are a Maryland corporation and externally managed by our Manager, AFC Management, LLC, a Delaware limited liability company, pursuant to the terms of the Amended and Restated Management 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 initial public offering (“IPO”) in March 2021.
We have elected to be taxed as a real estate investment trust (a “REIT”), commencing with our taxable year ended December 31, 2020. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all or substantially all of our taxable income to shareholders and m