This NASDAQ-listed mortgage REIT lends institutional capital to major cannabis operators – New Cannabis Ventures
Exclusive interview with Leonard Tannenbaum, CEO of Advanced Flower Capital Gamma
Advanced Flower Capital Gamma (NASDAQ: AFCG) is a NASDAQ-listed institutional lender specializing in cannabis. The REIT focuses on developing the best cost of capital in the space and transparency of capital. AFC Gamma CEO Leonard Tannenbaum last spoke to New Cannabis Ventures in May, and now he has registered to discuss the company’s investment portfolio, its make-up and investors and its funding position. Audio of the entire conversation is available at the end of this written summary.
Talents inside and outside
The AFC Gamma team is growing rapidly with both internal talent rising through the ranks and external talent joining the management team. Tannenbaum highlighted Gabe Katz who has provided strong legal leadership within the company and will ultimately become the General Counsel. AFC Gamma has also turned to the outside to recruit a new CFO. Brett Kaufman, previously CFO of Ladenburg Thalmann Financial Services, joined the company over the summer.
The AFC Gamma portfolio
AFC Gamma has investments in 14 states with approximately 14 borrowers. The REIT focuses on building a diversified portfolio with an emphasis on limited license states; it currently has no investments in states like California, Oregon and Washington.
Tannenbaum highlighted recent deals, including a $ 50 million deal as part of Verano’s $ 120 million credit agreement amendment and an expanded credit facility with Justice Cannabis Co.
As AFC Gamma continues to diversify, markets like Georgia and New Jersey will be exciting. With the delay in adult use in New York City, Tannenbaum expects neighboring states like New Jersey and Massachusetts to benefit.
The California market doesn’t make sense to the company right now due to factors like the state’s illicit market, but that doesn’t mean it will never consider investing in the state. AFC Gamma is currently reviewing its first deal in Colorado, a market it has avoided in the past.
The company is also considering opportunities in Florida. She had a strong investment in the state with Bluma Wellness, working closely with the company to grow its footprint and distribution. This company has seen major success in the form of an acquisition of more than $ 200 million by Cresco Labs. AFC Gamma made money for its investors under this deal, but in the end Cresco Labs chose to use another source of capital.
Mix of investors
AFC Gamma’s investor base includes a solid roster of institutional investors, including UBS O’Connor, Hood River Capital Management and Philadelphia Financial Management of San Francisco. Institutional investors in the company have taken a long-term view of the company, having not sold a lot of shares since the AFC Gamma IPO, according to Tannenbaum. While these investors are a strength for the company, it does not have many retail investors, which affects the volume of transactions. The company is exploring ways to attract more retail investors.
The company builds relationships with its investors through open communication and shareholder returns. Tannenbaum is the company’s largest shareholder with nearly 25 percent of the common stock. He wrote the line of credit to the company and he made the decision to donate the money earned to the AFC Foundation, with a focus on supporting charities that help children in states where the business operates. The team also plans to ask its borrowers for their opinions on worthy charities, according to Tannenbaum.
Equity and debt
Following its IPO earlier this year, AFC Gamma raised $ 56.4 million in a public offering this summer and $ 100 million in debt capital this fall. Having equity and debt gives the company two levers, according to Tannenbaum. The company has raised equity at a premium to book value with the intention of being profitable for shareholders and making that money work quickly. The company also wanted to establish the cost of capital of its debt.
The company must have access to capital to support its existing customers and help new customers gain a foothold. As the market evolves, AFC Gamma intends to be the institutional partner of choice with transparent availability of capital.
AFC’s gamma pipeline
AFC Gamma is expected to have deployed around $ 300 million by December 31. According to its latest published figures, the company is close to this goal. The fourth quarter is seasonally busiest, but the timing of cannabis can be unpredictable, according to Tannenbaum. Transactions take 30-90 days to close, and it is possible that some fourth-quarter trades could slip into January or February of next year.
The company continues to experience a high volume of transactions. AFC Gamma has an exploitable pipeline of approximately $ 900 million, made up of agreements in three different compartments. The first compartment is made up of large MSOs, such as Verano. The second group consists of second-tier operators, companies in a smaller number of states that are not yet listed on the stock exchange. The third compartment consists of single state operators. The share of potential deals in each of these groups is constantly changing, according to Tannenbaum.
Industry Growth and Outlook
AFC Gamma reported third quarter net profit of $ 7.9 million. Its analysts have a strong grip on AFC Gamma’s prospects as a state-owned company, according to Tannenbaum.
Although the company is not providing any guidance, Tannenbaum pointed to the company’s dividend which fell from $ 0.38 to $ 0.43 per share in the third quarter. And, AFC Gamma reported a yield to maturity of around 20% on its portfolio, which is responsible for much of the company’s results, according to Tannenbaum.
Tannenbaum expects the SAFE law to be passed within the next year, but cannabis players will have to deal with the way the legislation is enforced as well as other rapid changes in the industry. AFC Gamma will continue to focus on diversifying its borrower base and reducing the cost of capital for its borrowers. While yields may decline with legalization, AFC Gamma is positioning itself as a strong lending partner who knows the business of its borrowers.
The AFC Gamma team is also closely monitoring the ongoing M&A cycle in the industry. Consolidation could create some velocity in its portfolio, but it could also help some of its second tier players to become first tier players. While a handful of companies may pull out of the pack as the top 15 cannabis players, Tannenbaum still sees a lot of open niche. He’s excited to see mergers and acquisitions continue and the development of new states as companies vie for the top spots in the cannabis industry.
To learn more, visit the AFC Gamma website. Listen to the entire interview:
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