AFC Gamma Inc: Overlooked Banker to the Pot Industry Raises Dividend

AFCG Stock Well Positioned in Cannabis Lending Market

Most cannabis investors probably haven’t heard of AFC Gamma Inc (NASDAQ:AFCG). That’s because it only went public in March.

That said, some marijuana investors might overlook AFC Gamma stock because of the company’s nondescript name. That would be a shame, considering “AFC” stands for Advanced Flower Capital.

And capital is important if you’re a weed company. With cannabis still illegal at the U.S. federal level, it’s tough for marijuana companies to access capital through traditional channels. Cash-strapped U.S. cannabis firms can either raise capital at a reduced valuation, negotiate with creditors, or sell their infrastructure and licenses.

That’s where AFC Gamma Inc comes in. A real estate investment trust (REIT), AFC Gamma is a leading provider of institutional loans to high-quality cannabis companies in the U.S. (Source: “Q2 2021 Earnings Presentation,” AFC Gamma Inc, August 5, 2021.)

The company lends capital to businesses in every segment of the marijuana industry, from cultivation, to processing, to distribution.

To date, AFC Gamma has reviewed 344 deals, representing $6.7 billion in aggregate value. That doesn’t mean everyone gets a handout. AFC Gamma Inc has rejected 261 deals and is reviewing 65 deals.

The REIT has funded just 15 deals, with $195.0 million in loans and a total of $237.0 million deployed. It also has potential funding of active deals of $855.0 million.

That’s what helps separate AFC Gamma from another popular cannabis real estate investment trust, Innovative Industrial Properties Inc (NYSE:IIPR).

Whereas Innovative Industrial Properties buys property from medical marijuana companies and leases it back to them, AFC Gamma provides loans and related credit facilities, generally secured by substantial assets.

The loans that AFC Gamma Inc provides typically include amortization and/or cash flow sweeps, as well as significant collateral and favorable pricing.

The loans drive average annual gross yields of approximately 12% to 20%.

$23-Million Credit Facility to BeLeaf Medical

In late August, AFC Gamma announced that it provided a $23.0-million credit facility to BeLeaf Medical, LLC, a single-state Missouri operator. (Source: “AFC Gamma Provides BeLeaf Medical, LLC With $23 Million Senior Secured Credit Facility to Fund Its Missouri Expansion,” AFC Gamma Inc, August 31, 2021.)

BeLeaf Medical will be using the capital to expand its three Missouri cultivation facilities in Lakefront, Jonesburg, and Cherokee, as well as to purchase the Jonesburg cultivation facility.

The company has nearly completed construction on approximately 25,000 square feet of canopy, and it plans to add an additional 16,000 square feet.

Missouri legalized medical marijuana in 2018, with legal sales launching in October 2020. Since then, sales in the “Show Me” state have hit $91.0 million, with 130,000+ registered patients. For full-year 2021, medical marijuana sales in Missouri are projected to reach $225.0 to $300.0 million.

Expansion of Credit Facility to Devi Holdings

On September 13, AFC Gamma announced that it had expanded its senior credit facility to Devi Holdings Inc. (doing business as Nature’s Medicines) by $30.0 million. (Source: “AFC Gamma Expands Existing Senior Secured Credit Facility With Devi Holdings, Inc. by $30 Million,” AFC Gamma Inc, September 13, 2021.)

Phoenix, AZ-based Nature’s Medicines operates marijuana cultivation and dispensing facilities in Arizona, Maryland, Michigan, Missouri, Pennsylvania, and Massachusetts.

The credit facility provides Nature’s Medicines with additional capital to complete strategic acquisitions and further expand its operations.

AFC Gamma now holds $62.5 million in total of the expanded credit facility, and an affiliate has syndicated $10.0 million of the expansion. The loan is secured by a first-lien mortgage on all of Nature’s Medicines’ owned real estate and other commercial-security interests.

Solid Q2 Results

For the second quarter ended June 30, AFC Gamma announced total interest income of $8.7 million. Its total expenses for the quarter were $3.6 million. (Source: “AFC Gamma, Inc. Announces Financial Results for Quarter Ended June 30, 2021,” AFC Gamma Inc, August 5, 2021.)

The company reported net income of $4.6 million, or $0.34 per share. Its distributable earnings were $5.8 million, or $0.43 per share.

During the second quarter, the company closed on $71.3 million in new contract commitments and funded $77.8 million of new and existing commitments.

As of August 31, in the third quarter, AFC Gamma Inc closed on $7.6 million of new commitments and funded $10.9 million of new and existing commitments.

Leonard Tannenbaum, CEO, commented, “AFC Gamma has a best-in-class team, strong balance sheet and increased access to capital.” (Source: Ibid.)

He continued, “Entering the second half of 2021, we continue to see substantial demand for capital and we believe that we are well positioned as a first mover and a leader in the rapidly growing cannabis lending market.”

AFCG Stock Dividend Increases

One of the joys of investing in a REIT is that it has to legally distribute at least 90% of its taxable income to investors in the form of dividends.

On September 15, AFC Gamma’s board of directors declared a quarterly dividend for the quarter ending September 30 of $0.43 per share of common stock, or $1.72 on an annual basis. (Source: “AFC Gamma Raises Quarterly Dividend,” AFC Gamma Inc, September 15, 2021.)

This represents an annual dividend yield of eight percent.

The September quarterly dividend also represents an increase of approximately 13.2% over the June quarterly dividend of $0.38.

Chart courtesy of StockCharts.com

Analyst Take

The only Nasdaq-listed provider of institutional loans to the cannabis industry, AFC Gamma Inc is a financially robust company in a rapidly growing addressable market.

The REIT offers investors an attractive risk-adjusted return on investment, targeting loans with annual gross yields of approximately 12% to 20%.

Moreover, thanks to its strong cash flow and first-mover advantage, AFC Gamma stock provides investors with reliable, growing, high-yield dividends.