AFC Gamma NASDAQ: AFCG reported first-quarter 2026 results and discussed its expanding focus on lower middle market private credit during an earnings call covering the period ended March 31, 2026. Management highlighted the company’s first full quarter operating as a business development company (BDC), new non-cannabis originations, repayments in its cannabis loan book, and updates on certain challenged credits.
First quarter as a BDC and new originations
President and Chief Investment Officer Robyn Tannenbaum said the company completed its “first quarter operating as a BDC,” which she said expanded AFC’s investment flexibility beyond real estate-backed lending. Tannenbaum said the change “better positions AFC to diversify its exposure across industries and credit risk profiles.”
During the quarter, the company closed two non-cannabis lower middle market deals totaling approximately $90 million in new commitments. Tannenbaum also noted that AFC received $41.2 million in cannabis loan repayments during the quarter and posted net fundings of $39.1 million for the period.
Daniel Neville, Chief Executive Officer, provided more detail on the quarter’s new investments and additional post-quarter funding. He said AFC closed two loans totaling $90 million during the first quarter and, subsequent to quarter end, “closed an additional $5 million of loans.”
Neville described a $60 million senior secured credit facility closed in January to support the combination of STAT and The Moresby Group, backed by Cambridge Capital. He also said the company committed $30 million in February to a $60 million senior secured term loan supporting the acquisition and growth of a healthcare benefits platform tailored to hourly and lower-wage employees. AFC funded $20 million at closing, with the remaining $10 million funded after quarter end.
Private credit opportunity in the lower middle market
Chairman Leonard Tannenbaum outlined the firm’s view of current lending conditions. He said that as private credit experienced “meaningful reductions in net inflows,” many lenders have shifted away from the lower middle market and moved upmarket, creating what he described as “a sizable opportunity for a small, nimble lender like us.”
Leonard Tannenbaum said AFC is seeing “better risk-adjusted returns” with “absolute yields running at approximately 100-300 basis points higher than they were just 6 months ago.” He identified the firm’s target segment as borrowers with $5 million to $50 million of EBITDA, describing that range as “largely below the threshold where the larger private credit platforms operate.”
He also contrasted deal structures in the lower middle market with those in larger transactions, saying AFC’s deals typically include “a cash flow measure and a fixed charge coverage ratio covenant,” and that the firm is “not allowing the aggressive EBITDA add backs endemic to larger deals.”
Neville said AFC’s pipeline remained sizable “with over $1.5 billion of deals as of today,” spanning industries including healthcare, consumer, manufacturing, and services. He added that the company is primarily participating in sponsored transactions, while selectively engaging in non-sponsored deals, and that financings are often used for “expansion capital, acquisitions, refinancings, or recapitalizations.”
Portfolio update: non-accrual loans and Justice Grown maturity default
Neville said the company continued to have “three loans on non-accrual” and remains focused on receiving paydowns to redeploy capital “into performing credits that should contribute to current income.” He said the receiver continued the liquidation process for the company’s investment in Debbie Holt’s, and AFC received a $6.2 million paydown in the first quarter, bringing total paydowns since the receivership began to $20.8 million.
Management also addressed Justice Grown. Neville said the loan matured on May 1, 2026 and is now “in maturity default.” He said AFC intends to exercise its rights and remedies under the credit agreement, including rights under a shareholder guarantee and parent guarantee. Neville said the Justice Grown loan is secured by vertical assets in New Jersey, including a cultivation facility and three dispensaries (two owned), and in Pennsylvania by three dispensaries and a cultivation facility that is “currently not operational.” He said the company remains “laser-focused” on pursuing remedies and “realizing maximum value from this loan.”
On a question regarding potential outcomes given pending litigation, Chief Legal Officer Gabriel Katz said AFC is “pursuing all rights and remedies to obtain maximum value from the credit facility,” but added it is “too early to make any predictions on outcomes in this litigation.”
Financial results, NAV increase, dividend and share repurchase authorization
Chief Financial Officer Brandon Hetzel said AFC generated total investment income of $9.8 million and net investment income of $4.8 million, or $0.21 per basic weighted average share of common stock, for the quarter ended March 31, 2026.
Hetzel said the company ended the quarter with $356.6 million of principal outstanding across 15 loans. As of May 1, 2026, he said the portfolio consisted of $370 million of principal outstanding across 17 loans.
As of March 31, 2026, Hetzel reported total assets of $394.9 million, total shareholder equity of $185.8 million, and net asset value (NAV) per share of $7.90. He said NAV per share increased $0.44 from the prior quarter, driven primarily by net investment income of $0.21 per share and increased unrealized appreciation on investments of approximately $0.28 per share, offset by the $0.05 per share dividend.
Robyn Tannenbaum said the board declared a first-quarter distribution of $0.05 per share, paid April 15, 2026 to shareholders of record as of March 31, 2026. She also said the board approved a $5 million share buyback program, describing it as “a flexible component of our capital allocation strategy designed to enhance long-term shareholder value.”
Financing capacity and outlook for yields and cannabis exposure
Hetzel said that during the quarter, AFC expanded its senior secured revolving credit facility to $80 million, including an additional $30 million commitment from the lead arranger, “an FDIC-insured bank with over $75 billion of assets.” He added the facility remains expandable to $100 million, subject to lender participation in the borrowing base. The company averaged approximately $22 million drawn on the facility during the quarter.
When asked about yield expectations in the pipeline, Neville said recent deal disclosures provide “a guidepost,” but added that with the transition to lower middle market lending, management would expect yields to “move down a touch into kinda the low double-digit kinda range on an overall basis.” He said the company expects borrower and sponsor quality to improve relative to what is available in the cannabis landscape.
On federal cannabis rescheduling, Neville said it was “great to see progress at the federal level,” citing potential benefits including elimination of 280E liabilities for medical operators and decreased future uncertainty. He noted, however, that “none of the operators were really paying taxes today” outside of one operator, and said industry competition has increased over the last five years. He said rescheduling could support asset values and potentially improve recoveries on non-accrual loans, but added that AFC is seeing “better opportunities in the lower middle market today” and remains focused on expanding in that direction.
In closing remarks, Neville said the company looks forward to updating investors on its “continued transition to lower middle market lending on future calls.”
About AFC Gamma NASDAQ: AFCG
AFC Gamma, Inc is a specialty finance real estate investment trust that focuses on providing structured financing solutions to companies operating and developing digital infrastructure and life science real estate assets. As a REIT, AFC Gamma seeks to generate attractive risk-adjusted returns through a diversified portfolio of loans, preferred equity and other financing structures that are secured by tangible property collateral or contractual revenue streams.
The company's primary business activities include originating, acquiring and managing secured loans and equity investments that support wireless and broadband network deployment, data center expansion, and life sciences facility development.
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