AFC Gamma (NASDAQ:AFCG) reported third-quarter 2026 net investment income of $3.5 million, or $0.16 per share, as its net asset value rose for a third consecutive quarter and the lender continued shifting capital toward non-cannabis lower middle market investments.
Net asset value, or NAV, increased to $8.55 per share as of September 30, up $0.30 from June 30 and $1.09 from the beginning of the year. The company paid a third-quarter distribution of $0.05 per share on October 15.
Portfolio shifts beyond cannabis
AFC’s investment portfolio had a fair value of approximately $290 million across 18 investments at quarter-end, Chief Executive Officer Dan Neville said. All investments were senior secured first-lien debt, and the weighted average yield on income-producing investments was 13.3%.
Non-cannabis lower middle market investments, which AFC began originating in 2026, totaled approximately $93 million, or 32% of the portfolio at fair value. Neville said the five investments in that category were performing in line with underwriting expectations.
During the quarter, AFC closed a $7 million commitment to an outpatient behavioral health platform, funding approximately $3 million at closing. It funded $4.6 million overall and received $8 million in principal repayments and amortization. After quarter-end, the company sold its position in Trulieve senior notes at 104.25% of par, generating a realized gain of approximately $2.2 million.
AFC has committed approximately $102 million to new lower middle market investments year to date, Tannenbaum said. Neville said the prospective pipeline was approximately $1.1 billion across multiple industries. Affiliate Tannenbaum Capital Group has signed term sheets on two transactions, and AFC expects to commit to a portion of each, including a $43 million senior secured facility for a sponsor-backed healthcare services platform expected to close in the near term.
Asked about the pace of new deals, Neville said deployment would likely be “a little bit lumpy” over the next few quarters as the company remains selective. Tannenbaum said potential transactions can fall away for various reasons, including findings during diligence or a sponsor’s inability to raise equity.
Legacy loan recoveries remain a priority
AFC is working to recover funds from its non-accrual loans while managing its performing cannabis exposures. For Devi, a court-appointed receiver continues to dispose of assets. Neville said AFC received approximately $1.7 million after quarter-end as part of expected sale proceeds, bringing inception-to-date repayments to approximately $60 million.
The receiver entered a binding term sheet in July for the proposed sale of collateral in Massachusetts and New Mexico for $12.5 million, including a $2 million non-refundable deposit, Neville said.
Justice Grown’s loan, which matured May 1, remained in maturity default. Article 9 public dispositions for certain collateral in New Jersey and Pennsylvania were scheduled for November 12 and November 19. Chief Legal Officer Gabriel Katz declined to comment on the active legal process, saying AFC would share material updates at the appropriate time. Tannenbaum said that did not necessarily mean an announcement on the day of either auction.
Responding to an analyst’s questions about other cannabis borrowers, Neville said Story, TheraTrue and Sunburn were current on payments. He said AFC agreed to a short-term extension for Story Arizona and was compensated for it. Sunburn met the terms of a forbearance agreement and raised additional equity capital, he added.
Repurchases and debt repayments
AFC repurchased approximately 286,000 shares during the third quarter for about $1 million, at a weighted average price of $3.46 per share. Chief Financial Officer Brandon Hetzel said the purchases added approximately $0.06 per share to NAV. About $1.2 million remained available under the company’s $5 million repurchase authorization.
After quarter-end, AFC repurchased $19 million of its senior unsecured notes at 96.5% of par plus accrued interest, resulting in an approximately $600,000 gain on debt extinguishment. Approximately $58 million of the notes remained outstanding, with a May 2027 maturity. AFC also repaid $96.5 million under its secured revolving credit facility and $5 million under an affiliated facility on October 1.
As of October 30, approximately $36 million was drawn on the revolver, which has an $80 million commitment, Hetzel said. AFC also has a $20 million unsecured affiliate credit line. Tannenbaum said a debt-to-equity range of 1 to 1.5 times felt comfortable, below the statutory 2-to-1 leverage limit for business development companies.
On distributions, Tannenbaum said the board typically announces a declaration on or around December 15. Hetzel cautioned that net investment income is not necessarily the same as the taxable income that determines required distributions. Neville said the board also considers share repurchases as part of its capital allocation decisions.
About AFC Gamma (NASDAQ:AFCG)
AFC Gamma, Inc is a specialty finance company focused primarily on providing institutional debt financing to businesses operating in the regulated cannabis industry. The company has historically targeted established cannabis operators and other participants in the industry that may have limited access to traditional bank financing.
Its financing activities have included senior secured loans, mortgage-backed loans and other structured debt arrangements. Borrowers may use these funds to support the acquisition, development or expansion of cannabis cultivation, processing, manufacturing and retail facilities, as well as related working-capital and corporate needs.
AFC Gamma was founded in 2019 and became a publicly traded company in 2021.
