AFCG

Advanced Flower Capital $AFCG Executives Make Bold $1.42M Contrarian Bet on Cannabis REIT Amid Market Turmoil

09/08/2025 21:24

Advanced Flower Capital Inc $AFCG, a specialized cannabis industry mortgage REIT, has caught investors' attention as executives aggressively purchased shares during significant stock price declines. Particularly notable was the $1.42 million in total purchases by three key executives, including the CEO, when the stock plunged from the $7 range to $5-6 in March, signaling strong management confidence. Advanced Flower Capital (formerly AFC Gamma), established in 2020 and based in West Palm Beach, Florida, is a mortgage REIT specializing in senior secured loans and mortgage investments to cannabis industry companies. This unique business model targets a niche market that traditional financial institutions avoid due to federal law constraints. Loans are secured by real estate, equipment, cash flows, licenses, and other assets, while the REIT structure requires distributing over 90% of taxable income as dividends. The most notable figure is Executive Chairman Leonard M. Tannenbaum, a veteran financier with over 20 years on Wall Street, particularly known for his expertise in distressed debt investing. Through his Leonard M. Tannenbaum Foundation, Tannenbaum has consistently purchased AFCG shares, including 82,007 shares worth approximately $520,000 during March's decline. This represents substantial capital commitment beyond mere lip service, demonstrating genuine confidence in the company. CEO Daniel Neville also purchased 51,599 shares worth $330,000 during March's downturn and continued buying in August-September. Neville's purchases were executed in multiple trades with average prices around $4-6 per share, similar to current trading levels, suggesting management views the stock as undervalued at these prices. Financially, AFCG presents an interesting paradox. While reporting $9.35 million in net losses against $8.72 million in TTM revenue, the company maintains exceptionally strong liquidity with a current ratio of 17.14. This reflects the lending business's nature where initial losses are inevitable but long-term stable interest income is achievable. Indeed, operating cash flow remains positive at $10.55 million, demonstrating cash generation capability. Analysts project 2026 revenue to reach $36.42 million, representing 39.4% growth, reflecting expectations of surging financial services demand as cannabis legalization expands. The current forward P/E of 4.67x indicates market expectations for improved profitability. However, warning signs require attention. The extremely high dividend yield of 22.71% raises sustainability concerns, with payout ratios exceeding 150% making dividends difficult to support with current earnings. While maintaining quarterly dividends of $0.15 per share, potential cuts remain possible. Additionally, cannabis industry specialization presents both strength and risk. Federal regulatory changes or state policy shifts could directly impact operations, while potential entry by traditional banks could intensify competition and pressure margins. Key metrics for investors to monitor include quarterly net interest margin improvements, loan portfolio delinquency rates, and new loan pricing conditions. Management's continued purchasing activity will serve as a confidence barometer. The June $20 million credit facility expansion signals positive developments. The partnership expansion with an FDIC-insured bank should help diversify funding sources while potentially mitigating regulatory risks. Overall, AFCG presents a high-risk, high-reward investment opportunity. Its unique niche positioning and strong management conviction are attractive, but ongoing losses and dividend sustainability concerns demand careful consideration. While current price levels may interest investors believing in cannabis industry growth potential, those seeking short-term returns might find it unsuitable.