AFCG shares slide after earnings miss, $22.6M credit loss provision
Cannabis lender reports distributable earnings loss following BDC conversion and portfolio realignment
Advanced Flower Capital Inc. shares fell 4.7% on Wednesday after the cannabis lender reported worse-than-expected quarterly results and revealed significant credit loss provisions as it navigates its recent conversion to a Business Development Company structure.
The company reported distributable earnings of $(2.8) million, or $(0.12) per share, for the fourth quarter of 2025, missing analyst expectations of $0.17 per share by 170%. The stock closed at $2.21, trading below both its 50-day moving average of $2.55 and 200-day average of $3.74, according to market data.
For the full year 2025, the company recorded a provision for expected credit losses of $22.6 million, alongside $(7.9) million in unrealized losses on loans. Full-year GAAP net loss reached $(20.7) million, or $(0.95) per share, though full-year distributable earnings were $8.7 million, or $0.39 per share.
The disappointing results come as the company adjusts to its strategic conversion from a real estate investment trust to a Business Development Company on January 1, 2026. The shift, approved by shareholders in November, aims to expand AFCG's lending capabilities beyond its traditional focus on real estate-backed cannabis loans to include operating businesses and non-cannabis middle-market companies.
Revenue for the quarter came in at $6.6 million, essentially in line with analyst estimates and up 1.4% year-over-year. On a GAAP basis, the company reported net income of $0.9 million, or $0.04 per share, for the fourth quarter.
Dan Neville, AFC's Chief Executive Officer, said the company focused on "disciplined portfolio management" throughout 2025 and successfully completed the BDC conversion. "As a BDC, AFC remains committed to resolving legacy positions and leveraging our robust pipeline to drive long-term value for shareholders," Neville said in a statement.
The company's board declared a regular cash dividend of $0.05 per common share for the first quarter of 2026, payable April 15 to shareholders of record as of March 31.
Analyst coverage remains mixed, with one buy rating and two hold ratings, according to TipRanks data. The consensus price target of $5.25 represents substantial upside potential from current levels, suggesting some investors believe the BDC conversion strategy could ultimately strengthen the company's earnings profile.
The pivot to a BDC structure is designed to give AFCG more flexibility in its lending approach. The company has indicated it's actively pursuing approximately $350 million in lending opportunities outside the cannabis sector, while maintaining its commitment to established cannabis operators in states where medical or adult-use cannabis is legal.
The stock has declined significantly from its 52-week high of $7.71 amid the sector's broader challenges, including federal regulatory uncertainty and capital constraints facing cannabis companies. AFCG's shares have lost roughly 50% over the past three months as investors assess the company's strategic transition and credit quality.
Investors will be watching closely for signs that the BDC conversion begins to yield benefits in subsequent quarters, particularly in terms of diversifying revenue streams and improving credit metrics. Management has emphasized the $350 million pipeline of non-cannabis lending opportunities as evidence of growth potential, though execution risks remain elevated given the current credit loss provisions and unrealized loan losses.