0001628280-26-014392
SEC filingAdvanced Flower Capital Inc. reported a net loss of $20.7 million for FY 2025, a significant decline from the net income of $16.8 million in FY 2024. The loss was driven by a substantial $22.6 million provision for current expected credit losses and $7.9 million in unrealized losses on loans at fair value, which overwhelmed net interest income of $24.6 million. Despite the net loss, the company generated $11.2 million in net cash from operating activities. Key challenges included placing several loans on nonaccrual status and ongoing litigation related to the Subsidiary of Private Company G credit facility. The company completed a strategic transition to a Business Development Company (BDC) effective January 1, 2026, which will subject it to a new regulatory framework and is expected to broaden its investment focus beyond cannabis industry loans.
Advanced Flower Capital Inc. reported a net loss of $20.7 million for the fiscal year ended December 31, 2025, a substantial deterioration from the net income of $16.8 million in the prior year. The loss was primarily driven by a $22.6 million provision for current expected credit losses and $7.9 million in net unrealized losses on loans held at fair value. These items overwhelmed the company's core operating performance, which included net interest income of $24.6 million (down from $45.7 million in FY 2024) and total expenses of $15.7 million. The company generated $11.2 million in net cash from operating activities, demonstrating some operational cash generation despite the accounting losses. Basic and diluted earnings per share were both -$1.00 for the period.
The company's revenue is derived primarily from interest income on its loan portfolio. Interest income decreased to $31.3 million in FY 2025 from $52.0 million in FY 2024, a decline of $20.7 million or 39.8%. This decrease was driven by several factors: more loan exits and prepayments in the prior period resulting in $3.6 million lower fee income, $3.9 million lower original issue discount (OID) income due to acceleration of unaccreted OID, $3.3 million lower interest income from less capital deployed, $1.6 million lower payment-in-kind (PIK) income, and $8.3 million lower interest income from loans placed on nonaccrual status. The company's loan portfolio as of December 31, 2025 consisted of 15 loans with aggregate commitments of $332.6 million and outstanding principal of $317.4 million.
The company's profitability was severely impacted by credit-related charges. The $22.6 million provision for current expected credit losses represented a significant increase from the $4.2 million provision in the prior year. This resulted in a current expected credit loss reserve of $46.1 million as of December 31, 2025, representing 18.19% of the $253.6 million in loans held at carrying value. The company also recorded $7.9 million in unrealized losses on loans held at fair value. Total expenses decreased to $15.7 million from $17.3 million in the prior year, with management and incentive fees decreasing by $7.4 million due to lower equity following the SUNS spin-off and lower Core Earnings, while stock-based compensation increased by $5.4 million primarily due to restricted stock awards granted and modified in 2025.
The company generated $11.2 million in net cash from operating activities for FY 2025, compared to $18.3 million in the prior year. Cash and cash equivalents decreased to $38.6 million as of December 31, 2025 from $103.6 million as of December 31, 2024. Total assets were $275.6 million, with loans held for investment at carrying value (net of CECL reserve) of $207.6 million and cash of $38.6 million. Total liabilities were $100.0 million, including $76.3 million in senior notes payable and $21.0 million in line of credit payable to an affiliate. Shareholders' equity was $175.6 million, resulting in a book value per share of $7.46. The company had $10.3 million in unfunded commitments as of December 31, 2025.
The company completed a strategic transition from operating as a Real Estate Investment Trust (REIT) to operating as a Business Development Company (BDC) effective January 1, 2026. This transition subjects the company to a new regulatory framework under the 1940 Act, including requirements relating to portfolio composition, asset coverage, affiliate transactions, governance, and compliance. Beginning with its taxable year ending December 31, 2026, the company intends to elect to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes. The company faces ongoing litigation related to its credit facility with Subsidiary of Private Company G, including mortgage foreclosure proceedings and multiple legal actions. The company also faces risks related to the cannabis industry, regulatory changes, and its ability to maintain required licenses and authorizations.