Real estate investment trust Advanced Flower Capital or AFC Gamma is pushing for an initial public offering that would include a five million shares sale in the common stock.
The trust is looking at offering the IPO at the Nasdaq exchange, which would raise up to $105.6 million. The 5,555,555 shares to be sold constitute to 47 percent of all the company’s stock, with a price of $17 to $19 per share. AFC Gamma even considered to have an option for another 833,333 additional shares.
The firm is said to operate as a real estate investment trust (REIT) and provide secure funds and loans to the cannabis industry. Entering the IPO is part of AFC Gamma’s initiative to expand in the industry, and to cater to the needs of cannabis entrepreneurs and startups in need of financial support.
Primary offerings include loan origination, complete funding, and loan management. As the company received at least $78.7 million funding from investors, it’s opening up more opportunities to target $10 million loans or more per loan. AFC Gamma is backed by Leonard Tannenbaum, Gamma Lending, AFCG RM1, and the Miramar Group.
What wwuld happen is, AFC Gamma will employ the direct origination platform to get more opportunities from the marijuana firms with a portfolio of real estate assets. Then, the company will target loan amounts reaching $10 million or more.
In the past 18 months, the firm has accessed potential loan opportunities up to $4.7 billion, hence, it has a plenty of loan deal flow. Because the cannabis industry is already past the booming stage, AFC Gamma is entering a profitable loan offering. Amid the pandemic, companies are sourcing loans to sustain operation finances and to recover losses from the series of lockdown from the past year.
With funding at hand, cannabis entrepreneurs can solidify marketing initiatives and to scale up operations by hiring more people. Building an online delivery platform is also a must these days, with the local governments limiting the people from every establishment. Therefore, the loan can spark interest among business owners who are rethinking of ways to bounce back and to slowly move up from the crowd.
For years, the cannabis industry has struggled to obtain financial services due to the continued tension between the state legalization and the federal loan. With AFC Gamma’s loan offers, more business owners can benefit by obtaining loans with higher approval chances compared to the federal loans that exist.
Non-bank competitors would be another option to get loans, but surely, AFC Gamma is setting the bar high with improved loan processing and even loan amount. As of September 2020, the company has $31.2 million in cash and $1.9 million liabilities.
Meanwhile, no existing shareholder showed interest in purchasing shares at the IPO price of $18 per share. If the initial public offering will be successful, the enterprise value could reach $180 million, minus the effects of the underwriter over-allotment options. According to AFC Gamma management, the net proceeds from the IPO is up to $10.1 million with interest up to 4 percent. Cash interest will go high up to 13.5 percent.
Grow Cannabis Loan Portfolio
As mentioned, the firm is going for the expansion of cannabis industry loan services and cater to those in need of financial help. As more companies struggle to bounce back from the challenges of the global pandemic, the need for additional fund is expected to continue operations and pay staff. Instead of closing down, businesses can further opportunities with enough funding coming from a loan.
Right now, banks and private lenders are skeptical about approving loans, as more and more businesses are affected by the pandemic. Releasing funds would only mean liability for these banking institutions, leading to more losses, are borrowers can’t pay back the money. With these, it’s hard for cannabis entrepreneurs to secure funding and improve operations at the most challenging times.
Despite this, it can’t be denied how the marijuana industry’s still thriving. People still get their supply of marijuana for both medical and recreational use. There’s only limitations on how to pick up orders, however, dispensaries are coming up with alternatives for safer environment for customers.
Those startups who lack the facility for selling marijuana in a standalone location need an e-commerce platform in order to sell. However, setting up this platform requires more money, which most cannabis companies don’t consider—warranting more costs.
Now with accessible loan services targeting marijuana companies, it would give hope to marijuana companies who lack the funding they need to thrive. By borrowing a specific amount of money, these startups can eventually bounce back, create seamless platforms to accept online orders, curbside pickup options, and other strategies. These enterprises can also use the fund for improving marketing initiatives, so it would be easier to reach more customers in varying locations.
AFC Gamma’s loans are secure, meaning, there won’t be hidden fees and other sketchy deals. The industry is continually growing and more states are slowly legalizing marijuana for both medical and recreational use. Given these changes, more people are expected to access marijuana for consumption.
During the economic upturn, businesses are consciously trying to find ways on how to survive. Some are downsizing staff members, closing stores, and others are selling assets just to prevent losses from piling up. The worst part is, a lot of small businesses have closed, only because gaining losses isn’t worth it. No funding is available, no customers are coming in, and there’s more expenses than profit.
AFC Gamma aims to extend its financial services to those business entities in need of help. It’s expected to distribute funds for companies that qualify for loans up to $10 million. This will be enough to revive the businesses and the industry itself, saving millions of jobs from across the United States. Moreover, there will be more businesses who can find their potential with access to the funding.
The expected IPO pricing date for AFC Gamma is on February 10, 2021.