Advanced Flower Capital (AFCG) FY2025 10-K Risk Factors: 35 New, 26 Dropped

What the changes say

The company elected to be regulated as a business development company starting January 1, 2026, shifting its regulatory regime.

What changed since the prior 10-K

New

NewRisks Related to Our Business and Growth Strategy
more information, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Updates to Our Loan Portfolio” and the notes to our consolidated financial statements included in this Annual Report
Our loan portfolio is heavily concentrated in the cannabis industry and certain geographic regions, risking defaults from economic downturns.
NewRisks Related to Our Business and Growth Strategy
We recently elected to be regulated as a business development company, which subjects us to a new and complex regulatory regime and may limit our operating flexibility
We elected to be regulated as a business development company on January 1, 2026, subjecting us to strict leverage, affiliate, and governance limits.
NewRisks Related to the Cannabis Industry and Related Regulations
delays involved in our efforts, to foreclose on the collateral, which will reduce the net proceeds realized and, thus, increase the potential for loss
State and local regulations on cannabis, water, waste, and hazardous materials could delay or restrict our ability to foreclose on collateral.
NewRisks Related to the Cannabis Industry and Related Regulations
January 2023, FDA affirmed that the agency will not compromise—or create new standards—in evaluating or permitting cannabis or cannabinoid compounds and products, and particularly CBD
FDA enforcement or new rules regarding CBD, hemp, and cannabis could increase compliance costs and disrupt the industry.
NewRisks Related to Sources of Financing Our Business
of our future financing arrangements due to an increase in capital requirements for, and constraints on, the financial institutions from which we may borrow
New Basel Committee capital requirements for market risk could increase financing and hedging costs for the financial institutions we borrow from.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
We may be obligated to pay the Adviser incentive compensation even if we incur a net loss due to a decline in the value of our portfolio
We may have to pay the Adviser incentive compensation even if we incur a net loss or if accrued interest income becomes uncollectible due to defaults.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
The compensation we pay to the Adviser will be determined without independent assessment on our behalf, and these terms may be less advantageous to us than if such terms had been the subject of arm’s-length negotiations
Our Advisory Agreement was negotiated between related parties without independent arm's-length terms.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
The Adviser’s influence on conducting our operations gives it the ability to increase its fees, which may reduce the amount of cash flow available for distribution to our shareholders
The Adviser's base management fee is based on gross assets, creating an incentive to engage in transactions that increase fees rather than cash flow.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
The incentive fee based on income takes into account our past performance
The income-based incentive fee uses trailing four quarters, which can result in payouts even when quarterly net income misses the hurdle rate.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
Our Adviser has limited liability and is entitled to indemnification under the Advisory Agreement
Our Adviser has limited liability and broad indemnification rights under the Advisory Agreement.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
The majority of our portfolio investments are recorded at fair value and, as a result, there may be uncertainty as to the value of our portfolio investments
Our non-public portfolio investments are recorded at fair value using Level 3 unobservable inputs and significant management judgment.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
The participation of our Adviser’s investment professionals in our valuation process, and the pecuniary interest in our Adviser by certain members of the Board, could result in a conflict of interest
The Adviser acts as the Valuation Designee while collecting asset-based management fees, creating conflicts of interest in valuing illiquid assets.
NewRisks Related to Our Relationship with our Adviser and its Affiliates
Following the Conversion, we are subject to corporate-level income tax if we are unable to qualify as a RIC
NewRisks Related to Our Relationship with our Adviser and its Affiliates
Stockholders may be required to pay tax in excess of the cash they receive
NewRisks Related to Our Relationship with our Adviser and its Affiliates
We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income
NewRisks Related to Our Relationship with our Adviser and its Affiliates
We may retain income and capital gains in excess of what is permissible for excise tax purposes and such amounts will be subject to 4% U.S. federal excise tax, reducing the amount available for distribution to taxpayers
NewRisks Related to Our Relationship with our Adviser and its Affiliates
Our business may be adversely affected if we fail to maintain our qualification as a RIC
NewRisks Related to Our Relationship with our Adviser and its Affiliates
We may be impacted by changes in federal tax legislation
NewRisks Related to our Common Stock
Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our NAV through increased net unrealized depreciation
NewRisks Related to our Common Stock
As one of our significant shareholders and significant beneficial owners of our Adviser, Robyn Tannenbaum, our President and Chief Investment Officer, and her husband can exert significant influence over our corporate actions and important corporate matters
NewRisks Related to our Common Stock
accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
We recently elected to be regulated as a business development company, which subjects us to a new and complex regulatory regime and may limit our operating flexibility
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
On January 1, 2026, we elected to be regulated as a BDC under the 1940 Act. As a result, we are now subject to a comprehensive and complex regulatory regime that did not apply to us during the year ended December 31, 2025, when we operated as a REIT
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Our historical results as a REIT may not be indicative of our future performance as a BDC
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
As a BDC, we are required to invest at least 70% of our total assets in “qualifying assets,” as defined under the 1940 Act. These qualifying asset requirements constrain the types of investments we may make and the structure of our portfolio
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Certain investors are limited in their ability to make significant investments in us
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
We are subject to significant restrictions on transactions with affiliates, which may limit our access to attractive investment opportunities
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
We may rely, or seek to rely, on exemptive relief granted by the SEC to engage in activities that would otherwise be restricted under the 1940 Act. Such relief typically is subject to detailed conditions and ongoing compliance obligations
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Valuation of our portfolio investments is inherently subjective and may result in volatility in our net asset value
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Many of the investments we expect to hold as a BDC will be illiquid, privately negotiated, or otherwise not readily marketable. As a result, their valuation requires the use of significant judgment and estimates, including assumptions regarding future cash flows, market conditions, and credit risk
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
We intend to elect to be treated as a regulated investment company, and failure to maintain such status could result in adverse tax consequences
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
As a Nasdaq-listed BDC, we are subject to both securities exchange requirements and the 1940 Act, which increases compliance costs and complexity
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Regulatory changes affecting BDCs could adversely impact our business
NewRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
We may utilize artificial intelligence, which exposes us to liability and affects our business

Dropped

DroppedRisks Related to Our Business and Growth Strategy
and economic risks of doing business in those countries and states and any other state in which we in the future have lending exposure
DroppedRisks Related to the Cannabis Industry and Related Regulations
make our loans, could result in our inability to execute our business plan and significant losses with respect to our loans to cannabis industry participants in the United States, which would adversely affect our operations, cash flow and financial condition
DroppedRisks Related to the Cannabis Industry and Related Regulations
cannabis industry, which could materially and adversely affect our business, financial condition, liquidity and results of operations
DroppedRisks Related to the Spin-Off
Following the Spin-Off, our financial profile changed, and we are a smaller, less diversified company than prior to the Spin-Off
DroppedRisks Related to the Spin-Off
Our agreements with SUNS and its subsidiaries involve potential conflicts of interest and could be less beneficial than the terms we may have otherwise received from unaffiliated third parties
DroppedRisks Related to the Spin-Off
Some of our directors and officers may have actual or potential conflicts of interest because of their equity ownership in SUNS
Geographic concentration of loan portfolio in Canada and 16 specific US states.
DroppedRisks Related to Our Organization and Structure
Ownership limitations contained in the Charter may restrict change of control or business combination opportunities in which our shareholders might receive a premium for their shares
DroppedRisks Related to Our Organization and Structure
Maintenance of our exemption from registration under the Investment Company Act may impose significant limits on our operations. Your investment return in our common stock may be reduced if we are required to register as an investment company under the Investment Company Act
DroppedRisks Related to Our Organization and Structure
investment companies (including, for example, limitations on the ability of registered investment companies to incur leverage), none of which will be applicable to us
DroppedRisks Related to Our Organization and Structure
Rapid and steep declines in the values of our real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the Investment Company Act
DroppedRisks Related to Our Relationship with our Manager and its Affiliates
Terminating our Management Agreement for unsatisfactory performance of our Manager or electing not to renew the Management Agreement may be difficult and terminating our Management Agreement in certain circumstances requires payment of a substantial termination fee
DroppedRisks Related to Our Relationship with our Manager and its Affiliates
Even if we terminate our Management Agreement for cause, we may be required to continue to retain our Manager for 30 days following the occurrence of events giving rise to a for-cause termination
DroppedRisks Related to Our Relationship with our Manager and its Affiliates
The Incentive Compensation payable to our Manager under the Management Agreement may cause our Manager to select riskier loans to increase its Incentive Compensation
DroppedRisks Related to Our Relationship with our Manager and its Affiliates
Our Manager’s and its affiliates’ liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. As a result, we could experience poor performance or losses for which our Manager and its affiliates would not be liable
DroppedRisks Related to Our Taxation as a REIT
Failure to qualify as a REIT would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our shareholders
DroppedRisks Related to Our Taxation as a REIT
Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows
DroppedRisks Related to Our Taxation as a REIT
REIT distribution requirements could adversely affect our ability to execute our business plan and liquidity and may force us to borrow funds during unfavorable market conditions
DroppedRisks Related to Our Taxation as a REIT
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or to liquidate otherwise attractive loans
DroppedRisks Related to Our Taxation as a REIT
The tax on prohibited transactions will limit our ability to engage in certain loans involving the sale or other disposition of property or that would otherwise subject us to a 100% penalty tax
DroppedRisks Related to Our Taxation as a REIT
Legislative, regulatory or administrative tax changes related to REITs could materially and adversely affect our business
DroppedRisks Related to Our Taxation as a REIT
Dividends payable by REITs generally do not qualify for reduced tax rates applicable to qualified dividend income
DroppedRisks Related to Our Taxation as a REIT
If we were considered to have actually or constructively paid a “preferential dividend” to certain of our shareholders, our status as a REIT could be adversely affected
DroppedRisks Related to Our Taxation as a REIT
The ability of our Board to revoke our REIT election without shareholder approval may cause adverse consequences to our shareholders
DroppedRisks Related to Our Taxation as a REIT
Complying with REIT requirements may limit our ability to hedge our operational risks effectively and may cause us to incur tax liabilities
DroppedRisks Related to Our Taxation as a REIT
To the extent the business interest deductions of our subsidiaries, if any, are deferred or disallowed, our taxable income may exceed our cash available for distributions to shareholders
DroppedRisks Related to our Common Stock
As one of our significant shareholders and a significant beneficial owner of our Manager, Leonard M. Tannenbaum, our Chairman, can exert significant influence over our corporate actions and important corporate matters

Reworded

94% rewrittenRisks Related to the Cannabis Industry and Related Regulations
FDA regulation of cannabis could negatively affect the cannabis industry, which would directly affect our financial condition
Updated to cite the 2018 Farm Bill and current FDA positions regarding THC and CBD product legality under the FD&C Act.
85% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
The ability of our Adviser and its officers and employees to engage in other business activities may reduce the time our Adviser spends managing our business and may result in certain conflicts of interest
Updated references from Manager to Adviser throughout the conflict of interest disclosure regarding outside business activities.
Was: The ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing our business and may result in certain conflicts of interest
78% rewrittenRisks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act
Ineffective internal controls could impact our business and operating results
Internal controls risk language was reaffirmed with minor stylistic adjustments.
72% rewrittenRisks Related to the Cannabis Industry and Related Regulations
The loans that are in our Existing Portfolio, and that we expect to make in the future may, include Canadian entities within their corporate structure that have the ability to seek insolvency protections in Canada, which could materially and adversely affect our business
Added specific language regarding potential bankruptcy protections obtained by Canadian entities under the Companies' Creditors Arrangement Act.
54% rewrittenRisks Related to Sources of Financing Our Business
Adoption of the Basel III standards and other proposed supplementary regulatory standards may negatively impact our access to financing or affect the terms of our future financing arrangements
Added a sentence addressing the adoption and implementation of Basel III standards and supplementary regulatory standards by U.S. regulators.
54% rewrittenRisks Related to our Common Stock
We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make shares of our common stock less attractive to investors
Emerging growth company and smaller reporting company status disclosure maintained with no substantive changes.
53% rewrittenRisks Related to Sources of Financing Our Business
Monetary policy actions by the Federal Reserve could adversely impact both our borrowers and our financial condition
Updated Federal Reserve interest rate history to reflect rate cuts in 2024 and 2025 and ongoing inflationary uncertainties.
53% rewrittenRisks Related to the Cannabis Industry and Related Regulations
Cannabis remains prohibited under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan
Updated state legalization counts, noting all but eight states have legalized medical cannabis and 42 states permit medical use.
51% rewrittenRisks Related to Our Business and Growth Strategy
Our Existing Portfolio is, and our future portfolio may be, concentrated in a limited number of loans, which subjects us to an increased risk of significant loss if any asset declines in value or if a particular borrower fails to perform as expected
48% rewrittenRisks Related to Our Business and Growth Strategy
Loans to relatively new and/or small companies and companies operating in the cannabis industry generally involve significant risks
44% rewrittenRisks Related to Our Business and Growth Strategy
Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the Internal Revenue Service
43% rewrittenRisks Related to the Cannabis Industry and Related Regulations
Risks related to the cannabis industry may directly or indirectly affect us or our borrowers engaged in the cannabis industry
38% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
Our Adviser manages our portfolio in accordance with very broad investment guidelines and our Board does not approve each loan and financing decision made by our Adviser, which may result in us making riskier loans than those currently comprising our Existing Portfolio
Was: Our Manager manages our portfolio in accordance with very broad investment guidelines and our Board does not approve each loan and financing decision made by our Manager, which may result in us making riskier loans than those currently comprising our Existing Portfolio
35% rewrittenRisks Related to Our Organization and Structure
The Charter contains provisions that make removal of our directors difficult, which could make it difficult for our shareholders to effect changes to management
31% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
Our Adviser may change its investment process, or elect not to follow it, without the consent of our shareholders and at any time, which may adversely affect our loans
Was: Our Manager may change its investment process, or elect not to follow it, without the consent of our shareholders and at any time, which may adversely affect our loans
31% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
There are various conflicts of interest in our relationship with our Adviser that could result in decisions that are not in the best interests of our shareholders
Was: There are various conflicts of interest in our relationship with our Manager that could result in decisions that are not in the best interests of our shareholders
28% rewrittenRisks Related to the Cannabis Industry and Related Regulations
Cannabis businesses are subject to unfavorable U.S. tax treatment
26% rewrittenRisks Related to Sources of Financing Our Business
Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial condition and results of operations
23% rewrittenRisks Related to Our Business and Growth Strategy
If our Adviser overestimates the yields or incorrectly prices the risks of our loans, we may experience losses
Was: If our Manager overestimates the yields or incorrectly prices the risks of our loans, we may experience losses
22% rewrittenRisks Related to Our Business and Growth Strategy
If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer
22% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
Our growth depends on the ability of our Adviser to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time
Was: Our growth depends on the ability of our Manager to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time
21% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
Our Adviser is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business
Was: Our Manager is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business
20% rewrittenRisks Related to Our Business and Growth Strategy
We operate according to specific underwriting criteria in a highly competitive market for lending and investment opportunities, both of which may limit our ability to originate or acquire desirable loans and investments in our target assets and/or our ability to yield a certain return on our investments
20% rewrittenRisks Related to Our Relationship with our Adviser and its Affiliates
In addition to other analytical tools, our Adviser may utilize financial models to evaluate loan opportunities, the accuracy and effectiveness of which cannot be guaranteed
Was: In addition to other analytical tools, our Manager may utilize financial models to evaluate loan opportunities, the accuracy and effectiveness of which cannot be guaranteed

All 131 risk factors

Headings as the filing states them, in filing order.

Risks Related to Our Business and Growth Strategy

01Competition for the capital that we provide may reduce the return of our loans, which could adversely affect our operating results and financial condition
02If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer22% rewritten
03We will allocate our cash on hand and the proceeds of our financing activities without input from our shareholders
04Our loans’ lack of liquidity may adversely affect our business
05Our Existing Portfolio is, and our future portfolio may be, concentrated in a limited number of loans, which subjects us to an increased risk of significant loss if any asset declines in value or if a particular borrower fails to perform as expected51% rewritten
06more information, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Updates to Our Loan Portfolio” and the notes to our consolidated financial statements included in this Annual ReportNew
07Loans to relatively new and/or small companies and companies operating in the cannabis industry generally involve significant risks48% rewritten
08We have currently foreclosed, and may need to in the future, on loans that are in default, which could result in losses
09We will not own real estate as long as it is used in the commercial sale of cannabis due to current statutory prohibitions and exchange listing standards, which may delay or limit our remedies in the event that any of our borrowers default under the terms of their loans with us
10The properties securing our loans may be subject to contingent or unknown liabilities that could adversely affect the value of these properties, and as a result, our loans
11Construction loans involve an increased risk of loss
12Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the Internal Revenue Service44% rewritten
13Our borrowers may be unable to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, which may result in such borrowers not being able to operate their businesses and defaulting on their payments to us
14If our Adviser overestimates the yields or incorrectly prices the risks of our loans, we may experience losses23% rewritten
15Some of our portfolio loans may be recorded at fair value and, as a result, there will be uncertainty as to the value of these loans
16Declines in market prices and liquidity in the capital markets can result in significant net unrealized losses of our portfolio, which in turn would reduce our book value
17Provisions for loan losses are difficult to estimate
18The loans and other assets we will obtain may be subject to impairment charges, and we may experience a decline in the fair value of our assets
19Any credit ratings assigned to our loans will be subject to ongoing evaluations and revisions, and we cannot assure you that those ratings will not be downgraded
20Economic recessions or downturns could impair our borrowers and harm our operating results
21Our loans may be risky, and we could lose all or part of our loan
22We may in the future enter into credit agreements with borrowers that may permit them to incur debt that ranks equally with, or senior to, the loans we extend to such companies under such credit agreements
23Our borrowers may be highly leveraged
24There may be circumstances in which our loans could be subordinated to claims of other creditors, or we could be subject to lender liability claims
25As a debt investor, we are often not in a position to exert influence on borrowers, and the shareholders and management of such companies may make decisions that could decrease the value of loans to such borrower
26Due to our borrowers’ involvement in the regulated cannabis industry, we and our borrowers have, and may continue to have, a difficult time obtaining or maintaining the various insurance policies that are desired to operate our business, which may expose us to additional risk and financial liabilities
27Our insurance policies may not cover all losses
28Subject to the approval of our Board (which must include a majority of our independent directors), our Adviser may change our investment strategies or guidelines, financing strategies or leverage policies without the consent of our shareholders
29We may not be able to obtain or maintain required licenses and authorizations to conduct our business and may fail to comply with various state and federal laws and regulations applicable to our business
30Unstable market and economic conditions may have serious adverse consequences on our business, results of operations and financial condition
31We may be required to make determinations of a borrower’s creditworthiness based on incomplete information or information that we cannot verify, which may cause us to purchase or originate loans that we otherwise would not have purchased or originated and, as a result, may negatively impact our business or reputation
32Third-party diligence reports on mortgaged properties are and will be made as of a point in time and are therefore limited in scope
33We operate according to specific underwriting criteria in a highly competitive market for lending and investment opportunities, both of which may limit our ability to originate or acquire desirable loans and investments in our target assets and/or our ability to yield a certain return on our investments20% rewritten
34We recently elected to be regulated as a business development company, which subjects us to a new and complex regulatory regime and may limit our operating flexibilityNew

Risks Related to the Cannabis Industry and Related Regulations

35Cannabis remains prohibited under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan53% rewritten
36Our investment opportunities are limited by the current illegality of cannabis under U.S. federal law; changes in the laws, regulations and guidelines that impact the cannabis industry may cause adverse effects on our ability to make loans
37Risks related to the cannabis industry may directly or indirectly affect us or our borrowers engaged in the cannabis industry43% rewritten
38The medical and adult-use cannabis industry is highly competitive, which could adversely affect our business, financial condition and results of operations
39There can be no assurance that the cannabis industry will continue to exist or grow as currently anticipated
40Marketing constraints under regulatory frameworks may limit a borrower’s ability to compete for market share in a manner similar to that of companies in other industries
41There is uncertainty in pricing and demand for cannabis and cannabis-based products
42Synthetic or hemp-derived products may compete with cannabis use and products
43Cannabis businesses are subject to unfavorable U.S. tax treatment28% rewritten
44Our reputation and ability to do business, as well as the reputation of our borrowers and their ability to do business, may be negatively impacted by the improper conduct of third parties, including but not limited to business partners, employees or agents
45Laws and regulations affecting the regulated cannabis industry are continually changing, which could materially adversely affect our proposed operations, and we cannot predict the impact that future regulations may have on us
46Applicable state laws may prevent us from maximizing our potential income
47Borrowers operating in a highly regulated business require significant resources
48Any failure or significant delay in our borrowers obtaining necessary regulatory approvals could adversely affect the ability of borrowers to conduct their businesses
49Borrowers may become involved in regulatory or agency proceedings, investigations and audits
50Loans to cannabis businesses may be forfeited to the federal government
51We may have difficulty accessing bankruptcy courts
52There may be difficulty enforcing certain of our commercial agreements and contracts
53The loans that are in our Existing Portfolio, and that we expect to make in the future may, include Canadian entities within their corporate structure that have the ability to seek insolvency protections in Canada, which could materially and adversely affect our business72% rewritten
54delays involved in our efforts, to foreclose on the collateral, which will reduce the net proceeds realized and, thus, increase the potential for lossNew
55Certain assets of our borrowers may not be used as collateral or transferred to us due to applicable state laws and regulations governing the cannabis industry, and such restrictions could negatively impact our profitability
56Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties securing our loans
57The market value of properties securing our loans acquired by us upon foreclosure may decrease if they cannot be used for cannabis related operations
58FDA regulation of cannabis could negatively affect the cannabis industry, which would directly affect our financial condition94% rewritten
59January 2023, FDA affirmed that the agency will not compromise—or create new standards—in evaluating or permitting cannabis or cannabinoid compounds and products, and particularly CBDNew
60Research in the United States, Canada and internationally regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids may cause adverse effects on our or borrowers’ operations
61The cannabis industry is subject to the risks inherent in an agricultural business, including the risk of crop failure
62Many cannabis businesses are dependent on key personnel with sufficient experience in the cannabis industry
63Our borrowers may be vulnerable to rising energy costs
64Third-parties with whom we do business may perceive themselves as being exposed to reputational risk by virtue of their relationship with us and may ultimately elect not to do business with us
65The cannabis industry faces significant opposition, and any negative trends may cause adverse effects on the operations of our borrowers, which could cause adverse effects on our business

Risks Related to Sources of Financing Our Business

66Our growth depends on external sources of capital, which may not be available on favorable terms or at all
67Global economic, political and market conditions could have a significant adverse effect on our business, financial condition, liquidity and results of operations, including a negative impact on our ability to access the debt markets on favorable terms
68Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial condition and results of operations26% rewritten
69We may not be able to generate sufficient cash flow to meet our debt service obligations
70Monetary policy actions by the Federal Reserve could adversely impact both our borrowers and our financial condition53% rewritten
71Any lending facilities will impose restrictive covenants
72Interest rate fluctuations could increase our financing costs, which could lead to a significant decrease in our results of operations, cash flows and the market value of our loans
73Any bank credit facilities that we may use in the future to finance our operations may require us to provide collateral or pay down debt
74Adoption of the Basel III standards and other proposed supplementary regulatory standards may negatively impact our access to financing or affect the terms of our future financing arrangements54% rewritten
75of our future financing arrangements due to an increase in capital requirements for, and constraints on, the financial institutions from which we may borrowNew

Risks Related to Our Organization and Structure

76These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management
77Our authorized but unissued shares of common stock and preferred stock may prevent a change in control of our Company
78The Maryland General Corporation Law prohibits certain business combinations, which may make it more difficult for us to be acquired
79The Charter contains provisions that make removal of our directors difficult, which could make it difficult for our shareholders to effect changes to management35% rewritten
80Our rights and the rights of our shareholders to recover on claims against our directors and officers are limited, which could reduce our and our shareholders’ recovery against them if they negligently cause us to incur losses

Risks Related to Our Relationship with our Adviser and its Affiliates

81Our growth depends on the ability of our Adviser to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time22% rewritten
82There are various conflicts of interest in our relationship with our Adviser that could result in decisions that are not in the best interests of our shareholders31% rewritten
83The ability of our Adviser and its officers and employees to engage in other business activities may reduce the time our Adviser spends managing our business and may result in certain conflicts of interest85% rewritten
84We may be obligated to pay the Adviser incentive compensation even if we incur a net loss due to a decline in the value of our portfolioNew
85The compensation we pay to the Adviser will be determined without independent assessment on our behalf, and these terms may be less advantageous to us than if such terms had been the subject of arm’s-length negotiationsNew
86The Adviser’s influence on conducting our operations gives it the ability to increase its fees, which may reduce the amount of cash flow available for distribution to our shareholdersNew
87The incentive fee based on income takes into account our past performanceNew
88Our Adviser has limited liability and is entitled to indemnification under the Advisory AgreementNew
89Our Adviser manages our portfolio in accordance with very broad investment guidelines and our Board does not approve each loan and financing decision made by our Adviser, which may result in us making riskier loans than those currently comprising our Existing Portfolio38% rewritten
90Our Adviser may change its investment process, or elect not to follow it, without the consent of our shareholders and at any time, which may adversely affect our loans31% rewritten
91We do not have a policy that expressly prohibits our directors, managers, officers, shareholders or affiliates, as applicable, from engaging for their own account in business activities of the types conducted by us
92Our Adviser is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business21% rewritten
93In addition to other analytical tools, our Adviser may utilize financial models to evaluate loan opportunities, the accuracy and effectiveness of which cannot be guaranteed20% rewritten
94The majority of our portfolio investments are recorded at fair value and, as a result, there may be uncertainty as to the value of our portfolio investmentsNew
95The participation of our Adviser’s investment professionals in our valuation process, and the pecuniary interest in our Adviser by certain members of the Board, could result in a conflict of interestNew
96Following the Conversion, we are subject to corporate-level income tax if we are unable to qualify as a RICNew
97Stockholders may be required to pay tax in excess of the cash they receiveNew
98We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such incomeNew
99We may retain income and capital gains in excess of what is permissible for excise tax purposes and such amounts will be subject to 4% U.S. federal excise tax, reducing the amount available for distribution to taxpayersNew
100Our business may be adversely affected if we fail to maintain our qualification as a RICNew
101We may be impacted by changes in federal tax legislationNew

Risks Related to our Common Stock

102The market price for our common stock may be volatile, which could contribute to the loss of all or part of your investment
103The value of our equity securities could be materially and adversely affected by our level of cash distributions
104Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our NAV through increased net unrealized depreciationNew
105Future offerings of debt securities, which would rank senior to our common stock upon a bankruptcy liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the value of our capital stock
106We may in the future pay distributions from sources other than our cash flow from operations, including borrowings, offering proceeds or the sale of assets, which means we will have less funds available for investments or less income-producing assets and your overall return may be reduced
107Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock
108Our Board may change our policies without shareholder approval
109There is a risk that shareholders may not receive distributions or that such dividends may not grow over time
110As one of our significant shareholders and significant beneficial owners of our Adviser, Robyn Tannenbaum, our President and Chief Investment Officer, and her husband can exert significant influence over our corporate actions and important corporate mattersNew
111We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make shares of our common stock less attractive to investors54% rewritten
112accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficultNew
113We incur significant costs as a result of being a public company, and such costs may increase when we cease to be an emerging growth company and/or smaller reporting company

Risks Related to Our Election to be Regulated as a Business Development Company under the 1940 Act

114We recently elected to be regulated as a business development company, which subjects us to a new and complex regulatory regime and may limit our operating flexibilityNew
115On January 1, 2026, we elected to be regulated as a BDC under the 1940 Act. As a result, we are now subject to a comprehensive and complex regulatory regime that did not apply to us during the year ended December 31, 2025, when we operated as a REITNew
116Our historical results as a REIT may not be indicative of our future performance as a BDCNew
117As a BDC, we are required to invest at least 70% of our total assets in “qualifying assets,” as defined under the 1940 Act. These qualifying asset requirements constrain the types of investments we may make and the structure of our portfolioNew
118Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capitalNew
119Certain investors are limited in their ability to make significant investments in usNew
120We are subject to significant restrictions on transactions with affiliates, which may limit our access to attractive investment opportunitiesNew
121We may rely, or seek to rely, on exemptive relief granted by the SEC to engage in activities that would otherwise be restricted under the 1940 Act. Such relief typically is subject to detailed conditions and ongoing compliance obligationsNew
122Valuation of our portfolio investments is inherently subjective and may result in volatility in our net asset valueNew
123Many of the investments we expect to hold as a BDC will be illiquid, privately negotiated, or otherwise not readily marketable. As a result, their valuation requires the use of significant judgment and estimates, including assumptions regarding future cash flows, market conditions, and credit riskNew
124We intend to elect to be treated as a regulated investment company, and failure to maintain such status could result in adverse tax consequencesNew
125As a Nasdaq-listed BDC, we are subject to both securities exchange requirements and the 1940 Act, which increases compliance costs and complexityNew
126Regulatory changes affecting BDCs could adversely impact our businessNew
127Ineffective internal controls could impact our business and operating results78% rewritten
128We rely on information technology in our operations, and security breaches and other disruptions in our systems could compromise our information and expose us to liability, which would cause our business and reputation to suffer
129We may utilize artificial intelligence, which exposes us to liability and affects our businessNew
130Future sales of our capital stock or other securities convertible into our capital stock could cause the value of our common stock to decline and could result in dilution of your shares of our common stock
131Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud

Other Advanced Flower Capital 10-Ks

FY2024 10-K risk factors
122 risks
Advanced Flower Capital Inc. faces significant business concentration and legal risks centered on debt financing to the state-legalized cannabis industry. Federal prohibition of cannabis, borrower defaults, illiquid loans, and difficult insurance access dominate the company's risk profile.
Filed Mar 13, 2025

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The headings are the filing's own. The one-line readings and the overview are automated and can be wrong: read Item 1A of the 10-K for the exact wording.