Financial Data and Key Metrics Changes - For Q2 2025, the company generated distributable earnings of $0.15 per basic weighted average share of common stock and declared a second quarter dividend of $0.15 per share [5][6][18] - The company reported a GAAP net loss of $13.2 million, or a loss of $0.60 per basic weighted average common share [18] - As of June 30, 2025, total assets were $290.6 million, total shareholder equity was $184.7 million, and book value per share was $8.18 [19] Business Line Data and Key Metrics Changes - The company exited an equipment loan to a Nevada cultivator, impacting earnings but not book value as the loan was fully reserved [6][7] - The weighted average portfolio yield to maturity was approximately 17% as of August 1, 2025 [19] - The CECL reserve was $44 million, approximately 14.6% of loans at carrying value, with total unrealized losses of $21.5 million for loans held at fair value [19] Market Data and Key Metrics Changes - The cannabis industry remains challenging with limited capital entering the market, impacting the company's ability to invest in size [12] - The company noted that about two-thirds of cannabis opportunities do not have real estate coverage, limiting the current investment pipeline [28] Company Strategy and Development Direction - The company announced its intention to convert from a REIT to a BDC, which would allow it to invest in a broader array of opportunities, including non-real estate covered assets [13][14] - The conversion is seen as a positive step to capitalize on the cannabis sector's growth potential, especially if federal rescheduling occurs [14][16] Management's Comments on Operating Environment and Future Outlook - Management highlighted the ongoing uncertainty and volatility in the cannabis industry, which has tightened underwriting standards and reduced the investment pipeline [29] - The potential rescheduling of cannabis is expected to attract more capital into the industry, improving asset valuations and supporting the company's troubled loans [31][32] Other Important Information - The company expanded its senior secured revolving credit facility from $30 million to $50 million [19] - The proposed conversion to a BDC is subject to shareholder approval and is anticipated to occur in 2026 [16][17] Q&A Session Summary Question: Why convert to BDC versus mortgage REIT? - Management explained that many thriving cannabis operators do not own real estate, limiting investment opportunities as a REIT. The conversion to a BDC is seen as the best path for long-term value [22][24] Question: How much will the BDC conversion broaden the pipeline? - Management indicated that approximately two-thirds of cannabis opportunities do not have real estate coverage, suggesting significant potential for pipeline expansion post-conversion [28] Question: Update on problem loans with Private Company A and K? - Management provided updates on asset sales under receivership for Private Company A and clarified the accounting treatment for loans held at fair value versus carrying value [37][39] Question: What is the target debt leverage ratio? - The company targets a leverage ratio between 1.0 and 1.2 times and does not foresee issuing equity given current stock trading levels [41][42] Question: Market sentiment on mortgage REIT sector? - Management noted that mortgage REITs have traded better recently, with interest rates impacting trading and investment opportunities [45] Question: Impact of rescheduling on borrower interest? - Management stated that the rescheduling conversation is still new, and many are in a holding pattern awaiting concrete developments [49][50] Question: CECL reserves increase due to portfolio fundamentals or macro aspects? - Management indicated that while macro factors play a role, the increase in CECL reserves is primarily driven by individual loan evaluations [51][52] Question: Will BDC conversion open new credit facilities? - Management noted that while the current credit line is similar to BDC financing, it is uncertain if the structure will attract more banks to participate in cannabis lending [54][55]