Loans Held For Investment, Net

12 Months Ended

Dec. 31, 2024

Loans Held For Investment, Net [Abstract]

LOANS HELD FOR INVESTMENT, NET

3. LOANS HELD FOR INVESTMENT, NET

The Company primarily originates senior secured loans that it has the intent and ability to hold until maturity or payoff. Such loans are classified as held for investment and are reported on the consolidated balance sheets at amortized cost. The following tables present summarized information regarding our loans held for investment by interest rate type as of December 31, 2024 and 2023:

	As of December 31, 2024
		Total Principal		Original Issue Discount			Carrying Value		Percentage of loans held for investment
Fixed-rate loans		$	149,771,871	$	(545,081	)	$	149,226,790		37.0	%
Floating-rate loans			254,949,683		(1,699,427	)		253,250,256		63.0	%
Total		$	404,721,554	$	(2,244,508	)	$	402,477,046		100.0	%

The following tables summarize the Company’s aggregate portfolio of loans held for investment, net of current expected credit loss reserve as of December 31, 2024 and 2023:

	As of December 31, 2024
	Outstanding Principal		Original Issue Discount			Carrying Value			Weighted Average Remaining Life (Years) (1)
Senior Term Loans	$	404,721,554	$	(2,244,508	)	$	402,477,046			2.2
Current expected credit loss reserve		-		-			(4,346,869	)
Total loans held at carrying value, net	$	404,721,554	$	(2,244,508	)	$	398,130,177

	As of December 31, 2023
	Outstanding Principal		Original Issue Discount			Carrying Value			Weighted Average Remaining Life (Years) (1)
Senior Term Loans	$	355,745,305	$	(2,104,695	)	$	353,640,610			2.1
Current expected credit loss reserve		-		-			(4,972,647	)
Total loans held at carrying value, net	$	355,745,305	$	(2,104,695	)	$	348,667,963

(1)Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2024 and 2023, respectively.

The following tables present changes in loans held at carrying value as of and for the years ended December 31, 2024 and 2023:

	Principal			Original Issue Discount			Current Expected Credit Loss Reserve			Carrying Value
Balance at December 31, 2023	$	355,745,305		$	(2,104,695	)	$	(4,972,647	)	$	348,667,963
New fundings		161,289,523			(1,836,952	)		-			159,452,571
Principal repayment of loans		(102,461,111	)		-			-			(102,461,111	)
Accretion of original issue discount		-			1,697,139			-			1,697,139
Transfer of loan held for investment to loan held for sale		(19,000,000	)					213,913			(18,786,087	)
PIK Interest		9,147,837			-			-			9,147,837
Decrease in provision for current expected credit losses		-			-			411,865			411,865
Balance at December 31, 2024	$	404,721,554		$	(2,244,508	)	$	(4,346,869	)	$	398,130,177

	Principal			Original Issue Discount			Current Expected Credit Loss Reserve			Carrying Value
Balance at December 31, 2022	$	343,029,334		$	(3,755,796	)	$	(3,940,939	)	$	335,332,599
New fundings		93,533,516			(1,332,340	)		-			92,201,176
Principal repayment of loans		(76,876,048	)		-			-			(76,876,048	)
Accretion of original issue discount		-			2,983,441			-			2,983,441
Transfer of loan held for investment to loan held for sale		(13,399,712	)		-			-			(13,399,712	)
PIK Interest		9,458,215			-			-			9,458,215
Increase in provision for current expected credit losses		-			-			(1,031,708	)		(1,031,708	)
Balance at December 31, 2023	$	355,745,305		$	(2,104,695	)	$	(4,972,647	)	$	348,667,963

A more detailed listing of the Company’s loans held at carrying value based on information available as of December 31, 2024, is as follows:

Loan (1)	Location(s)	Initial Funding Date (1)	Maturity Date (2)	Principal Balance		Original Issue Discount			Carrying Value		Percentage of Our Loan Portfolio			Future Fundings		Interest Rate (3)	Periodic Payment (4)	YTM IRR (5)
1	Various	10/27/2022	10/30/2026	$	19,324,557	$	(314,110	)	$	19,010,447		4.7	%		-	P+6.5% Cash (8)	P&I	17.1%
2	Michigan	12/31/2021	12/31/2025		27,110,506		-			27,110,506		6.7	%		-	P+3% Cash (13)(20)	I/O	17.3%
3	Various	11/18/2021	1/29/2027		21,248,176		(523,689	)		20,724,487		5.1	%		-	P+10.375% Cash, 2.75% PIK (11)(14)(15)	I/O	22.2%
4	Arizona	4/19/2021	6/17/2026		6,626,809		-			6,626,809		1.6	%		-	11.91% Cash	I/O	17.0%
5	Massachusetts	4/19/2021	4/30/2025		2,564,180		-			2,564,180		0.6	%		-	P+12.25% Cash (6)	P&I	22.6%
6	Michigan	8/20/2021	1/30/2026		4,958,123		-			4,958,123		1.2	%		-	P+6.5% Cash (13)	I/O	17.2%
7	Illinois, Arizona	8/24/2021	6/30/2025		24,293,793		(54,413	)		24,239,380		6.0	%		-	P+6% Cash, 2% PIK (9)	P&I	19.3%
8	West Virginia	9/1/2021	12/31/2025		8,491,943		-			8,491,943		2.1	%		-	10% Cash	I/O	15.0%
9	Pennsylvania	9/3/2021	6/30/2024		16,402,488		-			16,402,488		4.1	%		-	P+20.75% Cash(6)(16)	P&I	17.5%
12	Various	11/8/2021	10/31/2027		11,159,358		(35,634	)		11,123,724		2.8	%		-	P+7% Cash, 2% PIK (10)	I/O	19.3%
16	Florida	12/30/2021	8/29/2025		6,557,500		(25,236	)		6,532,264		1.6	%		-	16.75% Cash	I/O	31.2%
18	Ohio	2/3/2022	12/31/2025		45,024,611		(433,918	)		44,590,693		11.1	%		-	P+1.75% Cash, 5% PIK (9)(17)	I/O	16.1%
19	Florida	3/11/2022	12/31/2025		18,892,211		(23,850	)		18,868,361		4.7	%		-	11% Cash, 5% PIK	P&I	16.5%
20	Missouri	5/9/2022	11/28/2025		22,243,402		(65,969	)		22,177,433		5.5	%		-	11% Cash, 2% PIK	P&I	14.7%
21	Illinois	7/1/2022	7/29/2026		6,583,891		(34,755	)		6,549,136		1.6	%		-	P+7% Cash, 2% PIK (9)	P&I	23.3%
23	Arizona	3/27/2023	3/31/2026		1,620,000		(20,682	)		1,599,318		0.4	%		-	P+7.5% Cash (12)	P&I	18.7%
24	Oregon	9/27/2022	9/27/2026		580,000		-			580,000		0.1	%		-	P+10.5% Cash (7)	P&I	21.7%
25	New York	8/1/2023	6/29/2036		25,093,595		-			25,093,595		6.2	%		-	15% Cash	P&I	16.6%
27	Nebraska	8/15/2023	6/30/2027		17,400,000		-			17,400,000		4.3	%		-	P+6.5% Cash (18)	I/O	15.7%
28	Ohio	9/13/2023	3/13/2025		2,466,705		-			2,466,705		0.6	%		-	15% Cash	I/O	17.4%
29	Illinois	10/11/2023	10/9/2026		1,943,217		-			1,943,217		0.5	%		-	11.4% Cash, 1.5% PIK	P&I	14.7%
30	Missouri, Arizona	12/19/2023	12/31/2026		19,000,000		(139,306	)		18,860,694		4.7	%		-	P+7.75% Cash (13)	P&I	18.7%
31	California, Illinois	5/3/2023	5/3/2026		6,680,000		-			6,680,000		1.7	%		-	P+8.75% Cash (10)	I/O	18.3%
32	Nevada	4/15/2024	8/15/2027		6,000,000		(27,982	)		5,972,018		1.5	%		-	P+6.5% Cash (12)	I/O	16.1%
33	Minnesota	5/20/2024	5/28/2027		1,116,000		(4,776	)		1,111,224		0.3	%		-	12% Cash (14)	P&I	12.9%
34	Arizona	6/17/2024	5/29/2026		10,000,000		-			10,000,000		2.5	%		-	11.91% Cash	I/O	12.8%
35	California	8/23/2024	8/23/2027		24,256,045		-			24,256,045		6.0	%		-	12% Cash, 3% PIK	I/O	16.3%
36	Illinois	10/28/2024	1/1/2027		25,000,000		(114,937	)		24,885,063		6.2	%		2,000,000	P+6.25% Cash (10)	I/O	15.2%
37	Various	11/26/2024	11/24/2028		20,019,444		(390,404	)		19,629,040		4.9	%		10,000,000	12% Cash, 1% PIK (19)	I/O	15.2%
38	Minnesota	12/13/2024	12/13/2025		2,065,000		(34,847	)		2,030,153		0.5	%		2,935,000	10% Cash (19)	I/O	14.7%
			Total	$	404,721,554	$	(2,244,508	)	$	402,477,046		100	%	$	14,935,000		Wtd Average	17.2%

(1)Loan numbering in the table above is maintained from origination for purposes of comparability and may not be sequential due to maturities, payoffs, or refinancings.

(2)Certain loans are subject to contractual extension options and may be subject to performance based on other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein and certain borrowers may have the right to prepay with or without a contractual prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.

(3)"P" = prime rate and depicts floating rate loans that pay interest at the prime rate plus a specific percentage; "PIK" = paid-in-kind interest.

(4)P&I = principal and interest. I/O = interest only. P&I loans may include interest only periods for a portion of the loan term. The frequency of loan payments may be monthly or quarterly as required by the respective credit agreement governing such loan.

(5)Estimated YTM, calculated on a weighted average principal basis, includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan. The estimated YTM calculations require management to make estimates and assumptions, including, but not limited to, the timing and amounts of loan draws on delayed draw loans, the timing and collectability of exit fees, the probability and timing of prepayments and the probability of contingent features occurring. For example, certain credit agreements contain provisions pursuant to which certain PIK interest rates and fees earned by us under such credit agreements will decrease upon the satisfaction of certain specified criteria which we believe may improve the risk profile of the applicable borrower. To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Actual results could differ from those estimates and assumptions.

(6)This Loan is subject to a prime rate floor of 3.25%

(7)This Loan is subject to a prime rate floor of 5.50%

(8)This Loan is subject to a prime rate floor of 6.25%

(9)This Loan is subject to a prime rate floor of 7.00%

(10)This Loan is subject to a prime rate floor of 7.50%

(11)This Loan is subject to a prime rate floor of 7.75%

(12)This Loan is subject to a prime rate floor of 8.00%

(13)This Loan is subject to a prime rate floor of 8.50%

(14)The borrower of Loan #33 is an affiliate of the borrower of Loan #3, a related party. The aggregate principal balance of these loans is included on the consolidated balance sheet as loans held for investment - related party. See Note 9 for further details.

(15)The aggregate principal balance outstanding of Loan #3 is comprised of two tranches. The first tranche has a principal balance of approximately $16.9 million, bears a floating interest rate of prime plus 10.375% cash and 2.75% PIK and has a maturity date of January 29, 2027. The second tranche has a principal balance of approximately $4.4 million, bears an interest rate of 15.00% cash and 2.00% PIK, and a maturity date of May 29, 2026. The statistics presented reflect the weighted average of the rate terms under both tranches for the total aggregate loan principal, however only the maturity date for the first tranche has been presented in the table above.

(16)As of May 1, 2023, Loan #9 was placed on non-accrual status and remains on non-accrual as of December 31, 2024. Loan #9 is included on the consolidated balance sheet as a loan held for investment – related party (Note 9). This loan had an original maturity date of June 30, 2024 and is included in amounts past due in the tables below.

(17)An affiliate under common control holds a controlling equity investment in this portfolio company (Note 9).

(18)This loan has floating grid pricing based on the Prime Rate plus a spread of 5.00% to 8.75% based on monthly annualized EBITDA performance. As of December 31, 2024, applied interest rate is Prime Rate + 6.50%.

(19)Loan #37 and Loan #38 bear unused fees on the unfunded commitment of 0.75% and 1.50% per annum, respectively.

(20)On September 27, 2024, $13.0 million of principal of Loan #2 was reclassified to held for sale, and was subsequently sold to a third party at a price of $13.0 million on September 30, 2024. The remaining balance presented is held for investment as of December 31, 2024.

The following tables present aging analyses of past due loans by amortized cost, excluding the CECL reserve, as of December 31, 2024 and 2023. As of both December 31, 2024 and 2023, there was one loan with principal greater than 90 days past due.

	As of December 31, 2024
	Current Loans (1)		31-60 Days Past Due		61-90 Days Past Due		90+ Days Past Due (2)		Total Past Due		Total Loans		Non- Accrual(2)
Senior Term Loans	$	386,074,558	$	-	$	-	$	16,402,488	$	16,402,488	$	402,477,046	$	16,402,488
Total	$	386,074,558	$	-	$	-	$	16,402,488	$	16,402,488	$	402,477,046	$	16,402,488

	As of December 31, 2023
	Current Loans (1)		31-60 Days Past Due		61-90 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non- Accrual(2)
Senior Term Loans	$	337,238,122	$	-	$	-	$	16,402,488	$	16,402,488	$	353,640,610	$	20,666,374
Total	$	337,238,122	$	-	$	-	$	16,402,488	$	16,402,488	$	353,640,610	$	20,666,374

(1)Loans 1-30 days past due are included in the current loans.

(2)On May 1, 2023, Loan #9 was placed on non-accrual status. On June 20, 2023, the Administrative Agent to Loan #9 issued an acceleration notice requesting immediate payment of all amounts outstanding and therefore is 90 days past due as of December 31, 2023. On December 1, 2023, Loan #6 was placed on non-accrual status. In March 2024, the Company entered into an amendment to Loan #6, which extended the maturity date to April 15, 2024. In the second quarter of 2024, the Company entered into an additional amendment to Loan #6, which extended the maturity date from April 15, 2024 to January 30, 2026 and restored Loan #6 to accrual status.

Non-Accrual Loans

As of December 31, 2024 and 2023, there were one and two loans placed on non-accrual status, respectively.

Loan #6 was placed on non-accrual status as of December 1, 2023 and has both an outstanding principal balance and carrying value of approximately $4.3 million as of December 31, 2023. In March 2024, the Company entered into an amendment to Loan #6, which extended the maturity date to April 15, 2024. In connection with this amendment, Loan #6 was restored to accrual status.

Loan #9 was placed on non-accrual status as of May 1, 2023 and has both an outstanding principal balance and carrying value of approximately $16.4 million as of December 31, 2024 and 2023. The Company ceased accruing interest on the first date of delinquency, based on expectation of its ability to collect all amounts then due from the borrower. As a result, there was no accrued interest to write-off when the loan was placed on non-accrual status. As of December 31, 2024, Loan #9 remains on non-accrual status and carries a reserve for current expected credit losses of approximately $1.2 million.

Credit Quality Indicators

The Company assesses the risk factors of each loan, and assigns a risk rating based on a variety of factors, including, without limitation, payment history, real estate collateral coverage, property type, geographic and local market dynamics, financial performance, loan to enterprise value and fixed charge coverage ratios, loan structure and exit strategy, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:

Rating	Definition
1	Very low risk
2	Low risk
3	Moderate/average risk
4	High risk/potential for loss: a loan that has a risk of realizing a principal loss
5	Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss or an impairment has been recorded

The risk ratings are primarily determined based on current and historical performance metrics specific to each portfolio company, as well as consideration of future economic conditions and each borrower’s estimated ability to meet debt service requirements. The risk ratings shown in the following table as of December 31, 2024 and 2023 consider borrower specific credit history and performance and reflect a quarterly re-evaluation of overall current macroeconomic conditions affecting the Company’s borrowers, specifically those designated as held for investment.

As of December 31, 2024 and 2023, the carrying value, excluding the current expected credit loss reserve (the “CECL Reserve”), of the Company’s loans within each risk rating category by year of origination is as follows:

	As of December 31, 2024(1)
Risk Rating	2024		2023		2022		2021		Total
1	$	1,111,224	$	580,000	$	41,045,793	$	-	$	42,737,017
2		63,823,279		64,896,824		90,874,764		24,239,380		243,834,247
3		34,653,247		2,466,705		27,110,506		13,687,904		77,918,362
4		10,000,000		-		-		27,987,420		37,987,420
5		-		-		-		-		-
Total	$	109,587,750	$	67,943,529	$	159,031,063	$	65,914,704	$	402,477,046

	As of December 31, 2023(1)
Risk Rating	2024		2023		2022		2021		Total
1	$	-	$	820,000	$	37,644,911	$	-	$	38,464,911
2		-		51,320,161		107,007,422		46,792,941		205,120,524
3		-		2,466,705		5,296,308		58,829,717		66,592,730
4		-		-		-		43,462,445		43,462,445
5		-		-		-		-		-
Total	$	-	$	54,606,866	$	149,948,641	$	149,085,103	$	353,640,610

(1)Amounts are presented by loan origination year with subsequent advances shown in the original year of origination.

Our loans are generally secured in whole or in part by real estate collateral which includes, but is not limited to; mortgages on industrial and retail real estate properties, leasehold mortgages, and other interests in real property. These forms of real estate collateral enable us to maintain our qualification as a REIT. Our loans are also generally secured by a combination of other forms of collateral, including licenses, accounts receivable, equipment, intellectual property, equity pledges of our borrowers, and personal or corporate guarantees which provide value incremental to our real estate collateral. While real estate collateral coverage is a significant indicator of the credit quality of our portfolio, the value of these other forms of collateral also contribute to the determination of the CECL reserve. Accordingly, changes in real estate collateral coverage alone may not present a direct correlation to the change in our CECL reserve.

Our portfolio weighted average real estate collateral coverage for loans held for investment was 1.5x as of December 31, 2023 compared to 1.1x as of December 31, 2024. The decrease in real estate collateral coverage is primarily driven by portfolio composition given new originations during the year ended December 31, 2024 had weighted average real estate coverage of less than 1.5x. The below tables presents our real estate collateral coverage ratio, for loans held for investment, net as of December 31, 2024 and 2023:

As of December 31, 2024(1)
	< 1.0x		1.0x – 1.25x		1.25x – 1.5x		1.50x – 1.75x		1.75x – 2.0x		> 2.0x		Total
Fixed-rate	$	45,029,665	$	48,900,184	$	43,750,558	$	9,603,167	$	-	$	1,943,216	$	149,226,790
Floating-rate		155,364,941		16,402,488		6,549,135		-		24,885,063		50,048,629		253,250,256
	$	200,394,606	$	65,302,672	$	50,299,693	$	9,603,167	$	24,885,063	$	51,991,845	$	402,477,046

As of December 31, 2023(1)
	< 1.0x		1.0x – 1.25x		1.25x – 1.5x		1.50x – 1.75x		1.75x – 2.0x		> 2.0x		Total
Fixed-rate	$	2,466,706	$	-	$	49,041,867	$	17,613,043	$	-	$	-	$	69,121,616
Floating-rate		104,322,083		35,491,887		38,729,046		15,396,370		5,296,308		85,283,300		284,518,994
	$	106,788,789	$	35,491,887	$	87,770,913	$	33,009,413	$	5,296,308	$	85,283,300	$	353,640,610

(1)Real estate collateral coverage is calculated based upon the most recent third-party appraised values. The Company generally obtains new appraisals of all material real estate collateral at least once annually.

Geographic concentration of our loans held for investment is also a significant credit quality indicator. As of December 31, 2024 and 2023, our borrowers have operations in the jurisdictions in the table below:

As of December 31, 2024						As of December 31, 2023
Jurisdiction	Outstanding Principal (1)		Percentage of Our Loan Portfolio			Jurisdiction	Outstanding Principal (1)		Percentage of Our Loan Portfolio
Ohio	$	60,065,707		15	%	Ohio	$	27,902,362		8	%
Illinois		55,958,079		14	%	Illinois		25,599,133		7	%
Florida		42,712,285		11	%	Florida		48,815,066		14	%
Missouri		38,208,259		9	%	Missouri		25,191,575		7	%
Pennsylvania		35,727,045		9	%	Pennsylvania		21,674,160		6	%
Michigan		32,068,629		8	%	Michigan		56,466,635		16	%
Arizona		28,023,340		7	%	Arizona		24,466,609		7	%
California		26,057,479		6	%	California		—		-	%
New York		25,093,595		6	%	New York		22,611,938		6	%
Maryland		21,835,901		5	%	Maryland		53,907,352		15	%
Nebraska		17,400,000		4	%	Nebraska		13,061,667		4	%
West Virginia		8,491,943		2	%	West Virginia		11,706,059		3	%
Nevada		6,000,000		1	%	Nevada		5,764,439		2	%
Texas		2,756,870		1	%	Texas		—		-	%
Massachusetts		2,626,423		1	%	Massachusetts		12,308,310		3	%
Minnesota		1,116,000		0	%	Minnesota		—		-	%
Oregon		580,000		0	%	Oregon		820,000		0	%
Connecticut		—		-	%	Connecticut		5,450,000		2	%
Total	$	404,721,554		100	%	Total	$	355,745,305		100	%

(1) The principal balance of the loans not secured by real estate collateral are included in the jurisdiction representing the principal place of business.

CECL Reserve

The Company records an allowance for current expected credit losses for its loans held for investment. The allowances are deducted from the gross carrying amount of the assets to present the net carrying value of the amounts expected to be collected on such assets. The Company estimates its CECL Reserve using among other inputs, third-party valuations, and a third-party probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan based on the risk profile for approximately three years after which we immediately revert to use of historical loss data.

ASC 326 requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. The Company considers multiple datapoints and methodologies that may include likelihood of default and expected loss given default for each individual loan, valuations derived from discount cash flows (“DCF”), and other inputs including the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment, if applicable. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments.

The Company's methodologies for determining the CECL Reserve are applied on a collective (pool) basis evaluating such pools of loans on the basis of similar risk characteristics as explained below. We make the judgment that loans to cannabis-related borrowers that are fully or partially collateralized by real estate exhibit similar risk characteristics and are evaluated as a pool. Further, loans that have no real estate collateral, but are secured by other forms of collateral, including equity pledges of the borrower, and otherwise have similar characteristics as those collateralized by real estate are evaluated separately. Loans within each pool are analyzed individually, based on the economic terms of the loan including time to maturity, the nature and sufficiency of collateral coverage, geography, and other factors. Contractual loan maturities may extend beyond the forecast horizon for which we are able to derive reasonable and supportable forecasts.

Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of the Company’s loan portfolio, and (iv) the Company’s current and future view of the macroeconomic environment. From time to time, the Company may consider loan-specific qualitative factors on certain loans to estimate its CECL Reserve, which may include (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and (iii) the liquidation value of collateral. For loans where we have deemed

the borrower/sponsor to be experiencing financial difficulty, we may elect to apply a practical expedient, in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a CECL Reserve.

To estimate the historic loan losses relevant to the Company’s portfolio, the Company evaluates its historical loan performance, which includes zero realized loan losses since the inception of its operations. Additionally, the Company analyzed its repayment history, noting it has limited portfolio turnover from the date of our initial public offering. However, the Company’s Sponsor and its affiliates have had operations for the past four fiscal periods and have made investments in similar loans that have similar characteristics including interest rate, collateral coverage, guarantees, and prepayment/make whole provisions, which fall into the pools identified above. Given the similarity of the structuring of the credit agreements for the loans in the Company’s portfolio to the loans originated by its Sponsor, management considered it appropriate to consider the past repayment history of loans originated by the Sponsor and its affiliates in determining the extent to which a CECL Reserve shall be recorded.

In addition, the Company reviews each loan on a quarterly basis and evaluates the borrower’s ability to pay the monthly interest and principal, if required, as well as the loan-to-value (LTV) ratio. When evaluating qualitative factors that may indicate the need for a CECL Reserve, the Company forecasts losses considering a variety of factors. In considering the potential current expected credit loss, the Manager primarily considers significant inputs to the Company’s forecasting methods, which include (i) key loan-specific inputs such as the value of the real estate collateral, liens on equity (including the equity in the entity that holds the state-issued license to cultivate, process, distribute, or retail cannabis), presence of personal or corporate guarantees, among other credit enhancements, LTV ratio, rate type (fixed or floating) and IRR, loan-term, geographic location, and expected timing and amount of future loan fundings, (ii) performance against the underwritten business plan and the Company’s internal loan risk rating, and (iii) a macro-economic forecast. Estimating the enterprise value of our borrowers in order to calculate LTV ratios is often a significant estimate. The Manager utilizes a third-party valuation appraiser to assist with the Company’s valuation process primarily using comparable transactions to estimate enterprise value of its portfolio companies and supplement such analysis with a multiple-based approach to enterprise value to revenue multiples of publicly-traded comparable companies obtained from Bloomberg and S&P Capital IQ as of December 31, 2024, to which the Manager may apply a private company discount based on the Company’s current borrower profile. These estimates may change in future periods based on available future macro-economic data and might result in a material change in the Company’s future estimates of expected credit losses for its loan portfolio.

There is generally a direct correlation between risk rating and the CECL reserve. During the year ended December 31, 2024, the Company originated new loan principal for loans held for investment of $161.3 million and had aggregate loan principal repayments and sales of loans held for investment of $102.5 million. New loans originated during the year had a weighted average risk rating at the time of origination of approximately 2.2, while the weighted average risk rating of loans repaid, transfer and/or sold during the year was approximately 2.5 during the quarter of repayment of such loans. Accordingly, the CECL reserve decreased during the year by approximately $0.6 million as a result of our new originations carrying a slightly lower risk rating than the loans disposed during the year. Additionally, during the year, the percentage of loans which carried a risk rating of "1" through "3" increased from 89.5% as of December 31, 2023 to 90.6% as of December 31, 2024. Meanwhile, loans risk rated "1" and "2" remained relatively consistent albeit decreasing from 72.2% as of December 31, 2023 to 71.2% as of December 31, 2024. Loans risk rated "1" and "2" both generally are expected to result in a full repayment of principal and generally do not carry materially different CECL reserves based on risk ratings alone.

Additionally, as noted above, the Company contemplates market and industry conditions, the interest rate environment, and valuations in determination of the CECL reserve. During the year ended December 31, 2024, the Federal Reserve cut interest rates, specifically the Prime Rate, by 100 basis points from 8.50% as of December 31, 2023 to 7.50% as of December 31, 2024. While these rate cuts impacted the Company's interest income generation on its 63.0% of loans held for investment which bear variable interest at the Prime Rate, the rate cuts also generally resulted in improved cash flow for our borrowers, thereby contributing to a greater likelihood of recovery of principal and interest on such loans. Further, Management observed that valuation multiples of publicly traded companies, especially those operating in limited license states, remained relatively stable year over year. Valuation multiples increase and decrease based on portfolio company specific factors as well as macro-economic factors including but not limited to, expectations surrounding interest rate decisions from the Federal Reserve and public announcements about proposed regulatory reform relating to a potential rescheduling of cannabis at the federal level. Management contemplates the impacts of these macro-economic factors during the forecast period when determining the fair value of our loans and collateral, both of which, in addition to risk rating, contribute to the determination of the CECL reserve. The aggregate fair value of our loans held for investment remained stable from a weighted average of 98.9% of par as of December 31, 2023 to 98.8% of par as of December 31, 2024. The stability of valuations, in addition to improved borrower specific repayment assumptions resulting from the declining interest rate environment contributed to the modest decrease in the CECL reserve during the year. Estimates may change in future periods based on available future macro-economic data and might result in a material change in the Company’s future estimates of expected credit losses for its loan portfolio.

Regarding real estate collateral, the Company generally cannot take the position of mortgagee-in-possession as long as the property is used by a cannabis operator, but it can request that the court appoint a receiver to manage and operate the subject real property until

the foreclosure proceedings are completed. Additionally, while the Company cannot foreclose under state Uniform Commercial Code (“UCC”) and take title or sell equity in a licensed cannabis business, a potential purchaser of a delinquent or defaulted loan could.

In order to estimate the future expected loan losses relevant to the Company’s portfolio, the Company utilizes historical market loan loss data obtained from a third-party database for commercial real estate loans, which the Company believes is a reasonably comparable and available data set to use as an input for its type of loans. The Company believes this dataset to be representative for future credit losses whilst considering that the cannabis industry is maturing, and consumer adoption, demand for production, and retail capacity are increasing akin to commercial real estate over time. For periods beyond the reasonable and supportable forecast period, the Company immediately reverts back to historical loss data. All of the above assumptions, although made with the most available information at the time of the estimate, are subjective and actual activity may not follow the estimated schedule. These assumptions impact the future balances that the loss rate will be applied to and as such impact the Company’s CECL Reserve. As the Company acquires new loans and the Manager monitors loan and borrower performance, these estimates will be revised each period.

Activity related to the CECL Reserve for outstanding balances and unfunded commitments on the Company’s loans held at carrying value and loans receivable at carrying value as of and for the years ended December 31, 2024 and 2023 is presented in the table below.

	Outstanding			Unfunded		Total
Balance at December 31, 2023	$	4,972,647		$	3,092	$	4,975,739
(Benefit) provision for current expected credit losses		(625,778	)		42,480		(583,298	)
Balance at December 31, 2024	$	4,346,869		$	45,572	$	4,392,441

	Outstanding		Unfunded			Total
Balance at December 31, 2022	$	3,940,939	$	94,415		$	4,035,354
Provision for current expected credit losses		1,031,708		(91,323	)		940,385
Balance at December 31, 2023	$	4,972,647	$	3,092		$	4,975,739

The Company has made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of the related loans held for investment in determining the CECL Reserve, as any uncollectible accrued interest receivable is written off in a timely manner. To date, the Company has had zero write-offs related to uncollectible interest receivable, but will discontinue accrual of interest on loans if deemed to be uncollectible, with any previously accrued uncollected interest on the loan charged to interest income in the same period. For the one loan on non-accrual, the Company ceased accruing interest on the first date of delinquency, based on expectation of its ability to collect all amounts then due from the borrower. As a result, there was no accrued interest to write-off when the loan was placed on non-accrual status.