# Chicago Atlantic Real Estate Finance, Inc. (REFI) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Chicago Atlantic Real Estate Finance, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1867949/000121390023018678/f10k2022_chicagoatlantic.htm
Accession: 0001213900-23-018678
Filing date: 2023-03-09
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/REFI/
All MD&A years: /company/REFI/mda/
Previous year: /company/REFI/mda/fy2021/ (FY 2021)
Next year: /company/REFI/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion and analysis of our
financial condition and results of operations should be read together with the consolidated financial statements and related notes that
are included elsewhere in this annual report on Form 10-K. This discussion contains forward-looking statements that reflect our current
expectations and views of future events, which involve risks and uncertainties. Our actual results and the timing of selected events could
differ materially from those anticipated in such forward-looking statements. Factors that could cause or contribute to those differences
include, but are not limited to, those discussed above in “Risk Factors” and those identified below and elsewhere in this
annual report on Form 10-K. See “Forward-Looking Statements.”

66

Overview

We are a commercial real estate finance company.
Our primary investment objective is to provide attractive, risk-adjusted returns for stockholders over time primarily through consistent
current income dividends and other distributions and secondarily through capital appreciation. We intend to achieve this objective by
originating, structuring and investing in first mortgage loans and alternative structured financings secured by commercial real estate
properties. Our current portfolio is comprised primarily of senior loans to state-licensed operators in the cannabis industry, secured
by real estate, equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations
governing such borrowers. We intend to grow the size of our portfolio by continuing the track record of our business and the business
conducted by our Manager and its affiliates by making loans to leading operators and property owners in the cannabis industry. There is
no assurance that we will achieve our investment objective.

Our Manager and its affiliates seek to originate
real estate loans between $5 million and $200 million, generally with one- to five-year terms and amortization when terms exceed three
years. We generally act as co-lenders in such transactions and intend to hold up to $50 million of the aggregate loan amount, with the
remainder to be held by affiliates or third party co-investors. We may revise such concentration limits from time to time as our loan
portfolio grows. Other investment vehicles managed by our Manager or affiliates of our Manager may co-invest with us or hold positions
in a loan where we have also invested, including by means of splitting commitments, participating in loans or other means of syndicating
loans. We will not engage in a co-investment transaction with an affiliate where the affiliate has a senior position to the loan held
by us. To the extent that an affiliate provides financing to one of our borrowers, such loans will be working capital loans or loans that
are subordinate to our loans. We may also serve as co-lenders in loans originated by third parties and, in the future, we may also acquire
loans or loan participations. Loans that have a one to two year maturity are generally interest only loans.

Our loans are secured by real estate and, in addition,
when lending to owner-operators in the cannabis industry, other collateral, such as equipment, receivables, licenses or other assets of
the borrowers to the extent permitted by applicable laws and regulations. In addition, we seek to impose strict loan covenants and seek
personal or corporate guarantees for additional protection. As of December 31, 2022, 13.6% of the loans held in our portfolio are backed
by personal or corporate guarantees. We aim to maintain a portfolio diversified across jurisdictions and across verticals, including cultivators,
processors, dispensaries, as well as ancillary businesses. In addition, we may invest in borrowers that have equity securities that are
publicly traded on the Canadian Stock Exchange (“CSE”) in Canada and/or over-the-counter in the United States.

As of December 31, 2022, our portfolio is comprised
primarily of first mortgages to established multi-state or single-state cannabis operators or property owners. We consider cannabis operators
to be established if they are state-licensed and are deemed to be operational by the applicable state regulator. We do not own any stock,
warrants to purchase stock or other forms of equity in any of our portfolio companies that are involved in the cannabis industry, and
we will not take stock, warrants or equity in such issuers until permitted by applicable laws and regulations, including U.S. federal
laws and regulations.

We are an externally managed Maryland corporation
that elected to be taxed as a REIT under Section 856 of the Code, commencing with our taxable period ended December 31, 2021. We
believe that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs
or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income and distribution
tests, which in turn depend, in part, on our operating results. We also intend to operate our business in a manner that will permit us
and our subsidiaries to maintain one or more exclusions or exemptions from registration under the Investment Company Act.

Revenues

We operate as one operating segment and are primarily
focused on financing senior secured loans and other types of loans for established state-licensed operators in the cannabis industry.
These loans are generally held for investment and are secured by real estate, equipment, licenses and other assets of the borrowers to
the extent permitted by the applicable laws and the regulations governing such borrowers.

67

We generate revenue primarily in the form of interest
income on loans. As of December 31, 2022 and 2021, approximately 83.1% and 53.2%, respectively, of our portfolio was comprised of floating
rate loans, and 16.9% and 46.8% of our portfolio was comprised of fixed rate loans, respectively. The
floating rate loans described above are variable based upon the Prime Rate plus an applicable margin, and in many cases, a Prime Rate
floor.

The Prime
Rate during the year ended December 31, 2022 was as follows:

[[GREPCENT_TABLE]]
[["Effective Date","","Rate(1)"],["December 15, 2022","","","7.50","%"],["November 3, 2022","","","7.00","%"],["September 22, 2022","","","6.25","%"],["July 28, 2022","","","5.50","%"],["June 16, 2022","","","4.75","%"],["May 5, 2022","","","4.00","%"],["March 17, 2022","","","3.50","%"],["March 15, 2020","","","3.25","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Rate obtained from the Wall Street Journal"]]
[[/GREPCENT_TABLE]]

Interest on our loans is generally payable monthly.
The principal amount of our loans and any accrued but unpaid interest thereon generally become due at the applicable maturity date. In
some cases, our interest income includes a paid-in-kind (“PIK”) component for
a portion of the total interest. The PIK interest, computed at the contractual rate specified in each applicable loan agreement, is accrued
in accordance with the terms of such loan agreement and capitalized to the principal balance of the loan and recorded as interest income.
The PIK interest added to the principal balance is typically amortized and paid in accordance with the applicable loan agreement. In cases
where the loans do not amortize, the PIK interest is collected upon repayment of the outstanding principal. We also generate revenue from
original issue discounts (“OID”), which is also recognized as interest income from loans over the initial term of the applicable
loans. Delayed draw loans may earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income
in the period earned. Other fees, including prepayment fees and exit fees, are also recognized as interest income when received. Any such
fees will be generated in connection with our loans and recognized as earned in accordance with generally
accepted accounting principles (“GAAP”).

Expenses

Our primary operating expense is the payment of
Base Management Fees and Incentive Compensation under our Management Agreement with our Manager and the allocable portion of overhead
and other expenses paid or incurred on our behalf, including reimbursing our Manager for a certain portion of the compensation of certain
personnel of our Manager who assist in the management of our affairs, excepting only those expenses that are specifically the responsibility
of our Manager pursuant to our Management Agreement. We bear all other costs and expenses of our operations and transactions, including
(without limitation) fees and expenses relating to:

[[GREPCENT_TABLE]]
[["","\u25cf","organizational and offering expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","quarterly valuation expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","fees payable to third parties relating to, or associated with, making loans and valuing loans (including third-party valuation firms);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","fees and expenses associated with investor relations and marketing efforts (including attendance at investment conferences and similar events);"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","accounting and audit fees and expenses from our independent registered public accounting firm;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","federal and state registration fees;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","any exchange listing fees;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","federal, state and local taxes;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","independent directors\u2019 fees and expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","brokerage commissions;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","costs of proxy statements, stockholders\u2019 reports and notices; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","costs of preparing government filings, including periodic and current reports with the SEC."]]
[[/GREPCENT_TABLE]]

68

Income Taxes

We are a Maryland corporation that elected to
be taxed as a REIT under the Code, commencing with our taxable period ended December 31, 2021. We believe that our method of operation
will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled,
since qualification as a REIT depends on us satisfying numerous asset, income and distribution tests which depends, in part, on our operating
results.

To qualify as a REIT, we must meet a number of organizational
and operational requirements, including a requirement that we distribute annually to our stockholders at least 90% of our REIT taxable
income prior to the deduction for dividends paid. To the extent that we distribute less than 100% of our REIT taxable income in any tax
year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax
at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of 1) 85% of our ordinary income
for the calendar year, 2) 95% of its capital gain net income for the calendar year, and 3) any undistributed shortfall from its prior
calendar year (the “Required Distribution”) to our stockholders during any calendar year (including any distributions declared
by the last day of the calendar year but paid in the subsequent year), then we are required to pay a non-deductible excise tax equal to
4% of any shortfall between the Required Distribution and the amount that was actually distributed. The 90% distribution requirement does
not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must
notify our stockholders and pay tax at regular corporate rates on the retained net capital gain. Our stockholders must include their proportionate
share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax
on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible
4% excise tax. If it is determined that our estimated current year taxable income will be in excess of estimated dividend distributions
(including capital gain dividend) for the current year from such income, we will accrue excise tax on estimated excess taxable income
as such taxable income is earned. The annual expense is calculated in accordance with applicable tax regulations. Excise tax expense is
included in the line item income tax expense. For the year ended December 31, 2022 and the period ended December 31, 2021, we did not
incur excise tax expense.

Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740 - Income Taxes (“ASC
740”), prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. We have analyzed our various federal and state filing positions
and believe that our income tax filing positions and deductions are well documented and supported as of December 31, 2022 and 2021. Based
on our evaluation, there is no reserve for any uncertain income tax positions. Accrued interest and penalties, if any, are included
within other liabilities in the consolidated balance sheets.

Factors Impacting our Operating Results

The results of our operations are affected by a
number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets and
the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest income, which
includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the
loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our
borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted
by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.

69

Changes in Market Interest Rates and Effect on Net Interest Income

Interest rates are highly sensitive to many factors,
including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors
beyond our control. We will be subject to interest rate risk in connection with our assets and our related financing obligations.

Our operating results will depend in large part
on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally will be based on
prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the
yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged
floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such
decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase.
Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If
any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely
affect our liquidity and results of operations.

Interest Rate Cap Risk

We currently own and intend to acquire in the future
floating-rate assets. These are assets in which the loans may be subject to periodic and lifetime interest rate caps and floors, which
limit the amount by which the asset’s interest yield may change during any given period. However, our borrowing costs pursuant to
our financing agreements may not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate
costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our floating-rate assets would effectively
be limited. In addition, floating-rate assets may be subject to periodic payment caps that result in some portion of the interest being
deferred and added to the principal outstanding. This could result in our receipt of cash income from such assets in an amount that is
less than the amount that we would need to pay the interest cost on our related borrowings.

These factors could lower our net interest income
or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.
As of December 31, 2022, all of our floating rate loans have interest rate floors, and one loan is subject to an interest rate cap.

Interest Rate Mismatch Risk

We may fund a portion of our origination of loans,
or of loans that we may in the future acquire, with borrowings that are based on the Prime Rate or a similar measure, while the interest
rates on these assets may be fixed or indexed to the Prime Rate or another index rate. Accordingly, any increase in the Prime Rate will
generally result in an increase in our borrowing costs that would not be matched by fixed-rate interest earnings and may not be matched
by a corresponding increase in floating-rate interest earnings. Any such interest rate mismatch could adversely affect our profitability,
which may negatively impact distributions to our stockholders.

Our analysis of risks is based on our Manager’s
experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity.
Actual economic conditions or implementation of decisions by our Manager and our management may produce results that differ significantly
from the estimates and assumptions used in our models and the projected results.

Market Conditions

We believe that favorable market conditions, including
an imbalance in supply and demand of credit to cannabis operating companies, have provided attractive opportunities for non-bank lenders,
such as us, to finance commercial real estate loans and other loans that exhibit strong fundamentals but also require more customized
financing structures and loan products than regulated financial institutions can presently provide. Additionally, to the extent that additional
states legalize cannabis, our addressable market will increase. We intend to continue our track record of capitalizing on these opportunities
and growing the size of our portfolio.

70

Risk Management

To the extent consistent with maintaining our REIT
qualification and our exemption from registration under the Investment Company Act, we seek to manage risk exposure by closely monitoring
our portfolio and actively managing the financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the
duration of a loan to changes in interest rates) risks associated with holding our portfolio of loans. Generally, with the guidance and
experience of our Manager:

[[GREPCENT_TABLE]]
[["","\u25cf","we manage our portfolio through an interactive process with our Manager and generally service our self-originated loans through our Manager\u2019s servicer;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we invest in a mix of floating-and fixed-rate loans to mitigate the interest rate risk associated with the financing of our portfolio;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager\u2019s risk management tools such as software and services licensed or purchased from third-parties and proprietary analytical methods developed by our Manager; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","we seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, prior to origination or acquisition our Manager\u2019s investment team evaluates, among other things, relative valuation, comparable company analysis, supply and demand trends, shape-of-yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral."]]
[[/GREPCENT_TABLE]]

Recent Developments

Updates to Our Loan Portfolio during Fiscal Year 2022

For the
period January 1, 2022 through March 31, 2022, we closed credit facilities with three new borrowers which had aggregate commitments of
$75 million, $57.5 million of which was advanced at closing. Additionally, we advanced $29.2 million in aggregate principal on existing
credit facilities to seven different borrowers.

For the period April 1, 2022 through June 30,
2022, we closed a credit facility with one new borrower, which included an aggregate commitment of $17.0 million, all of which was advanced
at closing. Additionally, we advanced $34.2 million in aggregate principal on existing credit facilities to seven different borrowers.

71

For the period July 1, 2022 through September
30, 2022, we closed one credit facility with a new borrower, which had an aggregate commitment of $9.0 million, $5.0 million of which
was advanced at closing. Additionally, we sold a senior secured loan to an affiliate under common control. The selling price of approximately
$6.7 million was approved by the Audit Committee of the Board. The fair value approximated the carrying value of the loan plus accrued
and unpaid interest through the selling date. Further, we assigned $10.0 million of unfunded commitment of a senior secured loan to an
affiliate and we advanced approximately $680 thousand in aggregate principal on an existing credit facility to one borrower.

For the period October 1, 2022 through December
31, 2022, we refinanced and closed two credit facilities with two existing borrowers, which had an aggregate commitment of $43.1 million,
both of which were fully funded at closing. Additionally, we advanced approximately $3.4 million in aggregate principal on existing credit
facilities to three borrowers.

Subsequent Updates to Our Loan Portfolio

On January 12, 2023, we advanced approximately
$0.2 million in aggregate principal on an existing credit facility to one borrower. On January 24, 2023, we refinanced and closed one
credit facility with an existing borrower, which resulted in a paydown of $18.3 million in aggregate principal. On January 24, 2023, we
also purchased a senior secured loan from an affiliate under common control. The purchase price of approximately $19.0 million was approved
by the Audit Committee of the Board. The fair value approximated the carrying value of the loan plus accrued and unpaid interest through
January 24, 2023. On January 24, 2023, we also closed one credit facility with a new borrower, which had an aggregate commitment of $11.3
million, which was fully funded at closing. On March 6, 2023, we advanced approximately $0.7 million in aggregate principal on an existing credit facility to one borrower.

Dividends Declared Per Share

For the
period from January 1, 2022 through March 31, 2022, we declared a cash dividend of $0.40 per share of our common stock, relating to the
first quarter of 2022, which was paid on April 14, 2022 to stockholders of record as of the close of business on March 31, 2022. The total
amount of the cash dividend payment was $7.1 million.

For the period
from April 1, 2022 through June 30, 2022, we declared a cash dividend of $0.47 per share of our common stock, relating to the second quarter
of 2022, which was paid on July 15, 2022 to stockholders of record as of the close of business on June 30, 2022. The total amount of the
cash dividend payment was approximately $8.3 million.

For the period
from July 1, 2022 through September 30, 2022, we declared a cash dividend of $0.47 per share of our common stock, relating to the third
quarter of 2022, which was paid on October 14, 2022 to stockholders of record as of the close of business on September 30, 2022. The total
amount of the cash dividend payment was approximately $8.3 million.

For the period from October 1, 2022 through December
31, 2022, we declared a cash dividend of $0.47 per share of our common stock, relating to the fourth quarter of 2022, which was paid on
January 13, 2023 to stockholders of record as of the close of business on December 30, 2022. The total amount of the cash dividend payment
was approximately $8.3 million. In addition, we declared a special cash dividend of $0.29 per share of our common stock, which was paid
on January 13, 2023 to stockholders of record as of the close of business on December 30, 2022. The total amount of the special cash dividend
payment was approximately $5.1 million.

The payment of these dividends is not indicative
of our ability to pay such dividends in the future.

72

Results of Operations

Comparison of the
Year Ended December 31, 2022 and period from March 30, 2021 (inception) to December 31, 2021

[[GREPCENT_TABLE]]
[["","","Year Ended","","","Period Ended","","","Increase / (Decrease)"],["","","December 31,","","","December 31,","","","2022 vs."],["","","2022","","","2021","","","2021"],["Revenue"],["Interest income","","$","51,471,766","","","$","11,075,116","","","$","40,396,650"],["Interest expense","","","(2,614,138",")","","","(75,861",")","","","(2,538,277",")"],["Net interest income","","","48,857,628","","","","10,999,255","","","","37,858,373"],["Expenses:"],["Management and incentive fees, net","","","6,562,087","","","","802,294","","","","5,759,793"],["Provision for current expected credit losses","","","3,887,405","","","","147,949","","","","3,739,456"],["General and administrative expense","","","3,528,322","","","","297,916","","","","3,230,406"],["Professional fees","","","2,151,714","","","","57,458","","","","2,094,256"],["Stock based compensation","","","435,623","","","","29,611","","","","406,012"],["Organizational expense","","","-","","","","167,591","","","","(167,591",")"],["Total expenses","","$","16,565,151","","","","1,502,819","","","","15,062,332"],["Net Income before income taxes","","","32,292,477","","","","9,496,436","","","","22,796,041"],["Income tax expense","","","-","","","","-","","","","-"],["Net Income","","$","32,292,477","","","$","9,496,436","","","$","22,796,041"]]
[[/GREPCENT_TABLE]]

We
commenced operations on March 30, 2021 and, therefore, the comparative period for the year ended December 31, 2022 is from March 30, 2021
(inception) to December 31, 2021 (the “Prior Period” or “period ended December 31, 2021”). Differences in the
results of operations compared to the Prior Period are mainly due to the Prior Period only including approximately nine months of operations
compared to the year ended December 31, 2022. Results for the initial periods of our operations are not indicative of the results we expect
when our investment strategy has been fully implemented and proceeds from our IPO are fully deployed.

[[GREPCENT_TABLE]]
[["","\u25cf","Interest income increased as we deployed approximately $160.2 million of capital subsequent to December 31, 2021 as a result of our initial public offering. Further driving the increase was an increase in the Prime Rate from 3.25% as of December 31, 2021 to 7.50% as of December 31, 2022, impacting the Company\u2019s loans which bear a floating rate as well as new fundings of approximately $281.6 million. The weighted average yield of the Company\u2019s portfolio was 19.7% and 18.6%, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The increase in interest income was offset by a corresponding increase in interest expense. During the year ended December 31, 2022, we borrowed an additional $58.0 million on the revolving credit facility, which also bears interest at the Prime Rate plus an applicable margin and was subject to the Prime Rate increases throughout the year. During the year ended December 31, 2022, we incurred debt issuance costs of $323,779 related to the Third Amendment, which were capitalized and are subsequently amortized through maturity. The amortized debt issuance costs included in interest expense was $563,464 for the year ended December 31, 2022. Interest expense previously included only amortization of deferred financing costs for the period ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","We incurred base management and incentive fees payable to our Manager of approximately $6.6 million for the year ended December 31, 2022, as compared to approximately $802 thousand for the period ended December 31, 2021. The increase in base management and incentive fees payable to our Manager was primarily attributable to greater assets under management as well as greater origination fee offsets in the year ended December 31, 2022 of approximately $1.3 million, compared to approximately $187,000 for the period ended December 31, 2021 offset by an increase in weighted average equity as defined by the Management Agreement for the comparable period. In addition, pursuant to Fee Waiver Letter Agreements executed by our Manager, dated June 30, 2021 and September 30, 2021, all base management fees that would have been payable to our Manager for the period from May 1, 2021 to September 30, 2021 were voluntarily waived and are not subject to recoupment at a later date."]]
[[/GREPCENT_TABLE]]

73

[[GREPCENT_TABLE]]
[["","\u25cf","Pursuant to a Fee Waiver Letter Agreement executed by our Manager, dated December 31, 2021, all Incentive Compensation that would have been payable to our Manager for the period from October 1, 2021 to December 31, 2021, as well as a portion of reimbursable expenses incurred during the period from October 1, 2021 to December 31, 2021, were voluntarily waived and are not subject to recoupment at a later date."],["","\u25cf","Provision for current expected credit losses increased in the year ended December 31, 2022 as compared to the period ended December 31, 2021 primarily due to declines in risk ratings (discussed below) from December 31, 2021 to December 31, 2022, which are not due to any borrower specific credit issues, but rather, are primarily due to our quarterly re-evaluations of overall current macroeconomic conditions affecting our borrowers. As interest rates have risen over the year ended December 31, 2022, the ability of our borrowers to service their debt and fund operations has been reduced. The current expected credit loss reserve represents 115 basis points of our aggregate loan commitments held at carrying value of approximately $351.4 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of approximately $3.9 million and (ii) a liability for unfunded commitments of $94,413. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our Manager has incurred general administrative expenses on our behalf and was reimbursed approximately $3.1 million for the year ended December 31, 2022. For the period ended December 31, 2021, all reimbursements to our Manager from May 1, 2021 to September 30, 2021 for general and administrative expenses were voluntarily waived by our Manager and not subject to recoupment at a later date."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The increase in professional fees was primarily due to an increase in audit, legal, investor relations and third-party consulting fees in the normal course of business as we continued to increase our assets under management."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The increase in stock based compensation expense was due to having a full year of restricted stock grants outstanding for the year ended December 31, 2022 as opposed to less than a month for the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

Loan Portfolio

As of December 31, 2022 and 2021, our portfolio included 22 and 21 loans
held for investment of approximately $339.3 million and $197.0 million of loans receivable, respectively. The aggregate originated commitment
under these loans was approximately $351.4 million and $235.1 million and outstanding principal was approximately $343.0 million and $200.6
million as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, our loan portfolio had a weighted-average yield-to-maturity
internal rate of return (“YTM IRR”) of 19.7% and 18.6%, respectively, and was substantially secured by real estate and, with
respect to certain of our loans, substantially all assets of the borrowers and certain of their subsidiaries, including equipment, receivables,
and licenses. YTM IRR is calculated using various inputs, including (i) cash and paid-in-kind (“PIK”) interest, which is capitalized
and added to the outstanding principal balance of the applicable loan, (ii) original issue discount (“OID”), (iii) amortization,
(iv) unused fees, and (v) exit fees. Certain of our loans have extension fees, which are not included in our YTM IRR calculations, but
may increase YTM IRR if such extension options are exercised by borrowers.

74

As
of December 31, 2022 and 2021, approximately 83.1% and 53.2%, respectively, of our portfolio was comprised of floating rate loans that
pay interest at the Prime Rate plus an applicable margin and were subject to a Prime Rate floor. The Prime Rate was 3.25% for the period
from January 1, 2022 through March 16, 2022, increased to 3.50% effective March 17, 2022, increased to 4.00% effective May 5, 2022, increased
again to 4.75% effective June 16, 2022, increased to 5.50% effective July 28, 2022, increased to 6.25% effective September 22, 2022, increased
to 7.00% effective November 3, 2022, and increased again to 7.50% effective December 15, 2022. The below summarizes our portfolio as of
December 31, 2022:

[[GREPCENT_TABLE]]
[["Loan","","Initial Funding Date (1)","","Maturity Date (2)","","Total Commitment (3)","","","Principal Balance","","","Carrying Value","","","Percent of Our Loan Portfolio","","","Future Fundings","","","Interest Rate (4)","","Periodic Payment (5)","","YTM IRR (6)"],["1","","10/27/2022","","10/30/2026","","$","30,000,000","","","$","30,000,000","","","$","29,140,546","","","","8.6","%","","","-","","","P + 6.50%(7)","","I/O","","","16.3","%"],["2","","3/5/2021","","12/31/2024","","","35,891,667","","","","37,283,861","","","","37,122,095","","","","10.9","%","","","-","","","P + 6.65%(7)(8) Cash, 4.25% PIK","","P&I","","","18.0","%"],["3(11)","","3/25/2021","","11/29/2024","","","20,105,628","","","","20,809,353","","","","20,434,869","","","","6.0","%","","","-","","","13.91% Cash(7), 2.59% PIK","","P&I","","","21.3","%"],["4(9)","","4/19/2021","","12/31/2023","","","12,900,000","","","","12,849,490","","","","12,849,490","","","","3.8","%","","","-","","","18.72%(7)(8)","","P&I","","","24.2","%"],["5","","4/19/2021","","4/30/2025","","","3,500,000","","","","1,856,000","","","","1,856,000","","","","0.5","%","","","1,644,000","","","P + 12.25%(7)","","P&I","","","24.3","%"],["6","","5/28/2021","","5/31/2025","","","12,900,000","","","","13,399,712","","","","13,399,712","","","","3.9","%","","","-","","","P + 10.75%(7) Cash, 4% PIK(10)","","P&I","","","22.6","%"],["7","","8/20/2021","","2/20/2024","","","6,000,000","","","","4,359,375","","","","4,354,824","","","","1.3","%","","","1,500,000","","","P + 9.00%(7)","","P&I","","","17.1","%"],["8","","8/24/2021","","6/30/2025","","","25,000,000","","","","25,466,043","","","","25,220,857","","","","7.4","%","","","-","","","P + 6.00%(7) Cash, 2.5% PIK","","P&I","","","17.8","%"],["9","","9/1/2021","","9/1/2024","","","9,500,000","","","","10,086,382","","","","9,980,730","","","","2.9","%","","","-","","","18.75% PIK","","P&I","","","25.9","%"],["10","","9/3/2021","","6/30/2024","","","15,000,000","","","","15,775,542","","","","15,775,542","","","","4.6","%","","","-","","","P + 10.75%(7) Cash, 6% PIK","","P&I","","","23.6","%"],["11","","9/20/2021","","9/30/2024","","","470,411","","","","274,406","","","","274,406","","","","0.1","%","","","-","","","11.00%","","P&I","","","21.4","%"],["12","","9/30/2021","","9/30/2024","","","32,000,000","","","","32,645,784","","","","32,020,799","","","","9.4","%","","","-","","","P + 8.75%(7) Cash, 2% PIK","","I/O","","","21.4","%"],["13","","11/8/2021","","10/31/2024","","","20,000,000","","","","20,000,000","","","","19,815,257","","","","5.8","%","","","-","","","13.00%","","P&I","","","18.4","%"],["14","","11/22/2021","","11/1/2024","","","13,100,000","","","","13,118,014","","","","12,993,155","","","","3.8","%","","","-","","","P + 6.00%(7) Cash, 1.5% PIK","","I/O","","","18.0","%"],["15","","12/27/2021","","12/27/2026","","","5,000,000","","","","5,194,167","","","","5,194,167","","","","1.5","%","","","-","","","P + 12.25%(7) Cash, 2.5% PIK","","P&I","","","22.8","%"],["16","","12/29/2021","","12/29/2023","","","6,000,000","","","","3,787,852","","","","3,743,099","","","","1.1","%","","","2,400,000","","","P + 7.50%(7) Cash, 5% PIK","","I/O","","","20.9","%"],["17","","12/30/2021","","12/31/2024","","","13,000,000","","","","7,387,500","","","","7,337,523","","","","2.2","%","","","5,500,000","","","P + 9.25%(7)","","I/O","","","19.9","%"],["18","","1/18/2022","","1/31/2025","","","15,000,000","","","","15,000,000","","","","14,737,682","","","","4.3","%","","","-","","","P + 4.75%(7)","","P&I","","","14.2","%"],["19","","2/3/2022","","2/28/2025","","","30,000,000","","","","30,837,950","","","","30,415,113","","","","9.0","%","","","-","","","P + 8.25%(7) Cash, 3% PIK","","P&I","","","24.4","%"],["20","","3/11/2022","","8/29/2025","","","20,000,000","","","","20,483,947","","","","20,406,737","","","","6.0","%","","","-","","","11% Cash, 3% PIK","","P&I","","","15.3","%"],["21","","5/9/2022","","5/30/2025","","","17,000,000","","","","17,337,220","","","","17,203,138","","","","5.1","%","","","-","","","11% Cash, 3% PIK","","P&I","","","15.5","%"],["22","","7/1/2022","","7/29/2026","","","9,000,000","","","","5,076,736","","","","4,997,797","","","","1.5","%","","","4,000,000","","","P + 8.50%(7) Cash, 3% PIK","","P&I","","","24.3","%"],["","","","","Subtotal","","$","351,367,706","","","$","343,029,334","","","$","339,273,538","","","","100.0","%","","$","15,044,000","","","16.9%","","Wtd Average","","","19.7","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","All loans originated prior to April 1, 2021 were purchased from affiliated entities at fair value plus accrued interest on or subsequent to April 1, 2021."]]
[[/GREPCENT_TABLE]]

75

[[GREPCENT_TABLE]]
[["(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 as 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Total Commitment excludes future amounts to be advanced at sole discretion of the lender."],["(4)","\u201cP\u201d = Prime Rate and depicts floating rate loans that pay interest at the Prime Rate plus a specific percentage; \u201cPIK\u201d = paid-in-kind interest; subtotal represents weighted average interest rate."],["(5)","P&I = principal and interest. I/O = interest only. P&I loans may include interest only periods for a portion of the loan term."],["(6)","Estimated YTM 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."],["(7)","This Loan is subject to Prime Rate floor."],["(8)","This Loan is subject to an interest rate cap."],["(9)","The aggregate loan commitment to Loan #4 includes a $10.9 million initial commitment which has a base interest rate of 15.00% and a second commitment of $2.0 million which has an interest rate of 39%. The statistics presented reflect the weighted average of the terms under all advances for the total aggregate loan commitment."],["(10)","Subject to adjustment not below 2% if borrower receives at least two consecutive quarters of positive cash flow after the closing date."],["(11)","The aggregate loan commitment to Loan #3 includes a $15.9 million initial commitment which has a base interest rate of 13.625%, 2.75% PIK and a second commitment of $4.2 million which has an interest rate of 15.00%, 2.00% PIK. The statistics presented reflect the weighted average of the terms under all advances for the total aggregate loan commitment."]]
[[/GREPCENT_TABLE]]

76

The following tables summarize our loans held for
investment as of December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","As of December 31, 2022"],["","","Outstanding Principal (1)","","","Original Issue Discount","","","Carrying Value (1)","","","Weighted Average Remaining Life (Years) (2)"],["Senior Term Loans","","$","343,029,334","","","$","(3,755,796",")","","$","339,273,538","","","","2.2"],["Current expected credit loss reserve","","","-","","","","-","","","","(3,940,939",")"],["Total loans held at carrying value, net","","$","343,029,334","","","$","(3,755,796",")","","$","335,332,599"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","As of December 31, 2021"],["","","Outstanding Principal (1)","","","Original Issue Discount","","","Carrying Value (1)","","","Weighted Average Remaining Life (Years) (2)"],["Senior Term Loans","","$","200,632,056","","","$","(3,647,490",")","","$","196,984,566","","","","2.2"],["Current expected credit loss reserve","","","-","","","","-","","","","(134,542",")"],["Total loans held at carrying value, net","","$","200,632,056","","","$","(3,647,490",")","","$","196,850,024"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount, deferred loan fees and other upfront fees. Outstanding principal balance includes capitalized PIK interest, if applicable."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2022 and December 31, 2021, respectively."]]
[[/GREPCENT_TABLE]]

The following tables present changes in loans held
for investment at carrying value as of and for the year ended December 31, 2022 and the period ended December 31, 2021:

[[GREPCENT_TABLE]]
[["","","Principal","","","Original Issue Discount","","","Current Expected Credit Loss Reserve","","","Carrying Value"],["Balance at December 31, 2021","","$","200,632,056","","","$","(3,647,490",")","","$","(134,542",")","","$","196,850,024"],["New fundings","","","160,163,120","","","","(3,243,735",")","","","-","","","","156,919,385"],["Principal repayment of loans","","","(17,728,730",")","","","-","","","","-","","","","(17,728,730",")"],["Accretion of original issue discount","","","-","","","","2,874,706","","","","-","","","","2,874,706"],["Proceeds from sale of loans","","","(6,957,500",")","","","260,723","","","","-","","","","(6,696,777",")"],["PIK Interest","","","6,920,388","","","","-","","","","-","","","","6,920,388"],["Current expected credit loss reserve","","","-","","","","-","","","","(3,806,397",")","","","(3,806,397",")"],["Balance at December 31, 2022","","$","343,029,334","","","$","(3,755,796",")","","$","(3,940,939",")","","$","335,332,599"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount, deferred loan fees and other upfront fees. Outstanding principal balance includes capitalized PIK interest, if applicable."]]
[[/GREPCENT_TABLE]]

77

[[GREPCENT_TABLE]]
[["","","Principal","","","Original Issue Discount","","","Current Expected Credit Loss Reserve","","","Carrying Value"],["Balance at March 30, 2021 (inception)","","$","-","","","$","-","","","$","-","","","$","-"],["Loans contributed","","","40,191,921","","","","(846,724",")","","","-","","","","39,345,197"],["New fundings","","","174,445,480","","","","(3,529,406",")","","","-","","","","170,916,074"],["Principal repayment of loans","","","(9,798,364",")","","","-","","","","-","","","","(9,798,364",")"],["Accretion of original issue discount","","","-","","","","595,872","","","","-","","","","595,872"],["Proceeds from sale of loans","","","(5,005,000",")","","","132,768","","","","-","","","","(4,872,232",")"],["PIK Interest","","","798,019","","","","-","","","","-","","","","798,019"],["Provision for credit losses","","","-","","","","-","","","","(134,542",")","","","(134,542",")"],["Balance at December 31, 2021","","$","200,632,056","","","$","(3,647,490",")","","$","(134,542",")","","$","196,850,024"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted original issue discount, deferred loan fees and other upfront fees. Outstanding principal balance includes capitalized PIK interest, if applicable."]]
[[/GREPCENT_TABLE]]

We may make modifications to loans, including loans that are in default.
Loan terms that may be modified include interest rates, required prepayments, maturity dates, covenants, principal amounts and other loan
terms. The terms and conditions of each modification vary based on individual circumstances and will be determined on a case by case basis.
Our Manager monitors and evaluates each of our loans held for investment and has maintained regular communications with borrowers regarding
the potential impacts on our loans.

Non-GAAP Measures and Key Financial Measures and Indicators

As a commercial real estate finance company, we
believe the key financial measures and indicators for our business are Distributable Earnings, Adjusted Distributable Earnings, book value
per share and dividends declared per share.

Distributable Earnings and Adjusted Distributable Earnings

In addition to using certain financial metrics
prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings and Adjusted Distributable Earnings to
evaluate our performance. Each of Distributable Earnings and Adjusted Distributable Earnings is a measure that is not prepared in accordance
with GAAP. We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding
(i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items
recorded in net income (loss) for the period; provided that Distributable Earnings does not exclude, in the case of investments with a
deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not
yet received in cash, (iv) provision for current expected credit losses and (v) one-time events pursuant to changes in GAAP and certain
non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of
such independent directors. We define Adjusted Distributable Earnings, for a specified period, as Distributable Earnings excluding certain
non-recurring organizational expenses (such as one-time expenses related to our formation and start-up).

78

We believe providing Distributable Earnings and
Adjusted Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders
in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable
income and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given
these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock,
we generally intend to attempt to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent
authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not
a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.

Distributable Earnings and Adjusted Distributable
Earnings should not be considered as substitutes for GAAP net income. We caution readers that our methodology for calculating Distributable
Earnings and Adjusted Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar
supplemental performance measures, and as a result, our reported Distributable Earnings and Adjusted Distributable Earnings may not be
comparable to similar measures presented by other REITs.

The following table provides a reconciliation of
GAAP net income to Distributable Earnings and Adjusted Distributable Earnings (in thousands, except per share data):

[[GREPCENT_TABLE]]
[["","","For the year ended","","","Period from March 30, 2021 (inception) to"],["","","December 31, 2022","","","December 30, 2021"],["Net Income","","$","32,292,477","","","$","9,496,436"],["Adjustments to net income"],["Non-cash equity compensation expense","","","435,623","","","","29,611"],["Amortization","","","563,464","","","","75,861"],["Provision for current expected credit losses","","","3,887,405","","","","147,949"],["Distributable Earnings","","$","37,178,969","","","$","9,749,857"],["Adjustments to Distributable Earnings"],["Adjusted Distributable Earnings","","","37,178,969","","","","9,917,448"],["Basic weighted average shares of common stock outstanding (in shares)","","","17,653,765","","","","6,442,865"],["Adjusted Distributable Earnings per Weighted Average Share","","$","2.11","","","$","1.54"],["Diluted weighted average shares of common stock outstanding (in shares)","","","17,746,214","","","","6,450,383"],["Adjusted Distributable Earnings per Weighted Average Share","","$","2.10","","","$","1.54"]]
[[/GREPCENT_TABLE]]

Book Value Per Share

The book value per share of our common stock as
of December 31, 2022 and December 31, 2021 was approximately $14.86 and $15.13, respectively.

79

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential
cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions
to our stockholders, and meet other general business needs. We use significant cash to invest in loans, repay principal and interest on
our borrowings, make distributions to our stockholders, and fund our operations.

Our primary sources of cash generally consist
of unused borrowing capacity under our financing sources, the net proceeds of future offerings of equity or debt securities, payments
of principal and interest we receive on our portfolio of assets and cash generated from our operating results. On a long-term basis, we
expect that our primary sources of financing will be, to the extent available to us, through (a) credit facilities and (b) public and
private offerings of our equity and debt securities. We may utilize other sources of financing to the extent available to us. As the cannabis
industry continues to evolve and to the extent that additional states legalize cannabis, the demand for capital continues to increase
as operators seek to enter and build out new markets. In the short-term, we expect the principal amount of the loans we originate to increase
and that we will need to raise additional equity and/or debt financing to increase our liquidity. We expect to achieve this through recycling
capital from loan paydowns, repayments, and sales of common stock related to our shelf registration statement.

As of December 31, 2022 and 2021, all of our cash
was unrestricted and totaled approximately $5.7 million and $80.2 million, respectively. We believe that our cash on hand, capacity available
under our Revolving Loan, and cash flows from operations for the next twelve months will be sufficient to satisfy the operating requirements
of our business through at least the next twelve months. The sources of financing for our target investments are described below.

Credit Facilities

In May 2021, in connection with the Company’s
acquisition of its wholly-owned financing subsidiary, CAL, the Company was assigned a secured revolving credit facility (the “Revolving
Loan”). The Revolving Loan had an original aggregate borrowing base of up to $10,000,000 and bore interest, payable in cash in arrears,
at a per annum rate equal to the greater of (x) Prime Rate plus 1.00% and (y) 4.75%. The Company incurred debt issuance costs of $100,000
related to the origination of the Revolving Loan, which were capitalized and are subsequently being amortized through maturity. The maturity
date of the Revolving Loan was the earlier of (i) February 12, 2023 and (ii) the date on which the Revolving Loan is terminated pursuant
to terms in the Revolving Loan Agreement.

On December 16, 2021, CAL entered into an amended
and restated Revolving Loan agreement (the “First Amendment and Restatement”). The First Amendment and Restatement increased
the loan commitment from $10,000,000 to $45,000,000 and decreased the interest rate, from the greater of the (1) Prime Rate plus 1.00%
and (2) 4.75% to the greater of (1) the Prime Rate plus the applicable margin and (2) 3.25%. The applicable margin is derived from a floating
rate grid based upon the ratio of debt to equity of CAL and increases from 0% at a ratio of 0.25 to 1 to 1.25% at a ratio of 1.5 to 1.
The First Amendment and Restatement also extended the maturity date from February 12, 2023 to the earlier of (i) December 16, 2023 and
(ii) the date on which the Revolving Loan is terminated pursuant to the terms of the Revolving Loan agreement. The Company has the option
to extend the initial term for an additional one-year term, provided no events of default exist and the Company provides the required
notice of the extension pursuant to the First Amendment and Restatement. The Company incurred debt issuance costs of $859,500 related
to the First Amendment and Restatement, which were capitalized and are subsequently being amortized through maturity.

On May 12, 2022, CAL entered into a second amended
and restated Revolving Loan agreement (the “Second Amendment and Restatement”). The Second Amendment and Restatement increased
the loan commitment from $45,000,000 to $65,000,000. No other material terms of the Revolving Loan were modified as a result of the execution
of the Second Amendment and Restatement. The Company incurred debt issuance costs of $177,261 related to the Second Amendment and Restatement,
which were capitalized and are subsequently amortized through maturity.

On November 7, 2022, CAL entered into a third amended
and restated Revolving Loan agreement (the “Third Amendment and Restatement”). The Third Amendment and Restatement increased
the loan commitment from $65,000,000 to $92,500,000. No other material terms of the Revolving Loan were modified as a result of the execution
of the Third Amendment and Restatement. The Company incurred debt issuance costs of $323,779 related to the Third Amendment and Restatement,
which were capitalized and are subsequently amortized through maturity. As of December 31, 2022 and 2021, unamortized debt issuance costs
related to the Revolving Loan and the First, Second and Third Amendments and Restatements of $805,596 and $868,022, respectively, are
recorded in other receivables and assets, net on the consolidated balance sheets.

The Revolving Loan incurs unused fees at a rate of
0.25% per annum which began on July 1, 2022 pursuant to the Second Amendment and Restatement. Additionally, during the year ended December
31, 2022, the Company borrowed $58.0 million against the Revolving Loan, which incurred an effective interest rate of 7.75% including
the unused fee rate of 0.25%, and $34.5 million available under the Revolving Loan.

The Third Amendment and Restatement provides for certain
affirmative covenants, including requiring us to deliver financial information and any notices of default, and conducting business in
the normal course. Additionally, the Company must comply with certain financial covenants including: (1) maximum capital expenditures
of $150,000, (2) maintaining a debt service coverage ratio greater than 1.35 to 1, and (3) maintaining a leverage ratio less than 1.50
to 1. As of December 31, 2022, we were in compliance with all financial covenants with respect to the Revolving Loan.

80

During the year ended December 31, 2022, we borrowed $58.0 million,
had $58.0 million outstanding, and $34.5 million available under the Revolving Loan as of such date. For the period ended December 31,
2021 we did not borrow against the Revolving Loan and therefore had $0 outstanding and $45 million available under the Revolving
Loan as of such date.

On February 27, 2023, CAL entered into the First Amendment
to the Third Amended and Restated Loan and Security Agreement. This amendment extended the contractual maturity date of the Revolving
Loan until December 16, 2024. The Company retained its option to extend the initial term for an additional one-year period, provided no
events of default exist and the Company provides 365 days’ notice of the extension pursuant to this amendment.

Capital Markets

We may seek to raise further equity capital and
issue debt securities in order to fund our future investments in loans.

Cash Flows

The following table sets forth changes in cash
for the year ended December 31, 2022 and the period of March 30, 2021 (inception) through December 31, 2021:

[[GREPCENT_TABLE]]
[["","","For the year ended December 31, 2022","","","Period from March 30, 2021 (inception) to December 30, 2021"],["Net income","","$","32,292,477","","","$","9,496,436"],["Adjustments to reconcile net income to net cash provided by (used in) operating activities and changes in operating assets and liabilities","","","(15,287,322",")","","","(2,826,999",")"],["Net cash provided by operating activities","","","17,005,155","","","","6,669,437"],["Net cash used in investing activities","","","(125,244,044",")","","","(145,221,676",")"],["Net cash provided by financing activities","","","33,706,190","","","","218,800,765"],["Change in cash","","$","(74,532,699",")","","$","80,248,526"]]
[[/GREPCENT_TABLE]]

Net Cash Provided
by Operating Activities

For the years ended December 31, 2022 and 2021,
we reported “Net cash provided by operating activities” of $17.0 million and $6.7 million, respectively. Net cash flows provided
by operating activities increased $10.3 million, primarily attributable to an increase in net income of $22.8 million, partially offset
by an increase in accretion of OID of approximately $2.3 million, increase in PIK interest of approximately $6.1 million, increase in
provision for current expected credit losses of approximately $3.7 million, increase in amortization of deferred debt issuance costs of
approximately $0.5 million, increase in stock based compensation of approximately $0.4 million, increase in interest receivable of approximately
$0.8 million, increase interest reserve of approximately $11.2 million, increase in management and incentive fees payable of approximately
$1.6 million, and increase in accounts payable and other accrued expenses and related party payables of $1.7 million.

81

Net Cash Used in Investing
Activities

For the years ended December 31, 2022 and 2021, we
reported “Net cash used in investing activities” of $125.2 million and $145.2 million, respectively.

The year ended December 31, 2022 was impacted
by cash outflows primarily related to $149.7 million used for the origination and funding of loans held for investment, partially offset
by $6.7 million received from the sales of loans and $17.7 million of cash received from the principal repayment of loans held for investment.

The period ended December 31, 2021 was impacted
by cash outflows primarily related to $159.9 million used for the origination and funding of loans held for investment, partially offset
by $4.9 million received from the sales of loans and $9.8 million cash received from the principal repayment of loans held for investment.

Net Cash Provided by
Financing Activities

For the years ended December 31, 2022 and 2021, we
reported “Net cash provided by financing activities” of $33.7 million and $218.8 million, respectively.

The year ended December 31, 2022 was impacted
by cash inflows of approximately $58.0 million related to draw downs on our Revolving Loan and approximately $4.5 million received from
the underwriters’ partial exercise of their over-allotment option, partially offset by approximately $28.2 million in dividends
paid, approximately $0.5 million in debt issuance costs paid, and approximately $0.1 million related to offering costs associated with
our initial public offering.

The period ended December 31, 2021 was impacted
by cash inflows of approximately $226.0 million related to proceeds from the issuance of our common stock, partially offset by approximately
$5.1 million in dividends paid, approximately $1.2 million of offering costs relate to our initial public offering, and approximately
$0.9 million related to debt issuance costs paid.

Leverage Policies

Although we are not required to maintain any particular
leverage ratio, we expect to employ prudent amounts of leverage and, when appropriate, to use debt as a means of providing additional
funds for the acquisition of loans, to refinance existing debt or for general corporate purposes. Leverage is primarily used to provide
capital for forward commitments until additional equity is raised or additional medium- to long-term financing is arranged. This policy
is subject to change by management and our Board.

Dividends

We have elected to be taxed as a REIT for United
States federal income tax purposes and, as such, anticipate annually distributing to our stockholders at least 90% of our REIT taxable
income, prior to the deduction for dividends paid and our net capital gain. If we distribute less than 100% of our REIT taxable income
in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we
will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our
ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any Required Distribution
to our stockholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the
subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution
and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our stockholders. The
90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital
gain for any tax year, we must notify our stockholders and pay tax at regular corporate rates on the retained net capital gain. The stockholders
must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed
to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may
be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain)
will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we accrue
excise tax on a portion of the estimated excess taxable income as such taxable income is earned.

To the extent that our cash available for distribution
is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from
working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability
to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required
Distribution in the form of a taxable stock distribution or distribution of debt securities. 

82

The following table summarizes the Company’s
dividends declared during the year ended December 31, 2022.

[[GREPCENT_TABLE]]
[["","","Record Date","","Payment Date","","Common Share Distribution Amount","","","Taxable Ordinary Income","","","Return of Capital","","","Section 199A Dividends"],["Regular cash dividend","","3/31/2022","","4/14/2022","","$","0.40","","","$","0.40","","","$","-","","","$","0.40"],["Regular cash dividend","","6/30/2022","","7/15/2022","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","9/30/2022","","10/14/2022","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","12/30/2022","","1/13/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Special cash dividend","","12/30/2022","","1/13/2023","","$","0.29","","","$","0.29","","","$","-","","","$","0.29"],["Total cash dividend","","","","","","$","2.10","","","$","2.10","","","$","-","","","$","2.10"]]
[[/GREPCENT_TABLE]]

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with
GAAP which requires the use of estimates and assumptions that involve the exercise of judgment as to future uncertainties. In accordance
with SEC guidance, the following discussion addresses the accounting estimates that we believe apply to us based on the nature of our
operations. Our most critical accounting estimates involve a significant level of estimation uncertainty that have had or are reasonably
likely to have a material impact on our financial conditions and results of operations. We believe that all of the decisions and assessments
used to prepare our consolidated financial statements are based upon reasonable assumptions given the information available to us at that
time. Our critical accounting estimates will be expanded over time as we fully implement our strategy. Those accounting estimates that
we believe are most critical to an investor’s understanding of our financial results and condition and require complex management
judgment are discussed below.

CECL Reserve

In accordance with ASC 326, we record allowances
for our 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. We consider multiple
datapoints and methodologies that may include likelihood of default and expected loss given default for each individual loans, 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.

We evaluate our loans on a collective (pool) basis
by aggregating on the basis of similar risk characteristics as explained below. We make the judgment that loans to cannabis-related borrowers
that are fully 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 as a pool. All other loans are analyzed individually, either
because they operate in a different industry, may have a different risk profile, or have maturities that extend beyond the forecast horizon
for which we are able to derive reasonable and supportable forecasts.

83

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 our loan portfolio, and (iv)
our current and future view of the macroeconomic environment. From time to time, we may consider loan-specific qualitative factors on
certain loans to estimate our 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
our portfolio, we evaluate our historical loan performance, which includes zero realized loan losses since our inception of operations.
Additionally, we analyzed our repayment history, noting we have limited “true” operating history, since the incorporation
date of March 30, 2021. However, our Sponsor has had operations for the past two fiscal years and has 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 our portfolio,
management considered it appropriate to consider the past repayment history of loans originated by the Sponsor in determining the extent
to which we should record a CECL Reserve.

In addition, we review each loan on a quarterly
basis and evaluate the borrower’s ability to pay the monthly interest and principal, if required, as well as the loan-to-value (LTV)
ratio. In considering the potential current expected credit loss, the Manager primarily considers significant inputs to our 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, ratio 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 our 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. We rely primarily on comparable transactions to estimate enterprise value of our portfolio companies and supplement such analysis
with a multiple-based approach to enterprise value to revenue multiples of publicly-traded comparable companies obtained from S&P
Capital IQ as of the quarter end, to which we apply a private company discount based on our 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 our future estimates
of expected credit losses for our loan portfolio.

Regarding real estate collateral, we generally cannot
take the position of mortgagee-in-possession as long as the property is used by a cannabis operator, but we can request that the court
appoint a receiver to manage and operate the subject real property until the foreclosure proceedings are completed. Additionally, while
we 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 our portfolio, we utilize historical market loan loss data obtained from a third-party database for commercial real estate
loans, which we believe is a reasonably comparable and available data set to use as an input for our type of loans. We expect 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, we revert 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 our CECL Reserve. As we acquire
new loans and our Manager monitors loan and borrower performance, these estimates will be revised each period. 

84

Risk Ratings

We assess the risk factors of each loan, and assign
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, enterprise value of the portfolio company, loan structure and exit
strategy, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, our loans are rated “1” through
“5,” from less risk to greater risk, which ratings are defined as follows:

[[GREPCENT_TABLE]]
[["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"]]
[[/GREPCENT_TABLE]]

The risk ratings are primarily based on historical
data and current conditions 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 declines in risk ratings shown in the following table from December 31, 2021
to December 31, 2022 consider borrower specific credit history and performance and quarterly re-evaluation of overall current macroeconomic
conditions affecting its borrowers. As interest rates have increased due to rising rates from the Federal Reserve Board, it has impacted
borrowers’ ability to service their debt obligations on a global scale. This decline in risk ratings had an effect on the level
of the current expected credit loss reserve, though the loans continued to perform as expected. For approximately 82% of the portfolio,
the fair value of the underlying real estate collateral exceeded the amounts outstanding under the loans as of December 31, 2022. The
remaining approximately 18% of the portfolio, while not fully collateralized by real estate, was secured by other forms of collateral
including equipment, receivables, licenses and/or other assets of the borrowers to the extent permitted by applicable laws and regulations
governing such borrowers.

As of December 31, 2022 and 2021, the carrying value,
excluding the CECL Reserve, of the Company’s loans within each risk rating by year of origination is as follows:

[[GREPCENT_TABLE]]
[["","","As of December 31, 2022","","","As of December 31, 2021"],["Risk Rating","","2022","","","2021","","","2020","","","2019","","","Total","","","2021","","","2020","","","2019","","","Total"],["1","","$","-","","","$","274,406","","","$","-","","","$","-","","","$","274,406","","","$","135,076,307","","","$","32,242,114","","","$","590,384","","","$","167,908,805"],["2","","","94,467,449","","","","88,444,868","","","","29,140,546","","","","-","","","","212,052,863","","","","29,075,761","","","","-","","","","-","","","","29,075,761"],["3","","","30,415,113","","","","83,131,444","","","","-","","","","-","","","","113,546,557","","","","-","","","","-","","","","-","","","","-"],["4","","","-","","","","13,399,712","","","","-","","","","-","","","","13,399,712","","","","-","","","","-","","","","-","","","","-"],["5","","","-","","","","-","","","","-","","","","-","","","","-","","","","-","","","","-","","","","-","","","","-"],["Total","","$","124,882,562","","","$","185,250,430","","","$","29,140,546","","","$","-","","","$","339,273,538","","","$","164,152,068","","","$","32,242,114","","","$","590,384","","","$","196,984,566"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Amounts are presented by loan origination year with subsequent advances shown in the original year of origination. Originations prior to March 30, 2021 were acquired in connection with our formation."]]
[[/GREPCENT_TABLE]]

Credit Risk

We are subject to varying degrees of credit risk
in connection with our loans and interest receivable. Our Manager seeks to mitigate this risk by seeking to originate loans, and may in
the future acquire loans, of higher quality at appropriate prices given anticipated and unanticipated losses, by employing a comprehensive
review and selection process and by proactively monitoring originated and acquired loans. Nevertheless, unanticipated credit losses could
occur that could adversely impact our operating results. None of our borrowers are now, or have previously been in payment or otherwise
material default under their respective loan agreements with us.

We expect to be subject to varying degrees of
credit risk in connection with holding our portfolio of loans. We will have exposure to credit risk on our commercial real estate loans
and other targeted types of loans. Our Manager will seek to manage credit risk by performing deep credit fundamental analysis of potential
assets and through the use of non-recourse financing, when and where available and appropriate.

85

Credit risk will also be addressed through our
Manager’s on-going review, and loans will be monitored for variance from expected prepayments, defaults, severities, losses and
cash flow on a quarterly basis.

Our Manager or affiliates of our Manager have
originated all of our loans and intend to continue to originate our loans, but we may in the future also acquire loans from time to time.
Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that
we may in the future acquire other than as necessary to maintain our exemption from registration under the Investment Company Act and
our qualification as a REIT. Our investment decisions will depend on prevailing market conditions and may change over time in response
to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage
of our capital that will be invested in any individual target investment at any given time.

Our loan portfolio as of December 31, 2022 and 2021
was concentrated with the top three borrowers representing approximately 29.4% and 34.6% of the funded principal and approximately 27.9%
and 9.7% of the total commitments to borrowers, respectively. As of December 31, 2022 and 2021, the top three borrowers represented approximately
29.3% and 15.3% of interest income, respectively. The largest loan represented approximately 10.9% and 15.0% of the funded principal and
approximately 10.2% and 12.8% of the total commitments as of December 31, 2022 and 2021, respectively.

As of December 31, 2022 and December 31, 2021, our
borrowers have operations in the jurisdictions in the table below:

[[GREPCENT_TABLE]]
[["As of December 31, 2022","","As of December 31, 2021"],["Jurisdiction","","Outstanding Principal","","","Our Loan Portfolio","","","Jurisdiction","","Outstanding Principal","","","Our Loan Portfolio"],["Michigan","","$","58,823,506","","","","17","%","","Michigan","","$","31,724,877","","","","16","%"],["Maryland","","","53,394,180","","","","16","%","","Maryland","","","38,267,872","","","","19","%"],["Florida","","","51,421,128","","","","15","%","","Florida","","","16,800,000","","","","8","%"],["Ohio","","","45,116,990","","","","13","%","","Ohio","","","14,150,000","","","","7","%"],["Pennsylvania","","","34,606,585","","","","10","%","","Pennsylvania","","","31,210,457","","","","16","%"],["Illinois","","","30,302,490","","","","9","%","","Illinois","","","27,312,315","","","","14","%"],["Arizona","","","19,266,104","","","","6","%","","Arizona","","","18,214,035","","","","9","%"],["Missouri","","","17,337,220","","","","5","%","","Missouri","","","-","","","","0","%"],["Massachusetts","","","15,031,751","","","","4","%","","Massachusetts","","","4,284,605","","","","2","%"],["West Virginia","","","11,640,004","","","","3","%","","West Virginia","","","11,017,895","","","","5","%"],["Nevada","","","6,089,376","","","","2","%","","Nevada","","","1,800,000","","","","1","%"],["New Jersey","","","-","","","","0","%","","New Jersey","","","5,700,000","","","","3","%"],["Arkansas","","","-","","","","0","%","","Arkansas","","","150,000","","","","0","%"],["Total","","$","343,029,334","","","","100","%","","Total","","$","200,632,056","","","","100","%"]]
[[/GREPCENT_TABLE]]

The Company measures current expected credit losses
(“CECL”) for loans held for investment based on Accounting Standards Codification (“ASC”) Topic 326, Financial
Instruments – Credit Losses (“ASC 326”). The Company early adopted ASU 326 at formation, which introduces a new credit
loss methodology which requires earlier recognition of credit losses, while also providing additional transparency about credit risk.
The CECL methodology utilizes a lifetime “expected credit loss” methodology for the recognition of credit losses for loans
and other receivables at the time the financial asset is originated or acquired. CECL amended the previous credit loss model to reflect
a reporting entity’s current estimate of all expected credit losses, not only based on historical experience and current conditions,
but also by including reasonable and supportable forecasts incorporating forward-looking information. The allowance for credit losses
(the “CECL Reserve”) required under ASU 326 is deducted from the respective loans’ amortized cost basis on the Company’s
Consolidated Balance Sheets. The allowance for credit losses attributed to unfunded loan commitments is included in Accounts payable and
accrued expenses on the Consolidated Balance Sheets. The expected credit losses are adjusted each period for changes in expected lifetime
credit losses.

Refer to footnote 3 to our consolidated financial
statements for the year ended December 31, 2022, titled “Loans Held for Investment, net” for more information on CECL. 

Income Taxes

We are a Maryland corporation that elected to
be taxed as a REIT under the Code, commencing with our taxable period ended December 31, 2021. We believe that our method of operation
will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled,
since qualification as a REIT depends on us satisfying numerous asset, income and distribution tests which depend, in part, on our operating
results.

86

To qualify as a REIT, we must meet a number of organizational
and operational requirements, including a requirement that we distribute annually to our stockholders at least 90% of our REIT taxable
income prior to the deduction for dividends paid and our net capital gain. To the extent that we distribute less than 100% of our REIT
taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of
the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of
1) 85% of our ordinary income for the calendar year, 2) 95% of our capital gain net income for the calendar year, and 3) any Required
Distributions to our stockholders during any calendar year (including any distributions declared by the last day of the calendar year
but paid in the subsequent year), then we are required to pay a non-deductible excise tax equal to 4% of any shortfall between the Required
Distribution and the amount that was actually distributed. The 90% distribution requirement does not require the distribution of net capital
gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our stockholders and pay tax at regular
corporate rates on the retained net capital gain. The stockholders must include their proportionate share of the retained net capital
gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the
retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If it is determined
that our estimated current year taxable income will be in excess of estimated dividend distributions (including capital gain dividend)
for the current year from such income, we accrue excise tax on estimated excess taxable income as such taxable income is earned. The annual
expense is calculated in accordance with applicable tax regulations. Excise tax expense is included in the line item income tax expense.

FASB ASC Topic 740, Income Taxes (“ASC 740”),
prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. We have analyzed our various federal and state filing positions
and believe that our income tax filing positions and deductions are well documented and supported as of December 31, 2022. Based on our
evaluation, there is no reserve for any uncertain income tax positions. Accrued interest and penalties, if any, are included within other
liabilities in the balance sheets.

Recent Accounting Pronouncements

Refer to footnote 2 to our consolidated financial
statements for the year ended December 31, 2022, titled “Significant Accounting Policies” for information on recent
accounting pronouncements.

87