When analyzing insider activity, one principle stands out: follow the insiders who step up to buy during a selloff. Company executives and directors typically know more about their business than outside investors, and when they purchase shares in weakness, it often suggests the market has overreacted. A recent example comes from Advanced Flower Capital (NASDAQ: AFCG), a specialty lender in the cannabis industry, where significant insider buying has caught investors’ attention.
In the past few days, an AFCG director, along with the company’s president and chief investment officer, purchased $1.6 million worth of shares in the $4.04 to $4.17 range. These moves came directly after disappointing earnings reports triggered a selloff in the stock. Their actions send a strong message: this cannabis stock looks undervalued.
AFCG currently trades at nearly half its reported book value of $8.18 per share, underscoring the disconnect between market sentiment and underlying value. Insider confidence, backed by this valuation gap, suggests a potential opportunity for investors willing to ride out volatility in the cannabis finance sector.
Several developments could validate this insider optimism:
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Loan workouts: AFCG has written off loans and raised reserves to $44 million, but management continues pursuing recoveries by liquidating collateral. Any progress could boost reported results and investor confidence in the cannabis stock.
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Federal rescheduling: If cannabis is reclassified from Schedule I to Schedule III under the Controlled Substances Act, operators would gain critical tax relief by deducting operating expenses. As CEO Daniel Neville noted, stronger cash flow for borrowers would improve AFCG’s loan performance—a clear catalyst for this cannabis stock.
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Expanded credit facility: A major bank recently increased AFCG’s revolving credit facility to $50 million from $30 million, providing stronger financial flexibility. The bank, with over $75 billion in assets, signaled institutional confidence in this cannabis stock.
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Strategic shift to BDC: AFCG plans to convert from a real estate investment trust (REIT) to a business development company (BDC). This shift would allow lending to cannabis firms that do not own real estate, expanding the potential borrower base to roughly two-thirds of the market. Such a move could significantly enhance long-term growth prospects for this cannabis stock.
AFCG pays $0.15 per share quarterly, translating into a 13.3% yield at current prices.
That income stream, combined with potential capital appreciation, makes this cannabis stock attractive for contrarian investors.
Bottom line: Insider buying is signaling that AFCG shares are too cheap. For those seeking undervalued opportunities in the sector, this cannabis stock offers both immediate income and the potential for significant upside.
