S-1/A: Leef Brands Reports Reduced Losses, Strategic Growth in Cannabis Market

Leef Brands, Inc. announced an 18% revenue increase and a 63% reduction in net loss for the nine months ended September 30, 2025, driven by vertical integration and New York market entry.

Summary

• Net revenue for the nine months ended September 30, 2025, increased by 18% to $26,469,224, up from $22,505,391 in the prior year.
• The net loss for the nine months ended September 30, 2025, significantly decreased by 63% to $6,471,235, compared to a loss of $17,446,633 for the same period in 2024.
• Gross profit for the nine months ended September 30, 2025, was $8,361,389, maintaining a consistent gross margin of 32% year-over-year.
• Operating expenses increased by 28% to $12,777,893 for the nine months ended September 30, 2025, primarily due to higher stock-based compensation and increased facility/shipping costs.
• The company commenced cultivation activities at its Salisbury Canyon Ranch property in Santa Barbara County, California, in 2025, with initial planting on 65 acres and plans to reach 187 acres by 2027.
• Early 2025 saw extraction line expansions: ethanol (+66%), solventless (+50%), and hydrocarbon (+38%), boosting annual concentrate production capacity to over 1 million lbs.
• Leef Brands entered the New York market in Q4 2025 with a Type 1 Processor license, marking an initial step in its multi-state expansion strategy.
• A Bitcoin treasury strategy was adopted in December 2024, deploying a portion of available cash reserves into Bitcoin as a long-term store of value and strategic asset.
• The company's common stock is quoted on the OTC under the symbol LEEEF, with a last reported price of $0.20 per share on October 24, 2025.
• A 10:1 share consolidation plan took effect on November 18, 2024, resulting in approximately 162,762,651 common shares outstanding post-consolidation.

Sentiment

Score: 6

Explanation: While the company shows significant improvement in reducing net losses and growing revenue, and has clear strategic initiatives, the substantial accumulated deficit and ongoing 'going concern' doubt temper overall sentiment. The reliance on future capital raises and the inherent risks of the cannabis industry also contribute to a moderate score.

Positives

• Net revenue increased by 18% for the nine months ended September 30, 2025, demonstrating continued growth in core operations.
• Net loss decreased by 63% for the nine months ended September 30, 2025, indicating improved financial performance and reduced losses.
• Gross profit margin remained consistent at 32% for the nine months ended September 30, 2025, with a strengthening in Q3 due to internal cultivation.
• Bringing Salisbury Canyon Ranch online is expected to reduce biomass input costs by an estimated 40-65% and enhance gross margins over time.
• Significant expansion of extraction capabilities (ethanol +66%, solventless +50%, hydrocarbon +38%) in early 2025 positions the company for increased production.
• Entry into the New York market represents a strategic multi-state expansion, diversifying revenue streams.
• Adoption of a Bitcoin treasury strategy aims to enhance shareholder value and diversify treasury assets.

Negatives

• The company has incurred net losses and an accumulated deficit of $128,218,670 as of September 30, 2025, raising substantial doubt about its ability to continue as a going concern.
• Cash used in operating activities increased unfavorably by $836,918 for the nine months ended September 30, 2025, compared to the prior year.
• Total operating expenses increased by 28% for the nine months ended September 30, 2025, driven by higher stock-based compensation and increased facility/shipping costs.
• Revenue for the year ended December 31, 2024, decreased by 7% compared to 2023, attributed to a strategic shift away from CPG retail sales.
• Gross profit margin decreased from 33% in 2023 to 31% in 2024, primarily due to lower average selling prices and competitive market dynamics.
• The company will not receive any proceeds from the sale of shares by selling security holders in this offering, limiting direct capital infusion from this specific registration.

Risks

• Incurred net losses and cannot assure achievement or maintenance of profitable operations, with a net loss of $24.6 million in 2024 and $34.6 million in 2023.
• May need to raise additional capital to fund new products and expand existing operations, with no assurance of obtaining adequate financing on reasonable terms or at all.
• The price of common stock has been, and is likely to be, volatile, potentially leading to a loss of investment.
• Limited trading market for common stock on the OTC and CSE, which provides significantly less liquidity than national securities exchanges.
• Cannabis remains a Schedule I controlled substance under federal law, creating challenges for banking, taxation (280E), and interstate commerce, and exposing the company to federal prosecution risk.
• Regulatory uncertainty at the U.S. state level, with potential for repeal or curtailment of state laws, or federal enforcement actions.
• Potential for special taxes or fees on the cannabis industry in certain U.S. states, adversely affecting profitability.
• Difficulty accessing banking services due to federal money laundering statutes and Bank Secrecy Act regulations, leading to a cash-heavy environment and increased security issues.
• Difficulty accessing public and private capital due to the cautious approach of financial institutions towards the cannabis industry.
• Lack of access to U.S. bankruptcy protections, as federal bankruptcy courts may deny relief for cannabis businesses.
• Heightened scrutiny by regulatory authorities in Canada and the United States due to U.S. cannabis operations, potentially leading to restrictions or consequences for stock exchange listing.
• Risk of civil asset forfeiture, where property owned by cannabis industry participants could be seized by law enforcement.
• Laws and regulations affecting the cannabis industry are constantly changing, requiring substantial compliance costs or alterations to business plans.
• Potential for unfavorable publicity or consumer perception regarding cannabis, affecting demand for products.
• Vulnerability to rising energy costs due to considerable energy consumption in cannabis growing operations.
• Reliance on key inputs (raw materials, electricity, water) and potential for supply chain interruptions or increased costs, especially with drought conditions in California.
• Extreme volatility in the pricing of raw materials (flower, distilled cannabis oil), which can disrupt the supply chain and adversely affect financial results.
• Results of future clinical research may negatively impact the cannabis industry if findings are unfavorable regarding medical benefits, safety, or efficacy.
• Intense competition from other companies, including larger and better-financed competitors, and from the illegal cannabis market.
• Dependence on equipment and skilled labor, with no assurance of maintaining required supply at reasonable cost or in a timely manner.
• Intellectual property risks, including limited federal trademark and patent protection in the U.S. due to cannabis's Schedule I status.
• Risk of fraudulent or illegal activity by employees, contractors, and consultants.
• Risks related to information technology systems, including cyber-attacks and security breaches, potentially leading to data theft or reputational harm.
• Management of growth may prove difficult, leading to capacity constraints and pressure on internal systems and controls.
• Officers and directors may be engaged in other business ventures resulting in conflicts of interest.
• Certain remedies may be limited to the company due to indemnification provisions for directors and officers under British Columbia law.

Future Outlook

Management anticipates operating expenses will increase substantially due to increased development and production efforts, and expanded marketing and sales. The company expects to need additional liquidity and capital resources through debt and/or equity financings to support future product development and backlog. Full-scale cultivation at Salisbury Canyon Ranch is anticipated to reach 187 acres by 2027, which is expected to materially reduce input costs and enhance gross margins. The company aims to methodically scale extraction and cultivation capacity to tighten margin controls and fuel revenue growth, positioning itself as a foundational extraction partner and a 'Coast to Coast MSO powerhouse'. Potential rescheduling of cannabis to Schedule III and progress on the SAFE Banking Act may unlock institutional investment and interstate trade, significantly altering competitive dynamics.

Management Comments

• "LEEF is well-positioned to capitalize on scaling opportunities across California and beyond."
• "Our management team is among the most diverse in the industry, bringing years of real-world experience, keen insight, and a shared vision to LEEF."
• "Our cultivation-to-extract model through direct ownership and operation of our 1,900-acre ranch with plans, dramatically cuts biomass costs and boosts margins, giving full supply-chain control."
• "The Company combines vertical integration, production scaling, strategic partnerships, disciplined finance, and market positioning into a coherent growth strategy. Its engineered to thrive as a foundational extraction partner and become a Coast to Coast MSO powerhouse."
• "We believe Bitcoin offers a compelling alternative to holding cash due to its finite supply, decentralized nature, and potential for long-term appreciation."

Industry Context

The legal cannabis industry is in an early stage of development, characterized by evolving state-level legalization, but remains federally illegal (Schedule I drug). This creates challenges for banking, taxation (Section 280E), and interstate commerce. The California legal cannabis market is estimated to exceed USD $6.5 billion in 2025, with concentrates accounting for approximately 42% of market value in 2024. The market faces oversupply and price compression, with retail prices falling ~32% since 2021. However, growing demand from health-conscious individuals, Gen Z, and older adults for low-dose, non-smoking formats, along with potential federal rescheduling (Schedule III) and SAFE Banking Act progress, offer significant growth opportunities. The industry is also seeing consolidation, with M&A and distressed asset acquisitions providing growth paths for strong operators like Leef Brands, which emphasizes vertical integration and cost management to mitigate market pressures.

Comparison to Industry Standards

• Leef Brands' 2024 concentrate-based sales of $28.5 million highlight its positioning in a high-value segment of California's multi-billion dollar legal cannabis market, which is estimated to exceed $6.5 billion in 2025.
• The company's 186.7-acre cultivation land use permit on Salisbury Canyon Ranch positions it as one of the largest cannabis cultivation sites in California, a key competitive advantage in a market facing oversupply and price compression.
• Leef Brands' state-of-the-art closed-loop extraction facilities, capable of producing over 1 million lbs of concentrates annually, demonstrate significant scale compared to many smaller, fragmented operators in the cannabis extraction sector.
• The company's strategic shift to vertical integration, aiming to reduce input costs by 40-65% through self-cultivation, is a common strategy among leading cannabis multi-state operators (MSOs) to improve margins in a competitive environment.
• The adoption of a Bitcoin treasury strategy is an innovative approach to corporate reserve management, distinguishing Leef Brands from traditional cannabis companies that typically face limited banking access and traditional financing options.

Management Changes

Corporate Governance

Legal Proceedings

• No pending or threatened lawsuits that could reasonably be expected to have a material effect on the company's operations as of September 30, 2025, and December 31, 2024.
• No proceedings in which any directors, officers, or affiliates are adverse parties or have a material interest adverse to the company's interest as of September 30, 2025, and December 31, 2024.

Related Party Transactions

• Accrued approximately $396,000 of expenses to a farming company owned by a member of management and shareholder during the nine months ended September 30, 2025, with approximately $450,000 unpaid as of period end.
• The acquisition of Anderson Development SB, LLC (ADSB) in November 2021 involved a controlling interest holding related party, with contingent consideration of $2,400,000 (reduced to $500,000 as of December 31, 2024) payable in common stock.
• A note payable with a principal balance of $400,000 and accrued interest of $72,000 was resold to a related party during the year ended December 31, 2024.
• Borrowed $200,000 and $39,000 from two additional related parties during the year ended December 31, 2024.
• Entered into a note payable with a principal balance of $445,000 with a related party during the nine months ended September 30, 2024, collateralized by crypto currency or cultivation licenses and inventory.

Stakeholder Impact

• **Shareholders**: Potential for dilution from future equity financings and warrant exercises. The 10:1 share consolidation aims to improve capital structure and attractiveness to institutional investors. The 'going concern' doubt poses a significant risk to investment value. No cash dividends are anticipated in the foreseeable future.
• **Employees**: Wages and salaries increased due to stock-based compensation, indicating a focus on employee incentives. The company employs approximately 50 full-time employees as of July 31, 2025, and 83 full-time employees as of December 31, 2024.
• **Customers**: Strategic focus on high-quality brands in the wholesale concentrate market and disciplined credit practices aim to ensure stable sales performance. Entry into the New York market expands customer reach.
• **Suppliers**: Vertical integration through Salisbury Canyon Ranch is expected to reduce reliance on third-party biomass suppliers and improve quality control.
• **Creditors**: The company has significant debt obligations, including notes payable and convertible debentures. The 'going concern' doubt and need for additional capital present risks to creditors. Recent debt restructuring and conversions impact creditor positions.

Next Steps

• Continue to scale operations in the New York market following limited production commencement in Q4 2025.
• Proceed with additional phases of cultivation at Salisbury Canyon Ranch through 2027 to reach full 187-acre capacity.
• Generate and sustain significant revenue levels to offset increased operating expenses and achieve profitability.
• Seek additional liquidity and capital resources through debt and/or equity financings.
• Engage resources to focus on a broader Environmental, Social and Governance (ESG) program, targeting completion of an ESG assessment by year-end.
• Evaluate expansion of the Board of Directors, including the addition of an independent board member with sufficient accounting and financial experience to chair an audit committee.
• Establish charters for contemplated audit and compensation committees.
• Become compliant with federal income tax filings for 2021, 2022, and 2023 during the second quarter of 2025.

Key Dates

Recommendation

Leef Brands, Inc. presents a mixed financial picture. While the company has demonstrated significant progress in reducing its net losses and growing revenue, driven by strategic vertical integration and market expansion into New York, it continues to operate with a substantial accumulated deficit and faces 'going concern' uncertainties. The strategic shift to in-house cultivation and expanded extraction capabilities are positive steps towards improving margins and supply chain control. However, the inherent risks of the federally illegal cannabis industry, including regulatory hurdles, tax disadvantages (280E), and challenges in accessing traditional financial services, remain significant. The need for immediate additional capital and potential dilution from future financings are also key considerations. Given the improved operational performance and strategic initiatives, but balanced against the high-risk industry environment and ongoing financial challenges, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to secure additional financing, achieve sustained profitability, and navigate the evolving regulatory landscape.

Keywords

Cannabis, Extraction, Cultivation, Concentrates, Marijuana, Vertical Integration, California Cannabis, New York Cannabis, SEC Filing, S-1/A, LEEF Brands, Bitcoin Treasury, Financial Results, Risk Factors, OTC Market, CSE, Cannabis Regulation, 280E Tax, Share Consolidation