Leef Brands Inc

include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from what we discussed today for a full discussion of these risks please refer to our filings on cedar plus and at our website our financial results and press release for the quarter are available at leafbrands.com in the investor relations section on today's call michael will begin with key operational highlights and what drove the strong performance this quarter kevin will then walk through the financial results in more detail And after that, Mike will return to discuss the exciting opportunities ahead. With that, I'll turn the call over to Micah.

Thanks, Jesse, and good afternoon, everyone. For transparency, just want to call it out. Kevin and I are both recovering from being sick, so we both sound under the weather. Not that we're not excited. We are. But I just want to call it out. I'm going to do this one a little different today. I'm going to give you guys the headlines on the quarter, and then I want to spend the bulk of my time talking about where this company is going. The recent rescheduling announcement is the biggest thing that's happened in this industry in 50 years, and I'd like to cover a few ways it may impact LEAF. Kevin will do a deeper dive on the numbers from the quarter, and then I'll share a few thoughts on how the recent announcement could affect our business. As a quick recap of who we are and what we do, at our core, LEAF is a vertical extraction company. We operate extraction facilities in both California and New York where we produce concentrates for many of the largest companies in the industry. Concentrates as a category makes up over 50% of the addressable market in the U.S., and this number is climbing. In California, we operate one of the largest cultivation sites in the state where we grow input material for extraction at a fraction of the cost from what we can purchase it for on the open market. In 2025, we consumed over 200 acres worth of input material and grew 65 acres of our own 180-acre permit. Q1 2026 was the best quarter in lease history. Gross profit more than doubled year over year. Gross margins went from 22% to 49%. Adjusted EBITDA was over $2 million. Plus this is the third consecutive quarter of positive operating cashflow. The ranch is delivering exactly what we said it would and the model is working. We closed the first 4.5 million of our mindset capital financing during the quarter and expect to close the second tranche on May 8th, just later this week. This new capital will allow us to complete the build out of our Santa Barbara farm, complete improvements to our extraction facility, and invest into our team by bringing on a few key new hires to help scale, to help us scale over the coming years. We added Jamie Mandola to our board, and after the quarter, we announced the acquisition of Himalaya, which I will come back to. After receiving the first tranche capital, we immediately went to work on the farm. We've already been awarded 14 new DCC licenses in addition to what we had last year and are completing planting them as we speak. We will harvest these acres in June and replant them in July for two main harvests in 2026. Construction is underway with fencing and irrigation for the rest of the 180 acre local permit, and we intend to add more acres in the coming months to be able to increase canopy size by the summer. As I've stated before, 180 acres is a starting point. We're already exploring ways to expand upon this number to ensure LEAF is able to truly seize the opportunity I believe is coming. LEAF is building one of the largest medical grade pesticide free supply chains in a state that has international recognition for cannabis and agriculture. This fits perfectly into the more medical direction it seems the industry is headed and provides optionality for us in the coming years once fully built and at the scale I want Leaf to achieve in California. Our audience on these calls for the most part is investors, people trying to figure out which horse to bet on. If I'm in your shoes, I want to bet on a company that has the ability to scale on the face of what looks like is now coming, can win in the high quality, low cost to produce category, and most importantly, in my opinion, has a battle-scarred team that can execute and is driven to win. Leaf has all of these. So with that said, I'm going to pass it over to Kevin to run through the numbers from the quarter, and then I'll jump back in afterwards to go over a couple things I'm excited about and cover where I believe we are headed.

Thanks, Micah, and good afternoon, everyone. Apologies again for sounding terrible today. I really am excited for this quarter, despite not sounding like it. Building on the success of the latter half of 2025, Q1 was the quarter where the strategic transition that we've been executing on for the better part of two years started to show up in the financials in a real way. Net revenue for Q1 was $9.4 million, essentially flat against the $9.4 million we delivered in Q1 of 2025. On the surface, that looks like a quarter where nothing moved on the top line. However, underneath that flat headline are three core extraction lines, which are the manufacturing platform that we've built our wholesale concentrate strategy around grew unit volumes by approximately 60% year over year with revenue from those lines up roughly 15%. The gap between the unit growth and the dollar growth reflects the pricing environment in the California wholesale market, which remains compressed into which we've spoken about before. To put a finer point on the variance, our largest production line is our ethanol extraction line, and it makes up approximately 48% of revenue in the quarter. And the average selling price on that line was down approximately 32% year over year. So the units we're moving through that line are working harder for every dollar of revenue. That makes the gross margin expansion all the more meaningful because we delivered it through the headwind, not around it. So flat at the top is masking real growth in the core and intentional discipline in the rest of the portfolio. Gross profits are where the quarter really differentiates itself. Gross profit was $4.6 million, up from $2.1 million in Q1 last year. Gross margin came in at 49% compared to 22% in Q1 of 2025, a 27 percentage point expansion in a single year. This is a direct reflection of the impact our internal cultivation at Salisbury Canyon Ranch has had. Building on the momentum in Q4 of 2025, this quarter was almost fully fueled by internal biomass production on the main ethanol line. A year ago, we were buying that same input from third parties at market prices. Today, we're growing it ourselves on land we control. That shift, more than anything else we've done, is what's driving the cost of sales improvements and the margin expansion. What I'd emphasize is that we delivered this margin expansion against the backdrop of continued price compression in the California wholesale market. This isn't margin coming from a favorable pricing environment, it's margin from a structural change in our cost basis. What's exciting about this is the opportunities that are arising from rescheduling and what that could mean from a sales price perspective as things unfold here shortly. operating income for Q1 was $1.3 million compared to an operating loss of $1.9 million in Q1 of 2025, a $3.2 million favorable swing. Adjusting EBITDA was $2.4 million compared to a negative $730,000 in Q1 2025, a $3.1 million favorable swing. That's now multiple consecutive quarters of positive adjusted EBITDA, and it reflects the operating model we've been building towards. The gap net loss for the quarter was $426,000 compared to net income of $266,000 in Q1 of 2025. I want to be clear about what's driving that change because that optic is misleading. The swing is entirely attributable to a non-cash $3.9 million unfavorable change in the fair value of the derivative liabilities related to warrants and certain convertible instruments. That number moves with our share price and inputs and has nothing to do with the operating performance of the business. strip it out, and the operating trajectory that I just walked you through is what's actually happening. We ended the quarter with $5.8 million in cash compared to $2.2 million at the end of 2025. We finished Q1 with a working capital surplus of $5.9 million compared to a working capital deficit at year end. The principal driver of that improvement was the $4.5 million equity raise we completed in March. But it's also worth noting that we generated $395,000 of cash from operations during the quarter, a $2.2 million favorable swing from Q1 last year, and the third straight quarter of positive operating cash flow. We achieved this despite heavily investing in this year's cultivation in the first quarter, which includes almost $1.2 million in licensing and other seasonal startup costs. We've also continued to clean up the capital structure. The convertible debentures that sat on the balance sheet at the start of last year were fully resolved in 25 and the net debt is materially lower than it was a year ago. Looking forward, there's a few things to play for the rest of 2026. On SCR, what we delivered in Q1 was built on a biomass lead product mix from the prior cultivation cycle. We have the option this year to lean into higher margin fresh frozen production and we expect that mix optionality to be a contributor as this year develops. The point I want to leave you with is that the 49% gross margin we just delivered was achieved with the lowest margin version of our cultivation output, so there's room to build on that. As you are aware, we closed on our acquisition of Himalaya Vape on April 27th, so it isn't in the Q1 numbers we're discussing today. Integration work is now underway and we expect to begin to see the impact through the P&L, specifically the margin impact in Q3 as we bring production together and to see it more fully in q4 as we start to realize the impact of scr on the brand's products one thing i do want to flag q2 margins will compress we're between harvest right now and processing third-party biomass until our own crop comes in this summer this is seasonal and it's temporary and it's the last time we expect it to happen as we continue to scale the ranch our first 2026 harvest hits in june and meaningful volumes will be running through the extraction facility in early Q3. To summarize, in Q1, our three core extraction lines grew unit volumes by 60% and revenue by 15%. Gross margins nearly doubled to 49% as SCR became the primary biomass source. Adjusted EBITDA was $2.4 million, and we had positive operating income and positive operating cash flow. With that, I'll hand it back to Micah for closing remarks, so before we open it up for questions.