Leef Brands Inc

Good day and thank you for standing by. Welcome to the Leaf Brands second quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jesse Redmond, Chief Strategy and Investor Relations Officer. Please go ahead.

Good afternoon, everyone, and thank you for joining us. Welcome to Leaf Brands' second quarter 2026 earnings call. Joining me today are Micah Anderson, our Chief Executive Officer, and Kevin Wilson, our Chief Financial Officer. Please note that today's discussion will 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 at the SEC and InstantR Plus, as well as the investor relations section of our website. On today's call, Micah will begin with an overview of the quarter. Kevin will walk through our financial results in more detail. Micah will then return to discuss why we are so excited about LeaseFuture. With that, I'll turn the call over to Micah.

Thanks, Jesse, and good afternoon, everyone. I want to start with the progress we made during the quarter and why it validates the strategy we have been building toward. We completed and oversubscribed $9.3 million financing to expand Salisbury Canyon Ranch and strengthen our balance sheet. We acquired Himalaya Vape Company, giving LEAF an established California concentrate brand. We filed multiple applications for DEA registration and began the largest harvest in the company's history. Since the quarter ended, we've completed that harvest and started processing the material. The first several hundred liters produced in July represent the best oil we have ever produced. Our distillate passed California's elevated path for pesticide screens and tested at approximately 95% THC and 99% total cannabinoids. These results are better than last year and represent what we believe to be the highest quality oil on the market. We continue to make steady progress toward building out all 180 acres of Salisbury Canyon Ranch. This spring we added 14 new acres, bringing cultivation to approximately 80 acres and are preparing to plant an additional 21 acres this fall. This will bring the total canopy size closer to 100 acres in 2026. To further secure our biomass supply, we entered into a supply agreement with a long term farming partner for an additional 21 acres at a cost structure similar to Salisbury Canyon Ranch. We have already harvested the spring crop at this other location and are in the process of replanting these 21 acres for an additional fall harvest. Together, we expect this production to carry us through to the 2027 harvest and prevent another biomass gap. In my opinion, LEAF has never been in a stronger position. Now let me address the temporary softness in revenue during Q2. On our Q1 earnings call, we told investors Q2 would be softer. We had exhausted the material from our 2025 harvest at Salisbury Canyon Ranch and returned to purchasing biomass from third-party farms while we waited for this year's harvest. And that's exactly what happened. When we run our own material, we control cost, quality, consistency, and timing. When we buy biomass on the open market, we control fewer variables. During Q2, we paid more for lower quality material. That affected extraction yields, margins, and our ability to remain in the normal purchasing rotation with some of our customers. The results demonstrate why expanding our cultivation footprint is so important. Revenue declined 16% to $7.3 million and adjusted EBITDA was negative $631,000. At the same time, gross profit increased 62% year over year to $2.4 million and gross margins nearly doubled to 33% from 17% last year. That margin improvement was driven in part by the growing contribution from higher margin hydrocarbon products, which became the company's largest revenue category for the first time this quarter. as non-vertical extractors leave the market, LEAF is capturing more market share, and I believe that this trend will continue. This progress gives us confidence in what lies ahead. In 2027, we expect to be running the full 180 acres, supplying our extraction platform with our own clean biomass, capturing higher margins through Himalaya, and being ready to pursue international and interstate opportunities when they become available.