LEEEF 10-Q
Leef Brands Inc. (LEEEF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from to
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
| British Columbia | ||
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of each Class)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of August 6, 2026 there were of the registrant’s common shares outstanding.
LEEF BRANDS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2026
TABLE OF CONTENTS
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) of Leef Brands, Inc. (the “Company,” “Leef Brands,” “we,” “us,” or “our”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report that do not relate to matters of historical fact should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” “continue” or similar expressions, or the negative of these terms or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
| ● | our ability to generate revenue and become profitable; |
| ● | our ability to execute our business strategy; |
| ● | our ability to secure additional capital on acceptable terms to fund operations, capital expenditures, facility improvements, and product development; |
| ● | the impact of ongoing United States federal law prohibiting cannabis on our ability to operate in the cannabis industry, including federal enforcement priorities and potential changes in U.S. federal and state cannabis laws and regulations; |
| ● | the continued evolution of state and local cannabis regulations in California, New York, Nevada, and any other jurisdictions in which we operate; |
| ● | our ability to maintain and renew state and local cannabis licenses and permits that we hold, and to obtain new licenses and permits in the ordinary course; |
| ● | our ability to manage our liquidity and meet our financial obligations as they come due, including our material debt and lease obligations; |
| ● | our ability to realize value from assets held for sale, including the cultivation and processing cannabis license located in Clark County, Nevada; |
| ● | our exposure to commodity price pressure, including ongoing pricing compression in the California wholesale cannabis market; |
| ● | our ability to protect and enforce our intellectual property rights and brands; |
| ● | our ability to compete effectively with other cannabis manufacturers, distributors, and retailers in California and elsewhere; |
| ● | the outcome of any legal proceedings or governmental investigations to which we may be subject from time to time; |
| ● | the potential volatility of our digital asset holdings, which consist of Bitcoin held as part of our treasury assets; |
| ● | changes in accounting principles, interpretations and guidance; and |
| ● | other risks and uncertainties, including those referenced under the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2026 (the “2025 Annual Report”). |
The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations, estimates, forecasts, and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties, and assumptions described under the sections titled “Risk Factors” and elsewhere in this Quarterly Report and our 2025 Annual Report. These risks are not exhaustive. Other sections of this Quarterly Report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing regulatory environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to place undue reliance on these statements.
Unless otherwise indicated or the context otherwise requires, all references to “Leef Brands,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Leef Brands, Inc. and its consolidated subsidiaries.
| ii |
PART I – FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
LEEF BRANDS, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
| June 30, 2026 (unaudited) | December 31, 2025 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and deposits | ||||||||
| Deferred costs and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Assets held for sale | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and other accrued liabilities | $ | $ | ||||||
| Related party payables | ||||||||
| Current portion of notes payable | ||||||||
| Current portion of related party consideration payable | ||||||||
| Lease liabilities, short term | ||||||||
| Taxes payable | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Notes payable, net of current | ||||||||
| Derivative liabilities, long term | ||||||||
| Uncertain tax positions | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Series A-1 Preferred stock; | ||||||||
| Common stock; | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 1 |
LEEF BRANDS, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Advertising and promotion | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Wages and salaries | ||||||||||||||||
| Office and general expenses | ||||||||||||||||
| License and compliance | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| Insurance expenses | ||||||||||||||||
| Excise and other taxes | ||||||||||||||||
| Lease expenses | ||||||||||||||||
| Travel and business development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Change in fair value derivative liability | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before provision for income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Provision for income taxes | ||||||||||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Preferred stock dividends | ||||||||||||||||
| Net loss and comprehensive loss applicable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 2 |
LEEF BRANDS, INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)
For the Three and Six Months Ended June 30, 2026 and 2025
Activity for the Three and Six Months Ended June 30, 2026
| Series A-1 Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Deficit | |||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Preferred and common shares issued for cash | ||||||||||||||||||||||||||||||||
| Shares returned to treasury | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
| Equity based compensation for restricted stock unit grants | - | - | ||||||||||||||||||||||||||||||
| Balance, March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Preferred and common shares issued for cash | ||||||||||||||||||||||||||||||||
| Common shares issued for services | - | |||||||||||||||||||||||||||||||
| Common shares issued for Himalaya acquisition | - | |||||||||||||||||||||||||||||||
| Issuance of preferred dividends | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Exercise of restricted stock units | - | |||||||||||||||||||||||||||||||
| Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
| Equity based compensation for restricted stock unit grants | - | - | ||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| 3 |
Activity for the Three and Six Months Ended June 30, 2025
| Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Deficit | |||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net income | - | |||||||||||||||||||||||
| Common shares issued for services | ||||||||||||||||||||||||
| Common shares issued for earnout consideration | ||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||
| Equity based compensation for restricted stock unit grants | - | |||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Common shares issued for services | - | |||||||||||||||||||||||
| Common shares issued for earnout consideration | - | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||
| Equity based compensation for restricted stock unit grants | - | |||||||||||||||||||||||
| Balance, June 30, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
LEEF BRANDS, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six months ended | ||||||||
| June 30, 2026 | June 30, 2025 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Share based compensation | ||||||||
| Lease cost, net of repayment | ||||||||
| Amortization of debt discounts | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Unrealized loss (gain) on crypto asset | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Accounts payable and other accrued liabilities | ( | ) | ||||||
| Related party payables | ( | ) | ||||||
| Uncertain tax positions | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Equipment purchase | ( | ) | ( | ) | ||||
| Proceeds from sale of crypto currency | ||||||||
| Investment in intangible asset | ( | ) | ||||||
| Cash acquired from acquisition | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Issuance of preferred and common shares, net of issuance costs | ||||||||
| Dividend Paid | ( | ) | ||||||
| Consideration payable | ( | ) | ||||||
| Repayment of notes | ( | ) | ( | ) | ||||
| Proceeds from issuance of related party note payable | ||||||||
| Cash repayments of related party notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in Cash | ( | ) | ||||||
| Effect of foreign exchange translation | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Other non-cash investing and financing activities | ||||||||
| Common shares issued for earnout consideration | $ | $ | ||||||
| Financed equipment | $ | $ | ||||||
| Non-cash note repayment | $ | $ | ||||||
| Reclass of accrued interest | $ | $ | ||||||
| Related party note issued in exchange for crypto currency | $ | $ | ||||||
| Related party note additions | $ | $ | ||||||
| Modification of notes payable and warrants | $ | $ | ||||||
| Recognition of derivative liability for warrants and preferred share conversion feature issued | $ | $ | ||||||
| Payment to vendor using cryptocurrency | $ | $ | ||||||
| Payment for related party note payable using cryptocurrency | $ | $ | ||||||
| Shares returned to treasury | $ | $ | ||||||
| Issuance of preferred dividend shares | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
LEEF BRANDS, INC.
Notes to the Consolidated Financial Statements
As of and for the six months ended June 30, 2026 and 2025
| 1. | Nature and Continuance of Operations |
Leef Brands Inc. (the “Company”) was incorporated on September 15, 2011, under the laws of the province of British Columbia and is registered extra-provincially under the laws of Ontario. The Company is a cannabis branded products manufacturer based in California. The Company is a public company whose common shares are listed for trading on the Canadian Securities Exchange (“CSE”) under the symbol “LEEF” which became effective December 7, 2022. The head office of the Company is located at Suite 2500 Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8.
These
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of normal business
activities and the realization of assets and discharge of liabilities in the normal course of business. As of June 30, 2026, the Company
has an accumulated deficit of $
Reverse recapitalization
On April 20, 2022, the Company acquired all of the common stock of LEEF Holdings, Inc. (“LEEF Holdings”) pursuant to a merger agreement dated January 21, 2022, among the Company, its wholly-owned subsidiary, Icanic Merger Sub, Inc. and LEEF Holdings. The Company issued common shares, which at the time were subject to a contractual hold period in accordance with the terms of the merger agreement, with an initial one-eighth of the shares received to be released on the one-year anniversary of closing and the remaining shares to be released in equal one-eighth installments every three months thereafter.
| 6 |
| 2. | Basis of Presentation |
Statement of compliance
These condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements are unaudited and have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2025, included in the Company’s 2025 Annual Report. The policies set out below have been consistently applied to all periods presented unless otherwise noted.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring adjustments, except as otherwise indicated) considered necessary to present fairly, in all material respects, the Company’s financial position as of June 30, 2026, its results of operations for the six months ended June 30, 2026 and 2025, and its cash flows for the six months ended June 30, 2026 and 2025. Interim results are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year.
These condensed consolidated financial statements were approved and authorized for issuance by the Company’s Board of Directors on August 6, 2026.
Liquidity and going concern
Historically,
the Company’s primary source of liquidity has been its operations, capital contributions made by equity investors and debt
issuances. The Company is currently meeting its operational obligations as they become due from its current working capital and from
operations. However, the Company has sustained losses since inception and may require additional capital in the future. As of and
for the six months ended June 30, 2026, the Company had cash of $
The Company is generating cash from revenues and deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, product development and marketing.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due.
While management plans to remedy the cash position by reducing operational expenses and securing additional equity financing, there can be no assurance or guarantee that these strategies will be successfully achieved or sufficient to meet the obligations of the Company.
Basis of presentation and measurement
These consolidated financial statements have been prepared on a historical cost basis except for derivative financial instruments, which are measured at fair value through earnings, as explained in the accounting policies below. Historical costs are generally based upon the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no material effect on the consolidated results of operations, stockholders’ deficit, or cash flows.
Functional currency
All figures presented in the consolidated financial statements are reflected in United States dollars; however, the functional currency of the Company includes Canadian dollars and United States dollars. The Company’s subsidiaries functional currency is the United States dollar.
Transactions in foreign currencies are initially recorded in the Company’s functional currency at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the end of each reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value is determined.
All gains and losses on translation of these foreign currency transactions are included in earnings.
| 7 |
On consolidation, the assets and liabilities of foreign operations reported in their functional currencies are translated into United States dollars, the Company’s presentation currency, at period-end exchange rates. Income and expenses, and cash flows of foreign operations are translated into United States dollars using average exchange rates. Exchange differences resulting from translating foreign operations are recognized in accumulated other comprehensive loss.
Basis of consolidation
These consolidated financial statements as of June 30, 2026 and December 31, 2025 include the accounts of the Company, its wholly-owned subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in the audited annual financial statements from the date that control commences until the date that control ceases.
The following is a list of the Company’s wholly-owned and partially owned operating subsidiaries:
| Name of Consolidated Subsidiary or Entity | Purpose | Jurisdiction | Attributable Interest | |||||
| Aya Biosciences, Inc. | % | |||||||
| Anderson Development SB, LLC. | % | |||||||
| Paleo Paw Corp. | % | |||||||
| Payne Distribution, LLC. | % | |||||||
| LEEF Brands, Inc. | % | |||||||
| LEEF Holdings, Inc. | % | |||||||
| Preferred Brand LLC. | % | |||||||
| Seven Zero Seven, LLC. | % | |||||||
| LEEF Management, LLC. | % | |||||||
| 1127466 B.C. Ltd. | % | |||||||
| 1200665 B.C. Ltd. | % | |||||||
| SCRSB, LLC. | % | |||||||
| The Leaf at 73740, LLC. | % | |||||||
| Green Cross Nevada LLC. | % | |||||||
| V6E Holdings, LLC. | % | |||||||
| LEEF Labs NY LLC. | % | |||||||
| LEEF Labs NJ, LLC. | % | |||||||
| Eaton Processing LLC | % | |||||||
| Korben Labs, LLC | % | |||||||
| Standard Holdings Inc. | % | |||||||
All inter-company transactions and balances have been eliminated in the consolidated financial statement presentation.
| 8 |
| 3. | Significant Accounting Policies |
The preparation of the consolidated financial statements requires that the Company’s management make judgments and estimates of effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period. Actual future outcomes could differ from present estimates and judgments, potentially having material future effects on the Company’s consolidated financial statements. Estimates are reviewed on an ongoing basis and are based on historical experience and other facts and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.
The significant accounting policies applied by the Company have not materially changed from those disclosed in the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2025, included in the 2025 Annual Report. A summary of the Company’s significant accounting policies follows.
Accounts receivable
Accounts
receivable are recognized initially at fair value and subsequently measured at amortized cost, less any provisions for impairment. Financial
assets measured at amortized cost are assessed for impairment at the end of each reporting period. Impairment provisions are estimated
using the expected credit loss impairment model where any expected future credit losses are provided for, irrespective of whether a loss
event has occurred at the reporting date. Estimates of expected credit losses take into account the Company’s collection history,
deterioration of collection rates during the average credit period, as well as observable changes in and forecasts of future economic
conditions that affect default risk. Where applicable, the carrying amount of a trade receivable is reduced for any expected credit losses
through the use of an allowance for doubtful accounts (“AFDA”) provision. Changes in the AFDA provision are recognized in
the consolidated statement of operations and comprehensive income (loss). When the Company determines that no recovery of the amount
owing is possible, the amount is deemed irrecoverable and the financial asset is written off. As of June 30, 2026 the Company recorded
an allowance for doubtful accounts of $
Customer Concentration
The
Company has a concentration of credit risk with respect to revenues. For the six months ended June 30, 2026 and 2025, one customer represented
approximately
As
of June 30, 2026 and December 31, 2025, this customer accounted for
The loss of a major customer, or a significant reduction in business from them, could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows. The Company routinely assesses the creditworthiness of its customers and maintains allowances for potential credit losses. Management continues to monitor customer concentration risk and pursue diversification of its customer base where feasible.
Inventory
Inventory is valued at the lower of cost and net realizable value. The Company’s inventory is comprised of cannabis related products and derivatives. The cost of inventory is calculated using the weighted average method and comprises all costs of purchase necessary to bring the goods to sale. Net realizable value represents the estimated selling price for products sold in the ordinary course of business less the estimated costs necessary to make the sale. Cost of cannabis biomass is comprised of initial third-party acquisition costs, plus analytical testing costs. Costs of extracted cannabis oil inventory are comprised of initial acquisition cost of the biomass and all direct and indirect processing costs including labor related costs, consumables, materials, packaging supplies and analytical testing costs. Packaging and supplies are initially valued at cost and subsequently at the lower of cost and net realizable value.
Management
uses the most reliable evidence available in determining the net realizable value of inventories. Actual selling prices may differ from
estimates, based on market conditions at the time of sale. Allowances are made against obsolete or damaged inventory and charged to cost
of sales. As of June 30, 2026 and December 31, 2025, the Company recorded a reserve inventory in the amount of $
| 9 |
Financial instruments
The Company applies fair value accounting for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers all related factors of the asset by market participants in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
For further details, see Note 17 – Financial Instruments and Financial Risk Management
Property and equipment
The Company records property and equipment at cost less accumulated amortization and accumulated impairment losses. It recognizes amortization to write off the cost of assets less their residual values over their useful lives. The depreciation rates applicable to each category of property and equipment are as follows:
| Buildings | |
| Office furniture and software | |
| Machinery and equipment | |
| Vehicles | |
| Construction in progress | |
| Leasehold improvements |
An item of property and equipment is de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in income (loss) from operations. Where an item of property and equipment and deferred costs consist of major components with different useful lives, the components are accounted for as separate items of property and equipment and deferred expenditures. Expenditures incurred to replace a component of an item of property and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.
Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the reporting unit or group of reporting units which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.
The goodwill balance is assessed for impairment annually or when facts and circumstances indicate that it is impaired. Goodwill is tested for impairment at a reporting unit level by comparing the carrying value to the recoverable amount, which is determined as the fair value less costs of disposal. Any excess of the carrying amount over the recoverable amount is the impaired amount. The recoverable amount estimates are categorized as Level 3 according to the fair value hierarchy. Impairment charges are recognized in the consolidated statements of operations and comprehensive income (loss). Goodwill is reported at cost less any accumulated impairment. Goodwill impairments are not reversed.
| 10 |
Intangible assets
The
Company’s intangible assets consist of trademarks and licenses. Intangible assets acquired are measured on initial recognition
at cost, while the cost of intangible assets acquired in a business combination is initially recorded at their fair values as at the
date of acquisition. It recognizes amortization to write off the cost of assets less their residual values over their useful lives, using
certain methods and rates. The intangible assets as of June 30, 2026 and December 31, 2025 were trademarks and licenses which have
An intangible asset is derecognized on disposal or when no future economic benefits are expected from use or disposal. Any gain or loss arising from the derecognition of an intangible asset is measured as the difference between the net disposal proceeds and the carrying amount of the asset and is recognized in income (loss) from operations. Following initial recognition, intangible assets with indefinite useful lives are carried at cost less accumulated amortization and any accumulated impairment losses.
Digital assets
Effective January 1, 2024, the Company adopted ASU 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. Crypto assets are initially recorded at cost, including any transaction fees. This update requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recognized in net income each reporting period. Fair value is determined using prices quoted in active markets at the reporting date.
The Company holds digital assets that meet the scope of this guidance. These assets are:
| ● | Intangible in nature | |
| ● | Do not provide enforceable rights to goods or services | |
| ● | Are created or reside on a distributed ledger | |
| ● | Are secured through cryptography | |
| ● | Are fungible | |
| ● | Are not issued by the reporting entity or its related parties |
Impairment of long-lived assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
For the purpose of testing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (reporting unit). An impairment loss is recognized for the amount, if any, by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the asset’s fair value less cost to sell. The Company will assess for further impairment on an annual basis or as unexpected events happen.
Leases
The Company assesses whether a contract is or contains a lease at inception of the contract, as well as whether each lease represents an operating lease or a finance lease in accordance with ASC 842, Leases. A lease is recognized as a right-of-use asset and corresponding liability at the commencement date. The Company has operating leases for certain facilities. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Each finance lease payment included in the lease liability is apportioned between the repayment of the liability and a finance cost. The finance cost is recognized in “interest expense” in the consolidated statements of operations and comprehensive income (loss) over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. Lease liabilities represent the net present value of fixed lease payments (including in-substance fixed payments); variable lease payments based on an index, rate, or subject to a fair market value renewal condition; amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if it is probable that the lessee will exercise that option.
| 11 |
The Company’s lease liability is recognized net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the lease payments are discounted is the expected lease term, including renewal and termination options that the Company is reasonably certain to exercise.
Payments associated with short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis in general and administration and sales and marketing expense in the consolidated statements of operations and comprehensive income (loss). Short-term leases are defined as leases with a lease term of 12 months or less.
Variable lease payments that do not depend on an index, rate, or subject to a fair market value renewal condition are expensed as incurred and recognized in costs of goods sold, general and administration or sales and marketing expense, as appropriate given how the underlying leased asset is used, in the consolidated statement of comprehensive loss.
Right-of-use assets are measured at cost, which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the useful life of the underlying asset. The depreciation is recognized from the commencement date of the lease.
Derivatives
Derivatives are initially measured at fair value and are subsequently remeasured at fair value. If the transaction price does not equal to fair value at the point of initial recognition, management measures the fair value of each component of the investment and any unrealized gains or losses at inception are either recognized in comprehensive income (loss) or deferred and recognized over the term of the investment, depending on whether the valuation inputs are based on observable market data. The resulting unrealized gain or loss at inception and subsequent changes in fair value are recognized in profit or loss for the period.
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the Consolidated Balance Sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the Consolidated Statements of Financial Position date. Critical estimates and assumptions used in the model are discussed in “Note 12 – Derivative Liabilities”.
Convertible debentures
Convertible debentures are financial instruments that are accounted for separately dependent on the nature of their components. The identification of such components embedded within a convertible debenture requires significant judgment given that it is based on the interpretation of the substance of the contractual agreement. Where the conversion option has a fixed conversion rate, the financial liability, which represents the obligation to pay coupon interest on the convertible debentures in the future, is initially measured at its fair value and subsequently measured at amortized cost. The residual amount is accounted for as an equity instrument at issuance. Where the conversion option has a variable conversion rate, the conversion option is recognized as a derivative liability measured at fair value. The determination of the fair value is also an area of significant judgment given that it is subject to various inputs, assumptions and estimates including contractual future cash flows, discount rates, credit spreads and volatility.
Fees directly attributable to the transactions are apportioned to the financial liability, derivative liability and equity components in proportion to the allocation of proceeds.
| 12 |
Additional Paid-In Capital
Common and preferred shares are classified as equity. Transaction costs directly attributable to the issue of common and preferred shares and share options are recognized as a deduction from equity, net of any tax effects.
Where additional paid-in capital is issued, or received, as non-monetary consideration and the fair value of the asset received or given up is not readily determinable, the fair market value of the shares is used to record the transaction. The fair market value of the shares is based on the trading price of those shares on the appropriate stock exchange on the date of the agreement to issue or receive shares as determined by the board of directors.
Foreign currency
These consolidated financial statements are presented in U.S. dollars, which is also one of the functional currencies of the certain subsidiaries along with Canadian dollars being the functional currency for other subsidiaries. Each subsidiary determines its own functional currency and items included in the financial statements of each subsidiary are measured using that functional currency.
| i) | Transactions and Balances in Foreign Currencies |
Foreign currency transactions are translated into the functional currency of the respective entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in income (loss) from operations. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and are not retranslated. Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.
| ii) | Foreign operations |
On consolidation, the assets and liabilities of foreign operations are translated into U.S. dollars at the exchange rate prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on the translation are recognized in other comprehensive income and accumulated in the foreign currency translation reserve in equity. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in earnings and recognized as part of the gain or loss on disposal.
Income Taxes
Tax expense recognized in income (loss) from operations comprises the sum of current and deferred taxes not recognized in other comprehensive income or directly in equity.
Current Tax
Current tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from income (loss) from operations in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred Tax
Deferred taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full.
| 13 |
Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation authority.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in net income (loss), except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
Revenue recognition
The Company generates revenue primarily from the sale of cannabis related activities. The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:
| 1. | Identify the contract with a customer; | |
| 2. | Identify the performance obligation(s) in the contract; | |
| 3. | Determine the transaction price; | |
| 4. | Allocate the transaction price to the performance obligation(s) in the contract; and | |
| 5. | Recognize revenue when or as the Company satisfies the performance obligation(s). |
Revenue from the sale of cannabis is generally recognized when control over the goods has been transferred to the customer. Payment for retail sales is due at the point of sale. Payment for wholesale transactions is due within a specified time period as permitted by the underlying agreement and the Company’s credit policy upon the transfer of goods to the customer. The Company generally satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.
Bulk product and white label services revenue
The Company recognizes revenue from bulk product sales and white label services. Product sales are generally recognized when the Company satisfies the performance obligations and transfers control over the goods to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled. Returns are performed when the product does not meet the requested type, concentration, etc. and ordered by the customer. Returns and exchanges are reported and recorded at the same time as revenue transactions.
As part of its remuneration, the Company grants restricted stock units and also stock options and warrants to buy common shares of the Company to its employees. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee, including directors of the Company. The fair value of employee services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is measured at the grant date, using the Black-Scholes option pricing model, and is recognized over the vesting period.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instrument granted or vested if the option vests over a period. This fair value is measured at the grant date, using the Black-Scholes option pricing model, and is recognized over the vesting period.
All share-based remuneration is ultimately recognized as an expense in the consolidated statements of operations and comprehensive income (loss) with a corresponding credit to contributed surplus. Upon exercise of share options, the proceeds received net of any directly attributable transactions costs and the amount originally credited to contributed surplus are allocated to share capital. When options expire unexercised the related value remains in additional paid-in capital.
| 14 |
Business combination
A business combination is a transaction or event in which an acquirer obtains control of one or more businesses and is accounted for using the acquisition method. The total consideration paid for the acquisition is the fair value equity instruments issued in exchange for control of the acquiree at the acquisition date. The acquisition date is the date when the Company obtains control of the acquiree. The identifiable assets acquired, and liabilities assumed are recognized at their acquisition date fair values, except for deferred taxes and share-based payment awards where GAAP provides exceptions to recording the amounts at fair value. Goodwill represents the difference between total consideration paid and the fair value of the net-identifiable assets acquired. Acquisition costs incurred are expensed in the consolidated statement of operations and comprehensive income (loss).
Contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with ASC 825, Financial Instruments, with the corresponding gain or loss recognized in the consolidated statements of operations and comprehensive income (loss).
Based on the facts and circumstances that existed at the acquisition date, management will perform a valuation analysis to allocate the purchase price based on the fair values of the identifiable assets acquired and liabilities assumed on the acquisition date. Management has one year from the acquisition date to confirm and finalize the facts and circumstances that support the finalized fair value analysis and related purchase price allocation. Until such time, these values are provisionally reported and are subject to change. Changes to fair values and allocations are retrospectively adjusted in subsequent periods.
In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to contingent consideration and intangible assets. Management exercises judgment in estimating the probability and timing of when earnouts are expected to be achieved, which is used as the basis for estimating fair value. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on the fair value of the goods and services received. Asset acquisitions do not give rise to goodwill. Any consideration paid in excess of the identifiable assets and liabilities assumed is expensed to the consolidated statements of operations and comprehensive income (loss).
Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
The Company calculates basic earnings (loss) per share by dividing the loss for the period by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share is calculated in a similar manner, except that it increases the weighted average number of common shares outstanding to include common shares potentially issuable from the exercise of stock options, warrants and other instruments using the treasury stock method, and from the assumed conversion of preferred stock using the if-converted method, if dilutive. For the period ended June 30, 2026 and 2025, these potential issuances are “anti-dilutive” as they would decrease the earnings (loss) per share; consequently, the amounts calculated for basic and diluted loss per share are the same.
Significant accounting judgments and estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the year. Although management uses historical experience and its best knowledge of the amount, events or actions to form the basis for judgments and estimates, actual results may differ from these estimates. Actual future outcomes could differ from present estimates and judgments, potentially having material future effects on the Company’s consolidated financial statements. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively.
The following are the critical judgments and estimates that management has made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the condensed consolidated financial statements: business combinations and asset acquisitions; functional currency translations; inventory; valuation of share-based payments; estimated useful lives of long-lived assets; impairment of long-lived assets; provisions; leases; fair values of financial instruments, derivatives, and convertible debentures; allowance for doubtful accounts; and segmented information.
| 15 |
| 4. | Business Combination |
On
April 14, 2026, the Company entered into a Merger Agreement with Standard Holdings, Inc. and its wholly owned subsidiary Korben
Labs, LLC (collectively, “Himalaya”), to acquire
Acquired tangible assets were valued at estimates of their current fair values. The valuation of acquired intangible assets consisting of the intangibles noted above were determined based on management’s estimates and consultation with an independent appraiser. The discounted cash flow method was used in applying the income approach to determine the fair value of acquired intangible assets. Significant assumptions inherent in the valuation method for acquired intangible assets are employed and included, but are not limited to, prospective financial information, terminal value, and discount rates. When performing the discounted cash flow method for acquired intangible assets, the Company incorporates the use of projected financial information and a discount rate that are developed using market participant-based assumptions. The cash-flow projections are based on multi-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth, which are regularly reviewed by management. The selected discount rate considers the risk and nature of the comparative companies and the rates of return market participants would require to investing their capital in the Company.
The following table summarizes the acquisition-date fair value of the consideration transferred and purchase price allocation for the fair value amounts of the assets acquired and liabilities assumed at the date of acquisition, April 27, 2026:
| Total Consideration: | ||||
| Stock issued: | $ | |||
| Cash paid: | ||||
| Warrants issued: | ||||
| Total Consideration | $ |
The following is a provisional purchase price allocation as of the April 27, 2026 acquisition date:
| Accounting of Net Assets Acquired: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses and deposits | ||||
| Deferred costs and other current assets | ||||
| Inventories | ||||
| Property and equipment | ||||
| Tradename intangible | ||||
| License intangible | ||||
| Right of use asset | ||||
| Accounts payable and accrued liabilities | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Notes payable | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Uncertain tax position | ( | ) | ||
| Income taxes payable | ( | ) | ||
| Total identifiable net assets | ( | ) | ||
| Goodwill (1) | ||||
| Total Net Assets Acquired | $ |
| 1. |
As
of June 30, 2026, the Company was still completing its purchase price allocation. The preliminary purchase price allocation results in
an ending goodwill balance of $
Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2026 and 2025 assuming the acquisition was completed on January 1, 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Pro forma net revenues | $ | $ | $ | $ | ||||||||||||
| Pro forma net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Pro forma basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results.
| 16 |
| 5. | Revenue Disaggregation |
The Company’s revenues are disaggregated based on major product line and operating segment. For the six months ended June 30, 2026, the majority of the Company’s revenues were generated from wholesale-concentrate manufacturing activities. The Company generates revenue primarily through bulk concentrate manufacturing, supplying the leading cannabis brands operating in California. Consumer packaged goods (“CPG”) sales became material during the six months ended June 30, 2026 as a result of the acquisition described in Note 4 – Business Combination, and the Company intends to further expand its CPG offering. Refer to Note 22 – Segmented Information for further disaggregation of revenue by reportable segment.
The following table sets forth disaggregation of net revenue by operating segment for the six months ended June 30, 2026 and 2025:
| Six Months Ended | ||||||||
| June 30, 2026 | June 30, 2025 | |||||||
| Wholesale concentrates | $ | $ | ||||||
| Consumer packaged goods | ||||||||
| Retail | ||||||||
| Corporate and other | ||||||||
| Total net revenues | $ | $ | ||||||
| 6. | Property and Equipment |
As of June 30, 2026 and December 31, 2025, the property and equipment consists of the following:
| Cost | Buildings and land | Office equipment and software | Machinery and equipment | Vehicles | Leasehold improvements | Total | ||||||||||||||||||
| Balance as of January 1, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Disposals and transfers | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of December 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||||||||||
| Balance as of January 1, 2025 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Disposals and transfers | ( | ) | ||||||||||||||||||||||
| Balance as of December 31, 2025 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance as of June 30, 2026 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net Book Value | ||||||||||||||||||||||||
| June 30, 2026 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
There
was depreciation expense for the six months ended June 30, 2026 and 2025 of $
| 7. | Inventory |
As of June 30, 2026 and December 31, 2025, inventory consists of the following:
June 30, 2026 | December 31, 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods – cannabis related products | ||||||||
| Total inventory | $ | $ | ||||||
| 17 |
| 8. | Goodwill |
As
of June 30, 2026 and December 31, 2025, goodwill was $
| 9. | Intangible Assets |
As
of June 30, 2026 and December 31, 2025, intangible assets were $
As of June 30, 2026 and December 31, 2025, intangible assets consisted of the following:
| Cost | Tradenames | Licenses | Crypto Currency | Total | ||||||||||||
| Balance as of January 1, 2025 | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Change in value | ( | ) | ( | ) | ||||||||||||
| Impairment | ( | ) | ( | ) | ||||||||||||
| Disposal | ( | ) | ( | ) | ||||||||||||
| Balance as of December 31, 2025 | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Disposal | ( | ) | ( | ) | ||||||||||||
| Receivables settled in cryptocurrency | ||||||||||||||||
| Change in value | ( | ) | ( | ) | ||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | $ | ||||||||||||
| Accumulated Amortization | ||||||||||||||||
| Balance as of January 1, 2025 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Impairment | ||||||||||||||||
| Balance as of December 31, 2025 | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance as of June 30, 2026 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Net Book Value | ||||||||||||||||
| June 30, 2026 | $ | $ | $ | $ | ||||||||||||
| December 31, 2025 | $ | $ | $ | $ | ||||||||||||
Future amortization of intangible assets is as follows:
| Year Ending December 31, | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total Future Amortization | $ | |||
| 18 |
| 10. | Assets Held for Sale |
As
of June 30, 2026 and December 31, 2025, the Company has classified certain long-lived assets as held for sale in accordance with ASC
360-10-45-9. These assets met the criteria for classification as held for sale, including management’s commitment to a plan to
sell, active marketing at a price reasonable in relation to fair value, and the expectation that the sale will be completed within one
year. The asset held for sale consists of a cultivation and processing cannabis license located in Clark County, Nevada, with a carrying
value of $
During
the year ended December 31, 2025, the Company management determined that a $
| 11. | Accounts Payable and Other Accrued Liabilities |
As of June 30, 2026 and December 31, 2025, accounts payable and other accrued liabilities consisted of the following:
June 30, 2026 | December 31, 2025 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Total accounts payable and other accrued liabilities | $ | $ | ||||||
| 12. | Derivative liabilities |
During
June 2019, the Company entered into a private placement financing by issuing approximately $
In accordance with ASC 815-40, Financial Instruments, a contract to issue a variable number of equity shares fails to meet the definition of equity. Accordingly, such a contract or instrument would be accounted for as a derivative liability and measured at fair value with changes in fair value recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss at each period-end.
During
the six months ended June 30, 2026 and year ended December 31, 2025, the Company issued
and ,
respectively, additional warrants that contain a non-fixed conversion ratio in that the conversion price into the Company’s stock
was denominated in a currency other than the Company’s functional currency. The fair values of the warrants issued in these capital
raises of $
On
March 12, 2026 and May 18, 2026, the Company issued and , respectively, Series A-1 preferred shares in a private placement
for gross proceeds of $
The Company used the Black-Scholes model to estimate the fair value of the derivative liabilities for the warrants. Warrants classified as derivative liabilities that expire within twelve months of June 30, 2026 had an estimated fair value that was not material to the condensed consolidated balance sheet, and accordingly all derivative liabilities are classified as non-current.
| 19 |
The following assumptions were used by management to determine the fair value of the derivative liabilities as of June 30, 2026 and December 31, 2025:
June 30, 2026 | December 31, 2025 | |||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free annual interest rate | % | % | ||||||
| Expected life (years) | ||||||||
| Exercise price | $ | - $ | $ | - $ | ||||
A reconciliation of the beginning and ending balance of derivative liabilities and change in fair value of the derivative liabilities is as follows for the six months ended June 30, 2026 and year ended December 31, 2025:
June 30, 2026 | December 31, 2025 | |||||||
| Balance as of beginning of period | $ | $ | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Loss from extinguished liability | ||||||||
| Modification of warrants | ||||||||
| Initial recognition of new preferred share conversion feature | ||||||||
| Initial recognition of new warrants | ||||||||
| Balance as of end of the period | ||||||||
| Less: Derivative liabilities, short term | ||||||||
| Derivative liabilities, long term | $ | $ | ||||||
| 13. | Notes Payable |
As of June 30, 2026 and December 31, 2025 notes payable consisted of the following:
| June 30, 2026 | December 31, 2025 | |||||||
| Secured promissory notes dated November 2018 through March 2026 issued to finance equipment acquisitions which mature from December 2026 through October 2030, and bear interest of | $ | $ | ||||||
| Small Business Administration loan which bears interest at | ||||||||
| Secured promissory note dated May 25, 2023, which matures in May 2028 | ||||||||
| Secured promissory note dated September 19, 2023, which matures in September 2028 and bears interest of | ||||||||
| Secured promissory note dated September 20, 2024, which matures on September 19, 2025 and bears interest of | ||||||||
| Secured promissory note dated April 2025, which matures in March 2026 and bears interest of | ||||||||
| Secured promissory note dated April 2025, which matures in August 2026 and bears interest of | ||||||||
| Secured promissory note dated May 2025, which matures in April 2027 and bears interest of | ||||||||
| Secured promissory note dated May 2025, which matures in April 2027 and bears interest of | ||||||||
| Total Notes payable | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Total notes payable, net of current | $ | $ | ||||||
| 20 |
A reconciliation of the beginning and ending balances of notes payable for the six months ended June 30, 2026 and year ended December 31, 2025 is as follows:
June 30, 2026 | December 31, 2025 | |||||||
| Balance as of beginning of period | $ | $ | ||||||
| Modification of notes payable and warrants | ( | ) | ||||||
| Notes payable from Himalaya acquisition | ||||||||
| Non-cash note additions | ||||||||
| Financed equipment | ||||||||
| Amortization of debt discount | ||||||||
| Resale of note payable to related party | ( | ) | ||||||
| Interest classified to debt | ||||||||
| Non-cash note repayment | ( | ) | ||||||
| Cash repayments | ( | ) | ( | ) | ||||
| Balance as of end of period | $ | $ | ||||||
On
May 25, 2023, the Company’s subsidiary ADSB entered into a Loan Agreement with a third-party lender for a total of $
On
September 30, 2023, the Company entered into a Loan Agreement with the Salisbury Canyon Ranch, LLC for a total of $
| 14. | Convertible Debentures |
A reconciliation of the beginning and ending balances of convertible debentures for the six months ended June 30, 2026 and year ended December 31, 2025 is as follows:
June 30, 2026 | December 31, 2025 | |||||||
| Balance as of beginning of period | $ | $ | ||||||
| Conversions of debt and accrued interest (1) | ( | ) | ||||||
| Accrual of interest | ||||||||
| Balance as of end of period | $ | $ | ||||||
| (1) |
| 21 |
Senior Debentures
On
June 6, 2019, the Company entered into a convertible senior secured debenture (the “Senior Debentures”) in an aggregate principal
amount not to exceed $
The
Senior Debentures contained two conversion features wherein
In
December 2025, the Company converted the outstanding convertible debentures and accrued interest totaling approximately $
In
connection with the initial issuance of the Senior Debentures, share purchase warrants (“Senior Warrants”) exercisable
into common shares based on its issue price divided by its conversion price were also issued. The warrants are exercisable upon the
occurrence of a liquidity event, as defined in the Senior Warrant agreement, and the exercise period is the 24 months following the
liquidity event date, provided that if a liquidity event has not occurred within five (
| 22 |
| 15. | Lease Liabilities |
The Company’s facilities are leased under a number of leases, all of which have been classified as operating leases in accordance with ASC 842, Leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
The
Company used an incremental borrowing rate between
The undiscounted lease liabilities are as follows:
| Year Ending December 31, | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total Future Minimum Lease Payments | $ | |||
| Less: Interest | ( | ) | ||
| Present Value of Lease Liabilities | ||||
| Less: Current Portion of Lease Liabilities | ( | ) | ||
| Lease Liabilities, Net of Current Portion | $ | |||
| 16. | Contingent Consideration and Consideration Payable |
In
November 2021, the Company entered into a Membership Interest Unit Purchase Agreement with Anderson Development SB, LLC (“ADSB”)
to acquire
| 23 |
Pursuant
to the terms of the merger agreement, former LEEF shareholders will also be entitled to receive the following contingent Earnout Payments,
On July 20, 2023, an amount equal to
During
the year ended December 31, 2025, payments related to ADSB totaling $
| 17. | Financial Instruments and Financial Risk Management |
Financial Instruments
Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements. The three levels of hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
Financial instruments are measured at amortized cost or at fair value. Financial instruments measured at amortized cost consist of accounts receivable, and accounts payable and accrued liabilities wherein the carrying value approximates fair value due to its short-term nature. Other financial instruments measured at amortized cost include notes payable, lease liabilities, and convertible debentures wherein the carrying value at the effective interest rate approximates fair value as the interest rate for notes payable and the interest rate used to discount the host debt contract for convertible debentures approximate a market rate for similar instruments offered to the Company.
Cash is measured at Level 1 inputs. Derivative assets and derivative liabilities are measured at fair value based on the Monte Carlo or Black-Scholes option-pricing model, which uses Level 3 inputs. Convertible debentures are measured at fair value based on the Monte Carlo and Black-Scholes simulation model, which uses Level 3 inputs.
| 24 |
The following table summarizes the Company’s financial instruments as of June 30, 2026:
| Financial assets: | Amortized Cost | Fair Value | Total | |||||||||
| Cash | $ | $ | $ | |||||||||
| Accounts receivable | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Accounts payable and other accrued liabilities | $ | $ | $ | |||||||||
| Notes payable | $ | $ | $ | |||||||||
| Derivative liabilities | $ | $ | $ | |||||||||
| Lease liabilities | $ | $ | $ | |||||||||
The following table summarizes the Company’s financial instruments as of December 31, 2025:
| Financial assets: | Amortized Cost | Fair Value | Total | |||||||||
| Cash | $ | $ | $ | |||||||||
| Accounts receivable | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Accounts payable and other accrued liabilities | $ | $ | $ | |||||||||
| Notes payable | $ | $ | $ | |||||||||
| Derivative liabilities | $ | $ | $ | |||||||||
| Lease liabilities | $ | $ | $ | |||||||||
The carrying values of the Company’s financial instruments carried at amortized cost approximate fair values due to their short duration.
Financial Risk Management Objectives and Policies
The Company is exposed to various financial risks resulting from both its operations and its investing activities. The Company’s management, with the Board of Directors oversight, manages financial risks. Where material, these risks will be reviewed and monitored by the Board of Directors. The type of risk exposure and the way in which such exposure is managed is provided as follows
Credit risk
Credit
risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and
receivables. The Company’s cash is held through United States and Canadian financial institutions and no losses have been incurred
in relation to these items. The carrying amount of cash, promissory note receivable, and trade and other receivables represent the maximum
exposure to credit risk. As of June 30, 2026 and December 31, 2025, the net amount of maximum exposure risk was $
| 25 |
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due.
The Company has the following contractual obligations as of June 30, 2026:
| <1 Year | 1 to 3 Years | 3 to 5 Years | > 5 Years | Total | ||||||||||||||||
| Accounts payable and other accrued liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Related party payables | $ | $ | $ | $ | $ | |||||||||||||||
| Tax payable | $ | $ | $ | $ | $ | |||||||||||||||
| Notes Payable | $ | $ | $ | $ | $ | |||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Lease liabilities | $ | $ | $ | $ | $ | |||||||||||||||
The Company has the following contractual obligations as of December 31, 2025:
| <1 Year | 1 to 3 Years | 3 to 5 Years | > 5 Years | Total | ||||||||||||||||
| Accounts payable and other accrued liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Related party payables | $ | $ | $ | $ | $ | |||||||||||||||
| Tax payable | $ | $ | $ | $ | $ | |||||||||||||||
| Convertible debentures | $ | $ | $ | $ | $ | |||||||||||||||
| Notes Payable | $ | $ | $ | $ | $ | |||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | $ | |||||||||||||||
| Lease liabilities | $ | $ | $ | $ | $ | |||||||||||||||
Currency risk
The Company is exposed to currency risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk is limited to the portion of the Company’s business transactions and balances denominated in currencies other than the United States dollar.
Assuming
all other variables remain constant, a fluctuation of +/-
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Cash bears interest at market rates. The Company’s financial liabilities have fixed rates of interest and therefore expose the Company to a limited interest rate fair value risk.
Crypto Currency Risk
We hold Bitcoin as part of our treasury assets. The value of Bitcoin is highly volatile and can be influenced by various factors, including market demand, regulatory developments, technological changes, and broader economic conditions. A significant decline in Bitcoin’s market price could adversely affect our financial condition and results of operations. Additionally, the evolving regulatory landscape for digital assets may impose new compliance requirements or restrictions, potentially impacting our ability to hold or transact in Bitcoin. Security risks, such as cyberattacks or loss of private keys, could also result in the loss of our Bitcoin holdings. These factors collectively pose risks to our business and financial performance.
| 26 |
| 18. | Related Party Transactions |
Key Management Compensation
Key management personnel are persons responsible for planning, directing, and controlling activities of an entity, and include executive and non-executive persons. During the six months ended June 30, 2026 and 2025, the Company recognized approximately $ and $, respectively, in compensation and stock-based compensation provided to key management.
Related Party Transactions
As
of June 30, 2026, the Company had related party payables of $
During the six months ended June 30, 2026 and the year ended December 31,
2025, the Company incurred approximately $
On
November 2, 2021, the Company acquired
In
December 2025, Micah Anderson, a director and officer of the Company, converted $
During
the year ended December 31, 2025, the Company entered into a note payable with a principal balance of $
| 19. | Share Capital |
Authorized capital
The Company’s authorized share capital consists of:
| ● | an number of common shares without par value; and |
| ● | an number of preferred shares issuable in series. |
Common shares
For the six months ended June 30, 2026:
| ● | On
March 12, 2026, the Company issued common shares to two investors for cash proceeds of $ |
| ● | On
March 24, 2026, common shares previously issued to an investor were returned to treasury for $ |
| ● | On
April 27, 2026, the Company issued common shares as part of the consideration given in the Himalaya acquisition. The shares
were determined to have an issuance date fair value of $ |
| ● | On April 21, 2026, the Company issued common shares with an issuance date fair value of $ in exchange for services provided. |
| ● | On May 15, 2026, restricted stock units for common shares were exercised. |
| ● | On
May 18, 2026, the Company issued common shares for cash proceeds of $ |
As of June 30, 2026, the Company had common shares issued and outstanding.
For the six months ended June 30, 2025:
| ● | On
January 13, 2025, the Company issued common shares at an average price of CAD $ per share totaling $ |
| ● | On
March 12, 2025, the Company issued common shares for services, with a grant date fair value of $ |
| 27 |
Preferred shares
For the six months ended June 30, 2026:
| ● | On
March 12, 2026 and May 18, 2026, the Company issued and , respectively, Series A-1 preferred shares to an investor
in a private placement for aggregate gross proceeds of $ |
As of June 30, 2026, the Company had Series A-1 preferred shares issued and outstanding.
Warrants
In
August 2025, in connection with the equity issuance in Q3 2025, a total of
In
December 2025, in connection with the conversion of convertible debentures, a total of
On February 27, 2026, the Company amended and restated a warrant to purchase common stock originally issued on May 25, 2023, reducing the exercise price from CAD $ to CAD$ per share and extending the exercise period by five years from February 27, 2026 to February 26, 2031.
In
March 2026, in connection with the equity issuance in Q1 2026, a total of
In
April 2026, in connection with the Himalaya acquisition, a total of
In
May 2026, in connection with the equity issuance in Q2 2026, a total of
The following table summarizes the warrants outstanding as of June 30, 2026:
| Expiration Date | Outstanding | Exercise Price | ||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| Total warrants outstanding | ||||||||
| 28 |
2019 Stock incentive plan
The omnibus 2019 stock incentive plan permits the Board of Directors of the Company to grant options to employees and non-employees to acquire common shares of the Company at fair market value on the date of approval by the Board of Directors. Vesting is determined on an award-by-award basis.
There were a total of and options granted during the six months ended June 30, 2026 and year ended December 31, 2025, respectively. As of June 30, 2026 and December 31, 2025, there were and , respectively, options outstanding. For the six months ended June 30, 2026 and 2025, there was $ and $, respectively, of share-based compensation expense related to the 2019 stock incentive plan. For the six months ended June 30, 2026 and year ended December 31, 2025, there were and options exercised. All option exercises were on a cashless basis.
| Number of Stock Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| Balance as of December 31, 2024 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited | ( | ) | $ | $ | ||||||||||||
| Balance as of December 31, 2025 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Forfeited | ( | ) | $ | $ | ( | ) | ||||||||||
| Balance as of June 30, 2026 | $ | $ | ||||||||||||||
June 30, 2026 | December 31, 2025 | |||||||
| Expected stock price volatility | % - | % | % - | % | ||||
| Risk-free annual interest rate | – | % | % - | % | ||||
| Expected life (years) | - | – | ||||||
| Expected annual dividend yield | % | % | ||||||
The following table summarizes the stock options that remain outstanding as of June 30, 2026:
| Exercise Price (CAD$) | Date | Outstanding | Exercisable | Vesting Condition | ||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| 29 |
Restricted Share Unit Plan
In December 2022, the Company formally adopted the Restricted Share Unit Plan (“RSU Plan”). The RSU Plan permits the Board of Directors of the Company to grant Restricted Share Units (“RSU’s”) to employees and non-employees to acquire common shares of the Company at fair market value on the date of approval by the Board of Directors. Vesting is determined on an award-by-award basis. The granted shares are not considered outstanding until exercised. During the six months ended June 30, 2026 and year ended December 31, 2025, and units were granted, and units were vested, and were forfeited, and and were exercised, respectively. For the six months ended June 30, 2026 and 2025, the Company recognized share-based compensation expense of $ and $, respectively, for units that were vested. The average grant-date fair value of the RSU’s during the six months ended June 30, 2026 and the year ended December 31, 2025 was $ and $, respectively.
Number of Restricted Share Units | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | ||||||||||
| Balance as of December 31, 2024 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Forfeited | ( | ) | $ | |||||||||
| Balance as of December 31, 2025 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Forfeited | $ | - | ||||||||||
| Balance as of June 30, 2026 | $ | |||||||||||
Reserves
Reserves includes accumulated foreign currency translation adjustments and the accumulated fair value of share-based compensation and warrants transferred from share-based payment reserve and warrant reserve upon cancellation or expiry of the share options and warrants.
| 30 |
| 20. | Income tax expense |
The
Company’s provision for income taxes for the six months ended June 30, 2026 and 2025 was $
As
of June 30, 2026 and December 31, 2025, the Company’s uncertain tax position liability was $
The
Company has a deferred tax liability of $
Uncertain Tax Positions
As the Company operates in the cannabis industry, it is subject to the limits of U.S. IRC Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under U.S. IRC Section 280E.
During the six months ended June 30, 2026, the Company has filed its previous years tax filing to become compliant through calendar year 2025. The Company has recorded the income tax payable as an uncertain tax position long-term liability on the balance sheets as of June 30, 2026 and December 31, 2025 . The computed interest and penalty amounts are also included within current income tax provision on the statement of operations and comprehensive income (loss) in the accompanying financial statements for the six months ended June 30, 2026 and 2025.
| 21. | Commitments and contingencies |
Contingencies
The Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of these regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and state regulations as of June 30, 2026 and December 31, 2025, marijuana regulations continue to evolve and are subject to differing interpretations. In addition, the use, sale, and possession of cannabis in the United States, despite state laws, is illegal under federal law. However, individual states have enacted legislation permitting exemptions for various uses, mainly for medical and industrial use but also including recreational use. As a result of the differing state and federal laws, the Company may be subject to regulatory fines, penalties, or restrictions in the future.
Cryptocurrency acquisition restriction. In connection with the March 12, 2026 private placement of Series A-1 preferred shares to La Jefa Partners, LLC, the Company has covenanted that, for a period of twenty-four months following the closing date (through March 12, 2028), the Company will not acquire any cryptocurrency, including Bitcoin, other than nominal amounts accepted in business-to-business transactions.
Claims and Litigation
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2026 and December 31, 2025, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations. As of June 30, 2026 and December 31, 2025, there are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest.
| 31 |
| 22. | Segmented Information |
Beginning in the second quarter of 2026, following the acquisition described
in Note 4, the Company began reporting Consumer Packaged Goods as a separate reportable segment. No comparable CPG operations existed
in the prior year period. Operations
by reportable
| Six Months Ended June 30, 2026 | ||||||||||||||||||||
| Wholesale Concentrates | Retail | Consumer Packaged Goods | Corporate & Other | Total | ||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||||||
| Cost of sales | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||
| Advertising and promotion | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Wages and salaries | ||||||||||||||||||||
| Office and general expenses | ||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||
| Legal and professional fees | ||||||||||||||||||||
| License and compliance | ||||||||||||||||||||
| Insurance expenses | ||||||||||||||||||||
| Excise and other taxes | ||||||||||||||||||||
| Lease expenses | ||||||||||||||||||||
| Travel and business development | ||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other (income) expense | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Change in fair value derivative liability | ( | ) | ( | ) | ||||||||||||||||
| Other expense (income) | ||||||||||||||||||||
| Total other (income) expense | ( | ) | ( | ) | ||||||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ||||||||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| 32 |
| Six Months Ended June 30, 2025 | ||||||||||||||||
| Wholesale Concentrates | Retail | Corporate & Other | Total | |||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Advertising and promotion | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Wages and salaries | ||||||||||||||||
| Office and general expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Legal and professional fees | ||||||||||||||||
| License and compliance | ||||||||||||||||
| Insurance expenses | ( | ) | ||||||||||||||
| Excise and other taxes | ||||||||||||||||
| Lease expenses | ||||||||||||||||
| Travel and business development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Change in fair value derivative liability | ( | ) | ( | ) | ||||||||||||
| Other expense (income) | ( | ) | ( | ) | ||||||||||||
| Total other (income) expense | ( | ) | ( | ) | ||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 23. | Loss Per Share |
| Six Months Ended | ||||||||
June 30, 2026 | June 30, 2025 | |||||||
| Net loss Attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Less: Preferred dividends | ||||||||
| Net loss applicable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted-Average Shares Outstanding – Basic and Diluted | ||||||||
| Loss Per Share – Basic and Diluted | $ | ) | $ | ) | ||||
Net loss attributable to the Company, as reported, is adjusted for dividends and various other adjustments as defined in ASC 260, Earnings Per Share.
After adjustments as defined in ASC 260, if the Company is in a net loss position, diluted loss per share is the same as basic loss per share when the issuance of shares on the exercise of convertible debentures, warrants, share options are anti-dilutive. After adjustments, as defined in ASC 260, if the Company is in a net income position, diluted earnings per share includes options, warrants, convertible debt and contingently issuable shares that are determined to be dilutive using the treasury stock method for all equity instruments issuable in equity units and the “if converted” method for the Company’s convertible debt.
| 24. | Subsequent Events |
On July 27, 2026, the Company announced and closed
the final tranche of the non-brokered private placement financing previously announced on March 12, 2026 and May 11, 2026, bringing aggregate
gross proceeds raised across all closings of the financing to approximately $
| (i) | Series A-2 Shares issued at a price of US$ per Series A-2
Share for gross proceeds of $ | |
| (ii) | Series A-2 Shares issued as consideration for the cancellation of all outstanding Preferred Shares – Series 1 (each, a “Series A-1 Share”) (the “Exchange”). The Series A-2 Shares issued in the Exchange include Series A-2 Shares issued as a one-time supplemental payment to the holders of the Series A-1 Shares in respect of the 40-day period from June 1, 2026 through July 10, 2026 during which such holders’ Series A-1 Shares accrued dividends in their favor, calculated on the same economic basis as the dividend rate applicable to the Series A-1 Shares. |
| 33 |
| ITEM 2. | 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 in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report and with our audited consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on March 26, 2026. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include those discussed under “Cautionary Note Regarding Forward-Looking Statements” and under Part II, Item 1A, “Risk Factors” in this Quarterly Report and in Part I, Item 1A, “Risk Factors” in the 2025 Annual Report. Unless otherwise indicated, all dollar amounts in this Item 2 are expressed in United States dollars.
Overview
Leef Brands Inc. was incorporated on September 15, 2011, under the laws of the province of British Columbia and is registered extra-provincially under the laws of Ontario. The Company is a cannabis branded products manufacturer based in California. The Company is a public company whose common shares are listed for trading on the Canadian Securities Exchange (“CSE”) under the symbol “LEEF”. The head office of the Company is located at Suite 2500 Park Place, 666 Burrard Street, Vancouver, BC V6C 2X8.
We are a cannabis concentrate manufacturer that leverages our manufacturing capabilities in a 12,000-square-foot extraction and manufacturing facility with significant throughput and distillate extraction capability. Our core manufacturing competencies include ethanol extraction (Type 6 manufacturing license), hydrocarbon extraction (Type 7 manufacturing license), and solventless extraction. We also hold a 179.9-acre cultivation land use permit, which we expect to result in our operating one of the largest cannabis cultivation sites in the state of California.
During fiscal 2024 and 2025, we executed a strategic transition away from consumer packaged goods (“CPG”) sales through retail, shifting our sales focus to leveraging our core strength in concentrate manufacturing to support and power the leading cannabis brands operating in California. CPG sales were immaterial in fiscal 2025 as the Company concentrated its efforts on the bulk concentrates market. Following our acquisition of Standard Holdings, Inc. and the HIMALAYA brand on April 27, 2026, CPG has again become a material component of our revenue, contributing $1,042,767 of net revenue for the six months ended June 30, 2026, and we report CPG as a separate reportable segment beginning in the second quarter of 2026. Management believes that the combination of higher-margin wholesale concentrate manufacturing and a growing branded CPG portfolio, together with disciplined operating expense management, positions the Company for improving operating performance.
During the six months ended June 30, 2026, the Company generated net revenue of $16,651,910, compared to $18,089,917 for the six months ended June 30, 2025, reflecting a decrease year over year. Gross profit increased significantly to $7,035,013 (gross margin of 42%) for the six months ended June 30, 2026, compared to $3,563,311 (gross margin of 20%) for the six months ended June 30, 2025. The Company recorded an operating loss of $704,690 for the six months ended June 30, 2026, compared to an operating loss of $4,280,704 for the six months ended June 30, 2025, reflecting both the margin expansion of $3,576,014 and a $104,312 change in total operating expenses.
Net loss and comprehensive loss attributable to the Company was $1,761,001 for the six months ended June 30, 2026, compared to net loss and comprehensive loss of $2,667,423 for the six months ended June 30, 2025. The reduced net loss position for the period was primarily driven by the improvements in operating results described above and a $612,859 decrease in interest expense, offset by a $2,913,709 reduction in the gain recorded for the change in fair value of derivative liabilities and an increase in the provision for income taxes of $349,626.
Non-GAAP Financial Measures
In addition to providing financial measurements based on GAAP, the Company provides additional financial metrics that are not defined under, prepared in accordance with or a standardized financial measure under GAAP and may not be comparable to similar financial measures disclosed by other issuers. Management uses such non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision-making, for planning and forecasting purposes and to evaluate the Company’s financial performance. These non-GAAP financial measures (collectively, the “non-GAAP financial measures”) are:
| ● | EBITDA Net Loss (GAAP) adjusted for interest and financing costs, income taxes, depreciation, and amortization. | |
| ● | Adjusted EBITDA (Non-GAAP) adjusted for share-based compensation, stock appreciation rights expense, loss (income) on equity method investments, change in fair value of derivative liabilities, change in fair value of contingent liabilities, acquisition-related professional fees, non-operational start-up costs and loss on disposition of subsidiary. Non-operational start-up costs are set-up costs to prepare a location for its intended use. Start-up costs are expensed as incurred and are not indicative of ongoing operations. |
Management believes that these non-GAAP financial measures assess the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business. These non-GAAP financial measures are not intended to represent and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity.
The following table provides a reconciliation of the Company’s net loss to Adjusted EBITDA (non-GAAP) for the three and six months ended June 30, 2026 and 2025:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2026 | June 30, 2025 | June 30, 2026 | June 30, 2025 | |||||||||||||
| Net Loss (GAAP) | $ | (1,334,748 | ) | $ | (2,933,199 | ) | $ | (1,761,001 | ) | $ | (2,667,423 | ) | ||||
| Depreciation and amortization | 656,858 | 569,278 | 1,224,999 | 1,104,515 | ||||||||||||
| Interest expense | 242,195 | 579,387 | 559,029 | 1,171,888 | ||||||||||||
| Income tax expense | 704,050 | 607,891 | 1,678,630 | 1,329,004 | ||||||||||||
| EBITDA (non-GAAP) | 268,355 | (1,176,643 | ) | 1,701,657 | 937,984 | |||||||||||
| Adjustments: | ||||||||||||||||
| Share-based compensation | 700,153 | 492,423 | 1,189,620 | 1,083,885 | ||||||||||||
| Change in fair value of derivative liabilities | (1,581,817 | ) | (566,681 | ) | (1,191,412 | ) | (4,105,121 | ) | ||||||||
| Other expense (income) | (18,037 | ) | (60,557 | ) | 10,064 | (9,053 | ) | |||||||||
| Adjusted EBITDA (non-GAAP) | $ | (631,346 | ) | $ | (1,311,458 | ) | $ | 1,709,929 | $ | (2,092,305 | ) | |||||
Beginning with the second quarter of 2026, the Company’s definition of EBITDA and Adjusted EBITDA was revised to exclude excise and other taxes from the income tax adjustment, and to present depreciation and amortization on the basis reported in the consolidated statements of cash flows. Prior period amounts presented above have been conformed to the current definition. On this basis, Adjusted EBITDA for the three months ended March 31, 2026 was $2,341,275, compared to $2,396,440 as previously reported in the Company’s Quarterly Report for that period.
Adjusted EBITDA, a non-GAAP financial measure, was $(631,346) and $1,709,929, respectively, for the three and six months ended June 30, 2026, compared to $(1,311,458) and $(2,092,305), respectively, for the three and six months ended June 30, 2025. The favorable change in Adjusted EBITDA for the three and six months ended June 30, 2026 compared to the same periods in 2025 of $680,112 and $3,802,234, respectively, is primarily driven by improved gross profit of $920,343 and $3,471,702, respectively, despite a decline of $1,416,748 and $1,438,007, respectively, in revenue, reflecting the Company’s ongoing focus on margin expansion and disciplined cost management in its core wholesale concentrate manufacturing business.
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Use of Financing Proceeds
During the six months ended June 30, 2026 and year ended December 31, 2025, the Company raised cash through issuance of preferred and common shares of the Company’s stock totaling gross proceeds of approximately $9.0 million and $1.4 million, respectively, in addition to the cash raised through both related party and third-party notes payable. The proceeds from these financing activities were used to fund the ongoing operations of the Company as well as the expansion of the Company’s cultivation activities.
Operational Update
Effective December 2025, the Company’s debt obligations for convertible debentures were converted into 60,155,339 common shares of the Company’s stock and 60,155,339 warrants for the purchase of a common share of the Company’s stock at a purchase price of CAD$0.30 per share for a period of three years.
The Company continues to settle and pay down unfavorable debt arrangements and increase liquidity through existing operations and practical equity driven capital raises.
Results of Operations
Three months ended June 30, 2026 and 2025
The following tables set forth the components of our statements of operations for each of the periods presented and as a percentage of revenue for those periods. The period-to-period comparison of results of operations is not necessarily indicative of results of future periods.
| Three Months Ended | ||||||||||||||||
| June 30, 2026 | June 30, 2025 | |||||||||||||||
| Net revenue | $ | 7,274,908 | 100 | % | $ | 8,691,656 | 100 | % | ||||||||
| Cost of sales | 4,864,545 | 67 | % | 7,201,635 | 83 | % | ||||||||||
| Gross profit | 2,410,363 | 33 | % | 1,490,021 | 17 | % | ||||||||||
| Operating expenses | 4,398,720 | 61 | % | 3,863,180 | 44 | % | ||||||||||
| Loss from operations | (1,988,357 | ) | -27 | % | (2,373,159 | ) | -27 | % | ||||||||
| Other expense (income): | ||||||||||||||||
| Interest expenses | 242,195 | 3 | % | 579,387 | 7 | % | ||||||||||
| Change in fair value of derivative liability | (1,581,817 | ) | -22 | % | (566,681 | ) | -6 | % | ||||||||
| Other income | (18,037 | ) | 0 | % | (60,557 | ) | -1 | % | ||||||||
| Total other income | (1,357,659 | ) | -19 | % | (47,851 | ) | 0 | % | ||||||||
| Loss before provision for income taxes | (630,698 | ) | -9 | % | (2,325,308 | ) | -27 | % | ||||||||
| Provision for income taxes | 704,050 | 10 | % | 607,891 | 7 | % | ||||||||||
| Net loss and comprehensive loss | $ | (1,334,748 | ) | -18 | % | $ | (2,933,199 | ) | -34 | % | ||||||
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Revenue
Revenue for the three months ended June 30, 2026 was $7,274,908, a decrease of $1,416,748, or 16.3%, as compared to $8,691,656 for the three months ended June 30, 2025. Revenue declined year over year, reflecting ongoing pricing pressure within the California wholesale cannabis market.
Cost of Sales and Gross Profit
Cost of sales for the three months ended June 30, 2026 was $4,864,545, a decrease of $2,337,090, or 32.5%, as compared to $7,201,635 for the three months ended June 30, 2025. Gross profit for the three months ended June 30, 2026 was $2,410,364, representing a gross margin of 33%, compared with a gross profit of $1,490,021, representing a gross margin of 17%, for the three months ended June 30, 2025. The significant increase in gross profit and gross margin reflects the Company’s disciplined procurement of third-party inputs.
Operating Expenses
Total operating expenses for the three months ended June 30, 2026 were $4,398,720, an increase of $535,540, or 13.9%, compared to total operating expenses of $3,863,180 for the three months ended June 30, 2025. The increase in total operating expenses was attributable to the factors described below.
Wages and salaries for the three months ended June 30, 2026 and 2025 were $2,155,828 and $1,943,497, respectively, an increase of $212,331, or 10.9%. The increase is largely attributable to an increase in stock based compensation.
Legal and professional fees for the three months ended June 30, 2026 and 2025 were $644,399 and $338,269, respectively, an increase of $306,130, or 90.5%. The increase in legal and professional fees is primarily attributable to increased use of outside legal counsel and other professional advisors during the period related to the capital raise and the Himalaya acquisition.
Interest expense
Interest expense for the three months ended June 30, 2026 and 2025 was $242,195 and $579,387, respectively, a decrease of $337,192, or 58.2%. The decrease was primarily driven by the conversion of convertible debentures during 2025, resulting in a lower outstanding debt balance during the current period.
Change in fair value of derivative liability
Change in fair value of derivative liability for the three months ended June 30, 2026 was a gain of $1,581,817, compared to a gain of $566,681 for the three months ended June 30, 2025. The change is primarily due to fluctuations in the Company’s share price and remeasurement of the Black-Scholes and Monte Carlo inputs used to value the derivative liabilities arising from warrants and certain convertible instruments with non-fixed conversion features denominated in a currency other than the Company’s functional currency.
Net Loss and Comprehensive Loss
Net loss and comprehensive loss for the three months ended June 30, 2026 was $1,334,748, as compared to net loss and comprehensive loss of $2,933,199 for the three months ended June 30, 2025, a favorable change of $1,598,451. The change to a net loss position was primarily due to the $1,015,136 favorable swing in the change in fair value of derivative liabilities and the $384,802 favorable change in operating results.
Six months ended June 30, 2026 and 2025
The following tables set forth the components of our statements of operations for each of the periods presented and as a percentage of revenue for those periods. The period-to-period comparison of results of operations is not necessarily indicative of results of future periods.
| Six Months Ended | ||||||||||||||||
| June 30, 2026 | June 30, 2025 | |||||||||||||||
| Net revenue | $ | 16,651,910 | 100 | % | $ | 18,089,917 | 100 | % | ||||||||
| Cost of sales | 9,616,897 | 58 | % | 14,526,606 | 80 | % | ||||||||||
| Gross profit | 7,035,013 | 42 | % | 3,563,311 | 20 | % | ||||||||||
| Operating expenses | 7,739,703 | 47 | % | 7,844,015 | 43 | % | ||||||||||
| Loss from operations | (704,690 | ) | -4 | % | (4,280,704 | ) | -24 | % | ||||||||
| Other expense (income): | ||||||||||||||||
| Interest expenses | 559,029 | 3 | % | 1,171,888 | 7 | % | ||||||||||
| Change in fair value of derivative liability | (1,191,412 | ) | -7 | % | (4,105,121 | ) | -23 | % | ||||||||
| Other expense (income) | 10,064 | 0 | % | (9,052 | ) | 0 | % | |||||||||
| Total other income | (622,319 | ) | -4 | % | (2,942,285 | ) | -16 | % | ||||||||
| Loss before provision for income taxes | (82,371 | ) | 1 | % | (1,338,419 | ) | -7 | % | ||||||||
| Provision for income taxes | 1,678,630 | 10 | % | 1,329,004 | 7 | % | ||||||||||
| Net loss and comprehensive loss | $ | (1,761,001 | ) | -11 | % | $ | (2,667,423 | ) | -15 | % | ||||||
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Revenue
Revenue for the six months ended June 30, 2026 was $16,651,910, a decrease of $1,438,007, or 7.9%, as compared to $18,089,917 for the six months ended June 30, 2025. Revenue decreased period over period, reflecting the maturing of the Company’s strategic pivot to bulk concentrate manufacturing and ongoing pricing pressure within the California wholesale cannabis market. The decrease in consolidated net revenue is net of $1,042,767 of consumer packaged goods revenue attributable to the HIMALAYA business acquired in April 2026. Excluding CPG, wholesale concentrate revenue decreased $1,496,436 and retail revenue decreased $984,338 period over period.
Cost of Sales and Gross Profit
Cost of sales for the six months ended June 30, 2026 was $9,616,897, a decrease of $4,909,709, or 33.8%, as compared to $14,526,606 for the six months ended June 30, 2025. Gross profit for the six months ended June 30, 2026 was $7,035,013, representing a gross margin of 42%, compared with a gross profit of $3,563,311, representing a gross margin of 20%, for the six months ended June 30, 2025. The significant increase in gross profit and gross margin reflects the Company’s integration of Salisbury Canyon Ranch as the Company’s primary biomass supply source during the period, combined with disciplined procurement of third-party inputs.
Operating Expenses
Total operating expenses for the six months ended June 30, 2026 were $7,739,703, a decrease of $104,312, or 1.3%, compared to total operating expenses of $7,844,015 for the six months ended June 30, 2025. The decrease in total operating expenses was attributable to the factors described below.
Legal and professional fees for the six months ended June 30, 2026 and 2025 were $938,695 and $826,208, respectively, an increase of $112,487, or 13.6%. The increase in legal and professional fees is primarily attributable to increased use of outside legal counsel and other professional advisors during the period related to the capital raise and the Himalaya acquisition.
Office and general expenses for the six months ended June 30, 2026 and 2025 were $1,307,296 and $1,530,986, respectively, a decrease of $223,690, or 14.6%. The decrease is primarily attributable to lower freight and overhead costs as the Company continues its disciplined approach to managing operating costs.
Advertising and promotion expenses for the six months ended June 30, 2026 and 2025 were $56,241 and $201,224, respectively, a decrease of $144,983, or 72.1%, reflecting reduced CPG marketing spend consistent with the Company’s strategic focus on wholesale concentrate manufacturing.
Interest expense
Interest expense for the six months ended June 30, 2026 and 2025 was $559,029 and $1,171,888, respectively, a decrease of $612,859, or 52.3%. The decrease was primarily driven by the conversion of convertible debentures during 2025, resulting in a lower outstanding debt balance during the current period.
Change in fair value of derivative liability
Change in fair value of derivative liability for the six months ended June 30, 2026 was a gain of $1,191,412, compared to a gain of $4,105,121 for the six months ended June 30, 2025. The change is primarily due to fluctuations in the Company’s share price and remeasurement of the Black-Scholes and Monte Carlo inputs used to value the derivative liabilities arising from warrants and certain convertible instruments with non-fixed conversion features denominated in a currency other than the Company’s functional currency.
Net Loss and Comprehensive Loss
Net loss and comprehensive loss for the six months ended June 30, 2026 was $1,761,001, as compared to net loss and comprehensive loss of $2,667,423 for the six months ended June 30, 2025, a favorable change of $906,422. The change to a net loss position was primarily due to the $3,576,014 favorable change in operating results, partially offset by the $2,913,709 unfavorable swing in the change in fair value of derivative liabilities.
Cash Flows for the Six Months Ended June 30, 2026 and 2025
Cash flow from operating activities
Cash used in operating activities for the six months ended June 30, 2026 was $3,670,082, as compared to cash used in operating activities of $2,033,388 for the six months ended June 30, 2025, an unfavorable change of $1,636,694. The unfavorable change in cash used in operating activities was primarily driven by the timing of working capital items including an increase in inventories and a decrease in accounts payable and accrued expenses, partially offset by an improvement in operating results.
Cash flow from investing activities
Cash used in investing activities for the six months ended June 30, 2026 was $1,438,751, as compared to cash used in investing activities of $384,258 for the six months ended June 30, 2025, an unfavorable change of $1,054,493. The change reflects increased capital expenditures to support ongoing operations and planned facility improvements, offset by proceeds from the sale of cryptocurrency.
Cash flow from financing activities
Cash provided by financing activities for the six months ended June 30, 2026 was $7,869,073, as compared to cash provided by financing activities of $573,901 for the six months ended June 30, 2025, a favorable change of $7,295,172. The favorable change was primarily due to approximately $9 million of gross proceeds from the issuance of preferred and common shares in March and May 2026, partially offset by net repayments on notes payable, repayment of related party contingent consideration, and related party notes payable.
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Summary of Quarterly Results
| Revenues | Net Income (Loss) and Comprehensive Income (Loss) Attributable to Shareholders | |||||||
| June 30, 2026 | $ | 7,274,908 | $ | (1,334,748 | ) | |||
| March 31, 2026 | $ | 9,377,002 | $ | (426,253 | ) | |||
| December 31, 2025 | $ | 8,318,373 | $ | (11,158,097 | ) | |||
| September 30, 2025 | $ | 8,379,306 | $ | (3,803,812 | ) | |||
| June 30, 2025 | $ | 8,691,656 | $ | (2,933,199 | ) | |||
| March 31, 2025 | $ | 9,398,261 | $ | 265,776 | ||||
| December 31, 2024 | $ | 5,901,489 | $ | (7,182,195 | ) | |||
| September 30, 2024 | $ | 6,763,391 | $ | (9,185,633 | ) | |||
| June 30, 2024 | $ | 7,916,653 | $ | (5,539,472 | ) | |||
| March 31, 2024 | $ | 7,913,914 | $ | (2,714,215 | ) | |||
The Company’s focus on the wholesale concentrate market has led to an increase in quarterly revenue and margins through 2025 and into Q1 2026. While margins remained improved in Q2 2026, revenue declined from $8.7 million in Q2 2025 to $7.3 million in Q2 2026. The fluctuation in quarterly net income (loss) is primarily attributable to non-cash items, particularly changes in the fair value of derivative liabilities and losses on extinguishment of debt. The net loss of $2.9 million in Q2 2025 was driven primarily by smaller margins in Q2 2025 of $1.4 million versus $2.4 million in Q2 2026, offset by operating expenses of $3.9 million and income tax expense of $0.6 million in Q2 2025.
Related Party Balances
Key management personnel are persons responsible for planning, directing, and controlling activities of an entity, and include executive and non-executive persons. During the six months ended June 30, 2026 and 2025, the Company recognized approximately $1,350,000 and $912,000, respectively, in compensation and stock-based compensation provided to key management.
For further information regarding related party transactions, see Note 18 – Related Party Transactions of the condensed consolidated financial statements.
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Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. There have been no material changes in our critical accounting estimates from those disclosed in our 2025 Annual Report. Refer to Note 3 – Significant Accounting Policies of the condensed consolidated financial statements for further information on our accounting policies and estimates.
Liquidity and Capital Resources
Historically, the Company’s primary source of liquidity has been its operations, capital contributions made by equity investors, and debt issuances. The Company is currently meeting its operational obligations as they become due from its current working capital and from operations. However, the Company has sustained losses since inception and may require additional capital in the future. Such uncertainties related to events and conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address these conditions include the equity financings described in Note 19 and Note 24, which raised aggregate gross proceeds of approximately $14.2 million through July 2026, the continued benefit of vertically integrated biomass supply from Salisbury Canyon Ranch on the Company’s gross margins, and continued discipline over operating costs.
As of June 30, 2026, the Company had a net working capital surplus of $8,675,729 and a cash balance of $4,950,962. This is a significant improvement from December 31, 2025, when the Company had a working capital deficit and cash of $2,190,722. The increase in working capital and cash during the six months ended June 30, 2026 primarily reflects approximately $9 million in equity raised in March and May 2026.
The Company is generating cash from revenues and deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are primarily being utilized for capital expenditures, facility improvements, product development, and marketing.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with financial liabilities. The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due.
While management plans to remedy our cash position by reducing operational expenses and securing additional equity financing, there can be no assurance or guarantee that these strategies will be successfully achieved or sufficient to meet our obligations.
Off-Balance Sheet Arrangements
As of June 30, 2026, the Company had no material off-balance sheet arrangements such as guarantee contracts, contingent interest in assets transferred to an entity, or any obligations that trigger financing, liquidity, market, or credit risk to the Company.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is a smaller reporting company as defined in Rule 12b-2 under the Exchange Act, and as such, is not required to provide the information required by this Item. However, the Company is exposed to certain market risks, including foreign currency exchange rate risk, interest rate risk, commodity price risk, and risks related to the Company’s digital asset holdings.
Currency risk. The Company is exposed to currency risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk is limited to the portion of the Company’s business transactions and balances denominated in currencies other than the United States dollar. Assuming all other variables remain constant, a fluctuation of +/- 5.0 percent in the exchange rate between the United States dollar and the Canadian dollar would impact the carrying value of the net monetary assets by approximately +/- $548,000.
Interest rate risk. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Cash bears interest at market rates. The Company’s financial liabilities have fixed rates of interest and therefore expose the Company to a limited interest rate fair value risk.
Commodity price risk. We are exposed to price fluctuations in the California cannabis market, where we sell our products. Continued pricing compression in this market has, and may in the future, adversely affect our revenue and gross margin.
Digital asset risk. We hold Bitcoin as part of our treasury assets. The value of Bitcoin is highly volatile. A significant decline in Bitcoin’s market price could adversely affect our financial condition and results of operations.
There have been no material changes in the Company’s primary risk exposures or management of market risks from those disclosed in its 2025 Annual Report.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company maintains “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and Rule 15d-15(e) of the Exchange Act) as of June 30, 2026. Accordingly, as of June 30, 2026, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures included deficiencies in certain areas as of such date.
Management’s Report on Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management, including the Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria established in “Internal Control — Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its assessment, management concluded that, as of June 30, 2026, there were deficiencies in our internal control over financial reporting. This is attributable to a significant deficiency resulting from the size of the Company and its limited personnel, which constrains our ability to implement full segregation of duties across financial reporting functions. The Company is actively monitoring this condition and will implement additional controls and oversight procedures as resources permit.
Our disclosure controls and procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures and internal controls over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2026, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations. As of June 30, 2026, there are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest.
| ITEM 1A. | RISK FACTORS |
You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I, Item 1A, Risk Factors, contained in our Annual Report on Form 10-K for Fiscal 2025, as filed with the SEC on March 26, 2026. The risk factors described in the fiscal year ended 2025 Form 10-K have not materially changed.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Recent Sales of Unregistered Securities.
On April 14, 2026, the Company issued 13,688,001 common shares with an issuance date fair value of $2,412,592 in connection with the Himalaya acquisition. In connection with the Himalaya acquisition, a total of 547,520 warrants to purchase the Company’s common stock were issued. The warrants are exercisable at a price of CAD$0.25 per share (USD $0.18) for a period of 24 months from the date of issuance. The Company recorded a derivative liability of $56,612 related to the issuance of these warrants during the six months ended June 30, 2026.
On April 21, 2026, the Company issued 705,373 common shares with an issuance date fair value of $108,495 in exchange for services.
On May 15, 2026, restricted stock units to purchase 206,467 common shares were exercised.
On May 18, 2026, the Company issued 357,553 Series A-1 preferred shares to an investor for cash consideration of $100,000 and 24,994,642 common shares for cash consideration of $4,415,000. In connection with the equity issuance, a total of 24,994,642 warrants to purchase the Company’s common stock were issued. The warrants are exercisable at a price of CAD$0.30 (USD $0.22) for a period of 24 months from the date of issuance. The Company recorded a derivative liability of $2,528,796 related to the issuance of these warrants during the six months ended June 30, 2026.
On June 20, 2026, the Company issued 120,244 Series A-1 preferred shares in connection with quarterly preferred stock dividends.
The foregoing issuances were made in reliance on the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) thereof and/or Regulation D or Regulation S promulgated thereunder. The recipients of the securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof, and appropriate legends were affixed to the securities issued in such transactions. The issuances were made without general solicitation or advertising.
Use of Proceeds
The net proceeds from the foregoing unregistered sales of equity securities are being used for general working capital and general corporate purposes, including capital expenditures, facility improvements, product development, and the repayment of certain indebtedness.
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Issuer Purchases of Equity Securities
Neither the Company nor any affiliated purchaser of the Company purchased any of the Company’s registered equity securities during the quarter ended June 30, 2026.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable
| ITEM 5. | OTHER INFORMATION |
Insider Trading Arrangements
During
the six months ended June 30, 2026, none of the Company’s directors or executive officers
| ITEM 6. | EXHIBITS |
| * | Previously filed, |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 6, 2026 | Leef Brands, Inc. | |
| By: | /s/ Micah Anderson | |
| Micah Anderson, | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Kevin J. Wilson | |
| Kevin J. Wilson, CPA, | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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