LEEF Brands Faces Revenue Decline Despite Cost-Cutting Efforts

The firm is focused on lowering expenses and building out a new cultivation site in Santa Barbara County.

California-based Leef Brands (CSE: LEEF) (OTC: LEEEF), formerly known as Icanic Brands, reported its financials for the third quarter ending Sept. 30, showing a revenue slump alongside notable cost cuts.

The company posted revenue of $5.7 million, a drop of 19% versus the same period in the previous year. That decline of $1.3 million is primarily linked to changing market prices and overall volatility in the cannabis sector.

Net income for the quarter was also negative, with a loss of $2 million compared to a gain of $10.5 million in the same quarter of the previous year. That 119% decline was primarily due to a decrease in other income sources.

Despite the headwinds, the company said that it maintained a stable customer base by expanding into different verticals, especially after the acquisition of The Leaf in January.

“The company has continued to work with high-quality customers in order to limit any credit risk,” the firm wrote in regulatory filings.

According to filings, the cost of sales for the firm also declined, dropping 23% to around $3.8 million. That fall contributed to a gross profit of $1.9 million for the quarter, equating to a gross margin of 33%. That’s an improvement over the 29% margin recorded in the same quarter of the previous year.

The company attributed the rise in gross profit percentage to more effective supply chain management and enhanced efficiencies in its manufacturing processes.

The company also reported a substantial reduction in total operating expenses, which fell 36% to $2.9 million. That decrease was driven by a 40% reduction in wages and salaries due to shrinking labor and a decrease in stock-based compensation expenses. Legal and professional fees also fell 24%, largely as a consequence of reduced costs after the merger with Icanic.

Research and development expenses saw a dramatic reduction of 91%, aligning with the company’s strategic refocusing on its core business operations to create efficiencies and bolster profit margins.

CEO Micah Anderson credits the company’s performance to its adaptive strategies and the development of the Salisbury Canyon Ranch, a new cultivation site in Santa Barbara County. The expansion is expected to enhance the company’s production capacity and supply chain efficiency, particularly for its concentrate lines.

“This new site is not just an expansion; it’s a leap forward in our ability to meet growing demand,” Anderson said in a statement.

“With the groundbreaking already underway, including well installations and land preparations, we’re gearing up for what we anticipate being a substantial harvest next fall,” Anderson said. “The completion of this farm in 2024 will be the catalyst that improves our biomass supply chain for the concentrate lines LEEF specializes in. This will allow for us to bring predictability, consistency, and higher margins which will position us well in late 2024 and beyond.”

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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