Margins in Motion and a Federal Wildcard

The story at LEEF is about margin expansion, asset leverage, and execution in a sector that is beginning to rebound. This is the part of the year where that thesis moves from talk to numbers.

Harvest One, Harvest Two, and the Rest of the Ranch

LEEF is finishing the first harvest of 2025 with 700,000 plants grown on only 65 acres of its Salisbury Canyon Ranch. A second harvest from that same 65 acres will take place later this year.

Salisbury Canyon Ranch is 1900 acres in total. Only about 4 percent is currently in production. The rest provides optionality to expand cultivation without acquiring or leasing additional land.

Why It Matters for Margins

Until now, LEEF has been paying roughly $25 per pound for input biomass. With its own harvests, that cost drops to $6–$12 per pound. This structural change has the potential to more than double gross margins once the operation is fully ramped.

LEEF also holds a leading position in California’s concentrate market, focusing on a segment with better economics than the oversupplied flower market.

Q2 vs Q3: The Turning Point

Q1 2025 results provide the baseline:

Revenue: $9.4 million, up 19 percent year-over-yearAdjusted EBITDA: –$0.8 million, versus $1.2 million in Q1 2024The decline was due to ramp-up costs for cultivation ahead of the first harvestQ2 will still reflect the business as it was. Q3 will be the first quarter where ranch production lowers cost of goods sold and begins to show the intended margin improvement.

Federal Rescheduling: The Wildcard

The DEA has been holding an HHS recommendation to move cannabis from Schedule I to Schedule III. The judge overseeing the process recently retired and the new DEA head, Terrance Cole, has called rescheduling a priority although it does not appear on his public strategic agenda.

If rescheduling occurs:

• 280E tax relief would flow directly to EBITDA

• Banking, uplisting, and interstate commerce could become possible

• Companies with low-cost production and vertical integration such as LEEF would see profitability amplified

• At today’s valuation, rescheduling is an unpriced call option.

LEEF trades at roughly half the sales multiple of California’s largest cannabis producer, despite having a cost structure that could match or exceed theirs once California ranch production is fully online. The market is currently valuing the entire operating business — including California’s leading concentrate operations — at zero when compared to the independent valuation of the ranch alone.

This discount looks even more out of place given LEEF’s expansion into New York, one of the fastest-growing cannabis markets in the country. New York’s retail sales jumped from $160 million in 2023 to $1 billion in 2024, with $1.5 billion projected in 2025. Margins there are significantly higher than in California, and concentrates represent approximately 55 percent of product sales.

With its newly acquired Type 1 Cannabis Processor License, LEEF can produce, infuse, package, and brand concentrates for the New York market. This positions the company as a multi-state operator with immediate access to a younger, less saturated market, and a chance to apply its proven California model to a higher-margin environment.

The market is not yet pricing in either the California cost-per-pound drop or the New York expansion. By Q3, investors will see the first proof of the margin story, while the New York ramp remains an underappreciated catalyst for revenue growth in 2025 and beyond.

Visualizing the Trajectory

The company’s projections show revenue and EBITDA increasing steadily from 2024 through 2026, with EBITDA growth accelerating as cost efficiencies and scale take effect:

My Take

Q3 will be the first look at the ranch’s impact on margins.

The 1,900-acre land base offers long-term growth potential.

Federal rescheduling, if it happens, would be a significant tailwind.

Two harvests, a Q3 margin jump, and a new high-margin market. The clock is already ticking.

XO, PQ

Disclosure: I am long LEEEF. This article is for informational purposes only and should not be considered investment advice. All opinions expressed are my own, based on publicly available information at the time of writing. Investors should conduct their own due diligence before making any investment decisions.