Good afternoon, everyone, and thank you for joining us. Welcome to Leaf Brands' fourth-quarter and full-year 2025 earnings call.

Joining me today are Micah Anderson, our Chief Executive Officer, and Kevin Wilson, our Chief Financial Officer. Please note that today's discussion will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from what we discuss today.

For a full discussion of these risks, please refer to our filings on SEDAR+ and on our website. Our financial results and press release for the quarter are available at leafbrands.com in the Investor Relations section.

Today's call will begin with remarks from Micah, who will discuss the key operational highlights from the quarter and the continued progress at Salisbury Canyon Ranch. Kevin will then walk through the financial results in more detail.

After that, Micah will return to discuss what lies ahead and why we're so excited about Leaf's future. With that, I'll turn the call over to Micah.

Thanks, Jesse. Good afternoon, everyone.

I want to start by thanking everyone for taking the time to tune in and learn more about the Leaf Brands business. 2025 was a pivotal year for our business.

Today I'm going to highlight a couple of the company's wins from 2025, as well as talk about what the future looks like for our company. We had our first successful year cultivating close to 65 acres in Santa Barbara County.

We grew close to 2 million plants, which has led to largely improved economics within our core extraction business. We grew revenue by 22% year-over-year and doubled our gross margins in the last two quarters of the year.

Today we will get into the details that drove this improvement. It's also worth noting we were successful in converting close to $12 million worth of debentures in an effort to strengthen our balance sheet.

As many of our core business centers around an extraction facility we've been running since 2018. Leaf has scrapped and fought our way to becoming one of the largest concentrate providers, and I'm proud to say that we power many of the largest brands in the industry.

To give you guys a sense of how large the extraction business is, we process over 200 acres worth of raw cannabis material a year through our extraction facility, which then gets turned into different types of concentrated products. We don't sell flower, we don't co-pack for other brands.

We are very focused on providing medical-grade, formulated concentrated ingredients to the largest players in the space. We grew 65 acres in '25, but still purchase many more acres worth of product from other farms, which obviously doesn't give us the full economic impact we will see once the farm is complete.

This is why our main focus in 2026 will be to complete the build-out at our cultivation facility and bring even more of the supply chain needs in-house in '26 and into 2027. The market rate in California for the type of material we purchase for extraction is between $20 and $50 per pound.

We cultivate the same material ourselves for $8 or less. With the recent financing event of up to $8 million led by Mindset Capital, our intent is to really stay focused in California by finishing the farm.

This is where Leaf can find the largest return on investment over the next couple of years. Kevin will get into the numbers in a minute, but before I hand it over to him, I want to run through a few fun facts and things to think about as it relates to our business.

Once fully built, we can produce around 1 million pounds on the current license footprint in Santa Barbara. I believe that there's an opportunity for us to increase our license footprint on the farm over the coming years leading to more pounds produced.

If we were to turn all 1 million pounds into distillate, which is our lowest-value concentrate SKU, and sell it at today's fair market value, it would equate to close to $39 million in revenue. Vape sales recently overtook flower sales in California, and we see this trend happening all over the industry.

Hemp beverage and vape sales over the past few years are clear consumer demand indicators. Clean, high-quality oil is crucial to building a real brand in this category.

We are currently cultivating pounds for $8, but I do believe that we will get this number down over time through innovation and discovered efficiencies. The material we cultivated in 2025 was completely pesticide-free.

This is important and will matter more in the coming years under rescheduling and the more medical landscape we believe is coming. For this reason, I believe Leaf is building the supply chain of the future.

This will make Leaf a potential global market provider when international export is allowed. You have all heard the rumors of the federal government rescheduling cannabis.

In past years I've been bearish on this happening, but from what I've gathered more recently, I do believe that this will happen this year. The administration has dropped many hints around the medical aspects of the plant, and I do believe that we're going to see stricter, more medical-like guidelines over time, which is why we are building Leaf the way we are.

Beverages, softgels, edibles, topicals, and even vapes are the products of the future, and this is where Leaf is laser-focused. To my point, we are also watching the Medicare CBD pilot program that is launching this spring.

The federal government is looking at covering CBD products for seniors, which is a validation of the medical direction this industry is headed. Leaf's pesticide-free supply chain is built for exactly that kind of regulated market.

I'm going to pass it over to Kevin to run through the financial performance, and then I'll jump back in to highlight a few things investors should follow over 2026.

Thank you, Micah. I want to spend my time today not just walking through the numbers, but helping you understand what those numbers are actually telling you.

Because as Micah mentioned, we think 2025 is best understood as two distinct chapters due to the addition of the Salisbury Canyon Ranch to Leaf's operations. Every key financial metric improved year-over-year: revenue was up 22%, margins grew from 27% to 30%, EBITDA increased, and cash flow all moved in the right direction.

The headline numbers alone don't capture the full story, and that story really is a tale of two halves. Chapter 1 is the first half: revenue was $18.1 million with gross margins of 19.7%, negative operating cash flow, a business carrying a cost structure that simply wasn't sustainable.

We knew it and we did something about it. Chapter 2 is the second half of the year, when Salisbury Canyon Ranch came online for the first harvest.

Second-half revenue came in at $16.7 million, modestly lower than the first half, but look at what happened to the quality of that revenue: gross margins expanded to 41.4%. That's a 22 percentage point improvement half-over-half within the same calendar year.

Gross profit went from $3.6 million in the first half to $6.9 million in the second half, doubling on lower revenue. That's the impact that Salisbury Canyon Ranch has on this business.

Q4 is where we want to focus your attention because it tells the most complete version of the story. Q4 revenue was $8.3 million, up 39% year-over-year from $6 million in Q4 of 2024.

That's the strongest year-over-year revenue growth that we have delivered in any quarter this year. More importantly, we generated positive operating cash flow of $1.3 million and positive free cash flow of $1.2 million in the quarter.

That is the number that matters most to us. It demonstrates that the business, running on a post-Salisbury Canyon Ranch model, is self-funding at the operating level.

The GAAP net loss in Q4 is heavily distorted by a $10 million non-cash charge related to the accounting treatment of our December debenture conversion to equity and one-time impairment charges. This is Leaf strengthening its balance sheet ahead of reform, not a cash event, and it does not change the forward operating picture.

The cash flow picture tells the same story even more plainly. In the first half of 2025, we consumed $2 million in operating cash flow and ran a free cash flow deficit of $2.4 million.

In the second half, operating cash flow was a positive $1.7 million, and free cash flow turned to a positive $1.3 million. That's a $3.7 million swing in free cash flow from one half of the year to the other.

We ended the year with $2.2 million in cash, which is more than double where we were at the midpoint. As I mentioned, I do want to be direct about the net loss figures.

The GAAP net loss in the second half is significantly impacted by those non-cash items, primarily the accounting treatment of the conversion of our convertible debentures in December, one-time impairment charges, and the treatment of our derivative liabilities. These are real line items that affect the income statement, but they're non-cash and they do not reflect the forward operating trajectory of the business.

The operating and free cash flow figures are the right lens here. We're proud that we were able to strengthen our balance sheet, and thank the debenture holders for their help in completing this transaction.

The reason we're telling you this story in halves is because we genuinely believe the second-half exit rate represents a fundamentally different business than the one we were operating 12 months ago. The cost structure's different, the margin profile's different, the cash generation is different, and we believe that business is the one that shows up going forward.

Lastly, today's filing is our first 10-K as a company. Filing our first 10-K establishes us as a fully compliant SEC registrant.

It reflects our commitment to transparency and governance, and sets the foundation for uplisting to a higher exchange as our growth trajectory continues. I'll now turn it back to Micah before we open the line for questions.

Thank you, Kevin. As I mentioned above, the theme for Leaf in 2026 is going to be about focus.

We're going to focus on completing the farm in California and continue to earn market share in our own home state. We continue to make progress on our New York operation, but our primary capital allocation in 2026 will be completing the California farm where we see the highest ROI.

With the recent financing event led by Mindset Capital, we are going to complete the farm. This means that we will be investing into fencing, irrigation, fertigation, field prep, licensing, infrastructure, legal, lobbying, and investing into our team.

We plan to add roughly 15 acres to the existing area we cultivated in 2025 in the spring and will again add more licensed acres in the fall of 2026. We are not exactly sure how many we will add in the fall, but this will be one of the things we will be updating investors on throughout the year.

The good news is that we have our local permits in hand, the capital to complete the farm, and a solid team to execute the plan. As Kevin stated, you can clearly see it in our numbers, pairing the farm with our extraction business changes our economics and sets us up well for future optionality.

Our business model is unique and you can clearly see what the business looks like with and without the farm. As we go into Q2 of 2026, we will be running out of the material we grew in '25, and you will see this in our numbers.

We have planned for this and in my eyes, this is evidence that our model clearly works. We will see new material coming off the farm starting in late June, and then should be flush with new material going into 2027 and onward.

I also want to highlight the addition of Jamie Mendola to our board. Jamie is a proven executive in the cannabis industry and brings a strong understanding of what it takes to build and scale successful businesses.

His perspective is a great addition to the team, and we are grateful to have him as we begin to scale this business. I'd like to give a special thanks to Aaron Edelheit and the Mindset team for taking the time to come see what we were working on and really dive into understanding the business.

Leaf is blessed to work with an amazing team of employees who are passionate about working with the cannabis plant and driven to succeed. Thank you all again for tuning in.

If you're listening to this and you believe in what we are building, I'd encourage you to take a position in Leaf and hold it. We are looking for long-term shareholders who believe in our vision.

We're building a real business with real assets, and the best is yet ahead of us. Follow our story and we will keep you up to date along the way.

I'll pass it back to Jesse and open it up for questions. Thank you.

Thanks, Micah. Operator, please open the line for questions.

Hey, guys. Thanks for taking the question and all the progress.

A key differentiator between you guys and some of your competitors is you contract your farming labor or workforce. Could you provide some color on who they are?

We use a couple different FLCs for kind of strategic reason. I'll give you a real-world example.

Last year we dealt with a couple different fires on different sides of Santa Barbara, and we learned the hard way that you need to have multiple FLCs to pull labor from. Actually don't know the names of both the companies off the top of my head, I would have to ask the farm GM.

It's just a matter of bringing in outside labor to help us with the big days, and then the team that we have on the farm is relatively small, it's like five people or less. That's the strategy, is we just try and outsource as much of the labor as possible.

Okay. Then for plans like further expansion, you may be restricted by county ordinances.

Just provide some color, like you got a lot of land and potential there, I'm curious as like how much further you could possibly expand beyond the 180 acres?

The way it works in Santa Barbara County, good question. We have a lot of land, but you can't necessarily just go plant the entire thing.

It's not the way that the ordinance works. We have 180-acre land use permit.

On the 1,900 acres that we have, that's our footprint. Santa Barbara County set it up originally that there's 1,500 acres of canopy.

I believe that they're going to cut that in half or dramatically cut it down. We were able to get our footprint into the cap, which means that once the cap is full, they're not awarding any more licenses.

It is what it is, they're going to reduce it. I do think that there's an opportunity for us to apply for more and go beyond the 180 acres.

It's something that we're working on right now. It's not guaranteed, but I do think that we can be successful.

Hopefully that answers your question. It's 180 acres LUP, and then we put DCC licenses, which are the state licenses, on top of that.

Then you have 100 acres for hemp, and could you provide some color on that as well?

Sure. We had an active hemp license.

We let it go dormant this past year intentionally, and they're currently keeping it alive. Right now we're working with the county to reactivate it.

It's a very simple process. Yes, we have another field on the farm, there's roughly 100-plus acres that we can cultivate on.

With cannabis, it's a lot stricter. It's like you get the 180 acres, but you cannot go beyond that.

With hemp, it's just a matter of working with the ag commissioner, it's a different department within the county and the state. It's a lot less restrictive.

If we wanted to grow the 100 acres, we could. I don't know if we will or not, it's just something that we're keeping active as optionality, just with everything going on with the executive order and the hemp channel.

We're just making sure that we're prepared for any sort of direction that we want to take the company if it makes sense to do so. Right on.

Thanks for the questions. Good luck with everything.

Thanks for the questions.

Hey, guys. I wanted to ask a question about when you have the farm either now or when it's fully up and running, and you combine that farm really with your lab and your manufacturing capability, can you talk long term the kind of solutions or offerings that you can bring to some of the biggest brands that you already work with that you haven't been able to before?

I know we've had some conversations just on having dedicated parts of the field and different genetics. Have you already started kind of those conversations, and just big picture, the way I've looked at your company is almost like the way Intel used to be used in the past, is like Intel Inside and you kind of powering brands, but just strategically, can you talk to what you can offer your customers and these brands in terms of planning ahead of time and exclusive products?

Yeah.

I think big picture, and this'll take I think over the coming years we're going to get better at this, and there's going to be more opportunities for us to streamline the relationships between clients and what we do. What we've started with is that if you're a larger brand, we believe that we can take extraction and the supply chain management side of concentrated products off of your plate, and do it in a way that is better, cheaper, faster than you can yourself.

Genetics, if you're a larger brand, I'll give you kind of a real-world example. All of these brands are trying to diversify their marketing campaigns and what they're selling versus the next guy by way of terpene profiles and strains, right?

We work with them on that. Take a company like Kiva, okay, Kiva, what are the evergreens that you guys want to have these in the rotation for a long period of time?

We can put those into our nursery program and then grow those for you on the farm to give them predictability. Really, it's a large enough footprint, especially once we're fully scaled out, to where we can say, okay, this 10-acre block is yours, and what do you want us to plant into this 10-acre block?

Then share with them data, yield results both out of the field and out of extraction, to help them with the predictability on planning their business. An example of that would be, you want us to grow this tangerine strain because it's a very unique terpene profile, but it does not perform well out of the field and it doesn't perform well on an extracted plant through hydrocarbon, and we share that with them so that they can then make decisions around where should we steer the plants that we want to have and the types of concentrates that we want to put into the brand to help them with their own margins.

It's predictability, it's bandwidth for them. What we do is, it's a lot of work, it's a big undertaking.

We take that completely off their plate so that they don't have to worry about it. I think the biggest thing if you're a big brand, you should be really worried about making sure that your supplier has a very solid plan when it comes to pesticide mitigation and yields and all the rest, just to make sure that you don't end up with an issue to where you have supply chain issues.

I think that that's really what this farm offers, it's very unique. Aaron, I know you came and you've seen it, but it's tucked up against this national forest, and so there's really no one around, and it's an insurance policy.

It's a mode, a way for us to protect ourselves and then pass that protection onto the client.

That's helpful. Can you also talk about just that, for planning for Leaf's perspective, when and maybe you're starting this this year once you get, this summer once you get the supply coming back online, but how do you guys think of and you alluded to this in your comments, but how do you think of vape oil being kind of a lower margin, and I know you guys sell like over 100 different SKUs, but some of them have very different margin profiles.

As you build out this farm and your capability, is it that we should expect over time Leaf itself able to plan and achieve higher margins just because you can produce more of maybe the the higher margin profile, and I'm I'm just going to using the example of like live resin or rosin or the different, niches that maybe have much higher. How do you think of that in terms of planning the farm and turning on all this supply, and when might we be able to see, just more margin and revenue optimization?

I think this year is the year that we've already started on it. You're right.

I think year one for us was let's keep it simple, stupid, and let's grow something that we know that we can be successful with, and let's focus on the product that we sell that has the most liquidity behind it. Just that has been distillate for us in years past.

What's been interesting, though, is we're definitely seeing our hydrocarbon line is now on pace with meeting or surpassing our distillate sales. You're right, distillate, it's the lowest-value SKU that we sell, but it's liquid, we have a huge demand for it.

It's a bit of a balancing act of how much of the field should we plant to go towards the distillate side of the business or how much should we plant this more frozen products. The other honest truth of it was anytime you plant a big field, year one, it's going to be a learning experience and we didn't want to plant too much frozen in year one and then only to find out that the material didn't perform or we had issues with logistics around processing and freezing the material off of the field.

Now that I feel like we've worked through those kinks, it's a matter of talking with clients, working with them on their demand planning and then backing that into the field, so that way we don't go too heavy on one thing and not the other. Of course, we're trying to balance all of this stuff as we go and we're trying to lean towards things that have more margin than not, but there is a balancing act there.

Just because live resin or a specific type of large-faceted diamonds have a higher revenue profile and a higher margin, doesn't mean that the liquidity is there when it comes to sales. We're managing all of that where you need cash to come in at a certain pace and you need to use this product to keep yourself sticky with the client because you know that when they're formulating vapes, they need distillate as the main base ingredient, but then they need all these different terpene profiles to then mix with that.

Very long-winded way of answering your question. It's an ongoing thing, I think it's something that we'll get better and better at over time.

Year one, we definitely tried to keep it as simple as possible. Year two, we're adding a little bit of complexity to it.

We're going to do more frozen on the field this year than we did last year, and I'm sure that that's going to be the ongoing evolution of this farm as we continue to build it out.

Thank you so much.

No problem.

Hey, Micah. Congrats on the quarter.

Thank you.

This is actually going to be an addition to Aaron's question on margin expansion and SKU strategy, and I definitely understand that there isn't infinite demand for all extraction outputs. You did provide what a revenue opportunity could look like for Salisbury if it was all distillate.

I'm just wondering, what is the pricing range on the other extract outputs? If distillate is $5 a liter, and I have no idea on the pricing, what are the more premium extracts, what's the revenue profile on them?

Distillate, on average, I think over the past 12 months has been around $1.10, $1.20 a gram. So 12, what is that, $1,200 a liter.

It's somewhere in that area. The other side of it, whether it's coming out of hydrocarbon or rosin, it's definitely between $2 to all the way up to $8.

I think that I'd say that the things that are on the higher side of that are also the things that there's not the largest demand for. It sounds sexy, it's, oh, man, well, why would you do anything but the $8 stuff?

It's because we can't sell through that much material, it's back to that balancing act. Everything else is definitely double, if not triple and more valuable than the distillate line.

Got it. That helps.

Might squeeze in two more if that's okay, but could you break down how much of the second-half margin expansion was driven by that internal biomass versus maybe other factors like that improved product mix or pricing or other things like that?

Yeah. Kevin, you're always in the data.

Do you want to maybe share some of the stuff that is top of mind for you?

Yeah. We were very focused on the distillate side and running our SCR material.

Distillate makes up roughly 40% of the overall revenue of the year, and 100% of that was SCR material in the quarter. Like Micah said, there's a balancing act between what are you running to distillate versus what are you running to the other two lines.

The other two lines performed well, even though it was roughly a 60/40 mix of SCR material to external material. We work with a couple really good farms that have great low-cost, quality frozen, we can rely on that well.

We're really heavily focused on making the best-margin distillate. I don't know if that answers your question or not, but, yeah, it's really focused on our own production on distillate in Q4.

No, that helps. Then the last one is just do you have, I know you didn't provide it in your statements, but any ballpark on remaining CapEx to complete the entire ranch?

Kevin, you want to take that one, or you want me to?

No, I got it.

Okay.

We're blessed to have Aaron and the Mindset team come in and help us expand this ranch with the capital that we announced a couple weeks ago. A good chunk of that, between $3 and $5 million, is going to go towards building out the rest of the acreage in the LUP.

Everything that comes with that, Micah rhymed off a bunch of stuff, but there's some soft costs, fencing, security cameras, wells, all of that in order to get prepared for the season ahead. It's roughly between $3 to $4 million to get all that built out, and we're going to be doing that between now and this fall.

Super. I appreciate it.

Congrats, guys, and we're looking forward to the next year. Thank you.

Thanks. Appreciate it.

Thanks, Josh.

All right, great. Thanks, guys.

Congrats on securing the investment and getting Jamie on board and it's been busy. Just a follow-up from that previous line of questioning around the CapEx.

Obviously, nice improvement on operating cash flow second half of last year, and just kind of extrapolating that forward, and just trying to get a picture of what the company looks like after you do this additional CapEx and operating cash flow. Can you kind of give us a sense of how this is going to look post the additional investment, and Micah, I did hear what you're mentioning about just if you just sold all of it into one particular product line, but just thinking about the bigger picture for not just this year, but the next two, three years.

Yeah. Q4 to me was the first quarter where I'd say that there's evidence that this is what the business should look like going forward.

The reason why is because Q3, we're harvesting stuff, material's coming in, but we hadn't really started running everything. Even Q4, I'd say, has so much room for improvement because we're still sourcing from all these other farms, like Kevin said.

We weren't really running our own frozen material. I think there's going to be improvements moving forward.

The problem that I see, just being transparent, going into the tail end of Q1 and into Q2, is that we ran out of that material that we grew ourselves. We're kind of back to the way that we used to run the business, which is going out and procuring from all these different farms.

You're going to see the impact of that. Something that we've been discussing, we're highly aware of it and have been planning for it.

Kevin, maybe I'll pass it back to you a little bit and you can maybe go into what we think Q3 and Q4 looks like once we're back on track with all of our own material. Then I think the goal for us, Morgan, is we knew that we were going to run out of the material, and with this latest investment, why we're pivoting a lot of the energy and focus back to California, is our goal now is to let's expand as much as we can on the farm and get it to where this kind of procurement hiccup that we're going to experience here in the near term is no longer a factor going forward.

We are always running our own material and I think it just gets better from there. Kevin, I don't know if you want to maybe add on to what I just said, but that's the plan.

It's the consistency of having the material and not having to pivot back to third-party sourcing. As Micah said, transparently speaking, we're running out of material here.

Q1 is shaping up to be really good, but we will have a bit of a softer second quarter because of that before we get the harvest at the end of the second quarter, and feel that impact in Q3, just kind of like last year. It's going to be the consistency of having enough material at any given time, and then having, call it 180 acres going into 2027 and beyond.

You're going to be able to make the decision to Micah's point earlier about, okay, now I can freeze more and have more going to those other two more niche lines, whilst still maintaining the level of output of distillate production. I don't have specific numbers to give you today for Q3 and Q4, but we would have enough material to increase our production output because we're not running at capacity right now, and so, again, it's just the level of consistency.

One thing to point out that I think super interesting is Q4 typically is our worst quarter. Q3 and Q4 typically the softer quarters for us, and this past year it was kind of the opposite.

We had a great Q4, and we had a good Q3, too. It's absolutely because for the first time ever we had enough material to run.

That's been the flaw in our business, since we started the company really, was just the ebbs and flows, the pricing going up and down, and all the complexities that go into finding and sourcing the amount of material that we purchase on a monthly basis. It's challenging, it's a ton of material and it comes with a lot of challenges and headaches that really kind of dissipate and fall to the wayside once you have this footprint.

We're very lucky. As Kevin said, Aaron, thank you very much for coming in and supporting the business, because I really do think Q4 is the first quarter where this is a glimpse of what the business should look like and it really should only improve from there, because once we start layering on our own frozen and we really start getting into which genetics do work well in which fields.

Year one, you don't really know that yet. We have a sense off of the data that we got out of the field, but we're just going to get better and better with that over time.

Hopefully it's just a improvement from Q4.

That's great. Certainly seeing those numbers in the second half is very positive directionally with the margin profile across the board.

Just thinking and I appreciate the focus on California, getting that up to the scale and margin profile to make it a nice durable business. Is New York largely done from a CapEx need, is there much more to be done there or just how are you thinking about New York at this point?

It's a good question. I think that for the time being, we are going to hold off on any CapEx improvements.

We're going to keep the licenses going and active and all the rest, and really focus our attention. When we're looking at the opportunity of what do we believe we can do in New York, what do we believe that we can do in California, it's a no-brainer.

It's so obvious that, man, now that you have the money to go finish the farm, that's where we should focus our energy. That's going to be the focus for us in '26, and then we'll have the optionality of when to kind of restart to focus on New York later down the road.

Great. Thank you.

Hope to come up and see the farm soon.

Anytime. I'm here today.

Thanks, Morgan. Thank you.

Hi. Thank you guys for taking my call.

My question is for Kevin. When you guys reported your Q3 financials, the farm was only contributing part of the quarter and you reported gross margins of 45%.

Now you reported Q4 and the farm was contributing for the entire quarter, and you also reported gross margins of 45%. If you compare 45 to 45, it seems like there's no improvement from quarter to quarter, and I was just wondering if you could explain the discrepancy.

It's a really good question. During the close, we identified certain indirect costs specifically around the cannabis licensing, which for the farm, which is a significant amount of money at our scale of cultivation, that should have been sitting in COGS rather than G&A.

It equates to about $0.03 a unit or a gram overall. When we look at our entries to redo that in the fourth quarter, and we look back at some of the comparatives from the previous quarter, we would restate three Q3 at about 37.4%.

There is sequential improvement, 37.4% relative to the 45%. It's just because of how we're recognizing COGS going forward.

Oh okay. With the new accounting, the Q3 gross margin was 37 and now we're 45, which is a significant improvement.

Exactly. We'll see that as we start putting our comparatives out in future periods, like in Q3 2026, it'll be that 37% as the comparative.

Notwithstanding the comments we just made about going into Q2, we are continuing to see sequential improvement quarter-over-quarter as well.

Kevin, can I say that a little differently and my own terms?

A little less accounting? Yeah.

It's a good question. The main thing and what listeners should understand is our licensing fees at the state level are very expensive, round math, a million dollars for the year.

That was not in the accounting in Q3, and it is now in Q4, you take that out and that's about an 8% change. Is that accurate, Kevin?

Just to be clear though, no net income effect in any quarter or anything, it's a classification between COGS and G&A. No operational impact, cash flow impact, anything to that regard.

Okay. Thank you.

I don't have any further questions.

Thanks, operator, and thank you to everyone for joining us today. A replay of today's call will be available on our website at leafbrands.com.

We look forward to updating you again when we report our first quarter results. Have a great evening.