Leafly Holdings, Inc. (NASDAQ:LFLY) is a leading online cannabis discovery marketplace and resource for cannabis consumers. The company has faced headwinds in recent quarters, but is taking strategic actions to strengthen its business and position itself for future growth.

Financials

In the fiscal year 2023, Leafly reported annual revenue of $42,252,000, a decrease from the prior year. The company's annual net income was -$9,498,000, and its annual operating cash flow was -$8,604,000, with annual free cash flow of -$9,949,000. These financial results reflect the challenges the company has navigated.

For the first quarter of 2024, Leafly reported revenue of $9,048,000, down 19.6% year-over-year and 7.2% sequentially. The company's net loss for the quarter was $2,387,000, an improvement from the $5,397,000 net loss reported in the same period of the prior year. Adjusted EBITDA for the quarter was -$867,000, also an improvement from the -$3,344,000 reported in Q1 2023.

Business Overview

Leafly was founded in 2010 and is headquartered in Seattle, Washington. The company operates an online cannabis discovery marketplace and resource platform, providing consumers with detailed information about cannabis strains, retailers, and products. Leafly's platform enables consumers to discover and order legal cannabis products from licensed retailers.

The company's business model is centered around two primary revenue streams: Retail and Brands. The Retail segment generates revenue through monthly subscriptions that enable retailers to advertise and acquire potential customers on the Leafly platform. The Brands segment generates revenue by creating custom advertising campaigns for cannabis brands and offering them profile listings on the platform.

Risks and Challenges

Leafly has been focused on enhancing operational efficiency and strengthening its resilience as a business. The company implemented restructuring plans in 2023, which reduced its labor force and substantially decreased costs compared to the prior year. These cost-cutting measures have contributed to the improved financial performance in the first quarter of 2024.

However, Leafly has also faced challenges in its retail customer base. The company has been proactively removing non-paying and underperforming retail accounts from its platform, which has led to a decline in its ending retail accounts. At the end of the first quarter of 2024, Leafly had 3,840 retail accounts, a 33% decrease from the same period in the prior year.

To address this, Leafly has recently hired six new market managers and two new acquisition managers, who are focused on enhancing penetration in key markets and pursuing new market opportunities. The company has also introduced a range of platform improvements, such as promo code functionality and live chat for retailers, to enhance the customer experience and demonstrate the value of its offerings.

Outlook

The cannabis industry has seen significant regulatory developments in recent months, which could have a positive impact on Leafly's business. In April 2024, the DEA formally agreed to move cannabis from Schedule 1 to Schedule 3 under the Controlled Substances Act, acknowledging the medical potential of the plant and paving the way for increased research and investment in the industry.

Additionally, Florida voters will decide in November 2024 whether to legalize recreational adult-use cannabis, and in New York, the company has seen a positive court ruling that will allow it to offer its full scope of services to new licensees. These developments, coupled with the steady issuance of new retail licenses in key markets, present growth opportunities for Leafly.

Internationally, Germany's legalization of cannabis in April 2024 is seen as a potential trigger for further legalization efforts across the European Union, which could expand Leafly's addressable market.

Liquidity

Leafly's liquidity position remains a concern, as the company does not currently have the ability to repay its $29.7 million in convertible notes due in January 2025. The company has been exploring options to address this, including working with its lender to convert a portion of the outstanding principal to equity.

Additionally, Leafly received a notification from Nasdaq in April 2024 that it no longer meets the requirements for continued listing on the Nasdaq Capital Market. The company plans to submit a compliance plan and request a 180-day extension to regain compliance with the applicable listing requirements.

Guidance

For the second quarter of 2024, Leafly expects revenue of approximately $8.6 million and an adjusted EBITDA loss of around $1.1 million. The company remains focused on running a lean business, investing in product enhancements, and strengthening its sales team to drive top-line growth.

Conclusion

Leafly has faced a challenging operating environment, but the company is taking strategic actions to enhance its operational efficiency, strengthen its customer relationships, and position itself for future growth. The regulatory developments in the cannabis industry, coupled with Leafly's platform improvements and sales initiatives, present opportunities for the company to capitalize on the growing demand for legal cannabis products. However, the company's liquidity position and Nasdaq listing status remain areas of concern that will require ongoing attention and management.