Leafly(US:LFLY)2025-03-31 21:08Part I Business Leafly operates a multi-sided online marketplace connecting cannabis consumers with licensed retailers and brands, generating revenue from subscriptions and advertising - Leafly's mission is to help people discover cannabis, serving as a trusted destination to discover and shop for legal cannabis products16 - The company operates a content-first, community-driven, multi-sided marketplace that connects consumers to cannabis brands and licensed retailers, with an audience of over 48 million in 202417 Revenue Breakdown by Partner Type (2023-2024) | Partner Type | 2024 Revenue Share | 2023 Revenue Share | | :--- | :--- | :--- | | Retail Partners | 86.3% | 85.0% | | Brand Partners | 13.7% | 15.0% | Revenue Concentration by State (2024) | State | Revenue Share | | :--- | :--- | | Arizona | 23% | | California | 12% | | Oregon | 10% | - As of December 31, 2024, Leafly had 111 employees, with 109 located in the U.S. and 2 in Canada62 - Key competitors include Weedmaps, Dutchie, and Jane Technologies, a transaction-oriented marketplace, and e-commerce enablement providers4546 Risk Factors The company faces significant operational, regulatory, and financial risks, including a history of losses, going concern doubts, and stock delisting Risks Relating to Our Business and Industry The company has a history of operating losses and faces substantial doubt about its ability to continue as a going concern due to upcoming debt maturities and intense competition - The company has a history of operating losses, including a net loss of $5.7 million in 2024, and may not achieve or maintain profitability in the future115 - There is substantial doubt about the company's ability to continue as a going concern, primarily due to the impending maturity of its 2022 Notes on July 1, 2025, which it may not be able to repay without additional financing117118119 - The company faces intense competition from other advertising platforms and online marketplaces such as Weedmaps, Dutchie, and iHeartJane, as well as from retailers operating their own e-commerce sites99100 - A 15% decline in ending retail accounts was experienced in 2024 compared to 2023, alongside a 25% drop in brand revenue, driven by macro challenges and customer financial struggles124 Regulatory Risks The company operates in a complex regulatory environment where cannabis remains federally illegal, necessitating compliance with evolving state and provincial laws and data privacy regulations - Cannabis remains a Schedule I controlled substance under the U.S. federal Controlled Substances Act (CSA), making the company's business and its suppliers' operations illegal at the federal level, despite state-level legalization167206 - The business is subject to a complex and evolving patchwork of state and Canadian provincial laws; changes in these regulations or stricter enforcement could require costly compliance measures or alter the business model170 - The company is subject to numerous data privacy and protection laws, such as the CCPA in California and PIPEDA in Canada, and failure to comply could result in significant fines and reputational damage188191 Additional Risks Related to the Cannabis Industry Cannabis businesses face unique challenges including unfavorable tax treatment under Section 280E, difficulties in accessing banking services, and highly volatile security valuations - Cannabis businesses, including the company's clients, are subject to unfavorable U.S. tax treatment under Section 280E of the Internal Revenue Code, which prohibits deductions for ordinary business expenses and reduces profitability, potentially decreasing demand for Leafly's services227 - The company and its clients face difficulties accessing and maintaining banking and financial services due to the federal illegality of cannabis, which could disrupt operations and payment processing215216 - The valuation of cannabis industry securities has been highly volatile, with the Global Cannabis Stock Index dropping over 93% from its peak, which may negatively affect the value of the company's securities233 Risks Related to Our Intellectual Property Failure to protect intellectual property rights or costly litigation from third-party claims could harm the company's brand and operations - Failure to protect or enforce intellectual property rights, including the "Leafly" brand, trademarks, and proprietary software, could harm the company's brand, business, and results of operations240 - The company may be subject to costly disputes and litigation from third parties claiming violation of their intellectual property rights, which could divert management attention and resources236237 Public Company and Financial Reporting Risks The company faces increased risks due to its stock delisting to OTC Pink, loss of 'Emerging Growth Company' status, and potential privatization to reduce public company costs - The company's common stock and warrants were delisted from the Nasdaq Capital Market and began trading on the more limited OTC Pink Open Market on January 17, 2025, which may reduce liquidity and depress the trading price251252253 - Effective December 31, 2024, the company is no longer an "Emerging Growth Company," which may increase reporting burdens and compliance costs261 - Management is considering taking the company private to save costs associated with being a public company and may deregister its securities, which would make it more difficult for investors to monitor their investment257263 Risks Relating to our Indebtedness The company faces significant risks from its inability to repay the $29.4 million 2022 Notes maturing in July 2025, with holders having a security interest in substantially all assets - The company may not be able to repay its 2022 Notes, which had an outstanding principal of $29.4 million at year-end and mature on July 1, 2025; failure to pay would significantly impact ongoing operations295296 - Holders of the 2022 Notes have a security interest in substantially all of the company's assets, meaning they could foreclose on these assets if the company fails to meet its payment obligations298 - The convertible notes contain restrictive covenants that may limit the company's ability to incur additional debt, pay dividends, make certain investments, and pursue its growth strategy301303 Unresolved Staff Comments The company reports that it has no unresolved staff comments from the U.S. Securities and Exchange Commission - None321 Cybersecurity Leafly's cybersecurity strategy, guided by NIST CSF, involves external testing and Board oversight, with no material risks identified from past incidents - The company's cybersecurity approach is guided by the National Institute of Standards and Technology's Cybersecurity Framework (NIST CSF)322 - External cybersecurity professionals are engaged to conduct annual penetration testing, incident response exercises, and to help design and manage the security program323 - The Board's Audit Committee has been delegated the responsibility of providing oversight of cybersecurity risks329 - The company does not believe there are no material risks from cybersecurity threats, including from previous incidents, that are reasonably likely to materially affect its business strategy, operations, or financial condition326 Properties The company operates with a fully remote workforce and does not possess any material physical properties, allowing for capital reinvestment - As of December 31, 2024, Leafly did not have any no material physical properties and operates with a fully remote workforce to reinvest capital resources into the business331 Legal Proceedings The company is involved in ordinary course legal proceedings but does not anticipate any material liabilities from these matters - The company has recognized no material accrual liability for ongoing legal matters and does not currently expect it is reasonably possible that these matters will result in a material liability334 Mine Safety Disclosures This item is not applicable to the company's business - Not applicable335 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Leafly's common stock and warrants were delisted from Nasdaq to the OTC Pink Open Market on January 17, 2025, with 433 stockholders of record as of March 19, 2025, and no anticipated cash dividends - Effective January 17, 2025, the company's common stock and warrants were delisted from Nasdaq and began trading on the OTC Pink Open Market337 - As of March 19, 2025, there were 433 stockholders of record338 - The company has never paid cash dividends on its common stock and does not expect to in the foreseeable future339 Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations In 2024, Leafly's revenue decreased by 18% to $34.6 million, while net loss narrowed to $5.7 million and Adjusted EBITDA turned positive, despite delisting and ongoing going concern doubts due to debt maturity Key Operating Metrics (2023-2024) | Metric | 2024 | 2023 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Ending retail accounts | 3,480 | 4,075 | (595) | -15% | | Retailer ARPA | $692 | $607 | $85 | 14% | Consolidated Results of Operations (in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $34,642 | $42,252 | $(7,610) | -18% | | Gross Profit | $30,965 | $37,451 | $(6,486) | -17% | | Loss from Operations | $(3,136) | $(7,051) | $3,915 | 55% | | Net Loss | $(5,747) | $(9,498) | $3,751 | 39% | Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net loss | $(5,747) | $(9,498) | | EBITDA | $(1,806) | $(5,734) | | Adjusted EBITDA | $682 | $(2,279) | - The company's securities were delisted from Nasdaq on January 17, 2025, and now trade on the OTC Pink Open Market348349 - The maturity date of the 2022 Notes was extended to July 1, 2025, from January 31, 2025, contingent on a 12.5% principal paydown; the company granted a security interest in its assets as collateral for these notes351 - Management has concluded that substantial doubt exists about the company's ability to continue as a going concern due to its inability to meet its debt obligations maturing in July 2025 without securing additional capital389390 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Leafly is not required to provide the information for this item - Leafly is a smaller reporting company and is not required to furnish the information for this item410 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2023-2024, including the auditor's going concern explanatory paragraph, and key balance sheet and operations data - The report of the independent registered public accounting firm includes an explanatory paragraph stating that conditions raise substantial doubt about the Company's ability to continue as a going concern416 Key Balance Sheet Data (as of Dec 31, 2024, in thousands) | Account | Amount | | :--- | :--- | | Total Current Assets | $16,803 | | Total Assets | $19,638 | | Total Current Liabilities | $34,676 | | Total Liabilities | $34,747 | | Total Stockholders' Deficit | $(15,109) | Key Statement of Operations Data (Year ended Dec 31, 2024, in thousands) | Metric | Amount | | :--- | :--- | | Revenue | $34,642 | | Gross Profit | $30,965 | | Loss from Operations | $(3,136) | | Net Loss | $(5,747) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None630 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes during Q4 2024 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report633 - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024637 - No changes in internal control over financial reporting occurred during the fourth quarter of 2024 that materially affected, or are reasonably likely to materially affect, internal controls639 Other Information During the fourth quarter of 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended December 31, 2024640 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable641 Part III Directors, Executive Officers and Corporate Governance This section details the company's board of directors and executive officers, their committee memberships, the adopted code of ethics, and the Audit Committee's financial expertise - The report lists the members of the Board of Directors and executive officers, including their roles and committee assignments; the Board is classified with three-year staggered terms644645 - The company has adopted a code of ethics and business conduct that applies to all directors, officers, and employees661 - Each member of the Audit Committee is qualified as an "audit committee financial expert" as defined by the SEC660 Executive Compensation This section outlines compensation for Named Executive Officers (NEOs) including base salary and equity, noting no bonuses for 2023-2024, and details director compensation - The Named Executive Officers (NEOs) for fiscal year 2024 were Yoko Miyashita, Peter Lee, and Suresh Krishnaswamy (CEO, President and COO, and CFO, respectively)668 2024 Summary Compensation Table | Name and Principal Position | Year | Total ($) | | :--- | :--- | :--- | | Yoko Miyashita, CEO | 2024 | $564,519 | | Peter Lee, President & COO | 2024 | $496,210 | | Suresh Krishnaswamy, CFO | 2024 | $467,763 | - No bonuses were awarded by the Compensation Committee under the 2023 or 2024 Annual Incentive Plans after assessing the company's financial performance and market conditions678 - Non-employee director compensation includes annual cash retainers and RSU grants for board and committee service726727 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership of common stock as of March 19, 2025, identifying major stockholders and collective holdings of directors and executive officers Beneficial Ownership as of March 19, 2025 | Name of Beneficial Owner | % of Outstanding Common Stock | | :--- | :--- | | 5% Stockholders: | | | Tenor Capital Management Company, L.P. | 9.2% | | Michael Blue | 5.0% | | Management: | | | All directors and executive officers as a group (6 individuals) | 6.8% | Certain Relationships and Related Transactions, and Director Independence The company has a policy for related person transactions, disclosing agreements from the 2022 de-SPAC merger and a 2023 consulting agreement with Peter Lee, with a majority of directors deemed independent - The Board has adopted a written policy for the review and approval of related person transactions, overseen by the Audit Committee741743 - In 2023, the company entered into a consulting agreement with Peter Lee (then a director, now President & COO), under which he earned $120,000 for services related to business strategies751 - The Board has determined that a majority of its directors are independent as defined under applicable Nasdaq rules753 Principal Accountant Fees and Services This section discloses fees paid to Marcum LLP, totaling $625,000 in 2024 and $628,500 in 2023, all pre-approved by the Audit Committee Fees Paid to Marcum LLP (in thousands) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $565,000 | $550,000 | | Audit-related fees | $60,000 | $78,500 | | Total fees | $625,000 | $628,500 | - All fees for 2024 and 2023 were pre-approved by the Audit Committee755 Part IV Exhibits and Financial Statement Schedule This section provides an index of all exhibits filed as part of the Form 10-K report, including corporate governance documents and material contracts - This section contains the Exhibit Index, listing all documents filed with or incorporated by reference into the Annual Report757 Form 10-K Summary The company indicates that there is no Form 10-K summary provided - None762