Not fully seating is not a big deal as long as the reeds are not warped or damaged.
The seating can be restored though.
1) de-burr the screw holes
2) dress the reed cage on a flat 200 grit sandpaper board
3) assemble using very little torque to avoid warping the reeds. (tighten about 1/16th turn after touching)

If there is no crankcase compression, check the front seal for leaks. Also check cylinder foot gasket for leaks.