Annual report [Section 13 and 15(d), not S-K Item 405]

INCOME TAXES

v3.26.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES
 20. INCOME TAXES
Details of the Company’s income tax expense are as follows:
Year Ended December 31,
2025 2024 2023
Current tax expense:
   Federal $ 31,362  $ 32,454  $ 27,303 
   State 3,058  3,294  3,608 
34,420  35,748  30,911 
Deferred tax benefit:
   Federal 503  (1,873) 2,281 
   State (131) (2,634) (1,386)
   Foreign (6,426) (3,241) (5,554)
(6,054) (7,748) (4,659)
Change in valuation allowance 6,622  3,630  5,554 
Total income tax expense $ 34,988  $ 31,630  $ 31,806 
The differences between the income tax expense and the expected income taxes based on the statutory tax rate applied to pre-tax loss are as follows:
Year Ended December 31,
2025 2024 2023
Loss before income taxes
 $ (33,603) $ (17,147) $ (33,296)
U.S. federal statutory tax rate (7,057) 21.0  % (3,601) 21.0  % (6,992) 21.0  %
State and local income taxes, net of federal income tax effect (1)
1,161  (3.5) % (711) 4.1  % (600) 1.8  %
Foreign tax effects
Canada
Statutory tax rate difference between Canada and U.S. (9,349) 27.8  % (5,088) 29.7  % (4,576) 13.7  %
Changes in valuation allowances 6,426  (19.1) % 4,560  (26.6) % 5,554  (16.7) %
Deemed interest income 869  (2.6) % 1,641  (9.6) % 842  (2.5) %
Gain on fair value derivative 1,374  (4.1) % (1,694) 9.9  % (2,550) 7.7  %
Other 680  (2.0) % 581  (3.4) % 730  (2.2) %
Switzerland
Changes in valuation allowances —  0.0  % (1,050) 6.1  % —  0.0  %
Write-off foreign NOL —  0.0  % 1,050  (6.1) % —  0.0  %
Other —  0.0  % (930) 5.4  % 114  (0.3) %
Other foreign jurisdictions —  0.0  % 509  (3.0) % —  0.0  %
Nontaxable or nondeductible items
Gain on fair value of derivative 1,068  (3.2) % (1,318) 7.7  % (2,014) 6.0  %
IRC Section 280E disallowed expenses —  0.0  % —  0.0  % 10,862  (32.6) %
Other (82) 0.2  % 929  (5.4) % 2,608  (7.8) %
Changes in unrecognized tax benefits 39,495  (117.5) % 35,452  (206.8) % 24,888  (74.7) %
Return to provision 403  (1.2) % 1,300  (7.6) % 2,940  (8.8) %
Total income tax expense $ 34,988  (104.1) % $ 31,630  (184.5) % $ 31,806  (95.5) %
(1)     State taxes in Illinois, Pennsylvania and Virginia for 2025; California, Illinois, Pennsylvania and Virginia for 2024 and Illinois, Pennsylvania and Virginia for 2023 make up the majority (greater than 50%) of the tax effect in this category.

The amounts of cash income taxes paid/(received) by the Company were as follows:
Year Ended December 31,
2025 2024 2023
U.S. federal $ 1,679  $ (173) $ 60 
U.S. state and local
Philadelphia
—  (720) 87 
Pennsylvania 243  (1,874) 912 
Florida (26) (426) 80 
Virginia 831  425  360 
Illinois (397) (1,696) 1,276 
Other state and local
 123  75  5 
Total income taxes paid/(received), net $ 2,453  $ (4,389) $ 2,780 

The Company’s income tax payable of $265 as of December 31, 2025 reflects deferral of certain estimated income tax payments. The Company files income tax returns in the U.S., various U.S. state jurisdictions, and Canada, which have varying statutes of limitations. As of December 31, 2025, with few exceptions, all tax filings remain open for assessment.
Year-end deferred tax assets and liabilities were due to the following:
Year Ended December 31,
2025 2024
Deferred tax assets:
   Lease liability $ 19,207  $ 19,300 
   Net operating losses 20,717  20,329 
Interest carryforward
 13,242  7,726 
Property and equipment 1,245  2,260 
Other deferred tax assets 3,597  2,998 
Valuation allowance (33,202) (26,580)
$ 24,806  $ 26,033 
Deferred tax liabilities:
Right-of-use assets $ (17,218) $ (17,528)
Intangible assets (4,491) (4,705)
Other deferred tax liabilities (243) (378)
$ (21,952) $ (22,611)
Net deferred tax asset (liabilities) (1)
$ 2,854  $ 3,422 
(1) Net deferred tax assets are included in other non-current assets while net deferred tax liabilities are included in other non-current liabilities in the consolidated balance sheets.
Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management's estimate of the temporary deductible differences that may expire prior to their utilization has been recorded at December 31, 2025 and 2024.
As of December 31, 2025, the Company had $70,439 of non-capital Canadian losses, $3,293 of capital Canadian losses, $58,996 of state net operating losses which expire in 2033-2045. The Company has not recorded $41,209 of these state net operating losses as an unrecognized tax benefit. To the extent that the benefit from these loss carryforwards are not expected to be realized, the Company has recorded a valuation allowance as follows: $70,439 for non-capital Canadian losses, $3,293 for capital Canadian losses, $9,728 for state net operating losses.
The IRS has taken the position that IRC Section 280E prevents cannabis companies from deducting any business expenses other than those included in cost of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income which provides for effective tax rates that are well in excess of statutory tax rates. In connection with the preparation and filing of the fiscal 2022 federal income tax return, the Company changed its previous application of 280E to exclude certain parts of its business. For fiscal years 2023, 2024 and 2025, the Company has taken the position that its deductions of ordinary and necessary business expenses is not limited by IRC Section 280E. However, since the Company’s new tax position on 280E may be challenged by the IRS, the Company elected to treat the deductibility of these related expenses as an uncertain tax position. As of December 31, 2025 and 2024, the balances in income tax payable and unrecognized tax benefits on the consolidated balance sheets include the impact of the tax position on 280E, which decreased current liabilities with a corresponding increase in non-current liabilities. There was no material impact to the consolidated statements of operations.
The Company has a liability for unrecognized tax benefits of $177,242 and $143,688 as of December 31, 2025 and 2024, respectively, inclusive of interest and penalties of $38,342 and $27,839, respectively. Additionally, there are unrecognized deferred tax benefits of $28,496 and $23,607 as of December 31, 2025 and 2024, respectively. The Company anticipates
that it is reasonably possible that its new tax position on 280E may require changes to the balance of unrecognized tax benefits within the next 12 months. However, an estimate of such changes cannot reasonably be made.
The Company classifies interest and penalties related to its liability for unrecognized tax benefits as a component of income tax expense, which were $10,503, $8,814 and $6,676, for the years ended December 31, 2025, 2024 and 2023, respectively.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law. The legislation included provisions affecting the limitation on interest deductions and bonus depreciation. The enactment did not have a material impact on the Company’s income tax expense for the year ended December 31, 2025, and did not materially affect the Company’s effective income tax rate for 2025. The act reduced the amount of cash the Company would have had to pay for income taxes for the year ended December 31, 2025 by $1,889.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (exclusive of interest and penalties) are as follows:
Balance at January 1, 2024
 $ 104,625 
Reductions based on lapse of statute of limitations (1,692)
Additions based on tax positions related to the current year 25,041 
Additions based on tax positions related to the prior year
 11,631 
Balance at December 31, 2024
 $ 139,605 
Reductions based on lapse of statute of limitations (4,350)
Additions based on tax positions related to the current year 30,300 
Additions based on tax positions related to the prior year
 1,869 
Balance at December 31, 2025 $ 167,424