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

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES
 20. INCOME TAXES
Details of the Company’s income tax expense are as follows:
Year Ended December 31,
2024 2023
Current tax expense:
   Federal $ 32,454  $ 27,303 
   State 3,294  3,608 
35,748  30,911 
Deferred tax benefit:
   Federal (1,873) 2,281 
   State (2,634) (1,386)
   Foreign (3,241) (5,554)
(7,748) (4,659)
Change in valuation allowance 3,630  5,554 
Total income tax expense $ 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 earnings (loss) are as follows:
Year Ended December 31,
2024 2023
Loss before income taxes
 $ (17,147) $ (33,296)
Statutory tax rate 21.00  % 21.00  %
Tax expense (benefit) based on statutory rates
 (3,601) (6,992)
Difference in tax rates (5,642) (4,463)
Gain on fair value of derivative (3,012) (4,564)
IRC Section 280E disallowed expenses —  10,862 
Share-based compensation 266  173 
Deemed interest income
 1,641  842 
Write-off foreign NOL
 1,320  — 
Change in valuation allowance 3,630  5,554 
State taxes, net (2,315) 33 
Change in uncertain tax positions 35,452  24,888 
Impairment expense —  1,539 
Return to provision
 1,905  2,786 
Other differences 1,986  1,148 
Total income tax expense $ 31,630  $ 31,806 
Effective tax rate (184.5) % (95.5) %
The Company’s income tax payable of $2,299 as of December 31, 2024 included deferral of certain 2023 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, 2024, 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,
2024 2023
Deferred tax assets:
   Lease liability $ 19,300  $ 17,760 
   Net operating losses 20,329  22,661 
Interest carryforward
 7,726  563 
Property and equipment 2,260  1,149 
Other deferred tax assets 2,998  3,983 
Valuation allowance (26,580) (22,951)
$ 26,033  $ 23,165 
Deferred tax liabilities:
Right-of-use assets $ (17,528) $ (18,414)
Intangible assets (4,705) (5,211)
Other deferred tax liabilities (378) (235)
$ (22,611) $ (23,860)
Net deferred tax asset (liabilities) (1)
$ 3,422  $ (695)
(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, 2024 and 2023.
As of December 31, 2024, the Company had $69,578 of non-capital Canadian losses, $2,176 of capital Canadian losses, $50,866 of state net operating losses which expire in 2027-2044. The Company has not recorded $34,292 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: $69,578 for non-capital Canadian losses, $2,176 for capital Canadian losses, $5,728 for state net operating losses.
Due to its cannabis operations, the Company is subject to the limits of IRC Section 280E for U.S. federal income tax purposes as well as state income tax purposes for all states except for California and Colorado. Starting with the 2022 tax year, Massachusetts and New York also decoupled from IRC Section 280E, followed by Illinois in 2023 and Pennsylvania in 2024. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to 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. In regards to fiscal years 2023 and 2024, the Company has taken the position that it does not owe taxes attributable to the application of 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, 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 $143,688 and $100,343 as of December 31, 2024 and 2023, respectively, inclusive of interest and penalties. Additionally, there are unrecognized deferred tax benefits of $23,607 and $17,303 as of December 31, 2024 and 2023, 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 total amount of interest and penalties related to the liability for unrecognized tax benefits recorded in income tax expense for the year ended December 31, 2024 and December 31, 2023 were $8,814 and $6,676, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (exclusive of interest and penalties) are as follows:
Balance at January 1, 2023
 $ 48,258 
Reductions based on lapse of statute of limitations (1,946)
Additions based on tax positions related to the current year 19,843 
Additions based on tax positions related to the prior year
 38,470 
Balance at December 31, 2023
 $ 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