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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following table sets forth the components of income tax expense:
Year Ended December 31,
(in thousands)202120202019
Current taxes:
Federal$31,747 $13,879 $1,230 
State13,609 6,109 551 
Deferred taxes:
Federal(2,502)(922)(502)
State(1,134)(364)(612)
Total income tax expense$41,720 $18,702 $667 
As the Company operates in the cannabis industry, it is subject to the limitations of IRC Section 280E, under which the Company is only allowed to deduct expenses directly related to the sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.
The following table sets forth a reconciliation of income tax at the federal statutory rate to recorded income tax expense:
Year Ended December 31,
($ in thousands)202120202019
Loss before income taxes$(80,937)$(5,139)$(32,575)
U.S. Statutory Rate21 %21 %21 %
Recovery based on Statutory Rate$(16,997)$(1,079)$(6,841)
Expense (recovery) resulting from:
State and local income taxes12,475 5,745 (62)
Expenses disallowed under IRC Section 280E31,510 13,729 4,665 
Nondeductible litigation settlement7,667 — — 
Nondeductible IPO interest-related expense5,746 — — 
Other permanent differences1,395 261 106 
Pass-through entities & non-controlling interests— 46 2,799 
Other, net(76)— — 
Income tax expense$41,720 $18,702 $667 
The following tables set forth the components of deferred income taxes:
As of December 31,
(in thousands)20212020
Deferred tax assets attributable to:
Operating lease liabilities$50,089 $40,543 
Property and equipment284 193 
Equity-based compensation801 — 
State and local net operating loss carryforwards337 370 
Loyalty program158 — 
Gross deferred tax assets51,669 41,106 
Valuation allowance— — 
Total deferred tax assets$51,669 $41,106 
Deferred tax liabilities attributable to:
Operating lease right-of-use assets$(21,344)$(19,129)
Tenant improvement allowance(764)(7,197)
Property and equipment(24,200)(12,385)
Goodwill and other acquired intangible assets(6,784)— 
Total deferred tax liabilities$(53,092)$(38,711)
Net deferred tax (liabilities) assets$(1,423)$2,395 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion, or all, of its deferred tax assets will not be realized. No valuation allowance has been provided on our net deferred tax assets, as we believe the remaining net deferred tax assets are more likely than not to be realizable in the applicable jurisdictions based on estimates of future taxable income.
As of December 31, 2021, the Company has gross state and local net operating loss carryforwards totaling $6,187, which begin to expire in 2029. The Company files income tax returns in the United States and various state and local jurisdictions, which jurisdictions have varying statutes of limitations. The U.S. federal statute of limitations remains open for tax years 2018 and forward. The state and local statutes of limitations generally remain open for tax years 2018 and forward. The Company operates in a number of domestic tax jurisdictions and is subject to examination of its income tax returns by tax authorities in these jurisdictions who may challenge any item of those returns. Because tax matters that may be challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. The Company recognizes the benefits of uncertain tax positions in the consolidated financial statements only after determining that it is more like than not that the uncertain tax positions will be sustained. As of December 31, 2021 and 2020, the Company had no unrecognized tax benefits. The Company does not anticipate the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognized no interest expense or penalties on income tax assessments during 2021, 2020, or 2019 and there was no interest related to income tax assessments accrued as of December 31, 2021 or 2020.