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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
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)202220212020
Current taxes:
Federal$35,067 $31,747 $13,879 
State12,381 13,609 6,109 
Deferred taxes:
Federal(3,685)(2,502)(922)
State(2,070)(1,134)(364)
Total income tax expense$41,693 $41,720 $18,702 
As the Company operates in the cannabis industry, it is subject to the limitations of IRC Section 280E, under which the Company is only allowed to deduct expenses directly related to the sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.
The following table sets forth a reconciliation of income tax at the federal statutory rate to recorded income tax expense:
Year Ended December 31,
($ in thousands)202220212020
Loss before income taxes$(39,206)$(80,937)$(5,139)
U.S. Statutory Rate21 %21 %21 %
Recovery based on Statutory Rate$(8,233)$(16,997)$(1,079)
Expense (recovery) resulting from:
State and local income taxes10,311 12,475 5,745 
Expenses disallowed under IRC Section 280E34,346 31,510 13,729 
Nondeductible litigation settlement1,050 7,667 — 
Nondeductible IPO interest-related expense— 5,746 — 
Nondeductible penalties and interest3,046 1,227 — 
Other permanent differences437 168 261 
Equity-based compensation shortfall904 — — 
Pass-through entities & non-controlling interests— — 46 
Other, net(168)(76)— 
Income tax expense$41,693 $41,720 $18,702 
The following tables set forth the components of deferred income taxes:
December 31,
(in thousands)20222021
Deferred tax assets attributable to:
Operating lease liabilities$59,127 $50,089 
Property and equipment281 284 
Equity-based compensation1,218 801 
State and local net operating loss carryforwards739 337 
Loyalty program205 158 
Gross deferred tax assets61,570 51,669 
Valuation allowance— — 
Total deferred tax assets$61,570 $51,669 
Deferred tax liabilities attributable to:
Operating lease right-of-use assets$(23,136)$(21,344)
Tenant improvement allowance(152)(764)
Property and equipment(28,615)(24,200)
Goodwill and other acquired intangible assets(43,274)(6,784)
Total deferred tax liabilities$(95,177)$(53,092)
Net deferred tax liabilities$(33,607)$(1,423)
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, 2022, the Company has gross state and local net operating loss carryforwards totaling $26,448, 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, 2022 and 2021, 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 2022, 2021, or 2020 and there was no interest related to income tax assessments accrued as of December 31, 2022 or 2021.