INCOME TAXES

3 Months Ended

Mar. 31, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

	Three Months Ended March 31,
($ in thousands)	2024			2023
Loss before income taxes	$	(5,653)		$	(8,455)
Income tax expense	12,510			10,017
Effective tax rate	(221.3)		%	(118.5)		%
Gross profit	$	52,037		$	35,704
Effective tax rate on gross profit	24.0		%	28.1		%

The internal revenue service has taken the position that cannabis companies are subject to the limitations of IRC Section 280E, under which such companies are 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 and those allowed for financial statement reporting purposes (“book-to-tax” differences). Cannabis companies operating in states that align their tax codes with IRC Section 280E are also unable to deduct ordinary and necessary business expenses for state tax purposes. Ordinary and necessary business expenses deemed non-deductible under IRC Section 280E are treated as permanent book-to-tax differences. Therefore, the effective tax rate on income realized by cannabis companies can be highly variable and may not necessarily correlate with pre-tax income or loss.

Effective during the second quarter of 2023, Illinois and New Jersey, two states in which the Company has significant operations, began permitting cannabis businesses to deduct ordinary and necessary business expenses from gross profit for state tax purposes. As such, the effective tax rate for the three months ended March 31, 2024 reflects a benefit from this change and varies from the effective tax rate for the three months ended March 31, 2023.

The Company’s quarterly tax provision is calculated under the discrete method which treats the interim period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pre-tax income due to the early growth stage of the business.

The Company has recorded an uncertain tax liability for uncertain tax positions primarily related to the treatment of certain transactions and deductions under IRC Section 280E based on legal interpretations that challenge the Company’s tax liability under IRC Section 280E. These uncertain tax positions are included within “Other non-current liabilities” on the unaudited Condensed Consolidated Balance Sheets. The following table shows a reconciliation of the beginning and ending amount of unrecognized tax benefits:

	Three Months Ended March 31, 2024
Balance, December 31, 2023	$	72,955
Additions for tax positions related to the current year	13,001
Additions for tax positions related to prior years	2,762
Balance, March 31, 2024	$	88,718

A total of $8,186 of interest and penalties is accrued for the uncertain tax positions as of March 31, 2024, which includes $2,762 related to the current year and $5,424 for prior years. If favorably resolved, the unrecognized tax benefits would decrease the Company’s effective tax rate. The Company does not anticipate its unrecognized tax benefits to be resolved in the next twelve months and anticipates that the total amount of unrecognized tax benefits may change within the next twelve months for additional uncertain tax positions taken on a go-forward basis.