XML 31 R20.htm IDEA: XBRL DOCUMENT v3.25.3
INCOME TAXES
 9 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Three Months Ended
September 30,		Nine Months Ended
September 30,
($ in thousands)2025202420252024
Loss before income taxes
$(13,546)$(18,489)$(34,349)$(33,820)
Income tax expense12,279 9,767 35,141 34,383 
Effective tax rate(90.6)%(52.8)%(102.3)%(101.7)%
Gross profit$43,601 $43,729 $124,554 $137,339 
Effective tax rate on gross profit28.2%22.3%28.2%25.0%
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.
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:
Nine Months Ended September 30, 2025
Balance, December 31, 2024
$149,407 
Additions for tax positions related to the current year
24,215 
Additions for tax positions related to prior years
13,196 
Balance, September 30, 2025
$186,818 
A total of $34,010 of interest and penalties is accrued for the uncertain tax positions as of September 30, 2025, which includes $13,842 related to the current year and $20,168 for prior years, and a total of $20,168 of interest and penalties was accrued as of December 31, 2024, which included $14,744 for the year then ended and $5,424 for prior years. The Company has been selected for examination of its amended tax returns filed with these unrecognized tax benefits but does not currently 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. If favorably resolved, the unrecognized tax benefits would decrease the Company’s effective tax rate.
In July 2025, the U.S. government enacted a reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (the “Act”), with certain provisions of the Act effective in 2025 and other provisions becoming effective in 2026 and beyond. Among the various provisions contained in the Act, modifications to Section 163(j) interest expense limitations are expected to favorably impact the Company’s state tax calculations. We reflected a discrete tax event in the three months ended September 30, 2025 which resulted in a $601 reduction to our uncertain tax position. Additionally, our deferred tax liabilities increased by $784 resulting from state decoupling considerations. The net impact to the effective tax rate was not material. The Company continues to evaluate the impact of the various provisions of the Act, but does not expect the other provisions will have a material impact on its effective tax rate.