Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 22: INCOME TAXES

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 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.

F-40

The following table sets forth the components of income tax (benefit) expense for the years ended December 31, 2021 and 2020:

	December 31, 2021		December 31, 2020
Net current taxes:
U.S. Federal		$10,021	$	7,587
U.S. State		2,591		2,750
Deferred Taxes:
U.S. Federal		1,090		3,749
U.S. State		229		1,375
Total	$	13,931	$	15,461

The following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax expense (benefit) for the years ended December 31, 2021 and 2020:

	December 31, 2021			December 31, 2020
Loss before income taxes (continuing and discontinued operations)		$(24,358)		$	(31,544	)
Statutory tax rate		21.00	%		21.00	%
Expense based on statutory rates		(5,115)			(6,624	)
Permanent non-deductible items		12,445			14,036
Non-controlling interests		—			315
State taxes		2,286			1,650
Change in state rate		513			(14	)
Change in valuation allowance		604			119
Canadian losses		(513)			(330	)
Interest and penalties		2,124			—
Intangibles deferred tax true-up		—			6,004
Lease deferred tax true-up		1,048			—
Return-to-provision		313			—
Other adjustments		226			305
Less taxes on discontinued operations		—			(412	)
Income Tax expense	$	13,931		$	15,049

The following tables set forth the components of deferred income taxes as of December 31, 2021 and 2020:

	December 31, 2021			December 31, 2020
Deferred tax assets
Net operating losses		$1,375		$	1,403
Lease liabilities		26,023			9,660
Other		504			177
Total deferred tax assets		27,902			11,240
Valuation allowance		(1,375	)		(771	)
Total net deferred tax assets		26,527			10,469
Deferred tax liabilities
Property and equipment		(879	)		(1,299	)
Intangible assets		(5,828	)		(5,859	)
Right-of-use assets		(27,585	)		(9,841	)
Other		(84	)		—
Total net deferred tax liabilities		(34,376	)		(16,999	)
Total adjusted deferred tax liabilities	$	(7,849	)	$	(6,530	)

As of December 31, 2021, the Company has gross state net operating losses of approximately $2,462, which begin to expire in 2029, and gross Canadian net operating losses of approximately $4,564, which begin to expire in 2039. Pursuant to Section 382 of the Internal Revenue Code, utilization of net operating losses and may be subject to annual limitations in the event of a change in ownership of the Company. These annual limitations may result in the expiration of net operating losses prior to utilization.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than note that some portion or all of the deferred tax assets will not be realized. The Company assesses the positive and negative evidence to determine if sufficient future taxable income will be generated at use its existing deferred tax assets. The Company has recorded a valuation allowance related to its state and Canadian net operating loss carryforwards as of December 31, 2021 and 2020 in the amount of $1,375 and $771, respectively.

As of December 31, 2021 and 2020, the Company had no unrecognized tax benefits. The Company does not anticipate any significant unrecognized tax benefits to arise within the next twelve months. The Company recorded penalties and interest related to outstanding income tax liabilities in the amount of $2,124 for the period ending December 31, 2021. As of December 31, 2021, the Company has recorded $2,544 of accrued penalties and interest related to outstanding income tax liabilities – which is included within Taxes Payable on the Company’s balance sheet.

The Company files income tax returns in the US, various state jurisdictions, and Canada, and is subject to examination of its income tax returns by tax authorities in these jurisdictions who may challenge any item on these returns. The corporate statute of limitations for these jurisdictions remains open for the 2019 tax year to the present. Prior to July 31, 2019, the Company was treated as a partnership for income tax purposes and tax income and losses generated from operations were passed through to the Company’s individual members.