Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

24. INCOME TAXES

On July 31, 2019, the Company converted to a C corporation in the province of British Columbia for US tax purposes due to the reverse takeover of Cannex. Prior to July 31, 2019, the Company was classified as a Limited Liability Company (“LLC”) for US tax purposes. As such, prior to July 31, 2019, losses generated from operations were passed through to individual members.

The Company’s statutory U.S. federal income tax rate is 21% The Company’s provision for income taxes differs from applying the U.S. federal income tax rate to income before taxes primarily due to the effect of IRC Section 280E, state income taxes, certain share-based compensation, interest accretion on debt, and miscellaneous permanent differences.

Internal Revenue Code (“IRC”) Section 280E denies, at the U.S. federal level, deductions and credits attributable to a trade or business trafficking in controlled substances. Because the Company is subject to IRC Section 280E, the Company has computed its U.S. tax based on gross receipts less cost of goods sold. The tax provision for the years ended December 31, 2020 and 2019, have been prepared based on the assumption that cost of goods sold is a valid expense for income tax purposes.

Income tax expense is comprised of:

	December 31, 2020		December 31, 2019
Net current taxes:
U.S. Federal	$	7,587	$	1,221
U.S. State		2,750		388
Deferred taxes:
U.S. Federal		3,749		(171	)
U.S. State		1,375		(61	)
Total	$	15,461	$	1,377

A reconciliation of income taxes at statutory rates is as follows:  

	December 31, 2020			December 31, 2019
Loss before income taxes (continuing and discontinued operations)	$	(31,544	)	$	(180,748	)
Statutory tax rate		21.00	%		21.00	%
Expense based on statutory rates		(6,624	)		(37,957	)
Permanent non-deductible items		14,036			48,200
Non-controlling interests		315			342
State taxes		1,650			(12,023	)
Change in state rate reconciliation		(14	)		(20	)
Change in valuation allowance		119			738
Canadian losses		(330	)		(389	)
Pre-acquisition partnership income		—			3,169
Net changes in deferred tax liabilities		305			(683	)
Intangibles adjustment		6,004			—
Less taxes on discontinued operations		(412	)		(411	)
Income tax expense	$	15,049		$	966

The components of deferred tax assets and liabilities were as follows:

	December 31, 2020			December 31, 2019
Deferred tax assets
Net loss	$	1,403		$	738
Net right-of-use assets and liabilities		9,660			4,588
Interest accretion on convertible debt		—			—
Other		177			363
Total deferred tax assets		—			475
Valuation allowance		(771	)		(873	)
Total net deferred tax assets		10,469			5,291
Deferred tax liabilities
Property and equipment		(1,299	)		(822	)
Intangible assets		(5,859	)		—
Total deferred tax liabilities		(9,841	)		(4,469	)
Total net deferred tax liabilities		(16,999	)		(5,291	)
Total adjusted deferred tax liabilities	$	(6,530	)	$	—

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.

Movement in net deferred tax liabilities:   

	December 31, 2020			December 31, 2019
Balance at the beginning of the year	$	—		$	232
Recognized in profit/loss		(5,124	)		(232	)
Acquired in business combination		(1,406	)		—
Balance at the end of the year	$	(6,530	)	$	—

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

Net operating losses - US Federal	$	3,009
Net operating losses - US States		742
Non-capital losses carried forward – Canada		2,664

The Company’s US net operating losses expire as follows:

2040 – California $ 742

The Company’s Canadian non-capital income tax losses totaling $2,664 expire in 2039.