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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES 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.

The following table sets forth the components of income tax (benefit) expense for the years ended December 31, 2023 and 2022:
December 31, 2023December 31, 2022
Net current taxes:
U.S. Federal$2,645 $12,031 
U.S. State$825 $2,518 
Deferred Taxes:
U.S. Federal$2,606 $(3,521)
U.S. State$1,017 $(1,121)
Total (continuing and discontinued)$7,093 $9,907 
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, 2023 and 2022:

December 31, 2023December 31, 2022
Loss before income taxes (continuing and discontinued operations)$(84,539)$(36,970)
Statutory tax rate21.00 %21.00 %
Expense based on statutory rates(17,753)(7,764)
Permanent non-deductible items16,164 14,419 
State taxes(2,444)280 
Change in state rate79 101 
Change in valuation allowance2,622 4,524 
Change in uncertain tax position8,524 — 
Interest and penalties3,464 2,689 
Acquisition related adjustments— (6,142)
Lease deferred tax true-up(683)688
Return-to-provision(2,221)940
Other adjustments(659)172 
Income tax expense (continued and discontinued)$7,093 $9,907 

The following tables set forth the components of deferred income taxes as of December 31, 2023 and 2022:

December 31, 2023December 31, 2022
Deferred tax assets
Net operating losses$8,521 $5,898 
Lease liabilities10,257 16,595 
Goodwill and intangible assets1,677 1,785 
Other1,917 1,024 
Total deferred tax assets22,372 25,302 
Valuation allowance(8,521)(5,898)
Total net deferred tax assets13,851 19,404 
Deferred tax liabilities
Property and equipment(5,699)(408)
Intangible assets(8,937)(9,338)
Right-of-use assets(11,097)(17,936)
Total net deferred tax liabilities(25,733)(27,682)
Total adjusted deferred tax liabilities (continued and discontinued)$(11,882)$(8,278)

As of December 31, 2023, the Company has gross state net operating losses of approximately $53.7 million, which begin to expire in 2029, and gross federal net operating losses of approximately $19.1 million, $0.9 million of which expire in 2037 and the remainder can be carried forward indefinitely. Pursuant to Section 382 of the Internal Revenue Code, utilization of net operating losses 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 not 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 to use its existing deferred tax assets. The Company has recorded a valuation allowance related to its state and federal net operating loss carryforwards as of December 31, 2023 and 2022 in the amount of $8.5 million and $5.9 million, respectively.
Activity in unrecognized tax benefits which are included as a component of taxes payable in the accompanying consolidated balance sheet were as follows:

December 31, 2023December 31, 2022
Balance, beginning of year$— $— 
Increase related to positions taken in the current year8,524 — 
Balance, end of year$8,524 $— 

If recognized, $8.5 million of the gross unrecognized tax benefit balance at December 31, 2023 would favorably impact the Company's effective income tax rate. The Company does not expect any significant changes to its liability for unrecognized tax benefits during the next 12 months.

The Company recognizes interest and penalties related to income tax matters within income tax expense. The Company recorded penalties and interest related to outstanding income tax liabilities in the amount of $3.5 million and $2.7 million for the period ended December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Company has recorded $8.2 million and $5.0 million, respectively 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.