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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES
12. INCOME TAXES
The Company accounts for income taxes in accordance with ASC Topic 740 – Income Taxes, under which deferred tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and the respective tax bases.
Verano is incorporated in British Columbia, Canada but maintains all of its operations in the United States. Due to this inverted entity structure, the Company is subject to both U.S. and Canadian taxation.
For the years ended December 31, 2023, 2022 and 2021, income taxes expense consisted of:
For the Years Ended December 31,
202320222021
(As Restated)
Current:
Federal$137,375 $130,987 $104,014 
State22,029 36,624 33,084 
Foreign— — — 
Total Current:159,404 167,611 137,098 
Deferred:
Federal$(14,366)$(47,211)$(25,540)
State108 (14,930)(7,570)
Foreign— — — 
Total Deferred(14,258)(62,141)(33,110)
Total$145,146 $105,470 $103,988 
The difference between the income tax expense for the years ended December 31, 2023, 2022 and 2021 and the expected income taxes based on the statutory rate applied to earnings (loss) arises as follows:
For the Years Ended December 31,
202320222021
(As Restated)
Income/(Loss) before Income Taxes$27,798 $(163,403)$48,990 
Statutory Tax Rate21 %21 %21 %
Expense/(Recovery) based on Statutory Rate5,838 (34,314)9,965 
Other Permanent Differences225 1,068 435 
Goodwill Impairment9,345 17,265 — 
Nondeductible 280E79,731 84,751 59,874 
Penalties and Interest29,581 12,305 5,331 
Non-controlling Interests1,326 1,319 411 
State Taxes15,248 24,389 25,324 
Prior Year True Ups5,646 4,362 3,068 
State Rate Change on Deferred Taxes(1,066)(2,531)— 
Discrete Items— — (420)
Acquisition Purchase Price Remeasurement(728)(3,144)— 
Income Tax Expense$145,146 $105,470 $103,988 
12. INCOME TAXES (Continued)
Cash income taxes paid for the years ended December 31, 2023, 2022, and 2021 were $166,634, $70,666, and $27,962 respectively.
During the year ended December 31, 2023, the Company recorded $29,581 in penalties and interest related to outstanding income tax liabilities, $4,859 relating to the 2023 tax year, $13,743 relating to the 2022 tax year, and $10,979 relating to the 2021 tax year. The Company files income tax returns in the U.S., various U.S. state jurisdictions, and Canada, which have varying statutes of limitations. The U.S. federal statute of limitation remains open for the 2020 tax year to the present. The state income tax returns generally remain open for the 2020 tax year through the present.
Due to its cannabis operations, the Company is subject to the limitations of Section 280E of the Code 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 Section 280E of the Code. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income and the Company's effective tax rates are well in excess of statutory tax rates.
Deferred taxes are provided using an asset and liability method whereby deferred tax assets are recognized based on the rates at which they are expected to reverse in the future. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. The effect on deferred tax assets and liabilities of a change in tax law or tax rates is recognized in income in the period that enactment occurs.
At December 31, 2023 and December 31, 2022, the components of deferred tax assets and (liabilities) were as follows:
As of December 31,
20232022
Deferred Tax Assets
Operating Lease Liabilities$5,423 $659 
Loyalty Points1,668 1,046 
Stock Compensation614 873 
Basis Differences in Goodwill5,577 7,444 
Leasehold Improvements4,704 2,464 
Total Deferred Tax Assets17,986 12,486 
Deferred Tax Liabilities
Operating Right of Use Assets$(5,238)$(662)
Intangibles(194,963)(208,297)
Total Deferred Tax Liabilities(200,201)(208,959)
Net Deferred Tax Liabilities$(182,215)$(196,473)
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the positive and negative evidence to determine if sufficient future taxable income will be generated to use the existing deferred tax assets. As of December 31, 2023 and December 31, 2022, no valuation allowance has been recorded on the Company's deferred tax assets.
12. INCOME TAXES (Continued)
The Company operates in a number of tax jurisdictions and is subject to examination of its income tax returns by tax authorities in those jurisdictions who may challenge any item on these returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain.
As of December 31, 2023, and in connection with the 2022 acquisition of Sierra Well, the Company has accrued for uncertain tax benefits taken on Sierra Well income tax returns prior to the acquisition totaling $2,973. The Company carries indemnification assets for the same amounts as of December 31, 2023, as it expects to recover from the Sierra Well sellers the amounts ultimately paid to the Internal Revenue Service in accordance with the terms of the acquisition agreement.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
202320222021
Balance at Beginning of Year$5,739 $— $— 
Gross increases related to tax positions in a prior period— 5,739 — 
Gross decreases related to tax positions in a prior period2,766 — — 
Gross increases related to tax positions in the current period— — — 
Gross decreases related to tax positions in the current period— — — 
Balance at End of Year$2,973 $5,739 $— 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits and has recorded penalties and interest in the amount of $733 to its indemnification asset as of December 31, 2023. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months.