Note 16 - Income Taxes

The Company is subject to taxation in Canada and the United States. As the Company operates in the cannabis industry within the United States, the Company considers Internal Revenue Code (“IRC”) Section 280E which generally allows a deduction for certain expenses directly related to sales of product. Based on our legal interpretation, we have established a reserve for uncertain tax positions related to the differences that would arise under IRC Section 280E, resulting in a higher effective tax rate than most industries.

As of December 31, 2024, the Company has Canadian non-capital loss carryforwards of $128.4 million available to offset future income which will expire in the years 2025 through 2042. As of December 31, 2024, the Company has federal net operating loss carryforwards of approximately $154.2 million with a portion that will begin to expire in the years 2035 through 2037. Additionally, the Company has net operating loss carryforwards for state purposes aggregating $145.4 million as of December 31, 2024, of which a portion will begin to expire in the years 2028 through 2043.

For the year ended December 31, 2024, the Company has established a full valuation allowance based on management’s assertion that certain deferred tax assets, related to net operating loss carryforwards, are not realizable in the near future due to operating losses incurred as we continue to expand the business and Section 163(j) limitation on interest expense deductibility.

In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (“NOLs”) to offset future taxable income. Similarly, where control of a corporation has been acquired by a person or group of persons, subsection 111(5) of the Income Tax Act (Canada), and equivalent provincial income tax legislation restrict the corporation’s ability to carry forward non-capital losses from preceding taxation years. The Company concluded that the Recapitalization Transaction which closed on June 24, 2022 did not qualify as an acquisition of control for Canadian tax purposes; therefore, the Company’s existing Canadian non-capital losses are unlimited and continue to have a full valuation allowance set against its deferred tax assets. The U.S. NOLs will be subject to a substantial annual limitation arising from the Company’s ownership changes. As a result, a full valuation allowance has been recorded by the Company on these deferred tax assets as well as any Section 163(j) interest limitation deduction carryforwards. The Section 382 limitation is increased by recognized built-in gain (“RBIG”) in the five-year period following the change date to the extent that the value of the loss corporation’s assets exceed the tax basis of these assets. Under the Section 338 approach, assets are treated as generating RBIG even if these assets are not disposed of during the five-year recognition period. The Company is in the process of reviewing the tax basis of their fixed assets so it can compare it to the deemed selling price under Section 382 of the code. The Company is expecting that this calculation may result in a RBIG that would increase the Section 382 limitation available over the next five years.

The Company files income tax returns in Canada, Luxembourg, United States and various state and local tax jurisdictions. The Company’s income tax years open to examination are 2013 through 2020 in Canada, and 2019 through 2022 in the United States. Although the Company is under audit for certain entities within the consolidated group, however, we are not aware of any items that would materially impact the consolidated financial statements. Net operating losses arising prior to these years are also open to examination, if and when utilized.