Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
Note 15 —Income Taxes
Income tax expense (recoveries) for the years ended December 31, 2021 and 2020 consisted of the following:
 
 
  
2021
 
  
2020
 
Current income tax expense
  
 
 
  
(Revised)
 
Federal
  
$
 21,656    
$
 18,799  
State
      5,216        4,371  
    
 
 
     
 
 
  
Total current income tax expense
      26,872        23,170  
    
 
 
     
 
 
  
Deferred
income
 
tax
 
recoveries
                  
Federal
      (3,919 )      (3,625 )
State
      (704 )      (912 )
    
 
 
     
 
 
  
Total deferred income tax recoveries
      (4,623 )      (4,537 )
    
 
 
     
 
 
  
Tot
al
 income tax expense
 
  
$
22,249
 
  
$
18,633
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total income tax expense differed from the amount computed by applying the federal statutory tax rate of 21.0%
 for the years ended December 31, 2021 and 2020 due to the following:
 
  
2021
 
  
2020
 
 
  
 
 
  
(Revised)
 
Pretax loss at federal statutory rate
  
$
 (11,339 )
  
$
 (61,893 ) 
State income tax expense, net of federal expense
      (1,435 )
      (2,946 )
Non-deductible
items
      16,516        53,554  
True-up of income taxes payable
      1,236        1,939  
Foreign deferred taxes with no benefit recognized
     
502
        (265 )
Other items
      (139 )
      (409 )
Change in valuation allowance
      16,908        28,653  
    
 
 
     
 
 
  
Total income
 ta
x
 expense
  
$
22,249
 
  
$
18,633
 
    
 
 
     
 
 
  
The tax effects of temporary differences that give rise to significant
portions
of the deferred income tax assets and liabilities as of December 31, 2021 and 2020 are presented below:
 
  
2021
 
  
2020
 
Deferred
income
tax assets
                  
Net operating loss carryforwards
  
$
 37,896    
$
 33,788  
Interest expense carryforwards
      29,038        20,413  
Stock based compensation
      9,082        7,377  
Intangible assets
      4,396        4,617  
Property, plant and equipment
      3,652        1,823  
Inventories
      670        88  
Other items
      772        557  
    
 
 
     
 
 
  
    
 
85,506
 
   
 
68,663
 
    
 
 
     
 
 
  
Valuation allowance
      (80,070 )      (63,162 )
    
 
 
     
 
 
  
Deferred
 income
tax assets
   
 
5,436
 
   
 
5,501
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred
income
tax liabilities
                  
Intangibles resulting from acquisitions
      (32,943 )      (37,623 )
    
 
 
     
 
 
  
Deferred
income
tax liabilities
   
 
(32,943
 )   
 
(37,623
 )
    
 
 
     
 
 
  
 
 
 
 
 
 
 
 
 
Net deferred
inc
ome
tax liabilities
  
$
(27,507
)
  
$
(32,122
)
    
 
 
     
 
 
  
The Company is subject to taxation in Canada and the United States. As the Company operates in state-level legal cannabis industry within the United States, the Company is subject to the limits of Internal Revenue Code (“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 and a higher effective tax rate than most industries
As of December 31, 2021, the Company has Canadian
non-capital
loss carryforwards of C$135.2 million $(106.7 million
)
 available to offset future income which will expire in the years 2025 through 2041. As of December 31, 2021, the Company has federal net operating loss carryforwards to approximately $98.9
 
million available to offset future income of which $11.0 million will expire in the years 2035 through 2038 while the remaining $87.9 million are indefinite lived. Of the
 
$98.9 million of federal net operating loss carryforwards, approximately $2.1 million are subject to IRC Section 382 limitations. Additionally, the Company has net operating loss carryforwards for state purposes aggregating $84.2 million as of December 31, 2021, which expire in the year 2035 through 2040, of which $0.4 million are subject to IRC Section 382 limitations. The increase in the valuation allowance was primarily due to management’s conclusion that the deferred tax assets of
non-cultivator
entities are more likely than not to not be realized.
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 for Canadian federal income taxes are from
2018 through 2020,
for United States federal income taxes are from
 
2013 through 2020, and for state and local income taxes vary from 2018 to 2020. There are no open
income tax
 
audits. Net operating losses arising prior to these years are also open to examination if and when utilized.