16.     Income Taxes

The Company is treated as a U.S. corporation under Section 7874 of the IRC and is expected to be subject to U.S. federal, state and local income tax. However, the Company is expected, regardless of any application of Section 7874 of

the U.S. tax code, to be treated as a Canadian resident Company for Canadian income tax purposes. Due to the organizational structure and multinational operations, the Company is subject to taxation in U.S. federal, state and local and Canadian jurisdictions.

For the years ended December 31, 2024 and 2023, income tax expense consisted of:

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As the Company operates in the cannabis industry, it is subject to the limitations of IRC Section 280E. This results in permanent differences for ordinary and necessary business expenses deemed non-allowable under IRC Section 280E for income tax purposes. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss.

On February 15, 2023, the Company completed the Pennsylvania Transaction, which generated ordinary and capital gains of $11,074. See Note 5 — Property, Plant and Equipment and Assets Held for Sale for further details. The Company estimates that approximately $6,814 of the gain from the sale will be offset by the net capital loss carryforward. Therefore, during the year ended December 31, 2023, the Company recognized a release of the valuation allowance related to the capital loss carryforward and the corresponding benefit of the release.

During June 2023, the Company determined its investment in HERBL was not recoverable. As a result, the Company recorded a loss of $6,400 to its HERBL investment, adjusting the balance to zero. This loss was treated as a capital loss, which will more likely than not be realized. See Note 6 — Investments for additional information.

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A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate consists of the following:

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As of December 31, 2024 and 2023, the Company accrued interest and penalties on uncertain tax liabilities of $146 and $0, respectively, on the consolidated balance sheets.

The Company accounts for income taxes in accordance with ASC 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.

Deferred taxes are provided using an asset and liability method whereby deferred tax assets and liabilities are recognized based on the rates enacted for the period they are expected to reverse. Temporary differences are the differences between financial statement carrying values of assets and liabilities and the respective tax bases. 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.

As of December 31, 2024 and 2023, the components of deferred tax assets and liabilities were as follows:

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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 all positive and negative evidence including the four sources of income to determine if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is maintained as of December 31, 2024 and 2023 in the amount of approximately $79,134 and approximately $49,486, respectively. The valuation allowance increased during 2024 by $29,648.

For the year ended December 31, 2024, the Company had a U.S. federal net operating loss carryforward of approximately $60,025, U.S. state and local net operating loss carryforwards of approximately $81,930, and a Canadian net operating loss carryforward of approximately $72,242. For the year ended December 31, 2023, the Company had a U.S. federal net operating loss carryforward of approximately $36,435, U.S. state and local net operating loss carryforwards of approximately $60,074, and a Canadian net operating loss carryforward of approximately $74,312. The U.S. federal net operating loss carryforwards are not subject to expiration. A portion of the U.S. state and local net operating loss carryforwards are subject to expiration from 2027 through 2042. A portion of the U.S. state and local net operating loss carryforwards are not subject to expiration. The Canadian net operating loss carryforwards are subject to expiration between 2038 to 2042.

For the years ended December 31, 2024 and 2023, the Company had a U.S. federal capital loss carryforward of approximately $23,511 and $25,157, respectively. For both of the years ended December 31, 2024 and 2023, the Company had U.S. state and local capital loss carryforward of approximately $18,968, which will expire in 2025 if unused. As of December 31, 2024 and 2023, the capital loss carryforwards are not more likely than not of being realized.

The Company’s U.S. income tax attributes are potentially subject to annual limitations resulting from equity shifts that constitute an ownership change as defined by IRC Section 382. Any potential annual limitations resulting from an equity shift that constitutes an ownership change under IRC Section 382 could result in additional limitation of the realization of U.S. federal, state and local income tax attributes. The Company is not utilizing any net operating loss carryforwards that would be subject to IRC Section 382, and the Company will perform an analysis as necessary.

The Company has recorded uncertain tax liabilities related to the positions taken and expected to be taken on the company’s federal income tax returns for the periods ending December 31, 2024 and 2023. The Company has received legal opinions and analysis related to these positions. For the years ended December 31, 2024 and 2023, the Company reflected UTP tax expense as it relates to potential 280E liability of approximately $1,219 and $0, respectively.

The aggregate changes in the gross unrecognized tax benefits related to uncertain tax positions were as follows (in thousands):

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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This guidance was effective upon issuance as of March 12, 2020 and may be adopted as reference rate reform activities occur through December 31, 2022. The FASB subsequently issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the cessation date of certain LIBOR from December 31, 2022 to June 30, 2023. The adoption of this standard did not have an impact on the Company’s Financial Statements, as none of the Company's notes utilized LIBOR rates.