Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.23.1
Income Taxes
 3 Months Ended
Mar. 31, 2023
Income Taxes  
Income Taxes

15. Income Taxes

The following table summarizes the Company’s income tax expense and effective tax rates:

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Three Months Ended

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March 31, 

    

March 31, 

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2023

​

2022

Loss before income taxes

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$

(3,540)

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$

(12,966)

Income tax (expense) benefit

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​

(1,326)

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​

1,332

Effective tax rate

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37%

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​

10%

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The Company is treated as a U.S. corporation under Section 7874 of the Internal Revenue Code (“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 IRC, 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.

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.

For year ended December 31, 2022, the Company had a U.S. federal capital loss carryforward of approximately $31,971 and a U.S. state and local capital loss carryforward of approximately $18,968, which will expire in 2025 if unused.  As of December 31, 2022, the capital loss carryforwards are not likely to be realized.  During the three months ended March 31, 2023, the Company completed the Pennsylvania Transaction which generated ordinary and capital gains of $8,401 (see Note – 5 Property, Plant and Equipment for further details).  The Company estimates that approximately $6,264 of the gain from the sale will be offset by the net capital loss carryforward.  Therefore, during the three months ended March 31, 2023, the Company recognized a release of the valuation allowance related to the capital loss carryforward and the corresponding benefit of the release.