Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.26.1
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

Note 16 - Income Taxes

Income tax (benefit) expense for the years ended December 31, 2025 and 2024 consisted of the following:

 

 

 

2025

 

 

2024

 

Current income (benefit) tax expense

 

 

 

 

 

 

Federal

 

$

 

16,355

 

 

$

 

(9,215

)

State

 

 

 

683

 

 

 

 

11,811

 

Total current income tax expense

 

 

 

17,038

 

 

 

 

2,596

 

 

 

 

 

 

 

 

 

 

Deferred income tax recoveries

 

 

 

 

 

 

 

 

Federal

 

 

 

—

 

 

 

 

(16,053

)

State

 

 

 

—

 

 

 

 

(4,221

)

Total deferred income tax benefit

 

 

 

—

 

 

 

 

(20,274

)

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

$

 

17,038

 

 

$

 

(17,678

)

Income tax expense differed from the amount computed by applying the federal statutory tax rate of 21.0% for the years ended December 31, 2025 and 2024 due to the following:

 

 

2025

 

2024

 

 

 

 

 

 

 

 

 

 

 

Pretax loss at federal statutory rate

$

 

(4,865

)

 

21.0%

 

$

 

(5,316

)

 

21.0%

State income taxes, net of federal expense

 

 

(362

)

 

-1.6%

 

 

 

(244

)

 

1.0%

Foreign income taxes

 

 

(428

)

 

-1.8%

 

 

 

(848

)

 

3.3%

Non-deductible items

 

 

328

 

 

1.4%

 

 

 

1,065

 

 

-4.2%

True-up of income taxes payable

 

 

11,232

 

 

48.5%

 

 

 

(6,573

)

 

26.0%

Uncertain tax positions

 

 

4,821

 

 

20.8%

 

 

 

5,363

 

 

-21.2%

Other items

 

 

(5,226

)

 

-22.6%

 

 

 

(20

)

 

0.1%

Change in valuation allowance

 

 

11,538

 

 

49.8%

 

 

 

(11,105

)

 

43.9%

Income tax (benefit) expense

$

 

17,038

 

 

73.6%

 

$

 

(17,678

)

 

69.8%

 

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities as of December 31, 2025 and 2024 are presented below:

 

 

 

2025

 

 

2024

 

Deferred income tax assets:

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

 

39,401

 

 

$

 

52,183

 

Interest expense carryforwards

 

 

 

44,875

 

 

 

 

35,596

 

Stock based compensation

 

 

 

14,173

 

 

 

 

12,486

 

Intangible assets

 

 

 

5,019

 

 

 

 

6,650

 

Property, plant and equipment

 

 

 

3,126

 

 

 

 

6,696

 

Inventories

 

 

 

41

 

 

 

 

166

 

Other items

 

 

 

9,047

 

 

 

 

1,103

 

 

 

 

 

115,682

 

 

 

 

114,880

 

Valuation allowance

 

 

 

(95,973

)

 

 

 

(94,151

)

Deferred income tax assets

 

$

 

19,709

 

 

$

 

20,729

 

 

 

 

 

 

 

 

 

 

Deferred income tax liabilities:

 

 

 

 

 

 

 

 

Intangibles resulting from acquisitions

 

 

 

(19,709

)

 

 

 

(20,729

)

Deferred income tax liabilities

 

 

 

(19,709

)

 

 

 

(20,729

)

 

 

 

 

 

 

 

 

 

Net deferred income tax liabilities

 

$

 

—

 

 

$

 

—

 

As of December 31, 2025, the Company has Canadian non-capital loss carryforwards of $131.1 million available to offset future income which will expire in the years 2026 through 2043. As of December 31, 2025, the Company has federal net operating loss carryforwards of approximately $152.5 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 $142.1 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, 2025, 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.

The Company record uncertain tax position when a tax position does not meet the 50% more-likely-than-not threshold. For the years ended December 31, 2025 and December 31, 2024, there was $106.9 million and $81.4 million, respectively in unrecognized tax benefits that if recognized, would impact our effective tax rate. 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.

 

 

 

2025

 

 

2024

 

Unrecognized tax benefits:

 

 

 

 

 

 

 

Beginning balance

 

$

 

81,371

 

 

$

 

—

 

Additions for tax positions related to current year

 

 

 

17,392

 

 

 

 

81,371

 

Additions for tax positions related to prior years

 

 

 

8,137

 

 

 

 

—

 

Balance as of December 31, 2025

 

$

 

106,900

 

 

$

 

81,371