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INCOME TAXES
 3 Months Ended
Mar. 31, 2026
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Three Months Ended
March 31,
($ in thousands)20262025
Loss before income taxes
$(17,586)$(8,227)
Income tax expense11,907 11,031 
Effective tax rate(67.7)%(134.1)%
Gross profit$44,882 $39,561 
Effective tax rate on gross profit26.5%27.9%
The Internal Revenue Service has taken the position that cannabis companies are subject to the limitations of IRC Section 280E, under which such companies are only allowed to deduct expenses directly related to the sales of product (cost of goods sold). This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and those allowed for financial statement reporting purposes (“book-to-tax” differences). Cannabis companies operating in states that align their tax codes with IRC Section 280E are also unable to deduct ordinary and necessary business expenses for state tax purposes. Ordinary and necessary business expenses deemed non-deductible under IRC Section 280E are treated as permanent book-to-tax differences. Therefore, the effective tax rate on income realized by cannabis companies can be highly variable and may not necessarily correlate with pre-tax income or loss.
The Company’s quarterly tax provision is calculated under the discrete method which treats the interim period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method due to the high degree of uncertainty in estimating annual pre-tax income due to the early growth stage of the business.
As of March 31, 2026 and December 31, 2025, the Company has net deferred tax liabilities of $20,191 and $21,515, respectively, which are reflected net of a valuation allowance of $2,898 and $1,803, respectively. The Company’s valuation allowance is primarily attributable to various states’ net operating loss and credit carryforwards related to limitations on business interest expense carryover amounts. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion, or all, of its deferred tax assets will not be realized and reflects a valuation allowance to the extent that the full benefit may not be realized in the applicable jurisdictions based on estimates of future taxable income.
The Company has recorded an uncertain tax liability for uncertain tax positions primarily related to the treatment of certain transactions and deductions under IRC Section 280E based on legal interpretations that challenge the Company’s tax liability under IRC Section 280E. These uncertain tax positions are included within “Other non-current liabilities” on the unaudited Condensed Consolidated Balance Sheets. The following table shows a reconciliation of the beginning and ending amount of unrecognized tax benefits:
Three Months Ended March 31, 2026
Balance, December 31, 2025
$203,884 
Additions for tax positions related to the current year10,468 
Additions for tax positions related to prior years4,321 
Balance, March 31, 2026
$218,673 
A total of $44,392 of interest and penalties is accrued for the uncertain tax positions as of March 31, 2026, and includes $5,092 related to the current year and $39,300 for prior years, and a total of $39,300 of interest and penalties was accrued as of December 31, 2025, which included $19,132 for the year then ended and $20,168 for prior years.
The Company has been selected for examination of its amended tax returns filed with these unrecognized tax benefits. The total amount of unrecognized tax benefits, and the related impact to the Company’s effective tax rate, may change within the next twelve months for additional uncertain tax positions taken on a go-forward basis, or, if favorably resolved, would decrease the Company’s effective tax rate. The Company anticipates that approximately $15,000 of its unrecognized tax benefits, with regard to specific matters, may be favorably resolved within the near-term.
In July 2025, the U.S. government enacted a reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (the “Act”), with certain provisions of the Act effective in 2025 and other provisions becoming effective in 2026 and beyond. Among the various provisions contained in the Act, modifications to Section 163(j) interest expense limitations are expected to favorably impact the Company’s state tax calculations. We reflected a discrete tax event during the three months ended March 31, 2026 which resulted in a $215 reduction to our uncertain tax position. Additionally, our deferred tax liabilities increased by $283 resulting from state decoupling considerations. The net impact to the effective tax rate was not material. The Company continues to evaluate the impact of the various provisions of the Act, but does not expect the other provisions will have a material impact on its effective tax rate.