v3.26.1
Income Tax Expense
 6 Months Ended
Jun. 30, 2026
Income Tax Disclosure [Abstract]  
Income Tax Expense

11. INCOME TAX EXPENSE

 

 

 

The following table summarizes the Company’s income tax expense and effective tax rates for the three and six months ended June 30, 2026 and 2025:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2026

 

2025

 

 

2026

 

2025

 

 

(in thousands)

 

 

(in thousands)

Income before income taxes

$

15,948

$

22,308

 

$

79,087

$

62,024

Income tax expense

 

12,521

 

21,576

 

 

60,613

 

52,891

Effective tax rate

 

78.5%

 

96.7%

 

 

76.64%

 

85.3%

 

The effective tax rates for the three months ended June 30, 2026 and 2025 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within the periods presented.

 

The IRS has taken the position that cannabis companies are subject to the limitations of the U.S. Internal Revenue Code of 1986, as amended (“IRC”) Section 280E under which cannabis companies are only allowed to deduct expenses directly related to sales of product. This results in permanent differences related to ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. On April 23, 2026, the U.S. Department of Justice (“DOJ”) issued a final order reclassifying state legal medical cannabis to Schedule III under the Controlled Substances Act. This change, which became effective on April 28, 2026, will prospectively reduce a portion of the Company's provision for uncertain tax positions. The U.S. Department of the Treasury has not yet issued guidance on the tax consequences of this reclassification. The Company's income tax provision for the three and six months ended June 30, 2026, reflects its current interpretation of the reclassification's effect on Section 280E, which remains subject to change pending such guidance. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income and provides for effective tax rates that are well in excess of statutory tax rates.