Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.2.2
Income Taxes
9 Months Ended
Sep. 30, 2022
Income Taxes  
Income Taxes

16.Income Taxes

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

    

Three Months Ended

Nine Months Ended

September 30, 

    

September 30, 

    

September 30, 

    

September 30, 

2022

2021

2022

2021

Income (loss) before income taxes

$

(9,873)

$

(1,068)

$

(36,791)

$

(16,217)

Income tax benefit (expense)

(5,818)

2,094

2,412

1,220

Effective tax rate

(59%)

196%

7%

8%

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 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.

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.

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.