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INCOME TAXES | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES |
11. INCOME TAXES
The Company accounts for income taxes in accordance with ASC Topic 740 – Income Taxes, under which deferred tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and the respective tax bases. Verano is amalgamated under the laws of British Columbia, Canada but maintains all of its operations in the United States. Due to this inverted entity structure, the Company is subject to both U.S. and Canadian taxation. For the years ended December 31, 2024, 2023 and 2022, income taxes expense consisted of:
| For the Years Ended December 31,
| 2024 |  | 2023 |  | 2022
Current: |  |  |  |  |
Federal | $ | 130,257 |  |  | $ | 137,375 |  |  | $ | 130,987 |
State | 20,201 |  |  | 22,029 |  |  | 36,624 |
Foreign | — |  |  | — |  |  | — |
Total Current: | 150,458 |  |  | 159,404 |  |  | 167,611 |
Deferred: |  |  |  |  |
Federal | $ | (77,171) |  |  | $ | (14,366) |  |  | $ | (47,211) |
State | (31,343) |  |  | 108 |  |  | (14,930) |
Foreign | — |  |  | — |  |  | — |
Total Deferred | (108,514) |  |  | (14,258) |  |  | (62,141) |
Total | $ | 41,944 |  |  | $ | 145,146 |  |  | $ | 105,470 |
The difference between the income tax expense for the years ended December 31, 2024, 2023 and 2022 and the expected income taxes based on the statutory rate applied to earnings (loss) arises as follows:
| For the Years Ended December 31,
| 2024 |  | 2023 |  | 2022
Income/(Loss) before Income Taxes | $ | (299,915) |  |  | $ | 27,798 |  |  | $ | (163,403) |
Statutory Tax Rate | 21 | % |  | 21 | % |  | 21 | %
Expense/(Recovery) based on Statutory Rate | (62,982) |  |  | 5,838 |  |  | (34,314) |
Other Permanent Differences | 265 |  |  | 225 |  |  | 1,068 |
Impairment | 2,677 |  |  | 9,345 |  |  | 17,265 |
Uncertain Tax Position, including penalties and interest | 108,104 |  |  | — |  |  | — |
Nondeductible 280E | — |  |  | 79,731 |  |  | 84,751 |
Penalties and Interest | 9,233 |  |  | 29,581 |  |  | 12,305 |
Non-controlling Interests | 1,997 |  |  | 1,326 |  |  | 1,319 |
State Taxes | (10,871) |  |  | 15,248 |  |  | 24,389 |
Prior Year True Ups | (6,209) |  |  | 5,646 |  |  | 4,362 |
State Rate Change on Deferred Taxes | (270) |  |  | (1,066) |  |  | (2,531) |
Acquisition Purchase Price Remeasurement | — |  |  | (728) |  |  | (3,144) |
Income Tax Expense | $ | 41,944 |  |  | $ | 145,146 |  |  | $ | 105,470 |
11. INCOME TAXES (Continued)
Cash income taxes paid for the years ended December 31, 2024, 2023 and 2022 were $81,535, $166,634, and $70,666, respectively. We classify penalties and interest on income taxes as a component of the provision for income taxes. During the year ended December 31, 2024, the Company recorded $9,233 in penalties and interest related to outstanding income tax liabilities, $902 relating to the 2024 tax year, $6,327 relating to the 2023 tax year, and $2,004 relating to the 2022 tax year. The Company files income tax returns in the U.S., various U.S. state jurisdictions, and Canada, which have varying statutes of limitations. The U.S. federal and state returns remain open for the 2020 tax year to the present. Subject to certain exceptions, as of December 31, 2024, the Company is no longer subject to examination by tax authorities for years before 2020. The Company is currently under audit with the IRS for tax years 2021 and 2022. The IRS has taken the position that cannabis companies are subject to the limits of Section 280E of the Code for U.S. federal income tax purposes, under which, they are only allowed to deduct expenses directly related to costs of goods sold. The Company has taken a position that its deduction of ordinary and necessary business expenses is not limited by Section 280E of the Code. Deferred taxes are provided using an asset and liability method whereby deferred tax assets are recognized based on the rates at which they are expected to reverse in the future. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. The effect on deferred tax assets and liabilities of a change in tax law or tax rates is recognized in income in the period that enactment occurs. At December 31, 2024 and December 31, 2023, the components of deferred tax assets and (liabilities) were as follows:
| As of December 31,
| 2024 |  | 2023
Deferred Tax Assets |  |  |
Operating Lease Liabilities | $ | 6,775 |  |  | $ | 5,423 |
Loyalty Points | 2,143 |  |  | 1,668 |
Stock Compensation | 295 |  |  | 614 |
Basis Differences in Goodwill | 4,068 |  |  | 5,577 |
Basis Differences in Property, Plant and Equipment | 6,860 |  |  | 2,486 |
Business Interest Expense and Net Operating Loss Carryforwards | 3,098 |  |  | — |
Leasehold Improvements | 4,714 |  |  | 4,704 |
Total Deferred Tax Assets | 27,953 |  |  | 20,472 |
Valuation Allowances | (695) |  |  | — |
Net Deferred Tax Assets | $ | 27,258 |  |  | $ | 20,472 |
Deferred Tax Liabilities |  |  |
Operating Right of Use Assets | $ | (6,267) |  |  | $ | (5,238) |
Intangibles | (95,090) |  |  | (197,449) |
Total Deferred Tax Liabilities | (101,357) |  |  | (202,687) |
Net Deferred Tax Liabilities | $ | (74,099) |  |  | $ | (182,215) |
11. INCOME TAXES (Continued)
At December 31, 2024, the Company had $622 of federal net operating loss carryforwards which may be carried forward indefinitely. Additionally, the Company had $2,477 of state net operating loss and business interest expense carryforwards which may be carried forward indefinitely. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company assessed the positive and negative evidence to determine if sufficient future taxable income will be generated to use the existing deferred tax assets. As of December 31, 2024, the Company determined a $695 valuation allowance was applicable to state and federal net operating losses and interest expense limitation carryforwards for entities that do not have a history of taxable income to support recognition. As of December 31, 2023, no valuation allowance has been recorded on the Company's deferred tax assets. The Company operates in a number of tax jurisdictions and is subject to examination of its income tax returns by tax authorities in those jurisdictions who may challenge any item on these returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. During the year ended December 31, 2024, the Company recorded an uncertain tax liability in uncertain tax positions on the Consolidated Balance Sheet for tax positions taken based on legal interpretations that challenge the Company's tax liability under Section 280E of the Code ("280E Position"). As of December 31, 2024, and in connection with the 2022 acquisition of Sierra Well, the Company has accrued for uncertain tax benefits taken on Sierra Well income tax returns prior to the acquisition totaling $1,673. The Company carries indemnification assets for the same amounts as of December 31, 2024, as it expects to recover from the Sierra Well sellers the amounts ultimately paid to the Internal Revenue Service in accordance with the terms of the acquisition agreement. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for uncertain tax positions is as follows:
|  | 2024 |  | 2023
Balance at Beginning of Year |  | $ | 2,973 |  |  | $ | 5,739 |
Increases related to tax positions in a prior period |  | 317,052 |  |  | — |
Decreases due to lapse of statute of limitations |  | (1,300) |  |  | (2,766) |
Increases related to tax positions in the current period |  | 82,269 |  |  | — |
Decreases related to tax positions in the current period |  | — |  |  | — |
Balance at End of Year |  | $ | 400,994 |  |  | $ | 2,973 |
A reconciliation of the beginning and ending amount of uncertain tax liabilities is as follows:
|  | 2024 |  | 2023
Balance at Beginning of Year |  | $ | 2,973 |  |  | $ | 5,739 |
Increases related to tax positions in a prior period |  | 159,692 |  |  | — |
Decreases related to tax positions in a prior period |  | (1,300) |  |  | (2,766) |
Increases related to tax positions in the current period |  | 77,260 |  |  | — |
Interest and penalties recorded in income tax expense(1) |  | 31,954 |  |  | — |
Decreases related to tax positions in the current period |  | — |  |  | — |
Balance at End of Year |  | $ | 270,579 |  |  | $ | 2,973 |
(1)Amount represents the penalties and interest recorded on uncertain tax positions during the respective years which are recorded to the provision for income taxes on the Consolidated Statements of Operations.
11. INCOME TAXES (Continued)
The Company recognizes accrued interest and penalties related to unrecognized tax benefits and has recorded penalties and interest in the amount of $505 to its indemnification asset and $31,449 relating to other unrecognized tax benefits as of December 31, 2024. The Company is in the process of filing amended return claims for tax years 2020, 2021, 2022 and 2023, and the uncertain tax benefits will be adjusted with finalization of the amended returns. The Company does not expect changes in finalization of amended returns to result in material adjustments to the uncertain tax liability at December 31, 2024. The Company is unable to reasonably estimate the range of possible change in unrecognized tax benefits in the next 12 months.

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