NOTE 20 – INCOME TAXES

The provision for income taxes consisted of the following for the years ended December 31, 2024 and 2023:

The components of deferred income tax assets and (liabilities) are as follows:

The net deferred tax liability as of December 31, 2024 and 2023 is associated with the Company's continuing operations.

The reconciliation between the Company’s effective tax rate and the statutory tax rate from continuing operations is as follows:

As of December 31, 2024, the Company had federal net operating loss carryforwards of $56.46 million, which do not expire, but are limited in utilization against 80% of taxable income. Of these losses, $44.40 million are related to tax attributes expected to be lost from the bankruptcy filed by the Debtors. As of December 31, 2024, the Company had state net operating loss carryforwards of $65.60 million, which begin to expire in 2046. Of these losses, $59.71 million are related to tax attributes expected to be lost from the bankruptcy filed by the Debtors. These tax attributes are subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under IRC Section 382, which will limit their utilization.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. As of December 31, 2024, based upon the Company’s history of earnings and its assessment of future earnings management believes that it is more likely than not that future taxable income will not be sufficient to realize the deferred tax assets. Therefore, a full valuation allowance has been applied to deferred tax assets. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased.

In January 12, 2024, the Company completed its reorganization merger. Pursuant to such reorganization, Blum Holdings, Inc., a Delaware corporation, became the parent company of the Company and has replaced Unrivaled Brands, Inc. as the publicly held corporation (“Reorganization”), which will trigger another ownership change as defined by Section 382. Management believes the merger will significantly limit the remaining net operating losses available to Unrivaled Brands, Inc. and additionally, management does not expect to have significant operations or potential for future taxable income from Unrivaled operations and accordingly, future net operating losses are not expected to be utilized.

Uncertain Tax Positions

For the years ended December 31, 2024 and 2023, the Company had subsidiaries that produced and sold cannabis or cannabis pure concentrates, subjecting the Company to the limits of Internal Revenue Code (“IRC”) Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product. The State of California does not conform to IRC Section 280E and, accordingly the Company is allowed to deduct all operating expenses on its California income tax returns and, accordingly the Company is allowed to deduct all operating expenses on its California income tax returns. If recognized, the uncertain tax liabilities will impact the effective tax rate.

We have the following activity related to uncertain tax positions:

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years are subject to examination. The Company files a consolidated return with all its subsidiaries except Safe Accessible Solutions, Inc. and Coastal Pine Holdings, Inc., each of which file separate income tax returns.

Under ASC 740-10, "Income Taxes", we periodically review the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. We use a “more likely than not” criterion for recognizing an asset for unrecognized income tax benefits or a liability for uncertain tax positions. We have determined we have uncertain tax liabilities in the amount of $9.89 million and $1.17 million, respectively, related to uncertain tax positions for IRC Section 280E as of December 31, 2024 and 2023. Due to expiration of the statute of limitations, we reversed $0.63 million of unrecognized tax liabilities as of December 31, 2023. Prior year positions were reversed upon the sale of the Company's membership interests in PFC and the bankruptcy petition filed by Unrivaled.

The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations. We do not anticipate any significant changes in our uncertain tax positions within twelve months of this reporting date.