NOTE 17 – TAX EXPENSE

The provision for income taxes consisted of the following for the years ended December 31, 2023 and 2022:

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

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

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

We have the following activity related to uncertain tax positions:

For the years ended December 31, 2023 and 2022, 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.

As of December 31, 2023, the Company had federal net operating loss carryforwards of $9.0 million, which do not expire, but are limited in utilization against 80% of taxable income. As of December 31, 2023, the Company had state net operating loss carryforwards of $37.2 million, which begin to expire in 2043. 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 completed an analysis of our owner shifts and believe we underwent ownership changes as defined by Section 382 on May 7, 2018 and July 1,2021. Net operating loss carryforwards were reduced to reflect the maximum amount available subject to these limitations.  

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 after 2023 and additionally, management does not expect to have significant operations or potential for future taxable income from UNRV operations and accordingly, future net operating losses are not expected to be utilized.

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, 2023, we have determined that a valuation allowance is required due to our net deferred tax asset position. 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.

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 People's First Choice, LLC. The income tax returns for the years ended December 31, 2021, 2020 and 2019 related to People's First Choice, LLC are under examination.  Additionally, although Silverstreak Solutions, Inc. was dissolved in 2022, the entity is under IRS examination for 2021 tax year.  Both examinations are ongoing, and the outcomes of both examinations are not determinable at this time.

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 unrecognized liabilities in the amount of $1.2 million and $1.8 million, respectively, related to uncertain tax positions for IRC Section 280E as of  December 31, 2023 and 2022. Due to expiration of the statute of limitations, we reversed $0.6 million of unrecognized tax liabilities as of December 31, 2023. The remaining uncertain tax positions are expected to expire during 2024. We settled prior year positions with adjustments to previously filed income tax returns.