Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

17. INCOME TAXES

Details of the provision for income taxes consist of the following:

	Year Ended December 31,
	2023		2022		2021
Federal	$	31,084	$	10,011	$	6,487
State		11,884		9,573		2,852
Valuation allowance		1,575		(96,366)		(6,508)
	$	44,543	$	(76,782)	$	2,831
Current	$	57,962	$	9,161	$	2,831
Deferred		(14,994)		10,423		6,508
Valuation allowance		1,575		(96,366)		(6,508)
Total	$	44,543	$	(76,782)	$	2,831

The reasons for the difference between the statutory federal income tax rate and the Company’s effective income tax rate as of December 31, 2023, 2022 and 2021 are as follows:

	Year Ended December 31,
	2023		2022		2021
Federal income tax rate	21.0	%	21.0	%	21.0	%
Stock-based compensation	(0.4)		(4.9)		(2.3)
State taxes	5.7		(14.1)		6.4
Credits	(2.1)		(4.8)		—
Other	0.9		(0.3)		(0.2)
Valuation allowance	0.6		(70.2)		(17.3)
Total	25.7	%	(73.3)	%	7.6	%

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2023, and 2022, are as follows:

	As of December 31,
	2023				2022
	Assets		Liabilities		Assets		Liabilities
Acquired in-process research and development	$	35,337	$	—	$	45,938	$	—
Net operating loss carryforward		45,917		—		6,370		—
Accrued compensation		19,915		—		11,551		—
Lease obligations, net		-		6		71		—
Fixed assets		173		—		115		—
Inventory		5,344		—		6,781		—
Accrued rebates		3,791		—		7,118		—
Research and development		38,799		—		8,802		—
Other		1,132		790		15		818
Total	$	150,408		796	$	86,761		818
Net deferred tax asset	$	149,612	$	—	$	85,943	$	—
Valuation allowance	$	(5,450)	$	—	$	—	$	—
Total	$	144,162	$	—	$	85,943	$	—

As of December 31, 2023, and December 31, 2022, our deferred tax assets were primarily the result of acquired in-process research and development costs, operating loss carryforwards, capitalized research and development costs, inventory, and accrued rebates. As of December 31, 2023, the Company recorded a valuation allowance on federal net operating losses of Zynerba’s subsidiary, Zynerba Pharmaceuticals Pty Ltd., and the state net operating losses of Zynerba.  The Company previously recorded a valuation allowance against Harmony’s historical deferred tax assets. The Company recorded $96,336 as a benefit to the income tax provision upon release of this valuation allowance during year ended December 31, 2022, in part because in the year ended December 31, 2022, we achieved three years of cumulative pretax income, which was a positive indication of the Company’s ability to generate sufficient future taxable income, the Company determined that there was sufficient positive evidence to conclude that it was more likely than not that additional deferred taxes are realizable and, therefore, released the valuation allowance accordingly. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2023, 2022 and 2021 were as follows:

	Year Ended December 31,
	2023		2022		2021
Valuation allowance at the beginning of the year	$	—	$	(96,366)	$	(102,874)
Decreases recorded as a benefit to income tax provision		—		96,366		6,508
Increases due to Zynerba Acquisition		(3,875)		—		—
Increases recorded to income tax provision		(1,575)		—		—
Valuation allowance at the end of the year	$	(5,450)	$	—	$	(96,366)

As of December 31, 2023, and 2022, the Company has approximately $179,390 and $0, respectively, of federal net operating loss ("NOL") carryforward available to offset future federal taxable income. The Company also has approximately $137,331 and $95,230 of state NOL carryforwards as of December 31, 2023, and 2022, respectively, available to offset

future state taxable income. All of the Company’s tax years remain open to examination by federal and state taxing authorities. The Company’s state NOLs begin to expire in 2037. Utilization of the net operating loss carryforwards may be subject to a substantial limitation due to state provisions. These changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.

As of December 31, 2023, and 2022, the Company has federal tax credits of $0 and $0, respectively.