Inventory costing remains one of the most misunderstood and financially consequential areas in the cannabis industry. For cultivators, the process begins in the soil. Costs start accumulating long before harvest, yet many fail to track expenses like nutrients, labor, and overhead as plants move through the stages of clone, veg, and flower.
A common issue for operators and cultivators is the lack of having a clear methodology for converting cultivation costs into finished goods. In other cases, cultivators may not realize that live plants in various stages of production should be considered raw material inventory before harvested.
Under general accounting guidance, inventory is initially valued at acquisition or production costs. These costs include purchase price, conversion (the cost to convert raw materials into finished products) and production, and other costs incurred to bring inventory to its present location and condition for sale. Production costs are also capitalized if they are related to the production process, such as depreciation of manufacturing equipment, factory utilities, maintenance of production facilities, production supervision quality control, and indirect labor (e.g., factory support staff).
Delaying the recognition of inventory throughout the various stages of the grow cycle until drying or packaging can result in understated inventory balances, incomplete balance sheets, and inaccurate cost of goods sold (COGS). This is a critical pain point. Without accounting for inventory throughout the various production stages, businesses risk missing key tax deductions under Internal Revenue Code Section 280E and risk distorting asset valuations, which can impact financial reporting, investor confidence, and compliance.
These issues are compounded in a high-cash, low-banking environment. Inventory purchases are a significant cost to retailers, and having appropriate data tools to analyze traction and product mix is very important. Cannabis businesses must comply with strict IRS and state-level recordkeeping standards while managing the limitations of Section 280E. Missteps in inventory classification and valuation can reduce operational visibility, create compliance risks, and hinder strategic decision-making.
Those who invest in accurate costing and analytical tools reduce risk, support a stronger tax strategy, and make better-informed business decisions.
Why Is Proper Inventory Costing Crucial in Tax Compliance and Outcomes? Inventory costing is a critical tool for improving tax outcomes and operational efficiency. Under Section 280E, cannabis operators have limited deductions, which makes accurate cost allocation one of the few viable strategies to reduce taxable income. Tracking all allowable costs tied to cultivation, processing, and packaging is essential—and often underused.
To support this effort, operators may categorize work-in-progress (WIP) inventory by plant maturity—clone, vegetative, flowering—with increasing value assigned as the plant progresses. This staged approach not only helps quantify production costs but also provides the documentation needed to support tax filings. Operators who understand their true cost per unit are better equipped to set prices, protect margins, and respond quickly to market shifts. Relying on estimates or outdated assumptions often leads to distorted financials and reduced profitability.
GAAP Compliance and Market Fluctuations: The Need for Monitoring Pricing Trends Another layer of complexity arises due to inventory valuation rules under Generally Accepted Accounting Principles (GAAP), specifically Accounting Standards Codification (ASC) 330, which requires inventory be stated at the lower of cost or net realizable value (LCNRV). This rule becomes especially important in a price-sensitive, rapidly evolving market. When market prices fall below production costs, businesses must write down inventory to reflect that lower net realizable value.
These write-downs help ensure the accuracy of properly stated inventory valuations and proper matching of cost of goods sold on the income statement. However, this rule also carries weight as reversals of previous write-downs are prohibited under GAAP, even if market conditions improve later for inventory held on a relatively longer-term basis. Cannabis operators need to monitor pricing trends and market fluctuations closely. Timely adjustments help support accurate financial reporting and tax deductions.
Plan Ahead for Inventory Valuation During an Exit (and Smarter Recordkeeping) As cannabis operators plan for growth or transition, it is important to consider how future exit strategies will affect inventory valuation. Whether the goal is to sell assets or shares, the structure of the transaction carries significant tax consequences, especially when it comes to how inventory is valued and treated. Early planning may help mitigate risk, align valuation methods with the intended approach, and avoid surprises during due diligence.
Even for cannabis operators not actively pursuing a sale, understanding how inventory is treated in various exit structures can inform smarter recordkeeping and valuation strategies today. The decision between an asset sale and a stock sale shapes how inventory is reported, taxed, and valued—and may affect long-term planning, financing, or restructuring.
Inventory Costing Strengthens Operations and Strategy Accurate inventory costing does more than support compliance. It equips cannabis operators with the insight needed to make well-informed decisions about pricing, production, and resource allocation. A clear understanding of cost per gram, pound, or unit helps avoid underpricing and protect margins—critical factors in an industry with narrow windows for deductibility and ongoing regulatory oversight.
Operators who regularly evaluate their cost structure are better prepared to adjust to shifts in market demand, scale operations responsibly, and plan capital investments with greater precision. Thoughtful inventory management is also essential for building a reliable foundation for financial reporting, internal controls, and external audits.
Rather than viewing inventory costing as a routine task, cannabis businesses benefit from treating it as a strategic discipline. When approached deliberately, it becomes a tool for maintaining tax compliance, improving operational efficiency, and supporting long-term growth.
Janice O’Reilly, CPA, CGMA, is a leader in AAFCPAs’ Cannabis practice and its CannCount data intelligence advisory services, providing financial leadership and strategic guidance to cannabis operators at every stage of growth. She has extensive experience advising operators on strategies to improve cash flow management and profitability—all tailored to the unique complexities of the cannabis industry. Additionally, O’Reilly plays a key role in the firm’s Business Transaction Advisory practice, helping clients navigate buy-side, sell-side, and internal transactions with informed decision-making and execution throughout the deal cycle.
[PRESS RELEASE] – BOULDER, Colo., Aug. 18, 2025 – Canopy USA LLC, a brand-driven organization strategically positioned across the fastest-growing states and highest potential segments of the U.S. cannabis market, announced the appointment of a new executive team responsible for driving the company’s next phase of expansion.
Drawing on extensive industry experience, these leaders will steer Canopy USA forward through a shared vision to elevate the company’s brand portfolio, enhance day-to-day operations and execution, and advance growth initiatives across multiple state markets.
Casey Rash, chief financial officer, will oversee centralized functions including finance, human resources and IT. Rash brings deep expertise in regulated industries and a strategic approach to driving organizational scale and efficiency.
Rebecca Kirk, chief operating officer, will lead the company’s operations, innovation and legal teams. Known for building scalable systems and launching category-leading products, Kirk will play a critical role in driving Canopy USA’s performance across its value chain.
Kelly Flores, chief business development officer, will be responsible for marketing, market expansion and product strategy. With a proven track record in cannabis commercialization, Flores will guide brand development and strategic growth initiatives in both existing and emerging state markets.
“These leadership appointments mark the start of a plan to capture growth in the U.S. cannabis market,” Canopy USA President Brooks Jorgensen said. “Within the best of each Acreage, Jetty and Wana, we’ve been aligning systems, teams and processes across markets to create a scalable, efficient organization. With our leadership team now in place, we’re moving forward with purpose.”
Canopy USA’s platform is built to deliver consistent quality, innovative products and trusted brands to consumers and retail partners nationwide. By combining deep market expertise with a focus on execution, the company aims to set the standard for growth and leadership in the evolving U.S. cannabis industry.
Adult-use cannabis sales in Washington state have been falling for five years, according to Department of Revenue data reported by KHQ.
First-quarter sales in 2025 reached $277 million, which is nearly $100 million less than the market’s peak during the pandemic in 2021. Based on current trends, annual cannabis sales this year could be the state’s lowest since 2019 after five straight years of declining sales in Washington.
Regulators attribute the decline to oversupply issues, which drive prices down and make it more difficult for licensees to turn a profit.
Officials with the state Liquor and Cannabis Board (LCB) recently announced the largest expansion of cannabis dispensaries since the market’s launch over a decade ago, offering up to 52 new retail social equity licenses.
Meanwhile, a report from the state’s legislative auditor found that “Washington businesses produced two to three times more cannabis than retailers sold in 2023,” and that “inaccurate and incomplete data” had hampered regulators’ capacity for “data-driven regulation.”
The auditcalls on the LCB to submit a plan to lawmakers by December 31, 2025, containing strategies to improve data accuracy.
Based in Portland, Oregon, Graham is Ganjapreneur’s Chief Editor. He has been writing about the legalization landscape since 2012 and has been contributing to Ganjapreneur since our official launch in…
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During an interview with Delaware Public Media, Gov. Matt Meyer (D) also discussed a conversation he had with Colorado Gov. Jared Polis (D) about regulating the marijuana industry, drawing a contrast between their respective responsibilities given the fact that Colorado is much larger with more local jurisdictions to interact with compared to Delaware, which has just three counties.
Delaware’s adult-use cannabis market launched at the beginning of this month, but legislation awaiting Meyer’s action would make a key change related to local control of where marijuana businesses could operate. And the governor has indicated he’s still wavering on the proposal.
Asked about the fate of the bill from Sen. Trey Paradee (D), who also championed the state’s legalization legislation, Meyer said: “Stay tuned. You’ll hear soon. We will be taking action very shortly.”
“Listen, I have local government background. I don’t think it’s appropriate that, when state government likes local government regulation, they say, ‘Yeah, we support it,’” the governor said. “And when they don’t like local government regulation, they overrule it.”
“At the same time, it’s important for communities that this moves forward,” he said, referring to the implementation of the adult-use cannabis market.
The response didn’t clearly indicate where Meyer currently stands on the proposal, but he also said it’s “always on the table” that he could allow the bill to take effect without his signature.
“I was talking to Governor Polis of Colorado about marijuana regulation just the other day and he’s just like, ‘Just let the counties do it.’ He has too many counties to know,” Meyer said. “I was asking, ‘What’s the regulation of counties?’ He’s like, ‘I have no idea.’ He’s like, ‘Some do it, some don’t. I don’t really know.’”
The Delaware Public Media host said: “But he’s not going to run into the problem, though, where if there’s enough zoning laws, there’s literally no place to put the facilities. That’s probably not a problem for him.”
The governor agreed, saying “Colorado is much larger” with a “three-mile [zoning] limitation from schools,” which would be less feasible in the smaller state of Delaware. “We’re going to see what we can do,” he said.
On the topic of broader regulatory responsibilities, Meyer said the state is “very lucky” that the Office of the Marijuana Commissioner (OCM) is headed up by someone who comes from outside of Delaware who is “one of the leading thinkers on this issue.”
“He looks at it from a business and community aspect, whereas traditionally Delaware has looked at it as a public safety issue,” the governor said. For his part, Meyer said revenue generated from cannabis taxes is “clearly third” on his list of reasons to support legalization.
The first priority, he said, is ensuring that “communities are sustainable and they’re safe and they’re protected.”
“I think there’s a lot of concern in communities. I have small children. What are we doing? Do we want this thing all around our kids? I don’t know how many of you have been to New York or San Francisco lately, but you go outside and there’s that stench,” he said. “That’s not Delaware. We’re doing everything to make sure that we continue to retain the same communities we have.”
“We also have a historic obligation. Marijuana and marijuana enforcement in this state has not been equitable. There are people in our communities today, almost all Black and brown people, who have been imprisoned for years and years for using and selling marijuana, where people of different colors of skin have not had that same experience. We need to make sure we use whatever revenue we have to address that historic wrong going forward.”
“We’re continuing to watch and monitor to make sure communities are being protected as this economic opportunity grows and make sure people are safe,” Meyer said.
While marijuana revenue might be “third” on his list, the governor recently touted the state’s first “successful” weekend of adult-use cannabis sales, with total purchases for medical and recreational marijuana totaling nearly $1 million—and compliance checks demonstrating that the regulated market is operating as intended under the law.
Delaware’s first adult-use marijuana shops officially opened for business on August 1, with a handful of existing medical cannabis operators able to service consumers 21 and older.
Ahead of the sales roll-out, the governor last month toured one of the state’s cannabis cultivation facilities, praising the quality of marijuana that’s being produced, which he said will be the “French wine of weed.”
Dozens of other would-be retailers that have either already received licenses or are still awaiting issuance will need to wait for further regulatory approvals until they can open their doors—a situation that’s frustrated some advocates.
The idea is to identify any hiccups that lawmakers might need to address when they return for next year’s legislative session.
OCM initially projected that recreational sales would start by March, but complications related to securing an FBI fingerprint background check service code delayed the implementation. Lawmakers passed a bill in April to resolve the issue, and the FBI subsequently issued the code that the stat’s marijuana law requires.
A total of 125 licenses will ultimately be issued, including 30 retailers, 60 cultivators, 30 manufacturers and five testing labs. Last year, regulators also detailed what portion of each category is reserved for social equity applicants, microbusinesses and general open licenses.
The then-governor last year signed several additional marijuana bills into law, including measures that would allow existing medical cannabis businesses in the state to begin recreational sales on an expedited basis, transfer regulatory authority for the medical program and make technical changes to marijuana statutes.
The dual licensing legislation is meant to allow recreational sales to begin months earlier than planned, though critics say the legislation would give an unfair market advantage to larger, more dominant businesses already operating in multiple states.
The policy change removes limitations for patient eligibility based on a specific set of qualifying health conditions. Instead, doctors will be able to issue cannabis recommendations for any condition they see fit.
The law also allows patients over the age of 65 to self-certify for medical cannabis access without the need for a doctor’s recommendation.
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