Choosing and documenting a costing method
Missouri operators generally work with weighted average or specific identification, and both can be supported when applied consistently. What matters far more than the choice is the discipline: one method, applied the same way every period, with the rationale documented.
Method changes made mid-engagement without support look like result-shopping, and that impression is expensive to reverse.
What gets capitalized, and under which rule
Section 471 sets the baseline inventory rules and Section 263A layers additional capitalization requirements on producers. The reseller and producer distinction determines the ceiling on what a Missouri operator can capitalize, so license type is the first question in every inventory analysis.
Section 471(c) offers simplified methods to smaller taxpayers, and it has been the subject of significant debate in this industry. We take a considered position based on the operator's facts and document the reasoning rather than treating it as a free pass.
- Resellers: invoice cost, inbound freight, permitted acquisition cost
- Producers: direct materials, direct labor, allocable indirect production cost
- Never inventoriable: selling, advertising, distribution to customers, corporate administration
Perpetual inventory tied to Metrc
The financial inventory subledger and Missouri's track-and-trace record are two views of the same product. When they disagree, either the books or the compliance record is wrong, and both carry consequences.
We design a perpetual inventory system that reconciles to Metrc on a set cadence, with variance thresholds, an investigation protocol and documented adjustments.
Period-end valuation and write-downs
At period end, inventory is revalued, aged product is reviewed, and write-downs for damage, expiration, failed testing or obsolescence are recorded with support. Missouri wholesale pricing has moved enough in recent years that lower-of-cost-or-market testing is a real exercise, not a formality.
Every adjustment is documented with quantity, reason, approval and the corresponding Metrc event, so the year-end number can be defended item by item.
Frequently asked questions
How does inventory accounting reduce cannabis tax?
It does not reduce tax by itself; it determines how much cost is legitimately recognized as COGS rather than lost as a disallowed deduction. Correct capitalization is the only lawful lever 280E leaves open.
How often should inventory be counted?
Cycle counts weekly on high-velocity items and a full physical count at least quarterly, with monthly reconciliation to the track-and-trace system in between.
What documentation should back up inventory valuation?
A written costing methodology, allocation support, production or receiving records, count sheets, reconciliation workpapers and adjustment approvals covering every material variance.
