Regulated Inventory Accounting COGS you can defend.
For licensed operators whose inventory is counted twice: once for the regulator and once in the books. We make the two agree and build cost of goods sold that holds up.
In a regulated business, inventory often lives in two systems. A state track-and-trace system or license-required records follow product by unit, weight, or package, while your books carry dollars. Regulated inventory accounting connects the two. TreeStar sets a costing method grounded in the inventory rules that apply to you, ties regulatory counts to the general ledger each month, documents waste, destruction, and failed tests, and supports the cost of goods sold reported on Form 1125-A. For businesses limited by §280E, cost of goods sold carries extra weight, so every cost placed in inventory needs a clear, documented basis.
Where it gets complicated
- 01 Two counts that disagree
Regulatory systems report units and weight, and the books report cost. Adjustments, destructions, and transfers recorded in one system but not the other leave balances no one can reconcile at year end.
- 02 Costs without a clear home
Deciding which costs belong in inventory is a technical call under the inventory rules, not a preference. Costs placed in inventory without support can be challenged in an exam, and for operators under §280E, costs left out may simply be lost.
- 03 Waste and failed batches
Product that was destroyed, quarantined, or failed testing still had a cost. Without timely entries tied to regulatory records, those losses vanish from the books or appear as an unexplained count difference.
- 04 An unsupported Form 1125-A
The cost of goods sold schedule on the return should trace back to beginning inventory, purchases, production costs, and ending counts. When it is a plug figure, it is one of the first numbers an examiner may test.
How TreeStar helps
We compare regulatory inventory activity to the general ledger every month and resolve differences while the paper trail is still fresh.
→ job_cost_accounting Set a costing methodWe define how costs flow into each batch or lot under the rules that apply to you, and document the reasoning behind each choice.
→ business_tax Support Form 1125-AWe build the cost of goods sold schedule from reconciled records, with a clear trail from the return back to counts and invoices.
→ cleanup_catch_up Rebuild prior-year inventoryIf past years were estimated, we reconstruct inventory and cost records from purchase, production, and regulatory data where it exists.
→What you can expect
Regulatory counts and books in agreement
A documented, consistent costing method
A Form 1125-A that traces to source records
Common questions
Which costs belong in inventory for a regulated business?
It depends on whether you produce or resell, your size, and the inventory rules that apply to you. For cannabis businesses, courts have read those rules narrowly, so we document the basis for each category of cost rather than assuming any one qualifies.
Why do our track-and-trace numbers never match the books?
Usually because the two systems record events differently: the state system tracks packages and weight, while the books record cost and timing. We map each type of event, such as transfers, adjustments, and destructions, to a matching accounting entry.
How often should we count inventory?
A full count at year end that ties to both systems is the foundation, and monthly cycle counts catch problems earlier. We help plan the counts and reconcile the results.
Need a referral?
We work alongside the attorneys, consultants, and other specialists your industry relies on. Tell us what you need and we will make an introduction.
Licensing, entity structure, contracts, and regulatory questions.
→ request_referral Metrc and track-and-trace specialistSetup, cleanup, and training so the system matches the shelf.
→ request_referral Compliance consultantStandard operating procedures, inspections, and state and local readiness.
→ request_referral Insurance brokerCoverage for product, property, crops, and liability in regulated markets.
→ request_referral Banking and payment solutionsInstitutions and processors that serve licensed operators.
→Highly Regulated Industries insights
Track-and-trace, the books, and the tax return can each show a different inventory. Why they drift, what each one feeds, and the monthly fix.
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Section 280E limits deductions, not cost of goods sold. What dispensaries, cultivators, and manufacturers can and cannot include in inventory cost.
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Six what-if scenarios for regulated businesses, from a banned product to a lost processor: what breaks first, the warning signs, and the first moves.
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