Choosing a Costing Method and Sticking to It
Whether an operator uses weighted-average cost, FIFO, or a specific-identification approach for high-value SKUs, the method chosen must be documented in writing and applied consistently period after period. Switching methods opportunistically, or applying different logic to different product lines without a documented reason, is exactly the kind of inconsistency an examiner flags first.
Write the policy down before the first transaction posts, not after the auditor asks for it.
Capitalization Rules Differ by License Type
Under Sections 471 and 263A, a retail dispensary capitalizes a narrow band of cost — the invoice price of product plus freight and direct acquisition charges. A cultivator or manufacturer capitalizes a much wider band — direct materials, direct labor, and an allocable share of indirect production costs like utilities, facility depreciation and quality-assurance labor.
Getting this distinction right, and applying it consistently to every SKU and every license within a vertically integrated group, is the single highest-leverage exercise in New Mexico cannabis tax planning.
- Retail: invoice cost, inbound freight, direct acquisition charges only
- Cultivation/manufacturing: direct materials, direct labor, allocable indirect production cost
- Documented allocation study reviewed whenever production space changes
- Consistent SKU-level treatment across all licenses in an affiliated group
Physical Counts and Cycle Counting
Run a rotating cycle-count schedule that touches every SKU category within a defined period, supplemented by a full physical count at fiscal year end. Reconcile every count against both the general ledger and BioTrack quantities, and document the cause of every material variance rather than simply adjusting the ledger to match the count.
A physical count that isn't reconciled to both systems is only half the exercise.
Valuing Work in Process
Plants in vegetative or flowering stages, and product mid-way through extraction or infusion, carry accumulated cost on the balance sheet rather than hitting the income statement all at once. Roll work-in-process cost forward each period and transfer it to finished goods at the point of completion.
Skipping this step produces the phantom-loss, phantom-profit pattern that makes uncosted cannabis financials useless for lending or management purposes.
Write-Downs, Waste and Obsolescence
Product that ages past a sellable window, fails testing, or is destroyed for compliance reasons needs a documented write-down with a stated reason, not a silent adjustment buried in cost of goods sold. Track write-downs by cause over time — testing failures, aging, damage — because the pattern itself is often the actionable finding.
